<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1998.
REGISTRATION NO. 333-59137
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TRI-STATE OUTDOOR MEDIA GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
KANSAS 7312 48-1061763
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code)
organization)
</TABLE>
Tri-State Outdoor Media Group, Inc.
3416 Highway 41 South
Tifton, Georgia 31793
800-732-8261
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SHELDON G. HURST
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TRI-STATE OUTDOOR MEDIA GROUP, INC.
3416 Highway 41 South
Tifton, Georgia 31793
800-732-8261
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
WITH COPIES TO:
ST. JOHN & WAYNE, L.L.C.
Two Penn Plaza East
Newark, New Jersey 07105-2249
Attn: David C. Freinberg, Esq.
Tel: 973-491-3600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO CHANGE, COMPLETION OR AMENDMENT
WITHOUT NOTICE. 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.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE THE
PROSPECTUS IS DELIVERED IN FINAL FORM.
SUBJECT TO COMPLETION -- DATED OCTOBER 15, 1998
PRELIMINARY PROSPECTUS
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[TRI-STATE LOGO]
TRI-STATE OUTDOOR MEDIA GROUP, INC.
Offer to Exchange 11% Senior Notes due 2008 for Any and All
Existing Notes (as Defined Below)
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ALTHOUGH THE NOTES ARE ENTITLED SENIOR, (a) THE COMPANY HAS NOT ISSUED, AND DOES
NOT HAVE ANY CURRENT FIRM ARRANGEMENTS TO ISSUE, ANY SIGNIFICANT ADDITIONAL
INDEBTEDNESS TO WHICH THE NOTES WOULD BE SENIOR; AND (b) THE NOTES ALSO WILL BE
EFFECTIVELY SUBORDINATED TO ESSENTIALLY ALL OF THE OUTSTANDING INDEBTEDNESS OF
THE COMPANY, WHICH IS SECURED. THE NOTES WILL ALSO BE EFFECTIVELY SUBORDINATED
TO ANY SECURED INDEBTEDNESS OF THE COMPANY'S GUARANTOR SUBSIDIARIES, IF ANY.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
1998, UNLESS EXTENDED. AS DESCRIBED HEREIN, WITHDRAWAL RIGHTS WITH
RESPECT TO THE EXCHANGE OFFER ARE EXPECTED TO EXPIRE AT THE EXPIRATION OF THE
EXCHANGE OFFER.
Tri-State Outdoor Media Group, Inc., a Kansas corporation (the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus (the "Prospectus") and the accompanying
Letter of Transmittal (the "Letter of Transmittal") to exchange up to
$100,000,000 aggregate principal amount of its 11% Senior Notes due 2008 (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act") pursuant to a Registration Statement of which
this Prospectus is a part, for a like principal amount of its issued and
outstanding 11% Senior Notes due 2008 (the "Existing Notes"). The Exchange Notes
and the Existing Notes, as the case may be, are referred to herein as the
"Notes." The Existing Notes were originally issued and sold by the Company in a
transaction that was exempt from registration under the Securities Act (the
"Initial Offering") and resold to certain qualified institutional buyers in
reliance on, and subject to the restrictions imposed pursuant to, Rule 144A
under the Securities Act ("Rule 144A") and Regulation S under the Securities
Act. The terms of the Exchange Notes are identical in all material respects to
the terms of the Existing Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes will have been registered under
the Securities Act, and thus will not bear restrictive legends restricting their
transfer pursuant to the Securities Act.
Interest on each of the Exchange Notes issued pursuant to the Exchange Offer
will accrue from the last interest payment date on which interest was paid or
duly provided for on the Existing Notes surrendered in exchange therefor or, if
no interest has been paid or duly provided for, from the original date of
issuance of the Existing Notes.
Interest on the Notes is payable semi-annually on May 15 and November 15 of each
year, commencing on November 15, 1998. The Notes will mature on May 15, 2008.
The Notes will be redeemable at the option of the Company, in whole or in part,
at any time, on or after May 15, 2003 at the redemption prices set forth herein,
plus accrued interest. Upon a Change of Control (as defined herein), the Company
will be required, subject to certain conditions, to offer to purchase all
outstanding Notes at 101% of the principal amount thereof, plus accrued interest
to the date of purchase. There can be no assurance that sufficient funds would
be available at the time of any Change of Control to make any required
repurchase of the Notes. In addition, the Company may, at its option, redeem
prior to May 15, 2001 the Notes at 111% of the principal amount thereof, plus
accrued interest, from the net proceeds of one or more Equity Offerings (as
defined herein); provided however that immediately after giving effect to any
such redemption, not less than $75 million aggregate principal amount of the
Notes remains outstanding.
On the date of the issuance of the Existing Notes (the "Closing Date"), the
Company deposited with IBJ Schroder Bank & Trust Company (the "Escrow Agent") a
portfolio of Pledged Securities (of approximately $10.4 million) consisting of
U.S. government securities that, together with the earnings thereon, will be
sufficient to pay when due the first two interest payments on the Notes, with
any balance to be retained by the Company.
The Notes are senior unsecured obligations of the Company ranking pari passu
with all existing and future unsubordinated debt of the Company, and will be
effectively subordinated to all of the Company's secured debt, to the extent of
the assets securing such debt. On September 30, 1998, the Company had $16.0
million outstanding under its $19.25 million Credit Facility (as defined herein)
which is effectively senior to the Notes.
Except for additional borrowings under the Credit Facility, the Company has no
current or pending arrangements or agreements to incur any additional
significant indebtedness to which the Notes would rank pari passu in right of
payment or be effectively subordinated.
The Existing Notes were offered under an Indenture dated as of May 15, 1998 (the
"Indenture"). The Indenture contains certain covenants, including, but not
limited to, covenants and limitations of the following: (i) the incurrence of
additional debt; (ii) restricted payments; (iii) asset dispositions; (iv)
transactions with affiliates; (vi) liens; and (vii) the merger, consolidation or
sale of assets of the Company. In addition, subsidiaries of the Company may, in
the future, be required to guarantee payment of the Notes.
SEE "RISK FACTORS" ON PAGES 12 TO 15 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE> 3
The Exchange Offer is not conditioned upon any minimum number of Existing
Notes tendered. The Exchange Offer will expire at 5:00 p.m., New York City time,
on , 1998, unless extended by the Company (such date as it may be so
extended, the "Expiration Date"). The date of acceptance for exchange of its
Existing Notes (the "Exchange Date") will be promptly following the Expiration
Date, upon surrender of the Existing Notes. Existing Notes tendered pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date;
otherwise such tenders are irrevocable. Exchange Notes to be issued in exchange
for properly tendered Existing Notes will be delivered through the facilities of
The Depository Trust Company by the Exchange Agent (as defined herein) promptly
upon acceptance thereof.
The Existing Notes were originally issued and sold on May 20, 1998 in a
transaction not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act and Rule 144A and
Regulation S under the Securities Act. Accordingly, the Existing Notes may not
be offered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available. Based upon
interpretations provided to third parties by the Staff (the "Staff") of the
Securities and Exchange Commission (the "Commission"), the Company believes that
the Exchange Notes issued pursuant to the Exchange Offer in exchange for the
Existing Notes may be offered for resale, resold or otherwise transferred by
holders thereof (other than any holder which is (i) an "affiliate" of the
Company within the meaning of the Securities Act (an "Affiliate"), (ii) a
broker-dealer who acquired Existing Notes directly from the Company or (iii) a
broker-dealer who acquired Existing Notes as a result of market-making or other
trading activities) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangement or understanding with any person to participate in a distribution
of such Exchange Notes, and that such holders are not engaged in and do not
intend to engage in a distribution of the Exchange Notes. Since the Commission
has not considered the Exchange Offer in the context of a no action letter,
there can be no assurance that the Staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
Each holder of Existing Notes that desires to participate in the Exchange Offer
will be required to make certain representations discussed in "The Exchange
Offer -- Terms and Conditions of the Letter of Transmittal." Any holder that
cannot rely upon such interpretations must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Existing Notes where
such Existing Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 120 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
The Exchange Notes may be represented by one or more Global Notes (as
defined) registered in the name of a nominee of The Depository Trust Company, as
Depositary. Beneficial interest in the Global Notes will be shown on, and
transfers will be effected only through, records maintained by the Depositary
and its participants. See "Book Entry, Delivery, and Form."
The Exchange Notes constitute a new issue of securities with no established
public trading market. The Company does not intend to list the Exchange Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. Moreover, to the extent that Existing Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered, and tendered but unaccepted, Existing Notes could be adversely
affected. See "Risk Factors -- Absence of Public Market for the Exchange Notes;
Restrictions on Transfer."
i
<PAGE> 4
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses it incurs for the Exchange Offer. No
dealer-manager is being utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE, NOR WILL THE COMPANY ACCEPT SURRENDER
FOR EXCHANGE FROM HOLDERS OF EXISTING NOTES, IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR "BLUE SKY" LAWS OF SUCH JURISDICTION.
Scotchlite(R) is a trademark of Minnesota Mining and Manufacturing Company
("3M").
ii
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and historical and pro forma
financial statements and notes thereto included in this Prospectus. Unless
otherwise indicated, as used herein, the term "Company" refers to Tri-State
Outdoor Media Group, Inc.
THE COMPANY
The Company is a leading highway directional outdoor advertising company,
operating over 9,420 advertising displays, including 7,627 bulletins and 1,793
posters, in 21 states in the eastern and central United States at June 30, 1998.
Essentially all of the Company's billboards are located along interstate
highways and primary and secondary roads outside of urban areas. For the year
ended December 31, 1997, over 95% of the Company's net revenues was generated by
local businesses, including local franchisees of national chains, with no one
customer accounting for as much as 2% of the Company's net revenues. The Company
offers a full line of outdoor advertising services to its customers, including
creative design, production, installation and maintenance of the displays.
According to recent estimates by the Outdoor Advertising Association of
America ("OAAA"), total outdoor advertising expenditures during 1997 were $2.1
billion, an 8.8% increase over such expenditures in 1996. The Company operates
primarily in the non-urban highway directional segment of the outdoor
advertising industry. Highway directional billboards are utilized by local
advertisers to alert motorists to an advertiser's place of business and provide
directions to that business. Many of the Company's principal customers, which
include motels and hotels, restaurants and gasoline retailers, depend on
strategically located billboards as the only effective and cost efficient means
to reach their target customers. As a result, these advertisers will usually
purchase a billboard display under long-term contracts and leave the original
advertising copy in place for the duration of the contract. On March 31, 1998,
over 85% of the Company's bulletin advertising contracts had an original term of
at least 18 months and 48% had an original term of at least 36 months. The
Company believes that its large number of long-term contracts has generated more
stable and predictable revenues, has reduced production, installation and
maintenance costs over the term of the contracts and has permitted it to more
efficiently leverage its sales personnel.
Since formation in 1986, the Company has pursued an aggressive acquisition
strategy, completing over 20 acquisitions of outdoor advertising businesses.
During this period, the Company completed both "new market" and "fill-in"
acquisitions. New market acquisitions are acquisitions outside of the Company's
then existing markets, while fill-in acquisitions are generally acquisitions in
or adjacent to the Company's existing markets that involve the purchase of
advertising displays only, resulting in the elimination of all personnel and
related costs. During the past 18 months, the Company completed three
significant acquisitions which are reflected in the Unaudited Pro Forma
Financial Statements included herein:
Western Acquisition. On September 18, 1998, the Company acquired
substantially all of the outdoor advertising assets of Western Outdoor
Advertising Co. ("Western") for a total acquisition cost of $26.8 million.
In this fill-in acquisition the Company acquired 2,439 display faces in 19
states concentrated in Iowa, Texas, Nebraska, Missouri, Oklahoma and
Kansas. The Company had existing operations in 11 of the 19 states served
by Western.
Unisign Acquisition. On March 2, 1998, the Company acquired
substantially all of the outdoor advertising assets of Unisign Corporation,
Inc. ("Unisign") and assumed certain capitalized leases for a total
acquisition cost of $22.0 million. As a result of this acquisition, the
Company acquired 1,421 display faces in Kentucky, West Virginia and Ohio.
Tri-State Systems Acquisition. On June 12, 1997, the Company acquired
substantially all of the assets of Tri-State Systems, Inc. ("TSS") for a
total acquisition cost of $32.0 million. In this acquisition, the Company
acquired 1,838 display faces in Georgia, Alabama, Florida, Kentucky,
Mississippi, South Carolina and Tennessee.
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The Company has been and will continue to be highly leveraged. The
following table sets forth the Company's net revenues, EBITDA and income (loss)
before extraordinary item on both a historical and pro forma basis for the past
18 months. The pro forma information gives effect to the Western, Unisign and
TSS acquisitions, the Initial Offering and the other transactions described in
the Unaudited Pro Forma Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------------- -----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenue.................................... $11,831 $22,579 $ 9,413 $12,257
EBITDA......................................... $ 5,597 $11,344 $ 4,768 $ 6,471
Income (loss) before extraordinary item........ $(2,021) $(8,380) $(2,018) $(3,633)
</TABLE>
BUSINESS STRATEGY
The Company's business strategy is to be a leading provider of highway
directional outdoor advertising to local advertisers in non-urban markets. The
Company entered this segment of the outdoor advertising business because it
believes that rural businesses have been underserved by the major outdoor
advertising companies. In order to implement this business strategy, the Company
focuses on the following key elements:
- Increase the Penetration of its Local Markets with 36-Month Advertising
Contracts. In order to better serve its local customers, the Company
customizes the size and pricing of its billboards to fit the budgets of
the local businesses that require these services. In addition, the
Company can produce a long-lasting sign that is strategically located
relative to the advertiser's place of business. For these reasons, the
Company believes that its local highway directional advertisers have been
willing to enter into long-term contracts and leave a display in place
for an extended period. As of June 30, 1998, 51% of the Company's
bulletin advertising contracts had an original term of at least 36
months. The billboards acquired by the Company in the TSS and Unisign
acquisitions were predominantly subject to contracts with an original
term of 18 months and 24 months, respectively. Excluding these
billboards, over 77% of the Company's bulletin advertising contracts had
an original term of at least 36 months. Accordingly, the Company believes
that the number of contracts with a 36-month original term will increase
as the Company seeks 36-month contracts for expiring TSS and Unisign
contracts. The Company believes that its large number of long-term
contracts has generated more stable and predictable revenues, has reduced
production, installation and maintenance costs over the term of the
contracts and has permitted it to more efficiently leverage its sales
personnel. As a result of these cost efficiencies and in order to
encourage advertisers to enter into long-term contracts, the Company
prices its longer term contracts with lower monthly rates than it prices
its shorter term contracts.
- Pursue Growth through Acquisitions. The Company intends to continue its
aggressive growth strategy of acquiring and developing highway
directional outdoor advertising businesses by continuing to seek both new
market and fill-in acquisitions, where the billboards are used, or can be
resold, as highway directional signs under long-term contracts. The
Company believes that the non-urban highway directional market remains
highly fragmented producing numerous acquisition opportunities that fit
its criteria. In addition, the Company is typically a major provider of
outdoor advertising services in the areas in which it operates, which, it
believes, allows it to more easily acquire and successfully integrate
fill-in acquisitions.
- Capitalize on New Build Opportunities. In addition to growth through
acquisitions, the Company seeks opportunities for growth through the
development of newly built outdoor advertising structures. The Company
actively monitors changes in local zoning restrictions and the
availability of new land lease sites in each of its existing markets so
as to develop new build opportunities. The Company erected 78 structures
and 146 display faces in 1997 and anticipates erecting approximately 70
structures with up to 250 display faces in 1998 of which 62 structures
and 186 faces were completed by June 30, 1998. A substantial portion of
these new structures and display faces results from the Unisign
acquisition, in which the Company acquired 94 leases in Kentucky,
predominantly located along
2
<PAGE> 7
primary highways, and on which, subject only to the receipt of routine
government permits, it plans to construct 94 new structures with up to
376 display faces of which 21 structures and 78 display faces were
completed as of June 30, 1998. In addition, the billboard structures
acquired by the Company in the Unisign acquisition have the capacity for
up to an additional 300 display faces of which 40 were installed by June
30, 1998. The Company believes that the economics of building new
advertising structures compare favorably with the economics of purchasing
structures through fill-in acquisitions.
- Control Costs and Quality through Centralization of Production and
Vertical Integration. The Company seeks to control production costs and
maintain consistent, high quality production standards by centralizing
essentially all of its production services related to billboards leased
under 36-month contracts and vertically integrating its production
operations, thereby reducing its use of outside contractors. In addition,
because of its large number of rural signs under long-term contracts, the
Company has been able to use Scotchlite, a highly reflective vinyl
manufactured by 3M, which causes the advertising copy to be brightly
illuminated by the headlights of passing vehicles. While somewhat more
expensive to construct, a Scotchlite billboard does not need any electric
lighting on the advertising structure and thus significantly reduces the
Company's operating expenses. Approximately 25% of the Company's
bulletins in service at June 30, 1998 used Scotchlite on the advertising
copy. The main facility in Baxter Springs, Kansas produces substantially
all of the Company's Scotchlite and non-reflective self-adhesive vinyl
advertising copy for installation throughout its markets. Each of the
Company's five divisions hires painters to produce hand painted bulletins
and employs other personnel to install and maintain bulletins and
posters. At Baxter Springs, the Company also employs staff artists to
design advertising copy for use in all of its divisions. The Company's
new billboard structures have generally been constructed by outside
contractors, although the Company has recently increased its capability
to build these structures with Company personnel.
The principal executive offices of the Company are located at 3416 Highway
41 South, Tifton, Georgia and its telephone number is (800) 732-8261.
RECENT FINANCINGS
On May 20, 1998, the Company sold $100,000,000 of its 11% Senior Notes due
2008 in a Rule 144A private placement. The Company used a total of $67.4 million
of the net proceeds to repay all borrowings under its existing senior secured
bank credit facility and a bridge note facility. The Company had originally
incurred these borrowings in large part to finance the TSS and Unisign
acquisitions. Both of these facilities were terminated upon repayment. The
Company also used $10.4 million of the net proceeds to purchase a portfolio of
U.S. government securities that were pledged as security for the first two
scheduled interest payments on the Senior Notes.
On September 18, 1998, the Company entered into a new $19.25 million senior
secured bank credit facility (the "Credit Facility"). The Credit Facility is
secured by substantially all of the Company's assets and is effectively senior
to the Notes. The Company used $16.0 million of the funds available under the
Credit Facility and the remaining proceeds from the Initial Offering to finance
the Western acquisition.
The Company consummated the TSS acquisition on June 12, 1997. In order to
finance this acquisition, the Company entered into a $45.0 million amended and
restated credit facility (the "Original Credit Facility") with The First
National Bank of Chicago ("First Chicago"), as agent for a syndicate of lenders.
On February 27, 1998, the Company amended and restated the Original Credit
Facility in order to increase the credit thereunder to $62.5 million (the
"Senior Credit Facility"). In addition, at that time, SGH Holdings, Inc.
("Holdings"), the parent corporation of the Company, sold $10.0 million of
bridge notes (the "Bridge Notes") to affiliates of the Initial Purchasers in the
Initial Offering, Prudential Securities Incorporated and First Chicago Capital
Markets, Inc. Holdings loaned the proceeds of this sale to the Company. The
proceeds of the Bridge Notes, together with a portion of borrowings under the
Senior Credit Facility, were used to fund the Unisign acquisition. The Company
used a portion of the net proceeds from the Initial Offering to repay all
outstanding borrowings under the Senior Credit Facility, which was thereupon
terminated, and repaid in full the loan from Holdings, which, in turn, has
repaid the Bridge Notes. See "Use of Proceeds".
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<PAGE> 8
RECENT DEVELOPMENTS
On September 18, 1998, the Company acquired substantially all of the
outdoor advertising assets of Western with 2,439 display faces in 19 states
concentrated in Iowa, Texas, Nebraska, Missouri, Oklahoma and Kansas. The
Company would classify this acquisition as a fill-in-acquisition. The Company
had existing operations in 11 of the 19 states served by Western. The total
acquisition cost was $26.8 million.
On July 14, 1998, the Company purchased the outdoor advertising assets of
John R. Leslie, Sr., trading as Leslie Outdoor Advertising, including
approximately 244 advertising displays located in Georgia. The Company would
classify this acquisition as a fill-in acquisition in the Southeast division.
The total acquisition cost was $3.1 million.
4
<PAGE> 9
THE EXCHANGE OFFER
On May 20, 1998, the Company sold the Existing Notes to Prudential
Securities Incorporated ("PSI") and First Chicago Capital Markets ("FCCM" and,
together with PSI, the "Initial Purchasers") which then resold the Existing
Notes to qualified institutional buyers.
The Exchange Offer......... The Company is offering to exchange up to
$100,000,000 aggregate principal amount of 11%
Senior Notes due 2008 (the "Exchange Notes") for up
to $100,000,000 aggregate principal amount of its
outstanding 11% Senior Notes due 2008 that were
issued and sold on May 20, 1998 in reliance upon an
exemption from registration under the Securities
Act (the "Existing Notes"). The terms of the
Exchange Notes will be substantially identical in
all respects (including principal amount, interest
rate, maturity and ranking) to the terms of the
Existing Notes for which they may be exchanged
pursuant to the Exchange Offer, except that the
Exchange Notes have been registered under the
Securities Act and therefore are not subject to
certain restrictions on transfer except as provided
herein (see "The Exchange Offer -- Terms of the
Exchange" and "-- Terms and Conditions of the
Letter of Transmittal") and will not be entitled to
registration rights except under certain limited
circumstances.
Resale of Exchange Notes... Based upon interpretations provided to third
parties by the Staff of the Commission, the Company
believes that Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Existing Notes
may be offered for resale, resold and otherwise
transferred by holders thereof (other than any
holder which is (i) an Affiliate, (ii) a
broker-dealer who acquired Existing Notes directly
from the Company or (iii) a broker-dealer who
acquired Existing Notes as a result of
market-making or other trading activities) without
compliance with the registration and prospectus
delivery provisions of the Securities Act except as
provided herein and provided that such Exchange
Notes are acquired in the ordinary course of such
holders' business and such holders have no
arrangement with any person to participate in a
distribution of such Exchange Notes.
By tendering Existing Notes in exchange for
Exchange Notes, each holder certifies (a) that it
is not an Affiliate, that it is not a broker-dealer
that owns Existing Notes acquired directly from the
Company or an Affiliate of the Company, that it is
acquiring the Exchange Notes offered hereby in the
ordinary course of such Transferor's business and
that such Transferor has no arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes and that it is
not engaged in and does not intend to engage in a
distribution of the Exchange Notes or (b) that it
is an Affiliate of the Company or of any of the
Initial Purchasers and that it will comply with the
registration and prospectus delivery requirements
of the Securities Act to the extent applicable to
it.
Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus,
5
<PAGE> 10
as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange
for Existing Notes where such Existing Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading
activities. The Company has agreed that, for a
period of 120 days after the Expiration Date (as
defined herein), it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale. Any holder that
cannot rely upon such interpretations must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with a secondary resale transaction. See "Plan of
Distribution."
Minimum Condition.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Existing
Notes being tendered for exchange.
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, or such
later date and time to which it is extended by the
Company (the "Expiration Date").
Exchange Date.............. The first date of acceptance for exchange for the
Existing Notes will be the first business day
following the Expiration Date.
Conditions to the Exchange
Offer...................... The obligation of the Company to consummate the
Exchange Offer is not subject to any conditions
other than that the Exchange Offer, or the making
of any exchange by a holder, does not violate
applicable law or any applicable interpretation of
the Staff of the Commission. The Company reserves
the right to terminate or amend the Exchange Offer
at any time prior to the Expiration Date upon the
occurrence of any such condition.
Procedures for Tendering
Existing Notes........... Each holder of Existing Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, with
any required signature guarantees, or an Agent's
Message (as defined herein) in accordance with the
instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal, or
such facsimile, together with any other required
documentation to the Exchange Agent (as defined
herein) at the address set forth herein and effect
a tender of Existing Notes pursuant to the
procedures for book-entry transfer as provided for
herein. Certain other procedures may apply with
respect to certain book-entry transfers. See "The
Exchange Offer -- How to Tender."
Guaranteed Delivery
Procedures................. Holders of Existing Notes who wish to tender their
Existing Notes and who cannot deliver their
Existing Notes and a properly completed Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent prior
to the Expiration Date may tender their Existing
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer -- How
to Tender -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to the
Expiration Date. Any Existing Notes not accepted
for any reason will be returned without expense to
the tendering holders thereof as promptly as
practicable after
6
<PAGE> 11
the expiration or termination of the Exchange
Offer. See "The Exchange Offer -- Withdrawal
Rights."
Federal Income Tax
Consequences............. The exchange of Existing Notes for Exchange Notes
by holders will not constitute an exchange for
federal income tax purposes, and U.S. holders will
not realize any gain or loss upon receipt of
Exchange Notes. See "The Exchange Offer -- Federal
Income Tax Consequences."
Effect on Holders of
Existing Notes........... As a result of the making of this Exchange Offer,
and upon acceptance for exchange of all validly
tendered Existing Notes pursuant to the terms of
this Exchange Offer, the Company will have
fulfilled covenants contained in the terms of the
Existing Notes and the Registration Rights
Agreement (the "Registration Rights Agreement")
dated as of May 13, 1998 between the Company and
the Initial Purchasers and, accordingly, the
holders of the Existing Notes will have no further
registration or other rights under the Registration
Rights Agreement, except under certain limited
circumstances. See "Existing Notes Registration
Rights." Holders of the Existing Notes who do not
tender their Existing Notes in the Exchange Offer
will continue to hold such Existing Notes and will
be entitled to all the rights and limitations
applicable thereto under the indenture covering the
Notes (the "Indenture"). All untendered, and
tendered but unaccepted, Existing Notes will
continue to be subject to the restrictions on
transfer provided for in the Existing Notes and the
Indenture. To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the
trading market, if any, for the Existing Notes
could be adversely affected. See "Risk
Factors -- Consequences of Exchange and Failure to
Exchange."
Fees and Expenses.......... Expenses incident to the Company's completion of
the Exchange Offer and compliance with the
Registration Rights Agreement will be borne by the
Company. See "The Exchange Offer -- Solicitation of
Tenders; Expenses."
Use of Proceeds............ The Company will not receive any proceeds from the
Exchange Offer. The Company used a portion of the
proceeds from the Initial Offering to repay in full
the Senior Credit Facility and the intercompany
loan, at which time Holdings repaid the Bridge
Notes. See "Use of Proceeds."
7
<PAGE> 12
TERMS OF THE NOTES
The Exchange Offer relates to the exchange of $100,000,000 aggregate
principal amount of Exchange Notes for an equal aggregate principal amount of
Existing Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Existing Notes except that the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. The Exchange Notes will evidence the same debt
as the Existing Notes and will be entitled to the benefits of the Indenture. See
"Description of the Notes."
Issuer..................... Tri-State Outdoor Media Group, Inc.
Securities Offered......... $100,000,000 aggregate principal amount of 11%
Senior Notes due 2008 under an Indenture to be
dated as of May 15, 1998 (the "Indenture"). See
"Description of the Notes".
Maturity Date.............. May 15, 2008.
Interest Payment Dates..... May 15 and November 15 of each year commencing
November 15, 1998.
Mandatory Redemption....... None
Optional Redemption........ The Notes will be redeemable at the Company's
option, in whole or in part, at any time on or
after May 15, 2003 at the redemption prices set
forth herein, plus accrued interest to the date of
redemption. In addition, the Company may, at its
option, redeem prior to May 15, 2001 Notes at 111%
of the principal amount thereof, plus accrued
interest to the date of redemption, from the net
proceeds of one or more Equity Offerings; provided
that at least 75% of the aggregate principal amount
of the Notes issued remains outstanding after each
such redemption. See "Description of
Notes -- Optional Redemption".
Pledged Securities......... On the date of the issuance of the Existing Notes
(the "Closing Date"), the Company deposited with
IBJ Schroder Bank & Trust Company (the "Escrow
Agent") a portfolio of Pledged Securities
consisting of U.S. government securities that,
together with the earnings thereon, will be
sufficient to pay when due the first two interest
payments on the Notes, with any balance to be
retained by the Company. See "Description of the
Notes".
Ranking.................... Except as described above under "Pledged
Securities", the Notes are senior unsecured
obligations of the Company ranking pari passu with
all existing and future unsubordinated debt of the
Company, and will be effectively subordinated to
all of the Company's secured debt, to the extent of
the assets securing such debt. Although the Notes
are entitled Senior, the Company has not issued
(with the exception of the indebtedness evidenced
by the Credit Facility), and does not have any
current firm arrangements to issue, any significant
additional indebtedness to which the Notes would be
effectively subordinated. As of September 30, 1998,
$16.0 million was outstanding under the Credit
Facility which is effectively senior to the Notes.
The Notes will also be effectively subordinated to
any secured indebtedness of the Company's guarantor
subsidiaries.
Change of Control.......... Upon a Change of Control, the Company will be
required to offer to purchase all outstanding Notes
at 101% of the principal amount thereof, plus
accrued interest to the date of purchase. See
"Description of the Notes".
8
<PAGE> 13
At September 30, 1998 there was $16.0 million of
debt outstanding under the Credit Facility, which
must be repaid before the Company could purchase
the Notes. Due to the highly leveraged capital
structure of the Company, there can be no assurance
that the Company will have sufficient funds to
repay borrowings under the Credit Facility and
purchase any Notes upon a Change of Control.
Certain Covenants.......... The Indenture contains certain covenants,
including, but not limited to, covenants and
limitations of the following: (i) the incurrence of
additional debt; (ii) restricted payments; (iii)
asset dispositions; (iv) transactions with
affiliates; (v) dividend and other payment
restrictions affecting subsidiaries; (vi) liens;
and (vii) the merger, consolidation or sale of
assets of the Company. In addition, subsidiaries of
the Company may, in the future, be required to
guarantee payment of the Notes. See "Description of
the Notes".
Risk Factors............... Prospective purchasers of the Notes should
carefully consider all of the information contained
in this Prospectus, including the information set
forth under the caption "Risk Factors", on pages 13
to 17 including risks associated with the Company's
substantial leverage and history of net losses;
obstacles that may prevent or impede the Company's
growth strategy; risk that the Company may not be
able to effectively manage its growth and integrate
acquisitions; risks associated with governmental
regulation of the outdoor advertising industry; and
risks associated with general economic conditions,
before making an investment in the Notes.
9
<PAGE> 14
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA SIX MONTHS ENDED SIX MONTHS
YEARS ENDED DECEMBER 31, YEAR ENDED JUNE 30, ENDED
---------------------------------------------- DECEMBER 31, ------------------- JUNE 30,
1993 1994 1995 1996 1997 1997(1) 1997 1998 1998(1)
------ ------ ------- ------- -------- ------------ -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............. $2,828 $4,096 $ 7,892 $ 8,021 $ 11,831 $ 22,579 $ 4,415 $ 9,413 $ 12,257
------ ------ ------- ------- -------- -------- -------- -------- --------
Operating expenses:
Direct operating
expenses........... 590 1,021 2,315 2,427 3,817 7,032 1,319 3,179 4,046
General and
administrative..... 717 1,230 1,934 2,345 2,417 4,203 996 1,466 1,740
Depreciation and
amortization....... 1,161 1,429 2,713 2,648 4,699 11,975 1,224 4,027 5,999
------ ------ ------- ------- -------- -------- -------- -------- --------
Total operating
expenses........... 2,468 3,680 6,962 7,420 10,933 23,210 3,539 8,672 11,785
------ ------ ------- ------- -------- -------- -------- -------- --------
Operating income
(loss)................. 360 416 930 601 898 (631) 876 741 472
Gain (loss) on sale of
assets................. -- -- 1,334 443 (143) -- -- -- --
Interest expense......... (476) (880) (2,094) (1,941) (4,200) (13,235) (1,132) (4,198) (6,618)
Other income (expense)... 1 (164) (153) 2 -- (100) (51) 92 92
------ ------ ------- ------- -------- -------- -------- -------- --------
Income (loss) before
income tax benefit..... (115) (628) 17 (895) (3,445) (13,966) (307) (3,365) (6,054)
Income tax benefit....... -- -- 8 324 1,424 5,586 129 1,347 2,421
------ ------ ------- ------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary item..... $ (115) $ (628) $ 25 $ (571) $ (2,021) $ (8,380) $ (178) $ (2,018) $ (3,633)(2)
====== ====== ======= ======= ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(3)................ $1,521 $1,845 $ 3,643 $ 3,249 $ 5,597 $ 11,344 $ 2,100 $ 4,768 $ 6,471
EBITDA margin(3)......... 53.8% 45.0% 46.2% 40.5% 47.3% 50.2% 47.6% 50.7% 52.8%
Cash flows from operating
activities............. 1,063 (170) 1,245 1,476 1,810 192 (151)
Cash flows from investing
activities............. (712) (616) (2,343) 1,165 (37,305) (32,471) (43,845)
Cash flows from financing
activities............. (362) (508) 1,132 (2,582) 35,494 32,178 53,202
Capital expenditures..... 672 1,301 1,083 1,655 2,334 1,123 2,303
Ratio of earnings to
fixed charges(4)....... -- -- 1.0x -- -- -- -- -- --
Pro forma ratios:
EBITDA to cash
interest expense... .9x 1.0x
Net debt to
EBITDA(5).......... 8.8x 7.7x
Number of displays(6)
Bulletins............ 2,506 3,570 3,815 3,975 6,106 7,627 10,066
Posters.............. 50 1,778 1,623 1,461 1,432 1,793 1,793
------ ------ ------- ------- -------- -------- --------
Total displays... 2,556 5,348 5,438 5,436 7,538 9,420 11,859
====== ====== ======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------
ACTUAL PRO FORMA(1)
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(7)............................ $ 19,822 $ 17,389
Working capital......................................... 30,491 14,551
Total assets............................................ 110,340 127,242
Total debt (including current maturities)............... 100,817 116,817
Stockholder's equity.................................... 7,149 7,149
</TABLE>
(footnotes on following page)
10
<PAGE> 15
(1) The unaudited pro forma statement of operations and other data give effect
to the Initial Offering and the application of the net proceeds thereof, the
conversion of $15.8 million of the subordinated intercompany promissory
notes payable to Holdings into equity and the TSS, Unisign and Western
acquisitions as if they had occurred on January 1, 1997. The unaudited pro
forma balance sheet data give effect to the Western acquisition as if it had
occurred on June 30, 1998. See "Unaudited Pro Forma Financial Statements".
(2) The pro forma financial information for the six months ended June 30, 1998
does not give effect to an extraordinary loss from the early extinguishment
of debt (net of income tax benefit of $2.1 million) the Company recorded in
May 1998.
(3) "EBITDA" is defined as operating income (loss) before depreciation and
amortization. EBITDA represents a measure that management believes is
customarily used to evaluate the financial performance of companies in the
media industry. However, EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered
an alternative to operating income (loss) as an indicator of the Company's
operating performance or to net cash provided by (used in) operating
activities as a measure of its liquidity. EBITDA margin is EBITDA stated as
a percentage of net revenues.
(4) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes plus fixed charges. Fixed charges
consist of interest expense (including amortization of deferred debt
issuance costs) and the portion of rental expense that is deemed
representative of the interest factor. Earnings were insufficient to cover
fixed charges by $11,000 in 1993, $628,000 in 1994, $895,000 in 1996, $3.4
million in 1997, $14.0 million in 1997 on a pro forma basis, $307,000 in the
six months ended June 30, 1997, $3.4 million in the six months ended June
30, 1998 and $6.1 million in the six months ended June 30, 1998 on a pro
forma basis.
(5) The pro forma ratio of net debt to EBITDA is calculated with net debt
representing total debt minus cash and cash equivalents of $17.4 million and
$17.4 million as of December 31, 1997 and June 30, 1998, respectively, both
of which include $10.5 million of cash pledged as security for the first two
interest payments on the Notes. The pro forma ratio of net debt to EBITDA
for the six months ended June 30, 1998 is calculated utilizing the pro forma
EBITDA for six months ended June 30, 1998 multiplied by two.
(6) All display faces, including unoccupied display faces, are classified based
on the last sale to an advertiser as either a bulletin or poster. For 1995,
the table does not reflect display faces located in and around Watertown,
New York that were acquired in November 1995 and disposed of in January
1996.
(7) Includes $10.5 million of securities as of June 30, 1998 pledged as security
for the first two interest payments on the Notes.
11
<PAGE> 16
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.
HIGHLY LEVERAGED CAPITAL STRUCTURE. The Company has been and will continue
to be highly leveraged. As of June 30, 1998, after giving pro forma effect to
the Western acquisition as described in the Notes to the Unaudited Pro Forma
Financial Statements, the Company's debt would have been $116.8 million, its
stockholder's equity would have been $7.2 million and its ratio of debt to
stockholder's equity would have been 16 to 1.0. See "Capitalization". In
addition, for the year ended December 31, 1997 and the six months ended June 30,
1998, the Company's pro forma earnings would have been insufficient to cover its
pro forma fixed charges by $14.0 million and $6.1 million, respectively. See
"Unaudited Pro Forma Financial Statements".
The Indenture permits the Company to incur additional debt, subject to
certain limitations. The degree to which the Company is leveraged 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 debt and will not be
available for other purposes; (ii) the ability of the Company to obtain
additional 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 leverage
may increase its vulnerability to economic downturns and limit its ability to
withstand competitive pressures and capitalize on significant business
opportunities.
The ability of the Company to meet its debt service obligations will depend
on the future operating performance and financial results of the Company, which
will be subject in part to factors beyond the control of the Company. There can
be no assurance that the Company will generate earnings in the future sufficient
to cover its fixed charges. If the Company is unable to generate earnings in the
future sufficient to cover its fixed charges and is unable to borrow sufficient
funds from other sources, it may be required to refinance all or a portion of
its existing debt (including the Notes) or to sell all or a portion of its
assets. There can be no assurance that a refinancing would be possible, nor can
there be any assurance as to the timing of any asset sales or the proceeds that
the Company could realize therefrom. In addition, the terms of the Indenture
restrict the Company's ability to sell assets and the use of the proceeds
therefrom. See "Management's Discussion and Analysis".
HISTORY OF NET LOSSES. The Company reported net losses for the years ended
December 31, 1996 and 1997 of $571,000 and $2.0 million, respectively, and $4.1
million for the six months ended June 30, 1998. For each of the past five years
the Company reported a stockholder's deficiency. The net losses primarily
reflect high levels of depreciation and amortization charges relating to the
depreciation of assets obtained in acquisitions, as well as high levels of
interest expense relating to debt incurred to finance these acquisitions.
Interest expense and depreciation and amortization charges will continue at high
levels throughout 1998 and future years as a result of previously completed
acquisitions. The Company expects to continue incurring substantial losses for
at least the next two years, and there can be no assurance if or when the
Company will have net income. In May 1998, the Company incurred an extraordinary
loss to reflect the write-off of existing loan and financing costs and other
related costs (net of income tax benefit of approximately $2.1 million) upon
completion of the Initial Offering. See "Note (m) to the Unaudited Pro Forma
Financial Statements".
OBSTACLES TO GROWTH. The Company's growth has been facilitated by
strategic acquisitions that have substantially increased the Company's inventory
of advertising display faces. One facet of the Company's operating strategy is
to make acquisitions in new and existing markets. 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
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. The Company had approximately $17.3 million of net
proceeds from the Initial Offering for general corporate purposes, capital
expenditures and potential future acquisitions. If additional funds are needed,
there can be no
12
<PAGE> 17
assurance that the Company will have sufficient capital resources to complete
acquisitions or that acquisitions can be completed on terms acceptable to the
Company if at all.
MANAGEMENT OF GROWTH. The Company is undergoing substantial growth. This
growth places significant demands on the Company's management and its technical,
financial and other resources. To manage its growth effectively, the Company
must maintain a high level of operational quality and efficiency, continue to
enhance its operational, financial and management systems and expand, train and
manage its management and staff. There can be no assurance that the Company will
be able to manage its growth effectively or attract suitable management and
other personnel and maintain its operational systems, and any failure to do so
could have a material adverse effect on the Company.
POTENTIAL ELIMINATION OR REDUCTION OF TOBACCO ADVERTISING. In August 1996,
the U.S. Food and Drug Administration (the "FDA") issued final regulations that,
among other things, sought to regulate cigarettes and other tobacco products.
These regulations also sought to prohibit tobacco product billboard
advertisements within 1,000 feet of schools and playgrounds and require that
tobacco product advertisements on billboards be printed in black and white color
and contain only text. In 1997 a federal district court in North Carolina upheld
the right of the FDA to regulate cigarettes and tobacco products, but ruled that
the FDA did not have the authority to control tobacco advertising. In August
1998 a three-judge panel of the 4th U.S. Circuit Court of Appeals overturned the
federal district court decision which would have permitted the FDA to regulate
cigarettes and tobacco products. The appeals panel ruled that the FDA needed
explicit authority from the U.S. Congress to regulate tobacco products. It is
anticipated that this decision will be appealed to the full appellate court, and
thereafter may eventually be reviewed by the U.S. Supreme Court.
In June 1997, a majority of the major United States tobacco companies and
certain state attorneys general agreed to a proposed settlement of litigation.
The proposed settlement included a ban on all outdoor advertising of tobacco
products commencing nine months after finalization of the settlement. The
settlement was subject to numerous conditions, including the enactment of
legislation by the U.S. Congress. As a result of the failure of the U.S.
Congress to enact legislation, this proposed settlement was not completed.
Currently, a group of eight states is involved in settlement discussions with
four of the major tobacco companies. In addition, the states of Mississippi,
Florida, Texas and Minnesota have entered into separate settlements of
litigation with the tobacco industry. None of these completed settlements is
conditioned on federal government approval and each reportedly eliminates all
outdoor advertising of tobacco products.
According to the Outdoor Advertising Association of America, Inc. ("OAAA"),
tobacco product advertising accounted for approximately 7.3% of all outdoor
billboard advertising revenues for the year ended December 31, 1997. A reduction
in billboard advertising by the tobacco industry due to a proposed settlement or
federal legislation could cause an immediate reduction in industry 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 outdoor advertising
industry or limit the ability of industry participants to increase rates for
some period of time. Thus, even though less than 3% of the Company's annual net
revenues is typically derived from tobacco advertising, if outdoor advertising
of tobacco products were reduced or eliminated and the industry were unable to
replace the lost revenues, the change could have a material adverse effect on
the Company by forcing advertising rates down or inhibiting rate increases. See
"Management's Discussion and Analysis" 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
restrict 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 jurisdictions 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
13
<PAGE> 18
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. Currently, none of
the Company's existing inventory is subject to any amortization ordinance.
However, no assurance can be given as to the effect on the Company of additional
laws and regulations that may be adopted in the future. See "-- Potential
Elimination or Reduction of Tobacco Advertising" above and
"Business -- Government Regulation".
NATURAL DISASTERS. A significant portion of the Company's structures are
located in the southeast and central regions of the United States. These areas
are susceptible to flooding, tornadoes and/or 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. The Company has not incurred any material losses in
the past due to weather-related incidents, but 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.
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 in which the Company operates 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, highway logo sign operators, and companies
that install commercial signs on an advertiser's own property, 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 advertising displays in shopping centers and
malls, airports, stadiums, movie theaters and supermarkets and on buses. 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 the
outdoor advertising medium 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".
RELIANCE ON KEY EXECUTIVES. The Company's success depends to a significant
extent upon the continued services of its executive officers and other key
personnel. The loss of the services of any one or more of such key personnel
could have an adverse effect on the Company and there can be no assurance that
the Company would be able to find suitable replacements for such key personnel.
See "Management".
COMPLIANCE WITH ENVIRONMENTAL LAWS. 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.
CONTROL OF THE COMPANY BY STOCKHOLDERS. The Company is a wholly-owned
subsidiary of Holdings. The capital stock of Holdings is privately held. The
officers and directors of the Company and Mesirow Capital Partners VI ("Mesirow
VI") and Mesirow Capital Partners VII ("Mesirow VII") (Mesirow VI and Mesirow
VII collectively, "Mesirow"), or entities affiliated with such persons, hold all
of the issued and outstanding capital stock of Holdings. All of Holdings'
stockholders are party to a Second Amended and Restated Stockholders Agreement
(the "Holdings Stockholders Agreement") pursuant 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 and Mesirow. As a result, such
stockholders can effectively control the affairs and policies of Holdings and
its subsidiary, the Company. There can be no assurance that the interests of
Holdings' controlling stockholders and those of the holders of the Notes will
not conflict. There may be circumstances in which actions taken by the Company
in the interests of its stockholders will diverge from the interests of holders
of the Notes. See "Description of Notes -- Limitation on Transactions with
Affiliates".
14
<PAGE> 19
COMPANY'S OBLIGATION TO REPURCHASE OF NOTES. 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
thereof, plus accrued interest to the date of redemption. The Change of Control
repurchase feature may make more difficult a sale or takeover of the Company.
There can be no assurance that sufficient funds would be available at the time
of any Change of Control to make any required repurchase of the Notes.
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.
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES; RESTRICTIONS ON RESALE. The
Exchange Notes are a new issue of securities for which there is currently no
trading market. Although the Initial Purchasers have informed the Company that
they currently intend to make a market in the Exchange Notes, they are not
obligated to do so and any such market-making may be discontinued at any time
without notice. In addition, such market-making activity may be limited during
the pendency of the Exchange Offer or the effectiveness of a shelf registration
statement in lieu thereof. Accordingly, there can be no assurance as to the
liquidity of any market that may develop for the Exchange Notes. The Existing
Notes are eligible for trading by qualified buyers in the Private Offerings,
Resales and Trading through Automated Linkages (PORTAL) market. The Company does
not currently intend to apply for listing of the Notes or, if issued, the
Exchange Notes, on any securities exchange or for quotation of the Notes through
the National Association of Securities Dealers Automated Quotation System
("Nasdaq").
To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for the remaining untendered or tendered but not
accepted Existing Notes could be adversely affected. Because the Company
anticipates that most holders of the Existing Notes will elect to exchange such
Existing Notes for Exchange Notes due to the absence of restrictions on the
resale of Exchange Notes under the Securities Act, the Company anticipates that
the liquidity of the market for any Existing Notes remaining after the
consummation of the Exchange Offer may be substantially limited.
The liquidity of, and trading market for, the Existing Notes or the
Exchange Notes also may be adversely affected by general declines in the market
or by declines in the market for similar securities. Such declines may adversely
affect such liquidity and trading markets independent of the financial
performance of, and prospects for, the Company.
------------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management, as well as
assumptions made by and information currently available to management. These
forward-looking statements are principally contained in the sections "Prospectus
Summary", "Risk Factors", "Management's Discussion and Analysis" and "Business"
and include, without limitation, management's expectations and estimates as to
the Company's business operations, including future financial performance,
financing plans, trends affecting the Company's financial condition or results
of operations, impact of competition, acquisition opportunities and expansion of
the Company's operations. In addition, in those and other portions of this
Prospectus, the words "believes", "may", "will", "estimates", "continue",
"anticipates", "intends", "expects" and words of similar import, as they relate
to the Company or its management, are intended to identify forward-looking
statements. Such statements reflect the current views of the Company and its
management with respect to future events and are subject to certain risks,
uncertainties and assumptions, including, among others, the following: general
economic and business conditions, both nationally and in the Company's markets;
competition; changes in business strategy; the significant leverage of the
Company; existing governmental regulations and changes in the governmental
regulations affecting the outdoor advertising of tobacco or of products
generally; losses from natural disasters and other risk factors set forth under
"Risk Factors" in this Prospectus. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward-looking statements.
15
<PAGE> 20
USE OF PROCEEDS
There will be no cash proceeds payable to the Company for the issuance of
the Exchange Notes pursuant to the Exchange Offer. The net proceeds to the
Company from the sale of the Existing Notes (the "Initial Offering") were
approximately $95.3 million after deducting discounts and fees and expenses
incurred in connection therewith. The Company used such net proceeds as follows:
(i) To repay in full all outstanding borrowings and accrued interest
under the Senior Credit Facility, which totaled $57.4 million on the
Closing Date. The Senior Credit Facility has been terminated.
(ii) To repay the $10.0 million loan, plus accrued interest thereon of
$232,000, from Holdings to permit Holdings to repay a like amount of Bridge
Notes.
(iii) To purchase approximately $10.4 million of Pledged Securities,
consisting of U.S. government securities, which were pledged to the Escrow
Agent as security for the first two interest payments on the Notes.
The remaining net proceeds (approximately $17.3 million) were used for
general corporate purposes, including capital expenditures and acquisitions.
Pending the application of the net proceeds as described above, the Company
invested the proceeds in short-term investment grade securities.
Borrowings under the Senior Credit Facility and the predecessor Original
Credit Facility were used to help finance the TSS and Unisign acquisitions and
for general corporate purposes. These borrowings bore interest at the weighted
average rate of 8.8% per annum on March 31, 1998. The Bridge Notes were used to
help finance the Unisign acquisition, bore interest at the rate of 10.4% per
annum on March 31, 1998 and mature on February 27, 1999.
16
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998 on an actual basis and as adjusted to give pro forma effect to the
Western acquisition, as if such transaction occurred on June 30, 1998. See "Use
of Proceeds". The following table should be read in conjunction with the
Unaudited Pro Forma Financial Statements and related notes thereto and the
Company's financial statements and accompanying notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents(1)................................ $ 19,822 $ 17,389
======== ========
Long-term debt:(2)
Credit Facility(3)........................................ $ -- $ 16,000
Senior Notes.............................................. 100,000 100,000
Other debt................................................ 817 817
-------- --------
Total long-term debt.............................. 100,817 116,817
-------- --------
Stockholder's equity:
Common stock, par value -- $10 per share; authorized
10,000 shares; 200 shares issued and outstanding....... 2 2
Paid-in capital........................................... 16,165 16,165
Accumulated deficit....................................... (9,018) (9,018)
-------- --------
Total stockholder's equity........................ 7,149 7,149
-------- --------
Total capitalization.............................. $107,966 $123,966
======== ========
</TABLE>
- ---------------
(1) Includes $10.5 million of securities pledged as security for the first two
interest payments on the Notes.
(2) See Notes 5 and 11 to the Company's audited financial statements included
elsewhere herein for a description of the terms of the Company's long-term
debt.
(3) In connection with the acquisition of Western, the Company entered into a
certain Credit Agreement with The First National Bank of Chicago,
individually and as Agent (the "Credit Facility"), which Credit Facility and
attachments thereto evidence: (i) a single-draw term loan in the aggregate
amount of $14,000,000 ("Facility A"); (ii) a letter of credit facility and a
multi-draw term loan facility in the aggregate amount of $1,250,000
("Facility B"); and (iii) a revolving credit facility in the aggregate
amount of $4,000,000 ("Facility C") (Facility A, Facility B and Facility C
are collectively, the "Facilities"). The aggregate commitments of the
Facilities are $19,250,000. Approximately $5.0 million represents the
current portion of the Credit Facility.
17
<PAGE> 22
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements have been prepared
by the Company's management from its historical financial statements which are
contained elsewhere in this Prospectus. The Unaudited Pro Forma Statements of
Operations present the Company's results of operations adjusted to give effect
to the Initial Offering, the conversion of $15.8 million of subordinated
intercompany promissory notes payable to Holdings into equity, and the TSS,
Unisign and Western acquisitions (accounted for as purchases) as if they had
occurred on January 1, 1997. The Unaudited Pro Forma Balance Sheet presents the
Company's financial position adjusted to give effect to the Western acquisition
as if it had occurred on June 30, 1998. The pro forma adjustments described in
the accompanying notes are based upon estimates and certain assumptions that
management of the Company believes are reasonable in such circumstances.
The unaudited pro forma financial statements are not necessarily indicative
of what the financial position or results of operations actually would have been
if the Initial Offering, the debt-to-equity conversion and the TSS, Unisign and
Western acquisitions had occurred on the applicable dates indicated. Moreover,
they are not intended to be indicative of future results of operations or
financial position. The unaudited pro forma financial statements should be read
in conjunction with the historical financial statements of the Company, TSS,
Unisign and Western and the related notes thereto which are included elsewhere
in this Prospectus.
The unaudited pro forma financial statements do not reflect the financial
impact of various acquisitions completed during 1998 and 1997 as these
acquisitions were not individually or in the aggregate significant to the
financial position or results of operations of the Company for the periods
presented. See "Business -- General".
18
<PAGE> 23
TRI-STATE OUTDOOR MEDIA GROUP, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
WESTERN OUTDOOR FOR THE
HISTORICAL HISTORICAL(a) ACQUISITION PRO FORMA
---------- --------------- ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash........................................ $ 9,338 $ 361 $ (361)(b) $ 6,905
(2,433)(e)
Restricted cash............................. 10,484 -- 10,484
Investments................................. 7,965 -- (7,965)(e) --
Accounts receivable, net.................... 2,146 123 71(b) 2,340
Other current assets........................ 2,932 766 (600)(b) 3,098
-------- ------ -------- --------
Total current assets................ 32,865 1,250 (11,288) 22,827
Property and Equipment, net................... 44,140 1,598 10,042(c) 55,780
14,733(d)
Intangible Assets, net........................ 27,643 -- 550(d) 42,926
Prepaid commissions, long-term portion........ 312 243 (226)(b) 329
Deferred taxes................................ 5,273 -- -- 5,273
Other Assets.................................. 107 -- -- 107
-------- ------ -------- --------
Total assets........................ $110,340 $3,091 $ 13,811 $127,242
======== ====== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current portion of long-term debt........... $ -- $ -- $ 5,000(f) $ 5,000
550(f)
Other current liabilities................... 2,374 224 128(b) 3,276
-------- ------ -------- --------
Total current liabilities........... 2,374 224 5,678 8,276
Long-Term Debt................................ 100,817 -- 11,000(f) 111,817
-------- ------ -------- --------
Total liabilities................... 103,191 224 16,678 120,093
-------- ------ -------- --------
Stockholder's Equity
Common stock................................ 2 -- -- 2
Divisional equity........................... -- 2,867 (2,867)(g) --
Paid-in capital............................. 16,165 -- -- 16,165
Accumulated deficit......................... (9,018) -- -- (9,018)
-------- ------ -------- --------
7,149 2,867 (2,867) 7,149
-------- ------ -------- --------
Total liabilities and stockholder's
equity............................ $110,340 $3,091 $ 13,811 $127,242
======== ====== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
19
<PAGE> 24
TRI-STATE OUTDOOR MEDIA GROUP, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS
ACQUIRED FOR FOR THE
HISTORICAL COMPANIES(h) ACQUISITIONS SUBTOTAL INITIAL OFFERING PRO FORMA
---------- ------------ ------------ -------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............. $ 9,413 $2,844 $ -- $12,257 $ -- $12,257
------- ------ ------- ------- ------- -------
Operating expenses:
Direct operating
expenses............ 3,179 867 -- 4,046 -- 4,046
General and
administrative...... 1,466 274 -- 1,740 -- 1,740
Depreciation and
amortization........ 4,027 576 1,396(i) 5,999 -- 5,999
------- ------ ------- ------- ------- -------
8,672 1,717 1,396 11,785 -- 11,785
------- ------ ------- ------- ------- -------
Operating income.... 741 1,127 (1,396) 472 -- 472
Interest expense......... (4,198) (16) (908)(j) (5,122) (1,496)(k) (6,618)
Other income (expense)... 92 -- -- 92 -- 92
------- ------ ------- ------- ------- -------
Income (loss) before
income tax benefit and
extraordinary item..... (3,365) 1,111 (2,304) (4,558) (1,496) (6,054)
Income tax benefit....... 1,347 -- 476(l) 1,823 598(l) 2,421
------- ------ ------- ------- ------- -------
Income (loss) before
extraordinary
item................ $(2,018)(m) $1,111 $(1,828) $(2,735) $ (898) $(3,633)(m)
======= ====== ======= ======= ======= =======
OTHER DATA:
Ratio of earnings to
fixed charges(n)....... -- --
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
20
<PAGE> 25
TRI-STATE OUTDOOR MEDIA GROUP, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS
ACQUIRED FOR THE FOR THE
HISTORICAL COMPANIES(o) ACQUISITIONS SUBTOTAL INITIAL OFFERING PRO FORMA
---------- ------------ ------------ -------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................... $ 11,831 $10,748 $ -- $22,579 $ -- $ 22,579
-------- ------- ------- ------- ------- --------
Operating expenses:
Direct operating expenses.... 3,817 3,215 -- 7,032 -- 7,032
General and administrative... 2,417 1,786 -- 4,203 -- 4,203
Depreciation and
amortization.............. 4,699 1,921 5,355(i) 11,975 -- 11,975
-------- ------- ------- ------- ------- --------
10,933 6,922 5,355 23,210 -- 23,210
-------- ------- ------- ------- ------- --------
Operating income (loss)... 898 3,826 (5,355) (631) -- (631)
Interest expense............... (4,200) (767) (1,815)(j) (6,782) (6,453)(k) (13,235)
Other income (expense)......... (143) 43 -- (100) -- (100)
-------- ------- ------- ------- ------- --------
Income (loss) before income tax
benefit and extraordinary
item......................... (3,445) 3,102 (7,170) (7,513) (6,453) (13,966)
Income tax benefit............. 1,424 -- 1,581 3,005 2,581(l) 5,586
-------- ------- ------- ------- ------- --------
Income (loss) before
extraordinary item........ $ (2,021) $ 3,102 $(5,589) $(4,508) $(3,872) $ (8,380)(m)
======== ======= ======= ======= ======= ========
OTHER DATA:
Ratio of earnings to fixed
charges(n)................... -- --
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
21
<PAGE> 26
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(a) Represents the historical balance sheet of Western as of July 31, 1998.
(b) Reflects adjustments to the balance sheet of Western at July 31, 1998
for assets which were not acquired by the Company and for changes in balances
from July 31, 1998 to the acquisition date.
(c) Reflects the adjustment of the carrying value of the property and
equipment acquired by the Company from Western (as reflected in the historical
financial statements of Western at July 31, 1998) to the estimated fair value of
such assets as recorded in purchase accounting.
(d) Reflects the adjustment of the intangible assets acquired by the
Company from Western (as reflected in the historical financial statements of
Western at July 31, 1998) as follows (in thousands):
<TABLE>
<S> <C>
Goodwill.................................................... $12,194
Value of purchased contracts................................ 2,529
Noncompete agreements....................................... 10
-------
$14,733
=======
</TABLE>
Additionally, adjustment reflects capitalization of financing costs of
$550,000 incurred in connection with the financing of the Western acquisition.
(e) Reflects the utilization of existing cash and investments in connection
with the Western acquisition.
(f) Reflects the increased borrowing to finance the Western acquisition and
$550,000 of related accrued financing costs.
(g) Reflects the elimination of the divisional equity of Western at July
31, 1998.
(h) Reflects the revenues and expenses of Unisign for the period from
January 1, 1998 to March 2, 1998, the date of acquisition and of Western for the
six months ended July 31, 1998 as follows:
<TABLE>
<CAPTION>
UNISIGN WESTERN TOTAL
------- ------- ------
<S> <C> <C> <C>
Net revenues..................................... $596 $2,248 $2,844
---- ------ ------
Expenses
Direct operating expenses...................... 167 700 867
General and administrative..................... 87 187 274
Depreciation and amortization.................. 71 505 576
---- ------ ------
Operating income................................. 325 1,392 1,717
---- ------ ------
Interest expense................................. 271 856 1,127
Other income (expenses).......................... (16) -- (16)
---- ------ ------
Income before income taxes....................... $255 $ 856 $1,111
==== ====== ======
</TABLE>
(i) Reflects the increase in depreciation and amortization expense arising
from purchase accounting adjustments in connection with the TSS, Unisign and
Western acquisitions as follows (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, 1997 JUNE 30, 1998
AMORTIZATION ------------------------------------- ---------------------------
ASSETS PERIOD TSS UNISIGN WESTERN TOTAL UNISIGN WESTERN TOTAL
- ------ ------------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property and
equipment............ 5-30 years $ 990 $ 460 $1,371 $ 2,821 $ 230 $ 685 $ 915
Goodwill............... 15 years 585 679 812 2,076 340 406 746
Value of purchased
contracts............ 1-2 years 1,695 1,510 843 4,048 480 422 902
Noncompete agreements.. 5 years -- 100 2 102 50 1 51
------- ------- ------ ------- ------ ------- -------
</TABLE>
22
<PAGE> 27
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, 1997 JUNE 30, 1998
AMORTIZATION ------------------------------------- ---------------------------
ASSETS PERIOD TSS UNISIGN WESTERN TOTAL UNISIGN WESTERN TOTAL
- ------ ------------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total depreciation and
amortization
expense.............. 3,270 2,749 3,028 9,047 1,100 1,514 2,614
Less amounts recorded
in the historical
financial
statements........... (2,362)* (391) (939) (3,692) (713)** (505) (1,218)
------- ------- ------ ------- ------ ------- -------
$ 908 $ 2,358 $2,089 $ 5,355 $ 387 $ 1,009 $ 1,396
======= ======= ====== ======= ====== ======= =======
</TABLE>
- ---------------
* Reflects $1,771,000 recorded in the Company's financial statements subsequent
to the TSS acquisition and $591,000 recorded in the historical financial
statements of TSS prior to the acquisition.
** Reflects $642,000 recorded in the Company's financial statements subsequent
to the Unisign acquisition and $71,000 recorded in the historical financial
statements of Unisign prior to the acquisition.
(j) Reflects incremental interest and amortization expense as if the
financing for the Western acquisitions took place on January 1, 1997 as follows
(dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
AVERAGE 1997 1998
BORROWINGS INTEREST RATE EXPENSE EXPENSE
---------- ------------- ------- --------
<S> <C> <C> <C> <C>
Western............................................. $16,000 11% $1,760 $880
Financing costs (ten-year amortization period)...... 550 -- 55 28
------- ------ ----
$16,550 $1,815 $908
======= ====== ====
</TABLE>
The incremental interest expense related to the TSS and Unisign
acquisitions is included in the adjustment in note (k) as borrowings for these
acquisitions were repaid with proceeds from the Initial Offering.
(k) Reflects incremental interest expense and amortization of deferred
financing fees as if the Initial Offering had occurred on January 1, 1997 and
the application of the estimated net proceeds as described in "Use of Proceeds"
occurred on that date as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997 1998
EXPENSE EXPENSE
------------ --------
<S> <C> <C>
Interest expense and amortization of deferred financing
costs on the Existing Notes............................... $11,420 $ 5,710
Less amounts included in the historical financial
statements*
Unisign................................................... (95) (16)
TSS....................................................... (672) --
The Company............................................... (4,200) (4,198)
------- -------
$ 6,453 $ 1,496
======= =======
</TABLE>
The $4,200,000 and $4,198,000 include interest on the $15.8 million of
subordinated intercompany promissory notes which were converted into equity.
* Historical interest expense has been eliminated in the determination of pro
forma interest expense as the debt obligations creating interest expense in
the historical financial statements of Unisign and TSS were not assumed by
the Company and would therefore not have existed during the periods
presented. The interest expense in the Company's historical financial
statements represents the interest actually incurred versus the amount that
would have been incurred had the Initial Offering occurred on January 1,
1997.
(l) The provision for income taxes has been adjusted to reflect the tax
effect of the historical income of the acquired companies and the pro forma
adjustments based on the statutory rate in effect during the period of 40%.
(m) Does not reflect an extraordinary loss related to the early
extinguishment of debt (net of income tax benefit of approximately $2,089,000)
which the Company incurred in connection with the Initial Offering.
23
<PAGE> 28
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(n) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes plus fixed charges. Fixed
charges consist of interest expense (including amortization of deferred debt
issuance costs) and the portion of rental expense that is deemed representative
of the interest factor totaling $571,000 and $1.0 million in 1997 on a
historical and pro forma basis, respectively and by $450,000 and $542,000 in the
six months ended June 30, 1998 on a historical and pro forma basis,
respectively. Earnings were insufficient to cover fixed charges by $3.4 million
and $14.0 million in 1997 on a historical and pro forma basis, respectively, and
by $3.4 million and $6.1 million in the six months ended June 30, 1998 on a
historical and pro forma basis, respectively.
(o) The results of operations of TSS have been included in the historical
results of the Company from the date of acquisition. Set forth below are the
revenues and expenses of TSS, Unisign and Western for the period from January 1,
1997 to June 11, 1997 in the case of TSS, and for the year ended December 31,
1997 in the case of Unisign and for the year ended October 31, 1997 in the case
of Western (in thousands).
<TABLE>
<CAPTION>
TSS UNISIGN WESTERN TOTAL
------ ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues........................... $2,690 $3,675 $4,383 $10,748
------ ------ ------ -------
Expenses
Direct operating expenses............ 718 1,134 1,363 3,215
General and administrative........... 769 660 357 1,786
Depreciation and amortization........ 591 391 939 1,921
------ ------ ------ -------
2,078 2,185 2,659 6,922
------ ------ ------ -------
Operating income....................... 612 1,490 1,724 3,826
Interest expense....................... (672) (95) -- (767)
Other income (expenses)................ 82 (39) -- 43
------ ------ ------ -------
Income before income taxes............. $ 22 $1,356 $1,724 $ 3,102
====== ====== ====== =======
</TABLE>
(p) The EBITDA for the Company for year ended December 31, 1997 on a
historical and pro forma basis was $5,597 and $11,344, respectively and for the
six months ended June 30, 1998 on a historical and pro forma basis was $4,768
and $6,471, respectively.
(q) In addition to the above pro forma adjustments, the Company expects to
realize reduction of costs reflected in the historical financial statements of
the Company, TSS, Unisign and Western which the Company believes would not have
been incurred had the acquisitions occurred as of January 1, 1997 (in
thousands).
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, 1997 JUNE 30, 1998
------------------------------------------ -------------------------
COMPANY TSS UNISIGN WESTERN TOTAL UNISIGN WESTERN TOTAL
------- ---- ------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Executive compensation............. $-- $107 $297 $ 70 $474 $49 $ 35 $ 84
Other employees' compensation...... -- 41 31 183 255 5 91 96
Directors' fees.................... -- 11 -- -- 11 -- -- --
Advertising........................ -- -- 31 -- 31 5 -- 5
Facility costs..................... 60 -- -- 30 90 -- 15 15
Other administrative costs......... -- -- 15 -- 15 3 -- 3
--- ---- ---- ---- ---- --- ---- ----
$60 $159 $374 $283 $876 $62 $141 $203
=== ==== ==== ==== ==== === ==== ====
</TABLE>
In conjunction with the Western acquisition, the annual cost savings
expected to be realized through the integration of the Western business include
$70,000 from the elimination of prior management's compensation, $183,000 from
eliminating accounting, artists and other clerical functions and $30,000 of
facility costs. In response to the growth through acquisitions and in
anticipation of future growth, the Company created a new position of Director of
Marketing and hired additional accounting and clerical personnel in the
corporate office in Tifton. The estimated annual cost of these additional
personnel is $215,000.
24
<PAGE> 29
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The selected financial data presented below for and as of the end of each
of the years in the five-year period ended December 31, 1997 are derived from
the financial statements of the Company, of which (i) the financial statements
as of and for the year ended December 31, 1997 were audited by McGladrey &
Pullen, LLP, independent auditors, (ii) the financial statements as of and for
the years ended December 31, 1995 and 1996 were audited by McGrail Merkel Quinn
& Associates, independent auditors, and (iii) the financial statements as of and
for the years ended December 31, 1993 and 1994 and for the six months ended June
30, 1997 and 1998 are unaudited. In the opinion of management, the unaudited
financial statements for the six months ended June 30, 1997 and 1998 and the
years ended December 31, 1993 and 1994 include all adjustments, consisting only
of normal recurring adjustments, necessary to fairly present the results of
operations and financial position for such periods. The results for the six
months ended June 30, 1998 are not necessarily indicative of the results for the
full fiscal year. The following data should be read in conjunction with the
historical financial statements and notes related thereto of the Company and
"Management's Discussion and Analysis", included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -------------------
1993 1994(1) 1995(1) 1996 1997(1) 1997(1) 1998(1)
------- ------- ------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................. $ 2,828 $ 4,096 $ 7,892 $ 8,021 $ 11,831 $ 4,415 $ 9,413
------- ------- ------- ------- -------- -------- --------
Operating expenses:
Direct operating
expenses.............. 590 1,021 2,315 2,427 3,817 1,319 3,179
General and
administrative........ 717 1,230 1,934 2,345 2,417 996 1,466
Depreciation and
amortization.......... 1,161 1,429 2,713 2,648 4,699 1,224 4,027
------- ------- ------- ------- -------- -------- --------
Total operating
expenses.............. 2,468 3,680 6,962 7,420 10,933 3,539 8,672
------- ------- ------- ------- -------- -------- --------
Operating income............. 360 416 930 601 898 876 741
Gain (loss) on sale of
assets..................... -- -- 1,334 443 (143) -- --
Interest expense............. (476) (880) (2,094) (1,941) (4,200) (1,132) (4,198)
Other income (expense)....... 1 (164) (153) 2 -- (51) 92
------- ------- ------- ------- -------- -------- --------
Income (loss) before income
tax benefit................ (115) (628) 17 (895) (3,445) (307) (3,365)
Income tax benefit........... -- -- 8 324 1,424 129 1,347
------- ------- ------- ------- -------- -------- --------
Income (loss) before
extraordinary item......... $ (115) $ (628) $ 25 $ (571) $ (2,021) $ (178) $ (2,018)
======= ======= ======= ======= ======== ======== ========
OTHER DATA:
EBITDA(2).................... $ 1,521 $ 1,845 $ 3,643 $ 3,249 $ 5,597 $ 2,100 $ 4,768
EBITDA margin(2)............. 53.8% 45.0% 46.2% 40.5% 47.3% 47.6% 50.7%
Cash flows from operating
activities................. 1,063 (170) 1,245 1,476 1,810 192 (151)
Cash flows from investing
activities................. (712) (616) (2,343) 1,165 (37,305) (32,471) (43,845)
Cash flows from financing
activities................. (362) (508) 1,132 (2,582) 35,494 32,178 53,202
Capital expenditures......... 672 1,301 1,083 1,655 2,334 1,123 2,303
Ratio of earnings to fixed
charges(3)................. -- -- 1.0x -- -- -- --
Number of displays(4)
Bulletins............... 2,506 3,570 3,815 3,975 6,106 7,627
Posters................. 50 1,778 1,623 1,461 1,432 1,793
------- ------- ------- ------- -------- --------
Total displays...... 2,556 5,348 5,438 5,436 7,538 9,420
======= ======= ======= ======= ======== ========
</TABLE>
(continued on following page)
25
<PAGE> 30
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------------------------- ------------------
1993 1994(1) 1995(1) 1996 1997(1) 1997(1) 1998(1)
------- ------- ------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ -- $ 39 $ 74 $ 133 $ 132 $ 32 $ 19,822(5)
Working capital
(deficit)............... 4 (879) (2,057) (195) 2,733 2,396 30,491
Total assets.............. 3,902 17,579 19,214 17,128 54,106 49,645 110,340
Total debt (including
current
maturities)............. 5,708 19,724 19,798 19,474 57,998 52,535 100,817
Stockholder's equity
(deficiency)............ (1,967) (3,268) (3,194) (2,863) (4,884) (4,131) 7,149
</TABLE>
- ---------------
(1) See "Prospectus Summary -- The Company", "Prospectus Summary -- Recent
Financing" and "Business" regarding acquisitions made by the Company in
1994, 1997 and 1998, which affect the comparability of the information
contained in "Selected Historical Financial and Other Data".
(2) "EBITDA" is defined as operating income before depreciation and
amortization. EBITDA represents a measure that management believes is
customarily used to evaluate the financial performance of companies in the
media industry. However, EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered
an alternative to operating income as an indicator of the Company's
operating performance or to net cash provided by (used in) operating
activities as a measure of its liquidity. EBITDA margin is EBITDA stated as
a percentage of net revenues.
(3) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes plus fixed charges. Fixed charges
consist of interest expense (including amortization of deferred debt
issuance costs) and the portion of rental expense that is deemed
representative of the interest factor. Earnings were insufficient to cover
fixed charges by $11,000 in 1993, $628,000 in 1994, $895,000 in 1996, $3.4
million in 1997, $307,000 in the six months ended June 30, 1997 and $3.4
million in the six months ended June 30, 1998.
(4) All display faces, including unoccupied display faces, are classified based
on the last sale to an advertiser as either a bulletin or poster. For 1995,
the table does not reflect display faces located in and around Watertown,
New York that were acquired in November 1995 and disposed of in January
1996.
(5) Includes $10.5 million of securities pledged as security for the first two
interest payments on the Notes.
26
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis, together with the accompanying
financial statements and related notes thereto, are intended to aid in
understanding the Company's results of operations as well as its financial
position, cash flows, debt, liquidity and other key financial information.
OVERVIEW
The Company was formed in 1986, and since then net revenues and EBITDA have
grown significantly primarily through the acquisition of outdoor advertising
businesses and individual display faces in specific markets and the construction
of new display faces in existing markets.
Net revenues are a function of the number of display faces operated by the
Company, 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
selling 36-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 its occupancy levels and rates for a number of reasons,
including the recent expansion of the Company's sales force, benefits derived
from the application of the Company's existing incentive compensation-based
sales strategy in its newly acquired operations and general economic conditions
in its new markets. Operating results are affected by general economic
conditions, as well as trends in the advertising industry.
The Company's net revenues are gross revenues net of withheld commissions
retained by advertising agencies that contract for the use of advertising
displays on behalf of their advertisers and other miscellaneous credits. Agency
commissions are typically 15% of gross revenues per contract. The Company enters
into agreements with advertising agencies on a customer-by-customer basis.
Because of the Company's reliance on local advertisers, many of which do not
employ agencies, the Company believes that it depends less on the placement of
advertising through agencies than most other major outdoor advertising companies
and that its agency commission levels are lower than industry averages. In 1997,
direct sales to local advertisers represented over 95% of the Company's net
revenues.
Direct operating expenses consist of sales, production and lease expense.
Selling expense primarily consists of compensation to the Company's sales force,
travel and entertainment related to sales, and outside commissions other than to
advertising agencies. Commissions to the Company's sales force are based on the
total advertising contract value and are paid upon contract receipt. The total
advertising contract value is the monthly billing multiplied by the number of
months in the contract. Therefore, a salesperson would receive a commission
payment three times higher on a 36-month contract than on a 12-month contract
with the same monthly billing. Production expense mainly consists of
illumination expense, maintenance of billboard structures, the cost of
purchasing and applying poster advertisements and a prorata portion of the cost
of producing display faces for contracts of 18 months or less (which are
deferred and charged to production expense over the term of the related
contracts). The cost of producing advertising display faces for any contract
longer than 18 months is capitalized and depreciated over the life of the
contract. The Company believes that its illumination expense is generally lower
than industry averages because it produces a significant number of bulletins
(25% of its bulletins as of June 30, 1998) using Scotchlite, which require no
illumination expense, and many of the remaining displays are not illuminated.
The Company's illumination expense in 1997 was 3.2% of net revenues. Lease
expense consists mainly of rental payments to owners of the land underlying
billboard structures. Lease costs are generally lower in the non-urban segment
of the outdoor advertising market because landlords in rural areas generally
have fewer alternative uses for their properties, many of which are located in
agricultural areas. The Company's site lease expense was 13.8% of net revenues
in 1997.
General and administrative expenses include salaries, bonuses and other
compensation, permit fees, utilities, supplies, professional fees, rent for its
executive offices and facilities and travel.
ACQUISITIONS
The Company's display faces grew from 2,556 faces at December 31, 1993 to
7,538 faces at December 31, 1997, a 31.1% compounded annual growth rate,
primarily as a result of acquisitions. The Company's acquisitions can be
classified into two categories: new market acquisitions and fill-in
acquisitions.
27
<PAGE> 32
New market acquisitions are acquisitions outside of the Company's then existing
markets, while fill-in acquisitions are generally acquisitions in or adjacent to
the Company's existing markets that involve the purchase of advertising displays
only, resulting in the elimination of all personnel and related costs. From
January 1, 1995 to June 30, 1998, the Company completed two new market
acquisitions, TSS and Unisign, and nine fill-in acquisitions (excluding the
Watertown, New York acquisition).
The Company achieves operating leverage through both new market and fill-in
acquisitions by spreading acquired contract revenues over relatively fixed
general and administrative costs. With new market acquisitions, the Company
eliminates duplicative management personnel, thereby reducing compensation
expense, and generally integrates the art and accounting functions into the
Company's existing general and administrative structure. The Company's corporate
office, established in 1995, provides all billing and collection functions for
all of the Company's divisions, as well as cash management, payable functions
and strategic marketing directions. In the TSS acquisition, the Company was able
to reduce certain annual executive costs, including approximately $259,000 of
chief executive officer compensation and directors' fees. Additional annual
savings of $98,000 were generated by replacing the general manager and
eliminating the art department. In addition, the Company expects to realize net
savings of $80,000 annually from closing its Southeast divisional headquarters
following the TSS acquisition. Similarly, annual cost savings to be realized
through the integration of the Unisign business include $297,000 from the
elimination of prior management's compensation and $77,000 from eliminating
Unisign's accounting functions and realigning general and administrative
personnel (including the elimination of local artists). In conjunction with the
Western acquisition, the annual cost savings expected to be realized through the
integration of the Western business include $70,000 from the elimination of
prior management's compensation, $183,000 from eliminating accounting, artists
and other clerical functions and $30,000 of facility costs. In response to the
growth through acquisitions and in anticipation of future growth, the Company
created a new position of Director of Marketing and hired additional accounting
and clerical personnel in the corporate office in Tifton. The estimated annual
cost of these additional personnel is $215,000.
In addition to growth through acquisitions, the Company seeks opportunities
for growth through the development of newly built outdoor advertising
structures. The Company actively monitors changes in local zoning restrictions
and the availability of new land lease sites in each of its existing markets so
as to develop new build opportunities. The Company erected 78 structures and 146
display faces in 1997 and anticipates erecting approximately 70 structures with
up to 250 display faces in 1998 of which 62 structures and 186 faces were
completed by June 30, 1998. A substantial portion of these new structures and
display faces results from the Unisign acquisition, in which the Company
acquired 94 leases in Kentucky, predominantly located along primary highways,
and on which, subject only to the receipt of routine government permits, it
plans to construct 94 new structures with up to 376 display faces of which 21
new structures and 78 display faces were completed by June 30, 1998. In
addition, the billboard structures acquired by the Company in the Unisign
acquisition have the capacity for up to an additional 300 display faces of which
40 faces were installed by June 30, 1998. The Company believes that the
economics of building new advertising structures compare favorably with the
economics of purchasing structures through fill-in acquisitions.
In June 1995, the Company sold certain outdoor advertising assets in and
around Erie, Pennsylvania, which assets were acquired by the Company in October
1994. These assets accounted for $140,000 of net revenue in 1995.
In January 1996, the Company sold for $3.1 million certain outdoor
advertising assets located in and around Watertown, New York, which assets were
acquired by the Company in November 1995. These assets did not have a material
impact on revenues in either 1995 or 1996.
28
<PAGE> 33
PRODUCT MIX; REGIONAL OPERATIONS
The following table sets forth information on the bulletins and posters
operated by each of the Company's divisions at the dates indicated. The Company
did not acquire its Mid-Atlantic division until March 1998.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1995 1996 1997 JUNE 30, 1998
-------------------- -------------------- -------------------- --------------------
DIVISION BULLETINS POSTERS BULLETINS POSTERS BULLETINS POSTERS BULLETINS POSTERS
-------- --------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Midwest.............. 2,288 -- 2,284 -- 2,308 -- 2,717 --
Northeast(1)......... 833 476 903 443 923 450 966 468
Northcentral......... 477 490 476 485 513 463 550 460
Southeast............ 217 657 312 533 2,362(2) 519 2,357 519
Mid-Atlantic(3)...... -- -- -- -- -- -- 1,037 346
----- ----- ----- ----- ----- ----- ----- -----
Total................ 3,815 1,623 3,975 1,461 6,106 1,432 7,627 1,793
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Does not reflect display faces in and around Watertown, New York that were
acquired in November 1995 and disposed of in January 1996.
(2) Increase reflects primarily the TSS acquisition.
(3) Reflects the acquisition of Unisign.
The Company derived over 72%, 72% and 75% of its net revenues from the sale
of advertising on bulletins in 1995, 1996 and 1997, respectively, and the
balance from the sale of advertising on posters. Because of this large
percentage of bulletin revenues and the long-term nature of its bulletin
contracts, the Company's net revenues have experienced little seasonality,
historically varying less than 2% per quarter. However, poster revenues are
typically lower during the first quarter, reflecting seasonal patterns in
advertising spending.
The Company emphasizes the sale of long-term (36-month) contracts for its
bulletins. In the Northeast and Midwest divisions, which have been operated by
current management for approximately 12 and 9 years, respectively, over 90% of
all bulletin advertising contracts in effect on December 31, 1997 had an
original term of at least 36 months. Because of the acquisition of the
shorter-term contracts of TSS and Unisign, at June 30, 1998 approximately 51% of
the Company's bulletin advertising contracts had an original term of 36 months
of more. As the advertising contracts assumed by the Company in the TSS and
Unisign acquisitions expire, the Company is seeking to sell 36-month contracts
for these bulletins. As a result, the Company believes that the percentage of
bulletins subject to 36-month contracts will increase over time in these
markets.
The average monthly rate per display varies in each region in which the
Company operates, primarily as a result of the average size and location of
displays in each division. In the Midwest and Northeast divisions, the majority
vary in size from 6 feet high by 12 feet wide to 14 feet high by 48 feet wide.
In addition, the Company's displays in these divisions are located primarily
along secondary roads, rather than along interstate highways or primary roads.
Both the smaller size and location of the signs result in lower rates. In the
Northcentral division, the Company's displays are substantially larger and are
located along primary roads and interstate highways. The average rates for
displays in this division are the highest of all the Company's divisions. In the
Southeast, the average display size increased as result of the TSS acquisition.
In addition, the TSS displays were located to a greater extent along interstate
highways. The TSS acquisition resulted in higher average rates in the Southeast
division.
In some of the localities in which the Company operates, outdoor
advertising is subject to restrictive zoning regulations. Although the Company
believes the existence of those regulations continue to be a factor in the
operation of the Company's business, such regulations have not had a significant
effect on the results of operations.
29
<PAGE> 34
RESULTS OF OPERATIONS
The following table sets forth the specified components of expense for the
Company expressed as a percentage of net revenues for the last three years.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- ----------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Direct operating expenses................ 29.3 30.3 32.3 29.9 33.8
General and administrative............... 24.5 29.2 20.4 22.6 15.5
Depreciation and amortization............ 34.4 33.0 39.7 27.7 42.8
----- ----- ----- ----- -----
Total operating expenses............ 88.2 92.5 92.4 80.2 92.1
----- ----- ----- ----- -----
Operating income......................... 11.8 7.5 7.6 19.8 7.9
----- ----- ----- ----- -----
Interest expense......................... (26.5) (24.2) (35.5) (25.6) (44.6)
Other income (expense)................... 15.0 5.5 (1.2) (1.1) 1.0
----- ----- ----- ----- -----
Total other income (expense)........ (11.5) (18.7) (36.7) (26.7) (43.6)
----- ----- ----- ----- -----
Income (loss) before income tax
benefit................................ 0.3 (11.2) (29.1) (6.9) (35.7)
Income tax benefit....................... 0.0 4.1 12.0 2.9 14.3
----- ----- ----- ----- -----
Income (loss) before extraordinary loss
on early extinguishment of debt........ 0.3% (7.1)% (17.1)% (4.0)% (21.4)%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
Net revenues. Net revenues increased 113.2% to $9.4 million for the six
months ended June 30, 1998 from $4.4 million for the six months ended June 30,
1997. Most of this increase was the result of the acquisition of Unisign,
completed in March 1998, and TSS, completed in June 1997. These acquisitions
accounted for approximately $4.5 million of the period-to-period revenue growth.
Direct operating expenses. Direct operating expenses (which include sales,
lease and production expense) increased to $3.2 million for the six month period
ending June 30, 1998 from $1.3 million for the comparable period in 1997. Most
of this increase was the result of the acquisition of Unisign, completed in
March 1998, and TSS, completed in June 1997. Sales expense decreased as a
percentage of net sales from 8.4% in the six month period ending June 30, 1997
to 7.6% in 1998, due to increased operating leverage in the sales force. Lease
expense increased as a percentage of net revenues from 12.9% in the six month
period ending June 30, 1997 to 14.8% in 1998, due to higher lease costs assumed
in the TSS acquisition, reflecting the higher costs of TSS's interstate highway
locations. Production expense increased as a percentage of net revenues from
8.6% in the six month period ending June 30, 1997 to 11.4% in 1998, due to
production costs associated with the shorter-term contracts assumed in the TSS
acquisition.
General and administrative expenses. General and administrative expenses
increased by 47.2% to $1.5 million for the six month period ending June 30, 1998
from $1.0 million in 1997, but decreased as a percentage of net revenues to
15.5% from 22.6%, respectively. The decrease in general and administrative
expense as a percentage of net revenues was due to increased operating leverage
provided by higher net revenues from the Unisign and TSS acquisitions over
relatively fixed general and administrative expenses. In addition, the Company
was able to reduce Unisign's and TSS' general and administrative expenses
through a reduction of executive compensation, and the elimination of the
general manager and art and accounting personnel.
Depreciation and amortization expense. Depreciation and amortization
expense increased to $4.0 million for the six month period ending June 30, 1998
from $1.2 million in 1997 due primarily to the Unisign and TSS acquisitions.
Interest expense. Interest expense, net of interest income, increased to
$4.2 million for the six month period ending June 30, 1998 from $1.1 million for
the comparable period in 1997. This increase was primarily the result of
additional debt incurred in connection with the financing of the Unisign and TSS
acquisitions.
30
<PAGE> 35
Income taxes. The Company recorded a $1.3 million income tax benefit for
the six month period ended June 30, 1998 due to losses resulting from the
increase in interest expense, depreciation, amortization and write-off of
finance and loan costs on early extinguishment of debt.
Extraordinary Loss. Effective May 20, 1998, the proceeds from the Initial
Offering were used for the early extinguishment of the outstanding debt related
to the prior credit facility. Accordingly, the Company recorded an extraordinary
loss of $3.5 million related to the early retirement of debt ($2.1 million, net
of income taxes of $1.4 million). The extraordinary loss was comprised of
deferred financing fees of $3.1 million and a $400,000 unrealized loss resulting
from the early extinguishment of the interest rate swap agreements used to
change the fixed/variable interest rate mix of the debt portfolio to reduce the
Company's aggregate risk to movements in interest rates. The fair value of the
swap agreements were not previously recognized in the financial statements since
they were accounted for as a hedge. With the extinguishment of the debt, the
swap agreements are no longer hedge transactions and therefore the related
unrealized loss can no longer be deferred.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Net revenues. Net revenues increased 47.5% to $11.8 million for the year
ended December 31, 1997 from $8.0 million for the year ended December 31, 1996.
Most of this increase was the result of the acquisition of TSS completed in June
1997. This acquisition accounted for approximately $3.4 million of the
year-over-year revenue growth.
Direct operating expenses. Direct operating expenses (which include sales,
lease and production expense) increased to $3.8 million for 1997 from $2.4
million for the prior year. Most of this increase was the result of the
acquisition of TSS. Sales expense decreased as a percentage of net revenues to
8.2% in 1997 from 8.9% in 1996, due to increased operating leverage in the sales
force and minimal selling expense required for acquired contracts until they are
resold. Lease expense increased as a percentage of net revenues to 13.8% in 1997
from 12.6% in 1996, due to higher lease costs assumed in the TSS acquisition,
reflecting the higher costs of TSS's interstate highway locations. Production
expense increased as a percentage of net revenues to 10.0% in 1997 from 8.6% in
1996, due to production costs associated with the shorter-term contracts assumed
in the TSS acquisition.
General and administrative expenses. General and administrative expenses
increased slightly to $2.4 million for 1997 from $2.3 million for 1996, but
decreased sharply as a percentage of net revenues. The increase in
administrative expenses was more than accounted for by a one-time expense of
$250,000 relating to the relocation of the Company's personnel and offices to
Tifton, Georgia. However, the overall decrease in general and administrative
expenses as a percentage of net revenues was due to increased operating leverage
provided by higher net revenues from the TSS acquisition over relatively fixed
general and administrative expenses. In addition, the Company was able to reduce
TSS's general and administrative expenses through a reduction of executive
compensation and directors' fees, and the elimination of the general manager and
accounting personnel.
Depreciation and amortization expense. Depreciation and amortization
expense increased to $4.7 million for 1997 from $2.6 million for 1996, due
primarily to the TSS acquisition. Depreciation and amortization as a percentage
of net revenues increased from 1996 to 1997 as a result of amortization related
to the intangible assets acquired in the TSS acquisition.
Interest expense. Interest expense increased to $4.2 million for 1997 from
$1.9 million for 1996. This increase was the result of additional debt incurred
in connection with the financing of the TSS acquisition.
Income taxes. The Company recorded a $1.4 million income tax benefit for
1997 due to losses resulting from increased interest expense and depreciation
and amortization.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Net revenues. Net revenues increased to $8.0 million for 1996 from $7.9
million for 1995. Net revenues remained substantially unchanged since no
significant acquisitions occurred in 1995 or 1996 due to capital constraints and
management's exercise of price discipline on the available new market
acquisition opportunities.
31
<PAGE> 36
Direct operating expenses. Direct operating expenses increased to $2.4
million for 1996 from $2.3 million for 1995. This increase was due to certain
salary increases and the fixed costs retained upon the disposal of the Erie,
Pennsylvania displays.
General and administrative expenses. General and administrative expenses
increased 21.3% to $2.3 million for 1996 from $1.9 million for 1995. This
increase was due to the Company's establishment at the end of 1995 of separate
corporate offices for its executives and centralizing accounting and billing
operations in order to support the anticipated growth of the Company's
operations.
Depreciation and amortization expense. Depreciation and amortization
expense decreased to $2.6 million for 1996 from $2.7 million for 1995. This
decrease was due to the sale of the Erie displays.
Interest expense. Interest expense decreased to $1.9 million for 1996 from
$2.1 million for 1995. This decrease was due primarily to lower interest rates.
Income taxes. The Company recorded a $324,000 income tax benefit for 1996
due to losses resulting from interest expense and depreciation and amortization.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied its cash requirements with cash from
operations, revolving credit borrowings and other long-term debt financings and
sales of assets. Its acquisitions have been financed primarily with borrowed
funds.
The Company financed its acquisition activity in 1994 through the
combination of a $16.5 million credit facility with First Chicago, as agent for
a syndicate of lenders, and an equity and subordinated debt investment of $3.9
million from Mesirow in Holdings (the proceeds of which were loaned by Holdings
to the Company). See "Principal Stockholders".
In June 1997, this credit facility was amended and restated by the Original
Credit Facility in order to increase the available credit to $45.0 million. The
Original Credit Facility, together with an additional equity and subordinated
debt investment of $9.0 million from Mesirow in Holdings (the proceeds of which
were loaned by Holdings to the Company), were used to finance the TSS
acquisition.
In February 1998, the Original Credit Facility was amended and restated by
the Senior Credit Facility in order to increase the available credit to $62.5
million. Borrowings under the Senior Credit Facility, together with the proceeds
of the Bridge Notes ($10.0 million) sold by Holdings (the proceeds of which were
loaned by Holdings to the Company), were used to finance the Unisign
acquisition. The Company used a portion of the proceeds of the Initial Offering
to repay all borrowings and accrued interest under the Senior Credit Facility,
which totaled $57.4 million, whereupon the Senior Credit Facility was
terminated. The Company used the proceeds of the Initial Offering to repay the
$10.0 million loan, plus $232,000 of accrued interest, from Holdings at which
time Holdings repaid the Bridge Notes. Additionally, in conjunction with the
Initial Offering, $15.8 million of subordinated intercompany promissory notes
due Holdings were converted into stockholder's equity. The Senior Credit
Facility bore interest at rates specified in the agreement (with an aggregate
effective interest rate at December 31, 1997 of 9.125%), was collateralized by
substantially all of the assets of the Company, as well as by a pledge from
Holdings of the Company's common stock, required the maintenance of certain
financial covenants and matured in varying amounts through March 2006. The
subordinated intercompany promissory notes payable to Holdings bore interest at
rates ranging from 12% to 15% and were due and payable during 2003 and 2005. The
$10.0 million intercompany loan from Holdings (which was made by Holdings on
March 2, 1998 with the proceeds of the Bridge Notes) bore interest at LIBOR,
plus 4.75% (10.4% at March 2, 1998), and was due on demand. See "Use of
Proceeds".
On May 20, 1998 the Company put in place a $3.0 million credit facility
used principally to fund potential obligations on outstanding letters of credit.
The facility was secured by certificates of deposit. This facility was
terminated when the Company entered into the Credit Facility on September 18,
1998.
Net cash provided by operating activities increased to $1.8 million for
1997 from $1.5 million for 1996, and decreased to $(151,000) for the first half
of 1998 from $192,000 for the first half of 1997. Net cash provided by operating
activities reflects the Company's net loss adjusted for non-cash items and net
changes in working capital components. The Company had working capital of $30.5
million as of June 30, 1998, working capital of $2.7 million as of December 31,
1997 and a deficit of $195,000 as of December 31, 1996.
32
<PAGE> 37
After completion of the Initial Offering of the Existing Notes, the Company
had approximately $17.3 million available for general corporate purposes. In
September, 1998, the Company acquired substantially all of the outdoor
advertising assets of Western for an acquisition cost of $26.8 million. The
Company also entered into a new Credit Facility with available borrowings of
$19.25 million. The Credit Facility is secured by substantially all of the
Company's assets. The Company used $10.4 million of cash on hand and borrowed
$16.0 million under the Credit Facility to fund the acquisition of Western.
The Company's net cash used in investing activities of $37.3 million for
the year ended December 31, 1997 included cash used for acquisitions of $34.8
million and capital expenditures of $2.3 million. For the six months ended June
30, 1998, the Company's net cash used in investing activities of $43.8 million
included $23.1 million used for acquisitions, primarily Unisign, and $2.3
million of capital expenditures.
For the year ended December 31, 1997, $35.5 million was provided by
financing activities, primarily as a result of additional borrowings under the
Company's various credit facilities and equity and debt investments in Holdings
by Mesirow, which proceeds were loaned to the Company. For the year ended
December 31, 1996, $2.6 million was used in financing activities, primarily
relating to principal repayments of debt, with the proceeds from the sale of the
Watertown assets. For the six months ended June 30, 1998, $53.2 million was
provided by financing activities, primarily as a result of the Initial Offering
net of repayment under existing credit facilities.
Capital expenditures are made to build new billboard structures and display
faces, to upgrade the Company's existing display faces, to produce advertising
display faces under contracts longer than 18 months and for other capital items.
Management estimates that capital expenditures will total approximately $4.5
million in 1998, which includes the planned construction of up to 70 structures
and up to 250 display faces, the estimated cost of producing display faces sold
under new long-term contracts and other capital items.
The Company has funded one year of cash interest expense with the net
proceeds of the Initial Offering. Following the disbursement of all of the funds
in the escrow account in May 1999, a substantial portion of the Company's cash
flow will be devoted to interest payments on the Notes. See "Unaudited Pro Forma
Financial Statements".
The Company believes that its cash from operations, together with amounts
available for borrowing under the Credit Facility, will be sufficient to satisfy
its cash requirements, including anticipated capital expenditures, for at least
the next several years. However, in the event these cash sources are
insufficient to satisfy its cash requirements, including as a result of future
acquisitions, the Company may require additional debt or equity. There can be no
assurance that additional debt or equity financing will be available on terms
satisfactory to the Company, if at all, or that the Company will be able to
incur such additional debt under the terms of the Notes. See "Description of
Notes -- Certain Covenants -- Limitation on Additional Debt".
INFLATION
In the last three years, inflation has not had a significant impact on the
Company or its predecessors.
INCOME TAXES
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $6,010,000 for federal and state income tax purposes, which expire
in varying amounts from 2009 through 2017.
Although realization is not assured, the Company believes, based on its
expectations for the future, that taxable income of the Company will more likely
than not be sufficient to utilize all of the $6,010,000 net operating loss
carryforwards prior to their ultimate expiration in 2017. 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.
YEAR 2000 ISSUE
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 issue. Based on the
review of its computer systems, management does not believe there will be any
material impact to the Company's financial position or results of operations.
Based upon a preliminary review, the Company believes that the Year 2000 issue
will not have a material impact on the operations of any of its significant
suppliers.
33
<PAGE> 38
BUSINESS
GENERAL
The Company is a leading highway directional outdoor advertising company,
operating over 9,426 advertising displays, including 7,627 bulletins and 1,793
posters, in 21 states in the eastern and central United States at June 30, 1998.
Essentially all of the Company's billboards are located along interstate
highways and primary and secondary roads outside of urban areas. For the year
ended December 31, 1997, over 95% of the Company's net revenues was generated by
local businesses, including local franchisees of national chains, with no one
customer accounting for as much as 2% of the Company's net revenues. The Company
offers a full line of outdoor advertising services to its customers, including
creative design, production, installation and maintenance of the displays. After
giving pro forma effect to the transactions described in the Unaudited Pro Forma
Financial Statements included herein, the Company's net revenues and EBITDA
would have been $22.6 million and $11.3 million, respectively, for the year
ended December 31, 1997 and $12.3 million and $6.4 million, respectively, for
the six months ended June 30, 1998.
According to recent estimates by the OAAA, total outdoor advertising
expenditures during 1997 were $2.1 billion, an 8.8% increase over such
expenditures in 1996. The Company operates primarily in the rural highway
directional segment of the outdoor advertising industry. Highway directional
billboards are utilized by local advertisers to alert motorists to an
advertiser's place of business and provide directions to that business. Many of
the Company's principal customers, which include motels and hotels, restaurants
and gasoline retailers, depend on strategically located billboards as the only
effective and cost efficient means to reach their target customers. As a result,
these advertisers will usually purchase a billboard display under long-term
contracts and leave the original advertising copy in place for the duration of
the contract. On June 30, 1998, over 85% of the Company's bulletin advertising
contracts had an original term of at least 18 months and 51% had an original
term of at least 36 months. The Company believes that its large number of
long-term contracts has generated more stable and predictable revenues, has
reduced production, installation and maintenance costs over the term of the
contracts and has permitted it to more efficiently leverage its sales personnel.
Since its formation in 1986, the Company has pursued an aggressive
acquisition strategy, completing over 20 acquisitions of outdoor advertising
businesses. During this period, the Company completed both "new market" and
"fill-in" acquisitions. New market acquisitions are acquisitions outside of the
Company's then existing markets, while fill-in acquisitions are generally small
acquisitions in the Company's existing markets that involve the purchase of
advertising displays only, resulting in the elimination of all personnel and
related costs. During the past year, the Company completed the TSS and Unisign
acquisitions, both of which are included in the Unaudited Pro Forma Financial
Statements included herein.
34
<PAGE> 39
Set forth below is a summary of the Company's acquisitions which exceeded
$250,000 per acquisition since January 1, 1994 through June 30, 1998:
<TABLE>
<CAPTION>
NEW
MARKET DISPLAY FACES
OR PURCHASE NET -------------------
COMPANY(1) FILL-IN DATE PRICE STATES REVENUES(2) BULLETINS POSTERS
---------- ---------- -------------- -------- ------------ ----------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Unisign Corporation, Inc.............. New February 1996 $21,800 KY, NV, OH $ 3,675 1,037 384
Tri-State Systems, Inc................ New June 1997 31,400 GA, AL, FL, 6,056 1,838 --
KY, MS, SC,
TN
Vogel Outdoor Advertising, Inc........ New October 1994 7,042 MN, IA 2,900 395 356
Heard Communications, Inc. (d/b/a
Gateway Outdoor Advertising)........ New September 1994 1,037 SC, NC, MO, N/A(3) -- 669
OH
3-H Sign Company, Inc................. Fill-in January 1998 980 MO 305 325 --
Mid-American Advertising Company...... Fill-in October 1997 400 MO 121 47 --
Sunbelt Outdoor Systems, Inc.......... Fill-in September 1997 2,754 GA 543 152 --
Supreme Outdoor, Inc.................. Fill-in July 1997 333 MN 74 18 --
Park Outdoor Advertising of New York,
Inc................................. Fill-in October 1994 3,066 NY, PA 1,386 93 370
Outdoor Visions, Inc. (d/b/a Bruening
Outdoor Advertising)................ Fill-in September 1994 425 PA 135 133 --
Lewis Outdoor Advertising, Inc........ Fill-in September 1994 587 AR, LA, TX 218 216 --
--------
Total......................... $69,824
========
</TABLE>
- ---------------
(1) This table does not reflect display faces located in and around Watertown,
New York that were acquired in November 1995 and disposed of in January
1996. See Notes 4 and 6 to the Company's Financial Statements.
(2) Net revenues have been calculated on the basis of the number of bulletins
and posters acquired, as follows: in the case of bulletins, the revenues
generated in the last month before the acquisition for which financial
information was available multiplied by 12 and, in the case of posters, the
revenues generated in the 12 months before the acquisition, except in the
case of Unisign where net revenues have been calculated on the basis of
Unisign's audited financial statements included elsewhere herein.
(3) The net revenues of Heard Communications Inc. are not available.
35
<PAGE> 40
BUSINESS STRATEGY
The Company's business strategy is to be a leading provider of highway
directional outdoor advertising services to local advertisers in non-urban
markets. The Company entered this segment of the outdoor advertising business
because it believes that rural businesses have been underserved by the major
outdoor advertising companies. In order to implement this business strategy, the
Company focuses on the following key elements:
- Increase the Penetration of its Local Markets with 36-Month Advertising
Contracts. In order to better serve its local customers, the Company
customizes the size and pricing of its billboards to fit the budgets of
the local businesses that require these services. In addition, the
Company can produce a long-lasting sign that is strategically located
relative to the advertiser's place of business. For these reasons, the
Company believes that its local highway directional advertisers have been
willing to enter into long-term contracts and leave a display in place
for an extended period. As of June 30, 1998, 51% of the Company's
bulletin advertising contracts had an original term of at least 36
months. The billboards acquired by the Company in the TSS and Unisign
acquisitions were predominantly subject to contracts with an original
term of 18 months and 24 months, respectively. Excluding these
billboards, as of June 30, 1998 over 77% of the Company's bulletin
advertising contracts had an original term of at least 36 months.
Accordingly, the Company believes that the number of contracts with a 36-
month original term will increase as the Company seeks 36-month contracts
for expiring TSS and Unisign contracts. The Company believes that its
large number of long-term contracts has generated more stable and
predictable revenues, has reduced production, installation and
maintenance costs over the term of the contracts and has permitted it to
more efficiently leverage its sales personnel. As a result of these cost
efficiencies and in order to encourage advertisers to enter into
long-term contracts, the Company prices its longer term contracts with
lower monthly rates than it prices its shorter term contracts.
- Pursue Growth through Acquisitions. The Company intends to continue its
aggressive growth strategy of acquiring and developing highway
directional outdoor advertising businesses, by continuing to seek both
new market and fill-in acquisitions, where the billboards are used, or
can be resold, as highway directional signs under long-term contracts.
The Company believes that the non-urban highway directional market
remains highly fragmented producing numerous acquisition opportunities
that fit its criteria. In addition, the Company is typically a major
provider of outdoor advertising services in the areas in which it
operates, which, it believes, allows it to more easily acquire and
successfully integrate fill-in acquisitions.
- Capitalize on New Build Opportunities. In addition to growth through
acquisitions, the Company seeks opportunities for growth through the
development of newly built outdoor advertising structures. The Company
actively monitors changes in local zoning restrictions and the
availability of new land lease sites in each of its existing markets so
as to develop new build opportunities. The Company erected 78 structures
and 146 display faces in 1997 and anticipates erecting approximately 70
structures with up to 250 display faces in 1998 of which 62 structures
and 186 faces were completed by June 30, 1998. A substantial portion of
these new structures and display faces results from the Unisign
acquisition, in which the Company acquired 94 leases in Kentucky,
predominantly located along primary highways, and on which, subject only
to the receipt of routine government permits, it plans to construct 94
new structures with up to 376 display faces of which 21 structures and 78
display faces were completed by June 30, 1998. In addition, the billboard
structures acquired by the Company in the Unisign acquisition have the
capacity for up to an additional 300 display faces of which 40 faces were
installed by June 30, 1998. The Company believes that the economics of
building new advertising structures compare favorably with the economics
of purchasing structures through fill-in acquisitions.
- Control Costs and Quality through Centralization of Production and
Vertical Integration. The Company seeks to control production costs and
maintain consistent, high quality production standards by centralizing
essentially all of its production services related to billboards leased
under 36-month contracts and vertically integrating its production
operations, thereby reducing its use of outside
36
<PAGE> 41
contractors. In addition, because of its large number of rural signs
under long-term contracts, the Company has been able to use Scotchlite, a
highly reflective vinyl manufactured by 3M, which causes the advertising
copy to be brightly illuminated by the headlights of passing vehicles.
Scotchlite is effective only where there is little or no competing light
sources around the sign. While somewhat more expensive to construct, a
Scotchlite billboard does not need any electric lighting on the
advertising structure and thus significantly reduces the Company's
operating expenses. A photograph of a Scotchlite billboard is included on
the inside back cover of this Prospectus. Approximately 25% of the
Company's bulletins in service at March 31, 1998 used Scotchlite on the
advertising copy. The main facility in Baxter Springs, Kansas, produces
substantially all of the Company's Scotchlite and non-reflective
self-adhesive vinyl advertising copy for installation throughout its
markets. Each of the Company's five divisions hires painters to produce
hand painted bulletins and employs other personnel to install and
maintain bulletins and posters. At Baxter Springs, the Company also
employs staff artists to design advertising copy for use in all of its
divisions. The Company's new billboard structures have generally been
constructed by outside contractors, although the Company has recently
increased its capability to build these structures with Company
personnel.
INVENTORY
The Company operates three types of outdoor billboards.
Bulletins consist of panels on which advertising copy is displayed. The
Company's bulletins range in size from 4 feet high by 6 feet wide to 20 feet
high by 80 feet wide, with the majority ranging from 12 feet high by 24 feet
wide to 10 feet high by 32 feet wide. In order to better serve its local
customers, the Company customizes the size and pricing of its bulletins to fit
the budgets of the local businesses. As a result, many of the Company's
bulletins are smaller than the standard-sized bulletins offered by its
competitors, most of which are 10 1/2 feet high by 36 feet wide or 14 feet high
by 48 feet wide. At March 31, 1998, approximately 48% of the Company's bulletin
advertising contracts provided for bulletins made from Scotchlite or
non-reflective self-adhesive vinyl attached to pre-painted plywood panels.
Substantially all of this vinyl advertising copy is produced at the Company's
Baxter Springs, Kansas facility and shipped to the site. These vinyl display
faces generally last between three and five years without replacement. Most of
the Company's remaining billboards are hand painted, in most cases by outside
contractors either at the Company's divisional facilities or on-site. Hand
painted signs generally last between 12 and 18 months. A small number of the
Company's bulletins are made from computer-generated graphics on a single sheet
of vinyl that is wrapped around the billboard structure. These single sheet
vinyl faces are produced by outside contractors and are usually sold under
shorter-term contracts. Because of their greater impact and higher cost,
bulletins are usually located on major highways.
30-Sheet Posters, the most common type of billboard in the outdoor
advertising industry, are 12 feet high by 25 feet wide. Advertising copy for
30-sheet posters usually consists of lithographed or silk-screened paper sheets
that are pasted and applied like wallpaper to the face of the display. All of
the lithographed and silk-screened paper sheets are prepared by outside parties,
but in most cases are installed on billboards by the Company's divisional
personnel. Thirty-sheet posters are primarily located on major traffic arteries.
All display faces originally constructed by the Company as 30-sheet posters are
generally maintained as such. If a bulletin display face is unoccupied, the
Company may sell it as one or two poster displays on a short-term basis, pending
the procurement of a long-term contract.
Junior (8-Sheet) Posters are 6 feet wide by 12 feet wide. Displays are
typically prepared and mounted in the same manner as 30-sheet posters. The
Company generally seeks to resell its 8-sheet posters as bulletins as soon as it
procures a long-term contract for the space.
Display faces generally are mounted on structures owned by the Company and
located on sites that are leased by it. The Company also owns a small number of
its sites. Billboard structures are made of wood, steel and other durable
materials built to withstand variable climates, have long useful lives and do
not require substantial maintenance. Virtually all of the Company's new
billboard structures are made of steel. The Company expects its billboard
structures to last at least 20 years without significant refurbishment.
37
<PAGE> 42
The following table sets forth certain information on the Company's
operations in each of the states in its market areas.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
---------------------------------------------------
8-SHEET
JUNE 1998 JUNE 1998 LAND BULLETINS 30-SHEET JUNIOR TOTAL
STATE NET REVENUES(1) LEASE COSTS(2) (3) POSTERS(3) POSTERS(3) DISPLAY FACES
----- --------------- --------------- --------- ---------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Georgia.................. $ 447 $ 76 1,518 0 0 1,518
Minnesota................ 264 48 464 460 0 924
Kentucky................. 253 18 861 346 0 1,207
Pennsylvania............. 92 8 470 242 3 715
Oklahoma................. 78 8 829 0 0 829
Missouri................. 74 9 780 0 0 780
New York................. 70 5 493 173 0 666
Arkansas................. 67 7 651 0 0 651
Florida.................. 52 4 218 0 0 218
South Carolina........... 35 4 282 0 386 668
Texas.................... 28 2 217 0 0 217
Kansas................... 23 1 232 0 0 232
Alabama.................. 22 0 152 0 0 152
Tennessee................ 22 1 27 0 0 27
Iowa..................... 11 0 57 0 0 57
North Carolina........... 10 0 152 1 132 285
West Virginia............ 7 1 172 0 172
Louisiana................ 2 0 35 0 0 35
Ohio..................... 2 0 15 50 65
Mississippi.............. 0 2 0 0 2
------ ---- ----- ----- --- -----
Total:.............. $1,559 $192 7,627 1,222 571 9,420
====== ==== ===== ===== === =====
</TABLE>
- ---------------
(1) Billings under existing advertising contracts for June 1998.
(2) Land lease costs are typically paid one year in advance. June 1998 costs are
based on the estimated monthly average of all land lease costs for 1998
under existing leases.
(3) Each display face, including an unoccupied display face, is classified
either as a bulletin or poster based on the last sale to an advertiser.
MARKETS
The Company operates through five divisions covering particular regions of
its market area: Midwest division, Northcentral division, Northeast division,
Southeast division and Mid-Atlantic division. Certain of the Company's divisions
operate in the same states but their coverage areas do not overlap.
The following is a summary of the market and plants associated with each
division.
Midwest Division: The Midwest division, based in Baxter Springs, Kansas,
currently provides outdoor advertising services in Arkansas, Kansas, Louisiana,
Missouri, Oklahoma and Texas. The Company's Midwest division consisted of 2,717
bulletins as of June 30, 1998, varying in size from 8 feet by 20 feet to 14 feet
by 48 feet. The average monthly price per bulletin (based on those bulletins
occupied on June 30, 1998) for the month of June 1998 was $146.
Northcentral Division: The Northcentral division, based in Rochester,
Minnesota, currently provides outdoor advertising services in southern Minnesota
(including Rochester) and Iowa. At June 30, 1998, the Company's Northcentral
division operated 550 bulletins, varying in size with the majority being 12 feet
by 50 feet, and 460 posters including 35 8-sheet posters. For the month of June
1998, the average monthly price
38
<PAGE> 43
per bulletin was $446 and the average monthly price per poster (based on the
June 1998 revenues and average occupancy of all posters determined on a daily
basis) was $336.
Northeast Division: The Northeast division, based in Jamestown, New York,
provides outdoor advertising services in western New York, northwestern
Pennsylvania and Youngstown, Ohio. At June 30, 1998, the Company's Northeast
division operated 966 bulletins, with the majority varying in size from 6 feet
wide by 12 feet high to 14 feet high by 48 feet wide, and 468 posters including
50 8-sheet posters in Youngstown, Ohio. For the month of June 1998, the average
monthly price per bulletin was $143 and the average monthly price per poster was
$315.
Southeast Division: The Southeast division, based in Tifton, Georgia, is a
combination of the Company's existing Southeast division, formerly based in
Newberry, South Carolina, and the assets purchased by the Company in the TSS
acquisition. This division provides outdoor advertising services primarily in
Georgia, Florida and Alabama. At June 30, 1998, the Company's Southeast division
operated 2,357 bulletins with the majority varying in size from 10 1/2 feet by
36 feet to 14 feet by 48 feet, except in North Carolina and South Carolina where
the typical size is 6 feet by 12 feet, and 518 8-sheet posters. For the month of
June 1998, the average monthly price per bulletin was $346 and the average
monthly price per poster was $106. In addition, this division also operates a
public service display business consisting of over 1,000 small advertising faces
on public benches. Public service displays contributed less than 1% of the
Company's net revenues in 1997.
Mid-Atlantic Division: The Mid-Atlantic division, based in Ivel, Kentucky,
consists of the business acquired in the Unisign acquisition on March 2, 1998
and provides outdoor advertising in West Virginia, eastern Kentucky and southern
Ohio. At June 30, 1998, the Company's Mid-Atlantic division operated 1,037
bulletins, with the majority varying in size from 12 feet high by 24 feet wide
to 20 feet high by 60 feet wide and 346 30-sheet posters and had an additional
94 undeveloped leased sites. For the month of June 1998, the average monthly
price per bulletin was $414 and the average monthly price per poster was $264.
CUSTOMERS
For the year ended December 31, 1997, over 95% of the Company's net
revenues was generated by local businesses, including local franchisees of
national chains. The Company believes that its customer base of local
advertisers offers several advantages over a more national customer base. In the
case of local advertisers, the Company is more likely to deal directly with the
customer without an advertising agency acting as an intermediary. The Company is
also more likely to develop a long-term working relationship with a local
advertiser, which, the Company believes, gives it greater influence over the
advertiser's purchasing decisions and helps it obtain contract renewals from the
advertiser.
39
<PAGE> 44
The Company's customers are engaged in a wide range of businesses as shown
in the following table which sets forth an estimated breakdown of the businesses
in which the Company's customers were engaged for the year ended December 31,
1997.
<TABLE>
<CAPTION>
PERCENTAGE OF
NET REVENUES
FOR YEAR ENDED
INDUSTRY DECEMBER 31, 1997
-------- -----------------
<S> <C>
Hotels & Motels...................................... 25.2%
Restaurants.......................................... 22.5
Retail............................................... 12.4
Automotive........................................... 10.4
Gasoline Retailers and Other Services................ 8.3
Entertainment/Sports................................. 3.2
Hospital............................................. 2.9
Financial Institutions............................... 2.1
Tobacco.............................................. 0.2(1)
All Other............................................ 12.8
-----
Total........................................... 100.0%
=====
</TABLE>
- ---------------
(1) Tobacco advertisers typically advertise on posters under short-term
contracts. The Company believes that annual net revenues from tobacco
advertisers have not exceeded 3% in the last several years.
No customer of the Company accounted for as much as 2% of the Company's net
revenues during the month of June 1998. The following table sets forth the
Company's top ten advertisers for the month of June 1998.
<TABLE>
<CAPTION>
ANNUALIZED
AMOUNT
(IN
ADVERTISER(1) INDUSTRY THOUSANDS)(2)
------------- --------------- ----------------
<S> <C> <C>
Georgia Lottery Other $ 151
Kahler Lodging Hotels & Motels 141
Rochester Hospitality Hotels & Motels 117
Fariboo Woolens Retail 113
Treasure Island Hotels & Motels 100
Burger King Franchisee Restaurants 96
Tanger Outlet Retail 90
J. Walter Thompson Automotive 90
Ranch Restaurant Restaurants 88
McDonald's Franchisee Restaurants 87
</TABLE>
- ---------------
(1) Based on the party that pays for the advertising, which, in the case of an
advertising agency or franchisee, may not necessarily be the party that
contracts for the outdoor advertising or controls the decision to contract
with the Company.
(2) Total June 1998 billings multiplied by 12. This amount may not necessarily
reflect the actual revenues received from an advertiser over a 12-month
period.
Tobacco revenues have historically accounted for a significantly lower
portion of the Company's outdoor advertising revenues than for the outdoor
advertising industry as a whole. Tobacco advertisers have typically accounted
for less than 3% of the Company's annual net revenues, well below the estimated
7.3% for the outdoor advertising industry as a whole in 1997, as reported by
Competitive Media Reporting and Publishers Information Bureau Inc. Thus, the
reduction by tobacco companies in their expenditures for outdoor advertising has
had a less dramatic effect on the Company's inventories than on the outdoor
advertising
40
<PAGE> 45
industry as a whole. See "-- Government Regulation" and "Risk
Factors -- Potential Elimination or Reduction of Tobacco Advertising".
CONTRACTS
The Company emphasizes the use of advertising contracts with a term of 36
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 net revenues and allow
sales personnel time to devote greater attention to servicing their accounts and
generating new customers. The Company believes that once its customers enter
into 36-month contracts they tend to view their outdoor advertising expenses as
a routine cost of doing business. As a result, the Company believes that such
customers are more likely to renew their contracts.
To encourage customers to sign 36-month contracts, the Company charges
advertisers a lower monthly rate for 36-month contracts than that for
shorter-term contracts. The Company also provides incentives to its sales force
to sell longer-term contracts by paying commissions applicable to revenues for
the entire term of the advertising contract in advance upon contract receipt.
As of January 1, 1998, the future contract revenue associated with occupied
bulletins was $17.1 million, of which $10.4 million is expected to be collected
in 1998 (the foregoing amounts include future contract revenues for Unisign as
of March 1, 1998). Since posters are sold under short-term contracts, net
revenues from poster contracts are not included in future contract revenue
amounts.
LOCAL MARKET OPERATIONS
The Company conducts its operations through its five regional offices
consistent with management's belief that decentralization of operations is most
responsive to local market demands while providing greater incentive to its
regional employees. Each division has a general manager who oversees regional
leasing and creative production, and a sales manager who reports to the Director
of Marketing in the Company's headquarters. In addition, each division has
limited facilities for the production of outdoor advertising. (See
"-- Production"). Management believes that by relying on regional personnel to
study and assess local market conditions and to procure new site leases, it is
better able to respond to increases in advertiser demand.
This decentralized approach is complemented by the Company's centralized
administration and oversight that includes direct management of each division's
sales, accounting and strategic planning. Division general managers report
directly to the President as do the Chief Financial Officer and Director of
Marketing. Division sales managers report directly to the Director of Marketing.
Management encourages its sales force to maintain a hands-on approach to
marketing within their local business communities. This mandates substantial
customer and business contact, evaluation of sites and potential locations, and
an understanding of the prevailing business community. Since most small
communities lack exposure to sophisticated advertising agencies, the Company
satisfies this need with its design and production staff.
PRODUCTION
The Company has internal production facilities and staff to perform a full
range of activities required to construct and install outdoor advertising
structures and display faces, to develop, create and install outdoor advertising
in all of its markets, and to maintain its outdoor advertising properties.
Production work for display faces includes creating the advertising copy
design and layout, painting the design or coordinating its printing, and
installing the designs on display faces. The Company produces substantially all
advertising on its bulletin display faces, especially since local advertisers
generally are not represented by advertising agencies.
The Company's bulletin display faces are panels to which advertising copy
is attached, and will be one of three types depending upon the length of the
advertising contract under which the copy is to be displayed: self-
41
<PAGE> 46
adhesive vinyl, hand painted or vinyl wrap. Self-adhesive vinyl bulletins, which
are generally sold under contracts with a term of at least 36 months,
substantially all of which are produced in-house at the Company's Baxter
Springs, Kansas facility, consist of vinyl letters and other advertising copy
that contain an adhesive backing placed on pre-painted, roller-coated plywood
sheets that are hung on the outdoor advertising structure. Where no illumination
source exists on a structure, the self-adhesive vinyl copy may be coated with
Scotchlite, which causes the advertising copy to be illuminated brightly by the
headlights of passing vehicles. Hand painted bulletins, which are generally sold
under contracts with a term of 12 to 18 months, contain advertising copy painted
on plywood sheets, and are hand painted by an outside contractor either on-site
or in-house at a Company facility. Vinyl wraps, which are sold under short-term
contracts, are produced by outside contractors and consist of vinyl sheets
painted with computer-generated graphics that are wrapped around rectangular
plywood sheets attached to the outdoor advertising structure. The Company's
poster display faces are lithographs or silk-screened paper sheets produced by
outside contractors that are pasted to the face of the display, much like
wallpaper.
The Company has facilities for the construction of new outdoor advertising
structures in Baxter Springs, Kansas and Tifton, Georgia. The Company's new
billboard structures have generally been constructed by outside contractors;
however, the Company has increased its capability to build these structures with
Company personnel by adding construction personnel at its Tifton facility.
The Company believes that it can generally construct outdoor advertising
structures for approximately 80% of the price charged by an outside contractor.
The majority of the Company's new structures constructed by outside contractors
range in price from $10,000 to $30,000, whereas the cost for such structures
when constructed by the Company range from $8,000 to $24,000.
The Company believes it has adequate capacity to meet the needs of its
anticipated in-house structure construction and advertising production.
COMPETITION
In most cases, the Company is a leading provider of outdoor advertising in
the areas in which it operates. Most of the Company's customers are local
businesses purchasing highway directional billboards under long-term contracts.
The Company competes for these customers primarily with other outdoor
advertising companies in the area, highway logo sign operators and companies
that install commercial signs on an advertiser's own property. To a lesser
extent, the Company also competes with a number of other local competitors,
including local newspapers, direct mail and other print media, as well as radio
and television, especially in cases where the local advertiser is seeking to
attract local residents to its business. In competing for local highway
directional advertisers, price, location and availability are important factors,
as are service and customer relationships.
The Company competes for non-highway directional customers principally
through the sale of space on its posters. The Company competes for these
customers against a full range of competitors, including other outdoor
advertisers, print media, radio and television, as well as a variety of other
"out-of-home" media, including advertising in shopping centers and malls,
airports, stadiums, movie theaters and supermarkets and on buses.
Advertisers compare relative costs of available media and cost-per-thousand
impressions, particularly when delivering a message to customers from particular
geographic areas. In competing with other media, outdoor advertising relies on
its low cost-per-thousand-impressions and its ability to target a particular
geographic area.
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. In several of its
markets, the Company encounters direct competition from other major outdoor
media companies, including Outdoor Systems, Inc., Whiteco, Inc. and Lamar
Advertising Company, each of which has a larger national network and greater
resources than the Company. The Company believes that its emphasis on local
highway directional advertisers
42
<PAGE> 47
and its position as a major provider of advertising services in each of the
areas in which it operates enable it to compete effectively with the other
outdoor media operators, as well as other media. The Company also competes with
other outdoor advertising companies for sites on which to build new structures.
See "Risk Factors -- Competition".
PROPERTIES
The Company conducts its operations at the facilities set forth below:
<TABLE>
<CAPTION>
LOCATION USE SQUARE FOOTAGE LEASED/OWNED
-------- --- -------------- ------------
<S> <C> <C> <C>
Tifton, Georgia.................. Office; billboard structure 45,000 Owned
construction; limited display
face production
Baxter Springs, Kansas........... Office; billboard structure 14,000 Owned
construction; full display face
production
Jamestown, New York.............. Office; limited display face 5,000 Leased
production
Rochester, Minnesota............. Office; limited display face 8,000 Leased
production
Ivel, Kentucky................... Office; limited display face 5,000 Leased
production
</TABLE>
OUTDOOR ADVERTISING SITES
As of June 30, 1998, the Company owned 31 parcels of real property that
serve or may serve as the sites for outdoor displays. The Company's remaining
6,243 advertising display sites are leased. The Company's site leases are for
varying terms ranging from month-to-month or year-to-year to terms of ten years
or longer, and many provide for renewal options. Approximately 32% of these
leases will expire prior to the end of 1998. Historically, the Company has had
no difficulty renewing these leases. 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-sided structures and multiple displays on individual
structures on individual sites, the Company averages approximately 1.5 display
faces for every occupied site it owns or leases.
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, encourages 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. 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.
All the states in which the Company operates require the owner of a
billboard to obtain a state or local permit before erecting the structure. All
the states have implemented regulations at least as restrictive as the Highway
Beautification Act, including limitations 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. In addition, a
number of states and localities, including all the principal states in which the
Company operates, have passed additional and more restrictive regulations, often
in the form of municipal building, sign or zoning ordinances, on the
construction, repair, upgrading, height, lighting, 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. For instance, Maine, Vermont, Hawaii and
43
<PAGE> 48
Alaska ban billboards on a state-wide basis. Common restrictions in the states
in which the Company operates generally include requirements that billboards be
at least 500 feet apart.
Most outdoor advertisers, including the Company, operate a significant
number of billboards that do not conform with current state or local regulations
governing the height, size or location of billboards. A non-conforming is one
that was lawfully erected; but, due to either a change in zoning laws or the
enactment of zoning laws where none previously existed, the billboard is no
longer in compliance. However, the owner of a non-conforming billboard is still
legally permitted to own, operate and maintain the billboard for the rest of its
life. Typically, most laws provide that in the event a non-conforming billboard
is damaged, including damage caused by natural events such as tornados or
hurricanes, the Company is not permitted to repair the structure if either the
cost of doing so exceeds 50% of the cost of building a new billboard structure
or the physical damage to the structure exceeds 50% of the structure. In recent
years, the number of non-conforming billboards lost by the Company in this
fashion has been nominal. An outdoor advertising company that holds a permit for
a non-conforming structure has the exclusive right to maintain and operate that
structure, and is free to transfer the permit to another owner.
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 various jurisdictions and more typically in some urban metropolitan
areas, ordinances authorizing the amortization of billboards have been adopted.
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
have reached differing conclusions as to the constitutionality of these
regulations. Currently, none of the Company's existing inventory is subject to
any amortization ordinance.
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.
In August 1996, the U.S. Food and Drug Administration (the "FDA") issued
final regulations that, among other things, sought to regulate cigarettes and
other tobacco products. These regulations also sought to prohibit tobacco
product billboard advertisements within 1,000 feet of schools and playgrounds
and require that tobacco product advertisements on billboards be printed in
black and white color and contain only text. In 1997 a federal district court in
North Carolina upheld the right of the FDA to regulate cigarettes and tobacco
products, but ruled that the FDA did not have the authority to control tobacco
advertising. In August 1998 a three-judge panel of the 4th U.S. Circuit Court of
Appeals overturned the federal district court decision which would have
permitted the FDA to regulate cigarettes and tobacco products. The appeals panel
ruled that the FDA needed explicit authority from the U.S. Congress to regulate
tobacco products. It is anticipated that this decision will be appealed to the
full appellate court, and thereafter may eventually be reviewed by the U.S.
Supreme Court.
In June 1997, a majority of the major United States tobacco companies and
certain state attorneys general agreed to a proposed settlement of litigation.
The proposed settlement included a ban on all outdoor advertising of tobacco
products commencing nine months after finalization of the settlement. The
settlement was subject to numerous conditions, including the enactment of
legislation by the U.S. Congress. As a result of the failure of the U.S.
Congress to enact legislation, the proposed settlement was not completed.
Currently, a group of eight states is involved in settlement discussions with
four of the major United States tobacco companies. In addition, the states of
Mississippi, Florida, Texas and Minnesota have entered into separate settlements
of litigation with the tobacco industry. None of these completed settlements is
conditioned on federal government approval and each reportedly eliminates all
outdoor advertising of tobacco products.
44
<PAGE> 49
According to the OAAA, tobacco product advertising accounted for
approximately 7.3% of all outdoor billboard advertising revenues for the year
ended December 31, 1997. A reduction in billboard advertising by the tobacco
industry due to a proposed settlement or federal legislation could cause an
immediate reduction in industry 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 outdoor advertising industry or limit the
ability of industry participants to increase rates for some period of time.
Thus, even though less than 3% of the Company's annual net revenues is typically
derived from tobacco advertising, if outdoor advertising of tobacco products
were reduced or eliminated and the industry were unable to replace the lost
revenues, the change could have a material adverse effect on the Company by
forcing advertising rates down or inhibiting rate increases. See "Management's
Discussion and Analysis" and "Business -- Government Regulation".
If outdoor advertising of tobacco products were reduced or eliminated, the
Company may suffer reduced revenues due to an anticipated surplus of inventory
and price competition. See "-- Customers" and "Risk Factors -- Potential
Elimination or Reduction of Tobacco Advertising".
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.
EMPLOYEES
At June 30, 1998, the Company employed 138 people, of whom 42 were
primarily engaged in sales and marketing, 68 were engaged in painting, bill
posting and construction and maintenance of displays, and the balance were
employed in executive, financial, administrative and similar capacities. The
Company is not a party to any collective bargaining agreement.
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.
45
<PAGE> 50
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the
directors and executive officers of the Company as of June 30, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Sheldon G. Hurst.......................... 50 President, Chief Executive Officer and director
Anthony LaMarca........................... 44 Vice President and director
A. Wayne Lamm............................. 44 Director of Marketing and director
William G. McLendon....................... 43 Chief Financial Officer and director
William P. Sutter, Jr..................... 41 Director
</TABLE>
Sheldon G. Hurst founded and has served as President and Chief Executive
Officer of the Company since 1986. From 1972 to 1986, Mr. Hurst was vice
president of Hurst Sign Company, a billboard construction company in Scranton,
Pennsylvania owned by his father. During this period, he was responsible for
designing and managing the construction of over 1,000 advertising displays for
outdoor advertising companies.
Anthony LaMarca, a co-founder of the Company, has served as the Company's
Vice President since 1986, with primary responsibilities in the sales and
marketing of bulletins.
A. Wayne Lamm has been Director of Marketing of the Company since September
1, 1997. From September 1, 1989 to July 1, 1997, Mr. Lamm was the president and
chief operating officer of Penn Advertising, one of the largest outdoor
advertising companies in the Northeast. From November 1986 to September 1989,
Mr. Lamm was the regional supervisor of the Buffalo, New York plant of Penn
Advertising. From June 1984 to September 1986, he was the general manager and
national director of sales at Naegele Outdoor Advertising.
William G. McLendon joined the Company in October 1994 as Chief Financial
Officer. From December 1993 to October 1994, Mr. McLendon was the chief
financial officer of Naegele Outdoor Advertising. From 1991 to December 1993, he
was a partner at Brush & Associates, an investment banking boutique specializing
in outdoor advertising. From 1986 to 1990, Mr. McLendon was employed at Heller
Financial and, from 1978 to 1986, Mr. McLendon worked at General Electric
Capital Corp.
William P. Sutter, Jr. has been a director of the Company since October
1994. Since 1984, Mr. Sutter has been associated with affiliates of Mesirow
Financial Holdings, Inc., a Chicago-based financial services firm. Mr. Sutter is
an executive vice president of Mesirow Private Equity Investments, Inc. and a
vice president of Mesirow Financial Services, Inc. Mr. Sutter is a director of
New West Eyeworks, Inc., an optical retail chain. Mesirow Financial Services,
Inc. is the general partner of Mesirow, a holder of warrants in Holdings. See
"Principal Stockholders".
Pursuant to the Holdings Stockholders Agreement, the board of directors of
Holdings (and each of its subsidiaries, including the Company) shall be
comprised of seven individuals, four of whom are designated by the executive
employees of Holdings owning a majority of the Common Stock held by such
executives, and three of whom are designated by Mesirow (as of the date of this
Prospectus, Mesirow has only designated one such individual, William P. Sutter,
Jr.). See "Certain Relationships and Related Transactions".
Executive officers are appointed annually and serve at the discretion of
the Board of Directors.
DIRECTOR COMPENSATION
All directors of the Company serve without compensation (other than
reimbursement of expenses) in connection with rendering services as a director.
46
<PAGE> 51
EXECUTIVE COMPENSATION
The compensation of executive officers of the Company is determined by the
Board of Directors of the Company. The following table sets forth certain
information concerning compensation received by the Chief Executive Officer and
each executive officer of the Company whose total annual salary and bonus
exceeded $100,000 in 1997 for services rendered to the Company in all capacities
(including service as an officer or director). No stock options or similar
awards had been granted as of the end of fiscal 1997, to the individuals named
below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1997
ANNUAL COMPENSATION
-----------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
- --------------------------- -------- -------
<S> <C> <C>
Sheldon G. Hurst............................................ $142,000 $62,000
President and Chief Executive Officer
William G. McLendon......................................... 119,000 52,000
Chief Financial Officer and Secretary
</TABLE>
47
<PAGE> 52
PRINCIPAL STOCKHOLDERS
All of the Company's common stock is owned by Holdings. The following table
sets forth certain information with respect to the beneficial ownership of
Holdings' common stock, par value $.0001 per share (the "Common Stock"), and
Holdings' preferred stock, par value $.0001 per share (the "Preferred Stock"),
as of June 30, 1998 (i) by each person who is known by the Company to own
beneficially 5% percent or more of the outstanding shares of Common Stock or
Preferred Stock, (ii) by each of the Company's directors, (iii) by each of the
named executives, and (iv) by all current directors and officers of the Company
as a group. Unless indicated otherwise, each of the stockholders has sole voting
and investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
----------------------------- -----------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES CLASS(1) SHARES CLASS(2)
---------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Sheldon G. Hurst(3)........................ 844.1(4) 82.7%
3416 Highway 41 South
Tifton, Georgia 31793
Hurst Enterprises, L.P.(3)................. 844.1(4) 82.7%
c/o 3416 Highway 41 South
Tifton, Georgia 31793
William G. McLendon........................ 110.0(4) 10.8
3416 Highway 41 South
Tifton, Georgia 31793
A. Wayne Lamm.............................. 51.1(4)(5) 5.0
3416 Highway 41 South
Tifton, Georgia 31793
Anthony LaMarca............................ 20.4(4) 2.0
Mesirow Capital Partners VI(6)............. 716.0 41.2 7,308.0 46.7%
350 North Clark Street
Chicago, Illinois 60610
Mesirow Capital Partners VII(7)............ 383.0 27.3 8,331.0 53.3
350 North Clark Street
Chicago, Illinois 60610
William P. Sutter, Jr.(8).................. -- --
350 North Clark Street
Chicago, Illinois 60610
All directors and executive officers
as a group (5 persons)(8)................ 1,025.6 100.0
</TABLE>
- ---------------
(1) Mesirow VI in 1994 was granted warrants to purchase 640 shares of Common
Stock (the "1994 Warrants"), and in 1997 was granted warrants to purchase 76
shares of Common Stock (the "Mesirow VI 1997 Warrants"). Mesirow VII in 1997
was granted warrants to purchase 383 shares of Common Stock (the "Mesirow
VII 1997 Warrants") (the Mesirow VI 1997 Warrants and the Mesirow VII 1997
Warrant are collectively referred to as the "1997 Warrants"). The 1994
Warrants and the 1997 Warrants are currently exercisable. Total outstanding
Common Stock (on a fully diluted basis) consists of 1,020.4 shares rounded
to the nearest tenth prior to any exercise of the 1994 Warrants, the 1997
Warrants or certain options granted to Mr. Lamm.
(2) Total outstanding Preferred Stock consists of 15,639 shares.
(3) All shares are owned by Hurst Enterprises, L.P., a Georgia limited
partnership in which the general partners are Mr. Hurst and Sharon Hurst and
the sole limited partner is Mr. Hurst. The general partners hold a 4%
interest in Hurst Enterprises, L.P. and the limited partner holds a 96%
interest in Hurst Enterprises, L.P.
48
<PAGE> 53
(4) In the event of the exercise by Mesirow of the 1994 Warrants and/or the 1997
Warrants (the "Mesirow Exercise"), Holdings has agreed to issue certain
Common Stock to A. Wayne Lamm to maintain the 2% of the Common Stock of
Holdings purchased by A. Wayne Lamm from Holdings in 1997. Messrs. Hurst,
McLendon, Lamm and LaMarca have agreed to transfer Common Stock among
themselves in the event of the Mesirow Exercise and/or the exercise of the
Lamm options in order to provide certain percentage ownership anti-dilution
protection for Messrs. McLendon, Lamm and LaMarca.
(5) Includes 5.2 shares subject to outstanding options to purchase Common Stock
which are exercisable within the next 60 days.
(6) Includes 640 shares of Common Stock subject to outstanding warrants to
purchase Common Stock granted pursuant to the 1994 Warrants and 76 shares of
Common Stock subject to outstanding warrants to purchase granted pursuant to
the Mesirow VI 1997 Warrants.
(7) Includes 383 shares of Common Stock subject to outstanding warrants to
purchase granted pursuant to the Mesirow VII 1997 Warrants.
(8) Mr. Sutter, a director of the Company, is a vice president of Mesirow
Financial Services, Inc., which is the general partner of Mesirow VI and
Mesirow VII. Mr. Sutter disclaims beneficial ownership of shares
beneficially owned by Mesirow VI and Mesirow VII.
49
<PAGE> 54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the Holdings Stockholders Agreement, the board of directors of
Holdings (and each of its subsidiaries, including the Company) is required to be
comprised of seven individuals, four of whom are designated by the executive
employees of Holdings owning a majority of the Common Stock held by such
executives, and three of whom are designated by Mesirow (as of the date of this
Prospectus, Mesirow has only designated one such individual, William P. Sutter,
Jr.). The Holdings Stockholders Agreement provides that upon the occurrence of
certain events (including the failure of Holdings to purchase from Mesirow the
1994 Warrant and/or 1997 Warrants pursuant to such agreements, or to redeem
Mesirow's Preferred Stock pursuant to the certificate of incorporation of
Holdings), Mesirow can cause the re-constitution of the board of directors of
Holdings (and each of its subsidiaries, including the Company) to be comprised
of five individuals, four of whom are designated by Mesirow and one of whom is
designated by the executive employees of Holdings owning a majority of the
Common Stock held by such executives, in order to pursue the sale of Holdings
and its subsidiaries (or any assets or properties thereof).
Sheldon G. Hurst, President and Chief Executive Officer, and William G.
McLendon, Chief Financial Officer of the Company, jointly own 13 parcels of real
property which are leased to the Company and on which the Company maintains
billboards. The aggregate rent paid by the Company for these sites for 1997 was
$14,450. The aggregate rent to be paid to Messrs. Hurst and McLendon over the
life of these leases is $72,250. The leases are all for a term of five years. In
addition, Mr. Hurst owns 29 parcels of real property which are leased to the
Company principally on a one year basis (four leases are for terms of five
years) and on which the Company maintains billboards. The aggregate rent paid by
the Company for these sites for 1997 was $9,600.
Messrs Hurst, McLendon and Anthony LaMarca, Vice President of the Company,
jointly owned the building in Joplin, Missouri in which the Company maintained
its corporate headquarters until June 1997, at which time the Company's
corporate headquarters was relocated to Tifton, Georgia. The Joplin, Missouri
building was sold by Messrs. Hurst, McLendon and LaMarca to a third party in
September 1997. The lease was for a term of five years at a rate of $34,000 per
year.
The Company believes the terms of these lease arrangements are no less
favorable to the Company than similar arm's-length arrangements with unrelated
parties would be.
Sheldon G. Hurst owns a six-seat, single engine airplane which is leased to
the Company. The Company pays Mr. Hurst monthly lease payments equal to the
total amount paid by Mr. Hurst monthly under the financing he obtained to
acquire the airplane. Mr. Hurst borrowed $145,000 bearing interest at a rate per
annum equal to 1.4% in excess of the prime rate. The borrowing is to be repaid
in monthly installments over a ten-year period ending in 2007. The Company also
pays all insurance (currently $2,100 per year) and maintenance costs for the
airplane.
William G. McLendon, as a shareholder of TSS, received $161,000 for his
ownership in TSS in connection with the acquisition of the assets of TSS by the
Company.
50
<PAGE> 55
DESCRIPTION OF THE NOTES
The Existing Notes were issued, and the Exchange Notes offered hereby will
be issued, under an indenture dated as of May 15, 1998 (the "Indenture") between
the Company and IBJ Schroder Bank & Trust Company, 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.
Upon the issuance of the Exchange Notes, if any, or the effectiveness of
the Shelf Registration Statement, as the case may be, the Indenture will be
subject to and governed by the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The following summary of the material provisions of the
Indenture does not purport to be complete and is subject to, and qualified in
its entirety by, reference to the provisions of the Indenture, including the
definitions of certain terms contained therein and those terms made part of the
Indenture by reference to the Trust Indenture Act. For definitions of certain
capitalized terms used in the following summary, see "Certain Definitions"
below.
GENERAL
The Notes will mature on May 15, 2008, will be initially limited to
$100,000,000 aggregate principal amount and will be unsecured (except as
described under "Security" below) senior obligations of the Company. Each Note
will bear interest at the rate set forth on the cover page hereof from May 20,
1998 or from the most recent interest payment date to which interest has been
paid or duly provided for, payable semiannually on May 15 and November 15 in
each year, commencing November 15, 1998, until the principal thereof is paid or
duly provided for, to the person in whose name the Note (or any predecessor
Note) is registered at the close of business on May 1 or November 1 next
preceding such interest payment date. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months.
The principal of and premium, if any, and interest on the Notes will be
payable, and the Notes will be exchangeable and transferable, at the office or
agency of the Company in The City of New York maintained for such purposes
(which initially will be the office of the Trustee located at One State Street,
New York, New York 10004); provided, however, that, at the option of the
Company, interest may be paid by check mailed to the address of the person
entitled thereto as such address appears in the security register. The Notes
will be issued only in registered form without coupons and only in denominations
of $1,000 and any integral multiple thereof. No service charge will be made for
any registration of transfer or exchange or redemption of Notes, but the Company
may require payment in certain circumstances of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Subject to the covenants described below under "Certain Covenants" and
applicable laws, the Company may, from time to time, issue additional Notes (the
"Additional Notes") under the Indenture. The Notes offered hereby and any
Additional Notes subsequently issued would be treated as a single class for all
purposes under the Indenture.
As of the Closing Date, the Company will have no Subsidiaries. However,
under certain circumstances, the Company will be able to designate future
Subsidiaries as Unrestricted Subsidiaries, subject to certain limitations.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
Any Notes that remain outstanding after the consummation of the Exchange
Offer and Exchange Notes issued in connection with the Exchange Offer will be
treated as a single class of securities under the Indenture.
The Notes will not be entitled to the benefit of any sinking fund.
RANKING
The Notes will be unsecured except as described below under "Security,"
senior obligations of the Company, ranking pari passu with all existing and
future unsubordinated debt of the Company. The Notes will be effectively
subordinated to all of the Company's secured debt to the extent of the assets
securing such loans.
51
<PAGE> 56
As of June 30, 1998, on a pro forma basis after giving effect to the Initial
Offering and the Western acquisition, the application of the estimated net
proceeds therefrom and the consummation of other transactions referred to
herein, the Company would have had $16.8 million of debt outstanding other than
the Notes, excluding outstanding letters of credit.
REDEMPTION
The Notes will be redeemable at the election of the Company, as a whole or
from time to time in part, at any time on or after May 15, 2003, on not less
than 30 nor more than 60 days' prior notice at the redemption prices (expressed
as percentages of principal amount) set forth below, together with accrued
interest, if any, to the redemption date, if redeemed during the 12-month period
beginning on May 15 of the years indicated below (subject to the right of
holders of record on the relevant record date to receive interest due on an
interest payment date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2003...................................................... 105.500%
2004...................................................... 103.667
2005...................................................... 101.833
</TABLE>
and thereafter at 100% of the principal amount, together with accrued interest,
if any, to the redemption date.
In addition, at any time or from time to time prior to May 15, 2001, the
Company may at its option redeem Notes with the net proceeds of one or more
Equity Offerings at a redemption price equal to 111% of the principal amount
thereof, together with accrued interest, if any, to the date of redemption
(subject to the rights of holders of record on the relevant record date to
receive interest due on an interest payment date); provided that, immediately
after giving effect to any such redemption, at least 75% of the aggregate
principal amount of the Notes issued under the Indenture remains outstanding.
Any such redemption must be made within 90 days of the related Equity Offering.
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected not more than 60 days prior to the redemption date by
the Trustee by lot or such other method as the Trustee deems fair and
appropriate.
SECURITY
The Notes are collateralized pursuant to the Escrow Agreement dated as of
May 15, 1998 (the "Escrow Agreement"), among the Company, the Trustee and IBJ
Schroder Bank & Trust Company, Escrow Agent, by a pledge of the Escrow Account
created in the Escrow Agreement, which initially contained a portfolio of U.S.
Government securities in the amount of $10.4 million that, together with the
interest thereon (the "Escrow Collateral"), will be sufficient to pay interest
on the Notes for two scheduled interest payments.
The Company entered into the Escrow Agreement providing for the grant by
the Company to the Trustee, for the benefit of the holders of Notes, of security
interests in the Escrow Collateral. All such security interests collateralize
the payment and performance when due of all obligations of the Company under the
Indenture and the Notes, as provided in the Escrow Agreement. The Liens created
by the Escrow Agreement are first priority security interests in the Escrow
Collateral. The ability of holders of the Notes to realize upon any such funds
or securities may be subject to certain bankruptcy law limitations in the event
of the bankruptcy of the Company.
Pursuant to the Escrow Agreement, funds may be disbursed from the Escrow
Account only to pay interest on the Notes (or, if a portion of the Notes has
been retired by the Company, funds representing the lesser of (i) the excess of
the amount sufficient to pay interest through and including May 15, 1999 on the
Notes not so retired and (ii) the interest payments that have not previously
been made on such retired Notes for each interest payment date through the
interest payment date to occur on May 15, 1999 will be paid to the Company if no
Default then exists under the Indenture).
52
<PAGE> 57
Pending the two scheduled interest payments, all funds contained in the
Escrow Account were invested in U.S. Government securities (the "Pledged
Securities"). Interest earned on the Pledged Securities will be placed in the
Escrow Account. Upon the acceleration of the maturity of the Notes, the Escrow
Agreement will provide for the foreclosure by the Trustee upon the net proceeds
of the Escrow Account. Under the terms of the Indenture, the proceeds of the
Escrow Account will be applied, first, to amounts owing to the Trustee in
respect of fees and expenses of the Trustee and, second, to all obligations
under the Notes and the Indenture. Under the Escrow Agreement, after the Company
makes the first two scheduled interest payments on the Notes in a timely manner,
any remaining funds and Pledged Securities held in the Escrow Account will be
released and returned to the Company and, thereafter, the Notes will be
unsecured.
CERTAIN DEFINITIONS
"Acquired Debt" means Debt of a person (a) existing at the time such person
is merged with or into the Company or becomes a Restricted Subsidiary or (b)
assumed in connection with the acquisition of assets from such person.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control," when used with respect to any specified person, means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer") by the Company or a
Restricted Subsidiary, directly or indirectly, in one or a series of related
transactions, of (a) any Capital Stock of any Restricted Subsidiary, (b) all or
substantially all of the properties and assets of the Company and its Restricted
Subsidiaries representing a division or line of business or (c) any other
properties or assets of the Company or any Restricted Subsidiary, other than in
the ordinary course of business. For the purposes of this definition, the term
"Asset Sale" does not include any transfer of properties or assets (i) that is
governed by the provisions of the Indenture described under "Consolidation,
Merger and Sale of Assets", (ii) between or among the Company and its Restricted
Subsidiaries pursuant to transactions that do not violate any other provision of
the Indenture, (iii) any transfer constituting a Restricted Payment that is
permitted to be made, and is made, under paragraph (a) of the covenant described
under "Limitation on Restricted Payments", (iv) that is permitted to be made,
and is made, pursuant to the definition of "Permitted Investments", (v)
representing obsolete or permanently retired equipment and facilities or (vi)
the gross proceeds of which (exclusive of indemnities) do not exceed $100,000
for any particular item or $500,000 in the aggregate for any fiscal year.
"Capital Stock" of any person means any and all shares, interests,
partnership interests, participations, rights in or other equivalents of, or
interest in, the equity of such person, but excluding any debt securities
convertible into such equity.
"Capital Lease Obligation" means, at any time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Change of Control" means the occurrence of any of the following events:
(a) Any person or "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than (i) Sheldon G. Hurst, Hurst
Enterprises, L.P., William G. McLendon, A. Wayne Lamm, Anthony La Marca or
any trust existing solely for the benefit of any of the above individuals
and the estate or any executor, administrator, conservator or other legal
representative of any of the above individuals and (ii) Mesirow or its
affiliated entities, is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person will be
deemed to have "beneficial ownership" of all securities that such person
has the right to acquire, whether such right is exercisable
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immediately or only after the passage of time), directly or indirectly, of
more than a majority of the voting power of all classes of Voting Stock of
the Company.
(b) During any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of Directors,
or whose nomination for election by the stockholders of the Company, was
approved by a vote of 66 2/3% of the directors 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.
(c) The Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution, other than a transaction that complies with the
provisions described under "Consolidation, Merger and Sales of Assets".
"Closing Date" means the date on which the Notes are originally issued
under the Indenture.
"Consolidated Adjusted Net Income" means, for any period, the net income
(or net loss) of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to Asset Sales, (c) the portion of net income
(but not the net loss) of any person (other than the Company or a Restricted
Subsidiary), including Unrestricted Subsidiaries, in which the Company or any
Restricted Subsidiary has an equity interest, except to the extent of the amount
of dividends or other distributions actually paid to the Company or any
Restricted Subsidiary in cash during such period by such person, (d) the net
income (or loss) of any person acquired by the Company or any Restricted
Subsidiary in a "pooling of interests" transaction attributable to any period
prior to the date of such acquisition and (e) the net income (but not the net
loss) of any Restricted Subsidiary to the extent that the declaration or payment
of dividends or similar distributions by such Restricted Subsidiary is at the
date of determination restricted, directly or indirectly, except to the extent
that such net income could be paid to the Company or a Restricted Subsidiary
thereof by loans, advances, intercompany transfers, principal repayments or
otherwise; provided that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated Adjusted Net Income will be reduced (to the
extent not otherwise reduced in accordance with GAAP) by an amount equal to (A)
the amount of the Consolidated Adjusted Net Income otherwise attributable to
such Restricted Subsidiary multiplied by (B) the quotient of (1) the number of
shares of outstanding common stock of such Restricted Subsidiary not owned on
the last day of such period by the Company or any of its Restricted Subsidiaries
divided by (2) the total number of shares of outstanding common stock of such
Restricted Subsidiary on the last day of such period.
"Consolidated EBITDA" means, for any period, the sum of, without
duplication, Consolidated Adjusted Net Income for such period, plus (or, in the
case of clause (d) below, plus or minus) the following items to the extent
included in computing Consolidated Adjusted Net Income for such period (a)
Consolidated Fixed Charges for such period, plus (b) the federal, state, local
and foreign income tax expense of the Company and its Restricted Subsidiaries
for such period, plus (c) the aggregate depreciation and amortization expense of
the Company and its Restricted Subsidiaries for such period, plus (d) any other
non-cash charges for such period, and minus non-cash credits for such period,
other than non-cash charges or credits resulting from changes in prepaid assets
or accrued liabilities in the ordinary course of business; provided that income
tax expense, depreciation and amortization expense and non-cash charges and
credits of a Restricted Subsidiary will be included in Consolidated EBITDA only
to the extent (and in the same proportion) that the net income of such
Restricted Subsidiary was included in calculating Consolidated Adjusted Net
Income for such period.
"Consolidated Fixed Charges" means, for any period, without duplication,
the sum of (a) the amount that, in conformity with GAAP, would be set forth
opposite the caption "interest expenses" (or any like caption) on a consolidated
statement of operations of the Company and its Restricted Subsidiaries for such
period, including, without limitation, (i) amortization of debt discount, (ii)
the net cost of interest rate contracts (including amortization of discounts),
(iii) the interest portion of any deferred payment obligation, (iv) amortization
of debt issuance costs and (v) the interest component of Capitalized Lease
Obligations, plus
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(b) cash dividends paid on Preferred Stock and Disqualified Stock by the Company
and any Restricted Subsidiary (to any person other than the Company or a
Restricted Subsidiary), plus (c) all interest on any Debt of any person
guaranteed by the Company or any of its Restricted Subsidiaries; provided,
however, that Consolidated Fixed Charges will not include (i) any gain or loss
from extinguishment of debt, including the write-off of debt issuance costs and
(ii) the fixed charges of a Restricted Subsidiary to the extent (and in the same
proportion) that the net income of such Subsidiary was excluded in calculating
Consolidated Adjusted Net Income pursuant to clause (e) of the definition
thereof for such period.
"Consolidated Leverage Ratio" means, on any date of determination, the
ratio of (i) the aggregate amount of Debt of the Company and its Restricted
Subsidiaries on a consolidated basis as on such date of determination to (ii)
the aggregate amount of Consolidated EBITDA for the immediately preceding four
full fiscal quarters for which internal financial statements are available.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity of the Company and its Restricted Subsidiaries as set forth on the most
recently available quarterly or annual consolidated balance sheet of the Company
and its Restricted Subsidiaries, less any amounts attributable to Disqualified
Stock or any equity security convertible into or exchangeable for Debt, the cost
of treasury stock and the principal amount of any promissory notes receivable
from the sale of the Capital Stock of the Company or any of its Restricted
Subsidiaries and less, to the extent included in calculating such stockholders'
equity of the Company and its Restricted Subsidiaries, the stockholders' equity
attributable to Unrestricted Subsidiaries, each item to be determined in
conformity with GAAP (excluding the effects of foreign currency adjustments
under Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 52).
"Debt" means (without duplication), with respect to any person, whether
recourse is to all or a portion of the assets of such person and whether or not
contingent, (a) every obligation of such person for money borrowed, (b) every
obligation of such person evidenced by bonds, debentures, notes or other similar
instruments, (c) every reimbursement obligation of such person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such person, (d) every obligation of such person issued or assumed as
the deferred purchase price of property or services, (e) the amount of every
Capitalized Lease Obligation of such person, (f) all Disqualified Stock of such
person valued at its maximum fixed repurchase price, plus accrued and unpaid
dividends, (g) all obligations of such person under or in respect of Hedging
Obligations if and to the extent such Hedging Obligations would appear as a
liability upon a balance sheet of such person in accordance with GAAP and (h)
every obligation of the type referred to in clauses (a) through (g) of another
person and all dividends of another person the payment of which, in either case,
such person has guaranteed. For purposes of this definition, the "maximum fixed
repurchase price" of any Disqualified Stock that does not have a fixed
repurchase price will be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were repurchased on any date on
which Debt is required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by, the fair market value of such Disqualified
Stock, such fair market value will be determined in good faith by the board of
directors of the issuer of such Disqualified Stock. Notwithstanding the
foregoing, trade accounts payable and accrued liabilities arising in the
ordinary course of business and any liability for federal, state or local taxes
or other taxes owed by such person will not be considered Debt for purposes of
this definition.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions (other than as the holder of Voting Stock of the Company).
"Disqualified Stock" means any class or series of Capital Stock that,
either by its terms, or by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise (a) is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to one year after the final Stated Maturity of the Notes, (b) is redeemable at
the option of the holder thereof at any time prior to one
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year after such final Stated Maturity or (c) at the option of the holder
thereof, is convertible into or exchangeable for debt securities at any time
prior to one year after such final Stated Maturity; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions therein
giving holders thereof the right to cause the issuer thereof to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the Notes will not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in the "Limitation on Certain Asset
Sales" and "Purchase of Notes upon a Change of Control" covenants described
below and such Capital Stock specifically provides that the issuer will not
repurchase or redeem any of such stock pursuant to such provision prior to the
Company's repurchase of such of the Notes as are required to be repurchased
pursuant to the "Limitation on Certain Asset Sales" and "Purchase of Notes upon
a Change of Control" covenants described below.
"Equity Offering" means an offer and sale by the Company of its common
stock (which is Qualified Stock) to one or more persons other than a Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, as applied from time to
time by the Company in the preparation of its consolidated financial statements.
"guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of all or any part of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of 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 limitation, the payment of
amounts drawn down under letters of credit.
"Hedging Obligations" means the obligations of any person under (i)
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements and (ii) other agreements or arrangements designed to protect
such person against fluctuations in interest rates or the value of foreign
currencies.
"Investment" in any person means, (a) directly or indirectly, any advance,
loan or other extension of credit (including, without limitation, by way of
guarantee or similar arrangement) or capital contribution to any person, the
purchase or other acquisition of any stock, bonds, notes, debentures or other
securities issued by such person, the acquisition (by purchase or otherwise) of
all or substantially all of the business or assets of such person, or the making
of any investment in such person, (b) the designation of any Restricted
Subsidiary as an Unrestricted Subsidiary, (c) the transfer of any assets or
properties from the Company or a Restricted Subsidiary to an Unrestricted
Subsidiary, other than the transfer of assets or properties made in the ordinary
course of business and (d) the fair market value of the Capital Stock (or any
other Investment), held by the Company or any of its Restricted Subsidiaries, of
(or in) any person that has ceased to be a Restricted Subsidiary, including,
without limitation, by reason of any transaction permitted by clause (d) of the
"Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries"
covenant described below. Investments exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement, capital lease or other lease in the nature thereof).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations as and when received in the form of, or stock or
other assets when disposed of for, cash or cash equivalents (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary), net of (a) brokerage commissions and other fees
and expenses (including fees and expenses of legal counsel, accountants and
investment banks) related to such Asset Sale, (b) provisions for all taxes
payable as a result of such Asset Sale, (c) payments made to retire Debt where
payment of such Debt is secured by a Lien on the
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assets that are the subject of such Asset Sale, (d) amounts required to be paid
to any person (other than the Company or any Restricted Subsidiary) owning a
beneficial interest in the assets that are subject to the Asset Sale and (e)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by the seller after
such Asset Sale, including pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale.
"Pari Passu Debt" means any Debt of the Company or any Subsidiary
Guarantor, whether outstanding on the Closing Date or incurred thereafter, that
ranks pari passu in right of payment with the Notes or any Subsidiary Guarantee,
as the case may be.
"Permitted Investment" means any of the following:
(a) Investments in (i) securities with a maturity of 180 days or less
issued or directly and fully guaranteed or insured by the United States or
any agency or instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof); (ii)
certificates of deposit or acceptances with a maturity of 180 days or less
of any financial institution that is a member of the Federal Reserve System
having combined capital and surplus of not less than $500,000,000; and
(iii) commercial paper with a maturity of 180 days or less issued by a
corporation that is not an Affiliate of the Company and is organized under
the laws of any state of the United States or the District of Columbia and
having the highest rating obtainable from Moody's Investors Service, Inc.
or Standard & Poor's Ratings Services.
(b) Investments by the Company in another person, if as a result of
such Investment such other person (i) becomes a Subsidiary Guarantor or
(ii) is merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or a Subsidiary Guarantor.
(c) Investments by the Company or any of the Subsidiary Guarantors in
any one of the other of them.
(d) Investments in existence on the Closing Date.
(e) Promissory notes received as a result of Asset Sales permitted
under the "Limitation on Certain Asset Sales" covenant.
(f) Direct or indirect loans to officers, directors or employees, or
to a trustee for the benefit of such employees, of the Company or any
Restricted Subsidiary in an aggregate amount outstanding at any time not
exceeding $250,000, plus the amount of direct or indirect loans to
employees for relocation assistance.
(g) Investments in assets owned or used in the ordinary course of
business.
(h) Investments in any person in the form of a capital contribution of
the Company's common stock.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock, whether now outstanding or issued after
the Closing Date, and including, without limitation, all classes and series of
preferred or preference stock of such person.
"Qualified Equity Interest" means any Qualified Stock and all warrants,
options or other rights to acquire Qualified Stock (but excluding any debt
security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any person means any and all Capital Stock of such
person, other than Disqualified Stock.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Significant Subsidiary" means any Restricted Subsidiary of the Company
that together with its Subsidiaries, (a) for the most recent fiscal year of the
Company, accounted for more than 10% of the
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consolidated net sales of the Company and its Restricted Subsidiaries or (b) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, in the case
of either (a) or (b), as set forth on the most recently available consolidated
financial statements of the Company for such fiscal year or (c) was organized or
acquired after the beginning of such fiscal year and would have been a
Significant Subsidiary if it had been owned during the entire fiscal year.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable and, when used with respect to any other Debt, means the date
specified in the instrument governing such Debt as the fixed date on which the
principal of such Debt or any installment of interest thereon is due and
payable.
"Subordinated Debt" means Debt of the Company that is subordinated in right
of payment to the Notes.
"Subsidiary" means any person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company
and/or one or more other Subsidiaries of the Company.
"Subsidiary Guarantee" means any guarantee by any Subsidiary Guarantor of
the Company's obligations under the Notes and the Indenture as required by the
terms of the Indenture.
"Subsidiary Guarantor" means any Restricted Subsidiary of the Company that
guarantees the Company's obligations under the Notes and the Indenture pursuant
to its Subsidiary Guarantee.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated as of May 20,
1998 between the Company and Holdings, as in effect on the Closing Date.
"Unrestricted Subsidiary" means (a) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary in accordance with the
"Unrestricted Subsidiaries" covenant and (b) any Subsidiary of an Unrestricted
Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any person (irrespective of whether or not, at the time, stock of
any other class or classes has, or might have, voting power by reason of the
happening of any contingency).
"Weighted Average Life" means, as of the date of determination with respect
to any Debt or Disqualified Stock, the quotient obtained by dividing (a) the sum
of the products of (i) the number of years from the date of determination to the
date or dates of each successive scheduled principal or liquidation value
payment of such Debt or Disqualified Stock, respectively, multiplied by (ii) the
amount of each such principal or liquidation value payment by (b) the sum of all
such principal or liquidation value payments.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary, all
of the outstanding voting securities (other than directors' qualifying shares or
shares of foreign Restricted Subsidiaries required to be owned by foreign
nationals pursuant to applicable law) of which are owned, directly or
indirectly, by the Company.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Debt. The Company will not, and will not permit any
Restricted Subsidiary to, create, issue, assume, guarantee or in any manner
become directly or indirectly liable for the payment of, or otherwise incur
(collectively, "incur"), any Debt (including Acquired Debt and the issuance of
Disqualified Stock), except that the Company or a Restricted Subsidiary may
incur Debt or issue Disqualified Stock if, at the time of such event, the
Consolidated Leverage Ratio would have been (i) less than 6.50 to 1 through May
15, 2001, (ii) less than 6.25 to 1 from May 15, 2001 through May 15, 2003 and
(iii) less than 6.0 to 1 thereafter.
In making the foregoing calculation, pro forma effect will be given to: (i)
the incurrence of such Debt and (if applicable) the application of the net
proceeds therefrom, including to refinance other Debt, as if such
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Debt was incurred and the application of such proceeds occurred at the beginning
of the four-quarter period ending on the last day of the immediately preceding
fiscal quarter of the Company for which internal financial statements are
available, (ii) the incurrence, repayment or retirement of any other Debt by the
Company or its Restricted Subsidiaries since the first day of such four-quarter
period as if such Debt was incurred, repaid or retired at the beginning of such
four-quarter period, (iii) the acquisition (whether by purchase, merger or
otherwise) or disposition (whether by sale, merger or otherwise) of any company,
entity or business acquired or disposed of by the Company or its Restricted
Subsidiaries, as the case may be, since the first day of such four-quarter
period, as if such acquisition or disposition occurred at the beginning of such
four-quarter period. In making a computation under the foregoing clause (i) or
(ii), (A) interest on Debt bearing a floating interest rate will be computed as
if the rate in effect on the date of computation had been the applicable rate
for the entire period, (B) if such Debt bears, at the option of the Company, a
fixed or floating rate of interest, interest thereon will be computed by
applying, at the option of the Company, either the fixed or floating rate and
(C) the amount of Debt under a revolving credit facility will be computed based
upon the average daily balance of such Debt during such four-quarter period and
(iv) if such four-quarter period ends before September 30, 1998, the TSS
acquisition and, if such four-quarter period ends before March 31, 1999, the
Unisign acquisition, in each case as if such acquisitions occurred at the
beginning of such four-quarter period.
Notwithstanding the foregoing, the Company may, and may, to the extent
expressly permitted below, permit its Restricted Subsidiaries to, incur any of
the following Debt ("Permitted Debt"):
(i) Debt of the Company or any Restricted Subsidiary under one or more
credit facilities in an aggregate principal amount at any one time
outstanding not to exceed $20,000,000 less any amounts applied to the
permanent reduction of such credit facilities pursuant to the "Limitation
on Certain Asset Dispositions" covenant (and any guarantees of such Debt by
a Restricted Subsidiary).
(ii) Debt of the Company or any Restricted Subsidiary outstanding on
the Closing Date, other than Debt described under clause (i)above, and
obligations under Hedging Obligations in effect on the Closing Date.
(iii) Debt owed by the Company to any Restricted Subsidiary or owed by
any Restricted Subsidiary to the Company or any other Restricted Subsidiary
(provided that such Debt is held by the Company or such Restricted
Subsidiary).
(iv) Debt represented by the Notes (other than any Additional Notes)
and any Subsidiary Guarantee.
(v) (A) Capitalized Lease Obligations of the Company or any Restricted
Subsidiary, and (B) Debt of the Company or any Restricted Subsidiary under
purchase money mortgages or secured by purchase money security interests so
long as (x) such Debt is not secured by any property or assets of the
Company or any Restricted Subsidiary other than the property and assets so
acquired and (y) such Debt is created prior to, at the time of or within
six months after the later of the acquisition, the completion of
construction or the commencement of full operation of the related property;
provided that the aggregate amount of Debt under the foregoing clauses (A)
and (B) above does not exceed $5.0 million at any one time outstanding.
(vi) Debt of the Company or any Restricted Subsidiary consisting of
guarantees, indemnities or obligations in respect of purchase price
adjustments in connection with the acquisition or disposition of assets,
including, without limitation, shares of Capital Stock.
(vii) Guarantees by any Restricted Subsidiary made in accordance with
the provisions of the "Guarantees of Debt by Restricted Subsidiaries"
covenant.
(viii) Any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") of any
outstanding Debt, other than Debt incurred pursuant to clause (i), (iii),
(v) (vi) or (vii) of this definition, including any successive refinancings
thereof, so long as (A) any such new Debt is in a principal amount that
does not exceed the principal amount so refinanced, plus the amount of any
premium required to be paid in connection with such refinancing pursuant to
the terms of
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the Debt refinanced or the amount of any premium reasonably determined by
the Company as necessary to accomplish such refinancing, plus the amount of
the expenses of the Company reasonably estimated to be incurred in
connection with such refinancing, (B) in the case of any refinancing of
Subordinated Debt, such new Debt is made subordinate to the Notes at least
to the same extent as the Debt being refinanced and (C) such refinancing
Debt does not have a Weighted Average Life less than the Weighted Average
Life of the Debt being refinanced and does not have a final scheduled
maturity earlier than the final scheduled maturity, or permit redemption at
the option of the holder earlier than the earliest date of redemption at
the option of the holder, of the Debt being refinanced.
Limitation on Restricted Payments. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, take any of the
following actions:
(a) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of the Company or any
Restricted Subsidiary, other than (i) dividends or distributions payable
solely in Qualified Equity Interests, (ii) dividends or distributions by a
Restricted Subsidiary payable to the Company or another Restricted
Subsidiary or (iii) pro rata dividends or distributions on common stock of
a Restricted Subsidiary held by minority stockholders, provided that such
dividends do not in the aggregate exceed the minority stockholders' pro
rata share of such Restricted Subsidiary's net income from the first day of
the Company's fiscal quarter during which the Closing Date occurs;
(b) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock (or any options,
warrants or other rights to acquire shares of Capital Stock) of (i) the
Company, Holdings or any Unrestricted Subsidiary or (ii) any Restricted
Subsidiary held by any Affiliate of the Company (other than, in either
case, any such Capital Stock owned by the Company or any of its Restricted
Subsidiaries);
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Debt; or
(d) make any Investment (other than a Permitted Investment) in any
person
(such payments or other actions described in (but not excluded from) clauses (a)
through (d) being referred to as "Restricted Payments"), unless at the time of,
and immediately after giving effect to, the proposed Restricted Payment:
(i) no Default or Event of Default has occurred and is continuing,
(ii) the Company could incur at least $1.00 of additional Debt (other
than Permitted Debt) pursuant to the first paragraph of the "Limitation on
Debt" covenant and
(iii) the aggregate amount of all Restricted Payments declared or made
after the Closing Date does not exceed the sum of:
(A) the remainder of (x) 100% of the aggregate cumulative
Consolidated EBITDA for the period beginning on the first day of the
Company's fiscal quarter during which the Closing Date occurs and ending
on the last day of the Company's most recent fiscal quarter for which
internal financial statements are available ending prior to the date of
such proposed Restricted Payment (the "Computation Period") minus (y)
the product of 1.4 times the aggregate cumulative Consolidated Fixed
Charges for the Computation Period, plus
(B) the aggregate net proceeds, including the fair market value of
property other than cash (as determined by the Board of Directors, whose
good faith determination will be conclusive), after the Closing Date
from the issuance or sale (other than to a Subsidiary) of debt
securities or Disqualified Stock that have been converted into or
exchanged for Qualified Stock of the Company, together with the
aggregate net cash proceeds received by the Company at the time of such
conversion or exchange, plus received by the Company after the Closing
Date from the issuance or sale (other than to a Subsidiary) of Qualified
Equity Interests of the Company (excluding from this
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computation proceeds of an Equity Offering received by the Company that
are used by it to redeem Notes as discussed above), plus
(C) the aggregate net proceeds, including the fair market value of
property other than cash (as determined by the Board of Directors, whose
good faith determination will be conclusive), after the Closing Date
from the issuance or sale (other than to a Subsidiary) of debt
securities or Disqualified Stock that have been converted into or
exchanged for Qualified Stock of the Company, together with the
aggregate net cash proceeds received by the Company at the time of such
conversion or exchange, plus received by the Company after the Closing
Date from the issuance or sale (other than to a Subsidiary) of debt
securities or Disqualified Stock that have been converted into or
exchanged for Qualified Stock of the Company, together with the
aggregate net proceeds received by the Company at the time of such
conversion or exchange, plus
(D) $5.0 million.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may take any of the following actions, so long as (with respect to clauses (e)
and (f) below) no Default or Event of Default has occurred and is continuing or
would occur:
(a) The payment of any dividend within 60 days after the date of
declaration thereof, if at the declaration date such payment would not have
been prohibited by the foregoing provision.
(b) The repurchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company, in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance and
sale (other than to a Subsidiary) of, Qualified Equity Interests of the
Company.
(c) The purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Debt in exchange for, or out of
the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of Qualified Equity Interests of the Company.
(d) The purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Debt in exchange for, or out of the
net cash proceeds of a substantially concurrent issuance or sale (other
than to a Subsidiary) of, Subordinated Debt, so long as the Company or a
Restricted Subsidiary would be permitted to refinance such original
Subordinated Debt with such new Subordinated Debt pursuant to clause (viii)
of the definition of Permitted Debt.
(e) The repurchase of any Subordinated Debt at a purchase price not
greater than 101% of the principal amount of such Subordinated Debt in the
event of a "change of control" in accordance with provisions similar to the
"Purchase of Notes upon a Change of Control" covenant; provided that, prior
to or simultaneously with such repurchase, the Company has made the Change
of Control Offer as provided in such covenant with respect to the Notes and
has repurchased all Notes validly tendered for payment in connection with
such Change of Control Offer.
(f) The purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company or Holdings,
options on any such shares or related stock appreciation rights or similar
securities held by officers or employees or former officers or employees
(or their estates or beneficiaries under their estates) or by any employee
benefit plan, upon death, disability, retirement or termination of
employment or pursuant to the terms of any employee benefit plan or any
other agreement under which such shares of stock or related rights were
issued; provided that the aggregate cash consideration paid for such
purchase, redemption, acquisition, cancellation or other retirement of such
shares of Capital Stock after the Closing Date does not exceed in any
fiscal year the sum of (i) $1.0 million and (ii) any proceeds received by
the Company under a related key man or other life insurance policy.
(g) Make payments to Holdings pursuant to the Tax Sharing Agreement as
in effect on the Closing Date; and reimburse Holdings for out-of-pocket
administrative expenses incurred by Holdings, provided such reimbursement
may not exceed $50,000 in any fiscal year.
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The payments described in clauses (b), (c), (e) and (f) of this paragraph will
be Restricted Payments that will be permitted to be taken in accordance with
this paragraph but will reduce the amount that would otherwise be available for
Restricted Payments under the foregoing clause (iii) of the first paragraph of
this covenant and the payments described in clauses (a), (d) and (g) of this
paragraph will be Restricted Payments that will be permitted to be taken in
accordance with this paragraph and will not reduce the amount that would
otherwise be available for Restricted Payments under the foregoing clause (iii)
of the first paragraph of this covenant.
For the purpose of making any calculations under the Indenture (i) if a
Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company will
be deemed to have made an Investment in amount equal to the fair market value of
the net assets of such Restricted Subsidiary at the time of such designation as
determined by the Board of Directors of the Company, whose good faith
determination will be conclusive, (ii) any property transferred to or from an
Unrestricted Subsidiary will be valued at fair market value at the time of such
transfer, as determined by the Board of Directors of the Company, whose good
faith determination will be conclusive and (iii) subject to the foregoing, the
amount of any Restricted Payment, if other than cash, will be determined by the
Board of Directors of the Company, whose good faith determination will be
conclusive.
If the aggregate amount of all Restricted Payments calculated under the
foregoing provision includes an Investment in an Unrestricted Subsidiary or
other person that thereafter becomes a Restricted Subsidiary, the aggregate
amount of all Restricted Payments calculated under the foregoing provision will
be reduced by the lesser of (x) the net asset value of such Subsidiary at the
time it becomes a Restricted Subsidiary and (y) the initial amount of such
Investment.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision will be reduced by the amount of any net reduction in such Investment
(resulting from the payment of interest or dividends, loan repayment, transfer
of assets or otherwise), to the extent such net reduction is not included in the
Company's Consolidated Adjusted Net Income; provided that the total amount by
which the aggregate amount of all Restricted Payments may be reduced may not
exceed the lesser of (x) the cash proceeds received by the Company and its
Restricted Subsidiaries in connection with such net reduction and (y) the
initial amount of such Investment.
In computing Consolidated Adjusted Net Income of the Company for purposes
of the foregoing clause (iii)(A), (i) the Company may use audited financial
statements for the portions of the relevant period for which audited financial
statements are available on the date of determination and unaudited financial
statements and other current financial data based on the books and records of
the Company for the remaining portion of such period and (ii) the Company will
be permitted to rely in good faith on the financial statements and other
financial data derived from the books and records of the Company that are
available on the date of determination. If the Company makes a Restricted
Payment that, at the time of the making of such Restricted Payment, would in the
good faith determination of the Company be permitted under the requirements of
the Indenture, such Restricted Payment will be deemed to have been made in
compliance with the Indenture notwithstanding any subsequent adjustments made in
good faith to the Company's financial statements affecting Consolidated Adjusted
Net Income of the Company for any period.
Purchase of Notes upon a Change of Control. If a Change of Control occurs
at any time, then each holder of Notes will have the right to require that the
Company purchase such holder's Notes, in whole or in part in integral multiples
of $1,000, at a purchase price in cash equal to 101% of the principal amount of
such Notes, plus accrued and unpaid interest, if any, to the date of purchase,
pursuant to the offer described below (the "Change of Control Offer") and the
other procedures set forth in the Indenture.
Due to the highly leveraged capital structure of the Company, there can be
no assurance that the Company will have sufficient funds to purchase the Notes
upon a Change of Control. Prior to the purchase of the Notes, the Company's
Credit Facility must be repaid. As of September 30, 1998, $16.0 million of debt
was outstanding in the Credit Facility.
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The Company may omit or waive the provisions under the Indenture relative
to the Company's obligation to make an offer to repurchase the Notes as a result
of a Change of Control, if before or after the time for such compliance the
holders of at least a majority in principal amount of the Notes then outstanding
waive such compliance.
Within 30 days following any Change of Control, the Company will notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Notes by first-class mail, postage prepaid, at its address appearing in the
security register, stating, among other things, (i) the purchase price and the
purchase date, which will be a Business Day no earlier than 30 days nor later
than 60 days from the date such notice is mailed or such later date as is
necessary to comply with requirements under the Exchange Act; (ii) that any Note
not tendered will continue to accrue interest; (iii) that, unless the Company
defaults in the payment of the purchase price, any Notes accepted for payment
pursuant to the Change of Control Offer will cease to accrue interest after the
Change of Control purchase date; and (iv) certain other procedures that a holder
of Notes must follow to accept a Change of Control Offer or to withdraw such
acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes that might be tendered by holders of the Notes seeking to accept
the Change of Control Offer. The failure of the Company to make or consummate
the Change of Control Offer or pay the applicable Change of Control purchase
price when due would result in an Event of Default and would give the Trustee
and the holders of the Notes the rights described under "Events of Default".
One of the events that constitutes a Change of Control under the Indenture
is the disposition of "all or substantially all" of the Company's assets. This
term has not been interpreted under New York law (which is the governing law of
the Indenture) to represent a specific quantitative test. As a consequence, in
the event holders of the Notes elect to require the Company to purchase the
Notes and the Company elects to contest such election, there can be no assurance
as to how a court interpreting New York law would interpret the phrase in many
circumstances.
The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction that constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of Notes the right to
require the Company to repurchase such Notes in the event of a highly leveraged
transaction or certain transactions with the Company's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Company (including, in certain circumstances, an
acquisition of the Company by management or its affiliates) that may adversely
affect holders of the Notes, if such transaction is not a transaction defined as
a Change of Control. See "Certain Definitions" above for the definition of
"Change of Control". A transaction involving the Company's management or its
affiliates, or a transaction involving a recapitalization of the Company, would
result in a Change of Control if it is the type of transaction specified in such
definition.
The Company will comply with the applicable tender offer rules including
Rule 14e-l under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any Restricted Subsidiary to,
create any restriction (other than restrictions existing under Debt as in effect
on the Closing Date or in refinancings of such Debt) that would materially
impair the ability of the Company to make a Change of Control Offer to purchase
the Notes or, if such Change of Control Offer is made, to pay for the Notes
tendered for purchase.
Limitation on Certain Asset Sales. (a) The Company will not, and will not
permit any Restricted Subsidiary to, engage in any Asset Sale unless (i) the
consideration received by the Company or such Restricted Subsidiary for such
Asset Sale is not less than the fair market value of the assets sold (as
determined by the Board of Directors of the Company, whose good faith
determination will be conclusive) and (ii) the consideration received by the
Company or the relevant Restricted Subsidiary in respect of such Asset Sale
consists of at least 85% (A) cash or cash equivalents or (B) the assumption by
the transferee of Debt of
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the Company or a Restricted Subsidiary ranked pari passu with the Notes and
release of the Company or such Restricted Subsidiary from all liability on such
Debt, or a combination of the foregoing.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may, at its option, within 270 days after such Asset Sale, (i) apply
all or a portion of the Net Cash Proceeds to the permanent reduction of amounts
outstanding under one or more credit facilities referred to in clause (i) of the
definition of Permitted Debt or to the repayment of other senior Debt of the
Company or a Restricted Subsidiary or (ii) invest (or enter into a legally
binding agreement to invest) all or a portion of such Net Cash Proceeds in
properties and assets to replace the properties and assets that were the subject
of the Asset Sale or in properties and assets that will be used in businesses of
the Company or its Restricted Subsidiaries, as the case may be, existing on the
Closing Date. If any such legally binding agreement to invest such Net Cash
Proceeds is terminated, the Company may, within 90 days of such termination or
within 270 days of such Asset Sale, whichever is later, invest such Net Cash
Proceeds as provided in clause (b)(i) or (b)(ii) (without regard to the
parenthetical contained in such clause (b)(ii)) above. The amount of such Net
Cash Proceeds not so used as set forth above in this paragraph (b) constitutes
"Excess Proceeds".
(c) When the aggregate amount of Excess Proceeds exceeds $5,000,000, the
Company will, within 30 days thereafter, make an offer to purchase from all
holders of Notes and from the holders of any Pari Passu Debt, to the extent
required by the terms thereof, on a pro rata basis, in accordance with the
procedures set forth in the Indenture or the agreements governing any such Pari
Passu Debt, the maximum principal amount (expressed as a multiple of $1,000) of
the Notes and any such Pari Passu Debt that may be purchased with the Excess
Proceeds. The offer price as to each Note and any such Pari Passu Debt will be
payable in cash in an amount equal to (solely in the case of the Notes) 100% of
the principal amount of such Note and (solely in the case of Pari Passu Debt) no
greater than 100% of the principal amount (or accreted value, as applicable) of
such Pari Passu Debt, plus in each case accrued interest, if any, to the date of
repurchase. To the extent that the aggregate principal amount of Notes and any
such Pari Passu Debt tendered pursuant to an excess proceeds offer is less than
the Excess Proceeds, the Company may use the portion of the Excess Proceeds not
required to be used to repurchase the Notes and such Pari Passu Debt for general
corporate purposes. If the aggregate principal amount of Notes and any such Pari
Passu Debt validly tendered and not withdrawn by holders thereof exceeds the
Excess Proceeds, the Notes and any such Pari Passu Debt to be purchased will be
selected on a pro rata basis (based upon the principal amount of Notes and the
principal amount or accreted value of such Pari Passu Debt tendered by each
holder). Upon completion of such offer to purchase, the amount of Excess
Proceeds will be reset to zero.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
suffer to exist any transaction with, or for the benefit of, any Affiliate of
the Company unless (a) such transaction is on terms that are no less favorable
to the Company or such Restricted Subsidiary, as the case may be, than those
that could have been obtained in an arm's length transaction with third parties
who are not Affiliates and (b) either (i) with respect to any transaction or
series of related transactions involving aggregate payments in excess of
$250,000 but less than $2,500,000, the Company delivers an officers' certificate
to the Trustee certifying that such transaction or transactions comply with
clause (a) above or (ii) with respect to a transaction or series of related
transactions involving aggregate payments equal or greater than $2,500,000, such
transaction or transactions have been approved by the Board of Directors
(including a majority of the Disinterested Directors) of the Company or the
Company has obtained a written opinion from a nationally recognized investment
banking firm to the effect that such transaction or transactions are fair to the
Company or such Restricted Subsidiary from a financial point of view.
The foregoing covenant will not restrict any of the following:
(A) Transactions among the Company and/or its Restricted Subsidiaries.
(B) The Company from paying reasonable and customary regular
compensation and fees to directors of the Company or any Restricted
Subsidiary who are not employees of the Company or any Restricted
Subsidiary.
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(C) Transactions permitted by the provisions of the "Limitation on
Restricted Payments" covenant.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary 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 Restricted Subsidiary to (a) pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock, (b) pay any Debt owed to the Company or any other Restricted Subsidiary,
(c) make loans or advances to the Company or any other Restricted Subsidiary or
(d) transfer any of its properties or assets to the Company or any other
Restricted Subsidiary, except for such encumbrances or restrictions existing
under or by reason of any of the following:
(i) Any agreement or instrument in effect on the Closing Date.
(ii) Customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any Restricted Subsidiary.
(iii) Any agreement or instrument of a person acquired by the Company
or any Restricted Subsidiary in existence at the time of such acquisition
(but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any person, or the properties or assets of
any person, other than the person, or the property or assets of the person,
so acquired.
(iv) The refinancing or successive refinancings of Debt incurred under
agreements or instruments referred to in the foregoing clause (i) or (iii),
so long as the encumbrances or restrictions contained therein are no less
favorable to the Company or any Restricted Subsidiary than those contained
in such original agreement or instrument.
(v) Any agreement providing for the incurrence of Debt by a Restricted
Subsidiary in compliance with the "Limitation on Debt" covenant, provided
that such Restricted Subsidiary is or becomes a Subsidiary Guarantor.
(vi) Contained in any agreement pursuant to which Debt was issued if
(A) the encumbrance or restriction applies only in the event of a payment
default or a default with respect to a financial covenant contained in such
Debt, (B) the encumbrance or restriction is not materially more
disadvantageous to the holders of the Notes than is customary in comparable
financings (as determined by the Company) and (C) the Company determines
that any such encumbrance or restriction will not materially affect the
Company's ability to make principal or interest payments on the Notes.
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Company will not sell, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any shares of Capital
Stock of a Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) except (a) to the Company or a Wholly
Owned Restricted Subsidiary, (b) issuances or sales to foreign nationals of
shares of Capital Stock of foreign Restricted Subsidiaries, to the extent
required by applicable law, or issuances or sales to directors of directors'
qualifying shares, (c) if, immediately after giving effect to such issuance or
sale, neither the Company nor any of its Subsidiaries owns any shares of Capital
Stock of such Restricted Subsidiary (including options, warrants or other rights
to purchase shares of such Capital Stock) or (d) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any remaining Investment in such person
would have been permitted to be made under the "Limitation on Restricted
Payments" covenant if made on the date of such issuance or sale.
Guarantees of Debt by Restricted Subsidiaries. All of the Company's future
Restricted Subsidiaries will be Subsidiary Guarantors.
In addition, the Company will not permit any Restricted Subsidiary,
directly or indirectly, to guarantee, assume or in any other manner become
liable for the payment of any Debt of the Company or any Debt of any other
Restricted Subsidiary, unless (a) such Restricted Subsidiary has executed and
delivered, or simultaneously executes and delivers, a Subsidiary Guarantee and
(b) with respect to any guarantee of Subordinated
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Debt by a Restricted Subsidiary, any such guarantee is subordinated to such
Restricted Subsidiary's guarantee with respect to the Notes at least to the same
extent as such Subordinated Debt is subordinated to the Notes.
Any Subsidiary Guarantee may provide by its terms that it will be
automatically and unconditionally released and discharged upon (i) any sale,
exchange or transfer to any person not an Affiliate of the Company of all of the
Company's and the Restricted Subsidiaries' Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (iii) the
designation of such Restricted Subsidiary as an Unrestricted Subsidiary in
accordance with the terms of the Indenture.
Unrestricted Subsidiaries. (a) The Board of Directors of the Company may
designate any Subsidiary (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary so long as (i) neither the Company
nor any Restricted Subsidiary is directly or indirectly liable for any Debt of
such Subsidiary, (ii) no default with respect to any Debt of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any other
Debt of the Company or any Restricted Subsidiary to declare a default on such
other Debt or cause the payment thereof to be accelerated or payable prior to
its stated maturity, (iii) any Investment in such Subsidiary made as a result of
designating such Subsidiary an Unrestricted Subsidiary will not violate the
provisions of the "Limitation on Restricted Payments" covenant, (iv) neither the
Company nor any Restricted Subsidiary has a contract, agreement, arrangement,
understanding or obligation of any kind, whether written or oral, with such
Subsidiary other than those that might be obtained at the time from persons who
are not Affiliates of the Company and (v) neither the Company nor any Restricted
Subsidiary has any obligation to subscribe for additional shares of Capital
Stock or other equity interest in such Subsidiary, or to maintain or preserve
such Subsidiary's financial condition or to cause such Subsidiary to achieve
certain levels of operating results.
(b) The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary; provided that (i) no Default or Event of
Default has occurred and is continuing following such designation and (ii) the
Company could incur at least $1.00 of additional Debt (other than Permitted
Debt) pursuant to the first paragraph of the covenant described under the
caption "Limitation on Debt" (treating any Debt of such Unrestricted Subsidiary
as the incurrence of Debt by a Restricted Subsidiary).
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind on or with respect to any of its property
or assets, including any shares of stock or debt of any Restricted Subsidiary,
whether owned at the Closing Date or thereafter acquired, or any income, profits
or proceeds therefrom, or assign or otherwise convey any right to receive income
thereon, unless (a) in the case of any Lien securing Subordinated Debt, the
Notes are secured by a Lien on such property, assets or proceeds that is senior
in priority to such Lien and (b) in the case of any other Lien, the Notes are
equally and ratably secured with the obligation or liability secured by such
Lien.
Notwithstanding the foregoing, the Company may, and may permit any
Restricted Subsidiary to, incur any of the following Liens ("Permitted Liens"):
(i) Liens existing as of the Closing Date.
(ii) Liens on property or assets of the Company or any Restricted
Subsidiary securing Debt under one or more credit facilities in a principal
amount not to exceed the principal amount of the outstanding Debt permitted
by clause (i) of the definition of "Permitted Debt".
(iii) Liens on any property or assets of a Restricted Subsidiary
granted in favor of the Company or any Restricted Subsidiary.
(iv) Liens securing the Notes or any Subsidiary Guarantee.
(v) Liens representing the interest or title of lessors under
Capitalized Lease Obligations or Liens securing purchase money mortgages or
purchase money security interests, so long as the aggregate amount secured
by such Liens does not exceed the respective amounts permitted by clause
(v) of the definition of "Permitted Debt".
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(vi) Liens securing Acquired Debt created prior to (and not in
connection with or in contemplation of) the incurrence of such Debt by the
Company or any Restricted Subsidiary; provided that such Lien does not
extend to any property or assets of the Company or any Restricted
Subsidiary other than the property and assets acquired in connection with
the incurrence of such Acquired Debt.
(vii) Liens securing Hedging Obligations incurred in the ordinary
course of business.
(viii) Statutory Liens or landlords', carriers', warehouseman's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceedings.
(ix) Liens for taxes, assessments, government charges or claims that
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted.
(x) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts
for the payment of money).
(xi) Easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the business
of the Company or any Restricted Subsidiary incurred in the ordinary course
of business.
(xii) Liens arising by reason of any judgment, decree or order of any
court, so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such
judgment, decree or order have not been finally terminated or the period
within which such proceedings may be initiated has not expired.
(xiii) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to
such letters of credit and the products and proceeds thereof.
(xiv) Liens upon specific items of inventory or other goods and
proceeds of the Company or any Restricted Subsidiary securing its
obligations in respect of bankers' acceptances issued or created for the
account of any person to facilitate the purchase, shipment or storage of
such inventory or other goods.
(xv) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods.
(xvi) Any extension, renewal or replacement, in whole or in part, of
any Lien described in the foregoing clauses (i) through (xv); provided that
any such extension, renewal or replacement is no more restrictive in any
material respect than the Lien so extended, renewed or replaced and does
not extend to any additional property or assets.
Reports. At all times from and after the earlier of (i) the date of the
commencement of an Exchange Offer or the effectiveness of the Shelf Registration
Statement (the "Registration") and (ii) the date six months after the Closing
Date, in either case, whether or not the Company is then required to file
reports with the Commission, the Company will file with the Commission all such
annual reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Sections 13(a) or 15(d) under of the
Exchange Act. The Company will also be required (a) to supply to the Trustee and
each holder of Notes, or supply to the Trustee for forwarding to each such
holder, without cost to such holder, copies of such reports and other documents
within 15 days after the date on which the Company files such reports and
documents with the Commission or the date on which the Company would be required
to file such reports and documents if the Company were so required and (b) if
filing such reports and documents with the Commission is not accepted by the
Commission or is prohibited under the Exchange Act, to supply at the Company's
cost copies of such reports and documents to any prospective holder of Notes
promptly upon written request. In addition, at all times prior to the earlier of
the date of the Registration and the date six months after the Closing Date, the
Company will, at its cost, deliver to each holder of the Notes quarterly and
annual reports substantially equivalent to those that would be required by the
Exchange Act. Furthermore, at
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all times prior to the Registration, the Company will supply at the Company's
cost copies of such reports and documents to any prospective holder of the Notes
promptly upon written request.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge with or into any other person
or, directly or indirectly, convey, sell, assign, transfer, lease or otherwise
dispose of its properties and assets substantially as an entirety to any other
person (in one transaction or a series of related transactions), unless each of
the following conditions is satisfied:
(a) Either (i) the Company is the surviving corporation or (ii) the
person (if other than the Company) formed by such consolidation or into
which the Company is merged or the person that acquires by conveyance,
sale, assignment, transfer, lease or other disposition the properties and
assets of the Company substantially as an entirety (the "Surviving Entity")
(A) is a corporation, partnership or trust organized and validly existing
under the laws of the United States, any state thereof or the District of
Columbia and (B) expressly assumes, by a supplemental indenture in form
satisfactory to the Trustee, all of the Company's obligations under the
Indenture and the Notes.
(b) Immediately after giving effect to such transaction, no Default or
Event of Default has occurred and is continuing.
(c) Immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Net Worth of the Company (or of the Surviving
Entity if the Company is not the continuing obligor under the Indenture) is
equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction.
(d) Immediately after giving effect to such transaction on a pro forma
basis (on the assumption that the transaction occurred at the beginning of
the most recently ended four full fiscal quarter period for which internal
financial statements are available), the Company (or the Surviving Entity
if the Company is not the continuing obligor under the Indenture) could
incur at least $1.00 of additional Debt (other than Permitted Debt)
pursuant to the first paragraph of the "Limitation on Debt" covenant.
(e) If the Company is not the continuing obligor under the Indenture,
each Subsidiary Guarantor, unless it is the other party to the transaction
described above, has by supplemental indenture confirmed that its
Subsidiary Guarantee applies to the Surviving Entity's obligations under
the Indenture and the Notes.
(f) If any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of the "Limitation on Liens" covenant are complied with.
(g) The Company delivers, or causes 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 transaction
complies with the requirements of the Indenture.
In the event of any transaction described in and complying with the
conditions listed in the first paragraph of this covenant in which the Company
is not the continuing obligor under the Indenture, the Surviving Entity will
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and thereafter the Company will, except in the
case of a lease, be discharged from all its obligations and covenants under the
Indenture and Notes.
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EVENTS OF DEFAULT
Each of the following will be "Events of Default" under the Indenture:
(a) Default in the payment of any interest on any Note when it becomes
due and payable, and continuance of such default for a period of 30 days.
(b) Default in the payment of the principal of (or premium, if any,
on) any Note when due.
(c) Failure to perform or comply with the Indenture provisions
described under "Consolidation, Merger and Sale of Assets".
(d) Default in the performance, or breach, of any covenant or
agreement of the Company contained in the Indenture (other than a default
in the performance, or breach, of a covenant or agreement that is
specifically dealt with elsewhere herein), and continuance of such default
or breach for a period of 60 days after written notice has been given to
the Company by the Trustee or to the Company and the Trustee by the holders
of at least 25% in aggregate principal amount of the Notes then
outstanding.
(e) (i) An event of default has occurred under any mortgage, bond,
indenture, loan agreement or other document evidencing an issue of Debt of
the Company or any Restricted Subsidiary, which issue has an aggregate
outstanding principal amount of not less than $1,000,000, and such default
has resulted in such Debt becoming, whether by declaration or otherwise,
due and payable prior to the date on which it would otherwise become due
and payable or (ii) a default in any payment when due at final maturity of
any such Debt.
(f) Failure by the Company or any of its Restricted Subsidiaries to
pay one or more final judgments the uninsured portion of which exceeds in
the aggregate $1,000,000, which judgment or judgments are not paid,
discharged or stayed for a period of 60 days.
(g) Any Subsidiary Guarantee issued by a Significant Subsidiary ceases
to be in full force and effect or is declared null and void or any
Subsidiary Guarantor denies that it has any further liability under any
Subsidiary Guarantee, or gives notice to such effect (other than by reason
of the termination of the Indenture or the release of any such Subsidiary
Guarantee in accordance with the Indenture), and such condition has
continued for a period of 30 days after written notice of such failure
requiring the Subsidiary Guarantor and the Company to remedy the same has
been given (x) to the Company by the Trustee or (y) to the Company and the
Trustee by the holders of 25% in aggregate principal amount of the Notes
then outstanding.
(h) The occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
If an Event of Default (other than as specified in clause (h) above) occurs
and is continuing, the Trustee or the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding may, and the Trustee at the
request of such holders will, declare the principal of all of the outstanding
Notes immediately due and payable and, upon any such declaration, such principal
will become due and payable immediately. If an Event of Default specified in
clause (h) above occurs and is continuing, then the principal of all of the
outstanding Notes will ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any holder of
Notes.
At any time after a declaration of acceleration under the Indenture, 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 and its consequences if (i) the Company has paid or deposited
with the Trustee a sum sufficient to pay (A) all overdue interest on all Notes,
(B) all unpaid principal of (and premium, if any, on) any outstanding Notes that
has become due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Notes, (C) to the extent that payment of such
interest is lawful, interest upon overdue interest and overdue principal at the
rate borne by the Notes and, (D) all sums paid or advanced by the Trustee under
the Indenture and the reasonable compensation, expenses, disbursements and
advances of
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the Trustee, its agents and counsel; and (ii) all Events of Default, other than
the non-payment of amounts of principal of (or premium, if any, on) or interest
on the Notes that have become due solely by such declaration of acceleration,
have been cured or waived. No such rescission will affect any subsequent default
or impair any right consequent thereon.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may, on behalf of the holders of all of the Notes, waive
any past defaults under the Indenture, except a default in the payment of the
principal of (and premium, if any) or interest on any Note, or in respect of a
covenant or provision that under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee will mail to each holder of the Notes notice of the
Default or Event of Default within 90 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of (and
premium, if any, on) or interest on any Notes, the Trustee may withhold the
notice to the holders of the Notes if a committee of its trust officers in good
faith determines that withholding such notice is in the interests of the holders
of the Notes.
The Company is required to furnish to the Trustee annual statements as to
the performance by the Company and the Subsidiary Guarantors of their respective
obligations under the Indenture and as to any default in such performance. The
Company is also required to notify the Trustee within five days of any Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company and any Subsidiary Guarantors with respect to the outstanding
Notes ("defeasance"). Such defeasance means that the Company will be deemed to
have paid and discharged the entire Debt represented by the outstanding Notes,
except for (i) the rights of holders of outstanding Notes to receive payments in
respect of the principal of (and premium, if any, on) and interest on such Notes
when such payments are due, (ii) the Company's obligations to issue temporary
Notes, register the transfer or exchange of any Notes, replace mutilated,
destroyed, lost or stolen Notes, maintain an office or agency for payments in
respect of the Notes and segregate and hold such payments in trust, (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 the obligations of the Company and
any Subsidiary Guarantor with respect to certain covenants set forth in the
Indenture and described under "Certain Covenants" above, and any omission to
comply with such obligations would not constitute a Default or an Event of
Default with respect to the Notes ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (a) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated solely
to, the benefit of the holders of the Notes, money in an amount, or U.S.
Government Obligations (as defined in the Indenture) that through the scheduled
payment of principal and interest thereon will provide money in an amount, or a
combination thereof, sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay and discharge the principal of (and
premium, if any, on) and interest on the outstanding Notes at maturity (or upon
redemption, if applicable) of such principal or installment of interest; (b) no
Default or Event of Default has occurred and is continuing on the date of such
deposit or, insofar as an event of bankruptcy under clause (h) of "Events of
Default" above is concerned, at any time during the period ending on the 91st
day after the date of such deposit; (c) such defeasance or covenant defeasance
may not result in a breach or violation of, or constitute a default under, the
Indenture or any material agreement or instrument to which the Company or any
Subsidiary Guarantor is a party or by which it is bound; (d) in the case of
defeasance, the Company must deliver to the Trustee an opinion of counsel
stating that the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or since the date hereof there has been a
change in applicable federal income tax law, to the effect, and based thereon
such opinion must confirm that, the holders of the outstanding Notes will
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not recognize income, gain or loss for federal income tax purposes as a result
of such 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 had not occurred; (e) in the case of covenant defeasance, the
Company must have delivered to the Trustee an opinion of counsel to the effect
that the Holders of the Notes outstanding will not recognize income, gain or
loss for federal income tax purposes as a result of such 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 covenant defeasance
had not occurred; and (f) the Company must have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
Upon the request of the Company, the Indenture will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
the Notes, as expressly provided for in the Indenture) and the Trustee, at the
expense of the Company, will execute proper instruments acknowledging
satisfaction and discharge of the Indenture when (a) either (i) all the Notes
theretofore authenticated and delivered (other than destroyed, lost or stolen
Notes that have been replaced or paid and Notes that have been subject to
defeasance under "Defeasance or Covenant Defeasance of Indenture") have been
delivered to the Trustee for cancellation or (ii) all Notes not theretofore
delivered to the Trustee for cancellation (A) have become due and payable, (B)
will become due and payable at maturity within one year or (C) 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 has irrevocably deposited or caused to
be deposited with the Trustee funds in trust for the purpose 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
premium, if any, on) and interest on the Notes to the date of such deposit (in
the case of Notes that have become due and payable) or to the Stated Maturity or
redemption date, as the case may be; (b) the Company has paid or caused to be
paid all sums payable under the Indenture by the Company; and (c) the Company
has delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent provided in the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
Modifications and amendments of the Indenture and any Subsidiary Guarantee
may be made by the Company, any affected Subsidiary Guarantor and the Trustee
with the consent of the holders of a majority in aggregate outstanding principal
amount of the Notes; provided, however, that no such modification or amendment
may, without the consent of the holder of each outstanding Note affected
thereby,
(a) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the coin or currency in
which any Note or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment after
the Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date);
(b) reduce the percentage in principal amount of outstanding Notes,
the consent of whose holders is required for any such amendment or for any
waiver of compliance with certain provisions of, or certain defaults and
their consequences provided for under, the Indenture; or
(c) waive a default in the payment of principal of, or premium, if
any, or interest on the Notes or reduce the percentage or aggregate
principal amount of outstanding Notes the consent of whose holders is
necessary for waiver of compliance with certain provisions of the Indenture
or for waiver of certain defaults.
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Without the consent of the holders of at least 75% in principal amount of
the Notes then outstanding (including consents obtained in connection with a
tender offer or exchange offer for such Notes), no waiver or amendment to the
Indenture may make any change in the provisions described above under the
caption "Change of Control" after the mailing of an offer with respect to a
Change of Control Offer that adversely affects the rights of any holder of
Notes.
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
Without the consent of any holders, the Company and the Trustee, at any
time and from time to time, may enter into one or more indentures supplemental
to the Indenture for any of the following purposes: (1) to evidence the
succession of another person to the Company and the assumption by any such
successor of the covenants of the Company in the Indenture and in the Notes; or
(2) to add to the covenants of the Company for the benefit of the holders, or to
surrender any right or power herein conferred upon the Company; or (3) to add
additional Events of Defaults; or (4) to provide for uncertificated Notes in
addition to or in place of the certificated Notes; or (5) to evidence and
provide for the acceptance of appointment under the Indenture by a successor
Trustee; or (6) to secure the Notes; or (7) to cure any ambiguity, to correct or
supplement any provision in the Indenture that may be defective or inconsistent
with any other provision in the Indenture, or to make any other provisions with
respect to matters or questions arising under the Indenture, provided that such
actions pursuant to this clause (7) do not adversely affect the interests of the
holders in any material respect; or (8) to comply with any requirements of the
Commission in order to effect and maintain the qualification of the Indenture
under the Trust Indenture Act.
THE TRUSTEE
IBJ Schroder Bank & Trust Company, the Trustee under the Indenture, will be
the initial paying agent and registrar for the Notes.
The Indenture provides 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. Under the Indenture, the holders of a majority in outstanding
principal amount of the Notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee, subject to certain exceptions. If an Event of Default has occurred and
is continuing, 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.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; provided, however, that, if it acquires any conflicting
interest (as defined), it must eliminate such conflict upon the occurrence of an
Event of Default or else resign.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees will be governed by,
and construed in accordance with, the laws of the State of New York.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Notes to be resold as set
forth herein will initially be issued in the form of one Global Note (the
"Global Note"). The Global Note will be deposited on the Closing Date with the
Trustee as custodian for The Depository Trust Company (the "Depositary") and
registered in the name of Cede & Co., as nominee of the Depositary (such nominee
being referred to herein as the "Global Note Holder").
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Notes originally purchased by persons outside the United States pursuant to
sales in accordance with Regulation S under the Securities Act will be
represented upon issuance by a temporary global Note certificate (the "Temporary
Certificate"), which will not be exchangeable for Certificated Notes until the
expiration of the "40-day restricted period" within the meaning of Rule
903(c)(3) of Regulation S under the Securities Act. The Temporary Certificate
will be registered in the name of, and held by, a temporary certificate holder
until the expiration of such 40-day period, at which time the Temporary
Certificate will be delivered to the Trustee in exchange for Certificated Notes
registered in the names requested by such temporary certificate holder. In
addition, until the expiration of such 40-day period, transfers of interests in
the Temporary Certificate can only be effected through such temporary
certificate holder in accordance with the requirements set forth in "Notice to
Investors".
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Note and (ii) ownership of the Notes
evidenced by the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to own, transfer or pledge Notes evidenced
by the Global Note will be limited to such extent. For certain other
restrictions on the transferability of the Notes, see "Notice to Investors".
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
Payments in respect of the principal of and premium, if any, and interest
on any Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names Notes, including the Global Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Company believes,
however, that it is currently the policy of the Depositary to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
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Certificated Notes
If (i) the Company notifies the Trustee in writing that the Depositary is
no longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to change the issuance of Notes
in the form of Certificated Securities under the Indenture then, upon surrender
by the Global Note Holder of its Global Note, Certificated Notes will be issued
to each person that the Global Note Holder and the Depositary identify as being
the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture will require that payments in respect of the Notes
represented by the Global Note (including principal, premium, if any, and
interest) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Certificated
Notes, the Company will make all payments of principal, premium, if any, and
interest by wire transfer of immediately available funds to the accounts
specified by the Holders thereof or, if no such account is specified, by mailing
a check to each such Holder's registered address. Secondary trading in long-term
notes and debentures of corporate issuers is generally settled in clearinghouse
or next-day funds. In contrast, the Notes represented by the Global Note are
expected to be eligible to trade in the PORTAL market and to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated Notes will also be settled in
immediately available funds.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Existing Notes were originally issued and sold on May 20, 1998 (the
"Issue Date"). Such sales were not registered under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act and
Rule 144A under the Securities Act. The Company and the Initial Purchasers
entered into the Registration Rights Agreement on the Issue Date, pursuant to
which the Company agreed to (i) file with the Commission on or prior to 60 days
after the Issue Date a registration statement on Form S-3, or Form S-4, if the
use of such form is then available (the "Exchange Offer Registration Statement")
relating to a registered exchange offer for the Existing Notes under the
Securities Act and (ii) use their reasonable best efforts to cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act
within 210 days after the Issue Date. Upon the effectiveness of the Exchange
Offer Registration Statement, the Company will offer to the holders of Existing
Notes who are not prohibited by any law or policy of the Commission from
participating in the Exchange Offer the opportunity to exchange their Existing
Notes for Exchange Notes. The Company will keep the Exchange Offer open for not
less than 30 days (or longer, if required by applicable law) after the date
notice of the Exchange Offer is mailed to the holders of the Existing Notes. For
each Existing Note surrendered to the Company for exchange pursuant to the
Exchange Offer, the holder of such Existing Note will receive an Exchange Note
having a principal amount at maturity equal to that of the surrendered Existing
Note. Interest on each Exchange Note will accrue from the last interest payment
date on which interest was paid on the Existing Note surrendered in exchange
therefor or, if no interest has been paid on such Existing Note, from the date
of original issuance.
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company under the Registration Rights Agreement.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal, $1,000 principal
amount of Exchange Notes for each $1,000 principal amount of Existing Notes. The
terms of the Exchange Notes are identical in all respects to the terms of the
Existing Notes for which they may be exchanged pursuant to this Exchange Offer,
except that (i) the Exchange Notes will generally be freely transferable by
holders thereof and (ii) the holders of the Exchange Notes will not be entitled
to registration rights under the Registration Rights Agreement except under
certain limited circumstances. See "Existing Notes Registration Rights." The
Exchange Notes will evidence the same debt as the Existing Notes and will be
entitled to the benefits of the Indenture. See "Description of Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Existing Notes being tendered or accepted for exchange.
Based on interpretations set forth in no-action letters issued by the Staff
of the Commission to third parties, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for the Existing Notes may be
offered for resale, resold or otherwise transferred by holders thereof (other
than any holder which is (i) an Affiliate, (ii) a broker-dealer who acquired
Existing Notes directly from the Company or (iii) a broker-dealer who acquired
Existing Notes as a result of market-making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, such holders have no arrangement or
understanding with any person to participate in a distribution of such Exchange
Notes, and that such holders are not engaged in and do not intend to engage in a
distribution of the Exchange Notes. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Existing Notes, where such Existing
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution." Any holder that cannot rely upon such interpretations must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction.
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Tendering holders of Existing Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Existing Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1998 unless the
Company in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Company, expires.
The Company reserves the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to IBJ
Schroder Bank & Trust Company (the "Exchange Agent") and by timely public
announcement communicated by no later than 5:00 p.m. on the next business day
following the Expiration Date, unless otherwise required by applicable law or
regulation, by making a release to the Dow Jones News Service. During any
extension of the Exchange Offer, all Existing Notes previously tendered pursuant
to the Exchange Offer will remain subject to the Exchange Offer.
The Exchange Date will be the first business day following the Expiration
Date. The Company expressly reserves the right to (i) terminate the Exchange
Offer and not accept for exchange any Existing Notes for any reason, including
if any of the events set forth below under "Conditions to the Exchange Offer"
shall have occurred and shall not have been waived by the Company and (ii) amend
the terms of the Exchange Offer in any manner, whether before or after any
tender of the Existing Notes. If any such termination or amendment occurs, the
Company will notify the Exchange Agent in writing and will either issue a press
release or give written notice to the holders of the Existing Notes as promptly
as practicable. Unless the Company terminates the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date, the Company will exchange the
Exchange Notes for the Existing Notes on the Exchange Date.
If the Company waives any material condition to the Exchange Offer, or
amends the Exchange Offer in any other material respect, and if at the time that
notice of such waiver or amendment is first published, sent or given to holders
of Existing Notes in the manner specified above, the Exchange Offer is scheduled
to expire at any time earlier than the expiration of a period ending on the
fifth business day from, and including, the date that such notice is first so
published, sent or given, then the Exchange Offer will be extended until the
expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Existing Notes and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Existing Notes.
INTEREST ON THE EXCHANGE NOTES
Interest on each Exchange Note issued pursuant to the Exchange Offer will
accrue from the last interest payment date to which interest was paid on the
Existing Notes surrendered in exchange therefor or, if no interest has been paid
on the Existing Notes, from the date of original issue of the Existing Notes.
HOW TO TENDER
The tender to the Company of Existing Notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
GENERAL PROCEDURES. A holder of an Existing Note may tender the same by
(i) properly completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall be
deemed to include a facsimile thereof) and delivering the same, together with
the certificate or certificates representing the Existing Notes being tendered
and any required signature guarantees (or a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") pursuant to the procedure
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described below), to the Exchange Agent at its address set forth below on or
prior to the Expiration Date or (ii) complying with the guaranteed delivery
procedures described below. Each broker-dealer that receives Exchange Notes for
its own account in exchange for Existing Notes, where such Existing Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
If tendered Existing Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Existing Notes are to be reissued) in the
name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Existing Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Company and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
(each an "Eligible Institution") that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Notes and/or Existing Notes not exchanged are to
be delivered to an address other than that of the registered holder appearing on
the note register for the Existing Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Existing Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Existing Notes should contact such holder promptly and instruct such
holder to tender Existing Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Existing Notes himself or herself, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering such Existing Notes, either make appropriate
arrangements to register ownership of the Existing Notes in such beneficial
owner's name or follow the procedures described in the immediately preceding
paragraph. The transfer of record ownership may take considerable time.
BOOK ENTRY TRANSFER. The Exchange Agent will make a request to establish
an account with respect to the Existing Notes at The Depository Trust Company
(the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within
two business days after receipt of this Prospectus, and any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Existing Notes by causing the Book-Entry
Transfer Facility to transfer such Existing Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of
Existing Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address specified below on or prior
to the Expiration Date or the guaranteed delivery procedures described below
must be complied with.
The Exchange Agent and the Book-Entry Transfer Facility have confirmed that
any financial institution that is a participant in the Book-Entry Transfer
facility may utilize the Book-Entry Transfer Facility Automated Tender Offer
Program ("ATOP") procedures to tender Existing Notes.
Any participant in the Book-Entry Transfer Facility may make book-entry
delivery of Existing Notes by causing the Book Entry Transfer Facility to
transfer such Existing Notes into the Exchange Agent's account in accordance
with the Book Entry Transfer Facility's ATOP procedures for transfer. However,
the exchange for the Existing Notes so tendered will only be made after a
Book-Entry Confirmation of such book-entry transfer of Existing Notes into the
Exchange Agent's account, and timely receipt by the Exchange Agent of an Agent's
Message (as such term is defined in the next sentence) and any other documents
required by the Letter of Transmittal. The term "Agent's Message" means a
message, transmitted by the Book Entry Transfer Facility and received by the
Exchange Agent and forming part of a Book-Entry Confirmation, which states that
the Book Entry Transfer Facility has received an express acknowledgment from a
participant tendering Existing Notes that are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.
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THE METHOD OF DELIVERY OF EXISTING NOTES AND ALL OTHER DOCUMENTS, INCLUDING
DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY AND ANY ACCEPTANCE OF AN
AGENT'S MESSAGE THROUGH ATOP, IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT
BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE
USED, PROPER INSURANCE BE OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN
ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR
BEFORE THE EXPIRATION DATE.
GUARANTEED DELIVERY PROCEDURES. If a holder desires to accept the Exchange
Offer, and time will not permit a Letter of Transmittal or Existing Notes to
reach the Exchange Agent before the Expiration Date, a tender may be effected if
the Exchange Agent has received at its office listed on the back cover hereof on
or prior to the Expiration Date a letter, telegram or facsimile transmission
from an Eligible Institution setting forth the name and address of the tendering
holder, the principal amount of the Existing Notes being tendered, the names in
which the Existing Notes are registered and, if possible, the certificate
numbers of the Existing Notes to be tendered, and stating that the tender is
being made thereby and guaranteeing that within three New York Stock Exchange
trading days after the date of execution of such letter, telegram or facsimile
transmission by the Eligible Institution, the Existing Notes, in proper form for
transfer, will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Existing Notes being tendered by the above-described
method (or a timely Book-Entry Confirmation) are deposited with the Exchange
Agent within the time period set forth above (accompanied or preceded by a
properly completed Letter of Transmittal and any other required documents), the
Company may, at its option, reject the tender. Copies of a Notice of Guaranteed
Delivery which may be used by Eligible Institutions for the purposes described
in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal or
Agent's Message accompanied by the Existing Notes (or a timely Book-Entry
Confirmation) is received by the Exchange Agent. Issuances of Exchange Notes in
exchange for Existing Notes tendered pursuant to a Notice of Guaranteed Delivery
or letter, telegram or facsimile transmission to similar effect (as provided
above) by an Eligible Institution will be made only against deposit of the
Letter of Transmittal (and any other required documents) and the tendered
Existing Notes (or a timely Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Existing Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any and all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Company, be unlawful. The Company also reserves the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. Neither the Company, the
Exchange Agent nor any other person will be under any duty to give notification
of any defects or irregularities in tenders or shall incur any liability for
failure to give any such notification. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Existing Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Existing Notes to the Company and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Existing Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Existing
Notes and to acquire Exchange Notes issuable upon the exchange of such tendered
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Existing Notes, and that, when the same are accepted for exchange, the Company
will acquire good and unencumbered title to the tendered Existing Notes, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Company to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Existing Notes by the Company, and the issuance of Exchange Notes in
exchange therefor shall constitute performance in full by the Company of its
obligations under the Registration Rights Agreement and that the Company shall
have no further obligations or liabilities thereunder (except in certain limited
circumstances). All authority conferred by the Transferor will survive the death
or incapacity of the Transferor, and every obligation of the Transferor shall be
binding upon the heirs, legal representatives, successors, assigns, executors
and administrators of such Transferor.
By tendering Existing Notes and executing the Letter of Transmittal, or
transmitting an Agent's Message, as the case may be, the Transferor certifies
that (a) it is not an Affiliate, that it is not a broker-dealer that owns
Existing Notes acquired directly from the Company or an Affiliate of the
Company, that it is acquiring the Exchange Notes offered hereby in the ordinary
course of such Transferor's business and that such Transferor has no arrangement
or understanding with any person to participate in the distribution of such
Exchange Notes, and that such Transferor is not engaged in and does not intend
to engage in a distribution of the Exchange Notes, or (b) that it is an
Affiliate of the Company or of any of the Initial Purchasers and that it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable to it.
WITHDRAWAL RIGHTS
Existing Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth on the back cover of this Prospectus prior to the Expiration
Date. Any such notice of withdrawal must specify the person named in the Letter
of Transmittal as having tendered Existing Notes to be withdrawn, the
certificate numbers of Existing Notes to be withdrawn, the principal amount of
Existing Notes to be withdrawn, a statement that such holder is withdrawing his
or her election to have such Existing Notes exchanged, and the name of the
registered holder of such Existing Notes, and must be signed by the holder in
the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the beneficial ownership of the Existing Notes being withdrawn. The Exchange
Agent will return the properly withdrawn Existing Notes promptly following
receipt of notice of withdrawal. All questions as to the validity of notices of
withdrawal, including time of receipt, will be determined by the Company, and
such determination will be final and binding on all parties.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Existing Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Company shall be deemed to have accepted for
exchange validly tendered Existing Notes when the Company has given written
notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Existing
Notes for the purposes of receiving Exchange Notes from the Company and causing
the Existing Notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the Exchange Offer, delivery of the Exchange Notes
to be issued in exchange for accepted Existing Notes will be made by the
Exchange Agent promptly after acceptance of the tendered Existing Notes.
Existing Notes not accepted for exchange by the Company will be returned without
expense to the tendering holders (or in the case of Existing Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the procedures described above, such non-exchanged Existing
Notes will be credited to an account maintained
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with such Book-Entry Transfer Facility) promptly following the Expiration Date,
or, if the Company terminates the Exchange Offer prior to the Expiration Date,
promptly after the Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
The obligation of the Company to consummate the Exchange Offer is not
subject to any condition other than that the Exchange Offer, or the making of
any exchange by a holder, does not violate applicable law or any applicable
interpretation of the Staff of the Commission.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no Exchange Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or qualification of the Indenture under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act").
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent as follows:
<TABLE>
<S> <C> <C>
By Mail: Telephone: By Hand:
One State Street (212) 858-2103 One State Street
New York, New York 10004 New York, New York 10004
Attn: Reorganization Operations Facsimile: Attn: Reorganization Operations
Department Department
(212) 858-2611
</TABLE>
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Existing Notes in any jurisdiction in
which the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Existing
Notes in such jurisdiction. In any jurisdiction the securities laws or blue sky
laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
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APPRAISAL RIGHTS
HOLDERS OF EXISTING NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL
RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain material federal income
tax consequences of an exchange of Existing Notes for Exchange Notes and of the
purchase, ownership and disposition of the Exchange Notes. This summary does not
purport to deal with all aspects of federal income taxation that may be relevant
to a particular investor, nor any tax consequences arising under the laws of any
state, locality, or foreign jurisdiction, and it is not intended to be
applicable to all categories of investors, some of which, such as dealers in
securities, banks, insurance companies, tax-exempt organizations, foreign
persons, persons that hold Exchange Notes as part of a straddle or conversion
transaction or holders subject to the alternative minimum tax, may be subject to
special rules. In addition, this summary is limited to persons that will hold
the Exchange Notes as "capital assets" (generally, property held for investment)
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended. All investors are advised to consult their own tax advisors regarding
the federal, state, local and foreign tax consequences of an exchange of
Existing Notes for Exchange Notes and the ownership and disposition of Exchange
Notes.
THE EXCHANGE. The exchange of the Existing Notes for the Exchange Notes in
the Exchange Offer should not be a taxable event for federal income tax
purposes, either because the exchange does not constitute an exchange for
federal income tax purposes or because the exchange constitutes a tax-free
recapitalization. Accordingly, (i) holders should not recognize any taxable gain
or loss as a result of the exchange; (ii) the adjusted tax basis of an Exchange
Note immediately after the exchange should be the same as the adjusted tax basis
of the Existing Note exchanged therefore immediately before the exchange; (iii)
the holding period of the Exchange Note should include the holding period of the
Existing Note; and (iv) the Exchange Note should have the same issue price as
the Existing Note.
MARKET DISCOUNT. If a holder acquired an Existing Note other than at
original issue for an amount that is less than its principal amount, the amount
of the difference will be treated as "market discount" (unless such difference
is less than a statutorily defined de minimis amount), and the Existing Note
will be subject to the market discount rules. If a holder exchanges an Existing
Note that is subject to the market discount rules for an Exchange Note, the
Exchange Note will also be subject to the market discount rules. In addition,
Exchange Notes purchased by a subsequent purchaser will be subject to the market
discount rules if the Exchange Notes are purchased with more than the statutory
de minimis amount of market discount.
The holder of an Exchange Note that is subject to the market discount rules
will be required to treat any full or partial principal payment or any gain
recognized on the maturity, sale or other disposition of the Note as ordinary
income, to the extent that such gain does not exceed the accrued market discount
on the Note. The amount of market discount treated as having accrued will be
determined either (i) on a straight-line basis by multiplying the market
discount times a fraction, the numerator of which is the number of days the
Exchange Note was held by the holder and the denominator of which is the total
number of days after the date such holder acquired the Exchange Note up to and
including the date of its maturity, or (ii) if the holder so elects, on a
constant interest rate method.
The holder of an Exchange Note subject to the market discount rules may
elect to include market discount in income currently, through the use of either
the straight-line inclusion method or the elective constant interest method, in
lieu of recharacterizing gain upon disposition as ordinary income to the extent
of accrued market discount at the time of disposition. Once made, this election
will apply to all debt instruments with market discount acquired by the electing
holder during the taxable year for which the election is made, and all
subsequent taxable years, unless the Internal Revenue Service (the "IRS")
consents to a revocation of the election. If an election is made to include
market discount on a debt instrument in income currently, the basis of the debt
instrument in the hands of the holder will be increased by the market discount
thereon as it is included in income.
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A holder who does not elect to include the market discount on an Exchange
Note in income currently may be required to defer interest expense deductions
for a portion of the interest paid on indebtedness allocable to such Note, until
the maturity of the Note or its earlier disposition in a taxable transaction.
AMORTIZABLE BOND PREMIUM. A holder that purchased an Existing Note for an
amount in excess of its principal amount may elect to treat such excess as
"amortizable bond premium," in which case the amount required to be included in
the holder's income each year with respect to interest on the Existing Note will
be reduced by the amount of amortizable bond premium allocable (based on the
yield to maturity of the Existing Note) to such year. If a holder made an
election to amortize bond premium with respect to an Existing Note and exchanges
the Existing Note for an Exchange Note pursuant to the Exchange Offer, the
election will apply to the Exchange Note. A holder who exchanges an Existing
Note for which an election has not been made for an Exchange Note, and a
subsequent purchaser of an Exchange Note, may also elect to amortize bond
premium, if any, on the Note. Any election to amortize bond premium will apply
to all debt instruments (other than debt instruments the interest on which is
excludable from gross income) held by the holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the holder,
and the election is irrevocable without the consent of the IRS.
DISPOSITION OF THE EXCHANGE NOTES. Subject to the market discount rules
discussed above, a holder of an Exchange Note will generally recognize gain or
loss upon the sale, redemption, retirement or other disposition of the Note
equal to the difference between (i) the amount of cash and the fair market value
of any property received (except to the extent attributable to the payment of
accrued interest) and (ii) the holder's adjusted tax basis in the Note. Gain or
loss recognized will be capital gain or loss if the Notes are held as capital
assets by the holder and will be long-term capital gain or loss if the holder's
holding period is more than eighteen months and midterm capital gain or loss if
the holder's holding period is more than one year but not more than eighteen
months. Holders who are individuals will generally be taxed on long-term capital
gains at a maximum marginal rate of 20% and on midterm capital gains at a
maximum marginal rate of 28%, and corporate holders will be taxed on long-term
and midterm capital gains at a maximum marginal rate of 35%.
BACKUP WITHHOLDING AND INFORMATION REPORTING. The holder of an Exchange
Note may be subject to backup withholding at a rate of 31% with respect to
interest, principal and premium, if any, paid on the Note, unless such holder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (b) provides a correct taxpayer
identification number, certifies that the holder is not subject to backup
withholding and otherwise complies with the requirements of the backup
withholding rules.
The Company will report to the holders of the Exchange Notes and the IRS
the amount of any "reportable payment" for each calendar year and the amount of
tax withheld, if any, with respect to payments on the Exchange Notes. The amount
of any backup withholding from a payment to a holder will be allowed as a credit
against the holder's federal income tax liability and may entitle the holder to
a refund, provided that the required information is furnished to the IRS.
OTHER
Participation in the Exchange Offer is voluntary, and holders should
carefully consider whether to accept the Exchange Offer and tender their
Existing Notes. Holders of the Existing Notes are urged to consult their
financial and tax advisors in making their own decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Existing Notes pursuant to the terms of, this Exchange Offer,
the Company will have fulfilled covenants contained in the terms of the Existing
Notes and the Registration Rights Agreement. Holders of the Existing Notes who
do not tender their certificates in the Exchange Offer will continue to hold
such certificates and will be entitled to all the rights, and subject to all the
limitations applicable thereto, under the Indenture, except for any such rights
under the Registration Rights Agreement which by their terms terminate or cease
to have further effect as a result of the making of this Exchange Offer. See
"Description of Notes." All untendered Existing Notes will continue to be
subject to the restrictions on transfer set forth in the legend thereon as a
consequence of the issuance of the Existing Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. To the extent that Existing
Notes are
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tendered and accepted in the Exchange Offer, the trading market, if any, for the
Existing Notes could be adversely affected. See "Risk Factors -- Absence of
Public Market for the Exchange Notes; Restrictions on Transfer."
The Company may in the future seek to acquire untendered Existing Notes in
the open market or privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company has no present plan to acquire any
Existing Notes that are not tendered in the Exchange Offer.
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U.S. FEDERAL INCOME TAX CONSEQUENCES
Set forth below are material U.S. federal income tax consequences
associated with the acquisition, ownership, and disposition of the Notes by
initial investors who acquire the Notes at original issue for cash in an amount
equal to the original issue price. The following does not discuss all of the
aspects of federal income taxation that may be relevant to a prospective holder
of the Notes in light of his or her particular circumstances, or to certain
types of holders (including dealers in securities, insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, S
corporations, and except as discussed below, foreign corporations, persons who
are not citizens or residents of the United States and persons who hold the
Notes as part of a hedge, straddle, "synthetic security" or other integrated
investment) which are subject to special treatment under the federal income tax
laws. This discussion also does not address the tax consequences to nonresident
aliens or foreign corporations that are subject to United States federal income
tax on a net basis on income with respect to a Note because such income is
effectively connected with the conduct of a U.S. trade or business. Such holders
generally are taxed in a similar manner to U.S. Holders (as defined below);
however, certain special rules apply. In addition, this discussion is limited to
holders who hold the Notes as capital assets within the meaning of Section 1221
of the Internal Revenue Code of 1986, as amended (the "Code"). This summary also
does not describe any tax consequences under state, local, or foreign tax laws.
The discussion is based upon the Code, Treasury Regulations, IRS rulings
and pronouncements and judicial decisions all in effect as of the date hereof,
all of which are subject to change at any time by legislative, judicial or
administrative action. Any such changes may be applied retroactively in a manner
that could adversely affect a holder of the Notes. The Company has not sought
and will not seek any rulings or opinions from the IRS or counsel with respect
to the matters discussed below. There can be no assurance that the IRS will not
take positions concerning the tax consequences of the purchase, ownership or
disposition of the Notes that are different from those discussed herein.
PROSPECTIVE PURCHASERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY APPLY TO THEM, AS
WELL AS THE APPLICATION OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
A U.S. Holder is any holder who or which is (i) a citizen or resident of
the United States; (ii) a domestic corporation or domestic partnership; (iii) an
estate other than a "foreign estate" as defined in Section 7701(a)(31) of the
Code; or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust.
Taxation of Stated Interest. In general, U.S. Holders of the Notes will be
required to include interest received thereon in taxable income as ordinary
income at the time it accrues or is received, in accordance with the holder's
regular method of accounting for federal income tax purposes.
Effect of Optional Redemption and Repurchase. Under certain circumstances
the Company may be entitled to redeem a portion of the Notes. In addition, under
certain circumstances, each holder of Notes will have the right to require the
Company to repurchase all or any part of such holder's Notes. Treasury
Regulations contain special rules for determining the yield to maturity and
maturity on a debt instrument in the event the debt instrument provides for a
contingency that could result in the acceleration or deferral of one or more
payments. The Company does not believe that these rules are likely to apply to
either the Company's right to redeem the Notes or to the holders' rights to
require the Company to repurchase the Notes. Therefore, the Company does not
intend to treat such redemption and repurchase provisions of the Notes as
affecting the computation of the yield to maturity or maturity date of the
Notes.
Sale or other Taxable Disposition of the Notes. The sale, exchange,
redemption, retirement or other taxable disposition of a Note will result in the
recognition of gain or loss to a U.S. Holder in an amount equal to the
difference between (a) the amount of cash and fair market value of property
received in exchange therefor (except to the extent attributable to the payment
of accrued but unpaid stated interest) and (b) the holder's adjusted tax basis
in such Note.
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A holder's initial tax basis in a Note purchased by such holder will be
equal to the price paid for the Note.
Any gain or loss on the sale or other taxable disposition of a Note
generally will be capital gain or loss. Payments on such disposition for accrued
interest not previously included in income will be treated as ordinary interest
income.
The exchange of a Note by a U.S. Holder for an Exchange Note will not
constitute a taxable exchange. A U.S. Holder should have the same basis and
holding period in the Exchange Note as such U.S. Holder had in the Note.
Backup Withholding. The backup withholding rules require a payor to deduct
and withhold a tax if (i) the payee fails to furnish a taxpayer identification
number ("TIN") in the prescribed manner, (ii) the IRS notifies the payor that
the TIN furnished by the payee is incorrect, (iii) the payee has failed to
report properly the receipt of "reportable payments" and the IRS has notified
the payor that withholding is required, or (iv) the payee fails to certify under
the penalty of perjury that such payee is not subject to backup withholding. If
any one of the events discussed above occurs with respect to a holder of Notes,
the Company, its paying agent or other withholding agent will be required to
withhold a tax equal to 31% of any "reportable payment" made in connection with
the Notes of such holder. A "reportable payment" includes, among other things,
amounts paid in respect of interest on a Note. Any amounts withheld from a
payment to a holder under the backup withholding rules will be allowed as a
refund or credit against such holder's federal income tax, provided that the
required information is furnished to the IRS. Certain holders (including, among
others, corporations and certain tax-exempt organizations) are not subject to
backup withholding.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
This section discusses specific rules applicable to a Non-U.S. Holder (as
defined below) of Notes. This summary does not address the tax consequences to
stockholders, partners or beneficiaries in a Non-U.S. Holder. For purposes
hereof, a "Non-U.S. Holder" is any person who is not a U.S. Holder and is not
subject to U.S. federal income tax on a net basis on income with respect to a
Note because such income is effectively connected with the conduct of a U.S.
trade or business.
Interest. Payments of interest to a Non-U.S. Holder that do not qualify
for the portfolio interest exception discussed below will be subject to
withholding of U.S. federal income tax at a rate of 30% unless a U.S. income tax
treaty applies to reduce, or eliminate, the rate of withholding. To claim a
treaty reduced rate, the Non-U.S. Holder must provide a properly executed Form
1001 or applicable successor form.
Interest that is paid to a Non-U.S. Holder on a Note will not be subject to
U.S. income or withholding tax if the interest qualifies as "portfolio
interest." Generally, interest on the Notes that is paid by the Company will
qualify as portfolio interest if (i) the Non-U.S. Holder does not own, actually
or constructively, 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote; (ii) the Non-U.S. Holder is not a
controlled foreign corporation that is related to the Company actually or
constructively through stock ownership for U.S. federal income tax purposes;
(iii) the Non-U.S. Holder is not a bank receiving interest on a loan entered
into in the ordinary course of business; and (iv) either (x) the beneficial
owner of the Note provides the Company or its paying agent with a properly
executed certification on IRS Form W-8 (or a suitable substitute form), signed
under penalties of perjury, that the beneficial owner is not a "U.S. person" for
U.S. federal income tax purposes and that provides the beneficial owner's name
and address, or (y) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
business holds the Note and certifies to the Company or its agent under
penalties of perjury that the IRS Form W-8 (or a suitable substitute) has been
received by it from the beneficial owner of the Note or a qualifying
intermediary and furnishes the payor a copy thereof.
Treasury regulations that will be effective with respect to payments made
after December 31, 1998 (the "Withholding Regulations") provide alternative
methods for satisfying the certification requirements described in clause (iv)
above. The Withholding Regulations also will require, in the case of Notes held
by a foreign partnership, that (x) the certification described in clause (iv)
above be provided by each partner and
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(y) the partnership provide certain information, including its taxpayer
identification number. A look-through rule will apply in the case of tiered
partnerships.
Sale, Exchange or Retirement of Notes. Any gain realized by a Non-U.S.
Holder on the sale, exchange or retirement of the Notes, will generally not be
subject to U.S. federal income tax or withholding unless (i) the Non-U.S. Holder
is an individual who was present in the U.S. for 183 days or more in the taxable
year of the disposition and meets certain other requirements; or (ii) the
Non-U.S. Holder is subject to tax pursuant to certain provisions of the Code
applicable to certain individuals who renounce their U.S. citizenship or
terminate long-term U.S. residency. If a Non-U.S. Holder falls under (ii) above,
the holder will be taxed on the net gain derived from the sale under the
graduated U.S. federal income tax rates that are applicable to U.S. citizens and
resident aliens, and may be subject to withholding under certain circumstances.
If a Non-U.S. Holder falls under (i) above, the holder generally will be subject
to U.S. federal income tax at a rate of 30% on the gain derived from the sale
(or reduced treaty rate) and may be subject to withholding in certain
circumstances.
U.S. Information Reporting and Backup Withholding Tax. Back-up withholding
generally will not apply to a Note issued in registered form that is
beneficially owned by a Non-U.S. Holder if the certification of Non-U.S. Holder
status is provided to the Company or its agent as described above in "Certain
Federal Income Tax Consequences to Non-U.S. Holders Interest," provided that the
payor does not have actual knowledge that the holder is a U.S. person. The
Company may be required to report annually to the IRS and to each Non-U.S.
Holder the amount of interest paid to, and the tax withheld, if any, with
respect to each Non-U.S. Holder.
If payments of principal and interest are made to the beneficial owner of a
Note by or through the foreign office of a custodian, nominee or other agent of
such beneficial owner, or if the proceeds of the sale of Notes are paid to the
beneficial owner of a Note through a foreign office of a "broker" (as defined in
the pertinent Regulations), the proceeds will not be subject to backup
withholding (absent actual knowledge that the payee is a U.S. person).
Information reporting (but not backup withholding) will apply, however, to a
payment by a foreign office of a custodian, nominee, agent or broker that is (i)
a U.S. person, (ii) a controlled foreign corporation for U.S. federal income tax
purposes, or (iii) a foreign person that derives 50% or more of its gross income
from the conduct of a U.S. trade or business for a specified three-year period
or, effective after December 31, 1998, by a foreign office of certain other
persons, unless the broker has in its records documentary evidence that the
holder is a Non-U.S. Holder and certain conditions are met (including that the
broker has no actual knowledge that the holder is a U.S. Holder) or the holder
otherwise establishes an exemption. Payment through the U.S. office of a
custodian, nominee, agent or broker is subject to both backup withholding at a
rate of 31% and information reporting, unless the holder certifies that it is a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption.
Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against, or refund of, such holder's
U.S. federal income tax liability, provided that certain information is provided
by the holder to the IRS.
EXISTING NOTES REGISTRATION RIGHTS
The Company and the Initial Purchasers entered into the Registration Rights
Agreement on the Issue Date, pursuant to which the Company agreed, for the
benefit of the holders of the Existing Notes, at the expense of the Company, to
(i) file on or prior to the 60th calendar day following the Closing Date a
registration statement on Form S-4 if the use of such form is then available
(the "Exchange Offer Registration Statement") with the Commission with respect
to a registered offer to exchange the Existing Notes for a new issue of debt
securities of the Company (the "Exchange Notes") to be issued under the
Indenture in the same aggregate principal amount as and with terms that will be
identical in all respects to the Existing Notes (except that the Exchange Notes
will not contain the interest rate step-up provision described below or the
transfer restrictions described herein), (ii) use its best efforts to cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act on or prior to the 180th calendar day following the Closing Date
and (iii) use its best efforts to consummate the Exchange Offer on or prior to
the 210th calendar
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day following the Closing Date. Promptly after the Exchange Offer Registration
Statement is declared effective, the Company will offer the Exchange Notes in
exchange for surrender of the Existing Notes (the "Exchange Offer"). The Company
will keep the Exchange Offer open for not less than 30 days (or longer if
required by applicable law) after the date notice of the Exchange Offer is
mailed to the holders of the Existing Notes. For each Existing Note tendered to
the Company pursuant to the Exchange Offer and not validly withdrawn by the
holder thereof, the holder of such Existing Note will receive an Exchange Note
having a principal amount equal to the principal amount of such surrendered
Existing Note.
Under existing Commission interpretations, the Exchange Notes would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act; provided, that in the case of
broker-dealers, a prospectus meeting the requirements of the Securities Act be
delivered as required. The Company has agreed for a period of 180 days after
consummation of the Exchange Offer to make available a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any resale of any such Exchange Notes acquired as described below. A
broker-dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the Registration
Rights Agreement (including certain indemnification rights and obligations).
Each holder of the Existing Notes who wishes to exchange such Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business; (ii) it
has no arrangement with any person to participate in the distribution (within
the meaning of the Securities Act) of the Exchange Notes and (iii) it is not an
"affiliate", as defined in Rule 405 of the Securities Act, of the Company, or if
it is an affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect the Exchange Offer, or if for any reason the
Exchange Offer is not consummated within 210 days of the Closing Date or upon
written request to the Company within 90 days of the consummation of the
Exchange Offer if any holder of the Existing Notes (other than the Initial
Purchasers) is not eligible to participate in the Exchange Offer, or upon
request of either Initial Purchaser under certain circumstances, the Company
will, at its expense, (i) as promptly as practicable, and in any event on or
prior to 60 days after such filing obligation arises, file with the Commission a
shelf registration statement (the "Shelf Registration Statement") covering
resales of the Existing Notes, (ii) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act on or
prior to 45 days after such filing occurs and (iii) keep effective the Shelf
Registration Statement until two years after the Closing Date (or such shorter
period that will terminate when all the Notes covered thereby have been sold
pursuant thereto or in certain other circumstances). The Company will, in the
event of the filing of a Shelf Registration Statement, provide to each holder of
the Existing Notes covered by the Shelf Registration Statement copies of the
prospectus that is a part of the Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Existing Notes. A holder of Existing Notes that sells such Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to the
purchaser, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such
holder (including certain indemnification obligations). In addition, each holder
of the Existing Notes will be required to deliver certain information to be used
in connection with the Shelf Registration Statement in order to have its Notes
included in the Shelf Registration Statement.
Although the Company intends to file one of the registration statements
described above, there can be no assurance that either registration statement
will be filed or, if filed, that it will become effective. If the Company fails
to comply with the above provisions or if such registration statement fails to
become effective,
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then, as liquidated damages, additional interest will become payable in respect
of the Existing Notes as follows:
If (i) an Exchange Offer Registration Statement is not filed with the
Commission on or prior to the 60th calendar day following the Closing Date;
or
(ii) the Exchange Offer Registration Statement is not declared
effective on or prior to the 180th calendar day following the Closing Date;
or
(iii) the Exchange Offer is not consummated or a Shelf Registration
Statement is not declared effective on or prior to the 210th calendar day
after the Closing Date; or
(iv) either (A) the Exchange Offer Registration Statement ceases to be
effective at any time prior to the time that the Exchange Offer is
consummated or (B) if applicable, subject to certain exceptions, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
second anniversary of its effective date,
(each such event referred to in clause (i) through (iv) above, a "Registration
Default"), then the per annum interest rate on the Notes will increase by 25
basis points following the 60-day period referred to in clause (i) above,
following the 180-day period referred to in clause (ii) above, following the
210-day period referred to in clause (iii) above or in the case of clause (iv)
above, immediately following such Registration Default; and the per annum
interest rate will increase by an additional 25 basis points at the beginning of
each subsequent 30-day period in the case of clause (i), (ii) or (iii) above, or
90-day period in the case of clause (iv) above; provided, however, that in no
event will the per annum interest rate borne by the Notes be increased by more
than 150 basis points. Upon the filing of the Exchange Offer Registration
Statement, the consummation of the Exchange Offer or the effectiveness of the
Shelf Registration Statement, as the case may be, the interest borne by the
Notes from the date of such filing, consummation or effectiveness, as the case
may be, will be reduced to the original interest rate set forth on the cover of
this Exchange Offer Prospectus; provided, however, that, if after any such
reduction in interest rate, a different Registration Default occurs, the
interest rate may again be increased pursuant to the foregoing provisions.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Registration Rights Agreement, a copy of which is available as
set forth under "Additional Information".
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth in below, the Exchange Notes will be initially issued
in the form of one or more registered Notes in global form without coupons (each
a "Global Note"). Each Global Note will be deposited with, or on behalf of, the
Trustee as custodian for The Depository Trust Company (the "Depositary") and
registered in the name of Cede & Co., as nominee of the Depositary (such nominee
being referred to herein as the "Global Note Holder").
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Note and (ii) ownership of the Notes
evidenced by the Global
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Note will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by the Depositary (with respect to the
interests of the Depositary's Participants), the Depositary's Participants and
the Depositary's Indirect Participants. Prospective purchasers are advised that
the laws of some states require that certain persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to own,
transfer or pledge Exchange Notes evidenced by the Global Note will be limited
to such extent.
So long as the Global Note Holder is the registered owner of any Exchange
Notes, the Global Note Holder will be considered the sole holder under the
Indenture of any Exchange Notes evidenced by the Global Note. Beneficial owners
of Exchange Notes evidenced by the Global Note will not be considered the owners
or holders thereof under the Indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records of the Depositary or for maintaining,
supervising or reviewing any records of the Depositary relating to the Exchange
Notes.
Payments in respect of the principal of and premium, if any, and interest
on any Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names Notes, including the Global Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Company believes,
however, that it is currently the policy of the Depositary to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
Certificated Notes
If (i) the Company notifies the Trustee in writing that the Depositary is
no longer willing or able to act as a depositary or the Depositary ceases to be
registered as a clearing agency under the Exchange Act and the Company is unable
to locate a qualified successor within 90 days or (ii) the Company, at its
option, notifies the Trustee in writing that it elects to change the issuance of
Notes in the form of Certificated Securities under the Indenture then, upon
surrender by the Global Note Holder of its Global Note, Certificated Notes will
be issued to each person that the Global Note Holder and the Depositary identify
as being the beneficial owner of the related Notes. Upon any such issuance, the
Depositary is required to register such Certificated Securities in the name of
such person or persons (or the nominees of any thereof), and cause the same to
be delivered thereto.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
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PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for Existing Notes may be offered for resale,
resold or otherwise transferred by holders thereof (other than any holder which
is (i) an "Affiliate," (ii) a broker-dealer who acquired Existing Notes directly
from the Company or (iii) broker-dealers who acquired Existing Notes as a result
of market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business, such holders have no arrangement or understanding with any person to
participate in a distribution of such Exchange Notes and that such holders are
not engaged in and do not intend to engage a distribution of the Exchange Notes;
provided that broker-dealers receiving Exchange Notes in the Exchange Offer will
be subject to a prospectus delivery requirement with respect to resales of such
Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where Existing Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 120 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, all dealers affecting
transactions in the Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 120 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify such holders (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
PSI, FCCM and their affiliates also provide or have provided banking,
advisory and other financial services to the Company in the ordinary course of
their businesses. On March 2, 1998, Prudential Securities Credit Corp. ("PSCC"),
an affiliate of PSI, and First Chicago Capital Corporation ("FCCC"), an
affiliate of FCCM, purchased $8.5 million and $1.5 million, respectively, of
Bridge Notes from Holdings, the proceeds of which were loaned to the Company and
used to help finance the Unisign acquisition. In addition, First Chicago, also
an affiliate of FCCM, acted as the agent and a bank under the Company's 1994
credit facility, as well as the Original Credit Facility and the Senior Credit
Facility, the proceeds of which were used to help finance acquisitions,
including the TSS and Unisign acquisitions. The Company used a portion of the
proceeds of the Initial Offering to repay in full the Senior Credit Facility and
the intercompany loan, at which time Holdings repaid the Bridge Notes. PSI,
PSCC, FCCC, First Chicago and FCCM have received customary compensation in
connection with these transactions.
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LEGAL MATTERS
Certain legal matters with respect to the legality of the Exchange Notes
offered hereby will be passed upon for the Company by St. John & Wayne, L.L.C.,
Newark, New Jersey. In rendering its opinion on the validity of the Notes,
counsel for the Company will express no opinion as to federal or state laws
relating to fraudulent transfers.
EXPERTS
The financial statements of the Company as of and for the year ended
December 31, 1997 included in this Prospectus and Registration Statement have
been audited by McGladrey & Pullen, LLP, independent auditors, as stated in
their report appearing herein and are included in reliance upon such report and
upon the authority of such firm as experts in accounting and auditing.
The financial statements of the Company as of and for the years ended
December 31, 1995 and 1996 included in this Prospectus and Registration
Statement have been audited by McGrail Merkel Quinn & Associates, independent
auditors, as stated in their report appearing herein and are included in
reliance upon such report and upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Unisign Corporation, Inc. -- Outdoor
Advertising Division as of and for the years ended December 31, 1996 and 1997
included in this Prospectus and Registration Statement have been audited by
McGrail Merkel Quinn & Associates, independent auditors, as stated in their
report appearing herein and are included in reliance upon such report and upon
the authority of such firm as experts in accounting and auditing.
The financial statements of Tri-State Systems, Inc. as of and for the
period October 1, 1996 through June 11, 1997 and as of and for the years ended
September 30, 1995 and 1996 included in this Prospectus and Registration
Statement have been audited by Smith & Radigan, independent auditors, as stated
in their report appearing herein and are included in reliance upon such report
and upon the authority of such firm as experts in accounting and auditing.
The financial statements of Western Outdoor Advertising Co. -- Outdoor
Advertising Division as of and for the years ended October 31, 1996 and 1997
included in this Prospectus and Registration Statement have been audited by
Frankel, Zacharia, Arnold, Nissen, Stamp & Reinsch, LLC, independent auditors,
as stated in their report appearing herein and are included in reliance upon
such report and upon the authority of such firm as experts in accounting and
auditing.
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CHANGE IN ACCOUNTANTS
On March 12, 1998, the Company engaged McGladrey & Pullen, LLP and
dismissed McGrail Merkel Quinn & Associates as the independent auditors for the
Company. Prior to the engagement of McGladrey & Pullen, LLP, McGrail Merkel
Quinn & Associates served as the principal independent auditors for the Company.
The Company engaged McGladrey & Pullen, LLP and dismissed McGrail Merkel Quinn &
Associates in anticipation of the Initial Offering because of the Company's
desire to have a national firm. The change to McGladrey & Pullen, LLP was
approved by the Board of Directors of the Company. The reports on the Company's
financial statements prepared by McGrail Merkel Quinn & Associates for the years
ended December 31, 1995 and December 31, 1996 contained no adverse opinion or
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles. In connection with the audits for the
years ended December 31, 1995 and December 31, 1996, and for the period from
January 1, 1997 through March 12, 1998, there were no disagreements with McGrail
Merkel Quinn & Associates on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of McGrail Merkel Quinn &
Associates, would have caused McGrail Merkel Quinn & Associates to make
reference to the subject matter of the disagreements in its reports.
AVAILABLE INFORMATION
The Company intends to file reports and other information with the
Commission pursuant to the informational requirements of the Exchange Act.
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments thereto) on Form S-4 under the Securities Act
with respect to the Exchange Notes offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and reference is made to the
Registration Statement and the exhibits thereto for further information with
respect to the Company. Such reports, the Registration Statement and the
exhibits thereto may be inspected, without charge, at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional
offices at 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 fee. Such reports and other
information can also be reviewed through the Commission's Web site
(http://www.sec.gov).
92
<PAGE> 97
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS, TRI-STATE OUTDOOR MEDIA GROUP, INC.
Unaudited balance sheet................................... F-2
Unaudited statements of operations........................ F-3
Unaudited statements of cash flows........................ F-4
Notes to unaudited financial statements................... F-5
Independent Auditors' Reports............................. F-8
Balance sheets............................................ F-10
Statements of operations.................................. F-11
Statements of accumulated deficit......................... F-12
Statements of cash flows.................................. F-13
Notes to financial statements............................. F-14
FINANCIAL STATEMENTS, UNISIGN CORPORATION, INC.
Independent Auditor's Report.............................. F-25
Balance sheets............................................ F-26
Statements of income...................................... F-27
Statements of changes in divisional equity................ F-28
Statements of cash flows.................................. F-29
Notes to financial statements............................. F-30
FINANCIAL STATEMENTS, TRI-STATE SYSTEMS, INC.
Independent Auditors' Reports............................. F-35
Balance sheet............................................. F-36
Statement of operations................................... F-37
Statement of retained earnings (deficit).................. F-38
Statement of cash flows................................... F-39
Notes to financial statements............................. F-40
Independent Auditors' Reports............................. F-45
Balance sheets............................................ F-46
Statements of operations.................................. F-47
Statements of retained earnings (deficit)................. F-48
Statements of cash flows.................................. F-49
Notes to financial statements............................. F-50
FINANCIAL STATEMENTS, WESTERN OUTDOOR ADVERTISING CO.
Independent Auditors' Report.............................. F-55
Balance sheets............................................ F-56
Statements of income and changes in corporate
investment............................................. F-57
Statements of cash flows.................................. F-58
Notes to financial statements............................. F-59
</TABLE>
F-1
<PAGE> 98
TRI-STATE OUTDOOR MEDIA GROUP, INC.
BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE OR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current Assets
Cash...................................................... $ 9,338
Restricted cash........................................... 10,484
Investments............................................... 7,965
Accounts receivable, net of allowance for doubtful
accounts of $316....................................... 2,146
Supplies.................................................. 492
Prepaid production costs.................................. 579
Prepaid site leases....................................... 1,303
Prepaid commissions, current portion...................... 276
Other current assets...................................... 282
--------
Total current assets.............................. 32,865
--------
Property and Equipment, net................................. 44,140
--------
Other Assets
Intangible assets, net.................................... 27,643
Prepaid commissions, long-term portion.................... 312
Deferred taxes............................................ 5,273
Other..................................................... 107
--------
33,335
--------
$110,340
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable.......................................... $ 342
Accrued interest.......................................... 1,236
Accrued expenses.......................................... 435
Deferred revenue.......................................... 236
Due to SGH Holdings, Inc. ................................ 125
--------
Total current liabilities......................... 2,374
Long-Term Debt
Long-term debt............................................ 100,817
--------
Total liabilities................................. 103,191
--------
Commitments and Contingencies
Stockholder's Equity
Common stock, par value, $10 per share; authorized 10,000
shares; issued and outstanding, 200 shares............. 2
Paid-in capital........................................... 16,165
Accumulated deficit....................................... (9,018)
--------
7,149
--------
$110,340
========
</TABLE>
See Note to Financial Statements.
F-2
<PAGE> 99
TRI-STATE OUTDOOR MEDIA GROUP, INC.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997, AND 1998
(IN THOUSANDS, EXCEPT SHARE OR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Net revenues................................................ $ 4,415 $ 9,413
------- --------
Operating expenses:
Direct operating expenses................................. 1,319 3,179
General and administrative................................ 996 1,466
Depreciation and amortization............................. 1,224 4,027
------- --------
3,539 8,672
------- --------
Operating income.................................. 876 741
------- --------
Other income (expense):
Interest expense.......................................... (1,132) (4,198)
Other income (expense).................................... (51) 92
------- --------
Total other income (expense)...................... (1,183) (4,106)
------- --------
Loss before income tax benefit and extraordinary
loss on early extinguishment of debt............. (307) (3,365)
Income tax benefit.......................................... 129 1,347
------- --------
Loss before extraordinary loss on early
extinguishment of debt........................... (178) (2,018)
Extraordinary loss on early extinguishment of debt
(net of income taxes of $1,393)................. -- (2,089)
------- --------
Net Loss........................................ $ (178) $ (4,107)
======= ========
Basic (loss) per common share:
Loss before extraordinary loss on early
extinguishment of debt........................... $ (890) $(10,090)
Extraordinary loss on early extinguishment of
debt............................................. -- (10,445)
------- --------
Net Loss........................................ $ (890) $(20,535)
======= ========
Weighted common shares outstanding.......................... 200 200
======= ========
</TABLE>
See Note to Financial Statements.
F-3
<PAGE> 100
TRI-STATE OUTDOOR MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $ (178) $ (4,107)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 1,224 4,027
Deferred income tax benefit............................ (129) (2,740)
Loss on early extinguishment of debt................... -- 2,089
Accrued interest added to principal.................... 498 834
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable............................... (390) (901)
Supplies and prepaid production costs............. (106) 257
Prepaid site leases............................... (581) (327)
Prepaid commissions............................... (152) (153)
Other assets...................................... (396) (713)
Increase (decrease) in:
Accounts payable..................................... 94 297
Accrued interest..................................... 293 1,149
Accrued expenses.....................................
Deferred revenue..................................... 15 137
--------- ---------
Net cash provided by (used in) operating
activities...................................... 192 (151)
--------- ---------
INVESTING ACTIVITIES
Purchase of property and equipment........................ (1,123) (2,303)
Acquisitions.............................................. (31,348) (23,093)
Purchase of securities held for investment................ -- (7,965)
Purchase of pledged securities............................ -- (10,484)
--------- ---------
Net cash (used in) investing activities........... (32,471) (43,845)
--------- ---------
FINANCING ACTIVITIES
Proceeds for issuance of senior subordinated notes........ -- 100,000
Deferred financial costs.................................. (1,637) (5,650)
Borrowings under long-term debt agreement................. 35,050 22,889
Proceeds from revolver borrowings......................... 2,811 --
Payments on revolver borrowings........................... (4,546) (4,950)
Principal payments on long-term debt...................... -- (59,087)
Increase in due to SGH Holdings, Inc. .................... 500 --
--------- ---------
Net cash provided by financing activities.............. 32,178 53,202
--------- ---------
Net increase (decrease) in cash and cash equivalents... (101) 9,206
CASH AND CASH EQUIVALENTS
Beginning................................................. 133 132
--------- ---------
Ending.................................................... $ 32 $ 9,338
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest................................ $ 1,025 $ 3,467
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of subordinated debentures to preferred
stock.................................................. $ -- $ 16,140
========= =========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 101
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTE TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The interim financial statements should be read in conjunction with the
financial statements and notes thereto of Tri-State Outdoor Media Group, Inc.
(the "Company") for the year ended December 31, 1997 as included in the
Prospectus. The interim information reflects all adjustments, consisting only of
normal recurring accruals, which are, in the opinion of management, necessary
for a fair presentation of the results for the interim period. Results for the
interim period are not necessarily indicative of results to be expected for the
full year.
NOTE 2. ACQUISITIONS
Effective March 2, 1998, the Company acquired substantially all the outdoor
advertising assets of Unisign Corporation, Inc. ("Unisign") for a total
acquisition cost of approximately $22.0 million, including the assumption of
certain capital leases aggregating approximately $727,000. Cash consideration
paid was $21.1 million. As a result of this acquisition, the Company acquired
display faces in Kentucky, West Virginia and Ohio. This acquisition was a new
market acquisition.
The Company entered into a purchase commitment with Unisign on March 2,
1998 for the construction of outdoor advertising structures for $1,250,000. At
that time, the Company also provided a standby letter of credit agreement in the
amount of $1,250,000 with Unisign expiring April 6, 2000. The Company does not
believe it is practical to estimate the fair value of the letter of credit and
does not believe exposure to loss is likely.
The Company purchased on July 14, 1998 certain assets of an outdoor
advertising company with approximately 244 advertising displays located in
Georgia. The purchase price was $3.0 million.
On July 23, 1998, the Company purchased certain assets of an outdoor
advertising company with approximately 50 advertising displays located in
Georgia. The purchase price was $1.2 million.
On September 18, 1998, the Company purchased certain assets of an outdoor
advertising company for a total acquisition cost of approximately $26.8 million.
As a result of this acquisition, the Company acquired display faces in 19
states. The Company entered into a new credit facility and borrowed $16 million
to finance this acquisition.
The Company has entered into various other purchase agreements since year
end aggregating $1.1 million.
The assets acquired and liabilities assumed subsequent to year end and
related acquisition costs incurred in conjunction with this acquisition were as
follows (in thousands):
<TABLE>
<CAPTION>
UNISIGN WESTERN OTHERS TOTAL
------- ------- ------- -------
<S> <C> <C> <C> <C>
Current assets...................................... $ 220 $ 360 $ 38 $ 618
Property and equipment and other long term assets... 9,105 11,657 2,639 23,401
Goodwill............................................ 10,185 12,194 2,210 24,589
Other intangible assets............................. 2,490 2,539 399 5,428
Assumed liabilities................................. (727) (163) (9) (899)
Acquisition costs................................... (200) (189) (177) (566)
------- ------- ------- -------
$21,073 $26,398 $ 5,100 $52,571
======= ======= ======= =======
</TABLE>
F-5
<PAGE> 102
NOTE 3. FINANCINGS
On May 20, 1998, the Company issued $100 million aggregate principal amount
of 11% Senior Notes (the "Senior Notes") pursuant to an indenture (the
"Indenture") between the Company and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee"). The Senior Notes mature on March 15, 2008 and are
senior unsecured obligations of the Company ranking pari passu with all present
and future indebtedness of the Company that by its terms is not subordinated to
the obligations represented by the Senior Notes. The Company incurred
approximately $4.7 million of costs associated with the issuance of the Senior
Notes.
The Senior Notes bear interest at 11% per annum. Interest is payable
semi-annually on each May 15 and November 15 to holders of records on the close
of business on the immediately preceding May 1 and November 1. The Company was
required to purchase approximately $10.4 million of U.S. government securities
and pledge them as security for the first two interest payments on the Senior
Notes.
Obligations under the Senior Notes are not secured.
The Senior Notes may be redeemed at the option of the Company, in whole or
in part, at any time and from time to time on or after May 15, 2003 at the
redemption prices declining ratably from 105.5% of the principal amount on May
15, 2003 to 100.0% on and after May 15, 2006, plus in each case accrued and
unpaid interest to the applicable redemption date.
The Indenture restricts the Company and its subsidiaries from, among other
things (i) incurring indebtedness; (ii) incurring liens or guaranteeing
obligations; (iii) entering into mergers or consolidations or liquidating or
dissolving; (iv) selling or otherwise disposing of property, business or assets;
(v) with certain exceptions, making loans or investments; (vi) making optional
payments or prepayments of indebtedness; (vii) limiting the ability of the
Company to create liens upon its property, assets or revenues.
Upon a change of control of the Company, each holder of Senior Notes may
require the Company to repurchase all or a portion of such holder's Senior Notes
at a purchase price equal to 10% of the aggregate principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase.
The Company has used a portion of the net proceeds from the Senior Notes to
repay all outstanding borrowings under the Senior Credit Facility, which was
thereupon terminated.
As a result of the early extinguishment of the Senior Credit Facility, the
Company was required to record an extraordinary loss of $3.5 million ($2.1
million net of income tax effect) including the estimated fair value of the
interest rate swap agreements because they no longer met the criteria to be
accounted for as a hedge. The Company recorded a liability of $400,000 in May
1998 related to this. In September 1998, the Company settled the interest rate
swap agreements for $600,000.
In May 1998, Holdings converted the subordinated debt to paid-in capital of
the Company.
In conjunction with the Unisign acquisition, the Company borrowed $10
million from Holdings. This borrowing was subordinate to the Company's senior
debt and bore interest at LIBOR plus 4.75%, 10.4% at March 2, 1998. The
borrowings were due on demand and were repaid with the proceeds from the Senior
Notes.
The Company entered in a credit agreement with The First National Bank of
Chicago on the close of business on September 18, 1998 which was used to finance
the acquisition of Western Outdoor. The Credit Facility consists of a Facility A
Promissory Note for $14,000,000, Facility B standby Letter of Credit for
$1,250,000 in connection with the Unisign acquisition, and a Facility C
Revolving Loan for $4,000,000 for working capital and general corporate
purposes. The Promissory Note matures and the Letter of Credit and Revolver
terminates on September 30, 2000.
The Credit Facility enables the Company to borrow funds at a rate equal to
the alternate base rate, as defined by the Credit Facility, calculated on the
number of days elapsed on the basis of a 360-day year. The Company also has the
option of paying interest on loan advances at the Eurodollar Rate, as defined.
On September 18, 1998, the effective interest rate was 11% for the A Facility
and C Facility.
F-6
<PAGE> 103
The Credit Facility contains certain 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 was required to pay a commitment fee of $385,000 and an
additional $288,750 is required if Facility A has not been repaid in full and
Facility B has not been fully cash collateralized or repaid in full by March 31,
1999. In addition, Holdings will be required to issue warrants in March 1999 to
purchase 5% of its common stock which will be exercisable if any loans under
Facility A, B and C are not repaid in full by September 30, 1999 and the letter
of credit evidenced by Facility B is not fully cash collateralized or terminated
by September 30, 1999.
The borrowings under the Credit Facility are collateralized by
substantially all of the Company's assets, including all leases, permits and
other intangible assets, and other collateral, as well as by a pledge from
Holdings of its stock in the Company. In addition, the Company must maintain
keyman life insurance on the president of the Company in the aggregate amount of
$2,500,000. The insurance policies are assigned to The First National Bank of
Chicago.
The Company has the right to prepay the borrowings in whole or in part,
without premium or penalty, as stipulated in the Credit Facility.
F-7
<PAGE> 104
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Tri-State Outdoor Media Group, Inc.
Tifton, Georgia
We have audited the accompanying balance sheet of Tri-State Outdoor Media
Group, Inc. as of December 31, 1997, and the related statements of operations,
accumulated 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 financial statements referred to above present fairly,
in all material respects, the financial position of Tri-State Outdoor Media
Group, Inc. as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
MCGLADREY & PULLEN, LLP
West Palm Beach, FL
March 27, 1998, except for
Notes 4, 5 and 11 as to
which the date is September 20, 1998
F-8
<PAGE> 105
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Tri-State Outdoor Media Group, Inc.
Joplin, Missouri
We have audited the accompanying balance sheet of Tri-State Outdoor Media
Group, Inc. as of December 31, 1996 and the related statements of operations,
accumulated deficit and cash flows for each of the years in the two year period
ended December 31, 1996. 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 Tri-State Outdoor Media
Group, Inc. as of December 31, 1996, and the results of its operations and cash
flows for each of the years in the two year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
MCGRAIL, MERKEL, QUINN & ASSOCIATES
Scranton, PA
March 13, 1997
F-9
<PAGE> 106
TRI-STATE OUTDOOR MEDIA GROUP, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS,
EXCEPT SHARE OR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current Assets (Note 5)
Cash...................................................... $ 133 $ 132
Accounts receivable, net of allowance for doubtful
accounts 1996 $71; 1997 $186........................... 815 1,429
Supplies.................................................. 258 316
Prepaid production costs.................................. -- 432
Prepaid site leases....................................... 444 1,012
Prepaid commissions, current portion...................... 146 193
Other current assets...................................... 80 211
------- -------
Total current assets.............................. 1,876 3,725
------- -------
Property and Equipment, net (Note 2)........................ 11,326 33,083
------- -------
Other Assets
Intangible assets, net (Note 3)........................... 2,553 14,421
Prepaid commissions, long-term portion.................... 197 242
Deferred taxes (Note 8)................................... 1,109 2,533
Other..................................................... 67 102
------- -------
3,926 17,298
------- -------
$17,128 $54,106
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current Liabilities
Current portion of long-term debt (Note 5)................ $ 1,554 $ --
Accounts payable.......................................... 320 246
Accrued interest.......................................... 119 504
Accrued expenses.......................................... 27 18
Deferred revenue.......................................... 51 99
Due to SGH Holdings, Inc.................................. -- 125
------- -------
Total current liabilities......................... 2,071 992
Long-Term Debt (Note 5)
Long-term debt, net of current portion.................... 17,920 57,998
------- -------
Total liabilities................................. 19,991 58,990
------- -------
Commitments and Contingencies (Note 9)
Stockholder's Equity (Deficiency)
Common stock, par value, $10 per share; authorized 10,000
shares; issued and outstanding 1997 and 1996; 200
shares................................................. 2 2
Paid-in capital........................................... 25 25
Accumulated deficit....................................... (2,890) (4,911)
------- -------
(2,863) (4,884)
------- -------
$17,128 $54,106
======= =======
</TABLE>
See Notes to Financial Statements.
F-10
<PAGE> 107
TRI-STATE OUTDOOR MEDIA GROUP, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE OR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Net revenues................................................ $ 7,892 $ 8,021 $ 11,831
------- ------- --------
Operating expenses:
Direct operating expenses................................. 2,315 2,427 3,817
General and administrative................................ 1,934 2,345 2,417
Depreciation and amortization............................. 2,713 2,648 4,699
------- ------- --------
6,962 7,420 10,933
------- ------- --------
Operating income.................................. 930 601 898
------- ------- --------
Other income (expense):
Gain (loss) on sale of assets............................. 1,334 443 (143)
Interest expense.......................................... (2,094) (1,941) (4,200)
Other income (expense).................................... (153) 2 --
------- ------- --------
Total other income (expense)...................... (913) (1,496) (4,343)
------- ------- --------
Income (loss) before income tax benefit........... 17 (895) (3,445)
Income tax benefit (Note 8)................................. 8 324 1,424
------- ------- --------
Net income (loss)................................. $ 25 $ (571) $ (2,021)
======= ======= ========
Basic earnings (loss) per common share...................... $ 125 $(2,855) $(10,105)
======= ======= ========
Weighted common shares outstanding.......................... 200 200 200
======= ======= ========
</TABLE>
See Notes to Financial Statements.
F-11
<PAGE> 108
TRI-STATE OUTDOOR MEDIA GROUP, INC.
STATEMENTS OF ACCUMULATED DEFICIT
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Deficit, January 1, 1995.................................... $(2,344)
Net income................................................ 25
-------
Deficit, December 31, 1995.................................. (2,319)
Net loss.................................................. (571)
-------
Deficit, December 31, 1996.................................. (2,890)
Net loss.................................................. (2,021)
-------
Deficit, December 31, 1997.................................. $(4,911)
=======
</TABLE>
See Notes to Financial Statements.
F-12
<PAGE> 109
TRI-STATE OUTDOOR MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $ 25 $ (571) $(2,021)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 2,713 2,648 4,699
Deferred income tax benefit............................ (8) (324) (1,424)
(Gain) loss on sale of assets.......................... (1,334) (443) 143
Accrued interest added to principal.................... 588 549 1,265
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable.................................. (215) 67 (461)
Supplies and prepaid production costs................ (149) 25 29
Prepaid site leases.................................. (112) (16) (568)
Prepaid commissions.................................. (73) (97) (20)
Other assets......................................... 37 (1) 219
Increase (decrease) in:
Accounts payable..................................... (68) (84) (154)
Accrued expenses..................................... (133) (293) 366
Deferred revenue..................................... (28) 18 (263)
Deposit.............................................. 2 (2) --
------- ------- -------
Net cash provided by operating activities......... 1,245 1,476 1,810
------- ------- -------
INVESTING ACTIVITIES
Purchase of property and equipment........................ (1,083) (1,655) (2,334)
Acquisitions (Note 4)..................................... (3,003) (286) (34,835)
Proceeds from sale of assets.............................. 2,000 3,100 --
Other acquisition costs................................... (202) (75) (101)
Other..................................................... (55) 81 (35)
------- ------- -------
Net cash provided by (used in) investing
activities...................................... (2,343) 1,165 (37,305)
------- ------- -------
FINANCING ACTIVITIES
Loan proceeds............................................. 2,500 200 35,925
Proceeds from revolver borrowings......................... 2,622 3,766 8,395
Payments on revolver borrowings........................... (908) (2,493) (6,433)
Principal payments on debt................................ (3,014) (4,055) (881)
Increase in due to SGH Holdings, Inc...................... 17 -- 125
Debt issuance costs....................................... (85) -- (1,637)
------- ------- -------
Net cash provided by (used in) financing
activities...................................... 1,132 (2,582) 35,494
------- ------- -------
Net increase (decrease) in cash................... 34 59 (1)
CASH:
Beginning................................................. 40 74 133
------- ------- -------
Ending.................................................... $ 74 $ 133 $ 132
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest................................ $ 1,464 $ 1,663 $ 3,815
======= ======= =======
</TABLE>
See Notes to Financial Statements.
F-13
<PAGE> 110
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: The Company is an outdoor advertising company,
operating advertising displays in the eastern and central regions of the United
States. Most of the Company's advertising displays are located along interstate
highways and primary and secondary roads outside of urban areas. The Company
offers a full line of outdoor advertising services to its customers, including
creative design, production, installation and maintenance of the displays. The
Company primarily provides services to advertisers who wish to alert motorists
to the advertiser's place of business and to provide directions to that
business.
The Company is a 100%-owned subsidiary of SGH Holdings, Inc. ("Holdings").
Significant accounting policies:
Accounting estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported 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.
Cash and concentration of credit risk: The Company maintains cash with
various financial institutions in accounts which, at times, may be in excess of
the FDIC insurance limits. The Company has not experienced any losses in such
accounts. The Company believes it is not exposed to any significant credit risk
on cash.
Supplies and prepaid production costs: Supplies and prepaid production
costs consist primarily of material used in the production of signs, artwork and
other production costs. The cost of producing display faces for contracts for 18
months or less are recorded as prepaid production costs and are charged to
production expense over the term of the related contracts on a straight line
basis.
Prepaid expenses: The Company prepays certain costs for land leases and
sales commissions at the inception of the advertising contracts. These costs are
deferred and amortized on a straight-line basis over the period that coincides
with the recognition of income. The portion of these costs associated with
advertising revenue to be earned beyond one year of the balance sheet date has
been classified as long-term assets.
Property and equipment: Property and equipment is recorded at cost and
depreciated on a straight-line basis over the estimated useful lives of the
respective assets. The estimated useful lives of assets are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Building and improvements............................ 15-30
Advertising structures............................... 20
Advertising display faces............................ 3
Vehicles and equipment............................... 5
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1996 and 1997,
amounted to $1,410,000 $1,574,000 and $2,343,000, respectively.
Intangible assets and deferred costs: Intangible assets result from
several acquisitions and include noncompete agreements, goodwill and future
contract revenues. Intangible assets are being amortized on a straight-line
basis over the following lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Goodwill.............................................. 15
Value of purchased contracts.......................... 1-3
Noncompete agreements................................. 5
</TABLE>
F-14
<PAGE> 111
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Costs incurred by the Company in securing financing agreements have been
deferred and are being amortized over the term of the agreements using the
effective interest method.
Amortization expense for the years ended December 31, 1995, 1996 and 1997,
amounted to $1,304,000, $1,074,000 and $2,356,000 respectively.
Financial instruments: The Company utilizes derivative financial
instruments to change the fixed/ variable interest rate mix of the debt
portfolio to reduce the Company's aggregate risk to movements in interest rates.
The derivative instruments consist of interest rate swap agreements with banks.
Gains and losses relating to qualified hedges are deferred and included in the
measurement of the related transaction, when the hedged transaction occurs. The
Company's policy is not to hold or issue derivative financial instruments for
trading purposes.
Net revenues: Revenues from outdoor advertising contracts are recognized
on a straight-line basis over the term of the contract and are net of agency
commissions. Bulletin contracts are primarily 36-month terms whereas poster
contracts are primarily 12 months or less.
Impairment of long-lived assets: The Company continually evaluates whether
events and circumstances have occurred that indicate the remaining estimated
useful life of long-lived assets may warrant revision or the remaining balance
of long-lived assets may not be recoverable. In accordance with FASB Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, the Company records impairment losses on long-lived
assets used in operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets.
Loss per common share: Loss per common share amounts are computed using
the weighted average number of common shares outstanding.
Income taxes: Deferred income taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
The Company files a consolidated income tax return with Holdings. The
consolidated group uses the separate return method for allocating the
consolidated amount of current and deferred tax expense (benefit) to members of
the group.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996 and
1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Land........................................................ $ 98 $ 173
Buildings and improvements.................................. 317 648
Structures and faces........................................ 16,420 39,887
Vehicles and equipment...................................... 891 1,109
------- -------
17,726 41,817
Less accumulated depreciation............................... 6,400 8,734
------- -------
$11,326 $33,083
======= =======
</TABLE>
F-15
<PAGE> 112
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996 and 1997
(in thousands):
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Goodwill.................................................... $1,729 $11,732
Debt issuance costs......................................... 698 2,335
Value of purchased contracts................................ 2,276 4,838
Noncompete agreements....................................... 364 414
------ -------
5,067 19,319
Less accumulated amortization............................... 2,514 4,898
------ -------
$2,553 $14,421
====== =======
</TABLE>
NOTE 4. ACQUISITIONS
1997:
The Tri-State Systems Acquisition: In June 1997, the Company acquired
substantially all the assets of Tri-State Systems, Inc. ("TSS") for a total
acquisition cost of $32.0 million. As a result of the acquisition of TSS, the
Company acquired display faces in Georgia, Alabama, Florida, Kentucky,
Mississippi, South Carolina and Tennessee. Through this acquisition, the Company
also acquired the bench advertising business of TSS, which involves the sale of
advertising copy on benches located at bus stops and other locations. The bench
advertising business of the Company is operated primarily in Georgia and
Alabama, as well as Florida, Kentucky, Mississippi, South Carolina and
Tennessee. Subsequent to the acquisition of TSS by the Company, the Company's
Chief Financial Officer received $161,000 for his ownership interest in TSS.
Sunbelt Outdoor Systems, Inc.: In September 1997, the Company acquired
substantially all of the assets of Sunbelt Outdoor Systems, Inc. for a total
acquisition cost of approximately $2.8 million.
Others: The Company acquired assets from Supreme Outdoor, Inc. and
Mid-American Advertising Company for a total acquisition cost of $333,000 and
$400,000, respectively, during 1997.
The assets acquired and liabilities assumed during 1997 in conjunction with
the above acquisitions were as follows (in thousands):
<TABLE>
<CAPTION>
TSS SUNBELT OTHERS TOTAL
------- ------- ------ -------
<S> <C> <C> <C> <C>
Current assets................................. $ 1,060 $ 21 $ 13 $ 1,094
Property and equipment......................... 19,562 1,734 613 21,909
Goodwill....................................... 8,997 922 84 10,003
Other intangible assets........................ 2,345 104 33 2,482
Assumed liabilities............................ (616) (27) (10) (653)
------- ------ ---- -------
$31,348 $2,754 $733 $34,835
======= ====== ==== =======
</TABLE>
The acquisitions were financed by borrowings under the Company's bank
credit facilities.
Prior years:
During 1996, the Company acquired certain assets of three small outdoor
companies for the aggregate purchase price of $286,000.
On November 30, 1995, the Company acquired substantially all of the assets
of a division of an outdoor advertising company located in and around Watertown,
New York for $2,664,000. Such operations were not material to the financial
statements during 1995.
F-16
<PAGE> 113
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, the Company also acquired two small outdoor companies for the
aggregate purchase price of $340,000. Such operations were not material to the
financial statements during 1995.
All of the foregoing acquisitions were accounted for as purchases, and the
operations are included in the accompanying financial statements subsequent to
the acquisitions.
Unaudited pro forma results of operations for the years ended December 31,
1996 and 1997 as though these businesses had been acquired as of January 1,
1996, follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Revenue.................................................. $14,783 $15,072
Net loss................................................. (3,242) (3,211)
Loss per common share.................................... (16,210) (16,055)
</TABLE>
Subsequent to December 31, 1997:
The Unisign Acquisition: Effective March 2, 1998, the Company acquired
substantially all the outdoor advertising assets of Unisign Corporation, Inc.
("Unisign") for a total acquisition cost of approximately $22.0 million,
including the assumption of certain capital leases aggregating approximately
$727,000. Cash consideration paid was $21.1 million. As a result of this
acquisition, the Company acquired display faces in Kentucky, West Virginia and
Ohio. This acquisition was a new market acquisition.
The Company entered into a purchase commitment with Unisign on March 2,
1998 for the construction of outdoor advertising structures for $1,250,000. At
that time, the Company also provided a standby letter of credit agreement in the
amount of $1,250,000 with Unisign expiring April 6, 2000. The Company does not
believe it is practical to estimate the fair value of the letter of credit and
does not believe exposure to loss is likely.
The Company purchased on July 14, 1998 certain assets of an outdoor
advertising company with approximately 244 advertising displays located in
Georgia. The purchase price was $3.0 million.
On July 23, 1998, the Company purchased certain assets of an outdoor
advertising company with approximately 50 advertising displays located in
Georgia. The purchase price was $1.2 million.
On September 18, 1998, the Company purchased certain assets of an outdoor
advertising company for a total acquisition cost of approximately $26.8 million.
As a result of this acquisition, the Company acquired display faces in 19
states. The Company entered into a Credit Facility and borrowed $16 million to
finance this acquisition.
The Company has entered into various other purchase agreements since year
end aggregating $1.1 million.
The assets acquired and liabilities assumed subsequent to year end and
related acquisition costs incurred in conjunction with this acquisition were as
follows (in thousands):
<TABLE>
<CAPTION>
UNISIGN WESTERN OTHERS TOTAL
------- ------- ------- -------
<S> <C> <C> <C> <C>
Current assets...................................... $ 220 $ 360 $ 38 $ 618
Property and equipment and other long term assets... 9,105 11,657 2,639 23,401
Goodwill............................................ 10,185 12,194 2,210 24,589
Other intangible assets............................. 2,490 2,539 399 5,428
Assumed liabilities................................. (727) (163) (9) (899)
Acquisition costs................................... (200) (189) (177) (566)
------- ------- ------- -------
$21,073 $26,398 $ 5,100 $52,521
======= ======= ======= =======
</TABLE>
F-17
<PAGE> 114
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1997 consists of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Senior Debt:
The First National Bank of Chicago
Senior term loan (Facility A) payable in 25 unequal
quarterly principal installments maturing June 30, 2004;
interest payable quarterly as defined by the agreement
(A)....................................................... $11,450 $30,000
Senior term loan (Facility B) payable in 26 unequal
quarterly principal installments maturing December 31,
2004; interest payable quarterly as defined by the
agreement (A)............................................. -- 7,500
Revolving note (Facility C) provides for borrowing up to
$7,500,000 until the facility termination date of June 30,
2004. Interest is payable quarterly on the outstanding
balance. Aggregate revolving note will be reduced in
unequal quarterly principal installments commencing June
30, 2000 (A).............................................. 2,987 4,950
Subordinated Debt:
Promissory note payable to Holdings dated June 12, 1997.
Interest accrues at a rate of 15% per annum through June
12, 2000 and 14% per annum thereafter compounded quarterly
(including capitalized accrued interest of $765,000 at
December 31, 1997). Principal and accrued interest is due
and payable on January 31, 2005........................... -- 9,765
Promissory note payable to Holdings dated October 3, 1994.
Interest accrues at a rate of 12% per annum (including
capitalized accrued interest of $1,137,000 and $1,637,000
at December 31, 1996 and 1997, respectively). The
principal and accrued interest is due and payable on
October 4, 2003 (1)....................................... 5,037 5,537
Other long-term debt (secured).............................. -- 246
------- -------
19,474 57,998
Less current portion of long-term debt...................... 1,554 --
------- -------
Long-term debt, less current portion........................ $17,920 $57,998
======= =======
</TABLE>
- ---------------
(A) Senior Debt Facilities were amended as of February 27, 1998; see below for
amended terms and maturities.
Senior Debt:
To finance certain business acquisitions, the Company entered into a second
amendment to the original credit agreement (the "Senior Credit Facility") with
The First National Bank of Chicago originally dated October 3, 1994 and a
syndicate consisting of various other financial institutions (collectively
called the "Bank") on the close of business on February 27, 1998. The Senior
Credit Facility consists of a Term Loan A Facility for $37,500,000, Term Loan B
Facility for $12,500,000 (the "Term Loans"), and a Revolving Loan Commitment
(the "Revolver") of $12,500,000 (collectively the "Borrowings"). The Term Loans
mature on September 30, 2005 and March 31, 2006, respectively, and the
Revolver's termination date is September 30, 2005.
The borrowings under the Senior Credit Facility are collateralized by
substantially all of the Company's assets, including all leases, permits and
other intangible assets, and other collateral, as well as by a pledge from
Holdings of its stock in the Company. In addition, the Company must maintain
keyman life insurance on the
F-18
<PAGE> 115
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
president of the Company in the aggregate amount of $2,500,000. The insurance
policies are assigned to The First National Bank of Chicago.
The Senior Credit Facility enables the Company to borrow funds at a rate
equal to the alternate base rate, as defined by the Senior Credit Facility,
calculated on the number of days elapsed on the basis of a 360-day year. The
Company also has the option of paying interest on loan advances at the
Eurodollar Rate, as defined. The Senior Credit Facility also enables the Company
to realize a lower interest rate if its leverage ratio meets certain levels as
stipulated in the Senior Credit Facility. At December 31, 1997, the effective
interest rate was 8.813% and 10.500% for the A Facility and B Facility,
respectively. At December 31, 1996, the effective interest rate was 9.125% for
the aggregate facility loan. Accrued interest is payable in quarterly
installments on March 31, June 30, September 30 and December 31. The Senior
Credit Facility also requires payment of a commitment fee of either (a) if the
Total Leverage Ratio as of the last day of the most recently ended fiscal
quarter is equal to or greater than 3.5 to 1, .50% per annum, or (b) if the
Total Leverage Ratio as of the last day of such fiscal quarter is less than 3.0
to 1, .375% per annum. In either case, the fee is computed on the average daily
unborrowed portion of the Aggregate Total Commitment from the Effective Date to
and including the Facility C Termination Date, payable in arrears on each
payment date hereafter and on the Facility C termination date. Related to this,
the Company incurred $1,000 and $14,000 in 1996 and 1997, respectively, in
commitment fee expense.
Available borrowings under the Revolver are permanently reduced on the last
day of each fiscal quarter beginning December 31, 2001 by $625,000, thereby
reducing the availability to zero on September 30, 2005.
The Senior Credit Facility contains certain affirmative covenants that must
be complied with on a continuing basis. In addition, the Senior 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
Senior Credit Facility. The Senior Credit Facility also requires the Company to
maintain certain financial ratios. In addition, the agreement requires the
Company to enter into a rate hedging obligation (see Interest Rate Swaps,
below).
The Company has the right to prepay the borrowings in whole or in part,
without premium or penalty, as stipulated in the Senior Credit Facility.
Subordinated Debt:
(1) Interest accrues at a rate of 12% per annum and is payable quarterly
commencing December 31, 1994. However, all quarterly interest due on or prior to
September 30, 1996 was deferred. For all quarterly payment dates subsequent to
September 30, 1996, the Company is permitted to defer the payment of interest.
If deferred, interest accrues at a rate of 15% per annum.
Interest deferred pursuant to the subordinated debt agreement amounted to
$549,000 during 1996 and $1,265,000 during 1997.
In May 1998, Holdings converted the subordinated debt to paid in capital of
the Company.
F-19
<PAGE> 116
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt based on the Senior Credit Facility dated
February 27, 1998, as of December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1998............................................... $ --
1999............................................... 1,896
2000............................................... 4,300
2001............................................... 7,800
2002............................................... 8,300
Thereafter......................................... 35,702
-------
$57,998
=======
</TABLE>
Subsequent to year end, in conjunction with the Unisign acquisition, the
Company borrowed $10 million from Holdings. This borrowing is subordinate to the
Company's senior debt and bears interest at LIBOR plus 4.75%, 10.4% at March 2,
1998. The note is due on demand. (See Note 11).
The Company entered in a credit agreement with The First National Bank of
Chicago on the close of business on September 18, 1998 which was used to finance
the acquisition of Western Outdoor. The Credit Facility consists of a Facility A
Promissory Note for $14,000,000, Facility B standby Letter of Credit for
$1,250,000 in connection with the Unisign acquisition, and a Facility C
Revolving Loan for $4,000,000 for working capital and general corporate
purposes. The Promissory Note matures and the Letter of Credit and Revolver
terminates on September 30, 2000.
The Credit Facility enables the Company to borrow funds at a rate equal to
the alternate base rate, as defined by the Credit Facility, calculated on the
number of days elapsed on the basis of a 360-day year. The Company also has the
option of paying interest on loan advances at the Eurodollar Rate, as defined.
On September 18, 1998, the effective interest rate was 11% for the A Facility
and C Facility.
The Credit Facility contains certain 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 was required to pay a commitment fee of $385,000 and an
additional $288,750 is required if Facility A has not been repaid in full and
Facility B has not been fully cash collateralized or repaid in full by March 31,
1999. In addition, Holdings will be required to issue warrants in March 1999 to
purchase 5% of its common stock which will be exercisable if any loans under
Facility A, B and C are not repaid in full by September 30, 1999 and the letter
of credit evidenced by Facility B is not fully cash collateralized or terminated
by September 30, 1999.
The borrowings under the Credit Facility are collateralized by
substantially all of the Company's assets, including all leases, permits and
other intangible assets, and other collateral, as well as by a pledge from
Holdings of its stock in the Company. In addition, the Company must maintain
keyman life insurance on the president of the Company in the aggregate amount of
$2,500,000. The insurance policies are assigned to The First National Bank of
Chicago.
The Company has the right to prepay the borrowings in whole or in part,
without premium or penalty, as stipulated in the Credit Facility.
F-20
<PAGE> 117
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interest Swaps Agreements:
The Company uses interest rate swap agreements to change the fixed/variable
interest rate mix of the debt portfolio to reduce the Company's aggregate risk
to movements in interest rates. Amounts paid or received under interest rate
swap agreements are accrued as interest rates change and are recognized over the
life of the swap agreements as an adjustment to interest expense. The related
amounts payable to, or receivable from, the counterparties are included in
accrued interest expense. The fair value of the swap agreements noted below were
not recognized in the financial statements since they are accounted for as a
hedge. The criteria required to be met for hedge accounting is that, first, the
item to be hedged exposes the Company to interest rate risk and, second, the
interest rate swap reduces that exposure and is designated as a hedge as
follows:
The first interest rate swap has a notional amount of $15,000,000, matures
May 17, 1999 (with an additional one year option at the Bank's discretion) and
has a fixed rate of 9.13%. During 1997, the Company incurred $56,000 related to
this agreement and increased interest expense accordingly.
The second interest rate swap has a notional amount of $15,000,000, matures
May 16, 2000 and has a fixed rate of 9.13%. During 1997, the Company incurred of
$56,000 related to this agreement and increased interest expense accordingly.
Prior to June 1997, the Company had an interest rate swap with a notional
amount of $12,000,000, a term of two years commencing November 20, 1995 and a
fixed rate of 8.995%. Also, the swaps had an interest rate collar with a
notional amount of $10,000,000, a term of one year commencing November 20, 1997
and would have provided a cap of 10.625% and a floor of 8.975%.
NOTE 6. SALE OF ASSETS
On January 25, 1996, the Company sold substantially all of its operating
assets in and around Watertown, New York for $3,100,000. Assets sold, in
addition to the outdoor advertising structures, included the site leases, sales
and advertising contracts and permits.
On June 30, 1995, the Company sold billboards located in and around Erie,
Pennsylvania for $2,000,000. Assets sold, in addition to the billboards,
included the site leases, sales contracts and permits.
NOTE 7. RELATED PARTY TRANSACTIONS
The Company leased its corporate headquarters in Joplin, Missouri from the
President, Chief Financial Officer and a Vice President of the Company, who
jointly owned the building. The Company moved its headquarters to Tifton,
Georgia in 1997 and no longer leases the building in Missouri. The Company also
leases other assets from the President and Chief Financial Officer. The rent
expense paid to related parties for the years ended December 31, 1995, 1996 and
1997 in the aggregate totaled approximately $80,000, $80,000 and $60,000
respectively. See also Note 5 for a description of subordinated promissory notes
payable to Holdings.
F-21
<PAGE> 118
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. INCOME TAXES
The income tax benefit consists of the following for the years ended
December 31, 1995, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ------
<S> <C> <C> <C>
Currently payable:
Federal................................................... $-- $ -- $ --
State..................................................... -- -- --
Deferred benefit:
Federal................................................... 6 269 1,218
State..................................................... 2 55 206
-- ---- ------
$8 $324 $1,424
== ==== ======
</TABLE>
A reconciliation of income tax benefit at statutory rates to the income tax
benefit reported in the statements of operations is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ------
<S> <C> <C> <C>
Tax benefit at statutory rate............................... $ 6 $304 $1,171
State tax benefit, net of federal taxes..................... 2 55 206
Nondeductible expenses...................................... 2 (21) 11
Other....................................................... (2) (14) 36
--- ---- ------
Income tax benefit.......................................... $ 8 $324 $1,424
=== ==== ======
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards of
approximately $6,010,000 for federal and state income tax purposes, which expire
in varying amounts during the year ending 2009 through 2017.
Although realization is not assured, the Company believes, based on its
expectations for the future, that the taxable income of the Company will more
likely than not be sufficient to utilize all of the $6,010,000 net operating
loss carryforwards prior to their ultimate expiration in the year 2017. 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.
Temporary differences between the financial statement carrying amounts and
tax bases of assets that give rise to significant portions of the deferred tax
assets relate to the following as of December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 374 $2,344
Amortization.............................................. 9 15
Allowance for uncollectible accounts...................... 28 73
Property and equipment.................................... 698 101
------ ------
$1,109 $2,533
====== ======
</TABLE>
NOTE 9. COMMITMENTS
Operating leases: Noncancelable operating leases for display sites expire
in various years through 2009. These leases generally contain renewal options
for a period of years equal to the initial term of the leases. Thereafter, the
leases generally are renewable on a year to year basis unless terminated by
either party at least 30 days prior to the anniversary date.
Rental expenses for all site leases were $859,000, $1,008,000 and
$1,632,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
F-22
<PAGE> 119
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rentals for site leases at December 31, 1997 are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNTS
- ---- -------
<S> <C>
1998................................................ $ 933
1999................................................ 788
2000................................................ 669
2001................................................ 538
2002................................................ 357
Thereafter.......................................... 1,952
------
Total minimum lease payments required............... $5,237
======
</TABLE>
In addition, the Company acquired approximately $3,900,000 in future lease
commitments in the acquisitions subsequent to year end (Note 4).
Zoning regulations: In some of the localities in which the Company
operates, outdoor advertising is subject to restrictive zoning regulations.
Although the Company believes the existence of those regulations continue to be
a factor in the operation of the Company's business, such regulations have not
had a significant effect on the results of operations.
NOTE 10. 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:
The carrying amounts approximate fair values as of December 31, 1996 and
1997 for cash, accounts receivable and accounts payable because of the
short-term maturities of those instruments.
The fair value of the interest rate instruments are the estimated amounts
that the Company would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and the current
creditworthiness of the counterparties. At December 31, 1997, the Company
estimates it would have paid $400,000.
The Company does not believe it is practical to estimate the fair value of
the letter of credit (Note 4) and does not believe exposure to loss is likely.
The carrying amount of variable rate long-term debt instruments is
estimated to approximate fair values as the underlying agreements have been
recently negotiated and rates are tied to short-term indices. Other fixed rate
long-term debt instruments are estimated to approximate fair values as actual
rates are consistent with rates estimated to be currently available for debt of
similar terms and remaining maturities.
The fair value of the swap agreements were not recognized in the financial
statements since they are accounted for as a hedge.
NOTE 11. SENIOR NOTES
On May 20, 1998, the Company issued $100 million aggregate principal amount
of 11% Senior Notes (the "Senior Notes") pursuant to an indenture (the
"Indenture") between the Company and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee"). The Senior Notes mature on March 15, 2008 and are
senior unsecured obligations of the Company ranking pari passu with all present
and future indebtedness of the Company that by its terms is not subordinated to
the obligations represented by the Senior Notes. The Company incurred
approximately $4.7 million of costs associated with the issuance of the Senior
Notes.
The Senior Notes bear interest at 11% per annum. Interest is payable
semi-annually on each May 15 and November 15 to holders of records on the close
of business on the immediately preceding May 1 and November 1. The Company was
required to purchase approximately $10.4 million of U.S. government securities
and pledge them as security for the first two interest payments on the Senior
Notes.
F-23
<PAGE> 120
TRI-STATE OUTDOOR MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Obligations under the Senior Notes are not secured.
The Senior Notes may be redeemed at the option of the Company, in whole or
in part, at any time and from time to time on or after May 15, 2003 at the
redemption prices declining ratably from 105.5% of the principal amount on May
15, 2003 to 100.0% on and after May 15, 2006, plus in each case accrued and
unpaid interest to the applicable redemption date.
The Indenture restricts the Company and its subsidiaries from, among other
things (i) incurring indebtedness; (ii) incurring liens or guaranteeing
obligations; (iii) entering into mergers or consolidations or liquidating or
dissolving; (iv) selling or otherwise disposing of property, business or assets;
(v) with certain exceptions, making loans or investments; (vi) making optional
payments or prepayments of indebtedness; (vii) limiting the ability of the
Company to create liens upon its property, assets or revenues.
Upon a change of control of the Company, each holder of Senior Notes may
require the Company to repurchase all or a portion of such holder's Senior Notes
at a purchase price equal to 10% of the aggregate principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase.
The Company has used a portion of the net proceeds from the Senior Notes to
repay all outstanding borrowings under the Senior Credit Facility, which was
thereupon terminated.
As a result of the early extinguishment of the Senior Credit Facility, the
Company was required to record an extraordinary loss of $3.5 million (net of
$2.1 million net of income tax effect) including the estimated fair value of the
interest rate swap agreements described in Note 5 in its financial statements
because they no longer met the criteria to be accounted for as a hedge. The
Company recorded a liability of $400,000 in May 1998 related to this. In
September 1998, the Company settled the interest rate swap agreements for
$600,000.
F-24
<PAGE> 121
INDEPENDENT AUDITOR'S REPORT
Unisign Corporation, Inc.
Outdoor Advertising Division
P.O. Box 76
Ivel, Kentucky 41642-0076
We have audited the accompanying balance sheets of the Outdoor Advertising
Division of Unisign Corporation, Inc. as of December 31, 1996 and 1997, and the
related statements of income, divisional equity and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements present solely the Outdoor
Advertising Division of Unisign Corporation, Inc. They are not meant to present
the financial position of Unisign Corporation, Inc. as of December 31, 1996 and
1997, or its results of operations, changes in stockholders' equity and cash
flows for the years then ended.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Outdoor Advertising
Division of Unisign Corporation, Inc. as of December 31, 1996 and 1997, and the
results of its operations, changes in divisional equity and cash flows for the
years then ended in conformity with generally accepted accounting principles.
MCGRAIL MERKEL QUINN & ASSOCIATES
Scranton, PA
March 2, 1998
F-25
<PAGE> 122
UNISIGN CORPORATION, INC.
OUTDOOR ADVERTISING DIVISION
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Due from other division................................... $ 769,602 $ 813,582
Accounts receivable, net of allowance for doubtful
accounts of $56,500 in 1996 and $50,000 in 1997........ 237,447 348,353
Prepaid land rents........................................ 45,553 48,387
Other current assets...................................... 16,104 45,100
---------- ----------
Total current assets.............................. 1,068,706 1,255,422
---------- ----------
Property and equipment
Advertising structures.................................... 4,105,609 5,172,631
Vehicles and equipment.................................... 398,331 455,277
---------- ----------
4,503,940 5,627,908
Less: Accumulated depreciation............................ 1,117,965 1,442,108
---------- ----------
Net property and equipment................................ 3,385,975 4,185,800
---------- ----------
Other assets
Deposits.................................................. 32,215 32,215
Goodwill, net............................................. 483,998 580,674
---------- ----------
Total other assets................................ 516,213 612,889
---------- ----------
Total assets...................................... $4,970,894 $6,054,111
========== ==========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities
Current portion of long-term debt......................... $ 55,289 $ 65,461
Obligations under capital leases.......................... 305,495 337,424
Accounts payable.......................................... 249,844 303,665
Accrued expenses.......................................... 37,768 45,631
---------- ----------
Total current liabilities......................... 648,396 752,181
---------- ----------
Long-term debt
Long-term debt, net of current portion.................... 144,633 105,318
Obligations under capital leases.......................... 1,290,294 952,866
---------- ----------
Total long-term debt.............................. 1,434,927 1,058,184
---------- ----------
Total liabilities................................. 2,083,323 1,810,365
---------- ----------
Divisional equity........................................... 2,887,571 4,243,746
---------- ----------
Total liabilities and divisional equity........... $4,970,894 $6,054,111
========== ==========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
F-26
<PAGE> 123
UNISIGN CORPORATION, INC.
OUTDOOR ADVERTISING DIVISION
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Revenues, net
Paints.................................................... $2,702,546 $3,138,340
Posters................................................... 439,949 520,690
Other..................................................... -- 15,522
---------- ----------
Total revenues, net............................... 3,142,495 3,674,552
---------- ----------
Costs and expenses
Production................................................ 636,978 609,632
Lease expense............................................. 229,359 312,051
Sales and marketing....................................... 143,852 212,942
General and administrative................................ 575,990 659,646
Depreciation and amortization............................. 278,381 390,676
---------- ----------
1,864,560 2,184,947
---------- ----------
Income from operations............................ 1,277,935 1,489,605
---------- ----------
Other income (expense)
Interest income........................................... 3,098 900
Interest expense.......................................... (114,849) (94,451)
Other expense............................................. (10,438) (26,565)
Loss on disposal of assets................................ -- (13,314)
---------- ----------
Total other income (expense)...................... (122,189) (133,430)
---------- ----------
Net income........................................ $1,155,746 $1,356,175
========== ==========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
F-27
<PAGE> 124
UNISIGN CORPORATION, INC.
OUTDOOR ADVERTISING DIVISION
STATEMENTS OF CHANGES IN DIVISIONAL EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<S> <C>
Balance, at December 31, 1995............................... $1,731,825
Net income, 1996............................................ 1,155,746
----------
Balance, at December 31, 1996............................... 2,887,571
Net income, 1997............................................ 1,356,175
----------
Balance, at December 31, 1997............................... $4,243,746
==========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
F-28
<PAGE> 125
UNISIGN CORPORATION, INC.
OUTDOOR ADVERTISING DIVISION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Operating activities
Net income................................................ $ 1,155,746 $ 1,356,175
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 278,381 390,676
Loss on disposal of assets............................. -- 13,314
Bad debt expense....................................... 26,603 29,649
(Increase) decrease in:
Accounts receivable.................................. (106,476) (140,555)
Prepaid land rents................................... (5,553) (2,834)
Other current assets................................. (11,104) (28,996)
Deposits............................................. (26,782) --
Increase (decrease) in:
Accounts payable..................................... (99,722) 53,821
Accrued expenses..................................... (11,373) 7,863
----------- -----------
Net cash provided by operating activities......... 1,199,720 1,679,113
----------- -----------
Investing activities
Purchase of property and equipment........................ (1,354,811) (1,165,951)
Purchase of intangibles................................... (500,688) (134,540)
----------- -----------
Net cash used by investing activities............. (1,855,499) (1,300,491)
----------- -----------
Financing activities
Increase in due from other division....................... (769,602) (43,980)
Loan proceeds............................................. 103,547 30,786
Lease proceeds............................................ 1,521,269 --
Payments of principal..................................... (27,569) (59,929)
Payments on capital leases................................ (171,866) (305,499)
----------- -----------
Net cash (used) provided by financing
activities..................................... 655,779 (378,622)
----------- -----------
Net (decrease) increase in cash................... -- --
Cash balance, beginning of year............................. -- --
----------- -----------
Cash balance, end of year................................... $ -- $ --
=========== ===========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
F-29
<PAGE> 126
UNISIGN CORPORATION, INC.
OUTDOOR ADVERTISING DIVISION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Unisign Corporation, Inc. ("Unisign") is primarily engaged in the outdoor
advertising business. Its principal corporate offices are located in Ivel,
Kentucky. Advertising structures are located in Kentucky, southern West Virginia
and southern Ohio on leased sites.
The accompanying financial statements present solely the financial position
and results of operations, changes in divisional equity and cash flows of the
Outdoor Advertising Division (the "Division") of Unisign.
Another division of Unisign owns residential and commercial real estate
located in West Virginia and Kentucky and operates an on-premises illuminated
sign company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is the amount that, in management's
judgment, is sufficient to absorb any anticipated losses related to the accounts
receivable.
Prepaid Land Rents
Most of the Division's outdoor advertising structures are located on leased
land. Land rents are typically paid in advance for periods ranging from one to
twelve months. Prepaid land rents are expensed ratably over the related rental
term.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
assets. Expenditures for maintenance and repairs are charged to operations as
incurred; major improvements are capitalized. The estimated useful lives of the
various classes of assets are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Advertising structures...................................... 15
Vehicles and equipment...................................... 2-7
</TABLE>
Depreciation expense for the years ended December 31, 1996 and 1997,
amounted to $261,691 and $352,812, respectively.
Goodwill
Goodwill represents the excess of the cost of assets purchased during 1996
and 1997 from Holmes Outdoor Advertising over the fair value of the net
identifiable assets acquired. Goodwill is being amortized over 15 years on a
straight-line basis.
F-30
<PAGE> 127
UNISIGN CORPORATION, INC.
OUTDOOR ADVERTISING DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Division's revenues are generated from contracts with advertisers
generally covering periods of one to 36 months. The Division recognizes revenues
ratably over the contract term.
Barter Transactions
The Division enters into agreements to provide outdoor advertising services
in exchange for various goods and services of their customers. Revenue
recognized from these transactions approximated $103,935 and $166,660 in 1996
and 1997, respectively.
Income Taxes
Effective January 1, 1994, Unisign elected "S" Corporation status for both
Federal and State income tax purposes. Accordingly, no accrual has been made for
federal and state taxes at the corporate level, but instead the items of income,
deductions, loss and credit pass through to the stockholders.
Earnings Per Share
An earnings per share calculation has not been presented because the
Division is a component of Unisign which is a closely held company and
accordingly, earnings per share is not required or meaningful.
Cash Flow Disclosures
The Division paid interest amounting to $114,849 during the year ended
December 31, 1996 and $94,451 during the year ended December 31, 1997.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting For the Impairment of Long-Lived Assets and For Long-Lived
Assets to be Disposed Of," the Division records impairment losses 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. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. Based on current
estimates, management does not believe impairment of long-lived assets is
present.
NOTE 2 -- GOODWILL
Goodwill acquired as a result of the Holmes acquisition consisted of the
following at December 31:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Goodwill............................................. $500,688 $635,228
Less: Accumulated amortization....................... 16,690 54,554
-------- --------
$483,998 $580,674
======== ========
</TABLE>
For the years ended December 31, 1996 and 1997, amortization expense
amounted to $16,690 and $37,864, respectively.
NOTE 3 -- LINES OF CREDIT
Unisign has an available company-wide line of credit with Trans Financial
Bank, N.A., in the amount of $1,003,640, with interest at prime plus 0.5% (9.0%
at December 31, 1997), and expiring March 16, 1998. The Division accessed the
line of credit on an as needed basis during the years ended December 31, 1996
and 1997.
F-31
<PAGE> 128
UNISIGN CORPORATION, INC.
OUTDOOR ADVERTISING DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The line is secured by equipment, accounts receivable, contract rights and all
other assets of Unisign excluding real estate. At December 31, 1997, $1,003,485
had been drawn down.
At December 31, 1996, Unisign had drawn down $317,300 from various lines of
credit with Trans Financial Bank, N.A. These lines of credit were repaid during
1997.
NOTE 4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt of the Division consisted of the following
as of December 31,:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
COMMUNITY TRUST BANK
Term note dated December 1995 and maturing December 1999;
interest is at WSJP + .25% (8.75% at December 31, 1997);
monthly principal and interest payments of $3,078; secured
by equipment. ............................................ $ 99,088 $ 67,155
Term note dated November 1996 and maturing November 2000;
interest is at WSJP + .25% (8.75% at December 31, 1997);
monthly principal and interest payments of $2,224; secured
by equipment. ............................................ 90,000 68,783
Term note to finance equipment to mature in 1999 at market
interest rate; monthly principal and interest payment of
$428...................................................... 10,834 6,455
FORD MOTOR CREDIT COMPANY
Term notes to finance vehicles, beginning to mature in 1999
at market interest rates; monthly principal and interest
payments of $780.......................................... -- 28,386
-------- --------
199,922 170,779
Less: current portion....................................... 55,289 65,461
-------- --------
Long-term debt, net of current portion...................... $144,633 $105,318
======== ========
</TABLE>
Based on the current amortization schedules, the long-term debt matures as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
1998...................................................... $ 65,461
1999...................................................... 67,561
2000...................................................... 32,112
2001...................................................... 5,645
--------
Total........................................... $170,779
========
</TABLE>
NOTE 5. OBLIGATIONS UNDER CAPITAL LEASES
The Division acquired certain advertising structures under the provisions
of long-term leases. For financial reporting purposes, minimum lease payments
have been capitalized. The leases expire in 2001. The aggregate purchase option
price for the leases is $306,970. The leased property under capital lease as of
December 31, 1997 had a cost of $1,771,270, accumulated amortization of $193,794
and a net book value of $1,577,476. Amortization of the leased property is
included in depreciation expense.
F-32
<PAGE> 129
UNISIGN CORPORATION, INC.
OUTDOOR ADVERTISING DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The minimum future lease payments and the present value of the net minimum
lease payments are:
<TABLE>
<CAPTION>
DUE IN YEAR
ENDED DECEMBER 31, AMOUNT
------------------ ----------
<S> <C>
1998........................................................ $ 451,778
1999........................................................ 451,778
2000........................................................ 446,345
2001........................................................ 176,438
----------
Total minimum lease payment................................. 1,526,339
Less: Imputed interest...................................... 236,049
----------
Present value of net minimum lease payments................. 1,290,290
Less: Current portion of net minimum lease payments......... 337,424
----------
Obligations under capital leases, long-term................. $ 952,866
==========
</TABLE>
NOTE 6. LEASE COMMITMENTS
Land rent expense totalled $229,359 and $312,051 in 1996 and 1997,
respectively. Minimum annual rentals under the terms of non-cancelable land
lease operating leases in effect at December 31, 1997, are payable as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
1998..................................................... $ 233,559
1999..................................................... 181,000
2000..................................................... 167,440
2001..................................................... 159,040
2002..................................................... 148,840
Thereafter............................................... 460,211
----------
$1,350,090
==========
</TABLE>
NOTE 7. CONTINGENCIES
The Division is subject to various legal claims, suits and complaints in
the normal course of business. Such litigation includes claims by municipalities
that certain outdoor advertising structures must be removed. While the ultimate
outcome of current and future litigation cannot be predicted with certainty,
management believes, based on the advice of the Company's counsel, the final
outcome of such litigation will not have a material adverse effect on the
Company's financial position.
NOTE 8. ALLOCATION OF SHARED EXPENSES
As discussed in Note 1, the Division operated as a business unit of
Unisign. As a result, Unisign incurred and paid certain expenses on the
Division's behalf. All costs applicable to the Division have been included in
the accompanying statements of income. Certain common expenses, and expenses
incremental and proportional to the Division's operations, such as rent,
insurance, advertising, clerical and other administrative support as well as
certain managerial costs, have been allocated to the Division and included in
the accompanying statements of income. The allocations to the Division are based
on various factors, including percentage of revenue and expenses and number of
employees, which, in the judgment of management who control both Unisign and the
Division, are reasonable.
F-33
<PAGE> 130
UNISIGN CORPORATION, INC.
OUTDOOR ADVERTISING DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Common costs allocated to the Division for the years ended December 31,
1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Production.................................................. $ 51,654 $ 54,730
Sales and marketing......................................... 33,992 32,678
General and administrative.................................. 501,066 505,378
-------- --------
$586,712 $592,786
======== ========
</TABLE>
Management believes the costs that would have been incurred had the
Division existed on a stand alone basis would not have been materially different
than the costs reflected in the accompanying statements of income.
NOTE 9. EVENT SUBSEQUENT TO BALANCE SHEET DATE
On March 2, 1998, Unisign sold substantially all of the assets of Division
for the total consideration of approximately $21.8 million. Unisign continues to
operate its commercial sign and real estate division.
F-34
<PAGE> 131
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Tri-State Systems, Inc.
We have audited the accompanying balance sheet of Tri-State Systems, Inc.
as of June 11, 1997, and the related statements of operations, retained earnings
(deficit) and cash flows for the period October 1, 1996 through June 11, 1997
(date of ownership transfer). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tri-State Systems, Inc. as
of June 11, 1997 and the results of its operations and its cash flows for the
period October 1, 1996 through June 11, 1997 (date of ownership transfer), in
conformity with generally accepted accounting principles.
SMITH & RADIGAN
Atlanta, Georgia
February 28, 1998
F-35
<PAGE> 132
TRI-STATE SYSTEMS, INC.
BALANCE SHEET
JUNE 11, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 14,599
Trade accounts receivable, less allowance for doubtful
accounts of $87,703..................................... 504,934
Other accounts receivable................................. 15,491
Inventories............................................... 107,217
Prepaid expenses:
Land rent............................................... 407,967
Other................................................... 472,044
-----------
TOTAL CURRENT ASSETS................................ 1,522,252
-----------
PROPERTY AND EQUIPMENT, at cost
Land...................................................... 75,000
Building.................................................. 613,952
Machinery and equipment................................... 137,462
Furniture and fixtures.................................... 76,863
Vehicles.................................................. 101,163
Construction in progress -- advertising structures........ 129,682
Advertising structures.................................... 18,049,450
-----------
19,183,572
Less accumulated depreciation............................. (8,393,013)
-----------
10,790,559
-----------
OTHER ASSETS
Loan and legal costs, net of amortization................. 262,199
-----------
$12,575,010
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable.......................................... $ 41,034
Accrued expenses.......................................... 64,227
Unearned income........................................... 319,590
Accrued interest.......................................... 43,756
Current portion of long-term debt......................... 1,080,083
-----------
TOTAL CURRENT LIABILITIES........................... 1,548,690
-----------
LONG-TERM DEBT
Notes payable............................................. 14,436,731
Less current maturities................................. 1,080,083
-----------
13,356,648
-----------
TOTAL LIABILITIES................................... 14,905,338
-----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock
Series A -- 15% cumulative, par value $1 per share:
Authorized, issued and outstanding -- 3,000,000
shares............................................... 3,000,000
Series B, par value $1 per share:
Authorized, issued and outstanding -- 1,500,000
shares............................................... 478,202
-----------
3,478,202
-----------
Common stock, no par value, non-voting:
Authorized -- 1,174,888 shares
Issued and outstanding -- 1,116,143 shares.............. 1,756,096
Common stock, no par value:
Authorized -- 632,632 shares
Issued and outstanding -- 631,050 shares................ 223,798
-----------
1,979,894
-----------
Retained earnings (deficit)............................... (7,757,879)
-----------
(2,299,783)
Less cost of treasury stock:
Preferred stock, Series B -- 31,198 shares and Common
stock -- 12,500 shares................................. (30,545)
-----------
Total stockholders' equity (deficiency)................... (2,330,328)
-----------
$12,575,010
===========
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
F-36
<PAGE> 133
TRI-STATE SYSTEMS, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD OCTOBER 1, 1996 THROUGH JUNE 11, 1997
<TABLE>
<S> <C>
Net revenues
Lease income, billboards.................................. $3,974,087
Lease income, benches..................................... 92,855
Commercial sales and production charges................... 128,740
----------
4,195,682
Cost of sales (excluding depreciation shown below).......... 1,335,705
----------
Gross profit................................................ 2,859,977
----------
Operating expenses
General and administrative................................ 552,138
Selling................................................... 385,041
Depreciation.............................................. 863,265
Amortization.............................................. 67,427
----------
1,867,871
----------
Income from operations...................................... 992,106
----------
Other expense (income)
Interest expense.......................................... 1,046,797
Gain on disposal of property and equipment................ (11,912)
Other income.............................................. (24,903)
----------
1,009,982
----------
Net loss.................................................... $ (17,876)
==========
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
F-37
<PAGE> 134
TRI-STATE SYSTEMS, INC.
STATEMENT OF RETAINED EARNINGS (DEFICIT)
FOR THE PERIOD ENDED OCTOBER 1, 1996 THROUGH JUNE 11, 1997
<TABLE>
<S> <C>
Retained earnings (deficit) at October 1, 1996.............. $(7,740,003)
Net loss for the period ended June 11, 1997................. (17,876)
-----------
Retained earnings (deficit) at June 11, 1997................ $(7,757,879)
===========
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
F-38
<PAGE> 135
TRI-STATE SYSTEMS, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED OCTOBER 1, 1996 THROUGH JUNE 11, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (17,876)
----------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 930,692
Gain on disposal of property and equipment............. (11,912)
Decrease (increase) in:
Accounts receivable.................................... (175,060)
Inventories............................................ 25,305
Prepaid expenses....................................... (38,764)
Deposits............................................... 27,476
Increase (decrease) in:
Accounts payable and accrued expenses.................. (150,182)
Unearned income........................................ 292,995
Accrued interest....................................... (74,956)
----------
Total adjustments................................. 825,594
----------
Net cash provided by operating activities......... 807,718
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets.............................. 67,772
Purchase and refurbishing of advertising
structures -- net...................................... (700,268)
Decrease in construction-in-progress -- advertising
structures............................................. 58,669
----------
Net cash used by investing activities............. (573,827)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt............................... (323,905)
Proceeds from line of credit.............................. 221,494
Repayment of capital lease obligation..................... (31,429)
Payments for loan and closing costs....................... (92,587)
----------
Net cash used by financing activities............. (226,427)
----------
NET INCREASE IN CASH........................................ 7,464
CASH BALANCE AT BEGINNING OF PERIOD......................... 7,135
----------
CASH BALANCE AT END OF PERIOD............................... $ 14,599
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................. $1,121,753
==========
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
F-39
<PAGE> 136
TRI-STATE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 11, 1997
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Tri-State Systems, Inc. (the "Company") was incorporated in 1989 in the
state of Georgia. The Company was formed to purchase and operate an outdoor
advertising business located in Tifton, Georgia. The Company sells commercial
signs and leases billboard and bench advertising space to customers located
primarily in the Southeast. Billboard and bench leases generally have terms of
eighteen and twenty-four months, respectively.
Inventories
Inventory is valued at the lower of cost or market using the first-in,
first-out method. Inventory consists of materials and supplies used to construct
billboards and benches.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to expense as incurred, while expenditures
for renewals or betterments are capitalized. Depreciation is computed using the
straight-line method over the useful lives of the assets which range from nine
to thirty years for advertising structures, and are twenty-five years for
buildings, ten years for machinery, equipment and furniture and five years for
vehicles.
Fair Value of Financial Instruments
The Company estimates that the aggregate fair value of all financial
instruments at June 11, 1997 does not differ materially from the aggregate
carrying values of its financial instruments recorded in the balance sheet. The
estimated fair value amounts of cash and cash equivalents, receivables,
short-term investments, accounts payable and accrued liabilities approximate
fair value due to their short-term nature. The estimated fair values of
long-term debt are based on discounted cash flows using interest rates currently
available to the Company for financial instruments with similar characteristics
and maturities. Considerable judgment is necessarily required in interpreting
market data to develop the estimates of fair value, and accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-40
<PAGE> 137
TRI-STATE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Amortization
The Company is amortizing deferred loan and legal costs using the
straight-line method as follows:
<TABLE>
<S> <C>
ASSET
Cost at October 1, 1996................................... $1,742,250
Additions................................................. 92,587
----------
Cost at June 11, 1997..................................... $1,834,837
----------
AMORTIZATION
Amortization period....................................... 5 years
Accumulated amortization at October 1, 1996............... $1,505,211
Amortization for 1997..................................... 67,427
----------
Accumulated amortization at June 11, 1997................. $1,572,638
----------
Net book value at June 11, 1997........................... $ 262,199
==========
</TABLE>
Prepaid Expenses
The Company records as prepaid expense certain costs for land leases, sales
commissions, repainting of structures, and corporate art department charges at
the inception of the advertising contracts.
The Company defers these costs and expenses them on a straight-line basis
over the period that coincides with the recognition of income. This period is
generally twelve months for land leases and eighteen months for sales
commissions, repainting and corporate art charges.
Income Taxes
Deferred income tax assets and liabilities are recorded for temporary
differences between the financial reporting and income tax bases of assets and
liabilities that will result in future taxable or deductible amounts. A
valuation allowance is established when necessary to reduce deferred tax assets
to the amount expected to be realized.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and all highly liquid
investments with an original maturity of three months or less.
F-41
<PAGE> 138
TRI-STATE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- LONG-TERM DEBT
The Company amended and restated its loan agreement with Heller Financial,
Inc. ("Heller") effective June 30, 1993 and September 13, 1996. A summary of
notes payable is as follows:
<TABLE>
<S> <C>
Notes payable to Heller Financial, Inc. Revolving note
payable. Interest is payable monthly at the prime rate
(8.5% at June 11, 1997) plus 1.5%. The maximum borrowing
under this agreement is $1,000,000. ...................... $ 819,496
</TABLE>
Senior term loan payable. Interest is payable monthly at the prime rate plus
1.5%.
Principal is payable quarterly as follows:
<TABLE>
<CAPTION>
AMOUNT OF
PRINCIPAL PAYABLE
PAYABLE THE LAST DAY OF THE QUARTER ENDING EACH QUARTER
------------------------------------------ -----------------
<S> <C> <C>
December 1997 & March, June & September 1998............ $ 244,250
December 1998 & March & June 1999....................... 297,750
September 1999.......................................... 8,884,933 11,408,277
Capital expenditure note payable. Interest is payable
monthly at the prime rate plus 1.5%. ................. 500,000
Senior subordinated note payable. Interest accrues at
the prime rate plus 2.5% and is payable monthly. ..... 1,447,714
Capital lease obligation payable to leasing company in
monthly increments of $4,122, including principal and
interest imputed at 14.8% through July 1999 and a
balloon payment of $60,000 in August 1999. ........... 127,304
Capital lease obligation payable to leasing company in
monthly increments of $3,189, including principal and
interest imputed at 16.43% through May 2001 and a
balloon payment of $45,995 in June 2001. ............. 133,940
-----------
Total long -- term debt....................... $14,436,731
===========
</TABLE>
Future maturities of long-term debt, assuming held to maturity, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 11 AMOUNT
------------------- -----------
<S> <C>
1998........................................................ $ 1,080,083
1999........................................................ 13,211,848
2000........................................................ 77,186
2001........................................................ 67,614
-----------
$14,436,731
===========
</TABLE>
The notes payable to Heller are secured by a first security interest in the
Company's assets and substantially all of the Company's capital stock. The 1993
amended and restated loan agreement with Heller provides that any interest
payment resulting from a prime rate in excess of 6% will be applied to principal
subject to a maximum amount of 50% of the respective quarterly principal
amortization. Additionally, the agreement provides that adjusted cash flow, as
defined, will be paid to Heller annually as a reduction of principal. The
unamortized principal was due October 31, 1997; however, the Company could
extend the due date of the unamortized principal until September 30, 1998
provided certain cash flow criteria are maintained and principal installments
are continued. The Company could extend the due date of the unamortized
F-42
<PAGE> 139
TRI-STATE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
principal until September 30, 1999 provided certain cash flow criteria are
maintained, principal installments are current and a plan of refinancing is
diligently pursued.
The loan agreement limits the Company's outside borrowings, investments,
capital expenditures and divestitures, lease commitments and dividends. In
addition, the lender requires the Company to maintain a certain level of cash
flow, as defined in the agreement.
NOTE C -- PREFERRED STOCK AND COMMON STOCK
Concurrent with the 1993 debt restructuring (Note B), the Company amended
and restated the articles of incorporation to authorize the following classes of
stock:
<TABLE>
<S> <C>
Series A preferred stock, par value $1 per share:
Authorized -- 3,000,000 shares
Series B preferred stock, par value $1 per share:
Authorized -- 1,500,000 shares
Common stock, no par value: non-voting,
Authorized -- 1,174,888 shares
Common stock, no par value: voting,
Authorized -- 632,632 shares
</TABLE>
The separate classes of capital stock establish a priority of payment among
the various stockholders. The $3,000,000 of Series A preferred stock and the
$1,756,096 of non-voting common stock were issued to junior subordinated
noteholders in exchange for the cancellation of junior subordinated notes
payable totaling $2,250,000 plus the related accrued interest ($2,256,096 at
June 30, 1993) and the shares of the Company's common stock ($250,000 at June
30, 1993) owned at that time by such noteholders. The Series B preferred stock
was issued by the Company as a dividend to remaining common stockholders of the
Company. The result of this transaction was to convert long-term debt to
stockholders' equity.
The Series A preferred stock accrues dividends on an accumulated, but not
compounded, basis at a rate of fifteen percent (15%) per annum on the original
issue price of $1 per share. The Series A preferred stock dividends accrue on a
daily basis from the date of original issuance of such shares until paid. The
ultimate payment of dividends is subordinated to the repayment of senior
indebtedness to Heller.
On September 13, 1996, two existing stockholders of the Company purchased
the Series A preferred stock and the non-voting common stock from those
stockholders.
NOTE D -- INCOME TAXES
The Company has temporary differences and carryforwards which give rise to
deferred tax assets at June 11, 1997. The net deferred tax asset in the amount
of approximately $3,600,000 results primarily from a net operating loss
carryforward. The net deferred tax asset has been completely offset by a
valuation allowance.
The Company has net operating loss carryforwards for federal income tax
purposes in the amount of approximately $10,600,000 at June 11, 1997. These net
operating losses can be carried forward and applied against future taxable
income, if any, and expire at various dates through 2010.
A reconciliation of income tax expense (benefit) at statutory rates to the
income tax expense (benefit) reported in the statements of operations is as
follows:
<TABLE>
<S> <C>
Tax (benefit) at statutory rate............................. $(6,078)
Increase in valuation allowance............................. 6,078
-------
Income tax expense (benefit)................................ $ --
=======
</TABLE>
F-43
<PAGE> 140
TRI-STATE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- PROFIT SHARING
The Company's profit sharing (401(k)) plan covers all full-time employees
over age 21 who have completed twelve months continuous service and have worked
1,000 hours. The Company may make an annual matching contribution. No
contributions to the plan have been made by the Company.
NOTE F -- SUBSEQUENT EVENT
Subsequent to June 11, 1997, the stock of the Company was sold to a
corporation, and for income tax purposes, the operations are consolidated with
the acquiring corporation. Accordingly, a tax return was filed by the Company
for the period ended June 11, 1997.
Also, in connection with the sale, all debt to Heller was repaid. Fees were
paid to employees, brokers and professionals. No costs associated with the sale
of the stock were recorded as of June 11, 1997.
F-44
<PAGE> 141
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Tri-State Systems, Inc.
We have audited the accompanying balance sheets of Tri-State Systems, Inc.
as of September 30, 1995 and 1996, and the related statements of operations,
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 Tri-State Systems, Inc. as
of September 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.
SMITH & RADIGAN
Atlanta, Georgia
January 15, 1997
F-45
<PAGE> 142
TRI-STATE SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 5,167 $ 7,135
Trade accounts receivable, less allowance for doubtful
accounts of $80,000 in 1995 and $90,000 in 1996......... 318,232 305,500
Other accounts receivable................................. 4,729 39,865
Inventories............................................... 144,518 132,522
Prepaid expenses:
Land rent............................................... 298,704 351,450
Other................................................... 554,110 489,797
Deposits.................................................. 27,253 27,476
----------- -----------
TOTAL CURRENT ASSETS................................ 1,352,713 1,353,745
----------- -----------
PROPERTY AND EQUIPMENT, AT COST
Land...................................................... 75,000 75,000
Building.................................................. 581,313 598,106
Machinery and equipment................................... 124,600 138,175
Furniture and fixtures.................................... 69,509 74,144
Vehicles.................................................. 109,761 131,263
Construction in progress -- advertising structures........ -0- 188,351
Advertising structures.................................... 17,068,671 17,435,821
----------- -----------
18,028,854 18,640,860
Less accumulated depreciation............................. 6,520,162 7,572,775
----------- -----------
11,508,692 11,068,085
----------- -----------
OTHER ASSETS
Loan and legal costs, net of amortization................. 385,362 237,039
----------- -----------
$13,246,767 $12,658,869
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable.......................................... $ 241,512 $ 238,078
Accrued expenses.......................................... 52,626 17,365
Unearned income........................................... 1,413 26,595
Accrued interest.......................................... 130,217 118,712
Current portion of long-term debt......................... 1,172,323 1,021,865
----------- -----------
TOTAL CURRENT LIABILITIES........................... 1,598,091 1,422,615
LONG-TERM DEBT
Notes payable............................................. 15,154,474 14,570,571
Less current maturities................................. (1,172,323) (1,021,865)
----------- -----------
13,982,151 13,548,706
----------- -----------
Total Liabilities................................... 15,580,242 14,971,321
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock
Series A -- 15% cumulative, par value $1 per share:
Authorized, issued and outstanding -- 3,000,000
shares............................................... 3,000,000 3,000,000
Series B, par value $1 per share:
Authorized, issued and outstanding -- 1,500,000
shares............................................... 478,202 478,202
----------- -----------
3,478,202 3,478,202
----------- -----------
Common stock, no par value, non-voting:
Authorized -- 1,174,888 shares
Issued and outstanding -- 1,116,143 shares.............. 1,756,096 1,756,096
Common stock, no par value:
Authorized -- 632,632 shares
Issued and outstanding -- 631,050 shares................ 223,798 223,798
----------- -----------
1,979,894 1,979,894
----------- -----------
Retained earnings (deficit)............................... (7,791,571) (7,740,003)
----------- -----------
(2,333,475) (2,281,907)
Less cost of treasury stock:
Preferred stock, Series B -- 31,198 shares and Common
stock -- 12,500 shares................................. -0- (30,545)
----------- -----------
Total stockholders' equity (deficiency)............. (2,333,475) (2,312,452)
----------- -----------
$13,246,767 $12,658,869
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
F-46
<PAGE> 143
TRI-STATE SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Net revenues
Lease income, billboards.................................. $5,345,218 $5,601,912
Lease income, benches..................................... 172,936 154,759
Commercial sales and production charges................... 236,759 217,329
---------- ----------
5,754,913 5,974,000
Cost of sales (excluding depreciation shown below).......... 1,747,059 1,805,774
---------- ----------
Gross profit................................................ 4,007,854 4,168,226
---------- ----------
Operating expenses
General and administrative................................ 704,433 657,546
Selling................................................... 479,041 512,834
Depreciation.............................................. 1,133,668 1,185,574
Amortization.............................................. 170,398 152,271
---------- ----------
2,487,540 2,508,225
---------- ----------
Income from operations...................................... 1,520,314 1,660,001
Non-recurring expenses
Georgia tree trimming charges............................. 41,862 --
---------- ----------
Income before other expense (income)...................... 1,478,452 1,660,001
---------- ----------
Other expense (income)
Interest expense.......................................... 1,643,635 1,541,257
Loss on disposal of property and equipment................ 64,161 99,415
Other income.............................................. (19,157) (32,239)
---------- ----------
1,688,639 1,608,433
---------- ----------
Net income (loss)........................................... $ (210,187) $ 51,568
========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
F-47
<PAGE> 144
TRI-STATE SYSTEMS, INC.
STATEMENTS OF RETAINED EARNINGS (DEFICIT)
<TABLE>
<S> <C>
Balance at October 1, 1994, as originally reported.......... $(7,566,479)
Prior period adjustment -- Note G........................... (14,905)
-----------
Balance at October 1, 1994, as restated..................... (7,581,384)
Net loss for the year ended September 30, 1995, as
restated.................................................. (210,187)
-----------
Balance at September 30, 1995, as restated.................. (7,791,571)
Net income for the year ended September 30, 1996............ 51,568
-----------
Balance at September 30, 1996............................... $(7,740,003)
===========
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
F-48
<PAGE> 145
TRI-STATE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (210,187) $ 51,568
---------- ----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 1,304,066 1,337,855
Loss on disposal of property and equipment............. 64,161 99,415
Decrease (increase) in:
Accounts receivable.................................... (29,550) (22,404)
Inventories............................................ 32,082 11,996
Prepaid expenses....................................... (91,435) 11,568
Deposits............................................... (230) (223)
Increase (decrease) in:
Accounts payable, accrued expenses and unearned
income................................................ 49,364 (13,513)
Accrued interest....................................... 7,535 (11,505)
---------- ----------
Total adjustments................................. 1,335,993 1,413,189
---------- ----------
Net cash provided by operating activities......... 1,125,806 1,464,757
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets.............................. 122,482 92,988
Purchase and refurbishing of advertising
structures -- net...................................... (612,996) (749,029)
Increase in construction in progress -- advertising
structures............................................. -0- (188,351)
---------- ----------
Net cash used by investing activities............. (490,514) (844,392)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt............................... (591,543) (699,452)
Proceeds from capital lease transaction................... -0- 149,975
Repayment of capital lease obligation..................... (21,210) (34,427)
Payments for loan and closing costs....................... (21,250) (3,948)
Payments to acquire treasury stock........................ -0- (30,545)
---------- ----------
Net cash used by financing activities............. (634,003) (618,397)
---------- ----------
NET INCREASE IN CASH........................................ 1,289 1,968
CASH BALANCE AT BEGINNING OF YEAR........................... 3,878 5,167
---------- ----------
CASH BALANCE AT END OF YEAR................................. $ 5,167 $ 7,135
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................. $1,636,100 $1,552,762
========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
F-49
<PAGE> 146
TRI-STATE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Tri-State Systems, Inc. (the Company) was incorporated in 1989 in the state
of Georgia. The Company was formed to purchase and operate an outdoor
advertising business located in Tifton, Georgia. The Company sells commercial
signs and leases billboard and bench advertising space to customers located
primarily in the Southeast. Billboard and bench leases generally have terms of
eighteen and twenty-four months, respectively.
Inventories
Inventory is valued at the lower of cost or market using the first-in,
first-out method. Inventory consists of materials and supplies used to construct
billboards and benches.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to expense as incurred, while expenditures
for renewals or betterments are capitalized. Depreciation is computed using the
straight-line method over the useful lives of the assets which range from nine
to thirty years for advertising structures, and are twenty-five years for
buildings, ten years for machinery, equipment and furniture and five years for
vehicles.
Fair Value of Financial Instruments
The Company estimates that the aggregate fair value of all financial
instruments at September 30, 1996 does not differ materially from the aggregate
carrying values of its financial instruments recorded in the balance sheet. The
estimated fair value amounts of cash and cash equivalents, receivables,
short-term investments, accounts payable and accrued liabilities approximate
fair value due to their short-term nature. The estimated fair values of
long-term debt are based on discounted cash flows using interest rates currently
available to the Company for financial instruments with similar characteristics
and maturities. Considerable judgment is necessarily required in interpreting
market data to develop the estimates of fair value, and accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-50
<PAGE> 147
TRI-STATE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Amortization
The Company is amortizing deferred loan and legal costs using the
straight-line method:
<TABLE>
<S> <C>
ASSET
Cost at September 30, 1995................................ $1,738,302
Additions................................................. 3,948
----------
Cost at September 30, 1996................................ $1,742,250
----------
AMORTIZATION
Amortization period....................................... 5 years
Accumulated amortization at September 30, 1995............ $1,352,940
Amortization for 1996..................................... 152,271
----------
Accumulated amortization at September 30, 1996............ $1,505,211
----------
Net book value at September 30, 1996...................... $ 237,039
==========
</TABLE>
Prepaid Expenses
The Company records as prepaid expense certain costs for land leases, sales
commissions, repainting of structures, and corporate art department charges at
the inception of the advertising contracts.
The Company defers these costs and expenses them on a straight-line basis
over the period that coincides with the recognition of income. This period is
generally twelve months for land leases and eighteen months for sales
commissions, repainting and corporate art charges.
Income Taxes
Deferred income tax assets and liabilities are recorded for temporary
differences between the financial reporting and income tax bases of assets and
liabilities that will result in future taxable or deductible amounts. A
valuation allowance is established when necessary to reduce deferred tax assets
to the amount expected to be realized.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and all highly liquid
investments with an original maturity of three months or less.
F-51
<PAGE> 148
TRI-STATE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- LONG-TERM DEBT
The Company amended and restated its loan agreement with Heller Financial,
Inc. (Heller) effective June 30, 1993 and September 13, 1996. A summary of notes
payable is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Notes payable to Heller
Revolving note payable. Interest is payable monthly at the
prime rate (8.25% at September 30, 1996) plus 1.5%. The
maximum borrowing under this agreement is $1,000,000... $ 510,912 $ 598,003
Senior term loan payable. Interest is payable monthly at the
prime rate plus 1.5%. Principal is payable quarterly as
follows:
</TABLE>
<TABLE>
<CAPTION>
AMOUNT OF
PRINCIPAL PAYABLE
PAYABLE THE LAST DAY OF THE QUARTER ENDING EACH QUARTER
------------------------------------------ -----------------
<S> <C> <C> <C>
December 1996 & March, June & September 1997.. $ 244,250
December 1997 & March, June & September 1998.. $ 244,250
December 1998 & March & June 1999............. $ 297,750
September 1999................................ $8,884,933 12,518,725 11,732,183
</TABLE>
<TABLE>
<S> <C> <C>
Capital expenditure note payable. Interest is payable
monthly at the prime rate plus 1.5%. ..................... 500,000 500,000
Senior subordinated note payable. Interest accrues at the
prime rate plus 2.5% and is payable monthly............... 1,447,714 1,447,714
Capital lease obligation payable to leasing company in
monthly increments of $4,122, including principal and
interest imputed at 14.8% through July 1999 and a balloon
payment of $60,000 in August 1999......................... 177,123 152,499
Capital lease obligation payable to leasing company in
monthly increments of $3,189, including principal and
interest imputed at 16.43% through May 2001 and a balloon
payment of $45,995 in June 2001........................... -0- 140,172
----------- -----------
Total long-term debt.............................. $15,154,474 $14,570,571
=========== ===========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNT
------------- -----------
<S> <C>
1997.................................................... $ 1,021,865
1998.................................................... 1,029,119
1999.................................................... 12,437,026
2000.................................................... 26,379
2001.................................................... 56,182
-----------
$14,570,571
===========
</TABLE>
The notes payable to Heller are secured by a first security interest in the
Company's assets and substantially all of the Company's capital stock. The 1993
amended and restated loan agreement with Heller provides that any interest
payment resulting from a prime rate in excess of six percent (6.0%) will be
applied to principal subject to a maximum amount of fifty percent of the
respective quarterly principal amortization.
F-52
<PAGE> 149
TRI-STATE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, the agreement provides that adjusted cash flow, as defined, will
be paid to Heller Financial, Inc. annually as a reduction of principal. The
unamortized principal is due October 31, 1997; however, the Company may extend
the due date of the unamortized principal until September 30, 1998 provided
certain cash flow criteria are maintained and principal installments are
continued. The Company may extend the due date of the unamortized principal
until September 30, 1999 provided certain cash flow criteria are maintained,
principal installments are current and a plan of refinancing is diligently
pursued.
The loan agreement limits the Company's outside borrowings, investments,
capital expenditures and divestitures, lease commitments and dividends. In
addition, the lender requires the Company to maintain a certain level of cash
flow, as defined in the agreement. For the year ended September 30, 1996, the
Company was in default on its loan covenants dealing with capital expenditures
and outside borrowings. The lender has acknowledged that a waiver of these
covenants will be issued upon the receipt of certain documentation and payment
of a fee.
NOTE C -- PREFERRED STOCK AND COMMON STOCK
Concurrent with the debt restructuring (Note B), the Company amended and
restated the articles of incorporation to authorize the following classes of
stock:
Series A preferred stock, par value $1 per
share: Authorized -- 3,000,000 shares
Series B preferred stock, par value $1 per
share: Authorized -- 1,500,000 shares
Common stock, no par value: non-voting, Authorized -- 1,174,888 shares
Common stock, no par value: voting, Authorized -- 632,632 shares
The separate classes of capital stock establish a priority of payment among
the various stockholders. The $3,000,000 of Series A preferred stock and the
$1,756,096 of non-voting common stock were issued to junior subordinated
noteholders in exchange for the cancellation of junior subordinated notes
payable totaling $2,250,000 plus the related accrued interest ($2,256,096 at
June 30, 1993) and the shares of the Company's common stock ($250,000 at June
30, 1993) owned at that time by such noteholders. The Series B preferred stock
was issued by the Company as a dividend to remaining common stockholders of the
Company. The result of this transaction was to convert long-term debt to
stockholders' equity.
The Series A preferred stock accrues dividends on an accumulated, but not
compounded, basis at a rate of fifteen percent (15%) per annum on the original
issue price of $1 per share. The Series A preferred stock dividends accrue on a
daily basis from the date of original issuance of such shares until paid. The
ultimate payment of dividends is subordinated to the repayment of senior
indebtedness to Heller Financial, Inc.
On September 13, 1996, two existing stockholders of the Company purchased
the Series A preferred stock and the non-voting common stock from those
stockholders.
NOTE D -- INCOME TAXES
The Company has temporary differences and carryforwards which give rise to
deferred tax assets at September 30, 1996. The net deferred tax asset in the
amount of approximately $3,570,000 results primarily from a net operating loss
carryforward. The net deferred tax asset has been completely offset by a
valuation allowance.
The Company has net operating loss carryforwards for federal income tax
purposes in the amount of approximately $10,500,000 at September 30, 1996. These
net operating losses can be carried forward and applied against future taxable
income, if any, and expire at various dates through 2010.
F-53
<PAGE> 150
TRI-STATE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income tax expense (benefit) at statutory rates to the
income tax expense (benefit) reported in the statements of operations is as
follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Tax (benefit) at statutory rate............................. $(71,464) $ 17,533
Increase in valuation allowance (decrease).................. 71,464 (17,533)
-------- --------
Income tax expense (benefit)................................ $ -- $ --
======== ========
</TABLE>
NOTE E -- PROFIT SHARING AND STOCK BONUS PLAN
The Company's profit sharing (401(k)) plan covers all full-time employees
over age 21 who have completed twelve months continuous service and have worked
1,000 hours. The Company may make an annual matching contribution. No
contributions to the plan have been made by the Company.
Effective July 1, 1993, the Company established an employee stock bonus
plan for senior management. Under this plan, the Company issued 30,050 shares of
the voting common stock of the Company to two senior managers of the Company.
The agreement provides that the stock will be forfeited if employment is
terminated within three years of issue or certain cash flow projections are not
met.
NOTE F -- FUTURE COMMITMENT
As of September 30, 1996, the Company has committed to incur approximately
$26,000 for renovation of the Company's home office. All renovation work is
expected to be completed during November 1996.
NOTE G -- PRIOR PERIOD ADJUSTMENTS
Subsequent to September 30, 1994, the Company became aware that an accrual
for compensated absences was not recorded. Accordingly, accrued expenses was
increased by $14,905 and retained earnings were decreased by $14,905 at October
1, 1994. The loss for the year ended September 30, 1995 has also been restated
to reflect an increase in accrued expenses of $3,675 and a decrease in net
income of $3,675.
F-54
<PAGE> 151
INDEPENDENT AUDITOR'S REPORT
The Stockholders
Western Outdoor Advertising Co.
Omaha, Nebraska
We have audited the accompanying balance sheets of the OUTDOOR ADVERTISING
division of Western Outdoor Advertising Co. as of October 31, 1997 and 1996, and
the related statements of income and changes in corporate investment, and cash
flows for the years then ended. These financial statements are the
responsibility of division 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Outdoor Advertising
division of Western Outdoor Advertising Co., as of October 31, 1997 and 1996,
and the results of its operations, changes in corporate investment, and cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Frankel, Zacharia, Arnold, Nissen, Stamp & Reinsch, LLC
Omaha, NE
September 30, 1998
F-55
<PAGE> 152
THE OUTDOOR ADVERTISING DIVISION OF
WESTERN OUTDOOR ADVERTISING CO.
BALANCE SHEETS
<TABLE>
<CAPTION>
AUDITED
OCTOBER 31 UNAUDITED
------------------------ JULY 31
1997 1996 1998
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............................. $ 271,298 $ 286,577 $ 361,289
Net accounts receivable (note 2)....................... 116,015 99,978 122,644
Inventories............................................ 206,389 227,338 279,630
Deferred sign lease sales commissions.................. 234,920 227,750 253,340
Deferred site rent..................................... 204,219 210,586 220,502
Other.................................................. 3,583 4,240 12,132
---------- ---------- ----------
Total current assets......................... 1,036,424 1,056,469 1,249,537
PROPERTY AND EQUIPMENT NET OF DEPRECIATION (NOTE 3)
Outdoor advertising structures and faces............... 1,472,152 1,423,044 1,432,263
Vehicles and other..................................... 181,816 186,108 165,371
---------- ---------- ----------
Total property and equipment, net of
depreciation............................... 1,653,968 1,609,152 1,597,634
Other
Deferred sign lease sales commissions.................. 225,706 210,240 243,406
---------- ---------- ----------
Total Assets................................. $2,916,098 $2,875,861 $3,090,577
========== ========== ==========
LIABILITIES AND CORPORATE INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued expenses.................. $ 61,664 $ 67,461 $ 55,568
Prepaid revenues....................................... 164,870 135,798 168,407
---------- ---------- ----------
Total current liabilities.................... 226,534 203,259 223,975
Corporate investment................................... 2,689,564 2,672,602 2,866,602
---------- ---------- ----------
Total Liabilities and Corporate Investment... $2,916,098 $2,875,861 $3,090,577
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE> 153
THE OUTDOOR ADVERTISING DIVISION OF
WESTERN OUTDOOR ADVERTISING CO.
STATEMENTS OF INCOME AND CHANGES IN CORPORATE INVESTMENT
<TABLE>
<CAPTION>
AUDITED UNAUDITED
YEARS ENDED NINE MONTHS ENDED
OCTOBER 31 JULY 31
------------------------ ------------------------
1997 1996 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenue from outdoor advertising
display leases.......................... $4,382,740 $4,298,150 $3,363,710 $3,310,759
Costs and expenses
Production.............................. 568,993 608,089 462,541 415,863
Site rent............................... 517,429 492,753 364,387 367,692
Sales................................... 276,443 333,054 237,516 215,610
General and administrative.............. 356,954 342,366 295,341 264,116
---------- ---------- ---------- ----------
Total costs and expenses........ 1,719,819 1,776,262 1,359,785 1,263,281
---------- ---------- ---------- ----------
2,662,921 2,521,888 2,003,925 2,047,478
Depreciation.............................. 938,709 870,126 713,307 708,646
---------- ---------- ---------- ----------
NET INCOME................................ 1,724,212 1,651,762 1,290,618 1,338,832
Corporate investment at beginning of
period.................................. 2,672,602 2,432,390 2,689,564 2,672,602
---------- ---------- ---------- ----------
4,396,814 4,084,152 3,980,182 4,011,434
Payments on behalf of corporate........... 1,707,250 1,411,550 1,113,580 1,307,250
---------- ---------- ---------- ----------
Corporate investment at end of period..... $2,689,564 $2,672,602 $2,866,602 $2,704,184
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE> 154
THE OUTDOOR ADVERTISING DIVISION OF
WESTERN OUTDOOR ADVERTISING CO.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
AUDITED UNAUDITED
YEARS ENDED NINE MONTHS ENDED
OCTOBER 31 JULY 31
-------------------------- --------------------------
1997 1996 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers.......... $ 4,380,602 $ 4,245,880 $ 3,347,508 $ 3,290,653
Cash paid to suppliers and
employees........................... (1,720,279) (1,852,999) (1,500,074) (1,302,013)
Interest income....................... 16,741 15,498 13,110 12,713
----------- ----------- ----------- -----------
Net cash provided by operating
activities..................... 2,677,064 2,408,379 1,860,544 2,001,353
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to outdoor advertising
structures and displays............. (919,092) (872,234) (623,707) (726,875)
Purchases of vehicles and other
equipment........................... (66,001) (98,462) (33,266) (23,979)
----------- ----------- ----------- -----------
Net cash (used) by investing
activities..................... (985,093) (970,696) (656,973) (750,854)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on behalf of corporate....... (1,707,250) (1,411,550) (1,113,580) (1,307,250)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH........................... (15,279) 26,133 89,991 (56,751)
Cash and cash equivalents at beginning
of period........................... 286,577 260,444 271,298 286,577
----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period.............................. $ 271,298 $ 286,577 $ 361,289 $ 229,826
=========== =========== =========== ===========
RECONCILIATION OF NET INCOME TO CASH
FLOWS FROM OPERATING ACTIVITIES
Net income............................ $ 1,724,212 $ 1,651,762 $ 1,290,618 $ 1,338,832
RECONCILING ADJUSTMENTS
Depreciation.......................... 938,709 870,126 713,307 708,646
Other................................. 1,568 (360) -- --
(INCREASE) DECREASE IN OPERATING
ASSETS
Accounts receivable................... (16,037) (10,786) (6,629) (8,530)
Inventories........................... 20,949 (37,805) (73,241) 5,571
Other................................. (15,612) (28,867) (60,952) (12,424)
INCREASE (DECREASE) IN OPERATING
LIABILITIES
Accounts payable and accrued
expenses............................ (5,797) (10,065) (6,096) (31,879)
Prepaid revenues...................... 29,072 (25,626) 3,537 1,137
----------- ----------- ----------- -----------
Net cash provided by operating
activities.......................... $ 2,677,064 $ 2,408,379 $ 1,860,544 $ 2,001,353
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE> 155
THE OUTDOOR ADVERTISING DIVISION OF
WESTERN OUTDOOR ADVERTISING CO.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996 AND JULY 31, 1998 AND 1997
Western Outdoor Advertising Co. consists of two separate and distinct
business operations. The Outdoor Advertising division provides design,
production, installation and maintenance of outdoor advertising displays located
along highways and roads throughout the midwest and south central areas of the
United States.
These financial statements only include the assets, liabilities and
operations of the Outdoor Advertising division.
1. Summary of significant accounting and reporting policies:
A. Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets, liabilities, revenues and expenses and related
disclosures. Actual results could vary from the estimates used.
B. Advertising display lease agreements with customers provide for
various terms, the most common of which are three and five years.
Revenue is recognized ratably by the straight-line method over the
contract term. As of October 31, 1997, the contracts provide for
minimum payments of $6,766,000 over the remaining term of the
leases, of which $3,455,000 is due to be earned and collected during
the year to end October 31, 1998.
Advertising structure cost includes materials, labor and other costs
necessary to erect the structures. Advertising display face cost
includes costs to produce and install faces in the condition
provided by contracts with customers. Sites upon which structures
are erected and maintained are rented from the landowner and such
cost is deferred and ratably charged to operations over the term of
the arrangement by the straight-line method. Face lease sales
commissions are generally paid at commencement of the lease,
however, that cost is ratably charged to operations over the term of
the lease by the straight-line method. Production costs include
utilities, sign removal, repair and maintenance, local taxes and
permits.
C. Property and equipment is stated at cost. Depreciation is computed
primarily by the straight-line method over the following useful
lives:
<TABLE>
<CAPTION>
LIFE
-----
<S> <C>
Advertising structures...................................... 10-20
Advertising display faces................................... 3-5
Automobiles and trucks...................................... 3
Tools and equipment......................................... 5
Furniture and fixtures...................................... 5
</TABLE>
Once structures are fully depreciated, such are removed from the
accounts.
D. The division maintains cash balances in financial institutions
insured by the FDIC. Cash equivalents include excess cash on deposit
which is invested in commercial paper repurchase agreements with one
day maturities.
E. Inventories are valued at the lower of cost (first-in; first-out) or
market.
F. Western Outdoor Advertising Co. is a "Small Business Corporation"
under Subchapter S of the Internal Revenue Code, which provides that
the stockholders include Company income and deductions in their
income tax returns. Therefore, no liability for income taxes is
presented in these financial statements.
F-59
<PAGE> 156
THE OUTDOOR ADVERTISING DIVISION OF
WESTERN OUTDOOR ADVERTISING CO.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
G. The carrying amounts of cash, accounts receivable and accounts
payable approximate fair values because of the short-term maturities
of those instruments.
H. There are no corporate costs allocated to the Division and
management believes the costs reflected in the accompanying
financial statements would not be materially different if the
Division had been operated as a separate entity.
I. The interim information reflects all adjustments, consisting only
of normal recurring accruals, which are, in the opinion of
management, necessary for a fair presentation of the results for
the interim period. Results for the interim period are not
necessarily indicative of results to be expected for the full year.
2. Net accounts receivable include the following:
<TABLE>
<CAPTION>
AUDITED
OCTOBER 31 UNAUDITED
-------------------- JULY 31
1997 1996 1998
-------- -------- ---------
<S> <C> <C> <C>
Receivable from sign lease customers..... $129,015 $111,978 $154,644
Less allowance for doubtful accounts..... 13,000 12,000 32,000
-------- -------- --------
Net accounts receivable.................. $116,015 $ 99,978 $122,644
======== ======== ========
</TABLE>
3. Outdoor advertising structures and faces, and vehicles and other
equipment is recorded at cost and consist of the following:
<TABLE>
<CAPTION>
AUDITED
OCTOBER 31 UNAUDITED
------------------------ JULY 31
1997 1996 1998
---------- ---------- ----------
<S> <C> <C> <C>
Advertising structures and faces
Advertising structures............... $ 345,267 $ 336,027 $ 375,670
Advertising display faces............ 2,470,864 2,366,477 2,417,784
---------- ---------- ----------
2,816,131 2,702,504 2,793,454
Less accumulated depreciation.......... 1,343,979 1,279,460 1,361,191
---------- ---------- ----------
Net advertising structures and faces... $1,472,152 $1,423,044 $1,432,263
========== ========== ==========
Vehicles and other equipment
Land................................. $ 3,495 $ 3,495 $ 3,495
Automobiles and trucks............... 285,330 288,975 285,330
Tools and equipment.................. 179,736 179,736 170,860
Furniture and fixtures............... 161,314 161,314 110,060
---------- ---------- ----------
629,875 633,520 569,745
Less accumulated depreciation.......... 448,059 447,412 404,374
---------- ---------- ----------
Net vehicles and other equipment....... $ 181,816 $ 186,108 $ 165,371
========== ========== ==========
</TABLE>
F-60
<PAGE> 157
THE OUTDOOR ADVERTISING DIVISION OF
WESTERN OUTDOOR ADVERTISING CO.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. Sites upon which structures are erected are rented from landowners
under a variety of arrangements providing for renewal at the option of the
Division. Future minimum rentals are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
OCTOBER 31,
- ------------------
<S> <C>
1998............................................. $ 499,200
1999............................................. 274,900
2000............................................. 133,100
2001............................................. 87,000
2002............................................. 59,800
Thereafter....................................... 76,700
----------
Total minimum future rent
commitments.......................... $1,130,700
==========
</TABLE>
5. Payments on behalf of corporate consist of the following:
<TABLE>
<CAPTION>
AUDITED UNAUDITED
YEAR ENDED OCTOBER 31, NINE MONTHS ENDED JULY 31,
------------------------ --------------------------
1997 1996 1998 1997
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Distributions to
stockholders............ $1,700,000 $1,400,000 $1,100,000 $1,300,000
Payments of Enhanced
Estimated Tax Deposit... 7,250 11,550 13,580 7,250
---------- ---------- ---------- ----------
$1,707,250.. $1,411,550 $1,113,580 $1,307,250
========== ========== ========== ==========
</TABLE>
6. Outdoor advertising is subject to restrictive zoning and regulatory
restrictions. Adverse changes in such restrictions could have a similar effect
on the advertising operations.
7. Western Outdoor Advertising Co. received an offer from Tri-State
Outdoor Media Group, Inc. to purchase the operations and assets of the Outdoor
Advertising division. The transaction closed on September 18, 1998.
F-61
<PAGE> 158
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 1
Risk Factors.............................. 12
Use of Proceeds........................... 16
Capitalization............................ 17
Unaudited Pro Forma Financial Statements.. 18
Selected Historical Financial and Other
Data.................................... 25
Management's Discussion and Analysis...... 27
Business.................................. 34
Management................................ 46
Executive Compensation.................... 47
Principal Stockholders.................... 48
Certain Relationships and Related
Transactions............................ 50
Description of the Notes.................. 51
The Exchange Offer........................ 75
U.S. Federal Income Tax Consequences...... 84
Existing Notes Registration Rights........ 86
Book Entry; Delivery and Form............. 88
Plan of Distribution...................... 90
Legal Matters............................. 91
Experts................................... 91
Change in Accountants..................... 92
Available Information..................... 92
Index to Financial Statements............. F-1
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
$100,000,000
[Tri-State Logo]
TRI-STATE OUTDOOR
MEDIA GROUP, INC.
11% Senior Notes
due 2008
----------------
PROSPECTUS
----------------
, 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 159
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 17-6305 of the General Corporation Code of Kansas grants the
Company the power to indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative by
reason of the fact that he is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company, and with to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful, provided, however,
no indemnification shall be made in connection with any proceeding brought by or
in the right of the Company where the person involved is adjudged to be liable
to the Company except to the extent approved by a court.
The Company's By-laws provide that any person who is made a party to any
action or proceeding because such person is or was a director or officer of the
Company will be indemnified and held harmless against all claims, liabilities
and expenses, including those expenses incurred in defending a claim and amounts
paid or agreed to be paid in connection with reasonable settlements made before
final adjudication with the approval of the Board of Directors, if such person
has acted, or in the judgment of the shareholders or directors of the Company
has acted, in good faith. The indemnification provided for in the Company's
By-laws is expressly not exclusive of any other rights to which those seeking
indemnification may be entitled as a matter of law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
See Exhibit Index immediately following signature pages.
(b) Financial Statement Schedules.
Not applicable.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the provisions described under Item 20 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 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
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-1
<PAGE> 160
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Tifton, State of Georgia, on October
14, 1998.
TRI-STATE OUTDOOR MEDIA GROUP, INC.
/s/ SHELDON G. HURST
--------------------------------------
Sheldon G. Hurst
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ SHELDON G. HURST Director and Principal October 14, 1998
- --------------------------------------------------- Executive Officer
Sheldon G. Hurst
* /s/ WILLIAM G. MCLENDON Director, Principal October 14, 1998
- --------------------------------------------------- Financial and Accounting
William G. McLendon Officer and Secretary
* /s/ A. WAYNE LAMM Director October 14, 1998
- ---------------------------------------------------
A. Wayne Lamm
* /s/ ANTHONY LAMARCA Director October 14, 1998
- ---------------------------------------------------
Anthony LaMarca
* /s/ WILLIAM P. SUTTER, JR. Director October 14, 1998
- ---------------------------------------------------
William P. Sutter, Jr.
*By: /s/ SHELDON G. HURST
- ---------------------------------------------------
Name: Sheldon G. Hurst, Attorney-in-fact
</TABLE>
II-2
<PAGE> 161
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S> <C>
*3.1 Restated Certificate of Incorporation of the Company
certified by the Secretary State of State of Kansas.........
*3.2 By-laws of the Company......................................
*4.1 Indenture dated as of May 15, 1998 relating to the Company's
11% Senior Notes due 2008 and the 11% Senior Series B Notes
due 2008. ..................................................
*4.2 Form of Global Note.........................................
5.1 Opinion of St. John & Wayne, L.L.C., General Counsel of the
Company. Filed herewith. ...................................
*10.1 Asset Purchase Agreement, dated as of May 6, 1997, between
the Company and Tri-State Systems, Inc. ....................
*10.2 Asset Purchase Agreement, dated as of February 13, 1998,
between the Company and Unisign Corporation, Inc. ..........
*10.3 Registration Rights Agreement dated as of May 13, 1998
relating to the Company's 11% Senior Notes due 2008. .......
*10.4 Pledge Agreement dated as of May 15, 1998 relating to the
Company's 11% Senior Notes due 2008. .......................
*10.5 Tax Sharing Agreement dated as of May 20, 1998 relating to
SGH Holdings, Inc. and the Company. ........................
*10.6 Second Amended and Restated Stockholders Agreement, dated as
of February 27, 1998. ......................................
*10.7 Anti-Dilution Agreement, dated as of February 29, 1998. ....
*10.8 Credit Agreement dated as of May 20, 1998 between the
Company and The First National Bank of Chicago. ............
10.9 Asset Purchase Agreement, dated as of September 4, 1998, by
and between Tri-State Outdoor Media Group, Inc. and Western
Outdoor Advertising Co. Filed herewith. ....................
10.10 Credit Agreement among Tri-State Outdoor Media Group, Inc.,
the Lending Institutions Party Thereto, as Lenders and The
First National Bank of Chicago, as Agent, dated as of
September 18, 1998. Filed herewith. ........................
12.0 Tri-State Outdoor Media Group, Inc. Computation of Ratio of
Earnings to Fixed Charges. Filed herewith. .................
16.0 Letter from McGrail Merkel Quinn & Associates. Filed
herewith. ..................................................
23.1 Consent of McGladrey & Pullen, LLP, independent accountants
of the Company. Filed herewith. ............................
23.2 Consent of McGrail Merkel Quinn & Associates, independent
accountants of the Company. Filed herewith. ................
23.3 Consent of McGrail Merkel Quinn & Associates, independent
accountants of Unisign Corporation, Inc. Filed herewith. ...
23.4 Consent of Smith & Radigan, L.L.C., independent accountants
of Tri-State Systems, Inc. Filed herewith. .................
23.5 Consent of Frankel, Zacharia, Arnold, Nissen, Stamp &
Reinsch, L.L.C., independent accountants of Western Outdoor
Advertising Co. Filed herewith. ............................
23.6 Consent of St. John & Wayne, L.L.C. (included in Exhibit
5.1). ......................................................
*24.1 Powers of Attorney (included on the Signature Page
hereto). ...................................................
*25.1 Statement of Eligibility of Trustee on Form T-1 of IBJ
Schroder Bank & Trust Company. .............................
25.2 Form of Letter of Transmittal. Filed herewith. .............
</TABLE>
<PAGE> 1
EXHIBIT 5.1
ST. JOHN & WAYNE, L.L.C.
October 13, 1998
Tri-State Outdoor Media Group, Inc.
3416 Highway 41 South
Tifton, Georgia 31793
We are furnishing this opinion in connection with the Registration
Statement on Form S-4 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act") filed on July 15, 1998 by Tri-State
Outdoor Media Group, Inc. (the "Company") relating to the offer to exchange
$100,000,000 aggregate principal amount of 11% Senior Notes due 2008 (the
"Exchange Notes") for the outstanding $100,000,000 aggregate principal amount of
11% Senior Notes due 2008 (the "Existing Notes" and, together with the Exchange
Notes, the "Notes"). The Existing Notes were, and the Exchange Notes will be,
issued by the Company pursuant to an Indenture dated as of May 15, 1998 (the
"Indenture") between the Company and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee") which is filed herewith. The exchange will be made
pursuant to an exchange offer contemplated by 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, sale and exchange of the Notes. We have made such
examination as we consider necessary to render this opinion.
This opinion is limited to the federal laws of the United States and the
laws of the State of New York and the General Corporation Code of Kansas. We
note that the Indenture and Notes are governed by the laws of the State of New
York.
Based upon the foregoing, we are of the opinion that:
1. The Indenture has been duly authorized, executed and delivered by the
Company and the Trustee and, upon the due execution, authentication and delivery
of the Exchange Notes and exchange thereof for Existing Notes in accordance with
the Indenture and in the manner described in the Registration Statement, the
Exchange Notes will be valid and legally binding obligations of the Company,
subject to bankruptcy, insolvency, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
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 "Legal
Matters" in the Prospectus filed as part thereof.
Very truly yours,
/s/ ST. JOHN & WAYNE, L.L.C.
<PAGE> 1
Exhibit 10.9
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is entered into as of
September 4, 1998, by and between TRI- STATE OUTDOOR MEDIA GROUP, INC., a Kansas
corporation ("Buyer"), and WESTERN OUTDOOR ADVERTISING CO., a Nebraska
corporation ("Seller") (Buyer and Seller are sometimes herein referred to
individually as a "Party" and collectively as the "Parties").
RECITALS
Among other business endeavors, Seller is engaged in the business of
owning and operating outdoor signs and billboards and otherwise providing
outdoor advertising services (the "Business") in those areas described on
Schedule A (the "Territory"). Seller desires to sell and assign certain outdoor
advertising assets to Buyer, and Buyer desires to purchase such assets and to
assume certain liabilities associated with such assets, pursuant to the terms,
conditions, limitations and exclusions contained in this Agreement.
AGREEMENT
The Parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the terms listed on Exhibit A attached
hereto have the meanings specified or referred to in Exhibit A .
2. PURCHASE AND SALE OF THE ASSETS; CLOSING
2.1 AGREEMENT TO PURCHASE AND SELL. Subject to the terms and
conditions of this Agreement, Seller hereby agrees to grant, sell, assign,
transfer, convey and deliver (or cause to be granted, sold, assigned,
transferred, conveyed and delivered) all right, title and interest in and to the
Purchased Assets, free and clear of any Encumbrances or Security Interests, and
Buyer hereby agrees to buy and acquire the Purchased Assets from Seller, and to
assume the Assumed Liabilities upon the terms and conditions set forth in this
Agreement.
2.2 PURCHASED ASSETS. The Purchased Assets are those assets of
Seller used in the Business listed below:
(a) all of the billboard displays and other out-of-home
advertising structures, together with all components, fixtures, parts,
appurtenances, and equipment attached to or made a part thereof that are
existing, under construction or for which Seller has any rights (including at
least 1,900 structures and 2,400 sign faces) (collectively, the "Structures"),
including, without limitation, all of the Structures listed on Schedule 2.2(a);
(b) all leases, licenses, easements, other rights of ingress
or egress, and all other grants of the right to place, construct, own, operate
or maintain billboard displays and other out-of-home advertising structures
(including, without limitation, the Structures) on land, buildings and
<PAGE> 2
other real property owned by third parties, and all rights therein
(collectively, the "Site Leases"), including, without limitation, those Site
Leases listed on Schedule 2.2(b):
(c) all of the rights under existing and pending sales and
advertising contracts associated with the Business, all rights to the
advertising copy displayed on the Structures as of the Closing Date, all other
rights to collect and receive income from the use of the Structures and security
deposits, if any, with respect thereto (collectively, the "Advertising
Contracts"), including, without limitation, all of the Advertising Contracts
listed on Schedule 2.2(c);
(d) all state and local licenses or permits/tags which Seller
has or has an interest in with respect to the Business and all other
Governmental Authorizations that are required for the operation of the Business
(collectively, the "Permits"), including, without limitation, all of the Permits
listed on Schedule 2.2(d);
(e) all accounts receivable, prepaid items and other assets of
Seller as of the Closing Date used in the Business that would be reflected as
current assets on a balance sheet of Seller as of the Closing Date prepared in a
manner consistent with Section 3. 10(a) (but excluding cash);
(f) the Books and Records;
(g) the Intangible Property;
(h) all real property owned in fee by Seller (or, in the case
of the real property commonly known as 4000 Grant Street, Omaha, Nebraska [the
"Omaha Property"], owned by L.K. Company, L.L.C., a Nebraska limited liability
company [the "LLC"]) and used in the Business and any rights therein, and all
buildings, fixtures, structures and other improvements located thereon, listed
on Schedule 2.2(h) (the "Real Property") (but excluding the real property
commonly referred to as the Century 21 Apartments located at 10025 "S" Plaza,
Omaha, Nebraska);
(i) all tangible personal property owned by Seller and used in
the operation of the Business, including, without limitation, the property
listed on Schedule 2.2(i) (collectively, the "Tangible Personal Property");
(j) all supplies used in connection with the Business,
including, without limitation, panels, moldings, steel components, sections,
parts, paint supplies, and appurtenances, equipment, electrical connections,
wiring and lighting components, as set forth on Schedule 2.2(j); and
(k) all rights (including any benefits arising therefrom),
causes of action, claims and demands of whatever nature (whether or not
liquidated) of Seller relating to the Purchased Assets, including, without
limitation, condemnation rights and proceeds, and all rights against suppliers
under warranties covering any of the Purchased Assets.
2.3 AGREEMENT TO ASSUME CERTAIN LIABILITIES. At the Closing, Buyer
shall assume and agree to discharge and perform only those liabilities and
obligations that arise or are attributable to
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<PAGE> 3
events occurring on or after the Closing Date pursuant to the Site Leases and
the Advertising Contracts (the "Assumed Liabilities"), but to the extent and
only to the extent that:
(a) Such obligations are performable on or after the Closing
Date; and
(b) Such obligations are attributable to periods arising on or
after the Closing Date.
The assumption by Buyer of any Assumed Liabilities shall not
be deemed to modify or amend Seller's representations and warranties contained
herein or in any way impair Buyer's right to rely upon such representations and
warranties or to obtain indemnification pursuant to Article 10 hereof for any
breach of such representations and warranties.
2.4 EXCLUDED LIABILITIES. All claims against and liabilities and
obligations of Seller not specifically assumed by Buyer pursuant to Section 2.3,
including, without limitation, the following claims against and liabilities of
Seller (the "Excluded Liabilities"), are excluded, and shall not be assumed or
discharged by Buyer, and shall be discharged in full when due by Seller:
(a) Any liabilities to the extent not attributable to the
Purchased Assets;
(b) Any liability for Taxes arising prior to or as a result of
the sale of the Purchased Assets under this Agreement;
(c) Any liabilities for or related to indebtedness of Seller
to banks, financial institutions, or other Persons;
(d) Any liabilities of Seller for or with respect to any
employees of Seller, including, without limitation, any liabilities pursuant to
any compensation, collective bargaining, pension, retirement, severance,
termination, or other benefit plan, agreement or arrangement; and
(e) Any other liabilities of Seller, whether absolute or
contingent, that are attributable to or arise from facts, events, or conditions
that occurred or came into existence prior to the Closing whether or not such
liabilities are asserted or claimed prior to the Closing or thereafter, except
to the extent that such liabilities would otherwise constitute, in whole or in
part, an Assumed Liability.
2.5 CLOSING. The purchase and sale of the Purchased Assets (the
"Closing") provided for in this Agreement will take place at the offices of
Buyer or Buyer's attorneys or Buyer's lender on or about November 30, 1998; or
such earlier or later time and place as the Parties may agree in writing. Buyer,
at its option, may (a) designate a Closing Date prior to November 30, 1998
provided Buyer shall give to Seller at least seven (7) days notice thereof and
further provided that such optional Closing Date shall not fall between the
dates of October 15, 1998 and November 1, 1998, or (b) extend the Closing Date
until a date not later than December 15, 1998, provided Buyer shall give Seller
notice thereof on or before November 30, 1998. The effective time of the Closing
shall be 12: 01 a.m., Eastern Standard Time, on the Closing Date.
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<PAGE> 4
2.6 PURCHASE PRICE. In consideration for the Purchased Assets, Buyer
shall assume the Assumed Liabilities, and pay an amount (the "Purchase Price")
equal to Twenty Six Million Seven Hundred Fifty Thousand Dollars
($26,750,000.00). The Parties agree to cooperate with each other in determining
and reaching an agreement in writing on the allocation of the Purchase Price
among the Purchased Assets on or prior to Closing (however, there shall be
allocated to the covenants described in Section 11 not more than $10,000.00).
2.7 TRANSACTIONS AT THE CLOSING. The following transactions shall take
place at the Closing:
(a) Seller shall enter into (as applicable) and/or deliver to
Buyer: (i) the Bill of Sale; (ii) the Deeds and all applicable documentary
stamps or real estate transfer taxes payable in connection with the conveyance
of the Real Property (except that in the case of the Omaha Property Seller shall
cause the LLC to deliver such items) (provided, however, that Buyer, by written
notice to Seller, may elect not to acquire any one (1) or more parcels
constituting the Real Property but no reduction in purchase price shall arise as
the result of any such election); (iii) Required Consents; (iv) satisfactory
evidence of the release of any Encumbrances or Security Interests on the
Purchased Assets; (v) all applicable Tax Clearances; and (vi) other instruments
of transfer, and all other related documents as may be necessary to effect the
sale and assignment of the Purchased Assets in accordance with the terms hereof
(and in the case of the Omaha Property shall cause the LLC to comply with this
provision). Seller shall also deliver to Buyer all Books and Records with
respect to the Purchased Assets, including the originals of the Advertising
Contracts, Site Leases and Permits.
(b) Buyer shall deliver the Purchase Price at the Closing, as
follows:
(i) $25,500,000.00 (subject to any required
adjustments) shall be delivered to an account or accounts designated by Seller
by wire transfer of immediately available funds;
(ii) $1,000,000.00 (the "Escrow Amount") (as
described in Section 13.1) shall be delivered to the Escrow Agent by wire
transfer of immediately available funds to be held in accordance with the
provisions of Section 13 of this Agreement; and
(iii) $250,00.00 (the "Lease Escrow Amount") (as
described in Section 15.1) shall be delivered to the Escrow Agent by wire
transfer of immediately available funds to be held in escrow in accordance with
the provisions of Section 15 of this Agreement.
(c) Buyer shall enter into (as applicable) and deliver to
Seller: (i) the Bill of Sale, and (ii) other assumption agreements, instruments
and other documents as may be reasonably necessary to evidence the assumption by
Buyer of the Assumed Liabilities.
(d) The Parties shall also deliver to each other the
agreements, instruments, opinions, certificates, and other documents referred to
in this Agreement.
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<PAGE> 5
2.8 THIRD PARTY CONSENTS. To the extent that Seller's rights under any
Advertising Contract, Site Lease, Permit or other interest in the Purchased
Assets may not be assigned without the consent of a third party and such consent
has not been obtained, this Agreement shall not constitute an agreement to
assign the same if an attempted assignment would constitute a breach thereof or
be unlawful, and Seller and Buyer, to the maximum extent permitted by law and
any terms of or limitations relating to such asset, shall use their Best Efforts
to obtain for Buyer the benefits thereunder, and shall cooperate to the maximum
extent permitted by law and any terms of or limitations relating to such asset
in any reasonable arrangement designed to provide such benefits to Buyer,
including any sublease or subcontract or similar arrangement, and if Buyer has
obtained such benefits, Buyer shall discharge Seller's obligations thereunder
arising from and after the Closing Date, except for those obligations arising
because of Seller's breach.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows (which
representations and warranties shall be joined in by the Indemnifying
Stockholders):
3.1 ORGANIZATION AND GOOD STANDING. Seller is a corporation duly
organized, validly existing and in good standing under the laws of Nebraska,
with full power and authority to conduct the Business as it is now being
conducted, to own or use the Purchased Assets, and to perform all its
obligations. Seller has delivered to Buyer true and complete copies of its
Organizational Documents, as currently in effect. Seller is duly qualified to do
business and in good standing in each jurisdiction comprising the Territory. The
Business is operating only in the Territory. Seller has no subsidiaries. The LLC
is a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Nebraska.
3.2 AUTHORITY: NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation
of Seller, enforceable against it in accordance with its terms. Upon the
execution and delivery by Seller of any documents to be executed at Closing
pursuant to this Agreement (collectively, the "Closing Documents"), such Closing
Documents will constitute the legal, valid, and binding obligations of Seller,
as applicable, enforceable against it in accordance with its terms. Seller has
the absolute and unrestricted right, power and authority to execute and deliver
this Agreement and the Closing Documents to which it is a party and to perform
its obligations thereunder. The Indemnifying Stockholders are all the
shareholders, beneficially and of record, of Seller. The execution, delivery and
performance of this Agreement has been specifically authorized by all the
shareholders and directors of Seller.
(b) Except as set forth in Part 3.2(b) of the Disclosure Schedule,
neither the execution and delivery by Seller of this Agreement nor the
consummation or performance by Seller of any of the Contemplated Transactions
will:
(i) conflict with, violate or result in a breach of
(A) any provision of the Organizational Documents of Seller; (B) any
Order or Legal Requirement to which Seller, the Business or any of the
Purchased Assets may be subject; or (C) any Governmental
5
<PAGE> 6
Authorization held by Seller or that otherwise relates to the Business
or the Purchased Assets; or
(ii) (A) contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person the right
to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any
Contract to which Seller is a party or any material interest or rights
of Seller in or to the Purchased Assets; or (B) result in the
imposition or creation of any Encumbrance upon or with respect to any
of the Purchased Assets.
(c) Except as set forth in Part 3.2(c) of the Disclosure
Schedule, Seller and the LLC are not and will not be required to give any notice
to or obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions (any such Consents set forth on Part 3.2(c) of the
Disclosure Schedule are referred to as "Required Consents").
3.3 SOLVENCY. By consummating the transactions contemplated hereby,
Seller does not intend to hinder, delay or defraud any of Seller's present or
future creditors. Before giving effect to the transactions contemplated hereby,
Seller has been paying its debts as they become due in the Ordinary Course of
Business and, after giving effect to the transactions contemplated hereby,
Seller will have paid or discharged all of its debts (or made adequate provision
for the payment thereof) with respect to the Purchased Assets.
3.4 BOOKS AND RECORDS. The books of account, and other Books and
Records of Seller maintained in connection with the Purchased Assets, are
complete and correct in all material respects and have been maintained in
accordance with sound business practices. Buyer shall have full access to the
Books and Records (and the right to make copies of same) prior to, at and after
the Closing, and this provision shall survive the Closing.
3.5 STRUCTURES. Seller owns all of the Structures. Except as set forth
in Part 3.5 of the Disclosure Schedule, each Structure (a) has a written Site
Lease and is located entirely on property covered by a Site Lease or is located
entirely on the Real Property, (b) complies in all material respects with the
terms of the Permits and applicable Legal Requirements pertaining to it, (c) is
in condition to accept faces and in adequate condition and repair for its
current use, and (d) is not currently the subject of any dispute with any
lessor, any lessee or owner of adjacent property or any other Person.
3.6 PERMITS. Except as set forth in Part 3.6 of the Disclosure
Schedule, (a) the Permits constitute all necessary licenses, permits,
registrations and approvals necessary pursuant to all applicable Legal
Requirements to install, operate and maintain the Structures for off-premises
advertising, (b) Seller is in material compliance with the terms of the Permits;
(c) each Permit is in full force and effect and Seller is not aware of any fact
or event which constitutes a violation of any Permit, and (d) Seller has not
received notice that any Governmental Body issuing any Permit intends to cancel,
terminate, modify or amend any Permit.
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<PAGE> 7
3.7 SITE LEASES AND ADVERTISING CONTRACTS. Seller has delivered to
Buyer true and complete copies of all Advertising Contracts and the Site Leases
to which Seller is a party or by which Seller or any of the Purchased Assets is
bound, and all Site Leases and Advertising Contracts are listed on Schedules
2.2(b) and 2.2(c), respectively. Except as set forth on Part 3.7 of the
Disclosure Schedule, all sales made to advertisers in connection with the
Structures have been made pursuant to Advertising Contracts. The Site Leases and
the Advertising Contracts are in full force and effect, valid, enforceable in
accordance with their respective terms, and are binding upon the parties
thereto. Except as set forth in Part 3.7 of the Disclosure Schedule, (x) no
default by Seller or, to the Knowledge of Seller, any other Person has occurred
under the Site Leases or Advertising Contracts and (y) to the Knowledge of
Seller, no event, occurrence or condition exists which (with or without notice
or lapse of time or the happening of any future event or condition) would become
a default by Seller thereunder or would entitle any other party to terminate a
Site Lease or Advertising Contract to make a claim or set-off against Seller or
otherwise to amend such Site Lease or Advertising Contract or prevent such Site
Lease or Advertising Contract from being renewed in accordance with its terms.
Except as set forth in Part 3.7 of the Disclosure Schedule, Seller has not
received any notice of default, termination or non-renewal under any Site Lease
or Advertising Contract. On the Closing Date, all Site Lease rents and other
charges and all liabilities with respect to the Purchased Assets obligations
shall be paid in full through the day of Closing.
3.8 REAL PROPERTY. Seller or the LLC, as the case may be, has good and
marketable record title to the Real Property, such title being a fee interest to
the Real Property. Seller and the LLC have not granted or agreed to grant to any
Person any option, agreement or other right to purchase, sell, lease or occupy
any of the Real Property.
3.9 TITLE, ENCUMBRANCES.
(a) Seller (and the LLC with respect to the Omaha Property)
has good and marketable title to all of the Purchased Assets. There are no
existing agreements, options, commitments or rights with, of or to any Person to
acquire any of the Purchased Assets or any interest therein.
(b) Except as set forth in Part 3.9(b) of the Disclosure
Schedule, none of the Structures, Site Leases or Real Property are subject to
zoning, use, or building code restrictions or, to Seller's Knowledge, any
Encumbrances that will prohibit the continued effective ownership, leasing or
other use of such assets as currently owned and used by Seller. Seller has not
received any notice of pending or Threatened claims, Proceedings, planned public
improvements, annexations, special assessments or other adverse claims affecting
the structures or Site Leases.
3.10 FINANCIAL STATEMENTS.
(a) Seller has delivered to Buyer certain financial statements
the ("Financial Statements") with respect to the Business, copies of which are
annexed hereto as Schedule 3. 10. The Financial Statements have been prepared
consistently during the periods covered thereby and accurately present in all
material respects the gross revenues and expenses of the Business at the dates
of said statements and the results of the operations of the Business and cash
flows for the
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<PAGE> 8
periods covered thereby. There has been no Material Adverse Change in the
financial condition of the Business or Purchased Assets since the date of the
most recent Financial Statement.
(b) As of the date hereof and as of the Closing Date, Seller
had and will have no liabilities with respect to the Business or the Purchased
Assets (which liabilities, when taken individually or in the aggregate are
material) of any nature, whether accrued, absolute, contingent or otherwise,
asserted or unasserted, known or unknown (including, without limitation,
liabilities as guarantor or otherwise with respect to obligations of others, or
liabilities for Taxes due or then accrued or to become due or contingent or
potential liabilities relating to activities of Seller with respect to the
Business prior to the date hereof or the Closing, as the case may be, regardless
of whether claims in respect thereof had been asserted as of such date), except
(i) liabilities reflected in the Financial Statements or the notes thereto, or
(ii) liabilities incurred in the Ordinary Course of Business since the date of
the most recent Financial Statement.
(c) At the Closing Seller shall deliver to Buyer an unaudited
balance sheet as at the date immediately preceding the Closing Date and an
income statement for the partial fiscal year then ended, certified by Seller.
3.11 TAXES. With respect to the Purchased Assets and the Business:
(a) Seller has filed or caused to be filed all Tax Returns
that are or were required to be filed by Seller (or the LLC with respect to the
Omaha Property), pursuant to applicable Legal Requirements. Seller has paid, or
made provision for the payment of, all Taxes that have or may have become due
pursuant to those Tax Returns or otherwise, or pursuant to any assessment
received by Seller;
(b) No unpaid Taxes create an Encumbrance on the Purchased
Assets; and
(c) Buyer shall not be liable for any Taxes of Seller or the
LLC as a result of the Contemplated Transactions.
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Except as set forth in Part
3.12 of the Disclosure Schedule, (a) Seller (and the LLC with respect to the
Omaha Property) has complied with all Legal Requirements applicable to Seller's
or the LLC's ownership or use of the Purchased Assets and operation of the
Business, and (b) Seller and the LLC have not received any notice (written or
oral) of any violation or failure to comply with any Legal Requirements relating
to the Business, the Purchased Assets or their use or operation which violation
or failure has not been cured.
3.13 LEGAL PROCEEDINGS; ORDERS. Except as set forth in Part 3.13 of the
Disclosure Schedule, there is no Proceeding pending or, to the Knowledge of
Seller, Threatened against Seller or affecting any of the Purchased Assets and
there is no Order to which Seller or the Purchased Assets is subject (the
foregoing representation and warranty being deemed made by the LLC with respect
to the Omaha Property).
3.14 OTHER CONTRACTS. Seller is not a party to or bound by any Other
Contract, except as disclosed in Part 3.14 of the Disclosure Schedule.
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<PAGE> 9
3.15 INSURANCE. Seller maintains (and shall through and including the
Closing Date maintain) in full force and effect policies of fire and other
casualty, liability, title and other forms of insurance covering the Purchased
Assets and the Business, and the operation thereof, of the types and with the
amounts of coverage as are consistent with industry standards for outdoor
advertising businesses.
3.16 ENVIRONMENTAL MATTERS. Except as set forth in Part 3.16 of the
Disclosure Schedule with respect to the Purchased Assets (including the Real
Property and the use or operation thereof): (a) Seller is, and has been, in
compliance with all Environmental Laws; (b) Seller has timely filed all reports,
obtained all required approvals and permits relating to the Business, and
generated and maintained all data, documentation and records under any
applicable Environmental Laws; (c) to the Knowledge of Seller, there has not
been any Release of Hazardous Materials at or in the vicinity of the Business
(including the Real Property and any real property covered by a Site Lease or on
which a Structure is located) or in areas for which Seller would have
responsibility under Environmental Laws; (d) Seller has not received any written
notice from any Person entity advising it that it is or may be responsible for
response costs with respect to a Release, a threatened Release or clean up of
Hazardous Materials produced by, or resulting from, its Business, operations or
processes; and (e) Seller has delivered to Buyer true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
accessible by Seller pertaining to Hazardous Materials in, on, or under the
properties included in the Purchased Assets. The foregoing representations and
warranties are deemed also to be made by the LLC with respect to the Omaha
Property.
3.17 INTANGIBLE PROPERTY. Seller uses no intangible property in
connection with the operation of the Purchased Assets, except for the Permits,
the Books and Records and the Intangible Property.
3.18 RELATIONSHIPS WITH AFFILIATES. Except as set forth on Part 3.18 of
the Disclosure Schedule, Seller is not a party to any contract with a Related
Person of Seller relating to the Purchased Assets or the Business associated
therewith. Neither Seller nor any Related Persons of Seller is the owner (of
record or as a beneficial owner) of an equity interest or any other financial or
profit interest in, a Person (other than Seller) that has business dealings or a
material financial interest in any transaction with Seller involving the
Purchased Assets or the Business associated therewith.
3.19 BROKERS OR FINDERS. The Seller, its shareholders, directors, and
officers have not incurred any obligation or liability, contingent or otherwise,
for brokerage or finders' fees or agents' commissions or other similar payment
in connection with this Agreement.
3.20 EMPLOYEE BENEFITS MATTERS. Except as disclosed on Part 3.20 of the
Disclosure Schedule, with respect to Seller:
(a) Seller does not maintain and has never maintained an
"employee benefit pension plan" within the meaning of ERISA Section 3(2), that
is or was subject to Title IV of ERISA.
(b) Seller does not have and has not ever had, any past,
present or future obligation or liability to contribute any "multi-employer
plan," as defined in ERISA Section 3(37).
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(c) Seller does not have any written or oral employee benefit
plans, contracts, agreements, incentives or arrangements, including without
limitation, pension and profit sharing plans, savings plans, incentive
compensation, medical, life, dental or disability plans or severance agreements.
Buyer does not, however, assume any liabilities with respect to any of the plans
or other matters disclosed on Part 3.20 of the Disclosure Schedule, all of which
shall constitute Excluded Liabilities.
For purposes of this Section 3.20, the term "Seller" shall be deemed to include
any other corporation, trade, business or other entity, other than Seller, which
would, together with Seller, now or in the past constitute a single employer
within the meaning of Section 414 of the IRC.
3.21 OMITTED.
3.22 EMPLOYEES: LABOR MATTERS. All employees of Seller are employees at
will. Except as disclosed on Part 3.22 of the Disclosure Schedule, no employee,
agent or consultant of Seller is a party to any agreement governing such
employee's agent's or consultant's employment or engagement, as the case may be,
with Seller. As of the date hereof Seller employs (and as of the Closing Date
Seller shall employ) less than fifty (50) employees. Seller has made no
warranty, representation or agreement, either in writing or orally, to any
employee of Seller that Buyer intends to employ such employee on or after the
Closing Date. Seller consents to Buyer communicating with the employees,
consultants and independent contractors of Seller on or prior to the Closing
Date, and Seller shall cooperate in connection therewith. Seller is not a party
to any collective bargaining agreement with respect to any of its employees nor
are any employees of Seller covered by any collective bargaining agreement. No
labor organization or group of employees has made a demand for recognition, has
filed a petition seeking a representation proceeding or given Seller notice of
any intention to hold an election of a collective bargaining organization. There
are no known writs, actions, claims or legal, administrative, arbitration or
other proceedings or governmental investigations pending or Threatened or
involving or alleging civil rights violations, unfair labor investigations
practice claims, back pay orders or other similar claims or proceedings. Seller
is in material compliance with all federal, state and local laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice; there is no
unfair labor practice complaint against Seller pending before the National Labor
Relations Board; there is no labor strike, dispute, slowdown, or stoppage
pending or threatened against or involving the employees of Seller; and no
grievance or any arbitration proceeding is pending or threatened against Seller
and no claim therefor exists.
3.23 INDEBTEDNESS, ENCUMBRANCES AND SECURITY INTERESTS. All of the
Purchased Assets will be, at Closing, owned by Seller (or the LLC with respect
to the Omaha Property) free and clear of all Encumbrances and Security
Interests.
3.24 BILLBOARD INCOME. The net cash receipts on advertising contracts
through July 31, 1998 are $3,314,042 and that amount compares with a similar
amount of $3,238,300, through the period July 31, 1997. As of July 31, 1998 the
average advertising contract held by the Seller has a term of fourteen (14)
months remaining. As of the Closing Date, the cash receipts from advertising
revenues shall not be less than a similar amount received through the equivalent
date one year prior;
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and, further, should closing occur after October 31, 1998, cash receipts from
advertising revenues for the year ended October 31, 1998 shall not be less than
for the fiscal year ended October 31, 1997.
3.25 HSR ACT. Seller does not, as of the date hereof, and shall not as
of the Closing Date, have total assets or net sales (as defined in the HSR Act)
of $10,000,000.00 or more.
3.26 DISCLOSURE. No representation or warranty of Seller in this
Agreement and no statement in the Disclosure Schedule contains an untrue
statement of material fact or omits to state a material fact necessary to make
the statements herein or therein, in light of the circumstances in which they
were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants
to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Kansas.
4.2 AUTHORITY, NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
Upon the execution and delivery by Buyer of the Closing Documents to which Buyer
is a party, such Closing Documents will constitute the legal, valid, and binding
obligations of Buyer, enforceable against Buyer in accordance with their
respective terms. Buyer has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and the Closing Documents and to
perform its obligations under this Agreement and the Closing Documents to which
Buyer is a party.
(b) Neither the execution and delivery of this Agreement by
Buyer nor the consummation or performance of any of the Contemplated
Transactions by Buyer will give any Person the right to prevent, delay, or
otherwise interfere with any of the Contemplated Transactions pursuant to (i)
any provision of Buyer's Organizational Documents; (ii) any resolution adopted
by the board of directors or the stockholders of Buyer; (iii) any Legal
Requirement or Order to which Buyer may be subject; or (iv) any material
Contract to which Buyer is a party or by which Buyer may be bound.
4.3 CERTAIN PROCEEDINGS. There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. No such Proceeding has been Threatened and no event
has occurred or circumstance exists that may give rise to or serve as a basis
for the commencement of any Proceeding.
4.4 BROKERS OR FINDERS. Buyer has not incurred any obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement.
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5. COVENANTS OF SELLER
5.1 ACCESS AND INVESTIGATION. Between the date of this Agreement and
the Closing Date, Seller will, and will cause its Representatives to, afford
Buyer and its Representatives reasonable access during normal business hours to
Seller's personnel, properties, Books and Records, and other documents and data
relating to the Purchased Assets and the Business, and furnish Buyer and its
Representatives with copies of the same. In addition to the foregoing, Seller
shall, at all reasonable times before the Closing if called upon by Buyer, use
reasonable efforts to cooperate with and assist Buyer in the preparation of
financial statements by Buyer which may include the operation of the Business
prior to the Closing Date.
5.2 DUE DILIGENCE. Buyer shall have the right, and Seller shall afford
access to Buyer and its Representatives, at all reasonable times upon advance
notice, to perform due diligence on the Purchased Assets.
5.3 OPERATION OF THE PURCHASED ASSETS. Between the date of this
Agreement and the Closing Date, Seller will:
(a) operate the Business only in the Ordinary Course of
Business;
(b) use its Best Efforts to maintain the Purchased Assets, and
maintain the relations and good will with advertisers, landlords and others
associated with the operation of the associated Business;
(c) not enter into any new Advertising Contract or Site Lease
not in the Ordinary Course of Business; and
(d) prorate any receipts from any party under any advertising
contract for any period after the Closing Date between the parties through the
date of Closing.
5.4 BEST EFFORTS. Between the date of this Agreement and the Closing
Date, Seller will use its Best Efforts to cause the conditions in Section 7
(except Section 7.11) to be satisfied.
5.5 NEGATIVE COVENANT. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, Seller will
operate the Business consistent in all material respects with past practice,
except as otherwise provided in this Agreement.
5.6 REQUIRED APPROVALS AND CONSENTS. As promptly as practicable after
the date of this Agreement, Seller will make all filings required by Legal
Requirements to be made by it in order to consummate the Contemplated
Transactions and use its Best Efforts to obtain the Required Consents.
5.7 NOTIFICATION. Between the date of this Agreement and the Closing
Date, Seller will promptly notify Buyer in writing if Seller become aware of any
fact or condition that causes or constitutes a breach of any of Seller's
representations and warranties as of the date of this Agreement, or if Seller
becomes aware of the occurrence after the date of this Agreement of any fact or
condition
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that would (except as expressly contemplated by this Agreement) cause or
constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. During the same period, Seller will promptly notify
Buyer of the occurrence of any breach of any covenant of Seller in this Section
5 or of the occurrence of any event that may make the satisfaction of the
conditions in Section 7 impossible or unlikely.
5.8 NO NEGOTIATION. Until such time, if any, as this Agreement is
terminated pursuant to Section 9, neither Seller nor any Affiliate will, nor
will it permit its Representatives to, directly or indirectly solicit, initiate,
or encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Buyer or its
Representatives) relating to or affecting any transaction involving the sale of
the Purchased Assets or any interest in Seller.
6. COVENANTS OF BUYER
6.1 REQUIRED APPROVALS. As promptly as practicable after the date of
this Agreement, Buyer will make all filings required by Legal Requirements to be
made by it to consummate the Contemplated Transactions.
6.2 BEST EFFORTS. Between the date of this Agreement and the Closing
Date, Buyer will use its Best Efforts to cause the conditions in Section 8 to be
satisfied, provided that this Agreement will not require Buyer to dispose of or
make any change in any portion of its business or to incur any other burden to
obtain a Governmental Authorization.
6.3 NOTIFICATION. Between the date of this Agreement and the Closing
Date, Buyer will promptly notify Seller in writing if Buyer becomes aware of any
fact or condition that causes or constitutes a breach of any of Buyer's
representations and warranties as of the date of this Agreement, or if Buyer
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. During the same period, Buyer will promptly notify
Seller of the occurrence of any breach of any covenant of Buyer in this Section
6 or of the occurrence of any event that may make the satisfaction of the
conditions in Section 8 impossible or unlikely.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Purchased Assets and to take the
other actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS. Seller's and the LLC's representations
and warranties in this Agreement must have been accurate in all material
respects as of the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date,
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and Buyer shall have received a certificate of an executive officer of Seller
and the LLC in the form of Exhibit C annexed hereto, dated as of the Closing
Date, as to such accuracy.
7.2 SELLER'S PERFORMANCE. The covenants and obligations that Seller is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing must have been performed and complied with in all material respects,
and Buyer shall have received a certificate of an executive officer of Seller in
the form of Exhibit C annexed hereto, dated as of the Closing Date, as to such
compliance.
7.3 CONSENTS. Each of the Required Consents shall have been obtained
and shall be in full force and effect.
7.4 ADDITIONAL DOCUMENTS. Each of the following documents must have
been delivered to Buyer:
(a) an opinion of Abrahams, Kaslow & Cassman, counsel to
Seller, in the form of Exhibit D annexed hereto,
(b) the deliveries required from Seller in Section 2.7;
(c) resolutions of all the shareholders and directors of
Seller confirming the authorization of the execution and delivery of this
Agreement and the Contemplated Transactions;
(d) such other documents as Buyer may reasonably request for
the purpose of (i) evidencing the satisfaction of any condition referred to in
this Section 7, or (ii) otherwise facilitating the consummation or performance
of any of the Contemplated Transactions.
7.5 NO PROCEEDINGS. Since the date of this Agreement, there must not
have been commenced and pending or Threatened by any Person any Proceeding (i)
involving any challenge to, or seeking damages or other relief in connection
with, any of the Contemplated Transactions, (ii) that prevents, makes illegal,
or otherwise materially interferes with any of the Contemplated Transactions or
seeks to do any of the foregoing, or (iii) that involves any material claim
against Seller.
7.6 NO PROHIBITION. There must not be in effect any Legal Requirement
or any injunction or other Order that prohibits or restricts the consummation of
the Contemplated Transactions.
7.7 NO MATERIAL ADVERSE CHANGE. There shall not have been a Material
Adverse Change since the date hereof.
7.8 DUE DILIGENCE. On or before November 30, 1998, Buyer's due
diligence investigation and review of the Purchased Assets and the Assumed
Liabilities shall not reveal any fact or circumstance not acceptable to Buyer in
Buyer's sole and absolute discretion.
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7.9 SATISFACTION OF INDEBTEDNESS. At or prior to the Closing, Seller
shall have repaid in full all outstanding indebtedness of Seller to the extent
affecting the Purchased Assets and shall cause all Security Interests affecting
the Purchased Assets to be extinguished.
7.10 AUDITED FINANCIAL STATEMENTS. At or prior to the Closing, Buyer
shall have received, from an independent accounting firm reasonably acceptable
to Buyer, audited financial statements of Seller for (a) each of Seller's fiscal
years ending October 31, 1996 and October 31, 1997, and (b) the nine (9) month
period ended July 31, 1998, which financial statements shall be prepared in
accordance with generally accepted accounting principles and Regulation S-X of
the Securities Exchange Act of 1934. Seller shall provide all necessary
cooperation in the preparation of such financial statements. The cost of
preparation of such financial statements shall be borne by Buyer.
7.11 TAX CLEARANCE. Buyer shall obtain certificates of clearances for
Taxes ("Tax Clearances") from the states listed on Schedule 5.9 annexed hereto,
certifying as to the payment by or on behalf of Seller of all Taxes due on or
prior to the Closing Date (including, without limitation, in connection with the
Contemplated Transactions). Seller shall provide reasonable cooperation to Buyer
in obtaining such Tax Clearances.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Purchased Assets and Seller's
obligation to take the other actions required to be taken by Seller at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by Seller, in whole or in
part):
8.1 ACCURACY OF REPRESENTATIONS. Buyer's representations and warranties
in this Agreement must have been accurate in all material respects as of the
date of this Agreement and must be accurate in all material respects in all
respects as of the Closing Date as if made on the Closing Date, and Seller shall
have received a certificate of an executive officer of Buyer in the form of
Exhibit E annexed hereto, dated as of the Closing Date, as to such accuracy.
8.2 BUYER'S PERFORMANCE. The covenants and obligations that Buyer is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing must have been performed and complied with in all material respects,
and Seller shall have received a certificate of an executive officer of Buyer in
the form of Exhibit E annexed hereto, dated as of the Closing Date, as to such
compliance.
8.3 ADDITIONAL DOCUMENTS. Buyer must have caused the following
documents to be delivered to Seller:
(a) an opinion of St. John & Wayne, L.L.C., counsel to Buyer,
dated as of the Closing Date in the form of Exhibit F annexed hereto;
(b) the deliveries required from Buyer in Section 2.7;
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(c) resolutions of all the directors of Buyer confirming the
authorization of the execution and delivery of this Agreement and the
Contemplated Transactions; and
(d) such other documents as Seller may reasonably request for
the purpose of (i) evidencing the satisfaction of any condition referred to in
this Section 8, or (ii) otherwise facilitating the consummation of any of the
Contemplated Transactions.
8.4 NO PROCEEDINGS. Since the date of this Agreement, there must not
have been commenced and pending or Threatened any Proceeding (i) involving any
challenge to, or seeking damages or other relief in connection with, any of the
Contemplated Transactions, or (ii) that prevents, makes illegal, or otherwise
materially interferes with any of the Contemplated Transactions or seeks to do
any of the foregoing.
8.5 NO PROHIBITION. There must not be in effect any Legal Requirement
or any injunction or other Order that prohibits or restricts the consummation of
the Contemplated Transactions.
9. TERMINATION
9.1 TERMINATION EVENTS. This Agreement may, by notice given prior to or
at the Closing, be terminated:
(a) by mutual written consent of Buyer and Seller;
(b) (i) by Buyer if any of the conditions in Section 7 has not
been satisfied as of the Closing Date (or the date of delivery by Buyer of a
notice under Section 7.8) or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived in writing such
condition on or before the Closing Date; or (ii) by Seller if any of the
conditions in Section 8 has not been satisfied as of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than through
the failure of Seller to comply with its obligations under this Agreement) and
Seller has not waived in writing such condition on or before the Closing Date;
or
(c) by Buyer, on the one hand, or Seller on the other hand, if
the Closing has not occurred (other than through the failure of the other Party
seeking to terminate this Agreement to comply fully with its obligations under
this Agreement) on or before December 15, 1998, or such later date as the
Parties may agree upon.
9.2 EFFECT OF TERMINATION. Each Party's right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement.
If this Agreement is terminated pursuant to Section 9.1, all further obligations
of the Parties under this Agreement will terminate, except that the obligations
in Sections 12.1 and 12.3 will survive; provided, however:
(a) If Buyer shall default in its obligations under this
Agreement to consummate the Contemplated Transactions (other than as a result of
Seller's default under this Agreement), and
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Buyer shall fail to cure such default within ten (10) days after receipt of
written notice of default from Seller, then Seller shall have the right to
pursue any or all legal and equitable remedies, separately or simultaneously
(including specific performance), which will survive the termination unimpaired.
(b) If Seller shall default in its obligations under this
Agreement to consummate the Contemplated Transactions (other than as a result of
Buyer's default under this Agreement), and Seller shall fail to cure such
default within ten (10) days after receipt of written notice of default from
Buyer, then Buyer shall have the right to pursue any or all legal and equitable
remedies, separately or simultaneously (including specific performance), which
will survive the termination unimpaired.
(c) The remedies set forth in this Section 9.2 apply only to
the failure of Buyer or Seller to consummate the Contemplated Transactions, and
not with respect to any obligations specified herein that survive the Closing or
termination of this Agreement.
10. INDEMNIFICATION; REMEDIES
10.1 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER AND THE
INDEMNIFYING STOCKHOLDERS. Seller and the Indemnifying Stockholders will,
jointly and severally, indemnify and hold harmless Buyer and its stockholders,
controlling Persons and Affiliates (collectively, the "Seller Indemnified
Persons") for, and will pay to the Seller Indemnified Persons the amount of, any
loss, liability (whether absolute or contingent), claim, damage or expense
(including reasonable costs of investigation and defense and reasonable
attorneys' fees), whether or not involving a third-party claim (collectively,
"Damages"), arising, directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made by
Seller and/or the LLC in this Agreement, the Disclosure Schedule, or any other
certificate or document delivered by Seller pursuant to this Agreement;
(b) any breach by Seller of any covenant or obligation of
Seller in this Agreement or in any certificate or document delivered by Seller
pursuant to this Agreement;
(c) the failure of Seller to satisfy and discharge any
Excluded Liabilities;
(d) any default by Seller under any Site Lease, Advertising
Contract or Permit which occurred or accrued prior to the Closing;
(e) facts, events or conditions that occurred or came into
existence prior to the Closing, whether or not such Damages are asserted or
claimed prior to the Closing or thereafter; and
(f) the occurrence of any Lease Termination Event on or before
the two (2) year anniversary of the Closing Date for which a Determination is
not obtained as provided in Section 15.2(a).
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10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
indemnify and hold harmless Seller and its stockholders, controlling Persons and
Affiliates (collectively, the "Buyer Indemnified Persons") for, and will pay to
the Buyer Indemnified Persons the amount of, any Damages arising, directly or
indirectly, from or in connection with:
(a) any breach of any representation or warranty made by Buyer
in this Agreement or in any certificate or document delivered by Buyer pursuant
to this Agreement; and
(b) the failure to pay Assumed Liabilities after the Closing.
10.3 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.
(a) Promptly after receipt by an Indemnified Person under
Section 10.1 or 10.2 of notice of any claim against it, such Indemnified Person
will, if a claim is to be made against an Indemnifying Party under such Section,
give notice to the Indemnifying Party of the commencement of such claim, but the
failure to notify the Indemnifying Party will not relieve the Indemnifying Party
of any liability that it may have to any Indemnified Person, except to the
extent that the Indemnifying Party demonstrates that the defense of such action
is prejudiced by the Indemnifying Party's failure to give such notice.
(b) If any claim referred to in Section 10.3(a) is brought
against an Indemnified Person and it gives written notice to the Indemnifying
Party of such claim, the Indemnifying Party may, at its option, assume the
defense of such claim with counsel satisfactory to the Indemnified Person and,
after written notice from the Indemnifying Party to the Indemnified Person of
its election to assume the defense of such claim, the Indemnifying Party will
not, as long as it diligently conducts such defense, be liable to the
Indemnified Person under this Article 10 for any fees of other counsel or any
other expenses with respect to the defense of such claim subsequently incurred
by the Indemnified Person in connection with the defense of such claim, other
than reasonable costs of investigation. If the Indemnifying Party assumes the
defense of a claim, (i) no compromise or settlement of such claim may be
effected by the Indemnifying Party without the Indemnified Person's written
consent unless (A) there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any Person, and (B) the sole
relief provided is monetary damages that are paid in full by the Indemnifying
Party; and (ii) the Indemnified Person will have no liability with respect to
any compromise or settlement of such claims effected without its written
consent. Subject to Section 10.3(c), if notice is given to an Indemnifying Party
of any claim and the Indemnifying Party does not, within ten (10) days after the
Indemnified Person's notice is given, give notice to the Indemnified Person of
its election to assume the defense of such claim, the Indemnifying Party will be
bound by any determination made in such Proceeding or any compromise or
settlement effected by the Indemnified Person.
(c) Notwithstanding the foregoing, if an Indemnified Person
determines in good faith that there is a reasonable probability that a claim may
adversely affect it or its Affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
Indemnified Person may, by notice to the Indemnifying Party, assume the
exclusive right to defend, compromise, or settle such claim, but the
Indemnifying Party will not be bound by
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any determination of a claim so defended or any compromise or settlement
effected without its written consent (which may not be unreasonably withheld or
delayed).
10.4 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIM. A claim for
indemnification for any matter not involving a third-party claim shall be
asserted by written notice to the Indemnifying Party from whom indemnification
is sought.
10.5 SURVIVAL/LIMITATIONS. (a) The parties hereto agree that (i) the
covenants and agreements contained in the Agreement (including, without
limitation, Section 10.1(c) and any document delivered pursuant hereto and the
representations and warranties contained in Sections 3.1, 3.2, 3.3, 3.5, 3.9(a),
3.11, 3.12, 3.13, 3.14, 3.16, 3.18, 3.19, 3.20, 3.22, 3.23, 3.25, 3.26, 4.1,
4.2, 4.3 and 4.4 shall survive until ninety (90) days after the expiration of
all applicable statutes of limitation with respect to the subject matter
thereof, (ii) all other representations and warranties shall survive until one
(1) year following the Closing Date, and (iii) any indemnification claim for a
breach of the foregoing must be made in writing in accordance with the provision
of this Article 10 within the applicable survival period for the underlying
representation, warranty or covenant. The expiration of the applicable survival
period will not extinguish an indemnification claim properly made prior to such
expiration in accordance with this Article 10.
(b) Seller and the Indemnifying Stockholders shall not be
required to make any payments to the Seller Indemnified Persons pursuant to
Sections 10.1(a) with respect to a breach of any of the representations and
warranties contained in Article 3 (other than the representations and warranties
listed in Section 10.5(a)(i)) until the Damages, in the aggregate, exceed
$100,000.00, and then only to the extent of Damages in excess of such amount.
(c) In no event shall Seller's or the Indemnifying
Stockholders' obligation to indemnify the Seller Indemnified Persons for Damages
pursuant to a breach of any of the warranties and representations set forth in
Article 3 (other than those warranties and representations listed in Section
10.5(a)(i) above, for which there shall be no limitation) collectively exceed
the One Million Dollars ($1,000,000.00) Escrow Fund.
(d) In no event shall Seller's or the Indemnifying
Stockholders' obligation to indemnify the Seller Indemnified Persons for Damages
as a result of a Lease Termination Event collectively exceed the Two Hundred
Fifty Thousand Dollar ($250,000.00) Lease Escrow Fund.
(e) Notwithstanding the foregoing, any claims for Damages
arising from fraud by Seller or the Indemnifying Stockholders hereunder shall be
without limitation of any kind.
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11. NON-COMPETITION AND NON-SOLICITATION.
11.1 NON-COMPETITION. Seller and the Obligors each hereby agree that
for a period of seven (7) years after the Closing Date, such Person will not,
without the prior written consent of Buyer, directly or indirectly, engage or
participate in, be employed by or assist in any manner or in \any capacity, or
have any interest in or make any loan to any person, firm, corporation or
business which engages in outdoor advertising activities (including the
ownership and/or operation of outdoor signs and billboards) in those areas
described on Schedule 11 annexed hereto; provided, however, the foregoing shall
not prevent (a) any such entity or person from owning beneficially or of record
up to one percent (1%) of the outstanding securities of a publicly-held
corporation which engages in competitive activities, and (b) Mitchell D. Katskee
from engaging in a sign manufacturing business in the manner currently conducted
by him.
11.2 NON-SOLICITATION. For a period of seven (7) years after the
Closing Date, Seller and the Obligors each agree that he, she or it will (i) not
solicit, recruit or hire, or attempt to solicit, recruit or hire, directly or
indirectly, any of the current employees of Buyer or its Affiliates; (ii)
refrain from soliciting, or attempting to solicit, directly or indirectly, any
business from any customer of Buyer, or actively pursue prospective customers,
with whom Buyer had material contact at any time during the previous seven (7)
years for purposes of providing outdoor (including, without limitation,
out-of-home advertising) products or services of the type offered or provided by
Buyer (Buyer's customers to include customers of Seller); and (iii) refrain from
soliciting, or attempting to solicit, directly or indirectly, any real estate
location used by Buyer from any land owner (or its successor or assigns) who
leases to Buyer (including without limitation land owners under the Site
Leases), or actively pursue prospective land owners with whom Buyer or Seller
had material contact during the previous seven (7) years.
11.3 ENFORCEMENT. Seller and the Obligors acknowledge that a breach of
the covenants in this Section 11 would cause irreparable harm to Buyer and its
Affiliates for which there is not adequate remedy at law. Seller and the
Obligors consent to the issuance of an injunction in favor of Buyer and its
Affiliates enjoining the breach of this provision. Notwithstanding the
foregoing, in addition to any equitable remedies available to Buyer, Buyer shall
be entitled to any and all remedies at law or equity, including, without
limitation, injunctive relief, monetary damages, an accounting for profits
and/or the imposition of a constructive trust. In the event that any court of
competent jurisdiction should construe any geographical limitation, the scope,
or the time period contained in this restrictive covenant to be too broad, so as
to be unenforceable, it is the intention of the parties that the court should
modify the covenant(s) to provide that the restrictions as herein contained
shall apply and be enforceable to the maximum extent permitted by law for such
restrictions, and further upon such determination, to enforce the covenant as so
modified.
11.4 SURVIVAL. The provisions of this Section 11 shall survive the
Closing.
11.5 LIMITATION OF INDIVIDUAL OBLIGOR. The obligation of Byron Barnes,
one of the Obligors shall be limited strictly to his personal actions in
violation of Sections 11.1 or 11.2 above. No obligation of Byron Barnes shall be
deemed joint and several with those of the actions of other Obligors unless and
until Byron Barnes has materially participated in such prohibited act or acts.
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12. GENERAL PROVISIONS
12.1 EXPENSES. Except as otherwise expressly provided in this
Agreement, each Party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, brokers or finders, counsel, and accountants. In the
event of termination of this Agreement, the obligation of each Party to pay its
own expenses will be subject to any rights of such Party arising from a breach
of this Agreement by another Party. Each Party hereto shall indemnify the other
for its failure to pay any brokerage or finders' fees or agents' commission or
similar payment incurred by such Party or its Representatives in connection with
this Agreement.
12.2 HEADINGS; CONSTRUCTION. The headings of Sections in this Agreement
are provided for convenience only and will not affect its construction or
interpretation. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
12.3 PUBLIC ANNOUNCEMENTS, CONFIDENTIALITY. Any public announcement or
similar publicity with respect to this Agreement or the Contemplated
Transactions will be issued, if at all, at such time and in such manner as Buyer
and Seller agree in writing, provided that the parties shall reasonably
cooperate in such announcements, and provided further that nothing contained
herein shall prevent any party from at any time furnishing information required
by a Governmental Body. Unless consented to by Buyer and Seller in advance or
required by Legal Requirements, prior to the Closing, each Party shall, and
shall cause their respective Representatives to, keep this Agreement strictly
confidential and may not make any disclosure of this Agreement to any Person.
All confidential information and documents made available to Buyer by Seller or
its Representatives with respect to the Business shall be kept in strict
confidence, and not made available to any third party other than absolutely
necessary for the purposes of concluding the Contemplated Transactions. In the
event the Contemplated Transactions for any reason are not concluded, all
documents or documents compiled from information supplied or obtained hereunder,
and copies thereof, shall be returned to Seller and the Confidential Information
obtained shall in no way be used by the Buyer or communicated to any third
party, except as required by law or court order. This representation shall
survive the termination of this Agreement.
12.4 AVAILABILITY OF EQUITABLE REMEDIES. The Parties acknowledge and
agree that (i) a breach of the provisions of this Agreement could not adequately
be compensated by money damages, and (ii) any Party shall (except as otherwise
expressly provided in this Agreement) be entitled, either before or after the
Closing, in addition to any other right or remedy available to it, to an
injunction restraining such breach and to specific performance of this
Agreement, and no bond or other security shall be required in connection
therewith.
12.5 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by certified mail, return receipt requested, or (c) when
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<PAGE> 22
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a Party may designate by notice to the other Parties):
If to Seller:
Western Outdoor Advertising Co.
c/o L.K. Company, Inc.
1012 S. 74th Plaza
Omaha, NE 68114
Attention: Michael A. Katskee
Telephone No.: (402) 392-2104
Facsimile No.: (402) 392-1461
With a copy to:
Abrahams, Kaslow & Cassman
8712 West Dodge Road, Suite 300
Omaha, Nebraska 68114
Attention: William H. Coates, Esq.
Telephone No.: (402) 392-1250
Facsimile No.: (402) 392-0816
If to Buyer, to:
Tri-State Outdoor Media Group, Inc.
P.O. Box 1247
3416 Highway 41 South
Tifton, Georgia 31793
Attention: Sheldon G. Hurst, President
Telephone No.: (912) 382-2980
Facsimile No.: (912) 386-0203
With a copy to:
St. John & Wayne, L.L.C.
Two Penn Plaza East
Newark, New Jersey 07105
Attention: David C. Freinberg, Esq.
Telephone No.: (973) 491-3600
Facsimile No.: (973) 491-3555
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If to Escrow Agent:
Norwest Bank
1919 Douglas Street
Omaha, Nebraska 68102
Attention: James Vokal
Telephone No.: 536-2109
Facsimile No.: 536-2075
Notices given by an attorney for a Party shall be deemed to be a notice given by
such Party.
12.6 FURTHER ASSURANCES. The Parties agree (i) to furnish upon request
to each other such further information, (ii) to execute and deliver to each
other such other documents, and (iii) to do such other acts and things, all as
the other Party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
12.7 WAIVER. Neither the failure nor any delay by any Party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege.
12.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the Parties with respect to its subject matter
(including, without limitation, a certain letter dated June 9, 1998 and signed
by Seller on June 26, 1998 as amended) and constitutes (along with the documents
referred to in this Agreement) a complete and exclusive statement of the terms
of the agreement between the Parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the Party
to be charged with the amendment.
12.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. No Party may
assign any of its rights under this Agreement without the prior consent of the
other Parties, except that Buyer may assign any of its rights under this
Agreement to any Affiliate of Buyer (provided that Buyer shall remain liable for
the obligations of such assignee under this Agreement). This Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
Parties, and their successors, by liquidation or otherwise, and their permitted
assigns. Nothing expressed or referred to in this Agreement will be construed to
give any Person other than the Parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement.
12.10 SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
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<PAGE> 24
12.11 RISK OF LOSS. Except as otherwise expressly provided in this
Agreement, material risk of loss or damage to the Purchased Assets from any
cause whatsoever prior to the Closing shall be borne by Seller, and after the
Closing shall be borne by Buyer.
12.12 POST-CLOSING ACCESS. Buyer agrees that all Books and Records
delivered to Buyer by Seller pursuant to this Agreement shall be maintained open
for inspection by Seller at any time during regular business hours upon
reasonable notice for a period of six (6) years (or for such longer period as
may be required by applicable Legal Requirements) following the Closing and
that, during such period, Seller, at its expense, may make such copies thereof
as it may reasonably desire. Seller agrees that all books and records relating
to the Purchased Assets and retained by Seller shall be maintained open for
inspection by Buyer at any time during regular business hours for a period of
six (6) years (or for such longer period as may be required by applicable Legal
Requirements) following the Closing and that, during such period, Buyer, at its
expense, may make such copies thereof as it may reasonably desire. In addition
to the foregoing, Seller shall, at all reasonable times after the Closing if
called upon by Buyer, use reasonable efforts to cooperate with and assist Buyer
in the preparation of financial statements by Buyer which may include the
operation of the Business prior to the Closing Date. This provision shall
survive the Closing.
12.13 APPLICABLE LAW AND VENUE. This Agreement is made in and shall be
governed by and construed and enforced in accordance with the laws of the State
of Nebraska. Seller and Buyer hereby consent to the personal jurisdiction of the
courts of Nebraska in Douglas County for all matters relating to or arising from
this Agreement.
12.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
13. POST-CLOSING ESCROW FUND.
13.1 ESCROW AMOUNT. At the Closing hereof, the sum of One Million
Dollars ($1,000,000.00) (the "Escrow Amount") shall be deposited in an interest
bearing escrow account reasonably acceptable to Buyer and Seller (the "Escrow
Fund") with Norwest Bank (the "Escrow Agent"). The Escrow Fund shall be held by
the Escrow Agent for a period not to exceed one (1) year from the Closing Date
(the "Escrow Period"), subject to the terms hereof.
13.2 CLAIMS. In the event that, at any time during the Escrow Period,
Buyer shall claim that Seller has breached any of its representations,
warranties or covenants hereunder, or any claim is made against Buyer by a
creditor of Seller with respect to a liability of Seller or the Business
accruing or performable prior to the Closing Date or if Buyer shall incur any
Damages, it shall provide notice thereof to Seller, with a copy to the Escrow
Agent, such notice to set forth with particularity the specifics of any such
claim. In the event that Seller does not dispute or contest any such claim or
fails to cure same within thirty (30) days after receipt of Buyer's notice (or
such longer period not to exceed ninety (90) days in the case of a Damage which
cannot with due diligence be cured within thirty (30) days and the continuance
of which for the period required for cure will not subject any of the Seller
Indemnified Persons to the risk of civil or criminal liability or the imposition
of any Encumbrance on the Purchased Assets, provided Seller commences the cure
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<PAGE> 25
within such initial thirty (30) day period and thereafter diligently prosecutes
the cure), Buyer may thereafter furnish to the Escrow Agent a duly executed and
notarized affidavit setting forth the specifics of any such claim, including,
without limitation, the amount thereof and basis therefor, the date of the
notice thereof to Seller and a certification that Seller has not disputed or
contested same or has failed to cure same within the time provided for herein.
Unless Seller has paid to Buyer the amount of such claim within ten (10) days
after receipt by Escrow Agent of the affidavit of Buyer, the Escrow Agent shall
on the tenth (10th) day after receipt promptly deliver to Buyer from the Escrow
Fund, a check in the amount of any such claim. In the event, however, that
Seller shall elect to dispute or contest any such claim, it shall be required,
within thirty (30) days of Buyer's initial notice hereunder, to provide notice
thereof to Buyer, with a copy to the Escrow Agent, which notice shall set forth
with particularity the specifics of any such dispute or contest as between the
parties hereto or their successors or representatives. In the event of any such
dispute or contest, Buyer and Seller hereby agree that any such dispute or
contest shall be settled by arbitration in accordance with the provisions of
Article 14 of this Agreement. The Escrow Agent shall retain the portion of the
Escrow Fund covered by any such dispute until its receipt of a certified copy of
any such arbitration decision or award in favor of Buyer, at which time it shall
promptly deliver to Buyer from the Escrow Fund a check in the amount of any such
judgment or award.
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13.3 PAYMENT DATE. On the date which is one (1) year after the Closing
Date, the Escrow Agent shall pay to Seller the balance of the Escrow Fund (plus
accrued interest), reduced by any amounts due to Buyer pursuant to the terms of
this Agreement and any amounts which are the subject of an Unresolved Claim. The
term "Unresolved Claim" shall mean any claim which may be made against the
Escrow Fund in accordance with this Section 13, until such time as such claim
has been paid in full or otherwise fully settled, compromised or adjusted by the
parties and the Escrow Agent and the amount of such Unresolved Claims shall
remain with the Escrow Agent until so settled or adjusted and then paid to the
party to whom such funds are to be paid pursuant to such agreement, settlement,
compromise or adjustment.
13.4 ESCROW AGENT HELD HARMLESS. The parties to this Agreement
acknowledge and agree that the Escrow Agent shall not be liable for any error or
judgment or for any mistake of fact, law or for anything which it may do or
refrain from doing in connection herewith, except its own gross negligence or
willful misconduct. Seller and Buyer agree to indemnify, hold harmless and
defend the Escrow Agent from any loss, damage, claim, liability, judgment,
expense (including attorneys' fees and disbursements) or other charge incurred
or sustained by it by reason of any act or omission performed or omitted
hereunder, but this indemnity shall not be applicable to any loss, liability,
damage, claim, judgment, expense or other charge resulting from the gross
negligence or willful misconduct of the Escrow Agent.
13.5 RELIANCE ON NOTICES. The Escrow Agent shall have the right to rely
conclusively upon the notices delivered hereunder, and shall be under no
obligation to ascertain the authenticity of such notices, nor to determine the
factual accuracy thereof.
13.6 DISPUTES. The Escrow Agent is acting as a stakeholder only with
respect to the Escrow Fund. If there is any dispute as to whether the Escrow
Agent is obligated to deliver the Escrow Fund (or any portion thereof) and/or to
whom it should be delivered, the Escrow Agent shall not make any delivery, but
in such event the Escrow Agent shall hold the Escrow Fund until receipt by the
Escrow Agent of an authorization in writing signed by all parties having an
interest in such dispute, directing the disposition of same, or in the absence
of such authorization the Escrow Agent shall hold the Escrow Fund until the
final determination of the rights of the parties in an appropriate proceeding.
If such written authorization is not given, or proceedings for such
determination are not begun within a reasonable period of time and diligently
continued, the Escrow Agent shall have the right, at any time thereafter, to
commence an action or proceeding, at the sole cost and expense of Seller and
Buyer, in the nature of interpleader in any court having jurisdiction thereof,
and to deposit the Escrow Fund with such court, and thereupon, be discharged
from any and all further liability hereunder.
13.7 OMITTED.
13.8 NO LIMITATION OF RIGHTS OR OBLIGATIONS. The provisions of this
Section 13 (including the amount of the Escrow Fund) shall not limit Buyer's
rights nor Seller's obligations under this Agreement (including, without
limitation, Section 10) (except as set forth to the contrary in Section
10.5(c)).
13.9 SURVIVAL. The provisions of this Section 13 shall survive the
Closing.
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14. ARBITRATION
14.1 APPOINTMENT. In the event that any contest or dispute set forth in
Articles 13 or 15 of this Agreement is to be settled by arbitration, the Party
invoking the arbitration procedure (the "First Party") shall give a notice
("Arbitration Notice") to the other Party, and shall in such Arbitration Notice
appoint an arbitrator on its behalf. Within fifteen (15) days after its receipt
of such Arbitration Notice, the other Party by notice to the First Party shall
appoint an arbitrator on its behalf; and if the second arbitrator shall not be
so appointed within such fifteen (15) days, the First Party shall appoint the
second arbitrator. The two arbitrators appointed pursuant to the above shall try
to appoint the third independent arbitrator. If, within twenty (20) days after
the appointment of the second arbitrator, they have not agreed upon the
appointment of a third independent arbitrator, then either Party may apply to
AAA for the appointment of such third arbitrator and the other Party shall not
raise any question as to the AAA's full power and jurisdiction to entertain the
application and make the appointment. Each arbitrator shall have at least ten
(10) years' experience in a calling pertaining to the matter in dispute. The
third arbitrator is herein called the "Umpire", and the date on which the Umpire
is appointed is referred to as the "Appointment Date".
14.2 ARBITRATION PROCEDURE. As soon as practicable after the
Appointment Date, the matter in dispute shall be arbitrated by the Parties in
accordance with the commercial rules then in force of the American Arbitration
Association ("AAA"); provided, however, that each party shall be entitled to
discovery proceedings in accordance with the rules of the District Court of
Douglas County, Nebraska and the failure of any party to so submit to such
discovery upon the request of the other shall provide the basis for termination
of arbitration procedure and the filing of a lawsuit in the District Court of
Douglas County, Nebraska. The resolution of the dispute shall be determined by
the decision of majority of the three (3) arbitrators, shall constitute an
"award" within the meaning of the applicable rules of the AAA and applicable
law, and judgment may be entered thereon in any court of competent jurisdiction.
14.3 JURISDICTION. Buyer and Seller hereby submit to the in personam
jurisdiction of the AAA in the State of Nebraska and agree that any process in
any arbitration proceeding hereunder may be personally served upon Buyer or
Seller within or outside of the State of Nebraska. The arbitration shall be
conducted at a location in Omaha mutually acceptable to Buyer and Seller.
14.4 EXPENSES. Each Party shall pay its own fees and expenses relating
to the arbitration (including, without limitation, the fees and expense of its
counsel, its arbitrator and any experts or witnesses retained by it). Each Party
shall pay one-half (1/2) of the fees and expenses of the Umpire and of the AAA.
14.5 REFERENCE. For purposes of this Section 14, all references to
Seller shall be deemed to include, collectively, Seller and the Indemnifying
Stockholders.
14.6 SURVIVAL. The provisions of this Section 14 shall survive the
Closing.
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15. LEASE ESCROW FUND.
15.1 ESCROW AMOUNT. At the Closing hereof, the sum of Two Hundred Fifty
Thousand Dollars ($250,000.00) (the "Lease Escrow Amount") shall be deposited in
an interest bearing escrow account reasonably acceptable to Buyer and Seller
(the "Lease Escrow Fund") with the Escrow Agent. The Lease Escrow Fund shall be
held by the Escrow Agent for a period not to exceed two (2) years from the
Closing Date (the "Lease Escrow Period"), subject to the terms hereof.
15.2 CLAIMS. (a) A "Lease Termination Event" shall mean receipt by
Buyer after the Closing of notice from a lessor under a Site Lease (a) seeking
to terminate a Site Lease, (b) claiming that such lessor is the owner of the
Structure(s) covered by such Site Leases, and (c) where the use of such location
for outdoor advertising purposes is a non-conforming use under applicable Legal
Requirements. Upon the occurrence of a Lease Termination Event, Buyer shall
provide notice thereof to Seller, with a copy to the Escrow Agent. For a period
of two hundred seventh (270) days after the occurrence of a Lease Termination
Event, Buyer shall use its Best Efforts to challenge such Lease Termination
Event in order to seek a determination (by consensual agreement or judicial
determination) that Buyer is the owner of the subject Structure(s) (a
"Determination"). If Buyer has not obtained a Determination within two hundred
seventy (270) days after the occurrence of the Lease Termination Event, Seller
shall be entitled to seek to obtain a Determination, provided that such
Determination shall be reasonably acceptable to Buyer as evidenced by Buyer's
written consent thereto. If, however, Seller has not so obtained a Determination
within one hundred eighty (180) days after the expiration of the initial two
hundred seventy (270) day period, then, in that event, Buyer may thereafter
furnish to the Escrow Agent a duly executed and notarized affidavit stating that
(i) a Lease Termination Event has occurred, (ii) a Determination has not been
obtained as required by this Section 15.2(a), and (iii) the Escrow Agent shall
pay to Buyer from the Lease Escrow Fund the amount specified in Section 15.2(b)
below.
(b) If Buyer shall be entitled to payment of any amounts from
the Lease Escrow Fund as provided in Section 15.2(a) above, the Escrow Agent
shall pay to Buyer an amount equal to the product of (i) and (ii), where (i) is
the product of (A) the monthly billings as of the date of the Lease Termination
Event on Advertising Contracts in effect with respect to the Structures covered
by the Site Leases which are the subject of the Lease Termination Event, and (B)
72, and (ii) is a fraction, the numerator of which the number of months (full
and partial) remaining between the Lease Termination Date and the Lease Payment
Date, and the denominator of which is 72.
If an advertising display face on a Structure covered by a Site Lease which is
the subject of a Lease Termination Event shall not be covered by an Advertising
Contract as of the date of the Lease Termination Event, then the monthly
billings with respect to such advertising display face shall be deemed to be the
monthly billing rate in effect for an Advertising Contract on an advertising
display face that would most closely approximate the characteristics of the
advertising display face in question (and if the Parties cannot agree on such
assumed monthly billing rate on or before the date which is ten (10) days after
receipt by Seller of Buyer's affidavit described in the third sentence of
Section 15.2(a), such dispute shall be settled by arbitration in accordance with
the provisions of Article 14 of this Agreement). Unless Seller has paid to Buyer
the amount of any claim under this Article 15 within ten (10) days after receipt
by the Escrow Agent of the affidavit of Buyer, the Escrow Agent shall on the
tenth (10th) day after receipt (but in any event not prior to the one (1) year
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anniversary of the Closing Date) promptly deliver to Buyer from the Lease Escrow
Fund a check in the amount of any such claim.
15.3 PAYMENT DATE. On the two (2) year anniversary of the Closing Date
(the "Lease Payment Date"), the Escrow Agent shall pay to Seller the balance of
the Lease Escrow Fund (plus accrued interest), reduced by any amounts due to
Buyer pursuant to the terms of this Agreement and any amounts which are the
subject of an Unresolved Lease Claim. The term "Unresolved Lease Claim" shall
mean any claim which may be made against the Lease Escrow Fund in accordance
with this Section 15, until such time as such claim has been paid in full or
otherwise fully settled, compromised or adjusted by the parties and the Escrow
Agent and the amount of such Unresolved Claims shall remain with the Escrow
Agent until so settled or adjusted and then paid to the party to whom such funds
are to be paid pursuant to such agreement, settlement, compromise or adjustment
15.4 ESCROW AGENT HELD HARMLESS. The parties to this Agreement
acknowledge and agree that the Escrow Agent shall not be liable for any error or
judgment or for any mistake of fact, law or for anything which it may do or
refrain from doing in connection herewith, except its own gross negligence or
willful misconduct. Seller and Buyer agree to indemnify, hold harmless and
defend the Escrow Agent from any loss, damage, claim, liability, judgment,
expense (including attorneys' fees and disbursements) or other charge incurred
or sustained by it by reason of any act or omission performed or omitted
hereunder, but this indemnity shall not be applicable to any loss, liability,
damage, claim, judgment, expense or other charge resulting from the gross
negligence or willful misconduct of the Escrow Agent.
15.5 RELIANCE ON NOTICES. The Escrow Agent shall have the right to rely
conclusively upon the notices delivered hereunder, and shall be under no
obligation to ascertain the authenticity of such notices, nor to determine the
factual accuracy thereof.
15.6 DISPUTES. The Escrow Agent is acting as a stakeholder only with
respect to the Lease Escrow Fund. If there is any dispute as to whether the
Escrow Agent is obligated to deliver the Lease Escrow Fund (or any portion
thereof) and/or to whom it should be delivered, the Escrow Agent shall not make
any delivery, but in such event the Escrow Agent shall hold the Lease Escrow
Fund until receipt by the Escrow Agent of an authorization in writing signed by
all parties having an interest in such dispute, directing the disposition of
same, or in the absence of such authorization the Escrow Agent shall hold the
Lease Escrow Fund until the final determination of the rights of the parties in
an appropriate proceeding. If such written authorization is not given, or
proceedings for such determination are not begun within a reasonable period of
time and diligently continued, the Escrow Agent shall have the right, at any
time thereafter, to commence an action or proceeding, at the sole cost and
expense of Seller and Buyer, in the nature of interpleader in any court having
jurisdiction thereof, and to deposit the Lease Escrow Fund with such court, and
thereupon, be discharged from any and all further liability hereunder.
15.7 OMITTED.
15.8 NO LIMITATION OF RIGHTS OR OBLIGATIONS. The provisions of this
Section 15 (including the amount of the Lease Escrow Fund) shall not limit
Buyer's rights nor Seller's
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obligations under this Agreement (including, without limitation, Section 10)
(except as set forth to the contrary in Section 10.5(d)).
15.9 SURVIVAL. The provisions of this Section 15 shall survive the
Closing.
[The remainder of this page intentionally left blank.]
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IN WITNESS WHEREOF, the Parties have executed this Asset Purchase
Agreement as of the date first written above.
BUYER:
TRI-STATE OUTDOOR MEDIA GROUP, INC.
By: /s/ Sheldon G. Hurst
--------------------------------------
Name: Sheldon G. Hurst
Title: President
SELLER:
WESTERN OUTDOOR ADVERTISING CO.
By: /s/ Ronald Kastner
--------------------------------------
Name: Ronald Kastner
Title: President
/s/ Michael G. Katskee
-----------------------------------------
Michael G. Katskee
/s/ Sally A. Shields
-----------------------------------------
Sally A. Shields
MITCHELL D. KATSKEE TRUST
/s/ Michael G. Katskee,
-----------------------------------------
Michael G. Katskee, Trustee
/s/ Sally A. Shields
-----------------------------------------
Sally A. Shields, Trustee
/s/ Byron Barnes
----------------------------------------
Byron Barnes
/s/ Mitchell D. Katskee
----------------------------------------
Mitchell D. Katskee
31
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ESCROW AGENT
NORWEST BANK
By: /s/ James Vokal, Jr.
-------------------------------
Name: James Vokal, Jr.
Title: VP
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EXHIBIT A
DEFINITIONS
"AAA" -- as defined in Section 14.2.
"Advertising Contracts" -- as defined in Section 2.2(c).
"Affiliates" -- when used with reference to a specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the specified
Person. For purposes of this definition of Affiliate, "control" means the
possession, directly or indirectly, of the power to direct or to cause the
direction of management and policies of the Person in question, whether through
the ownership of voting securities or by contract or otherwise.
"Appointment Date" -- as defined in Section 14. 1.
"Arbitration Notice" -- as defined in Section 14. 1.
"Assumed Liabilities" -- as defined in Section 2.3.
"Best Efforts" -- the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances.
"Bill of Sale" -- the Bill of Sale, Assignment and Assumption Agreement
in the form of Exhibit B attached hereto.
"Books and Records" -- all of Seller's books and records relating to
the Purchased Assets, including, without limitation, all accounting records,
Site Lease files, Advertising Contract files, Permit files, maintenance and
other records for the Structures, logs, advertiser, customer and supplier lists;
provided, however, that the term "Books and Records" and the reference to
accounting records set forth herein shall not refer to the general ledger, cash
receipt journal or cash receipts or disbursements journals, income tax returns
for the business operations as a whole, nor any original records with respect
thereto and which are used in computation of net income or taxable income
(provided, however, that Buyer shall be entitled to copies of any depreciation
records relating to Purchase Assets).
"Business" -- as defined in the Recitals of this Agreement.
"Buyer" -- as defined in the first paragraph of this Agreement.
"Closing" -- as defined in Section 2.5.
"Closing Date" -- the date and time as of which the Closing actually
takes place.
"Closing Documents" -- as defined in Section 3.2(a).
A-1
<PAGE> 34
"Confidential Information" -- any information concerning the businesses
and affairs of Seller that is not generally available to the public, however,
information even if generally available to the public which has been provided to
Buyer during the course of its investigations shall be included within this
term.
"Consent" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" -- all of the transactions contemplated by
this Agreement, including: (a) the purchase of the Purchased Assets by Buyer
from Seller and assignment to and assumption by Buyer of the Assumed
Liabilities, and (b) the performance by Buyer and Seller of their respective
covenants and obligations under this Agreement.
"Contract" -- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Court" -- as defined in Section 14. 1.
"Damages" -- as defined in Section 10.1.
"Deeds" -- warranty deeds (or statutory equivalent thereof), in
recordable form, with respect to the Real Property.
"Determination" -- as defined in Section 15.2(a).
"Disclosure Schedule" -- the disclosure schedule, delivered by Seller
to Buyer concurrently with the execution and delivery of this Agreement.
"Encumbrance" -- any charge, claim, condition, equitable interest,
lien, option, pledge, security interest, right of first refusal, or restriction
of any kind, including any restriction on use, transfer, receipt of income, or
exercise of any other attribute of ownership affecting the Purchased Assets.
"Environment" -- soil, land surface or subsurface strata, surface
waters, groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental Law" -- any Legal Requirement pertaining to
environmental discharges, Releases, emissions or spills or the manufacture,
sale, processing, handling, transportation, storage or disposal of Hazardous
Materials, or relating to any environmental processes or condition, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act ("RCRA"), the Endangered Species Act, the Federal
Insecticide, Fungicide and Rodenticide Act, the Hazardous Materials
Transportation Act, the Surface Mining Control and Reclamation Act, The
Emergency Planning and Community Right to Know Act, the Safe Drinking
A-2
<PAGE> 35
Water Act, the Toxic Substances Control Act, the Coastal Zone Management Act,
the National Environmental Policy Act, the Noise Control Act. As used in this
Agreement, Environmental Laws shall mean any of such laws or regulations as the
same exist now or at the Closing Date.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Escrow Agent" -- as defined in Section 13. 1.
"Escrow Amount" -- as defined in Section 13. 1.
"Escrow Fund" -- as defined in Section 13. 1.
"Escrow Period" -- as defined in Section 13. 1.
"Excluded Liabilities" -- as defined in Section 2.4.
"Financial Statements" -- those financial statements of Seller
described in Section 3.10.
"First Party" -- as defined in Section 15.1.
"Governmental Authorization" -- any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body, or pursuant to any
Legal Requirement.
"Governmental Body" -- any federal, state, local, municipal, foreign,
or other government; or governmental or quasi-governmental authority of any
nature (including any governmental agency, branch, department, official, or
entity and any court or other tribunal).
"Hazardous Materials" -- any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, and specifically including petroleum and all derivatives
thereof or synthetic substitutes therefor and asbestos or asbestos-containing
materials.
"HSR Act" -- the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and any regulations and rules promulgated thereunder.
"Indemnified Person" -- any of the Seller Indemnified Persons or the
Buyer Indemnified Persons, as the context requires.
"Indemnifying Party" -- the Buyer, or the Seller and the Indemnifying
Stockholders, as the context requires.
"Indemnifying Stockholders" -- Michael A. Katskee, Sally A. Shields,
Mitchell D. Katskee Trust and Byron Barnes.
A-3
<PAGE> 36
"Intangible Property" -- All right, title and interest in and to the
goodwill and other intangible property (including Seller's trade names, but not
Seller's corporate name) used in connection with the Purchased Assets, all
licenses, permits and authorizations pertaining to the Purchased Assets or the
right to own and operate the Purchased Assets and all right, title and interest
in and to any intellectual property used in connection with the Purchased
Assets.
"IRC" -- the Internal Revenue Code of 1986, as amended from time to
time, or any successor law, and regulations issued by the IRS pursuant to the
Internal Revenue Code or any successor law.
"IRS" -- the United States Internal Revenue Service and, to the extent
relevant, the United States Department of the Treasury.
"Knowledge" -- a Person will be deemed to have "Knowledge" of a
particular fact or other matter if such Person is actually aware of such fact or
other matter. A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving as a director, officer, partner, member, executor, or trustee of such
Person (or in any similar capacity) has Knowledge of such fact or other matter.
"Lease Escrow Fund" -- as defined in Section 15.1.
"Lease Escrow Period" -- as defined in Section 15.1.
"Lease Payment Date" -- as defined in Section 15.3.
"Lease Termination Date" -- the latest date of (a) the date of
termination specified, if any, as set forth in the notice from Lessor referred
to in Section 15.2, (b) the date of the notice from the Lessor as referred to in
Section 15.2, or (c) if neither (a) nor (b) specifies or indicates a date, then
thirty (30) days from the date of receipt by the Buyer of the notice referred to
in Section 15.2.
"Lease Termination Event" -- as defined in Section 15.2.
"Legal Requirement" -- any federal, state, local, municipal, foreign,
international, multinational, or other administrative Order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"LLC" -- as defined in Section 2.2(h).
"Material Adverse Change" -- a change that will cause a Material
Adverse Effect.
"Material Adverse Effect" -- a material adverse effect on the Purchased
Assets, the associated Business or operations or conditions (financial or
otherwise) relating thereto, taken as a whole.
"Members" -- Michael A. Katskee, Sally A. Shields and Mitchell D.
Katskee Trust.
"Obligors" -- Michael A. Katskee, Sally A. Shields, Mitchell D. Katskee
and Byron Barnes.
A-4
<PAGE> 37
"Omaha Property' -- as defined in Section 2.2(h).
"Order" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" if such action is
consistent with the past custom and practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person (including
with respect to quantity and frequency).
"Organizational Documents" -- the articles or certificate of
incorporation and the bylaws of a corporation.
"Other Contract" -- any Contract (other than a Site Lease or
Advertising Contract) relating to or affecting the Purchased Assets, the
Business or the operation thereof (I) under which Seller has or may acquire, any
rights, (ii) under which Seller has or may become subject to any obligation or
liability, or (iii) by which Seller or any of the Purchased Assets is or may
become bound.
"Party" -- as defined in the first paragraph of this Agreement.
"Permits" -- as defined in Section 2.2(d).
"Person" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, limited
liability partnership, joint venture, estate, trust, association, organization,
labor union, or other entity or Governmental Body.
"Proceeding" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard, by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Purchase Price" -- as defined in Section 2.6.
"Purchased Assets" -- as defined in Section 2.2.
"Real Property" -- as defined in Section 2.2(h).
"Related Person" -- with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family.
A-5
<PAGE> 38
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a
Material Interest; and
(d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director,
officer, partner, executor. or trustee (or in a similar
capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly
or indirectly controlled by, or is directly or indirectly
under common control with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner,
manager, executor, or trustee of such specified Person (or in
a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves
as a general partner or a trustee (or in a similar capacity);
and
any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual includes (I)
the individual, (ii) the individual's spouse, (iii) any other natural person who
is related to the individual or the individual's spouse within the second
degree, and (iv) any other natural person who resides with such individual, and
(b) "Material Interest" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting
securities or other voting interests representing at least 5 % of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 5 % of the outstanding equity securities or
equity interests in a Person.
"Release" -- any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Representative" -- with respect to a particular Person, any director,
officer, partner, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial advisors
(including, in the case of Buyer, its investors and lenders).
"Required Consents" -- as defined in Section 3.2(c).
"Security Interest" -- any mortgage, pledge, lien, encumbrance, charge
or other security interest or option or right of any third party with respect
thereto.
"Seller" -- as defined in the first paragraph of this Agreement.
"Seller Indemnified Persons" -- as defined in Section 10.1.
A-6
<PAGE> 39
"Site Leases" -- as defined in Section 2.2(b).
"Structures" -- as defined in Section 2.2(a).
"Tangible Personal Property" -- as defined in Section 2.2(i).
"Tax" -- shall mean any tax (including, without limitation, income tax,
capital gains tax, value added tax, sales tax, use tax, property tax, deed tax,
transfer tax, real property transfer tax or intangibles tax), levy, assessment,
tariff, duty, deficiency or other fee and any related charge or amount
(including fine, penalty and interest) imposed, assessed or collected by or
under the authority of any Governmental Body.
"Tax Clearances" -- as defined in Section 7.11.
"Tax Return" -- any return (including any information return), report,
statement, schedule, notice, form or other document or information filed with or
submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Territory" -- as defined in the Recitals.
"Threatened" -- a claim, Proceeding or dispute will be deemed to have
been "Threatened" if any demand or statement has been made or any notice has
been given that would lead a prudent Person to conclude that such a claim,
Proceeding or dispute is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"Umpire" -- as defined in Section 14.1.
"Unresolved Claim" -- as defined in Section 13.3.
"Unresolved Lease Claim" -- as defined in Section 15.3.
A-7
<PAGE> 40
EXHIBIT B
BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT
This Bill of Sale (this "Agreement") is executed and delivered
effective as of ______________, 1998, by WESTERN OUTDOOR ADVERTISING CO., a
__________________ corporation, and TRI-STATE OUTDOOR MEDIA GROUP, INC., a
Kansas corporation ("Buyer").
WITNESSETH:
WHEREAS, pursuant to that certain Asset Purchase Agreement dated
________________, 1998 by and among Seller, Buyer and the other parties named
therein (the "Purchase Agreement"), Seller desires to sell to Buyer and Buyer
wishes to purchase from Seller, for the consideration and upon the terms and
conditions set forth in the Purchase Agreement, the Purchased Assets (as defined
in the Purchase Agreement), subject to the assumption by Buyer of the Assumed
Liabilities (as defined in the Purchase Agreement);
NOW, THEREFORE, in consideration of the premises, and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed that:
1. Conveyance of Assets. Seller does hereby sell, grant, convey,
assign, transfer and deliver to Buyer all right, title and interest of Seller in
and to all of the Purchased Assets, subject to the Assumed Liabilities.
2. Assumption of Liabilities. Buyer does hereby assume and agree to
pay, discharge and perform, as appropriate, the Assumed Liabilities in
accordance with and to the extent required by the terms of the Purchase
Agreement.
3. Power of Attorney. Seller hereby constitutes and appoints Buyer its
true and lawful attorney-in-fact, with full power of substitution of Buyer in
the name or stead of Seller (a) to demand, collect, and receive for the account
of Seller or Buyer any or all of the Purchased Assets hereby sold, granted,
conveyed, transferred, assigned, and delivered to Buyer or intended so to be;
(b) from time to time to institute or prosecute, in the name of Seller or
otherwise, all proceedings that Buyer, in its sole discretion, may deem
necessary or convenient in order to realize upon, affirm, or obtain title to or
possession of, or to collect, assert, or enforce any claim, right or title of
any kind in or to the Purchased Assets; (c) to endorse the name of Seller on any
and all checks, notes, drafts or other instruments of commercial paper that may
be payable or endorsed to the order or orders of Seller and that constitute or
represent all or any part of the Purchased Assets; (d) to defend and compromise
any and all actions, suits or proceedings in respect of any of the Purchased
Assets; and (e) to do all such other acts and things in relation to the
Purchased Assets as Buyer, in its sole discretion, deems desirable. Seller
agrees that the foregoing powers are coupled with an interest and shall not be
revocable by Seller for any reason whatsoever.
4. Execution and Delivery of Instruments. Seller shall duly execute and
deliver or cause to be executed and delivered all instruments of sale,
conveyance, transfer and assignment, and all notices, releases, acquittances and
other documents that may be necessary more fully to grant,
B-1
<PAGE> 41
convey, transfer, assign, and deliver to and vest in Buyer the Purchased Assets
hereby granted, conveyed, transferred, assigned, and delivered or intended so to
be.
5. Conflict. Nothing in this Agreement supersedes or extinguishes any
of the obligations, agreements, covenants or warranties of Seller or Buyer
contained in the Purchase Agreement. If any conflict exists between this
Agreement and the Purchase Agreement, then the terms of the Purchase Agreement
shall govern and control.
IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be
executed and delivered as of the date first above written.
SELLER:
WESTERN OUTDOOR ADVERTISING CO.
By:________________________________
Name:
Title:
BUYER:
TRI-STATE OUTDOOR MEDIA GROUP, INC.
By:_________________________________
Sheldon G. Hurst, President
B-2
<PAGE> 42
WESTERN OUTDOOR ADVERTISING CO.
COMPLIANCE CERTIFICATE
The undersigned hereby certifies as follows:
1. He is the President of Western Outdoor Advertising Co., a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nebraska (the "Seller").
2. The representations and warranties of the Seller contained in
Section 3 of the Asset Purchase Agreement dated as of September 4, 1998 (the
"Purchase Agreement") by and among Tri-State Outdoor Media Group, Inc., Seller,
and the other parties identified therein, are true and correct in all material
respects at and as of the date hereof with the same effect as though all such
representations and warranties were made at and as of the date hereof.
3. The Seller has performed or complied, in all material respects, with
all of the covenants and obligations required by the Purchase Agreement to be
performed or complied with by the Seller at or prior to the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
this _____day of September, 1998.
_______________________________________
Name:
C-1
<PAGE> 43
The undersigned, constituting all the members of L.K. Company, L.L.C.,
a Nebraska limited liability company, hereby join in the foregoing
certifications to the extent the same pertain to the Omaha Property (as defined
in the Purchase Agreement).
----------------------------------
Mitchell A. Katskee
----------------------------------
Sally A. Shields
MITCHELL D. KATSKEE TRUST
By:
-------------------------------
Michael A. Katskee, Trustee
By:
-------------------------------
Sally A. Shields, Trustee
[This Exhibit Deleted]
C-2
<PAGE> 44
EXHIBIT D
OPINION OF SELLER'S COUNSEL
_________, 1998
Tri-State Outdoor Media Group, Inc.
P.O. Box 1247
3416 Highway 41 South
Tifton, Georgia 31793
Ladies and Gentlemen:
We have acted as counsel to Western Outdoor Advertising Co., a Nebraska
corporation (the "Company"), certain of the Indemnifying Stockholders and
certain of the Obligors (as such terms are defined in the Purchase Agreement
[hereinafter defined])in connection with the sale of certain assets of the
Company to Tri-State Outdoor Media Group, Inc., a Kansas corporation ("TSOMG")
and related transactions contemplated by the Asset Purchase Agreement (the
"Purchase Agreement") dated as of __________, 1998 among TSOMG, the Company, and
the other parties named therein. Capitalized terms used herein and not otherwise
defined shall have the respective meanings ascribed to such terms in the
Purchase Agreement. The Purchase Agreement, together with the Bill of Sale and
the other Closing Documents, are sometimes collectively referred to herein as
the "Agreements". This opinion is being delivered to you pursuant to Section
7.4(a) of the Purchase Agreement.
We have acted as counsel to the Company, certain of the Indemnifying
Stockholders and certain of the Obligors in connection with the Agreements and
the transactions contemplated thereby. As such counsel, we have made such
examinations of laws and have examined all such records, agreements and other
instruments, certificates and orders of public officials, and other documents,
originals or copies, certified or otherwise authenticated to our satisfaction,
that we have deemed necessary to render the opinions hereinafter set forth.
As used in this opinion letter, the phrase "to our knowledge" means the
actual knowledge (that is, the conscious, awareness of facts or other
information) of lawyers in the firm who have given substantive legal attention
to representing the Company, the LLC, the Indemnifying Stockholders and the
Obligors in connection with the transactions contemplated by the Agreements.
Based and relying upon the foregoing and subject to all of the
qualifications contained in this letter, we are of the opinion that as of the
date hereof:
(i) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nebraska with full power and
authority to conduct its respective
<PAGE> 45
businesses as currently conducted, to own or use the Purchased Assets, and to
perform the obligations under the Agreements.
(ii) The Company is duly qualified or licensed to conduct its business
and is in good standing in each jurisdiction in which the property owned, leased
or operated by the Company or the nature of the business conducted by the
Company makes such qualification or licensing necessary.
(iii) The Company, and the Indemnifying Stockholders and Obligors have
the absolute and unrestricted right, power and authority to execute and deliver
each of the Agreements to which they are a party and to perform each of their
obligations thereunder. Each of the Agreements has been duly authorized,
executed and delivered by the Company. Each of the Agreements has been executed
by the Indemnifying Shareholders and/or the Obligors as the case may be. Each of
the Agreements is a valid, legal and binding agreement of the parties thereto,
enforceable in accordance with its terms, subject to the qualification that the
enforceability thereunder may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium, and other laws relating to or affecting
creditors' rights generally and by general equitable principles.
(iv) Neither the execution nor delivery of the Agreements by the
Company, nor the consummation or performance by the Company, the Indemnifying
Stockholders or the Obligors of any of the transactions contemplated thereby
does or will:
(A) conflict with, violate or result in a breach of:
(I) any provision of the Organizational Documents of
the Company;
(II) to our knowledge, any Legal Requirement or any
Order to which the Company, the Purchased
Assets, or the Indemnifying Stockholders or the
Obligors may be subject;
(III) to our knowledge, any Governmental
Authorization held by the Company or that
otherwise relates to the Purchased Assets; or
(IV) the resolutions adopted by the shareholders and
board of directors of the Company.
(B) contravene, conflict with or result in a violation or
breach of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify any Contract relating to the Purchased Assets of
which we are aware, after due inquiry, to which the Company, certain of the
Indemnifying Stockholders and certain the Obligors are parties or by which such
party or any interest or rights of the Company in or to the Purchased Assets may
be bound; or result in the imposition or creation of any Encumbrance upon or
with respect to any of the Purchased Assets.
(v) To the best of our knowledge, after due inquiry, there is no
Proceeding pending or Threatened by or against the Company, the Indemnifying
Stockholders or the Obligors or affecting
<PAGE> 46
any of the Purchased Assets, and there is no Order to which the Company or the
Purchased Assets are subject.
(vi) To the best of our knowledge, after due inquiry, the Company, and
the Indemnifying Stockholders and the Obligors are not and will not be required
to give any notice or to obtain any Consent from any Person in connection with
the execution and delivery of the Purchase Agreement or the consummation or
performance of the Contemplated Transactions.
This opinion is being furnished solely to TSOMG and is solely for the
benefit of TSOMG (and its affiliates, lenders, successors and assigns) and may
not be relied upon for any other purpose, or furnished to, quoted to or relied
upon by any other person for any purpose without our prior written consent.
We are qualified to practice law within the State of Nebraska and our
opinions expressed herein are solely limited to the effect of Nebraska law on
the Contemplated Transaction and we express no opinion herein with respect to
the laws of other states or jurisdictions within which the Company may conduct
business or operations.
Very truly yours,
D-3
<PAGE> 47
EXHIBIT E
TRI-STATE OUTDOOR MEDIA GROUP, INC.
COMPLIANCE CERTIFICATE
The undersigned hereby certifies as follows:
1. He is President of Tri-State Outdoor Media Group, Inc., a
corporation duly organized, validly existing and in good standing under the laws
of the State of Kansas (the "Buyer").
2. The representations and warranties of Buyer contained in Section 4
of the Asset Purchase Agreement dated as of ______________, 1998 (the "Purchase
Agreement") by and among the Buyer, Western Outdoor Advertising Co. and the
other parties identified therein, are true and correct in all material respects
at and as of the date hereof with the same effect as though all such
representations and warranties were made at and as of the date hereof.
3. Buyer has performed or complied, in all material respects, with all
of the covenants and obligations required by the Purchase Agreement to be
performed or complied with by Buyer at or prior to the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
this _____ day of ______________, 1998.
________________________________
Sheldon G. Hurst
President
<PAGE> 48
EXHIBIT F
OPINION OF BUYER'S COUNSEL
____________________, 1998
Western Outdoor Advertising Co.
4000 Grant Street
Omaha, Nebraska 68111
Ladies and Gentlemen:
We have acted as counsel to Tri-State Outdoor Media Group, Inc., a
Kansas corporation (the "Company"), in connection with the Company's purchase of
certain assets of Western Outdoor Advertising Co., a ________________corporation
("Seller"), and related transactions contemplated by the Asset Purchase
Agreement (the "Purchase Agreement") dated as of __________________, 1998 among
the Company, Seller and the other parties named therein. Capitalized terms used
herein and not otherwise defined shall have the respective meanings ascribed to
such terms in the Purchase Agreement. The Purchase Agreement, together with the
Bill of Sale and the other Closing Documents, are sometimes collectively
referred to herein as the "Agreements". This opinion is being delivered to you
pursuant to Section 8.3(a) of the Purchase Agreement.
We have acted as counsel to the Company in connection with the
Agreements and the transactions contemplated thereby. As such counsel, we have
made such examinations of laws and have examined certificates of officers and
representatives of the Company, originals or copies, certified or otherwise
authenticated to our satisfaction, of all such records, agreements and other
instruments, certificates and orders of public officials, and other documents
that we have deemed necessary to render the opinions hereinafter set forth
including, but not limited to:
(a) the certificate of incorporation and by-laws of the Company;
(b) resolutions of the directors of the Company authorizing, among
other things, the Agreements and the transactions contemplated thereby; and
(c) executed copies of the Agreements.
In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to the originals thereof of all documents submitted to us as certified or
photostatic copies, and the authenticity of the originals of such latter
documents. As to any fact relevant to any such opinion, we have relied, to the
extent that relevant facts are not independently established by us, and to the
extent we deem reliance proper, on
<PAGE> 49
Western Outdoor Advertising Co.
Page -2-
___________________, 1998
certificates of public officials and certificates, oaths and declarations of
officers and other representatives of the Company on which we believe that we
and you are justified in relying. We have not, except as specifically identified
herein, been retained or engaged for, nor have we performed, any independent
review or investigation of any statutes, orders, rules or regulations of any
court or governmental agency having jurisdiction over the Company. This letter
and the opinions set forth herein are given, and all statements herein "to our
knowledge" are made, in the context of the foregoing.
As used in this opinion letter, the phrase "to our knowledge" means the
actual knowledge (that is, the conscious awareness of facts or other
information) of lawyers in the firm who have given substantive legal attention
to representing the Company in connection with the transactions contemplated by
the Agreements.
We are qualified to practice law only in the States of New York and New
Jersey and we do not purport to be experts on any laws other than the laws of
the States of New York and New Jersey and the Federal laws of the United States.
We express no opinion as to the laws of any jurisdiction other than the Federal
laws of the United States, and the laws of the State of New Jersey. For purposes
of this opinion we assume that Nebraska law in all relevant respects is
substantively identical to New Jersey law.
Based and relying upon the foregoing and subject to all of the
qualifications contained in this letter, we are of the opinion that as of the
date hereof:
(i) The Company is a corporation duly incorporated and validly existing
in good standing under the laws of the State of Kansas with full corporate power
and authority to conduct its business as it is currently conducted, to own or
use the Purchased Assets, and to perform its obligations under the Agreements.
(ii) The Company has the absolute and unrestricted right, power and
authority to execute and deliver each of the Agreements to which it is a party
and to perform each of its obligations thereunder. Each of the Agreements has
been duly authorized, executed and delivered by the Company. Each of the
Agreements is a valid, legal and binding agreement of the Company, enforceable
in accordance with its terms, subject to the qualification that the
enforceability thereunder may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium, and other laws relating to or affecting
creditors' rights generally and by general equitable principles.
(iii) Neither the execution and delivery of the Agreements by the
Company nor the consummation or performance by the Company of any of the
transactions contemplated thereby does or will conflict with, violate or result
in a breach of:
F-2
<PAGE> 50
Western Outdoor Advertising Co.
Page -3-
___________________, 1998
(A) any provision of the Organizational Documents of the
Company; and
(B) the resolutions adopted by the board of directors of the
Company authorizing the Contemplated Transactions.
This opinion is being furnished solely to Seller and is solely
for the benefit of Seller and may not be relied upon for any other purpose, or
furnished to, quoted to or relied upon by any other person for any purpose
without our prior written consent.
Very truly yours,
St. John & Wayne, L.L.C.
F-3
<PAGE> 51
SCHEDULE A
TERRITORY
Arkansas
Colorado
Illinois
Indiana
Iowa
Kansas
Kentucky
Minnesota
Missouri
Nebraska
New Mexico
North Dakota
Ohio
Oklahoma
South Dakota
Tennessee
Texas
Wisconsin
Wyoming
<PAGE> 52
SCHEDULE 2.2(a)
STRUCTURES
<PAGE> 53
SCHEDULE 2.2(b)
SITE LEASES
<PAGE> 54
SCHEDULE 2.2(c)
ADVERTISING CONTRACTS
<PAGE> 55
SCHEDULE 2.2(d)
PERMITS
<PAGE> 56
SCHEDULE 2.2(h)
REAL PROPERTY
<PAGE> 57
SCHEDULE 2.2(i)
TANGIBLE PERSONAL PROPERTY
<PAGE> 58
SCHEDULE 2.2(j)
SUPPLIES
<PAGE> 59
SCHEDULE 3.10
FINANCIAL STATEMENTS
<PAGE> 60
SCHEDULE 5.9
TAX CLEARANCE CERTIFICATES
Illinois
Iowa
Kansas
Missouri
Nebraska
Oklahoma
Texas
<PAGE> 61
SCHEDULE 11
AREAS OF NON-COMPETITION
The Territory
<PAGE> 62
DISCLOSURE SCHEDULE
xv
<PAGE> 63
EXHIBITS
Exhibit A - Definitions
Exhibit B - Bill of Sale, Assignment and Assumption Agreement
Exhibit C - Seller's Compliance Certificate
Exhibit D - Opinion of Seller's Counsel
Exhibit E - Buyer's Compliance Certificate
Exhibit F - Opinion of Buyer's Counsel
SCHEDULES
Schedule A - Territory
Schedule 2.2(a) - Structures
Schedule 2.2(b) - Site Leases
Schedule 2.2(c) - Advertising Contracts
Schedule 2.2(d) - Permits
Schedule 2.2(h) - Real Property
Schedule 2.2(i) - Tangible Personal Property
Schedule 2.2(j) - Supplies
Schedule 3.10 - Financial Statements
Schedule 5.9 - Tax Clearance Certificates
Schedule 11 - Areas of Non-Competition
DISCLOSURE SCHEDULE
Part 3.2(b) Part 3.9(b) Part 3.18
Part 3.2(c) Part 3.12 Part 3.20
Part 3.5 Part 3.13 Part 3.22
Part 3.6 Part 3.14 Part 3.23
Part 3.7 Part 3.16
<PAGE> 64
SCHEDULE 5.9
Tax Clearance Certificates
Deleted.
<PAGE> 65
PART 3.7
<PAGE> 66
PART 3.12
<PAGE> 67
PART 3.14
<PAGE> 68
PART 3.16
<PAGE> 69
PART 3.20
<PAGE> 70
PART 3.23
<PAGE> 1
EXHIBIT 10.10
CREDIT AGREEMENT
among
TRI-STATE OUTDOOR MEDIA GROUP, INC.,
THE LENDING INSTITUTIONS PARTY HERETO, as Lenders
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent,
Dated as of
SEPTEMBER 18, 1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS.......................................................................................................1
ARTICLE II
THE CREDITS......................................................................................................16
2.1 Commitments..................................................................................16
2.1.1 Facility A Commitment........................................................16
2.1.2 Facility B Commitment........................................................16
2.1.3 Facility C Commitment........................................................17
2.2 Required Payments; Termination...............................................................17
2.2.1 Facility A...................................................................17
2.2.2 Facilities B and C...........................................................17
2.2.3 Sale of Assets...............................................................17
2.2.4 Sales of Equity..............................................................18
2.2.5 Initial Public Offering......................................................18
2.2.6 Allocation...................................................................18
2.2.7 Termination..................................................................18
2.3 Ratable Loans................................................................................18
2.4 Types of Advances............................................................................19
2.4.1 Types........................................................................19
2.5 Agent's Fee; Reductions in Aggregate Commitments.............................................19
2.5.1 Agent's Fee..................................................................19
2.5.2 Mandatory Reductions.........................................................19
2.5.3 Voluntary Reductions.........................................................19
2.6 Minimum Amount of Each Advance...............................................................19
2.7 Optional Principal Payments..................................................................19
2.8 Method of Selecting Types and Interest Periods for New Advances..............................20
2.9 Conversion and Continuation of Outstanding Advances..........................................20
2.10 Changes in Interest Rate, Etc................................................................21
2.11 Rates Applicable After Default...............................................................21
2.12 Method of Payment............................................................................21
2.13 Notes; Telephonic Notices....................................................................22
2.14 Interest Payment Dates; Interest and Fee Basis...............................................22
2.15 Notification of Advances, Interest Rates, Prepayments and Commitment
Reductions. .................................................................................22
2.16 Lending Installations........................................................................22
2.17 Non-Receipt of Funds by the Agent............................................................22
2.18 Provisions relating to Facility B Letter of Credit...........................................23
2.18.1 Participation in Facility B Letter of Credit.................................23
i
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
2.18.2 Reimbursement for Draws Under Facility B Letter of Credit....................25
2.18.3 Indemnification; Assumption of Risk..........................................26
2.18.4 Acceleration.................................................................27
2.18.5 Cash Collateral Account......................................................27
ARTICLE III
YIELD PROTECTION; TAXES..........................................................................................27
3.1 Yield Protection.............................................................................27
3.2 Changes in Capital Adequacy Regulations......................................................28
3.3 Availability of Types of Advances............................................................28
3.4 Funding Indemnification......................................................................29
3.5 Taxes........................................................................................29
3.6 Lender Statements; Survival of Indemnity.....................................................30
ARTICLE IV
CONDITIONS PRECEDENT.............................................................................................30
4.1 Initial Advance and Release of Cash Collateral...............................................30
4.2 Each Advance and Release of Cash Collateral..................................................34
ARTICLE V
REPRESENTATIONS AND WARRANTIES...................................................................................34
5.1 Corporate Existence and Standing.............................................................34
5.2 Authorization and Validity...................................................................34
5.3 No Conflict; Government Consent..............................................................34
5.4 Financial Statements.........................................................................35
5.5 Material Adverse Change......................................................................35
5.6 Taxes........................................................................................35
5.7 Litigation and Contingent Obligations........................................................35
5.8 Subsidiaries.................................................................................35
5.9 ERISA........................................................................................36
5.10 Accuracy of Information......................................................................36
5.11 Regulation U.................................................................................36
5.12 Material Agreements..........................................................................36
5.13 Compliance With Laws, Etc....................................................................36
5.14 Ownership of Properties......................................................................36
5.15 Plan Assets; Prohibited Transactions.........................................................36
5.16 Environmental Matters........................................................................37
5.17 Investment Company Act.......................................................................37
5.18 Public Utility Holding Company Act...........................................................37
5.19 Insurance....................................................................................37
5.20 Solvency.....................................................................................37
5.21 Year 2000....................................................................................38
ii
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VI
COVENANTS........................................................................................................38
6.1 Financial Reporting..........................................................................38
6.2 Use of Proceeds..............................................................................39
6.3 Notice of Default, Etc.......................................................................40
6.4 Conduct of Business..........................................................................40
6.5 Taxes........................................................................................40
6.6 Insurance....................................................................................40
6.6.1 Property Insurance...........................................................40
6.6.2 Key Man Life Insurance.......................................................41
6.7 Compliance with Laws.........................................................................41
6.8 Maintenance of Properties....................................................................41
6.9 Inspection...................................................................................41
6.10 Dividends....................................................................................41
6.11 Indebtedness.................................................................................41
6.12 Merger.......................................................................................42
6.14 Sale of Accounts.............................................................................43
6.15 Sale and Leaseback...........................................................................43
6.16 Investments and Acquisitions.................................................................43
6.17 Contingent Obligations.......................................................................44
6.18 Liens........................................................................................44
6.19 Financial Covenants..........................................................................45
6.19.1 Total Leverage Ratio.........................................................45
6.19.2 Pro Forma Debt Service Coverage Ratio........................................45
6.19.3 Capital Expenditures.........................................................46
6.20 Affiliates...................................................................................46
6.21 Financial Undertakings.......................................................................46
6.22 Reinvestment of Net Proceeds.................................................................46
6.23 Year 2000....................................................................................47
6.24 Collateral Security; Further Assurances......................................................47
6.24.1 Grant of Security............................................................47
6.24.2 Subsidiaries.................................................................47
6.24.3 Additional Collateral; Further Assurances....................................47
6.24.4 ......................................................................................48
6.24.5 Exercise of Rights...........................................................48
ARTICLE VII
DEFAULTS.........................................................................................................48
7.1 .............................................................................................48
7.2 .............................................................................................48
7.3 .............................................................................................48
7.4 .............................................................................................48
7.5 .............................................................................................49
iii
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
7.6 .............................................................................................49
7.7 .............................................................................................49
7.8 .............................................................................................49
7.9 .............................................................................................50
7.10 .............................................................................................50
7.11 .............................................................................................50
7.12 .............................................................................................50
7.13 .............................................................................................50
7.14 .............................................................................................50
7.15 .............................................................................................50
7.16 .............................................................................................50
7.17 .............................................................................................50
7.18 .............................................................................................51
7.19 .............................................................................................51
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES...................................................................51
8.1 Acceleration.................................................................................51
8.2 Amendments...................................................................................51
8.3 Preservation of Rights.......................................................................52
ARTICLE IX
GENERAL PROVISIONS...............................................................................................52
9.1 Survival of Representations..................................................................52
9.2 Governmental Regulation......................................................................53
9.3 Headings.....................................................................................53
9.4 Entire Agreement.............................................................................53
9.5 Several Obligations; Benefits of this Agreement..............................................53
9.6 Expenses; Indemnification....................................................................53
9.7 Numbers of Documents.........................................................................54
9.8 Accounting...................................................................................54
9.9 Severability of Provisions...................................................................54
9.10 Nonliability of Lenders......................................................................54
9.11 Confidentiality..............................................................................54
9.12 Nonreliance..................................................................................54
ARTICLE X
THE AGENT........................................................................................................55
10.1 Appointment; Nature of Relationship..........................................................55
10.2 Powers.......................................................................................55
10.3 General Immunity.............................................................................55
10.4 No Responsibility for Loans, Recitals, etc...................................................55
10.5 Action on Instructions of Lenders............................................................56
iv
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
10.6 Employment of Agents and Counsel.............................................................56
10.7 Reliance on Documents; Counsel...............................................................56
10.8 Agent's Reimbursement and Indemnification....................................................56
10.9 Notice of Default............................................................................57
10.10 Rights as a Lender...........................................................................57
10.11 Lender Credit Decision.......................................................................57
10.12 Successor Agent..............................................................................57
10.13 Delegation to Affiliates.....................................................................58
10.14 Execution of Collateral Documents............................................................58
10.15 Collateral Releases..........................................................................58
ARTICLE XI
SETOFF; RATABLE PAYMENTS.........................................................................................58
11.1 Setoff.......................................................................................58
11.2 Ratable Payments.............................................................................59
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS................................................................59
12.1 Successors and Assigns.......................................................................59
12.2 Participations...............................................................................59
12.2.1 Permitted Participants; Effect...............................................59
12.2.2 Voting Rights................................................................60
12.2.3 Benefit of Setoff............................................................60
12.3 Assignments..................................................................................60
12.3.1 Permitted Assignments........................................................60
12.3.2 Effect; Effective Date.......................................................61
12.4 Dissemination of Information.................................................................61
12.5 Tax Treatment................................................................................61
ARTICLE XIII
NOTICES..........................................................................................................61
13.1 Notices......................................................................................61
13.2 Change of Address............................................................................62
ARTICLE XIV
COUNTERPARTS.....................................................................................................62
ARTICLE XV
CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.....................................................62
15.1 CHOICE OF LAW................................................................................62
15.2 CONSENT TO JURISDICTION......................................................................62
15.3 WAIVER OF JURY TRIAL.........................................................................63
v
</TABLE>
<PAGE> 7
vi
<PAGE> 8
vii
<PAGE> 9
viii
<PAGE> 10
ix
<PAGE> 11
EXHIBITS
EXHIBIT "A" - FACILITY A NOTE
EXHIBIT "B" - FACILITY B NOTE
EXHIBIT "C" - FACILITY C NOTE
EXHIBIT "D" - PLEDGE AGREEMENT
EXHIBIT "E" - SECURITY AGREEMENT
EXHIBIT "F" - COMPLIANCE CERTIFICATE
EXHIBIT "G" - ASSIGNMENT AGREEMENT
EXHIBIT "H" - LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION
EXHIBIT "I" - REINVESTMENT NOTICE
SCHEDULES
SCHEDULE "1" - LENDER COMMITMENTS
SCHEDULE "2" - SUBSIDIARIES AND OTHER INVESTMENTS
SCHEDULE "3" - INDEBTEDNESS AND LIENS
SCHEDULE "4" - LITIGATION
x
<PAGE> 12
TRI-STATE OUTDOOR MEDIA GROUP, INC.
CREDIT AGREEMENT
This Credit Agreement, dated as of September 18, 1998, is among
TRI-STATE OUTDOOR MEDIA GROUP, INC., the LENDERS and THE FIRST NATIONAL BANK OF
CHICAGO, as Agent. The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise or (ii) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage or voting power) of the
outstanding partnership interests of a partnership or membership interests in a
limited liability company.
"Advance" means a borrowing hereunder (or conversion or continuation
thereof) consisting of the aggregate amount of the several Loans made on the
same Borrowing Date (or date of conversion or continuation) by the Lenders to
the Borrower of the same Type and, in the case of Eurodollar Advances, for the
same Interest Period.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"Agent" means The First National Bank of Chicago in its capacity as
agent for the Lenders pursuant to Article X, and not in its individual capacity
as a Lender, and any successor Agent appointed pursuant to Article X.
"Aggregate Commitment" means the Aggregate Facility A Commitment, the
Aggregate Facility B Commitment or the Aggregate Facility C Commitment, as
appropriate.
<PAGE> 13
"Aggregate Facility A Commitment" means the aggregate of the Facility A
Commitments of all the Lenders (including amounts outstanding thereunder), as
reduced from time to time pursuant to the terms hereof.
"Aggregate Facility B Commitment" means the aggregate of the Facility B
Commitments of all the Lenders (including amounts outstanding thereunder), as
reduced from time to time pursuant to the terms hereof.
"Aggregate Facility C Commitment" means the aggregate of the Facility C
Commitments of the Lenders (including amounts outstanding thereunder), as
reduced from time to time pursuant to the terms hereof.
"Agreement" means this credit agreement, as it may be amended or
modified and in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 5.4.
"Aggregate Total Commitment" means the combined total of the Aggregate
Facility A Commitment, the Aggregate Facility B Commitment and the Aggregate
Facility C Commitment.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum
of Federal Funds Effective Rate for such day plus 1/2% per annum.
"Annualized Net Operating Cash Flow" means, as at any date of
determination thereof, the product of (i) Net Operating Cash Flow for the fiscal
quarter ending on such date, times (ii) four.
"Applicable Margin" means the applicable margin set forth below:
<TABLE>
<CAPTION>
Period Eurodollar Loans Floating Rate Loans
------ ---------------- -------------------
<S> <C> <C>
Closing Date through 12/30/98 3.50% 2.00%
12/31/98 through 3/30/99 4.00% 2.50%
3/31/99 through 6/29/99 4.50% 3.00%
6/30/99 through 9/29/99 5.00% 3.50%
9/30/99 and thereafter 5.50% 4.00%
</TABLE>
"Arranger" means First Chicago Capital Markets, Inc., a Delaware
corporation, and its successors.
"Article" means an article of this Agreement unless another document is
specifically referenced.
<PAGE> 14
"Asset Purchase Agreement" means that certain asset purchase agreement,
dated September 4, 1998, between the Borrower and Western Outdoor.
"Authorized Officer" means either of the President or the Chief
Financial Officer of the Borrower, acting singly.
Available Amount" means $1,250,000, less the aggregate of all amounts
drawn and paid by the Issuing Lender under the Facility B Letter of Credit.
"Borrower" means Tri-State Outdoor Media Group, Inc., a Kansas
corporation, and its successors and assigns.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.8.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of substantially all of their
commercial lending activities.
"Capital Expenditures" means, without duplication, any expenditures by
any of the Borrower or its Subsidiaries for any purchase or other acquisition
for value of any asset that is classified on a consolidated balance sheet of
Holdings and its Subsidiaries prepared in accordance with Agreement Accounting
Principles as a fixed or capital asset excluding (i) the cost of assets acquired
with Capitalized Lease Obligations (other than that portion which is capitalized
on the consolidated balance sheet), (ii) expenditures of insurance proceeds to
rebuild or replace any asset after a casualty loss, and (iii) leasehold
improvement expenditures for which a Borrower or the Subsidiary is reimbursed
promptly by the lessor.
"Capitalized Lease" of a Person means any lease of Property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Change in Control" means (i) Sheldon Hurst or a trust for the benefit
of Sheldon Hurst or his spouse or descendants, partnership or limited liability
company (in each case, controlled by Sheldon Hurst) shall cease to own, free and
clear of all Liens or other encumbrances (other than Liens in favor of the Agent
and the Lenders), at least 23% of the outstanding shares of voting stock
3
<PAGE> 15
of Holdings on a fully diluted basis; or (ii) Sheldon Hurst shall cease to be
the acting Chief Executive Officer of Holdings or the Borrower and the board of
directors of the applicable company shall not have appointed a successor
reasonably acceptable to the Required Lenders within six months; or (iii)
Holdings shall cease to own, free and clear of all Liens or other encumbrances
(other than Liens in favor of the Agent and the Lenders), 100% of the
outstanding shares of capital stock of the Borrower on a fully diluted basis.
"Closing Date" means the Business Day on which (a) the Borrower, the
Agent and the Lenders have executed this Agreement, and (b) all of the
conditions precedent set forth in Article IV shall have been satisfied or waived
in accordance with the terms hereof.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Collateral" means, collectively, "Collateral" as defined in
each of the Collateral Documents.
"Collateral Assignment" means a collateral assignment of
representations, warranties, covenants, indemnities and rights, in form and
substance satisfactory to the Agent, duly executed and delivered to the Agent by
the Borrower, as the same may be amended or modified and in effect from time to
time.
"Collateral Documents" means, collectively, the Security Agreement, the
Collateral Assignment, the Pledge Agreement, all other security agreements and
collateral documents executed and delivered to the Agent pursuant to Section
6.24.2 or 6.24.3, and all other agreements, instruments, or documents necessary
to effect the purposes of the Security Agreement, the Pledge Agreement, and all
such other security agreements and collateral documents, including, without
limitation, UCC-1 financing statements and fixture filings suitable for filing
in the appropriate jurisdictions.
"Commitment" means a Facility A Commitment, a Facility B Commitment or
a Facility C Commitment, as appropriate.
"Compliance Certificate" means a compliance certificate, in
substantially the form of Exhibit "F" hereto, with appropriate insertions,
signed by the Borrower's Chief Financial Officer.
"Condemnation" is defined in Section 7.8.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss,
4
<PAGE> 16
including, without limitation, any comfort letter, operating agreement,
take-or-pay contract, or application for a Letter of Credit.
"Controlled Group" means all members of a controlled group of
corporations or other business entities and all trades or businesses (whether or
not incorporated) under common control which, together with the Borrower or any
of its Subsidiaries, are treated as a single employer under Section 414 of the
Code.
"Conversion/Continuation Notice" is defined in Section 2.9.
"Converted Mesirow Equity" means preferred stock in Holdings issued to
Mesirow Capital Partners VI and Mesirow Capital Partners VII upon the conversion
of the Holdings Mesirow Indebtedness thereto.
"Corporate Base Rate" means a rate per annum equal to the corporate
base rate of interest announced by First Chicago from time to time, changing
when and as said corporate base rate changes.
"Default" means an event described in Article VII.
"Delivery Date" means the date on which the Borrower is required to
deliver annual audited financial statements to the Lenders in accordance with
Section 6.1(i).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Environmental Laws" means any and all federal, state and local
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to (i) the
protection of the environment, (ii) the effect of the environment on human
health, (iii) emissions, discharges or releases of pollutants, contaminants,
hazardous substances or wastes into surface water, ground water or land, or (iv)
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, hazardous substances or
wastes or the clean-up or other remediation thereof.
"Eurodollar Advance" means an Advance which bears interest at a
Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for
the relevant Interest Period, the rate determined by the Agent to be the rate at
which deposits in U.S. dollars are offered by First Chicago to first-class banks
in the London interbank market at approximately 11 a.m. (London time) two
Business Days prior to the first day of such Interest Period, in the approximate
amount of First Chicago's relevant Eurodollar Loan and having a maturity
approximately equal to such Interest Period.
5
<PAGE> 17
"Eurodollar Loan" means a Loan which bears interest at a Eurodollar
Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base
Rate applicable to such Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, if any,
plus (ii) the Applicable Margin. The Eurodollar Rate shall be rounded to the
next higher multiple of 1/16 of 1% if the rate is not such a multiple.
"Excluded Taxes" means, in the case of each Lender or applicable
Lending Installation and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it by (i) the jurisdiction under the laws of which
such Lender or the Agent is incorporated or organized or (ii) the jurisdiction
in which the Agent's or such Lender's principal executive office or such
Lender's applicable Lending Installation is located.
"Facility" means Facility A, Facility B or Facility C, as appropriate.
"Facility A" means a single-draw term loan facility in the amount of
the Aggregate Facility A Commitment utilized under this Agreement pursuant to
Section 2.1.1.
"Facility A Commitment" means, for each Lender, the obligation of such
Lender to make term Loans under Facility A not exceeding the amount set forth
opposite its name on Schedule "1" hereto (but subject to Section 2.1.1) or as
set forth in any Notice of Assignment relating to any assignment that has become
effective pursuant to Section 12.3.2, as such amount may be modified from time
to time pursuant to the terms hereof.
"Facility A Lenders" means, collectively, Lenders having Facility A
Commitments.
"Facility A Note" means a promissory note, in substantially the form of
Exhibit "A" hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Facility A Commitment, including any amendment,
modification, renewal or replacement of such promissory note.
"Facility B" means a letter of credit facility under which (i) the
Facility B Letter of Credit will be deemed issued and (ii) a multi-draw term
loan facility will be available to the Borrower for the purpose of reimbursing
the Issuing Lender and the other Facility B Lenders for payments made under the
Facility B Letter of Credit, in the amount of the Aggregate Facility B
Commitment utilized pursuant to Section 2.1.2.
"Facility B Commitment" means, for each Lender, the obligation of such
Lender to pay its Percentage of a drawing under the Facility B Letter of Credit
and/or make term Loans under Facility B in an amount not exceeding the amount
set forth opposite its name on Schedule "1" hereto or as
6
<PAGE> 18
set forth in any Notice of Assignment relating to any assignment that has become
effective pursuant to Section 12.3.2, as such amount may be modified from time
to time pursuant to the terms hereof.
"Facility B L/C Collateral Release" means the release by First Chicago
of the "Pledged Instruments", as defined in the Pledge Agreement dated as of May
20, 1998 between the Borrower and First Chicago, and the termination of such
Pledge Agreement.
"Facility B L/C Security and Reimbursement Agreement" means the
Security and Reimbursement Agreement for Irrevocable Standby Letter of Credit
between the Borrower and the Issuing Lender pertaining to the Facility B Letter
of Credit, as the same may be amended or modified and in effect from time to
time.
"Facility B Lenders" means, collectively, Lenders having Facility B
Commitments.
"Facility B Letter of Credit" means the Irrevocable Standby Letter of
Credit no. 00324651, dated February 27, 1998 and expiring on August 27, 2000,
issued by First Chicago for the benefit of Transfinancial Bank in the amount of
$1,250,000 for the account of the Borrower.
"Facility B Letter of Credit Participation Amount" means, for each
Facility B Lender at any date of determination, such Lender's Percentage of the
aggregate undrawn amount available (whether or not the conditions which would
allow a draw thereunder have been met) to the beneficiary thereof under the
Facility B Letter of Credit as of such date of determination.
"Facility B Note" means a promissory note, in substantially the form of
Exhibit "B" hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Facility B Commitment, including any amendment,
modification, renewal or replacement of such promissory note.
"Facility C" means a revolving credit facility in the amount of the
Aggregate Facility C Commitment utilized under this Agreement pursuant to
Section 2.1.3.
"Facility C Commitment" means, for each Lender, the obligation of such
Lender to make revolving credit Loans under Facility C in an aggregate amount at
any one time outstanding not exceeding the amount set forth opposite its name on
Schedule "1" hereto or as set forth in any Notice of Assignment relating to any
assignment that has become effective pursuant to Section 12.3.2, as such amount
may be modified from time to time pursuant to the terms hereof.
"Facility C Lenders" means, collectively, Lenders having Facility C
Commitments.
"Facility C Note" means a promissory note, in substantially the form of
Exhibit "C" hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Facility C Commitment, including any amendment,
modification, renewal or replacement of such promissory note.
7
<PAGE> 19
"Facility Termination Date" means September 30, 2000.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately 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 at approximately 10 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"Fee Letter" means the Fee Letter, dated August 18, 1998, between the
Borrower and First Chicago, as the same may be amended or modified and in effect
from time to time.
"Financial Undertaking" of a Person means (i) any repurchase obligation
or liability of such Person or any of its Subsidiaries with respect to accounts
or notes receivable sold by such Person or any of its Subsidiaries, (ii) any
sale and leaseback transactions which do not create a liability on the
consolidated balance sheet of such Person and its Subsidiaries, (iii) any other
transaction (other than Capitalized Lease Obligations) which is the functional
equivalent of or takes the place of borrowing but which does not constitute a
liability on the consolidated balance sheets of such Person and its
Subsidiaries, or (iv) any agreements, devices or arrangements designed to
protect at least one of the parties thereto from the fluctuations of interest
rates, exchange rates or forward rates applicable to such party's assets,
liabilities or exchange transactions, including, but not limited to, interest
rate exchange agreements, forward currency exchange agreements, interest rate
cap or collar protection agreements, forward rate currency or interest rate
options.
"First Chicago" means The First National Bank of Chicago in its
individual capacity, and its successors.
"Floating Rate" means, for any day, a rate per annum equal to (i) the
Alternate Base Rate for such day plus (ii) the Applicable Margin, in each case
changing when and as the Alternate Base Rate changes.
"Floating Rate Advance" means an Advance which bears interest at the
Floating Rate.
"Floating Rate Loan" means a Loan which bears interest at the Floating
Rate.
"Holdings" means SGH Holdings, Inc., a Delaware corporation, and its
successors and assigns.
"Holdings Mesirow Indebtedness" means, collectively, (i) that certain
Indebtedness of Holdings to Mesirow Capital Partners VI in the amount of
$3,900,000 plus accrued interest, as
8
<PAGE> 20
evidenced by the Mesirow 94 Documents, and (ii) that certain Indebtedness of
Holdings to Mesirow Capital Partners VI and Mesirow Capital Partners VII in the
amount of $9,000,000 plus accrued interest, as evidenced by the Mesirow 97
Documents.
"Holdings Warrant" means the Warrant, if it is issued by Holdings in
favor of First Chicago pursuant to the Warrant Agreement.
"Indebtedness" of a Person means such Person's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price of
Property or services (other than accounts payable arising in the ordinary course
of such Person's business payable on terms customary in the trade), (iii)
obligations, whether or not assumed, secured by Liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by such
Person, (iv) obligations which are evidenced by notes, acceptances, or other
instruments, (v) Capitalized Lease Obligations, (vi) Contingent Obligations,
(vii) Sale and Leaseback Transactions, (viii) Net Mark-to-Market Exposure of
Rate Hedging Agreements, and (ix) obligations under non-compete agreements.
"Interest Period" means, with respect to a Eurodollar Advance, a period
of one, two, three, or, six months commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on (but
exclude) the day which corresponds numerically to such date one, two, three, or
six months thereafter, provided, however, that if there is no such numerically
corresponding day in such next, second, third, or sixth succeeding month, such
Interest Period shall end on the last Business Day of such next, second, third,
or sixth succeeding month. If an Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on the next
succeeding Business Day; provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"Investment" of a Person means any loan, advance (other than
commission, travel and similar advances to officers and employees made in the
ordinary course of business), extension of credit (other than accounts
receivable arising in the ordinary course of business on terms customary in the
trade), deposit account or contribution of capital by such Person to any other
Person or any investment in, or purchase or other acquisition of, the stock,
partnership interests, notes, debentures or other securities of any other Person
made by such Person.
"Issuing Lender" means First Chicago in its capacity as issuer of the
Facility B Letter of Credit.
"Key Man Life Insurance" means a life insurance policy or policies
obtained by the beneficiary or beneficiaries thereof on the life of Sheldon G.
Hurst in a face amount of not less than $2,500,000 and assigned by such
beneficiary or beneficiaries to the Agent for the benefit of the Lenders, such
policy or policies to be issued by a reputable insurer rated "A" or better by
A.M. Best & Co. and the form and terms of such policies and assignment to be
acceptable to the Agent.
9
<PAGE> 21
"Lenders" means the lending institutions listed on the signature pages
of this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent,
any office, branch, subsidiary or affiliate of such Lender or the Agent.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Loan" means, with respect to a Lender, such Lender's portion of any
Advance.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Security Agreement, the Collateral Assignment, the Facility B L/C Security and
Reimbursement Agreement, the Fee Letter, and any other agreements, instruments,
or documents executed by the Borrower in favor of the Agent or any Lender to
effect the purposes of the financing arrangement contemplated hereunder.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the
ability of the Borrower to perform its obligations under the Loan Documents,
(iii) the ability of Holdings to perform its obligations under the Pledge
Agreement, the Warrant Agreement or the Holdings Warrant (if issued), or (iv)
the validity or enforceability of any of the Transaction Documents or the rights
or remedies of the Agent or the Lenders thereunder.
"Material Indebtedness" means any Indebtedness aggregating in excess of
$250,000.
"Mesirow 94 Documents" means that certain Note and Warrant Purchase
Agreement dated September 30, 1994 between Holdings and Mesirow Capital Partners
VI, together with the promissory notes attached thereto as Exhibits, as amended
pursuant to that certain Amendment Agreement between Holdings and Mesirow
Capital Partners VI dated as of June 12, 1997.
"Mesirow 97 Documents" means, collectively, those certain subordinated
notes issued by Holdings to Mesirow Capital Partners VI and Mesirow Capital
Partners VII and dated as of June 12, 1997 in the aggregate principal amount of
$9,000,000, and any other agreements, instruments, indentures, or documents
evidencing or providing for the subordination of the Indebtedness evidenced by
such subordinated notes.
10
<PAGE> 22
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"Net Mark-to-Market Exposure" of a Person means, as of any date of
determination, the excess (if any) of all unrealized losses over all unrealized
profits of such Person arising from Rate Hedging Agreements. "Unrealized losses"
means the fair market value of the cost to such Person of replacing such Rate
Hedging Agreement as of the date of determination (assuming the Rate Hedging
Agreement were to be terminated as of that date), and "unrealized profits" means
the fair market value of the gain to such Person of replacing such Rate Hedging
Agreement as of the date of determination (assuming such Rate Hedging Agreement
were to be terminated as of that date).
"Net Operating Cash Flow" means, for any period of determination
thereof, the sum of (a) pre-tax income or deficit, as the case may be (excluding
extraordinary gains and losses), (b) cash interest expense, (c) depreciation and
amortization, and (d) all other non-cash charges (to the extent deducted in
determining net income or deficit), all calculated for such period for the
Borrower and its Subsidiaries on a consolidated basis, after giving effect to
any Acquisitions and Sales of assets made during such period as if made on the
first day of such period, and for the period during which the Western Outdoor
Acquisition occurs, with such other adjustments related to the Western Outdoor
Acquisition as may be agreed upon between the Borrower and the Agent.
"Net Proceeds" means net cash proceeds realized upon (i) the sale,
transfer, or other disposition of assets or (ii) the sale or series of sales or
issuance of any common stock, preferred stock, warrant or other equity, in each
case after the payment of all expenses (including, with respect to clause (ii),
underwriting discounts and commissions) and taxes related to such transaction
and the net cash proceeds of the liquidation (at any time) of securities
received as consideration from such transaction.
"Notes" means, collectively, the Facility A Notes, the Facility B Notes
and the Facility C Notes, and "Note" means any one of the Facility A Notes, the
Facility B Notes or the Facility C Notes.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Loans, all obligations and liabilities in respect of the
Facility B Letter of Credit, including, without limitation, Unreimbursed
Drawings, and all expenses, reimbursements, indemnities and other obligations of
the Borrower to the Lenders or to any Lender, the Agent or any indemnified party
hereunder arising under the Loan Documents.
"Operating Lease" of any Person means any lease of Property (other than
a Capitalized Lease) by such Person as lessee which has an original term
(including any required renewals and any renewals effective at the option of the
lessor) of one year or more.
11
<PAGE> 23
"Other Taxes" is defined in Section 3.5(ii).
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Participants" is defined in Section 12.2.1.
"Payment Date" means the last day of each March, June, September, and
December.
"Percentage" means, for any Facility B Lender, 100% times a fraction
(a) the numerator of which is such Lender's Facility B Commitment, and (b) the
denominator of which is the Aggregate Facility B Commitment.
"Permitted Acquisition" means any Acquisition by the Borrower with
respect to which each of the following requirements is satisfied:
(a) Such Acquisition has been approved or consented to by (i)
the board of directors or equivalent governing body of the Person whose assets
or equity interests are to be acquired and (ii) in the event that the aggregate
consideration for such Acquisition (or for such Acquisition and related
Acquisitions) exceeds $250,000, the Required Lenders.
(b) Prior to and after giving effect to such Acquisition, no
Default or Unmatured Default will exist.
"Person" means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"Pledge Agreement" means a pledge agreement, in substantially the form
of Exhibit "D" hereto, duly executed and delivered to the Agent by Holdings, as
the same may be amended or modified and in effect from time to time.
"Principal Obligations Amount" means an amount equal to the sum of (i)
the aggregate principal amount of Advances outstanding under the Facilities,
(ii) the aggregate amount of any Unreimbursed Drawings, plus (iii) the Available
Amount, if any, under the Facility B Letter of Credit.
"Pro Forma Debt Service" means, at any date of determination thereof,
the amount of payments of cash interest, principal (other than the payments of
principal under Facility A and Facility C due on the Facility Termination Date)
and fees (other than the up-front fee required to be paid to First Chicago
pursuant to the Fee Letter) on or in respect of Indebtedness required to be made
12
<PAGE> 24
by the Borrower and its Subsidiaries during the period of twelve consecutive
complete calendar months next succeeding such date of determination. For
purposes of determining Pro Forma Debt Service, pro forma interest on
Indebtedness shall be calculated at the Eurodollar Rate for an Interest Period
of three months in effect on the date of such calculation.
"Pro Forma Debt Service Coverage Ratio" means, as at the end of any
fiscal quarter, the ratio of (i) Annualized Net Operating Cash Flow, plus cash
on hand less $1,000,000, to (ii) Pro Forma Debt Service.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.
"Purchasers" is defined in Section 12.3.1.
"Rate Hedging Agreement" means an agreement, device or arrangement
providing for payments which are related to fluctuations of interest rates,
exchange rates or forward rates, including, but not limited to,
dollar-denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap or collar protection agreements,
forward rate currency or interest rate options, puts and warrants.
"Rate Hedging Obligations" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all Rate
Hedging Agreements, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any of the foregoing.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"Reinvestment Notice" is defined in Section 6.13(b).
"Reinvestment Period" is defined in Section 6.13(b).
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be
13
<PAGE> 25
notified within 30 days of the occurrence of such event; provided, however, that
a failure to meet the minimum funding standard of Section 412 of the Code and of
Section 302 of ERISA shall be a Reportable Event regardless of the issuance of
any such waiver of the notice requirement in accordance with either Section
4043(a) of ERISA or Section 412(d) of the Code.
"Required Lenders" means Lenders in the aggregate having at least
66-2/3% of the Aggregate Total Commitment or, if a Default has occurred and is
continuing or if the Aggregate Commitments have been terminated, Lenders in the
aggregate holding at least 66-2/3% of the aggregate unpaid principal amount of
the outstanding Advances, Unreimbursed Drawings and Facility B Letter of Credit
Participation Amounts.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"Sale" means the sale, transfer or other disposition of any assets of
the Borrower or a Subsidiary.
"Sale and Leaseback Transaction" means any sale or other transfer of
Property by any Person with the intent to lease such Property as lessee.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Secured Obligations" means, collectively, (i) the Obligations and (ii)
all Rate Hedging Obligations owing to one or more Lenders.
"Security Agreement" means a general pledge and security agreement, in
substantially the form of Exhibit "E" hereto, duly executed and delivered to the
Agent by the Borrower, as the same may be amended or modified and in effect from
time to time.
"Senior Note Indenture" means that certain Indenture dated as of May
15, 1998 between the Borrower, as issuer, and IBJ Schroder Bank & Trust Company,
as trustee.
"Senior Notes" means the Borrower's 11% Senior Notes due 2008 issued
under the Senior Note Indenture in the aggregate principal amount of
$100,000,000.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more
14
<PAGE> 26
of its Subsidiaries, or (ii) any partnership, limited liability company,
association, joint venture or similar business organization more than 50% of the
ownership interests having ordinary voting power of which shall at the time be
so owned or controlled. Unless otherwise expressly provided, all references
herein to a "Subsidiary" shall mean a Subsidiary of the Borrower.
"Substantial Portion" means, with respect to the Property of Holdings
and its Subsidiaries, Property which (i) represents more than 10% of the
consolidated assets (before depreciation and amortization) of Holdings and its
Subsidiaries as would be shown in the consolidated financial statements of
Holdings and its Subsidiaries as at the beginning of the twelve-month period
ending with the month in which such determination is made, or (ii) is
responsible for more than 10% of the consolidated net sales or of the
consolidated net income of Holdings and its Subsidiaries as reflected in the
financial statements referred to in clause (i) above.
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities with
respect to the foregoing, but excluding Excluded Taxes.
"Total Debt" means the sum of (i) Indebtedness for borrowed money
(including accrued but unpaid interest), (ii) Contingent Obligations under
guarantees, (iii) unreimbursed drawings under the Facility B Letter of Credit
and other Letters of Credit, (iv) Net Mark-to-Market Exposure of Rate Hedging
Agreements, (v) obligations under non-compete agreements, plus (vi) Capitalized
Lease Obligations in an amount not to exceed $5,000,000, all calculated for the
Borrower and its Subsidiaries on a consolidated basis.
"Total Leverage Ratio" means, as at the end of any fiscal quarter, the
ratio (i) Total Debt as of the end of such fiscal quarter to (ii) Annualized Net
Operating Cash Flow.
"Total Revenues" means the sum of all revenues, according to Agreement
Accounting Principles generated from: (i) the rental of out-of-home advertising
displays; (ii) the production of out-of-home advertising displays; (iii) the
production of advertising copy for out-of-home advertising displays (including
the sale of materials used to produce such advertising copy); (iv) commercial
sales and service; and (v) subleasing of out-of-home advertising displays or of
other related assets.
"Transaction Documents" means, collectively, the Loan Documents, the
Pledge Agreement, the Warrant Agreement, the Holdings Warrant (if issued), all
guaranties executed and delivered by Subsidiaries pursuant to Section 6.25.2 and
any other agreements, instruments, or documents executed by Holdings and any
Subsidiaries in favor of the Agent or any Lender to effect the purposes of the
financing arrangement contemplated hereunder.
"Transferee" is defined in Section 12.4.
"Type" means, with respect to any Advance, its nature as a Floating
Rate Advance or Eurodollar Advance.
15
<PAGE> 27
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested nonforfeitable benefits under all Single Employer Plans
exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans using PBGC actuarial assumptions for single employer plan terminations.
"Unmatured Default" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"Unreimbursed Drawings" means all amounts drawn and paid by the Issuing
Lender under the Facility B Letter of Credit that have not been reimbursed (with
the proceeds of an Advance or otherwise) by the Borrower.
"Warrant Agreement" means the Agreement, dated the Closing Date,
between Holdings and First Chicago relating to the issuance of the Holdings
Warrant, as the same may be amended or modified and in effect from time to time.
"Western Outdoor" means Western Outdoor Advertising Co., a Nebraska
corporation.
"Western Outdoor Acquisition" means the Acquisition of the assets of
Western Outdoor pursuant to the Asset Purchase Agreement.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of
the outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly-Owned
Subsidiaries of such Person, or by such Person and one or more Wholly-Owned
Subsidiaries of such Person, or (ii) any partnership, association, joint venture
or similar business organization 100% of the ownership interests having ordinary
voting power of which shall at the time be so owned or controlled.
"Year 2000 Issues" means anticipated costs, problems and uncertainties
associated with the inability of certain computer applications to effectively
handle data including dates on and after January 1, 2000, as such inability
affects the business, operations and financial condition of the Borrower and its
Subsidiaries and of the Borrower's and its Subsidiaries' material customers,
suppliers and vendors.
"Year 2000 Program" is defined in Section 5.21.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE II
THE CREDITS
16
<PAGE> 28
2.1 Commitments.
2.1.1 Facility A Commitment. On the Closing Date,
each Facility A Lender severally (and not jointly) agrees, on the terms and
conditions set forth in this Agreement, to make a term Loan to the Borrower
under Facility A in an amount not to exceed the amount of its Facility A
Commitment. Loans under Facility A shall be (i) applied as set forth in Section
6.2, (ii) evidenced by the Facility A Notes and (iii) secured pursuant to the
terms of the Collateral Documents. Principal payments made on Advances made
under Facility A may not be reborrowed.
2.1.2 Facility B Commitment.
(a) The Issuing Lender agrees, on the terms and
conditions set forth in this Agreement, on the Closing Date to effect the
Facility B L/C Collateral Release. On and after the Closing Date, the Facility B
Letter of Credit shall be (i) deemed to be issued under Facility B and in the
event that any provisions of the Facility B L/C Security and Reimbursement
Agreement are inconsistent with the provisions of this Agreement, the provisions
of this Agreement shall govern and (ii) secured pursuant to the Collateral
Documents.
(b) From and including the Closing Date and prior to
the Facility Termination Date, each Facility B Lender severally (and not
jointly) agrees, on the terms and conditions set forth in this Agreement, to
make term Loans to the Borrower under Facility B from time to time in amounts
not to exceed in the aggregate the amount of its Facility B Commitment. Loans
under Facility B shall be (i) available only in accordance with Section
2.18.2(b) and applied as set forth in Section 6.2, (ii) evidenced by the
Facility B Notes and (iii) secured pursuant to the terms of the Collateral
Documents. Principal payments made on Advances made under Facility B may not be
reborrowed.
2.1.3 Facility C Commitment.
(a) From and including the Closing Date and prior to
the Facility Termination Date, each Facility C Lender severally agrees, on the
terms and conditions set forth in this Agreement, to make Loans to the Borrower
under Facility C from time to time in amounts not to exceed in the aggregate at
any one time outstanding the amount of its Facility C Commitment. Loans under
Facility C shall be (i) applied as set forth in Section 6.2, (ii) evidenced by
the Facility C Notes and (iii) secured pursuant to the terms of the Collateral
Documents. Subject to the terms of this Agreement, the Borrower may borrow,
repay and reborrow under Facility C at any time prior to the Facility
Termination Date so long as any portion of the Aggregate Facility C Commitment
remains unutilized. The Facility C Commitments shall expire on the Facility
Termination Date.
(b) The Borrower hereby agrees that if at any time
the outstanding balance of Advances under Facility C exceeds the Aggregate
Facility C Commitment, the Borrower
17
<PAGE> 29
shall immediately repay such Advances in such amount as may be necessary to
eliminate such excess.
2.2 Required Payments; Termination.
2.2.1 Facility A. The outstanding balance of Advances
made under Facility A shall be payable in six installments on the Payment Dates
and in the amounts set forth below. The outstanding balance of Advances made
under Facility A shall be payable in full on the Facility Termination Date.
<TABLE>
<CAPTION>
Payment Date Amount
------------------------------ -----------------
<S> <C>
March 31, 1999 $2,500,000
June 30, 1999 $2,500,000
September 30, 1999 $2,500,000
March 31, 2000 $1,000,000
June 30, 2000 $1,000,000
Facility Termination $4,500,000
Date
</TABLE>
2.2.2 Facilities B and C. The outstanding balance of
Advances made under Facility B and Facility C shall be payable in full on the
Facility Termination Date.
2.2.3 Sale of Assets. Within 10 days of the receipt
of the proceeds of a Sale permitted by any of Sections 6.13(a)(iv) through
6.13(a)(vii), the Borrower shall make a mandatory payment or prepayment under
the Facilities in accordance with Section 2.2.6 in an amount equal to 100% of
the Net Proceeds (including proceeds from condemnation proceedings brought by or
on behalf of any governmental entity or entities) realized from such Sale,
unless, in the case of Sales permitted by any of Sections 6.13(a)(iv) through
6.13(a)(vi), it complies with the provisions of Section 6.13(b). In the event
that the Borrower does not reinvest 100% of the Net Proceeds identified in a
Reinvestment Notice within the applicable Reinvestment Period, it shall, on or
prior to the last day of such Reinvestment Period, make a mandatory payment or
prepayment under the Facilities in accordance with Section 2.2.6 in an amount
equal to 100% of such Net Proceeds, less any portion thereof so reinvested.
Notwithstanding the foregoing, the Borrower shall not be obligated to pay any
amount under this Section 2.2.3 in excess of the Principal Obligations Amount.
2.2.4 Sales of Equity. Within 60 days of the sale or
series of sales or issuance of any common stock, preferred stock, partnership
interest, limited liability company membership, warrant or other equity (whether
through a public offering or a private sale) by the
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Borrower or Holdings (other than equity issued (a) through an initial public
offering by Holdings, or (b) to employees pursuant to an employee stock option
or ownership program of the Borrower or Holdings), the Borrower shall make a
mandatory payment or prepayment under the Facilities in accordance with Section
2.2.6 in an amount equal to 100% of the Net Proceeds realized from such sale,
series of sales, or issuance; provided, however, that the Borrower shall not be
obligated to pay any amount under this Section 2.2.4, (a) in excess of the
Principal Obligations Amount, or (b) in the event that the Net Proceeds realized
from such sale, series of sales, or issuance is less than $2,000,000 (when
aggregated with the Net Proceeds realized from any such sale, series of sales,
or issuance occurring after the Closing Date) and is applied by the Borrower,
prior to September 30, 1999, to the acquisition of assets that shall be used in
the business of leasing outdoor advertising space.
2.2.5 Initial Public Offering. Concurrently with the
receipt by Holdings or the Borrower of the proceeds of an initial public
offering of capital stock of Holdings or the Borrower, the Borrower shall pay in
full all outstanding Obligations, and shall transfer to the Agent for deposit in
the cash collateral account described in Section 2.18.5 the Available Amount, if
any, under the Facility B Letter of Credit.
2.2.6 Allocation. All payments made under Sections
2.2.3, 2.2.4 and 6.6 shall be applied first to the payment of Unreimbursed
Drawings, second to the prepayment of principal installments under Facility A in
the inverse order of maturity, third to the prepayment of any Advances
outstanding under Facility B, fourth to the payment of any Advances outstanding
under Facility C, and the balance, if any, shall be transferred to the Agent for
deposit in the cash collateral account described in Section 2.18.5.
2.2.7 Termination. Except as otherwise set forth
herein, this Agreement shall terminate when the Borrower has paid in full all
outstanding Obligations and transferred to the Agent for deposit in the cash
collateral account described in Section 2.18.5 the Available Amount, if any,
under the Facility B Letter of Credit.
2.3 Ratable Loans. Each Advance hereunder shall consist of Loans made
under a Facility from the several Lenders ratably in proportion to the ratio
that their respective Commitments under such Facility bear to the Aggregate
Commitment under such Facility.
2.4 Types of Advances.
2.4.1 Types. Advances may be Floating Rate Advances
or Eurodollar Advances, or a combination thereof, selected by the Borrower in
accordance with Sections 2.8 and 2.9.
2.5 Agent's Fee; Reductions in Aggregate Commitments.
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2.5.1 Agent's Fee. The Borrower agrees to pay to the
Agent, for its own account, such fees as the Borrower and the Agent may agree
upon from time to time.
2.5.2 Mandatory Reductions.
(a) Upon any mandatory or voluntary prepayment of
Advances under Facility A or Facility B, the Aggregate Commitment under such
Facility shall automatically be reduced (ratably among the Lenders according to
their respective Commitments under such Facility) by the amount of such
prepayment.
(b) Upon the occurrence of any of the events
described in Section 2.2.3, 2.2.4 or 6.6, the Aggregate Facility C Commitment
shall automatically be reduced (ratably among the Lenders according to their
respective Commitments under Facility C) by the amount by which the mandatory
payment or prepayment required to be made by the Borrower pursuant to such
Section exceeds the aggregate outstanding balance of Advances under Facility A
and Facility B.
2.5.3 Voluntary Reductions. The Borrower may
permanently reduce any Aggregate Commitment in whole, or in part ratably among
the applicable Lenders in integral multiples of $250,000, upon at least two
Business Days' written notice to the Agent, which notice shall specify the
amount of any such reduction and the Aggregate Commitment to which it is to be
applied, provided, however, that the amount of the Aggregate Commitment under a
Facility may not be reduced below the aggregate principal amount of the
outstanding Advances under such Facility.
2.6 Minimum Amount of Each Advance. Each Eurodollar Advance shall be in
the minimum amount of $100,000 (and in multiples of $50,000 if in excess
thereof), and each Floating Rate Advance shall be in the minimum amount of
$100,000 (or in the amount of its reimbursement obligation pursuant to Section
2.18.2, if applicable) (and in multiples of $50,000 if in excess thereof);
provided, however, that any Floating Rate Advance may be in the amount of the
applicable unused Aggregate Commitment.
2.7 Optional Principal Payments. The Borrower may from time to time
pay, without penalty or premium, all outstanding Floating Rate Advances, or, in
a minimum aggregate amount of $250,000 or any integral multiple of $100,000 in
excess thereof, any portion of the outstanding Floating Rate Advances upon two
Business Days' prior written notice to the Agent. A Eurodollar Advance may not
be paid prior to the last day of the applicable Interest Period. All prepayments
made under this Section 2.7 shall be applied first to any Advances outstanding
under Facility C, second to principal installments under Facility A in the
inverse order of maturity, and third to any Advances outstanding under Facility
B.
2.8 Method of Selecting Types and Interest Periods for New Advances.
The Borrower shall select the Type of Advance and, in the case of each
Eurodollar Advance, the Interest Period applicable to each Advance from time to
time. The Borrower shall give the Agent irrevocable notice (a "Borrowing
Notice") not later than 10:00 a.m. (Chicago time) at least one Business Day
before
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the Borrowing Date of each Floating Rate Advance and three Business Days before
the Borrowing Date for each Eurodollar Advance, specifying:
(i) the Facility under which such Advance is to be borrowed,
(ii) the Borrowing Date, which shall be a Business Day, of
such Advance,
(iii) the aggregate amount of such Advance,
(iv) the Type of Advance selected, and
(v) in the case of each Eurodollar Advance, the Interest
Period applicable thereto.
Not later than noon (Chicago time) on each Borrowing Date, each Lender shall
make available its Loan or Loans, in funds immediately available in Chicago to
the Agent at its address specified pursuant to Article XIII. The Agent will make
the funds so received from the Lenders available to the Borrower at the Agent's
aforesaid address.
2.9 Conversion and Continuation of Outstanding Advances. Floating Rate
Advances shall continue as Floating Rate Advances unless and until such Floating
Rate Advances are converted into Eurodollar Advances. Each Eurodollar Advance
shall continue as a Eurodollar Advance until the end of the then applicable
Interest Period therefor, at which time such Eurodollar Advance shall be
automatically converted into a Floating Rate Advance unless the Borrower shall
have given the Agent a Conversion/Continuation Notice requesting that, at the
end of such Interest Period, such Eurodollar Advance either continue as a
Eurodollar Advance for the same or another Interest Period or be converted into
a Floating Rate Advance. Subject to the terms of Section 2.6, the Borrower may
elect from time to time to convert all or any part of an Advance of any Type
into any other Type or Types of Advances; provided that any conversion of any
Eurodollar Advance shall be made on, and only on, the last day of the Interest
Period applicable thereto. The Borrower shall give the Agent irrevocable notice
(a "Conversion/Continuation Notice") of each conversion of an Advance or
continuation of a Eurodollar Advance not later than 10:00 a.m. (Chicago time) at
least one Business Day, in the case of a conversion into a Floating Rate
Advance, or three Business Days, in the case of a conversion into or
continuation of a Eurodollar Advance, prior to the date of the requested
conversion or continuation, specifying:
(i) the requested date which shall be a Business Day, of such
conversion or continuation;
(ii) the aggregate amount and Type of the Advance which is to
be converted or continued; and
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(iii) the amount and Type(s) of Advance(s) into which such
Advance is to be converted or continued and, in the case of a conversion into or
continuation of a Eurodollar Advance, the duration of the Interest Period
applicable thereto.
2.10 Changes in Interest Rate, Etc. Each Floating Rate Advance shall
bear interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is converted from a Eurodollar
Advance into a Floating Rate Advance pursuant to Section 2.9 to but excluding
the date it becomes due or is converted into a Eurodollar Advance pursuant to
Section 2.9 hereof, at a rate per annum equal to the Floating Rate for such day.
Changes in the rate of interest on that portion of any Advance maintained as a
Floating Rate Advance will take effect simultaneously with each change in the
Alternate Base Rate. Each Eurodollar Advance shall bear interest from and
including the first day of the Interest Period applicable thereto to (but not
including) the last day of such Interest Period at the Eurodollar Rate
determined as applicable to such Eurodollar Advance. No Interest Period may end
after the Facility Termination Date. The Borrower shall select Interest Periods
so that it is not necessary to repay any portion of a Eurodollar Advance prior
to the last day of the applicable Interest Period in order to make a mandatory
repayment required pursuant to Section 2.2.1.
2.11 Rates Applicable After Default. Notwithstanding anything to the
contrary contained in Section 2.8 or 2.9, during the continuance of a Default or
Unmatured Default the Required Lenders may, at their option, by notice to the
Borrower (which notice may be revoked at the option of the Required Lenders
notwithstanding any provision of Section 8.2 requiring unanimous consent of the
Lenders to changes in interest rates), declare that no Advance may be made as,
converted into or continued as a Eurodollar Advance. If any Advance (or portion
thereof) is not paid when due, whether pursuant to any of Sections 2.2.1 through
2.2.5, by acceleration or otherwise, the Required Lenders may, at their option,
by notice to the Borrower (which notice may be revoked at the option of the
Required Lenders notwithstanding any provision of Section 8.2 requiring
unanimous consent of the Lenders to changes in interest rates), declare that all
Advances shall bear interest at a rate per annum equal to the Floating Rate
otherwise applicable to the Floating Rate Advances plus 3% per annum until such
Advance (or portion thereof) is paid in full.
2.12 Method of Payment. All payments of the Obligations hereunder shall
be made, without setoff, deduction, or counterclaim, in immediately available
funds to the Agent at the Agent's address specified pursuant to Article XIII, or
at any other Lending Installation of the Agent specified in writing by the Agent
to the Borrower, by noon (Chicago time) on the date when due and shall be
applied ratably by the Agent among the Lenders to whom such Obligations are due.
Each payment delivered to the Agent for the account of any Lender shall be
delivered promptly by the Agent to such Lender in the same type of funds that
the Agent received at its address specified pursuant to Article XIII or at any
Lending Installation specified in a notice received by the Agent from such
Lender. The Agent is hereby authorized to charge the account of the Borrower
maintained with First Chicago for each payment of principal and interest as it
becomes due hereunder.
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2.13 Notes; Telephonic Notices. Each Lender is hereby authorized to
record the principal amount of each of its Loans and each repayment on the
schedule attached to its applicable Note; provided, however, that the failure to
so record (or any error in such recordation) shall not affect the Borrower's
obligations under such Note. The Borrower hereby authorizes the Lenders and the
Agent to extend, convert or continue Advances and effect selections of Types of
Advances based on telephonic notices made by any person or persons the Agent or
any Lender in good faith believes to be acting on behalf of the Borrower and the
Agent shall, absent written instructions from an Authorized Officer to the
contrary, deposit the proceeds of such Advances in the Borrower's operating
account with the Agent. The Borrower agrees to deliver promptly to the Agent a
written confirmation, if such confirmation is requested by the Agent or any
Lender, of each telephonic notice signed by an Authorized Officer. If the
written confirmation differs in any material respect from the action taken by
the Agent and the Lenders, the records of the Agent and the Lenders shall govern
absent manifest error.
2.14 Interest Payment Dates; Interest and Fee Basis. Interest accrued
on each Floating Rate Advance shall be payable on each Payment Date, commencing
with the first such date to occur after the date hereof, and at maturity.
Interest accrued on each Eurodollar Advance shall be payable on the last day of
its applicable Interest Period, on any date on which the Eurodollar Advance is
prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued
on each Eurodollar Advance having an Interest Period longer than three months
shall also be payable on the last day of each three-month interval during such
Interest Period. Interest shall be calculated for actual days elapsed on the
basis of a 360-day year. Interest shall be payable for the day an Advance is
made but not for the day of any payment on the amount paid if payment is
received prior to noon (Chicago time) at the place of payment. If any payment of
principal of or interest on an Advance shall become due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day
and, in the case of a principal payment, such extension of time shall be
included in computing interest in connection with such payment.
2.15 Notification of Advances, Interest Rates, Prepayments and
Commitment Reductions. Promptly after receipt thereof, the Agent will notify
each affected Lender of the contents of each Aggregate Commitment reduction
notice, Borrowing Notice, Conversion/Continuation Notice, and repayment notice
received by it hereunder. The Agent will notify the Borrower and each affected
Lender of the interest rate applicable to each Eurodollar Advance promptly upon
determination of such interest rate and will give the Borrower and each Lender
prompt notice of each change in the Alternate Base Rate.
2.16 Lending Installations. Each Lender may book its Loans at any
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Notes shall be deemed held by each Lender for
the benefit of such Lending Installation. Each Lender may, by written notice to
the Agent and the Borrower, designate a Lending Installation through which Loans
will be made by it and for whose account Loan payments are to be made.
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2.17 Non-Receipt of Funds by the Agent. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal
or interest to the Agent for the account of any Lenders, that it does not intend
to make such payment, the Agent may assume that such payment has been made. The
Agent may, but shall not be obligated to, make the amount of such payment
available to the intended recipient in reliance upon such assumption. If such
Lender or the Borrower, as the case may be, has not in fact made such payment to
the Agent, the recipient of such payment shall, on demand by the Agent, repay to
the Agent the amount so made available together with interest thereon in respect
of each day during the period commencing on the date such amount was so made
available by the Agent until the date the Agent recovers such amount at a rate
per annum equal to (i) in the case of payment by a Lender, the Federal Funds
Effective Rate for such day or (ii) in the case of payment by the Borrower, the
interest rate applicable to the relevant Loan.
2.18 Provisions relating to Facility B Letter of Credit.
2.18.1 Participation in Facility B Letter of Credit.
(a) Each Facility B Lender shall be deemed to have
irrevocably and unconditionally purchased and received from the Issuing Lender,
without recourse or warranty, an undivided interest and participation to the
extent of such Facility B Lender's Percentage in the Facility B Letter of Credit
(including, without limitation, all obligations of the Borrower with respect
thereto and any security therefor).
(b) In the event that the Issuing Lender makes any
payment under the Facility B Letter of Credit and the Borrower shall not have
repaid such amount to the Issuing Lender pursuant to Section 2.18.2 (with the
proceeds of an Advance or otherwise), the Issuing Lender shall promptly notify
the Agent, which shall promptly notify each Facility B Lender, of such failure
(by facsimile or telephone promptly confirmed in writing), and each Facility B
Lender shall promptly and unconditionally pay to the Agent for the account of
the Issuing Lender the amount of such Facility B Lender's Percentage of such
payment in same day funds. If the Agent so notifies a Facility B Lender prior to
10:00 a.m. (Chicago time) on any Business Day, such Facility B Lender shall make
available to the Agent for the account of the Issuing Lender its Percentage of
the amount of such payment on such Business Day in same day funds, and if the
Agent so notifies a Facility B Lender after 10:00 a.m. (Chicago time) on any
Business Day, such Facility B Lender shall make available to the Agent for the
account of the Issuing Lender its Percentage of the amount of such payment on
the next Business Day in same day funds. If and to the extent such Facility B
Lender shall not have so made its Percentage of the amount of such payment
available to the Agent for the account of the Issuing Lender, such Facility B
Lender agrees to pay to the Agent for the account of the Issuing Lender
forthwith on demand such amount together with interest thereon, for each day
from the date such payment was first due until the date such amount is paid to
the Agent for the account of the Issuing Lender, at the Federal Funds Effective
Rate. The failure of any Facility B Lender to make available to the Agent for
the account of the Issuing Lender its Percentage of any
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such payment shall not relieve any other Facility B Lender of its obligation
hereunder to make available to the Agent for the account of the Issuing Lender
its Percentage of any payment on the date such payment is to be made.
(c) Whenever the Issuing Lender receives a payment on
account of an Unreimbursed Drawing, including any interest thereon, as to which
the Agent has received payments from the Facility B Lenders for the account of
the Issuing Lender pursuant to this Section 2.18.1, it shall promptly pay to the
Agent and the Agent shall promptly pay to each Facility B Lender which has
funded its participating interest therein, in the kind of funds so received, an
amount equal to such Facility B Lender's Percentage thereof. Each such payment
shall be made by the Issuing Lender on the Business Day on which it receives the
funds paid to it pursuant to the preceding sentence, if received prior to noon
(Chicago time) on such Business Day, and otherwise on the next succeeding
Business Day.
(d) The obligations of a Facility B Lender to make
payments to the Agent for the account of the Issuing Lender with respect to the
Facility B Letter of Credit shall be irrevocable, not subject to any
qualification or exception whatsoever 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 Transaction Documents;
(ii) the existence of any claim, setoff, defense or
other right which the Borrower may have at any time against the beneficiary of
the Facility B Letter of Credit or any transferee of the Facility B Letter of
Credit (or any Person for whom any such transferee may be acting), the Agent,
the Issuing Lender, any Facility B Lender, or any other Person, whether in
connection with this Agreement, the Facility B Letter of Credit, the
transactions contemplated herein or any unrelated transactions (including any
underlying transactions between the Borrower or any Affiliate of the Borrower
and the beneficiary of the Facility B Letter of Credit);
(iii) any draft, certificate of any other document
presented under the Facility B Letter of Credit proving to be forged, fraudulent
or invalid in any respect, or insufficient in accordance with the Uniform
Customs and Practice for Documentary Credits (1993 revision), International
Chamber of Commerce, Publication 500, 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 Transaction
Documents; or
(v) the occurrence of any Default or Unmatured
Default;
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provided, however, that the Facility B Lenders shall not be
required to fund their participations in the Facility B Letter of Credit if the
corresponding payment made by the Issuing Lender under the Facility B Letter of
Credit was made as a result of the Issuing Lender's gross negligence or wilful
misconduct or failure to negotiate a draft in accordance with the standard of
care required by the Uniform Customs and Practice for Documentary Credits (1993
revision), International Chamber of Commerce, Publication 500.
(e) In the event any payment by the Borrower received
by the Issuing Lender with respect to the Facility B Letter of Credit and
distributed by the Agent to the Facility B Lenders on account of their
participations is thereafter set aside, avoided or recovered from the Issuing
Lender in connection with any receivership, liquidation, reorganization or
bankruptcy proceeding, each Facility B Lender which received such distribution
shall, upon demand by the Issuing Lender, contribute such Facility B Lender's
Percentage of the amount set aside, avoided or recovered together with interest
at the rate required to be paid by the Issuing Lender upon the amount required
to be repaid by it.
2.18.2 Reimbursement for Draws Under Facility B
Letter of Credit.
(a) Promptly upon receipt of notice from the Issuing
Lender of a drawing under the Facility B Letter of Credit, the Borrower hereby
agrees to reimburse the Facility B Lenders ratably in accordance with their
respective Percentages by making a payment to the Issuing Lender for the amount
of the draft drawn or purporting to be drawn thereunder for the account of the
Borrower which is paid by the Issuing Lender. Unless funded with an Advance made
pursuant to Section 2.18.2(b), amounts which the Borrower has agreed to
reimburse the Facility B Lenders pursuant to the preceding sentence shall be due
on demand and shall bear interest until paid at a rate per annum (calculated for
the actual number of days elapsed on the basis of year consisting of 365, or
when appropriate 366, days) equal to the Floating Rate plus 3% per annum.
(b) The payment by the Issuing Lender of a draft
drawn under or purporting to be drawn under the Facility B Letter of Credit
shall be deemed to constitute a Borrowing Notice for a Floating Rate Advance
under Facility B in the amount of such draft and, subject to satisfaction or
waiver of the conditions precedent set forth in Section 4.2, the Facility B
Lenders shall make such Floating Rate Advance and the Agent shall apply the
proceeds thereof to the payment of the Borrower's reimbursement obligations
under Section 2.18.2(a) with respect to such draft.
(c) The Borrower's obligation to make all payments
due under this Section 2.18.2 shall be absolute, unconditional and irrevocable,
and such payments shall be made strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including, without limitation,
any or all of the following circumstances:
(i) any determination of invalidity or
unenforceability with respect to the Facility B Letter of Credit after payment
by the Issuing Lender;
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(ii) any lack of validity or enforceability of any or
all of the Transaction Documents;
(iii) any amendment to, waiver of, any consent under
or departure from any or all of the Transaction Documents;
(iv) any exchange, release or nonperfection of any
Collateral, or any release or amendment or waiver of or consent to departure
from any guaranty;
(v) the existence of any claim, set-off, defense or
other right which the Borrower may have at any time against the beneficiary of
the Facility B Letter of Credit or any transferee of the Facility B Letter of
Credit (or any Person for whom any such transferee may be acting), the Agent,
the Issuing Lender, the Facility B Lenders or any other Person; or
(vi) any statement or any other document presented
under the Facility B Letter of Credit proving to be forged, fraudulent or
invalid in any respect or any statement therein being untrue or inaccurate in
any respect whatsoever.
(d) The Issuing Lender shall use its best efforts to
give prompt notice to the Borrower of the presentation of a draft under the
Facility B Letter of Credit; provided, however, that failure to give such notice
shall not limit or otherwise affect the Borrower's obligations under this
Agreement except as explicitly provided herein.
2.18.3 Indemnification; Assumption of Risk.
(a) The Borrower hereby agrees to indemnify and hold
harmless the Agent, the Issuing Lender and each Facility B Lender and their
respective directors, officers and employees from and against any and all
claims, damages, losses, liabilities, costs or expenses of any kind which any
thereof may incur by reason of or in connection with the execution and delivery,
issuance or transfer of, or any payment or failure to pay under, the Facility B
Letter of Credit; provided, however, that the Borrower shall not be required to
indemnify the Issuing Lender for any claims, damages, losses, liabilities, costs
or expenses to the extent caused by the gross negligence, wilful misconduct, or
failure to negotiate any draft in accordance with the standard of care required
by the Uniform Customs and Practice for Documentary Credits (1993 revision),
International Chamber of Commerce, Publication 500 on the part of the Issuing
Lender in making payment under the Facility B Letter of Credit.
(b) The Borrower assumes all risks of the acts or
omissions of the beneficiary of the Facility B Letter of Credit with respect to
its use thereof or reliance thereon. Neither the Facility B Lenders, the Issuing
Lender, nor the Agent shall be responsible: for the validity or genuineness of
certificates or other documents delivered under or with the Facility B Letter of
Credit, even if such certificates or other documents should in fact prove to be
invalid, fraudulent or forged; for errors, omissions, interruptions or delays in
transmission or delivery of any
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messages, by mail, cable, telegraph, wireless or otherwise, whether or not they
are in code; for errors in translation or for errors in interpretation of
technical terms; for any failure or inability by any Facility B Lender, the
Issuing Lender or the Agent or anyone else to perform under the foreign laws,
customs or regulations or by reason of any control or restriction rightfully or
wrongfully exercised by any government or group asserting or exercising
governmental or paramount powers; or for any other consequences arising from
causes beyond any Facility B Lender's, the Issuing Lender's or the Agent's
control; nor shall any Facility B Lender, the Issuing Lender, or the Agent be
responsible for any error, neglect, or default of any correspondent of such
Person; and none of the above shall affect, impair or prevent the vesting of any
of the rights or powers of any Facility B Lender, the Issuing Lender or the
Agent under any of the Transaction Documents. The Issuing Lender may accept
statements, certificates or other documents that appear on their face to be in
order, without responsibility for further investigation, regardless of any
notice or information to the contrary. In furtherance and not in limitation of
the foregoing provisions, the Borrower agrees that any action taken by any
Facility B Lender, the Issuing Lender or the Agent in good faith in connection
with the Facility B Letter of Credit, or the relevant drafts, certificates or
other documents, shall be binding on the Borrower and shall not result in any
liability of such Facility B Lender, the Issuing Lender or the Agent to the
Borrower. Nothing herein shall limit the Borrower's right to pursue its remedies
against the beneficiary of the Facility B Letter of Credit in connection with
any improper or fraudulent draw.
2.18.4 Acceleration. In addition to (and not in
limitation of) any other rights of the Agent and the Lenders under this
Agreement or the Security Agreement, upon the occurrence of any acceleration
pursuant to Section 8.1 the Borrower shall upon demand immediately deposit with
the Agent an amount equal to the Available Amount, if any, under the Facility B
Letter of Credit.
2.18.5 Cash Collateral Account. Any amounts deposited
with the Agent pursuant to Section 2.2.5, 2.2.6, 2.2.7 or 2.18.4 shall be held
by the Agent in a special interest bearing cash collateral account as security
for the Borrower's reimbursement obligations with respect to the Facility B
Letter of Credit. The Borrower shall have no control whatsoever over such cash
collateral account, which shall be governed by the provisions of the Security
Agreement. The Borrower shall deliver to the Agent any additional documents,
agreements and instruments, and take any other actions, deemed necessary by the
Agent or its counsel to create and maintain in favor of the Agent on behalf of
the Lenders a valid and perfected Lien on such cash collateral account.
ARTICLE III
YIELD PROTECTION; TAXES
3.1 Yield Protection. If, on or after the date of this Agreement, the
adoption of any law or any governmental or quasi-governmental rule, regulation,
policy, guideline or directive (whether or not having the force of law), or any
change in the interpretation or administration thereof by any
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governmental or quasi-governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender or applicable Lending Installation with any request or directive (whether
or not having the force of law) of any such authority, central bank or
comparable agency:
(i) subjects any Lender or any applicable Lending Installation
to any Taxes, or changes the basis of taxation of payments (other than with
respect to Excluded Taxes) to any Lender in respect of its Eurodollar Loans or
its participation in the Facility B Letter of Credit, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by, any
Lender or any applicable Lending Installation (other than reserves and
assessments taken into account in determining the interest rate applicable to
Eurodollar Advances), or
(iii) imposes any other condition the result of which is to
increase the cost to any Lender or any applicable Lending Installation of
making, funding or maintaining its Eurodollar Loans or issuing or participating
in the Facility B Letter of Credit or reduces any amount receivable by any
Lender or any applicable Lending Installation in connection with its Eurodollar
Loans, or requires any Lender or any applicable Lending Installation to make any
payment calculated by reference to the amount of Eurodollar Loans held, the
Facility B Letter of Credit issued or participated in, or interest received by
it, by an amount deemed material by such Lender, and the result of any of the
foregoing is to increase the cost to such Lender or applicable Lending
Installation of making or maintaining its Eurodollar Loans, its participation in
the Facility B Letter of Credit, or any Commitment or to reduce the return
received by such Lender or applicable Lending Installation in connection with
such Eurodollar Loans or Commitment, then, within 15 days of demand by such
Lender, the Borrower shall pay such Lender such additional amount or amounts as
will compensate such Lender for such increased cost or reduction in amount
received.
3.2 Changes in Capital Adequacy Regulations. If a Lender determines the
amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a Change, then, within 15 days of demand by such
Lender, the Borrower shall pay such Lender the amount necessary to compensate
for any shortfall in the rate of return on the portion of such increased capital
which such Lender determines is attributable to this Agreement, its Loans or any
Commitment to make Loans hereunder or to issue or participate in the Facility B
Letter of Credit (after taking into account such Lender's policies as to capital
adequacy). "Change" means (i) any change after the date of this Agreement in the
Risk-Based Capital Guidelines or (ii) any adoption of or change in any other
law, governmental or quasi-governmental rule, regulation, policy, guideline,
interpretation, or directive (whether or not having the force of law) after the
date of this Agreement which affects the amount of capital required or expected
to be maintained by any Lender or any Lending Installation or any corporation
controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-based
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capital guidelines in effect in the United States on the date of this Agreement,
including transition rules, and (ii) the corresponding capital regulations
promulgated by regulatory authorities outside the United States implementing the
July 1988 report of the Basle Committee on Banking Regulation and Supervisory
Practices Entitled "International Convergence of Capital Measurements and
Capital Standards," including transition rules, and any amendments to such
regulations adopted prior to the date of this Agreement.
3.3 Availability of Types of Advances. If any Lender determines that
maintenance of its Eurodollar Loans at a suitable Lending Installation would
violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or if the Required Lenders determine that (i) deposits
of a type and maturity appropriate to match fund Eurodollar Advances are not
available or (ii) the interest rate applicable to a Type of Advance does not
accurately reflect the cost of making or maintaining such Advance, then the
Agent shall suspend the availability of the affected Type of Advance and require
any affected Eurodollar Advances to be repaid or converted to Floating Rate
Advances, subject to the payment of any funding indemnification amounts required
by Section 3.4.
3.4 Funding Indemnification. If any payment of a Eurodollar Advance
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment or otherwise, or a Eurodollar
Advance is not made on the date specified by the Borrower for any reason other
than default by the Lenders, the Borrower will indemnify each Lender for any
loss or cost incurred by it resulting therefrom, including, without limitation,
any loss or cost in liquidating or employing deposits acquired to fund or
maintain such Eurodollar Advance.
3.5 Taxes. (i) All payments by the Borrower to or for the account of
any Lender or the Agent hereunder or under any Note shall be made free and clear
of and without deduction for any and all Taxes. If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any Lender or the Agent, (a) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 3.5) such Lender or the
Agent (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (b) the Borrower shall make such
deductions, (c) the Borrower shall pay the full amount deducted to the relevant
authority in accordance with applicable law and (d) the Borrower shall furnish
to the Agent the original or a certified copy of a receipt evidencing payment
thereof.
(ii) In addition, the Borrower hereby agrees to pay any present or
future stamp or documentary taxes and any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or under
any Note or from the execution or delivery of, or otherwise with respect to,
this Agreement or any Note ("Other Taxes").
(iii) The Borrower hereby agrees to indemnify the Agent and each Lender
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed on amounts payable under this Section 3.5) paid by
the Agent or such Lender and any liability
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(including penalties, interest and expenses) arising therefrom or with respect
thereto. Payments due under this indemnification shall be made within 30 days of
the date the Agent or such Lender makes demand therefor pursuant to Section 3.6.
(iv) At least five Business Days prior to the first date on which
interest is payable hereunder for the account of any Lender, each Lender that is
not incorporated under the laws of the United States of America or a state
thereof (each a "Non-U.S. Lender") agrees that it will deliver to each of the
Borrower and the Agent two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224, certifying in either case that such Lender is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes. Each Non-U.S. Lender
further undertakes to deliver to each of the Borrower and the Agent (i) two
renewals or additional copies of such form (or any successor form) on or before
the date that such form expires or becomes obsolete, and (ii) after the
occurrence of any event requiring a change in the most recent forms so delivered
by it, such additional forms or amendments thereto as may be reasonably
requested by the Borrower or the Agent. All forms or amendments described in the
preceding sentence shall certify that such Lender is entitled to receive
payments under this Agreement without deduction or withholding of any United
States federal income taxes, unless an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly completing and
delivering any such form or amendment with respect to it and such Lender advises
the Borrower and the Agent that it is not capable of receiving payments without
any deduction or withholding of United States federal income tax.
(v) For any period during which a Non-U.S. Lender has failed to provide
the Borrower with an appropriate form pursuant to clause (iv), above (unless
such failure is due to a change in treaty, law or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
occurring subsequent to the date on which a form originally was required to be
provided), such Non-U.S. Lender shall not be entitled to indemnification under
this Section 3.5 with respect to Taxes imposed by the United States; provided
that, should a Non-U.S. Lender which is otherwise exempt from or subject to a
reduced rate of withholding tax become subject to Taxes because of its failure
to deliver a form required under clause (iv), above, the Borrower shall take
such steps as such Non-U.S. Lender shall reasonably request to assist such
Non-U.S. Lender to recover such Taxes.
3.6 Lender Statements; Survival of Indemnity. To the extent reasonably
possible, each Lender shall designate an alternate Lending Installation with
respect to its Eurodollar Loans to reduce any liability of the Borrower to such
Lender under Sections 3.1, 3.2, and 3.5 or to avoid the unavailability of
Eurodollar Advances under Section 3.3, so long as such designation is not, in
the reasonable judgment of such Lender, disadvantageous to such Lender. Each
Lender shall deliver a written statement of such Lender to the Borrower (with a
copy to the Agent) as to the amount due, if any, under Section 3.1, 3.2, 3.4, or
3.5. Such written statement shall set forth in reasonable detail the
calculations upon which such Lender determined such amount and shall be final,
conclusive and
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binding on the Borrower in the absence of manifest error. Determination of
amounts payable under such Sections in connection with a Eurodollar Loan shall
be calculated as though each Lender funded its Eurodollar Loan through the
purchase of a deposit of the type and maturity corresponding to the deposit used
as a reference in determining the Eurodollar Rate applicable to such Loan,
whether in fact that is the case or not. Unless otherwise provided herein, the
amount specified in the written statement of any Lender shall be payable on
demand after receipt by the Borrower of such written statement. The obligations
of the Borrower under Sections 3.1, 3.2, 3.4, and 3.5 shall survive payment of
the Obligations and termination of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Initial Advance and Release of Cash Collateral. The Lenders shall
not be required to make the initial Advance hereunder and the Issuing Lender
shall not be required to effect the Facility B L/C Collateral Release unless the
Borrower has furnished to the Agent with sufficient copies for the Lenders:
(i) A copy of the articles of incorporation of the Borrower,
together with all amendments thereto, certified by the appropriate governmental
officer in its jurisdiction of incorporation.
(ii) A certificate of good standing of the Borrower, certified
by the appropriate governmental officer in its jurisdiction of incorporation.
(iii) A copy, certified by the Secretary or Assistant
Secretary of the Borrower, of its by-laws, together with all amendments thereto.
(iv) Copies, certified by the Secretary or Assistant Secretary
of the Borrower, of its Board of Directors' resolutions (and resolutions of
other bodies, if any are deemed necessary by counsel for the Agent) authorizing
the execution of the Loan Documents.
(v) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Borrower, which shall identify by name and title and
bear the signature of the officers of the Borrower authorized to sign the Loan
Documents and to make borrowings hereunder, upon which certificate the Agent and
the Lenders shall be entitled to rely until informed of any change in writing by
the Borrower.
(vi) Notes payable to the order of each of the Lenders in the
amounts of their respective Commitments under each of the Facilities.
(vii) The Security Agreement and the Collateral Assignment,
each duly executed by an Authorized Officer of the Borrower.
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(viii) Duly executed UCC-1 financing statements and fixtures
filings describing the security interest of the Agent on behalf of the Lenders
in the collateral covered by the Collateral Documents in which a security
interest may be perfected by filing UCC-1 financing statements and fixture
filings, other than fixture filings covering billboards, and any other
documents, agreements or instruments that the Agent or its counsel requests to
perfect the security interest of the Agent in the collateral covered by the
Collateral Documents, other than ground leases and vehicles covered by
certificates of title.
(ix) Copies of searches of financing statements filed under
the Uniform Commercial Code, together with tax lien and judgment searches with
respect to the assets of the Borrower in such jurisdictions as the Agent may
request.
(x) A copy of the articles of incorporation of Holdings,
together with all amendments thereto, certified by the appropriate governmental
officer in its jurisdiction of incorporation.
(xi) A certificate of good standing of Holdings, certified by
the appropriate governmental officer in its jurisdiction of incorporation.
(xii) A copy, certified by the Secretary or Assistant
Secretary of Holdings, of its by-laws, together with all amendments thereto.
(xiii) Copies, certified by the Secretary or Assistant
Secretary of Holdings, of its Board of Directors' resolutions (and resolutions
of other bodies, if any are deemed necessary by counsel for the Agent)
authorizing the execution of the Pledge Agreement.
(xiv) An incumbency certificate, executed by the Secretary or
Assistant Secretary of Holdings, which shall identify by name and title and bear
the signature of the officers of Holdings authorized to sign the Pledge
Agreement.
(xv) The Pledge Agreement duly executed by an authorized
officer of Holdings, together with stock certificates representing all of the
issued and outstanding capital stock of Holdings and stock power(s) with respect
thereto duly executed in blank.
(xvi) Copies of any amendments to the Mesirow 94 Documents and
the Mesirow 97 Documents providing for the transactions contemplated under this
Agreement, in form and substance satisfactory to the Agent in its sole
discretion, certified as true and correct and in full force and effect by the
Secretary or Assistant Secretary of the Borrower and Holdings.
(xvii) A copy of the Senior Note Indenture, in form and
substance satisfactory to the Agent in its sole discretion, certified as true
and correct and in full force and effect by the Secretary or Assistant Secretary
of the Borrower, together with any evidence requested by the Agent or its
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counsel that the Obligations constitute "Permitted Debt" permitted by clause (i)
of the definition of such term set forth in Section 1010 of the Senior Note
Indenture.
(xviii) A pro forma balance sheet and pro forma statement of
cash flow in form and substance satisfactory to the Agent for the most recently
ended fiscal quarter, an opening pro forma balance sheet as of the Closing Date
and a satisfactory opinion from the Chief Financial Officer of the Borrower and
Holdings, as to the solvency of Holdings and its Subsidiaries on a consolidated
basis, in each case after giving effect to the Western Outdoor Acquisition.
(xix) A pro forma Compliance Certificate (setting forth
calculations after giving effect to the Western Outdoor Acquisition as if it had
been completed on the first day of the most recently completed quarter)
indicating that the Borrower will be in compliance with Section 6.19.1 upon
consummation of the Western Outdoor Acquisition.
(xx) A written opinion of counsel to the Borrower and
Holdings, addressed to the Agent and the Lenders, in form and substance
satisfactory to the Agent and its counsel.
(xxi) Copies, certified by the Secretary of Assistant
Secretary of the Borrower, of the agreements, instruments, documents and
opinions evidencing or governing, or delivered in the Western Outdoor
Acquisition (including the Asset Purchase Agreement and the opinion(s) of
counsel to the Seller delivered thereunder, upon which the Agent and the Lenders
shall be entitled to rely, and the most recent financial statements of Western
Outdoor) and the organizational and capital structure of the Borrower and
Holdings after giving effect to the Western Outdoor Acquisition, which shall be
in form and substance satisfactory to the Agent, including all legal and tax
aspects thereof.
(xxii) Evidence satisfactory to the Agent and its counsel that
the Borrower, Holdings, and the Subsidiaries shall have obtained all necessary
directors and stockholders' approvals and made all material filings and
registrations with, or obtained all other material approvals, orders,
authorizations, franchises, consents, licenses, certificates and permits from,
federal, state and local regulatory or governmental bodies and authorities
(including, without limitation, state and local filing or recording offices),
and other Persons which are or may be required prerequisites to the consummation
of the Western Outdoor Acquisition and the validity, enforceability or
non-voidability of the Transaction Documents or the pledge of the capital stock
of the Borrower and its Subsidiaries or other assets subject to the Liens
created pursuant to the Collateral Documents.
(xxiii) Evidence satisfactory to the Agent that the Western
Outdoor Acquisition shall be consummated upon substantially the same terms as
contained in the Asset Purchase Agreement prior to or contemporaneously with the
making of the initial Advance hereunder.
(xxiv) (a) The insurance certificate described in Section
5.19, (b) insurance certificates or binders for all insurance required to be
maintained by the Borrower pursuant to
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Section 6.6.1 naming the Agent, on behalf of the Lenders, as loss payee for any
casualty policies and additional insured for any liability policies in form and
substance acceptable to the Agent, and (c) evidence of the Key Man Life
Insurance, together with an assignment thereof to the Agent, on behalf of the
Lenders, as loss payee.
(xxv) Payment to First Chicago of (a) the fees owing to it
pursuant to the Fee Letter, and (b) all costs, internal charges and
out-of-pocket expenses required to be paid by the Borrower pursuant to Section
9.6 and for which an invoice has been submitted to the Borrower.
(xxvi) Evidence that the Credit Agreement dated as of May 20,
1998 between the Borrower and First Chicago has been terminated and all
"Obligations", as defined therein, have been paid in full, other than with
respect to Facility B Letter of Credit.
(xxvii) Evidence that the Interest Exchange Agreement dated as
of May 14, 1997 between the Borrower and First Chicago has been terminated and
all Rate Hedging Obligations of the Borrower thereunder have been paid in full.
(xxviii) Written money transfer instructions, in substantially
the form of Exhibit "H" hereto, addressed to the Agent and signed by an
Authorized Officer, together with such other related money transfer
authorizations as the Agent may have reasonably requested.
(xxix) Such other documents as any Lender or its counsel may
have reasonably requested.
4.2 Each Advance and Release of Cash Collateral. The Lenders shall not
be required to make any Advance under a Facility (other than an Advance that,
after giving effect thereto and to the application of the proceeds thereof, does
not increase the aggregate amount of outstanding Advances under such Facility)
and the Issuing Lender shall not be required to effect the Facility B L/C
Collateral Release unless on the applicable Borrowing Date (after giving effect
to the Western Outdoor Acquisition):
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V
are true and correct as of such Borrowing Date except to the extent any such
representation or warranty is stated to relate solely to an earlier date, in
which case such representation or warranty shall be true and correct on and as
of such earlier date.
Each Borrowing Notice with respect to each such Advance shall
constitute a representation and warranty by the Borrower that the conditions
contained in Sections 4.2(i) and (ii) have been satisfied. Any Lender may
require a duly completed Compliance Certificate (after giving effect to the
contemplated Advance) as a condition to making an Advance.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
5.1 Corporate Existence and Standing. The Borrower and each of its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted.
5.2 Authorization and Validity. The Borrower has the corporate power
and authority and legal right to execute and deliver the Loan Documents and to
perform its obligations thereunder. The execution and delivery by the Borrower
of the Loan Documents and the performance of its obligations thereunder have
been duly authorized by proper corporate proceedings, and the Loan Documents
constitute legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally.
5.3 No Conflict; Government Consent. Neither the execution and delivery
by the Borrower of the Loan Documents, nor the consummation of the transactions
therein contemplated, nor compliance with the provisions thereof will (a) to the
Borrower's knowledge, violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Borrower or any of its Subsidiaries
or (b) violate the Borrower's or any Subsidiary's articles of incorporation or
by-laws or the provisions of any indenture, instrument or agreement to which the
Borrower or any of its Subsidiaries is a party or is subject, or by which it, or
its Property, is bound, or conflict with or constitute a default thereunder, or
(c) result in the creation or imposition of any Lien in, of or on the Property
of the Borrower or a Subsidiary pursuant to the terms of any such indenture,
instrument or agreement (other than the Lien created by the Security Agreement).
No material order, consent, approval, license, authorization, or validation of,
or filing, recording or registration with, or exemption by, any governmental or
public body or authority, or any subdivision thereof, which has not been
obtained by the Borrower or any of its Subsidiaries, is required to be obtained
by the Borrower or any of its Subsidiaries in connection with the execution,
delivery and performance of, or the legality, validity, binding effect or
enforceability of, any of the Loan Documents.
5.4 Financial Statements. The June 30, 1998 consolidated financial
statements of the Borrower and its Subsidiaries heretofore delivered to the
Lenders were prepared in accordance with generally accepted accounting
principles in effect on the date such statements were prepared and fairly
present the consolidated financial condition and operations of the Borrower and
its Subsidiaries at such date and the consolidated results of their operations
for the period then ended.
5.5 Material Adverse Change. Since June 30, 1998, there has been no
change in the business, Property, prospects, condition (financial or otherwise)
or results of operations of the
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Borrower and its Subsidiaries which could reasonably be expected to have a
Material Adverse Effect.
5.6 Taxes. The Borrower and its Subsidiaries have filed all United
States federal tax returns and all other tax returns which are required to be
filed and have paid all taxes due pursuant to said returns or pursuant to any
assessment received by the Borrower or any of its Subsidiaries, except such
taxes, if any, as are being contested in good faith and as to which adequate
reserves have been provided in accordance with Agreement Accounting Principles
and as to which no Lien exists. The United States income tax returns of the
Borrowers and their Subsidiaries have been audited by the Internal Revenue
Service through the fiscal year ended December 31, 1992. No tax liens have been
filed and no claims are being asserted with respect to any such taxes. The
charges, accruals and reserves on the books of the Borrower and its Subsidiaries
in respect of any taxes or other governmental charges are adequate.
5.7 Litigation and Contingent Obligations. Except as set forth on
Schedule "4" hereto, there is no (i) litigation or arbitration pending, (ii)
governmental investigation, proceeding or inquiry of which the Borrower has
received notice pending, or (iii) to the knowledge of any of its officers,
litigation, arbitration, governmental investigation, proceeding or inquiry
threatened against or affecting the Borrower or any of its Subsidiaries, which
could reasonably be expected to have a Material Adverse Effect or which seeks to
prevent, enjoin or delay the making of the Advances. Other than any liability
incident to such litigation, arbitration or proceedings, the Borrower has no
material contingent obligations not provided for or disclosed in the financial
statements referred to in Section 5.4.
5.8 Subsidiaries. Schedule "2" hereto contains an accurate list of all
Subsidiaries of the Borrower, setting forth their respective jurisdictions of
incorporation and the percentage of their respective capital stock owned by the
Borrower or other Subsidiaries. All of the issued and outstanding shares of
capital stock of such Subsidiaries have been duly authorized and issued and are
fully paid and non-assessable.
5.9 ERISA. The Borrower has no Unfunded Liabilities. Neither the
Borrower nor any other member of the Controlled Group has incurred, or is
reasonably expected to incur, any withdrawal liability to Multiemployer Plans.
Each Plan complies in all material respects with all applicable requirements of
law and regulations, no Reportable Event has occurred with respect to any Plan,
neither the Borrower nor any other member of the Controlled Group has withdrawn
from any Plan or initiated steps to do so, and no steps have been taken to
reorganize or terminate any Plan.
5.10 Accuracy of Information. No information, exhibit or report
furnished by the Borrower or any of its Subsidiaries to the Agent or to any
Lender in connection with the negotiation of, or compliance with, the Loan
Documents contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein not
misleading. The projections and pro forma determinations delivered to the Agent
and the Lenders are reasonable and are based on reasonable assumptions of the
Borrower's projections.
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5.11 Regulation U. Margin stock (as defined in Regulation U)
constitutes less than 25% of the value of those assets of the Borrower and its
Subsidiaries which are subject to any limitation on sale, pledge, or other
restriction hereunder.
5.12 Material Agreements. Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any charter or other
corporate restriction which could reasonably be expected to have a Material
Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in (i) any agreement to which it is a party, which default
could reasonably be expected to have a Material Adverse Effect or (ii) any
agreement or instrument evidencing or governing Material Indebtedness.
5.13 Compliance With Laws, Etc. The Borrower and its Subsidiaries have
materially complied with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof, having jurisdiction over the conduct of their respective
businesses or the ownership of their respective Property. The Borrower and the
Subsidiaries have obtained all material franchises, licenses, consents,
approvals and authorizations granted or issued by any public or governmental
body, agency or authority necessary and appropriate to operate their respective
businesses and all such franchises, licenses, certificates, consents, approvals
and authorizations are in full force and effect.
5.14 Ownership of Properties. Except as set forth on Schedule "3"
hereto, on the date of this Agreement, the Borrower and its Subsidiaries will
have good title, free of all Liens other than those permitted by Section 6.18,
to all of the Property and assets reflected in the financial statements as owned
by it.
5.15 Plan Assets; Prohibited Transactions. The Borrower is not an
entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section
2510.3-101 of an employee benefit plan (as defined in Section 3(3) of ERISA)
which is subject to Title I of ERISA or any plan (within the meaning of Section
4975 of the Code); neither the execution of this Agreement nor the making of
Loans hereunder gives rise to a prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code; and "benefit plan investors"
(as defined in 29 C.F.R. Section 2510.3-101(f)) do not own 25% or more of the
value of any class of equity interests in the Borrower.
5.16 Environmental Matters. In the ordinary course of its business, the
officers of the Borrower consider the effect of Environmental Laws on the
business of the Borrower and its Subsidiaries, in the course of which they
identify and evaluate potential risks and liabilities accruing to the Borrower
due to Environmental Laws. On the basis of this consideration, the Borrower has
concluded that Environmental Laws cannot reasonably be expected to have a
Material Adverse Effect. Neither the Borrower nor any Subsidiary has received
any notice to the effect that its operations are not in material compliance with
any of the requirements of applicable Environmental Laws or the subject of any
federal or state investigation evaluating whether any remedial action is
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needed to respond to a release of any toxic or hazardous waste or substance into
the environment, which non-compliance or remedial action could reasonably be
expected to have a Material Adverse Effect.
5.17 Investment Company Act. Neither the Borrower nor any Subsidiary
thereof is an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
5.18 Public Utility Holding Company Act. Neither the Borrower nor any
Subsidiary 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.
5.19 Insurance. The certificate signed by the President or Chief
Financial Officer of the Borrower, that attests to the existence and adequacy
of, and summarizes, the insurance program carried by the Borrower and that has
been furnished by the Borrower to the Agent and the Lenders, is complete and
accurate as of the date of this Agreement. This summary includes the insurer's
or insurers' name(s), policy number(s), expiration date(s), amount(s) of
coverage, type(s) of coverage, exclusion(s), and deductibles. This summary also
includes similar information, and describes any reserves, relating to any
self-insurance program that is in effect.
5.20 Solvency. (i) Immediately after the consummation of the
transactions to occur on the Closing Date and immediately following the making
of each Loan and after giving effect to the application of the proceeds of such
Loans, (a) the fair value of the assets of the Borrower and its Subsidiaries on
a consolidated basis, at a fair valuation, will exceed the debts and
liabilities, subordinated, contingent or otherwise, of the Borrower and its
Subsidiaries on a consolidated basis; (b) the present fair saleable value of the
property of the Borrower and its Subsidiaries on a consolidated basis will be
greater than the amount that will be required to pay the probable liability of
the Borrower and its Subsidiaries on a consolidated basis on their debts and
other liabilities, subordinated, contingent or otherwise, as such debts and
other liabilities become absolute and matured; (c) the Borrower and its
Subsidiaries on a consolidated basis will be able to pay their debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) the Borrower and its
Subsidiaries on a consolidated basis will not have unreasonably small capital
with which to conduct the businesses in which they are engaged as such
businesses are now conducted and are proposed to be conducted after the date
hereof.
(ii) The Borrower does not intend to, or to permit any of its
Subsidiaries to, and does not believe that it or any of its Subsidiaries will,
incur debts beyond its ability to pay such debts as they mature, taking into
account the timing of and amounts of cash to be received by it or any such
Subsidiary and the timing of the amounts of cash to be payable on or in respect
of its Indebtedness or the Indebtedness of any such Subsidiary.
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5.21 Year 2000. The Borrower has made a full and complete assessment of
the Year 2000 Issues and has a realistic and achievable program for remediating
the Year 2000 Issues on a timely basis (the "Year 2000 Program"). Based on such
assessment and on the Year 2000 Program the Borrower does not reasonably
anticipate that Year 2000 Issues will have a Material Adverse Effect.
ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1 Financial Reporting. The Borrower will maintain, for itself and
each Subsidiary, a system of accounting established and administered in
accordance with generally accepted accounting principles, and furnish to the
Lenders:
(i) Within 120 days after the close of each of its fiscal
years, unqualified audit reports certified by independent certified public
accountants, acceptable to the Lenders, prepared in accordance with Agreement
Accounting Principles on a consolidated basis for Holdings and its Subsidiaries
and for the Borrower and its Subsidiaries, including balance sheets as of the
end of such period, related profit and loss and reconciliation of surplus
statements, and statements of cash flows, accompanied by (a) any management
letters prepared by said accountants, and (b) a certificate of said accountants
that, in the course of their examination necessary for their certification of
the foregoing, they have obtained no knowledge of any Default or Unmatured
Default, or if, in the opinion of such accountants, any Default or Unmatured
Default shall exist, stating the nature and status thereof.
(ii) Within 90 days after the close of each of its fiscal
years, a draft form of the annual statements required under Section 6.1(i).
(iii) Within 45 days after the close of each of its fiscal
quarters, for Holdings and its Subsidiaries and for the Borrower and its
Subsidiaries, consolidated unaudited balance sheets as at the close of each such
period and consolidated profit and loss and reconciliation of surplus statements
and a statement of cash flows for the period from the beginning of such fiscal
year to the end of such quarter and a management summary, all certified by the
chief financial officer of Holdings and the Borrower, respectively.
(iv) Together with the financial statements required under
Sections 6.1(i) and (iii), a Compliance Certificate showing the calculations
necessary to determine compliance with this Agreement and stating that no
Default or Unmatured Default exists, or if any Default or Unmatured Default
exists, stating the nature and status thereof.
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<PAGE> 52
(v) Within 35 days after the end of each month, other than any
month on the last day of which a fiscal quarter ends, commencing with the month
ending October 31, 1998, for the Borrower and its Subsidiaries, a consolidated
profit and loss statement and statement of cash flows for the period from the
beginning of the then-current fiscal year to the end of such month, each
certified by the Chief Financial Officer of the Borrower.
(vi) As soon as possible and in any event within 10 days after
the Borrower knows that any Reportable Event has occurred with respect to any
Plan, a statement, signed by the Chief Financial Officer of the Borrower,
describing said Reportable Event and the action which the Borrower proposes to
take with respect thereto.
(vii) As soon as possible and in any event within 10 days
after receipt by the Borrower, a copy of (a) any notice or claim to the effect
that the Borrower or any of its Subsidiaries is or may be liable to any Person
as a result of the release by the Borrower, any of its Subsidiaries, or any
other Person of any toxic or hazardous waste or substance into the environment,
and (b) any notice alleging any violation of any federal, state or local
environmental, health or safety law or regulation by the Borrower or any of its
Subsidiaries, which, in either case, could reasonably be expected to have a
Material Adverse Effect.
(viii) As soon as available, but in any event not less than 30
days prior to the beginning of each fiscal year of the Borrower, a copy of the
plan and forecast (including a projected consolidated income statement and funds
flow statement) of the Borrower for such fiscal year.
(ix) Promptly upon the furnishing thereof to the shareholders
of the Borrower or Holdings, copies of all financial statements, reports and
proxy statements so furnished.
(x) Promptly upon the filing thereof, copies of all
registration statements and annual, quarterly, monthly or other regular reports
which Holdings, the Borrower, or any of their respective Subsidiaries files with
the Securities and Exchange Commission.
(xi) Such other information (including non-financial
information) as the Agent or any Lender may from time to time reasonably
request.
6.2 Use of Proceeds. The Borrower will use the proceeds of Advances (i)
under Facility A and Facility B, to finance the Western Outdoor Acquisition and
to pay transaction expenses related thereto, (ii) under Facility B, to pay its
reimbursement obligations under Section 2.18.2(a), (iii) under Facility C, for
working capital and general corporate purposes, and (iv) under all Facilities,
to repay outstanding Advances. The Borrower will not, nor will it permit any
Subsidiary to, use any of the proceeds of the Advances to purchase or carry any
"margin stock" (as defined in Regulation U).
6.3 Notice of Default, Etc. The Borrower will, and will cause each
Subsidiary to, give prompt notice in writing to the Lenders of the occurrence of
any Default or Unmatured Default and
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<PAGE> 53
of any other development, financial or otherwise (including, without limitation,
developments with respect to Year 2000 Issues), which could reasonably be
expected to have a Material Adverse Effect.
6.4 Conduct of Business. The Borrower will, and will cause each
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted and do all things necessary to remain duly incorporated or organized,
validly existing and in good standing as a domestic corporation or partnership
in its jurisdiction of incorporation or organization and maintain all requisite
authority to conduct its business in each jurisdiction in which the failure to
maintain such authority could reasonably be expected to have a Material Adverse
Effect.
6.5 Taxes. The Borrower will, and will cause each Subsidiary to, file
in a timely manner complete and correct United States federal and applicable
foreign, state and local tax returns required by law and pay when due all taxes,
assessments and governmental charges and levies upon it or its income, profits
or Property, except those which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been set aside in
accordance with Agreement Accounting Principles.
6.6 Insurance.
6.6.1 Property Insurance. The Borrower will, and will
cause each Subsidiary to, maintain with financially sound and reputable
insurance companies insurance on all their Property in such amounts and covering
such risks as is consistent with sound business practices of businesses engaged
in similar activities in similar geographic areas, including insurance for
general public liability and worker's compensation, and on terms reasonably
satisfactory to the Agent (with the Agent listed as loss payee or as an
additional insured, as appropriate), and the Borrower will furnish to any Lender
upon request full information as to the insurance carried. The Borrower will
take all actions (including the execution of appropriate documentation) from
time to time reasonably requested by the Agent or the Required Lenders in order
to maintain the assignment or perfection of the security interest of the Agent
on behalf of the Lenders therein. Unless a Default or Unmatured Default has
occurred and is continuing, the Borrower shall be entitled to receive the
proceeds of any insurance on the Property of the Borrower and its Subsidiaries
provided and to the extent that such insurance proceeds are used to acquire
replacement Property within the later to occur of (i) three months after the
occurrence of the casualty underlying the payment of such proceeds and (ii)
three months after the receipt of such insurance proceeds by the Borrower or a
Subsidiary. The Borrower will deliver to the Agent any insurance proceeds not
used to acquire replacement Property within the applicable period. The Agent
shall direct the application of such insurance proceeds in accordance with
Section 2.2.6. Notwithstanding the foregoing, the Borrower shall not be
obligated to pay any amount under this Section 6.6.1 in excess of the Principal
Obligations Amount.
6.6.2 Key Man Life Insurance. The Borrower will
maintain or cause to be maintained in effect the Key Man Life Insurance at all
times during the term of this Agreement commencing on the Closing Date, and will
take all actions (including the execution of appropriate documentation) from
time to time reasonably requested by the Agent or any Lender in order to
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<PAGE> 54
maintain the assignment or perfection of the security interest of the Agent on
behalf of the Lenders therein. The Required Lenders shall apply any proceeds
received in connection with the Key Man Life Insurance in accordance with
Section 2.2.6 but may, in their discretion, make such application either upon
receipt of such proceeds or at such later date as the Required Lenders may
elect.
6.7 Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply materially with all laws, rules, regulations, orders,
writs, judgments, injunctions, decrees or awards to which it may be subject.
6.8 Maintenance of Properties. The Borrower will, and will cause each
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
its Property in good repair, working order and condition, and make all necessary
and proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times.
6.9 Inspection. The Borrower will, and will cause each Subsidiary to,
permit the Lenders, by their respective representatives and agents, to inspect
any of the Property, corporate books and financial records of the Borrower and
each Subsidiary, to examine and make copies of the books of accounts and other
financial records of the Borrower and each Subsidiary, and to discuss the
affairs, finances and accounts of the Borrower and each Subsidiary with, and to
be advised as to the same by, their respective officers at such reasonable times
and intervals as the Lenders may designate, the expenses of any such inspection
to be paid in accordance with Section 4.1.1 of the Security Agreement.
6.10 Dividends. The Borrower will not, nor will it permit any
Subsidiary to, declare or pay any dividends on its capital stock (other than
dividends payable in its own capital stock) or redeem, repurchase or otherwise
acquire or retire any of its capital stock at any time outstanding, except that
any Subsidiary may declare and pay dividends to the Borrower or to a
Wholly-Owned Subsidiary.
6.11 Indebtedness. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(i) The Loans.
(ii) Indebtedness existing on the Closing Date and described
in Schedule "3" hereto.
(iii) Contingent Obligations permitted under Section 6.17.
(iv) Rate Hedging Obligations.
(v) Indebtedness of any Wholly-Owned Subsidiary to the
Borrower.
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<PAGE> 55
(vi) (a) Capitalized Leases of the Borrower or any Subsidiary,
and (b) Indebtedness of the Borrower or any Subsidiary under purchase money
mortgages or secured by purchase money security interests so long as (x) such
Indebtedness is not secured by any Property of the Borrower or any Subsidiary
other than the Property so acquired and (y) such Indebtedness is created prior
to, at the time of or within six months after the later of the acquisition, the
completion of construction or the commencement of full operation of the related
Property; provided however, that the aggregate amount of Indebtedness under
clauses (a) and (b) does not exceed (together with any Capitalized Lease
Obligations described in Schedule "3" hereto) $5,000,000 at any one time
outstanding.
6.12 Merger. The Borrower will not, nor will it permit any Subsidiary
to, merge or consolidate with or into any other Person, except that a Subsidiary
may merge with and into the Borrower or a Wholly-Owned Subsidiary.
6.13 Sale of Assets. (a) The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise voluntarily dispose of its Property, to
any other Person except:
(i) Sales of vehicles or billboards the proceeds of which
(together with the proceeds of any Condemnations thereof) do not exceed $150,000
during any fiscal quarter or $500,000 during any four fiscal quarters.
(ii) Any Sale contemporaneous with, or the proceeds of which
are applied to the Obligations in connection with, the termination of this
Agreement.
(iii) Sales of equipment (other than vehicles and billboards)
and inventory in the ordinary course of business and upon fair and reasonable
terms no less favorable to the Borrower or such Subsidiary than the Borrower or
such Subsidiary would obtain in a comparable arms-length transaction.
(iv) A Sale of (A) the headquarters building of Western
Outdoor located in Omaha, Nebraska, (B) the office and production facility of
the Borrower located in Baxter Springs, Kansas, and (C) other real property of
the Borrower within six months of the Borrower's acquisition thereof, provided,
in each case, that the Borrower complies with the provisions of Sections 2.2.3
and/or 6.13(b).
(v) A Sale of the Borrower's assets comprising its line of
business of leasing outdoor advertising space on benches at bus stops, provided
that (A) the deferred portion, if any, of the purchase price of such Sale is
evidenced by a promissory note that is delivered to the Agent pursuant to
Section 4.4 of Security Agreement, and (B) the Borrower complies with the
provisions set forth in Sections 2.2.3 and/or 6.13(b).
(vi) Sales of vehicles or billboards the proceeds of which
(together with the proceeds of any Condemnations thereof) exceed $150,000 during
any fiscal quarter or $500,000
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<PAGE> 56
during any four fiscal quarters, provided that the Borrower complies with the
provisions set forth in Sections 2.2.3 and/or 6.13(b) with respect to the Net
Proceeds of such Sales in excess of such amounts.
(vii) Leases, sales or other dispositions of its Property not
permitted by any of Sections 6.13(a)(i) through 6.13(a)(vi) that, together with
all other such Property of the Borrower and its Subsidiaries previously leased,
sold or voluntarily disposed of as permitted by this clause (vii) of this
Section 6.13 during the twelve-month period ending with the month in which any
such lease, sale or other disposition occurs, do not constitute a Substantial
Portion, provided that the Borrower shall make a mandatory payment or prepayment
under the Facilities in an amount equal to 100% of the Net Proceeds thereof
pursuant to Section 2.2.3.
(b) In the event of a Sale permitted by any of Sections
6.13(a)(iv) through 6.13(a)(vi), the Borrower may, if it so elects, give the
Agent written notice in the form of Exhibit "I" hereto (a "Reinvestment Notice")
within 10 days of the date of such Sale that it intends to invest the Net
Proceeds thereof in assets that shall be used in the business of leasing outdoor
advertising space within 90 days of the date of such Sale if such Sale is
permitted by Section 6.13(a)(vi) or 180 days thereof (such 90-day or 180-day
period, a "Reinvestment Period") if such Sale is permitted by Section
6.13(a)(iv) or 6.13(a)(v). In the event that the Borrower does not reinvest the
proceeds of any such Sale within the applicable Reinvestment Period, it shall
make a mandatory payment or prepayment under the Facilities pursuant to Section
2.2.3.
(c) The Borrower shall not be required to comply with the
provisions of Section 2.2.3 or 6.13(b) with respect to Sales permitted by
Sections 6.13(a)(i) through 6.13 (a)(iii).
6.14 Sale of Accounts. The Borrower will not, nor will it permit any
Subsidiary to, sell or otherwise dispose of any notes receivable or accounts
receivable, with or without recourse except in the ordinary course of business
on terms and conditions customary in the Borrower's or such Subsidiary's
industry.
6.15 Sale and Leaseback. The Borrower will not, nor will it permit any
Subsidiary to, enter into any Sale and Leaseback Transactions, except one or
more Sale and Leaseback Transactions not in excess of $1,000,000 in the
aggregate with Courtesy Leasing, Inc. entered into prior to October 31, 1998 and
pursuant to which the Borrower is not obligated to make payments for one year
from the dates thereof.
6.16 Investments and Acquisitions. The Borrower will not, nor will it
permit any Subsidiary to, make or suffer to exist any Investments (including
without limitation, loans and advances to, and other Investments in,
Subsidiaries), or commitments therefor, or to create any Subsidiary or to become
or remain a partner in any partnership or joint venture, or to make any
Acquisition of any Person, except:
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(i) Short-term obligations of, or fully guaranteed by, the
United States of America.
(ii) Commercial paper rated A-1 or better by Standard & Poor's
Ratings Group or P-1 or better by Moody's Investors Service, Inc.
(iii) Demand deposit accounts maintained in the ordinary
course of business.
(iv) Certificates of deposit issued by and time deposits with
commercial banks (whether domestic or foreign) having capital and surplus in
excess of $100,000,000.
(v) Investments in Subsidiaries and other Investments in
existence on the Closing Date and described in Schedule "2" hereto.
(vi) The Western Outdoor Acquisition.
(vii) Permitted Acquisitions.
(viii) Investments financed with the proceeds of any Sale and
Leaseback Transaction with Courtesy Leasing, Inc. permitted by Section 6.15.
6.17 Contingent Obligations. The Borrower will not, nor will it permit
any Subsidiary to, make or suffer to exist any Contingent Obligation (including,
without limitation, any Contingent Obligation with respect to the obligations of
a Subsidiary), except (i) the Facility B Letter of Credit, (ii) by endorsement
of instruments for deposit or collection in the ordinary course of business, and
(iii) franchise bonds, performance bonds, Letters of Credit required in the
ordinary course of business and similar bonds, indemnities, and sureties, in
each case not representing, securing, or otherwise involving Indebtedness for
borrowed money.
6.18 Liens. The Borrower will not, nor will it permit any Subsidiary
to, create, incur, or suffer to exist any Lien in, of or on the Property of the
Borrower or any of its Subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or
levies on its Property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in good faith and
by appropriate proceedings and for which adequate reserves in accordance with
generally accepted principles of accounting shall have been set aside on its
books.
(ii) Liens imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on its books.
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(iii) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation.
(iv) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not in
any material way affect the marketability of the same or interfere with the use
thereof in the business of the Borrower or the Subsidiaries.
(v) Liens existing on the Closing Date and described in
Schedule "3" hereto.
(vi) Liens relating to Capitalized Leases which secure
Capitalized Lease Obligations up to the amount permitted by Section 6.11(vi)
hereof.
(vii) Liens in favor of the Agent and the Lenders granted in
connection with the Key Man Life Insurance.
(viii) Liens in favor of the Agent and the Lenders granted
pursuant to any Collateral Document.
6.19 Financial Covenants.
6.19.1 Total Leverage Ratio. The Borrower shall
maintain, on a consolidated basis for itself and the Subsidiaries, as of the end
of each fiscal quarter, a Total Leverage Ratio not exceeding the ratio set forth
opposite the date on which such fiscal quarter ends:
<TABLE>
<CAPTION>
MAXIMUM
DATE RATE
---- ----
<S> <C>
12/31/98 8.30:1.00
3/31/99 8.00:1.00
6/30/99 7.75:1.00
9/30/99 7.50:1.00
12/31/99 7.25:1.00
3/31/00 7.00:1.00
6/30/00 6.75:1.00
9/30/00 6.50:1.00
</TABLE>
6.19.2 Pro Forma Debt Service Coverage Ratio. The
Borrower shall maintain, on a consolidated basis for itself and the
Subsidiaries, as of the end of each fiscal quarter,
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<PAGE> 59
a Pro Forma Debt Service Coverage Ratio not less than the ratio set forth
opposite the date on which such fiscal quarter ends:
<TABLE>
<CAPTION>
DATE RATIO
---- -----
<S> <C>
12/31/98 1.05:1.00
3/31/99 1.20:1.00
6/30/99 1.00:1.00
9/30/99 and each 1.15:1.00
fiscal quarter end thereafter
</TABLE>
6.19.3 Capital Expenditures. The Borrower will not,
nor will it permit any Subsidiary to, expend, or be committed to expend, for
Capital Expenditures during any one fiscal quarter in the aggregate for the
Borrower and its Subsidiaries in excess of the amount set forth below opposite
the date on which such fiscal quarter ends:
<TABLE>
<CAPTION>
DATE AMOUNT
---- ------
<S> <C>
12/31/98 $ 1,000,000
3/31/99 $ 900,000
6/30/99 $ 800,000
9/30/99 $ 500,000
12/31/99 and $ 800,000
each fiscal quarter
end thereafter
</TABLE>
provided, however, that amounts permitted to be expended during any fiscal
quarter but not so expended may be expended during the immediately succeeding
four consecutive fiscal quarters as long as (i) no Default or Unmatured Default
exists or would exist after giving effect to such expenditure, and (ii) the
aggregate amount of Capital Expenditures for the Borrower and its Subsidiaries
during any period of four consecutive fiscal quarters does not exceed
$3,200,000.
6.20 Affiliates. The Borrower will not, nor will it permit any
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate (other than a Wholly-Owned Subsidiary) except in the
ordinary course of business and pursuant to the reasonable requirements of the
Borrower's or such Subsidiary's business and upon fair and reasonable terms no
less favorable to the Borrower or such Subsidiary than the Borrower or such
Subsidiary would obtain in a comparable arms-length transaction.
6.21 Financial Undertakings. The Borrower will not, nor will it permit
any Subsidiary to, enter into or remain liable upon any Financial Undertaking,
except Rate Hedging Obligations.
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6.22 Reinvestment of Net Proceeds. With respect to each Sale for which
the Borrower has given a Reinvestment Notice, the Borrower shall have
reinvested, within the Applicable Reinvestment Period, the Net Proceeds
identified in such Reinvestment Notice or shall have delivered such Net Proceeds
to the Agent to the extent not previously so delivered or reinvested.
6.23 Year 2000. The Borrower will take and will cause each of its
Subsidiaries to take all such actions as are reasonably necessary to
successfully implement the Year 2000 Program and to ensure that Year 2000 Issues
will not have a Material Adverse Effect. At the request of the Agent or any
Lender, the Borrower will provide a description of the Year 2000 Program,
together with any updates or progress reports with respect thereto.
6.24 Collateral Security; Further Assurances.
6.24.1 Grant of Security. As security for the payment
of the Secured Obligations, the Borrower shall grant, or cause to be granted by
Holdings, to the Agent on behalf of the Lenders a Lien on and security interest
in all of the following, whether now or hereafter existing or acquired: (i) all
of the outstanding stock of the Borrower and all proceeds thereof, all as more
specifically described in the Pledge Agreement; and (ii) all of the outstanding
equity interests in any Subsidiary and all proceeds thereof, and all other
assets of the Borrower (other than real estate) and all proceeds thereof, all as
more specifically described in and subject to the provisions of the Security
Agreement.
6.24.2 Subsidiaries. The Borrower shall cause the
Secured Obligations to be and remain guaranteed in writing by each Subsidiary
pursuant to a guaranty in form and substance satisfactory to the Required
Lenders. As security for the payment of any Subsidiary's guaranty of the Secured
Obligations, the Borrower shall cause such Subsidiary to grant to the Agent on
behalf of the Lenders a Lien on and security interest in all of the assets of
such Subsidiary (other than real estate and interests therein), whether now or
hereafter existing or acquired, and all proceeds thereof, all as more
specifically described in and subject to the provisions of a security agreement
substantially identical to the Security Agreement with appropriate adjustments
for such Subsidiary. Upon execution of a guaranty and a security agreement by
any Subsidiary created or acquired (in accordance with the terms of this
Agreement) after the date of this Agreement, the Borrower shall also cause to be
delivered to the Agent such items evidencing legal existence, validity, power,
and authorization (including, without limitation, an opinion of counsel)
comparable to the items required with respect to Holdings pursuant to Section
4.1 as the Agent may reasonably require.
6.24.3 Additional Collateral; Further Assurances. At
the request of the Required Lenders, the Borrower shall, and shall cause such
Subsidiary to, execute and deliver to the Agent any additional documents,
agreements and instruments, including, without limitation, collateral
assignments of leases and leasehold mortgages, UCC-1 financing statements and
fixture filings, and take any other actions, deemed necessary by the Agent or
its counsel to create and maintain in favor of the Agent on behalf of the
Lenders a valid and perfected Lien on collateral
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<PAGE> 61
purported to be covered by the Security Agreement or any security agreement
executed and delivered by a Subsidiary pursuant to Section 6.24.2 and/or any
additional assets of the Borrower or any Subsidiary, including, without
limitation, ground leases and vehicles covered by certificates of title.
6.24.4 The Borrower shall not, and shall not permit
any Subsidiary to, enter into an agreement with any other Person that would
prohibit it from complying with the provisions of Section 6.24.3 or pursuant to
which a breach would occur or a Lien would be created or imposed by virtue of
such compliance.
6.24.5 Exercise of Rights. In connection with any
exercise by the Agent or any Lender of its right and remedies under the
Collateral Documents, it may be necessary to obtain the prior consent or
approval of certain Persons, including but not limited to applicable
governmental authorities. Upon the exercise by the Agent or the Lenders of any
power, right, privilege or remedy pursuant to any Collateral Document which
requires any consent, approval, registration, qualification or authorization of
any Person, the Borrower will execute and deliver, or will cause the execution
and delivery of, all applications, certificates, instruments, and other
documents and papers that the Agent or the Lenders may be required to obtain for
such consent, approval, registration, qualification or authorization. Without
limiting the generality of the foregoing, the Borrower will use its best efforts
to obtain from the appropriate Persons the necessary consents and approvals, if
any, for the effectuation of any sale or sales of pledged interests upon the
occurrence and during the continuance of a Default; and for the exercise of any
other right or remedy of the Agent and Lenders under any Collateral Document.
The Agent and the Lenders will cooperate with the Borrower in preparing the
filing with any Persons of all requisite applications required to be obtained by
the Borrower under this Section 6.24.5.
ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall
constitute a Default:
7.1 Any representation or warranty made (or deemed made pursuant to
Section 4.2) by or on behalf of the Borrower or any of its Subsidiaries to the
Lenders or the Agent under or in connection with this Agreement, any Loan, the
Facility B Letter of Credit or any certificate or information delivered in
connection with this Agreement or any other Transaction Document shall be
materially false on the date as of which made.
7.2 Nonpayment of principal of any Note when due, or nonpayment of
interest upon any Note or other obligations under any of the Loan Documents
within five days after the same becomes due.
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7.3 The breach by the Borrower of any of the terms or provisions of
Section 6.2, 6.6.2, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.16, 6.17, 6.18, 6.19,
6.21, 6.22, or 6.24.
7.4 The breach by the Borrower (other than a breach which constitutes a
Default under another Section of this Article VII) of any of the terms or
provisions of this Agreement which is not remedied within fifteen days after
written notice from the Agent or any Lender; provided, however, that if such
Default is susceptible of cure but cannot reasonably be cured within such
fifteen-day period, and the Borrower shall have commenced to cure such Default
within such fifteen-day period and thereafter diligently and expeditiously
proceeds to cure the same, such fifteen-day period shall be extended for an
additional period of time as is reasonably necessary for the Borrower in the
exercise of due diligence to cure such Default, such additional period not to
exceed thirty days.
7.5 Failure of Holdings, the Borrower or any of the Subsidiaries to pay
any Material Indebtedness when due; or the default by Holdings, the Borrower or
any of the Subsidiaries in the performance of any term, provision or condition
contained in any agreement under which any Material Indebtedness was created or
is governed, or any other event shall occur or condition exist, the effect of
which is to cause, or to permit the holder or holders of such Material
Indebtedness to cause, such Material Indebtedness to become due prior to its
stated maturity; or any Material Indebtedness of Holdings, the Borrower or any
of the Subsidiaries shall be declared to be due and payable or required to be
prepaid or repurchased (other than by a regularly scheduled payment) prior to
the stated maturity thereof; or Holdings, the Borrower or any of the
Subsidiaries shall not pay, or admit in writing its inability to pay, its debts
generally as they become due; or failure of the Obligations to constitute
"Permitted Debt" permitted by clause (i) of the definition of such term set
forth in Section 1010 of the Senior Note Indenture.
7.6 Holdings, the Borrower or any of the Subsidiaries shall (i) have an
order for relief entered with respect to it under the Federal bankruptcy laws as
now or hereafter in effect, (ii) make an assignment for the benefit of
creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment
of a receiver, custodian, trustee, examiner, liquidator or similar official for
it or any of its Property which constitutes a Substantial Portion, (iv)
institute any proceeding seeking an order for relief under the Federal
bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (v) take any corporate
action to authorize or effect any of the foregoing actions set forth in this
Section 7.6 or (vi) fail to contest in good faith any appointment or proceeding
described in Section 7.7.
7.7 Without the application, approval or consent of Holdings, the
Borrower or any of the Subsidiaries, a receiver, trustee, examiner, liquidator
or similar official shall be appointed for Holdings, the Borrower or any of the
Subsidiaries or any of its Property which constitutes a Substantial Portion, or
a proceeding described in Section 7.6(iv) shall be instituted against Holdings,
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the Borrower or any of the Subsidiaries and such appointment continues
undischarged or such proceeding continues undismissed or unstayed for a period
of 60 consecutive days.
7.8 Any court, government or governmental agency shall condemn, seize
or otherwise appropriate, or take custody or control of (each a "Condemnation"),
all or any portion of the Property of Holdings, the Borrower or any of the
Subsidiaries which, when taken together with all other Property of Holdings, the
Borrower and their Subsidiaries so condemned, seized, appropriated, or taken
custody or control of (but excluding proceeds from Condemnations of vehicles or
billboards to the extent that such proceeds have been reinvested in assets of a
like nature), during the twelve-month period ending with the month in which any
such Condemnation occurs, constitutes a Substantial Portion.
7.9 The Borrower or any of its Subsidiaries shall fail within 30 days
to pay, bond or otherwise discharge any judgment or order for the payment of
money in excess of $250,000, which is not stayed on appeal or otherwise being
appropriately contested in good faith.
7.10 There shall exist any Unfunded Liabilities or any Reportable Event
shall occur in connection with any Plan.
7.11 The Borrower or any other member of the Controlled Group shall
have been notified by the sponsor of a Multiemployer Plan that it has incurred
withdrawal liability to such Multiemployer Plan.
7.12 The Borrower or any other member of the Controlled Group shall
have been notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or is being terminated, within the
meaning of Title IV of ERISA, if as a result of such reorganization or
termination the aggregate annual contributions of the Borrower and the other
members of the Controlled Group (taken as a whole) to all Multiemployer Plans
which are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the
respective plan years of each such Multiemployer Plan immediately preceding the
plan year in which the reorganization or termination occurs.
7.13 The Borrower or any of its Subsidiaries shall be the subject of
any proceeding or investigation pertaining to the release by the Borrower or any
of its Subsidiaries, or any other Person of any toxic or hazardous waste or
substance into the environment, or any violation of any federal, state or local
environmental, health or safety law or regulation, which, in either case, could
reasonably be expected to have a Material Adverse Effect.
7.14 Any Change in Control shall occur.
7.15 The occurrence of any "default," as defined in any Transaction
Document (other than this Agreement or the Notes) or the breach of any of the
terms or provisions of any Transaction
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Document (other than this Agreement or the Notes), which default or breach
continues beyond any period of grace therein provided.
7.16 Nonpayment by the Borrower of any Rate Hedging Obligation beyond
any applicable grace period or the breach by the Borrower of any term, provision
or condition contained in any agreement, device or arrangement giving rise to
any Rate Hedging Obligation.
7.17 Any Collateral Document shall for any reason fail to create a
valid and perfected first priority security interest in any collateral purported
to be covered thereby, except as permitted by the terms of any Collateral
Document and except with regard to ground leases and vehicles covered by
certificates of title to the extent that the Required Lenders have elected not
to require the Borrower to deliver a valid and perfected first priority security
interest in such items of Collateral, or any Transaction Document (including the
Holdings Warrant only if issued) shall fail to remain in full force or effect or
any action shall be taken to discontinue or to assert the invalidity or
unenforceability of any such Transaction Document.
7.18 Holdings shall: (a) transact any business other than the ownership
of the stock of the Borrower and servicing the Converted Mesirow Equity
(including the payment of permitted dividends thereon) or any Indebtedness into
which the Converted Mesirow Equity may be converted pursuant to the terms
thereof, (b) have incurred any Indebtedness other than any Indebtedness into
which the Converted Mesirow Equity may be converted pursuant to the term
thereof, or (c) have amended or modified the Mesirow 94 Documents or the Mesirow
97 Documents, other than to permit the execution, delivery and performance by
Holdings and the Borrower of the Transaction Documents to which each is a party,
or voluntarily prepaid, defeased or in substance defeased, purchased, redeemed,
retired or otherwise acquired, any Converted Mesirow Equity or any Indebtedness
into which the Converted Mesirow Equity may be converted pursuant to the terms
thereof.
7.19 Twenty-five percent (25%) or more of the value of any class of
equity interests in the Borrower shall be held by "benefit plan investors"
within the meaning of 29 C.F.R. Section 2510.3-101(f).
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1 Acceleration. If any Default described in Section 7.6 or 7.7 occurs
with respect to the Borrower, the obligations of the Lenders to make Loans
hereunder shall automatically terminate and the Obligations shall immediately
become due and payable without any election or action on the part of the Agent
or any Lender. If any other Default occurs, the Required Lenders (or the Agent
at the direction of the Required Lenders) may terminate or suspend the
obligations of the Lenders to make Loans hereunder, or declare the Obligations
to be due and payable, or both, whereupon the
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Obligations shall become immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which the Borrower hereby
expressly waives.
If, after acceleration of the maturity of the Obligations or
termination of the obligations of the Lenders to make Loans hereunder as a
result of any Default (other than any Default as described in Section 7.6 or 7.7
with respect to the Borrower) and before any judgment or decree for the payment
of the Obligations due shall have been obtained or entered, the Required Lenders
(in their sole discretion) shall so direct, the Agent shall, by notice to the
Borrower, rescind and annul such acceleration and/or termination.
8.2 Amendments. Subject to the provisions of this Article VIII, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Transaction Documents or
changing in any manner the rights of the Lenders or the Borrower hereunder or
waiving any Default hereunder; provided, however, that no such supplemental
agreement shall, without the consent of each Lender affected thereby:
(i) Extend the Facility Termination Date or the final maturity
of any Loan or Note or the expiration date of the Facility B Letter of Credit or
the due date of an Unreimbursed Drawing or forgive all or any portion of the
principal amount thereof, or reduce the rate or extend the time of payment of
interest or fees thereon.
(ii) Reduce the percentage specified in the definition of
Required Lenders.
(iii) Reduce the amount of, or extend the payment dates for,
the mandatory payments required under Section 2.2, or increase the amount of the
Commitment of any Lender hereunder, or permit the Borrower to assign its rights
under this Agreement.
(iv) Amend this Section 8.2.
(v) Except as provided in the Collateral Documents, release
all or substantially all of the Collateral.
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent. The Agent may waive payment
of the fee required under Section 12.3.2 without obtaining the consent of any
other party to this Agreement.
8.3 Preservation of Rights. No delay or omission of the Lenders or the
Agent to exercise any right under the Transaction Documents shall impair such
right or be construed to be a waiver of any Default or an acquiescence therein,
and the making of a Loan notwithstanding the existence of a Default or the
inability of the Borrower to satisfy the conditions precedent to such Loan shall
not constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver,
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amendment or other variation of the terms, conditions or provisions of the
Transaction Documents whatsoever shall be valid unless in writing signed by the
Lenders required pursuant to Section 8.2, and then only to the extent in such
writing specifically set forth. All remedies contained in the Transaction
Documents or by law afforded shall be cumulative and all shall be available to
the Agent and the Lenders until the Obligations have been paid in full.
ARTICLE IX
GENERAL PROVISIONS
9.1 Survival of Representations. All representations and warranties of
the Borrower contained in this Agreement shall survive delivery of the Notes,
the making of the Loans and release of the cash collateral for the Facility B
Letter of Credit herein contemplated.
9.2 Governmental Regulation. Anything contained in this Agreement to
the contrary notwithstanding, no Lender shall be obligated to extend credit to
the Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.3 Headings. Section headings in the Transaction Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Transaction Documents.
9.4 Entire Agreement. The Transaction Documents embody the entire
agreement and understanding among the Borrower, Holdings, the Agent and the
Lenders and supersede all prior agreements and understandings among the
Borrower, Holdings, the Agent and the Lenders relating to the subject matter
thereof, other than the Fee Letter.
9.5 Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any of
its obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder. This Agreement shall not be construed so as to confer any
right or benefit upon any Person other than the parties to this Agreement and
their respective successors and assigns, provided, however, that the parties
hereto expressly agree that the Arranger shall enjoy the benefits of the
provisions of Sections 9.6, 9.10 and 10.11 to the extent specifically set forth
therein and shall have the right to enforce such provisions on its own behalf
and in its own name to the same extent as if it were a party to this Agreement.
9.6 Expenses; Indemnification. The Borrower shall reimburse the Agent
and the Arranger for any costs, internal charges and out-of-pocket expenses
(including attorneys' fees and time charges of attorneys for the Agent, which
attorneys may be employees of the Agent) paid or incurred by the Agent or the
Arranger in connection with the preparation, negotiation, execution,
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delivery, syndication, review, amendment, modification, and administration of
the Transaction Documents. The Borrower also agrees to reimburse the Agent, the
Arranger and the Lenders for any costs, internal charges and out-of-pocket
expenses (including attorneys' fees and time charges of attorneys for the Agent,
the Arranger and the Lenders, which attorneys may be employees of the Agent or
the Lenders) paid or incurred by the Agent, the Arranger or any Lender in
connection with the collection and enforcement of the Transaction Documents. The
Borrower further agrees to indemnify the Agent, the Arranger and each Lender,
their respective directors, officers and employees against all losses, claims,
damages, penalties, judgments, liabilities and expenses (including, without
limitation, all expenses of litigation or preparation therefor whether or not
the Agent, the Arranger or any Lender is a party thereto) which any of them may
pay or incur arising out of or relating to this Agreement, the other Transaction
Documents, the transactions contemplated hereby or the direct or indirect
application or proposed application of the proceeds of any Loan or the use of
the Facility B Letter of Credit except to the extent they are determined by a
court of competent jurisdiction by final and non-appealable judgment to have
resulted from the gross negligence or willful misconduct of the party seeking
indemnification. The obligations of the Borrower under this Section 9.6 shall
survive the termination of this Agreement.
9.7 Numbers of Documents. All statements, notices, closing documents,
and requests hereunder shall be furnished to the Agent with sufficient
counterparts so that the Agent may furnish one to each of the Lenders.
9.8 Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles.
9.9 Severability of Provisions. Any provision in any Transaction
Document that is held to be inoperative, unenforceable, or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or
invalid without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Transaction Documents are
declared to be severable.
9.10 Nonliability of Lenders. The relationship between the Borrower and
the Lenders and the Agent shall be solely that of borrower and lender. Neither
the Agent nor any Lender shall have any fiduciary responsibilities to the
Borrower. Neither the Agent nor any Lender undertakes any responsibility to the
Borrower to review or inform the Borrower of any matter in connection with any
phase of the Borrower's business or operations. The Borrower agrees that neither
the Agent, the Arranger nor any Lender shall have liability to the Borrower
(whether sounding in tort, contract or otherwise) for losses suffered by the
Borrower in connection with, arising out of, or in any way related to, the
transactions contemplated and the relationship established by the Transaction
Documents, or any act, omission or event occurring in connection therewith,
unless it is determined in a final non-appealable judgment by a court of
competent jurisdiction that such losses resulted from the gross negligence or
willful misconduct of the party from which recovery is sought. Neither the
Agent, the Arranger nor any Lender shall have any liability with respect to, and
the Borrower
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hereby waives, releases and agrees not to sue for, any special, indirect or
consequential damages (but not actual damages) suffered by the Borrower in
connection with, arising out of, or in any way related to the Transaction
Documents or the transactions contemplated thereby.
9.11 Confidentiality. Each Lender agrees to hold any confidential
information which it may receive from the Borrower pursuant to this Agreement in
confidence, except for disclosure (i) to other Lenders and their respective
Affiliates, (ii) to legal counsel, accountants, and other professional advisors
to that Lender or to a Transferee, (iii) to regulatory officials, (iv) to any
Person as requested pursuant to or as required by law, regulation, or legal
process, (v) to any Person in connection with any legal proceeding to which that
Lender is a party, (vi) permitted by Section 12.4, and (vii) of information
which has become public through no fault of that Lender.
9.12 Nonreliance. Each Lender hereby represents that it is not relying
on or looking to any margin stock (as defined in Regulation U) for the repayment
of the Loans provided for herein.
ARTICLE X
THE AGENT
10.1 Appointment; Nature of Relationship. The First National Bank of
Chicago is hereby appointed by each of the Lenders as its contractual
representative (herein referred to as the "Agent") hereunder and under each
other Transaction Document, and each of the Lenders irrevocably authorizes the
Agent to act as the contractual representative of such Lender with the rights
and duties expressly set forth herein and in the other Transaction Documents.
The Agent agrees to act as such contractual representative upon the express
conditions contained in this Article X. Notwithstanding the use of the defined
term "Agent," it is expressly understood and agreed that the Agent shall not
have any fiduciary responsibilities to any Lender by reason of this Agreement or
any other Transaction Document and that the Agent is merely acting as the
contractual representative of the Lenders with only those duties as are
expressly set forth in this Agreement and the other Transaction Documents. In
its capacity as the Lenders' contractual representative, the Agent (i) does not
hereby assume any fiduciary duties to any of the Lenders, (ii) is a
"representative" of the Lenders within the meaning of Section 9-105 of the
Uniform Commercial Code and (iii) is acting as an independent contractor, the
rights and duties of which are limited to those expressly set forth in this
Agreement and the other Transaction Documents. Each of the Lenders hereby agrees
to assert no claim against the Agent on any agency theory or any other theory of
liability for breach of fiduciary duty, all of which claims each Lender hereby
waives.
10.2 Powers. The Agent shall have and may exercise such powers under
the Transaction Documents as are specifically delegated to the Agent by the
terms of each thereof, together with such powers as are reasonably incidental
thereto. The Agent shall have no implied duties to the Lenders, or any
obligation to the Lenders to take any action thereunder except any action
specifically provided by the Transaction Documents to be taken by the Agent.
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10.3 General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Transaction Document or in connection herewith or therewith
except for its or their own gross negligence or willful misconduct.
10.4 No Responsibility for Loans, Recitals, etc.. Neither the Agent nor
any of its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify (i) any statement, warranty
or representation made in connection with any Transaction Document or any
borrowing hereunder; (ii) the performance or observance of any of the covenants
or agreements of any obligor under any Transaction Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender; (iii) the satisfaction of any condition specified in Article IV, except
receipt of items required to be delivered solely to the Agent; (iv) the
existence or possible existence of any Default or Unmatured Default, (v) the
validity, effectiveness or genuineness of any Transaction Document or any other
instrument or writing furnished in connection therewith; (vi) the value,
sufficiency, creation, perfection or priority of any interest in any collateral
security; or (vii) the financial condition of the Borrower or any guarantor of
any of the Obligations or of any of the Borrower's or any such guarantor's
respective Subsidiaries. The Agent shall have no duty to disclose to the Lenders
information that is not required to be furnished by the Borrower to the Agent at
such time, but is voluntarily furnished by the Borrower to the Agent (either in
its capacity as Agent or in its individual capacity).
10.5 Action on Instructions of Lenders. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Transaction Document in accordance with written instructions signed by the
Required Lenders (or, if required by Section 8.2, each Lender affected thereby),
and such instructions and any action taken or failure to act pursuant thereto
shall be binding on all of the Lenders. The Agent shall be fully justified in
failing or refusing to take any action hereunder and under any other Transaction
Document unless it shall first be indemnified to its satisfaction by the Lenders
pro rata against any and all liability, cost and expense that it may incur by
reason of taking or continuing to take any such action. The Lenders hereby
acknowledge that the Agent shall be under no duty to take any discretionary
action permitted to be taken by it pursuant to the provisions of this Agreement
unless it shall be requested in writing to do so by the Required Lenders.
10.6 Employment of Agents and Counsel. The Agent may execute any of its
duties as Agent hereunder and under any other Transaction Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Agent and the Lenders
and all matters pertaining to the Agent's duties hereunder and under any other
Transaction Document.
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10.7 Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8 Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (i) for any amounts not reimbursed by the Borrower for which the
Agent is entitled to reimbursement by the Borrower under the Transaction
Documents, (ii) for any other expenses incurred by the Agent on behalf of the
Lenders, in connection with the preparation, execution, delivery, administration
and enforcement of the Transaction Documents (including, without limitation, for
any expenses incurred by the Agent in connection with any dispute between the
Agent and any Lender or between two or more of the Lenders) and (iii) for any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in any way relating to or
arising out of the Transaction Documents or any other document delivered in
connection therewith or the transactions contemplated thereby, (including,
without limitation, for any such amounts incurred by or asserted against the
Agent in connection with any dispute between the Agent and any Lender or between
two or more of the Lenders) or the enforcement of any of the terms thereof or of
any such other documents, provided that no Lender shall be liable for any of the
foregoing to the extent any of the foregoing is found in a final non-appealable
judgment by a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the Agent. The obligations of the Lenders
under this Section 10.8 shall survive payment of the Obligations and termination
of this Agreement.
10.9 Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Unmatured Default hereunder unless
the Agent has received written notice from a Lender or the Borrower referring to
this Agreement describing such Default or Unmatured Default and stating that
such notice is a "notice of default". In the event that the Agent receives such
a notice, the Agent shall give prompt notice thereof to the Lenders.
10.10 Rights as a Lender. In the event the Agent is a Lender, the Agent
shall have the same rights and powers hereunder and under any other Transaction
Document with respect to its Commitments and its Loans as any Lender and may
exercise the same as though it were not the Agent, and the term "Lender" or
"Lenders" shall, at any time when the Agent is a Lender, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent and
its Affiliates may accept deposits from, lend money to, and generally engage in
any kind of trust, debt, equity (including pursuant to the Holdings Warrant) or
other transaction, in addition to those contemplated by this Agreement or any
other Transaction Document, with the Borrower or any of its Subsidiaries in
which the Borrower or such Subsidiary is not restricted hereby from engaging
with any other Person. The Agent, in its individual capacity, is not obligated
to remain a Lender.
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10.11 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent, the Arranger, or any other
Lender and based on the financial statements prepared by the Borrower and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and the other
Transaction Documents. Each Lender also acknowledges that it will, independently
and without reliance upon the Agent, the Arranger, or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and the other Transaction Documents.
10.12 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower, such resignation to be
effective upon the appointment of a successor Agent or, if no successor Agent
has been appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. Upon any such resignation, the Required Lenders shall have
the right to appoint, on behalf of the Borrower and the Lenders and with the
consent of the Borrower (which shall not be unreasonably withheld), a successor
Agent. Notwithstanding the previous sentence, the Agent may at any time without
the consent of the Borrower or any Lender, appoint any of its Affiliates which
is a commercial bank as a successor Agent hereunder. If no successor Agent shall
have been so appointed by the Required Lenders within thirty days after the
resigning Agent's giving notice of its intention to resign, then the resigning
Agent may appoint, on behalf of the Borrower and the Lenders, a successor Agent.
If the Agent has resigned and no successor Agent has been appointed, the Lenders
may perform all the duties of the Agent hereunder and the Borrower shall make
all payments in respect of the Obligations to the applicable Lender and for all
other purposes shall deal directly with the Lenders. No successor Agent shall be
deemed to be appointed hereunder until such successor Agent has accepted the
appointment. Any such successor Agent shall be a commercial bank having capital
and retained earnings of at least $100,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the resigning Agent. Upon the effectiveness of the resignation of
the Agent, the resigning Agent shall be discharged from its duties and
obligations hereunder and under the Transaction Documents. After the
effectiveness of the resignation of an Agent, the provisions of this Article X
shall continue in effect for the benefit of such Agent in respect of any actions
taken or omitted to be taken by it while it was acting as the Agent hereunder
and under the other Transaction Documents. In the event that there is a
successor to the Agent by merger, or the Agent assigns its duties and
obligations to an Affiliate pursuant to this Section 10.12, then the term
"Corporate Base Rate" as used in this Agreement shall mean the prime rate, base
rate or other analogous rate of the new Agent.
10.13 Delegation to Affiliates. The Borrower and the Lenders agree that
the Agent may delegate any of its duties under this Agreement to any of its
Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents
and employees) which performs duties in connection with this Agreement shall be
entitled to the same benefits of the indemnification, waiver and other
protective provisions to which the Agent is entitled under Articles IX and X.
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10.14 Execution of Collateral Documents. The Lenders hereby empower and
authorize the Agent to execute and deliver to the Borrower on their behalf (i)
the Security Agreement and all related financing statements and any financing
statements, agreements, documents or instruments as shall be necessary or
appropriate to effect the purposes of the Security Agreement, (ii) the Pledge
Agreement(s) and all related financing statements and any financing statements,
agreements, documents or instruments as shall be necessary or appropriate to
effect the purposes of the Pledge Agreement(s) and (iii) any guarantees and
security agreements executed and delivered by Subsidiaries pursuant to Section
6.25.2.
10.15 Collateral Releases. The Lenders hereby empower and authorize the
Agent to execute and deliver to the Borrower on their behalf any agreements,
documents or instruments as shall be necessary or appropriate to effect any
releases of Collateral which shall be permitted by the terms hereof or of any
other Transaction Document or which shall otherwise have been approved by the
Required Lenders (or, if required by the terms of Section 8.2, all of the
Lenders) in writing.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.1 Setoff. In addition to, and without limitation of, any rights of
the Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default occurs, any and all deposits (including all account
balances, whether provisional or final and whether or not collected or
available) and any other Indebtedness at any time held or owing by any Lender or
any Affiliate of any Lender to or for the credit or account of the Borrower may
be offset and applied toward the payment of the Obligations owing to such
Lender, whether or not the Obligations, or any part hereof, shall then be due.
11.2 Ratable Payments. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Loans (or, with respect to Facility B, its
Percentage of an Unreimbursed Drawing) under any Facility (other than payments
received pursuant to Sections 3.1, 3.2, 3.4, or 3.5) in a greater proportion
than that received by any other Lender under such Facility, such Lender agrees,
promptly upon demand, to purchase a portion of the Loans (and, with respect to
Facility B, Unreimbursed Drawing) held by the other Lenders under such Facility
so that after such purchase each Lender will hold its ratable proportion of
Loans (and, with respect to Facility B, Unreimbursed Drawing) under such
Facility. If any Lender, whether in connection with setoff or amounts which
might be subject to setoff or otherwise, receives collateral or other protection
for its Obligations or such amounts which may be subject to setoff, such Lender
agrees, promptly upon demand, to take such action necessary such that all
Lenders share in the benefits of such collateral ratably in proportion to their
Loans. In case any such payment is disturbed by legal process, or otherwise,
appropriate further adjustments shall be made.
61
<PAGE> 73
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1 Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (ii) any assignment by any Lender must be made in compliance
with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may
(at no cost to the Borrower) at any time, without the consent of the Borrower or
the Agent, assign all or any portion of its rights under this Agreement and any
Note to a Federal Reserve Bank; provided, however, that no such assignment shall
release the transferor Lender from its obligations hereunder. The Agent may
treat the payee of any Note as the owner thereof for all purposes hereof unless
and until such payee complies with Section 12.3 in the case of an assignment
thereof or, in the case of any other transfer, a written notice of the transfer
is filed with the Agent. Any assignee or transferee of a Note agrees by
acceptance thereof to be bound by all the terms and provisions of the
Transaction Documents. Any request, authority or consent of any Person, 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 or assignee of such Note or of any Note or Notes issued in exchange
therefor.
12.2 Participations.
12.2.1 Permitted Participants; Effect. Any Lender
may, in the ordinary course of its business and in accordance with applicable
law, at any time sell to one or more banks or other entities ("Participants")
participating interests in any Loan owing to such Lender, any Note held by such
Lender, any Commitment or Facility B Letter of Credit Participation Amount of
such Lender or any other interest of such Lender under the Transaction
Documents, provided that any such sale shall be at no cost to the Borrower. In
the event of any such sale by a Lender of participating interests to a
Participant, such Lender's obligations under the Transaction Documents shall
remain unchanged, such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, such Lender shall remain
the holder of any such Note for all purposes under the Transaction Documents,
all amounts payable by the Borrower under this Agreement shall be determined as
if such Lender had not sold such participating interests, and the Borrower and
the Agent shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under the Transaction
Documents.
12.2.2 Voting Rights. Each Lender shall retain the
sole right to approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Transaction Documents other than
any amendment, modification or waiver with respect to any Loan, Commitment, or
the Facility B Letter of Credit in which such Participant has an interest which
forgives principal, interest or fees or reduces the interest rate or fees
payable with respect to any such Loan, Commitment, or the Facility B Letter of
Credit, postpones any date fixed for any
62
<PAGE> 74
regularly-scheduled payment of principal of, or interest or fees on, any such
Loan, Commitment, or the Facility B Letter of Credit, releases any guarantor of
any such Loan, Commitment, or the Facility B Letter of Credit, or releases all
or substantially all of the Collateral, if any, securing any such Loan or the
Facility B Letter of Credit.
12.2.3 Benefit of Setoff. The Borrower agrees that
each Participant shall be deemed to have the right of setoff provided in Section
11.1 in respect of its participating interest in amounts owing under the
Transaction Documents to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under the Transaction Documents,
provided that each Lender shall retain the right of setoff provided in Section
11.1 with respect to the amount of participating interests sold to each
Participant. The Lenders agree to share with each Participant, and each
Participant, by exercising the right of setoff provided in Section 11.1, agrees
to share with each Lender, any amount received pursuant to the exercise of its
right of setoff, such amounts to be shared in accordance with Section 11.2 as if
each Participant were a Lender.
12.3 Assignments.
12.3.1 Permitted Assignments. Any Lender may, in the
ordinary course of its business and in accordance with applicable law, at any
time assign to one or more banks or other entities ("Purchasers") all or any
part of its rights and obligations under the Transaction Documents, provided
that (i) any such assignment shall be at no cost the Borrower, and (ii) unless
such Lender assigns all of its rights and obligations under the Transaction
Documents to a Purchaser, each such assignment shall be in a minimum amount of
$5,000,000. Such assignment shall be substantially in the form of Exhibit "G"
hereto or in such other form as may be agreed to by the parties thereto. The
consents of the Borrower and the Agent shall be required prior to an assignment
becoming effective with respect to a Purchaser which is not a Lender or an
Affiliate thereof; provided, however, that if a Default has occurred and is
continuing, the consent of the Borrower shall not be required. Such consent
shall not be unreasonably withheld.
12.3.2 Effect; Effective Date. Upon (i) delivery to
the Agent of a notice of assignment, substantially in the form attached as Annex
"I" to Exhibit "G" hereto (a "Notice of Assignment"), together with any consents
required by Section 12.3.1, and (ii) payment by the assigning Lender or the
Purchaser of a $4,000 fee to the Agent for processing such assignment by one of
the parties thereto, such assignment shall become effective on the effective
date specified in such Notice of Assignment. The Notice of Assignment shall
contain a representation by the Purchaser to the effect that none of the
consideration used to make the purchase of the Commitment(s) and Loans under the
applicable assignment agreement are "plan assets" as defined under ERISA and
that the rights and interests of the Purchaser in and under the Loan Documents
will not be "plan assets" under ERISA. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to this
Agreement and any other Transaction Document executed by or on behalf of the
Lenders and shall have all the rights and obligations of a Lender under the
Transaction Documents, to the same extent as if it were an original party
hereto, and no further consent or action by the Borrower, the Lenders or the
Agent shall be required to
63
<PAGE> 75
release the transferor Lender with respect to the percentage of the applicable
Aggregate Commitment and Loans and Facility B Letter of Credit Participation
Amount assigned to such Purchaser. Upon the consummation of any assignment to a
Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent and
the Borrower shall make appropriate arrangements so that replacement Notes are
issued to such transferor Lender and new Notes or, as appropriate, replacement
Notes, are issued to such Purchaser, in each case in principal amounts
reflecting their applicable Commitment, as adjusted pursuant to such assignment.
Within a reasonable time after the effective date of any assignment, the Agent
shall, and is hereby authorized and directed to, revise Schedule "1" reflecting
the revised Commitments of each of the Lenders. Such revised Schedule "1" shall
replace the prior Schedule "1" and become part of this Agreement.
12.4 Dissemination of Information. The Borrower authorizes each Lender
to disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Transaction Documents by operation of law (each a "Transferee")
and any prospective Transferee any and all information in such Lender's
possession concerning the creditworthiness of the Borrower and its Subsidiaries,
provided that each Transferee and prospective Transferee agrees to be bound by
Section 9.11 of this Agreement.
12.5 Tax Treatment. If any interest in any Transaction Document is
transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the transferor
Lender shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of Section 3.5.
ARTICLE XIII
NOTICES
13.1 Notices. Except as otherwise permitted by Section 2.13 with
respect to borrowing notices, all notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, facsimile
transmission or similar writing) and shall be given to such party: (x) in the
case of the Borrower or the Agent, at its address or facsimile number set forth
on the signature pages hereof, (y) in the case of any Lender, at its address or
facsimile number set forth below its signature hereto, or (z) in the case of any
party, at such other address or facsimile number as such party may hereafter
specify for the purpose by notice to the Agent and the Borrower in accordance
with the provisions of this Section 13.1. Each such notice, request or other
communication shall be effective (i) if given by facsimile transmission, when
transmitted to the facsimile number specified in this Section and confirmation
of receipt is received, (ii) if given by mail, 72 hours after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid, or (iii) if given by any other means, when delivered at the address
specified in this Section; provided that notices to the Agent under Article II
shall not be effective until received.
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<PAGE> 76
13.2 Change of Address. The Borrower, the Agent and any Lender may each
change the address for service of notice upon it by a notice in writing to the
other parties hereto.
ARTICLE XIV
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Borrower, the
Agent and the Lenders and each party has notified the Agent by facsimile
transmission or telephone, that it has taken such action.
ARTICLE XV
CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL
15.1 CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
15.2 CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS
TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE
COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY TRANSACTION DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES
THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR
HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL
LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE
BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY
LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT
IN CHICAGO, ILLINOIS.
65
<PAGE> 77
15.3 WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
66
<PAGE> 78
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have
executed this Agreement as of the date first above written.
TRI-STATE OUTDOOR MEDIA GROUP, INC.
By: /s/ Sheldon G. Hurst
--------------------------------
Sheldon G. Hurst
President
3416 Highway 41 South
Tifton, Georgia 31794
Attention: President
Telephone: (800) 732-8261
Telecopier: (912) 386-0203
THE FIRST NATIONAL BANK OF CHICAGO,
INDIVIDUALLY AND AS AGENT
By: /s/ Laurie Blazek
--------------------------------
Laurie Blazek
Vice President
One First National Plaza
Mail Suite 0629
Chicago, Illinois 60670
Attention: Communications Division
Telephone: (312) 732-5831
Telecopier: (312) 732-8587
DOCUMENT NUMBER: 368008.8
10-13-98/10:16AM
67
<PAGE> 1
Exhibit 12.0
Tri-State Outdoor Media Group, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31 Six Months
------------------------------------------------ Ended
1993 1994 1995 1996 1997 June 30, 1998
---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Loss before income taxes $(11) $ (628) $ 17 $ (895) $(3,445) $(3,365)
Add
Portion of rents representative of the interest factor 82 170 334 385 571 450
Interest on indebtedness 475 880 2,094 1,941 4,200 4,198
---- ----- ------ ------ ------- -------
Income (loss) as adjusted $546 $ 422 $2,445 $1,431 $ 1,326 $ 1,283
==== ====== ====== ====== ======= =======
Fixed charges
Interest on indebtedness (1) 475 880 2,094 1,941 4,200 4,198
---- ------ ------ ------ ------- -------
Rents 247 511 1,003 1,156 1,713 1,351
---- ------ ------ ------ ------- -------
Portion or rents representative of interest factor (2) 82 170 334 385 571 450
Fixed charges (1)+(2) $557 $1,050 $2,428 $2,326 $ 4,771 $ 4,648
==== ====== ====== ====== ======= =======
Ratio of earnings to fixed charges -- -- 1.0 -- -- --
==== ====== ====== ====== ======= =======
</TABLE>
<PAGE> 1
Exhibit 16.0
[MCGRAIL MERKEL QUINN & ASSOCIATES LETTERHEAD]
October 14, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
Tri-State Outdoor Media Group
We have read the section titled "Change in Accountants" of Tri-State
Outdoor Media Group's Form S-4 dated July 15, 1998, as amended, and are in
agreement with the statements contained therein.
/s/ McGrail Merkel Quinn & Associates
-------------------------------------
McGrail Merkel Quinn & Associates
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-4 of
our report, dated March 27, 1998, except for notes 4, 5 and 11 as to which the
date is September 20, 1998, relating to the financial statements of Tri-State
Outdoor Media Group, Inc., which appears in the Registration Statement. We also
consent to the reference to us under the headings "Experts," "Change in
Accountants" and "Selected Historical Financial and Other Data" in such
Registration Statement. However, it should be noted that McGladrey & Pullen, LLP
has not prepared or certified such "Selected Historical Financial and Other
Data."
/s/ MCGLADREY & PULLEN, LLP
--------------------------------------
McGladrey & Pullen
West Palm Beach, Florida
October 14, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-4 of
our report, dated March 13, 1997 relating to the financial statements of
Tri-State Outdoor Media Group, Inc., which appears in the Registration
Statement. We also consent to the reference to us under the headings "Experts",
"Change in Accountants" and "Selected Historical Financial and Other Data" in
such Registration Statement. However, it should be noted that McGrail, Merkel,
Quinn & Associates has not prepared or certified such "Selected Historical
Financial and Other Data".
/s/ MCGRAIL MERKEL QUINN &
ASSOCIATES
----------------------------------------
McGrail Merkel Quinn & Associates
Scranton, Pennsylvania
October 14, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-4 of
our report, dated March 2, 1998 relating to the financial statements of the
Outdoor Advertising Division of Unisign Corporation, Inc., which appears in the
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ MCGRAIL MERKEL QUINN &
ASSOCIATES
----------------------------------------
McGrail Merkel Quinn & Associates
Scranton, Pennsylvania
October 14, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-4 of
our reports, dated January 15, 1997 and February 28, 1998, relating to the
financial statements of Tri-State Systems, Inc., which appear in the
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ SMITH & RADIGAN
--------------------------------------
Smith & Radigan, L.L.C.
Atlanta, Georgia
October 14, 1998
<PAGE> 1
EXHIBIT 23.5
[FRANKEL, ZACHARIA, ARNOLD, NISSEN, STAMP & REINSCH, LLC LETTERHEAD]
CONSENT OF INDEPENDENT AUDITOR
We hereby consent to the use in the Registration Statement dated October
14, 1998 of our report dated September 30, 1998, relating to the financial
statements of The OUTDOOR ADVERTISING Division of WESTERN OUTDOOR ADVERTISING
CO., which appear in the Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
FRANKEL, ZACHARIA, ARNOLD, NISSEN, STAMP & REINSCH, LLC
/s/ FRANKEL, ZACHARIA, ARNOLD, NISSEN, STAMP &
REINSCH, LLC
----------------------------------------------------
Frankel, Zacharia, Arnold, Nissen, Stamp & Reinsch
Omaha, Nebraska
October 13, 1998
<PAGE> 1
EXHIBIT 25.2
LETTER OF TRANSMITTAL
TO EXCHANGE
11% SENIOR NOTES DUE 2008
OF
TRI-STATE OUTDOOR MEDIA GROUP, INC.
PURSUANT TO THE PROSPECTUS
DATED , 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON
, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE.
To: IBJ Schroder Bank & Trust Company, Exchange Agent
<TABLE>
<S> <C> <C>
By Registered or Certified By Facsimile: 212-858-2611 By Hand/
Mail: (For Eligible Institutions Overnight Delivery:
One State Street Only) One State Street
New York, New York 10004 Confirm by Telephone: New York, New York 10004
Attention: Reorganization 212-858-2103 Attention: Reorganization
Operations Department Operations Department
</TABLE>
For Information Call:
212-858-2103
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER
THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS
VIA FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
The undersigned acknowledges receipt of the Exchange Offer Prospectus dated
, 1998 (the "Exchange Offer Prospectus") of Tri-State Outdoor
Media Group, Inc., a Kansas corporation (the "Company" or the "Issuer") and this
Letter of Transmittal, which may be amended from time to time (this "Letter"),
which together constitute the Issuer's offer to exchange (the "Exchange Offer"),
up to $100,000,000 in aggregate principal amount of its 11% Senior Notes due
2008 (the "Exchange Notes") for up to $100,000,000 in aggregate principal amount
of its outstanding 11% Senior Notes due 2008 that were issued and sold in
reliance on an exemption from registration under the Securities Act of 1933, as
amended (the "Existing Notes" and, together with the Exchange Notes, the
"Notes").
The undersigned has completed, executed and delivered this Letter to
indicate the action he or she desires to take with respect to the Exchange
Offer.
All holders of Existing Notes who wish to tender their Existing Notes must,
prior to the Expiration Date: (1) complete, sign, date and mail or otherwise
deliver this Letter to the Exchange Agent, in person or to the address set forth
above and (2) tender his or her Existing Notes or, if a tender of Existing Notes
is to be made by book-entry transfer to the account maintained by the Exchange
Agent at The Depository Trust Company (the "Book-Entry Transfer Facility"),
confirm such book-entry transfer (a "Book-Entry Confirmation"), in each case in
accordance with the procedures for tendering described in the Instructions to
this Letter. Holders of Existing Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or Book-Entry
Confirmation and all other documents required by this Letter to be delivered to
the Exchange Agent on or prior to the Expiration Date, must tender their
Existing Notes according to the guaranteed delivery procedures set forth under
the caption "The Exchange Offer -- How to Tender" in the Prospectus. (See
Instruction 1).
The Instructions included with this Letter must be followed in their
entirety. Questions and requests for assistance or for additional copies of the
Prospectus or this Letter may be directed to the Exchange Agent at the address
listed above, or William G. McLendon, Chief Financial Officer of the Company, at
(800) 732-8261 or at 3416 Highway 41 South, Tifton, Georgia 31793.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THIS LETTER, CAREFULLY
BEFORE CHECKING ANY BOX BELOW
Capitalized terms used in this Letter and not defined herein shall have
respective meanings ascribed to them in the Prospectus.
List below the Existing Notes of which you are the holder. If the space
provided below is inadequate, list the certificate numbers and principal amount
of Existing Notes on a separate signed schedule and affix it hereto.
BOX 1
- --------------------------------------------------------------------------------
TO BE COMPLETED BY ALL TENDERING HOLDERS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) TOTAL
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) CERTIFICATE AMOUNT
APPEAR(S) ON EXISTING NOTES) NUMBERS(1) EXIST
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Totals:
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Issuer the principal amount of Existing Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Existing Notes tendered with this Letter, the undersigned exchanges, assigns
and transfers to, or upon the order of, the Issuer all right, title and interest
in and to the Existing Notes tendered.
The undersigned constitutes and appoints the Exchange Agent as his or her
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Issuer) with respect to the tendered Existing Notes,
with full power of substitution, to: (a) deliver certificates for such Existing
Notes, (b) deliver Existing Notes and all accompanying evidence of transfer and
authenticity to or upon the order of the Issuer upon receipt by the Exchange
Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon the acceptance by the Issuer of the Existing Notes
tendered under the Exchange Offer and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Existing Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney granted
in this paragraph shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Existing Notes
tendered hereby and that the issuer will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Issuer to be necessary or
desirable to complete the assignment and transfer of the Existing Notes
tendered. The undersigned has read and agrees to all of the terms of the
Exchange Offer.
- ---------------
(1) Need not be completed if Existing Notes are being tendered by book-entry
transfer.
(2) Unless otherwise indicated, the entire principal amount of Existing Notes
represented by a certificate or Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered. Existing Notes tendered
hereby must be in a principal amount of $1,000 and integral multiples
thereof.
The undersigned also acknowledges that the Exchange Offer is being made in
reliance on interpretations of the Staff of the Securities and Exchange
Commission as set forth in no-action letters issued to third parties. Based on
these interpretations, the Issuer believes that Exchange Notes issued pursuant
to the Exchange Offer in exchange for the Existing Notes may be offered for
resale, resold or otherwise transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the Issuer within the meaning of Rule 405
under the Securities Act, (ii) a broker-dealer who acquired Existing Notes
directly from the Issuer or (iii) a broker-dealer who acquired Existing Notes as
a result of market-making or other trading activities) without compliance with
the registration and prospectus delivery provisions of the Securities Act
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business, and such holders have no arrangement or understanding with
any person to participate in a distribution of such Exchange Notes and also such
holders not being engaged in and not intending to engage in a distribution of
the Exchange Notes.
The undersigned agrees that acceptance of any tendered Existing Notes by
the Issuer and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Issuer of its obligations under the
Registration Rights Agreement (as defined in the Exchange Offer Prospectus) and
that, upon the issuance of the Exchange Notes, the Issuer will have no further
obligations or liabilities thereunder (except in certain limited circumstances).
By tendering Existing Notes, the undersigned certifies (a) that it is not an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act, that it is not a broker-dealer that owns Existing Notes acquired directly
from the Issuer or an affiliate of the undersigned's business, that the
undersigned has no arrangement or understanding with any person to participate
in the distribution of the Exchange Notes, and that the undersigned is not
engaged in and does not intend to engage in a distribution of the Exchange
Notes, or (b) that it is an "affiliate" (as so defined) of the Issuer or of the
initial purchasers in the original offering of the Existing Notes, and that it
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable to it.
<PAGE> 4
The undersigned acknowledges that, if it is a broker-dealer that will
receive Exchange Notes for its own account as a result of market making
activities or other trading activities, it will deliver a prospectus in
connection with any resale of such Exchange Notes and that it has not entered
into any arrangement or understanding with the Issuer or an affiliate of the
Issuer in connection with any resale of such Exchange Notes. By so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired by a
broker-dealer as a result of market-making or other trading activities. The
Company has agreed that for a period of 120 days after the expiration date of
the Exchange Offer, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale.
The undersigned understands that the Issuer may accept the undersigned's
tender by delivering written notice of acceptance to the Exchange Agent, at
which time the undersigned's right to withdraw such tender will terminate.
All authority conferred or agreed to be conferred by this Letter shall
survive the death or incapacity of the undersigned, and every obligation of the
undersigned under this Letter shall be binding upon the undersigned's heirs,
personal representatives, successors and assigns. Tenders may be withdrawn only
in accordance with the procedures set forth in the Instructions contained in
this Letter.
Unless otherwise indicated under "Special Delivery Instructions" below, the
Exchange Agent will deliver Exchange Notes (and, if applicable, a certificate
for any Existing Notes not tendered but represented by a certificate also
encompassing Existing Notes which are tendered) to the undersigned at the
address set forth in Box 1 above.
The undersigned acknowledges that the Exchange Offer is subject to the more
detailed terms set forth in the Prospectus and, in case of any conflict between
the terms set forth in the Prospectus and this Letter, the Prospectus shall
prevail.
<PAGE> 5
BOX 2
METHOD OF DELIVERY
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A
BOOK-ENTRY TRANSFER FACILITY SPECIFIED ABOVE AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
----------------------------------------------------------------------
Name of Book-Entry Transfer Facility:
--------------------------------------------------------------
[ ] The Depository Trust Company
Account Number:
--------------- Transaction Code Number:
---------------
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Owner(s):
-----------------------------------------------------------------
Window Ticket Number (if any):
--------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------------------------
Name of Eligible Institution which Guaranteed Delivery:
-------------------------------------------
If delivered by Book-Entry Transfer Facility, check box of Book-Entry Transfer
Facility:
[ ] The Depository Trust Company
Account Number:
--------------- Transaction Code Number:
---------------
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED EXISTING
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE EXISTING NOTES OR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
<PAGE> 6
BOX 3
- --------------------------------------------------------------------------------
SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS
OF EXISTING NOTES REGARDLESS OF WHETHER
EXISTING NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH)
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED SIGNATORY)
Must be signed by the registered holder(s) of Existing Notes exactly as their
name(s) appear(s) on certificate(s) for the Existing Notes or by person(s)
authorized to become registered holder(s) by endorsements and documents
transmitted with this Letter. If signature is by trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, agent or
other person acting in a fiduciary or representative capacity, please provide
the following information and see Instruction 3 below.
Name(s) ------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
---------------------------------------------------------------
Address:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and
Telephone Number:---------------------------------------------------------------
SIGNATURE GUARANTEE
(SEE INSTRUCTION 3 BELOW)
Name of Eligible Institution
Guaranteeing Signature(s)
---------------------------------------------------------
Address (including zip code)
and Telephone No. (including
area code) of Firm:
---------------------------------------------------------------
Authorized Signature:
--------------------------------------------------------------
Printed Name:-------------------------------------------------------------------
Title:
---------------------------------------------------------------------------
Dated:
- --------------------------- , 1998
<PAGE> 7
BOX 4
------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Existing Notes in a
principal amount not tendered or not accepted for payment, or the Exchange
Notes, are to be issued in the name of someone other than the undersigned,
or if Existing Notes are to be returned by credit to an account maintained
by DTC.
Issue and deliver (check appropriate box):
[ ] Existing Notes not tendered or
[ ] Exchange Notes, to:
Name
----------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER
(YOU MUST ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
Credit unaccepted Existing Notes tendered by book-entry transfer to:
[ ] The Depository Trust Company
Account set forth below:
------------------------------------------------------------
(DTC ACCOUNT NUMBER)
------------------------------------------------------------
BOX 5
------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Existing Notes in a
principal amount not tendered or not accepted for payment, or Exchange
Notes, are to be sent to someone other than the undersigned at an address
other than that shown above.
Deliver (check appropriate box):
[ ] Existing Notes not tendered or
[ ] Exchange Notes, to:
Name
----------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER
(YOU MUST ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
------------------------------------------------------------
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE
EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Existing
Notes or a Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed copy of this Letter and any other documents required
by this Letter, must be received by the Exchange Agent at one of its addresses
set forth herein on or before the Expiration Date. The method of delivery of
this Letter, certificates for Existing Notes or a Book-Entry Confirmation, as
the case may be, and any other required documents is at the election and risk of
the tendering holder, but except as otherwise provided below, the delivery will
be deemed made when actually received by the Exchange Agent. If delivery is by
mail, the use of registered mail with return receipt requested, properly
insured, is suggested.
Holders whose Existing Notes are not immediately available or who cannot
deliver their Existing Notes or a Book-Entry Confirmation, as the case may be,
and all other required documents to the Exchange Agent on or before the
Expiration Date may tender their Existing Notes pursuant to the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedure: (i)
tenders must be made by or through an Eligible Institution (as defined in
Instruction 3 below); (ii) prior to the Expiration Date, the Exchange Agent must
have received from the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by telegram, telex, facsimile
transmission, mail or hand delivery) (x) setting forth the name and address of
the holder, the description of the Existing Notes and the principal amount of
Existing Notes tendered, (y) stating that the tender is being made thereby and
(z) guaranteeing that, within three New York Stock Exchange trading days after
the date of execution of such Notice of Guaranteed Delivery, this Letter
together with the certificates representing the Existing Notes or a Book-Entry
Confirmation, as the case may be, and any other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent and
(iii) the certificates for all tendered Existing Notes or a Book-Entry (iii) the
certificates for all tendered Existing Notes or a Book-Entry Confirmation, as
the case may be, as well as all other documents required by this Letter, must be
received by the Exchange Agent within three New York Stock Exchange trading days
after the date of execution of such Notice of Guaranteed Delivery, all as
provided in the Exchange Offer Prospectus under the caption "The Exchange
Offer -- How to Tender."
Holders of Existing Notes that are tendering by book-entry transfer to the
Exchange Agent's account at the Depository Trust Company ("DTC") can execute the
tender through the DTC Automated Tender Offer Program ("ATOP") for which the
transaction will be eligible. DTC participants should transmit their acceptance
to DTC, which will verify the acceptance and execute a book-entry delivery to
the Exchange Agent's account at DTC. DTC will then send an Agent's Message to
the Exchange Agent for its acceptance. DTC participants may also accept the
Exchange Offer by submitting a notice of guaranteed delivery through ATOP.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Existing Notes will be
determined by the Issuer, whose determination will be final and binding. The
Issuer reserves the absolute right to reject any or all tenders that are not in
proper form or the acceptance of which, in the opinion of the Issuer's counsel,
would be unlawful. The Issuer also reserves the right to waive any
irregularities or conditions of tender as to particular Existing Notes. All
tendering holders, by execution of this Letter, waive any right to receive
notice of acceptance of their Existing Notes.
Neither the Issuer, the Exchange Agent nor any other person shall be
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER); WITHDRAWALS. If less than the entire principal amount of any Existing
Notes evidenced by a submitted certificate or by a Book-Entry Confirmation is
tendered, the tendering holder must fill in the principal amount tendered in the
fourth column of Box 1 above. ALL OF THE EXISTING NOTES REPRESENTED BY A
CERTIFICATE OR BY A BOOK-ENTRY CONFIRMATION DELIVERED TO THE EXCHANGE AGENT WILL
BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. A certificate for
Existing Notes not tendered will be sent to the holder, unless otherwise
provided in Box 5, as
<PAGE> 9
soon as practicable after the Expiration Date, in the event that less than the
entire principal amount of Existing Notes represented by a submitted certificate
is tendered (or, in the case of Existing Notes tendered by book-entry transfers,
such non-exchanged Existing Notes will be credited to an account maintained by
the holder with the Book-Entry Transfer Facility).
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. To be effective with respect to the
tender of Existing Notes, a notice of withdrawal must: (i) be received by the
Exchange Agent before the Issuer notifies the Exchange Agent that it has
accepted the tender of Existing Notes pursuant to the Exchange Offer; (ii)
specify the name of the person who tendered the Existing Notes; (iii) contain a
description of the Existing Notes to be withdrawn, the certificate numbers shown
on the particular certificates evidencing such Existing Notes and the principal
amount of Existing Notes represented by such certificates and (iv) be signed by
the holder in the same manner as the original signature on this Letter
(including any required signature guarantee).
3. SIGNATURES ON THIS LETTER; ASSIGNMENT; GUARANTEE OF SIGNATURES. If
this Letter is signed by the holder(s) of Existing Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
certificate(s) for such Existing Notes, without alteration, enlargement or any
change whatsoever.
If any of the Existing Notes tendered hereby are owned by two or more joint
owners, all owners must sign this Letter. If any tendered Existing Notes are
held in different names on several certificates, it will be necessary to are
held in different names on several certificates, it will be necessary to
complete, sign and submit as many separate copies of this Letter as there are
names in which certificates are held.
If this Letter is signed by the holder of record and (i) the entire
principal amount of the holder's Existing Notes are tendered and/or (ii)
untendered Existing Notes, if any, are to be issued to the holder of record,
then the holder of record need not endorse any certificates for tendered
Existing Notes, nor provide a separate bond power. In any other case, the holder
of record must transmit a separate bond power with this Letter.
If this Letter or any certificate or assignment is signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and proper evidence satisfactory to the
Issuer of their authority to so act must be submitted, unless waived by the
Issuer.
Signatures on this Letter must be guaranteed by an Eligible Institution,
unless Existing Notes are tendered: (i) by a holder who has not completed the
Box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
on this Letter or (ii) for the account of an Eligible Institution. In the event
that the signatures in this Letter or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guarantees must be by an eligible
guarantor institution which is a member of The Securities Transfer Agents
Medallion Program (STAMP), The New York Stock Exchanges Medallion Signature
Program (MSP) or The Stock Exchanges Medallion Program (SEMP) (collectively,
"Eligible Institutions"). If Existing Notes are registered in the name of a
person other than the signer of this Letter, the Existing Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in Box 4 or 5, as applicable, the name and address to which the
Exchange Notes or certificates for Existing Notes not exchanged are to be issued
or sent, if different from the name and address of the person signing this
Letter. In the case of issuance in a different name, the tax identification
number of the person named must also be indicated. Holders tendering Existing
Notes by book-entry transfer may request that Existing Notes not exchanged be
credited to such account maintained at the Book-Entry Transfer Facility as such
holder may designate.
5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder whose tendered Existing Notes are accepted for exchange must provide the
Exchange Agent (as payor) with his or her correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Exchange Agent is not provided with the correct
TIN, the holder may be subject to a $50
<PAGE> 10
penalty imposed by the Internal Revenue Service. In addition, delivery to the
holder of the Exchange Notes pursuant to the Exchange Offer may be subject to
back-up withholding. (If withholding results in overpayment of taxes, a refund
may be obtained.) Exempt holders (including, among others, all corporations and
certain foreign individuals) are not subject to these back-up withholding and
reporting requirements. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
Under federal income tax laws, payments that may be made by the Issuer on
account of Exchange Notes issued pursuant to the Exchange Offer may be subject
to back-up withholding at a rate of 31%. In order to prevent back-up
withholding, each tendering holder must provide his or her correct TIN by
completing the "Substitute Form W-9" referred to above, certifying that the TIN
provided is correct (or that the holder is awaiting a TIN) and that: (i) the
holder has not been notified by the Internal Revenue Service that he or she is
subject to back-up withholding as a result of a failure to report all interest
or dividends; or (ii) the Internal Revenue Service has notified the holder that
he or she is no longer subject to back-up withholding; or (iii) certify in
accordance with the Guidelines that such holder is exempt from back-up
withholding. If the Existing Notes are in more than one name or are not in the
name of the actual owner, consult the enclosed Guidelines for information on
which TIN to report.
6. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the transfer of Existing Notes to it or its order pursuant to the
Exchange Offer. If, however, the Exchange Notes or certificates for Existing
Notes not exchanged are to be delivered to, or are to be issued in the name of,
any person other than the record holder, or if tendered certificates are
recorded in the name of any person other than the person signing this Letter, or
if a transfer tax is imposed by any reason other than the transfer of Existing
Notes to the Issuer or its order pursuant to the Exchange Offer, then the amount
of such transfer taxes (whether imposed on the record holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of taxes or exemption from taxes is not submitted with this Letter, the
amount of transfer taxes will be billed directly to the tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
7. WAIVER OF CONDITIONS; NO CONDITIONAL TENDERS. The Issuer reserves the
absolute right to amend or waive any of the specified conditions in the Exchange
Offer in the case of any Existing Notes tendered.
No alternative, conditional, irregular or contingent tenders will be
accepted.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificate for Existing Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above, for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent.
IMPORTANT: THIS LETTER (OR FACSIMILE THEREOF), TOGETHER WITH CERTIFICATES
OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS, MUST BE
RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE EXCHANGE AGENT, ON OR PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON
THE EXPIRATION DATE.
<PAGE> 11
Name(s) as shown above of registered owners of 11% Senior Secured Notes (if
joint ownership, list first and circle the name of the person or entity whose
taxpayer identification number you enter in Part I below).
- --------------------------------------------------------------------------------
Business Name (sole proprietors, see enclosed Instructions for Substitute FORM
W-9)
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I -- PLEASE PROVIDE YOUR TAXPAYER --------------------------------------
FORM W-9 IDENTIFICATION NUMBER IN THE BOX AT RIGHT Social Security Number
DEPARTMENT OF THE AND CERTIFY BY SIGNING AND DATING BELOW. OR---------------------------------
TREASURY Employer Identification
INTERNAL REVENUE SERVICE Number
------------------------------------------------------------------------------------
Payer's Request for PART II -- Payees exempt from backup withholding, see the enclosed instructions for
Taxpayer Substitute FORM W-9 -- Request for Taxpayer Identification Number and Certification.
Identification Number)
and Certification
- --------------------------------------------------------------------------------------------------------------
PART III -- CERTIFICATION. Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number
to be issued to me), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not
been notified by Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of
failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject
to backup withholding.
CERTIFICATE INSTRUCTIONS. You must cross out item (2) above if you have been notified by the IRS that you
are subject to backup withholding because of underreporting interest or dividends on your tax return.
- --------------------------------------------------------------------------------------------------------------
SIGNATURE DATE
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: PLEASE PROVIDE YOUR SOCIAL SECURITY NUMBER OR OTHER TAXPAYER
IDENTIFICATION NUMBER ON THIS SUBSTITUTE FORM W-9 AND CERTIFY THEREIN THAT
YOU ARE NOT SUBJECT TO BACKUP WITHHOLDING. FAILURE COMPLETE AND RETURN
THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO
YOU. FOR ASSISTANCE, SEE THE ENCLOSED INSTRUCTIONS FOR SUBSTITUTE FORM
W-9.
<PAGE> 12
INSTRUCTIONS FOR SUBSTITUTE FORM W-9
HOLDERS SHOULD READ CAREFULLY THE FOLLOWING INSTRUCTIONS FOR COMPLETING THE
ENCLOSED SUBSTITUTE FORM W-9 AND CONSULT THEIR OWN TAX ADVISORS FOR MORE
DETAILED INFORMATION.
PURPOSE OF FORM. The Company is required to obtain your Taxpayer Identification
Number (TIN) and to report income paid to you to the IRS. Use the Substitute
Form W-9 to give your correct TIN to the Company and (1) to certify the TIN you
are giving is correct (or you are waiting for a number to be issued), (2) to
certify you are not subject to backup withholding, or (3) to claim exemption
from backup withholding if you are an exempt payee. Giving your correct TIN and
making the appropriate certifications will prevent payments from the Company
from being subject to backup withholding. If you are subject to backup
withholding, the Company is required to withhold and pay to the IRS 31% of
payments made to you.
HOW TO GET A TIN. If you do not have a TIN, apply for one immediately. To
apply, get Form SS-5, Application for a Social Security Number Card (for
individuals), from your local office of the Social Security Administration, or
Form SS-4, Application for Employer Identification Number (for businesses and
all other entities), from your local IRS office. If you do not have a TIN, write
"Applied For" in the space for the TIN in Part I, sign and date the form, and
give it to the Company. Generally, you will then have 60 days to get a TIN and
give it to the Company. If the Company does not receive your TIN within 60 days,
backup withholding, if applicable, will begin and continue until you furnish
your TIN. As soon as you receive your TIN, complete another Form W-9, include
your TIN, sign and date the form, and give it to the Company. Note: Writing
"Applied For" on the form means that you have already applied for a TIN or that
you intend to apply for one soon.
PENALTIES. You are subject to a penalty of $50 for each failure to furnish your
correct TIN to the Company unless your failure is due to reasonable cause and
not to willful neglect. If, with no reasonable basis, you make a false statement
that results in no backup withholding, you are subject to a $500 penalty.
Willfully falsifying certifications or affirmations may subject you to criminal
penalties, including fines and/or imprisonment.
WHAT NAME AND TIN TO GIVE THE COMPANY. If you are an individual, you must
generally enter the name shown on your social security card, and your correct
TIN is your social security number (SSN). However, if you have changed your last
name, for instance, due to marriage, without informing the Social Security
Administration of the name change, please enter your first name, the last name
shown on your social security card, and your new last name. Enter your SSN in
Part I. If you are a sole proprietor, you must enter your individual name. You
may also enter your business name or "doing business as" name on the business
name line. Enter your name as shown on your social security card and business
name as it was used to apply for your Employer Identification Number ("EIN") on
Form SS-4. You may enter either your SSN or EIN as your correct TIN in Part I.
Other payees, please refer to the table below.
NAME AND TIN TO ENTER ON FORM W-9
<TABLE>
<C> <S> <C>
- ---------------------------------------------------------------
ENTER NAME
FOR THIS TYPE OF PAYEE: AND SSN OF:
- ---------------------------------------------------------------
1. Individual The individual
2. Two or more individuals The actual owner or,
if joint, the first
person on the Note(*)
3. Custodian account of a minor The minor(**)
(Uniform Gift to Minors Act)
4. a. A revocable savings trust The grantor-trustee(*)
(grantor is also trustee)
b. So-called trust account that is The actual owner(*)
not a legal or valid state law
trust
5. Sole proprietorship The owner(**)
- ---------------------------------------------------------------
- ---------------------------------------------------------------
ENTER NAME
FOR THIS TYPE OF PAYEE: AND EIN OF:
- ---------------------------------------------------------------
6. Sole proprietorship The owner(***)
7. A valid trust, estate, or pension Legal entity(****)
trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable educational, or other
tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
- ---------------------------------------------------------------
</TABLE>
* List first and circle the name of the person whose number you furnish.
** Circle minor's name and furnish the minor's SSN.
*** You must show your individual name, but you may also enter your business
or "doing business as" name. You may use either your SSN or EIN.
**** List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the TIN of the personal representative or trustee
unless the legal entity itself is not designated as a registered owner.)
NOTE: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
<PAGE> 13
FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING. Certain payees are exempt from
backup withholding and information reporting. Individuals (including sole
proprietors) are not exempt. Corporations are exempt from backup withholding for
certain payments, such as interest and dividends. For a complete list of exempt
payees, contact the Information Agent. If you are an exempt payee, you should
still complete the Form W-9 to avoid possible erroneous backup withholding.
If you are a nonresident alien or a foreign entity not subject to backup
withholding, you must give the Company a completed Form W-8 -- Certificate of
Foreign Status to avoid backup withholding.
INSTRUCTIONS FOR PART III -- CERTIFICATION. If the Notes are in more than one
name or are not in the name of the actual owner, only the person whose TIN is
shown in Part I should sign.
PRIVACY ACT NOTICE. Section 6109 of the Internal Revenue Code requires you to
give your correct TIN to persons who must file information returns with the IRS
to report interest, dividends, and certain other income paid to you, mortgage
interest you paid, the acquisition or abandonment of secured property,
cancellation of debt, or contributions you made to an IRA. The IRS uses the
numbers for identification purposes and to help verify the accuracy of your tax
return. You must provide your TIN whether or not you are required to file a tax
return. Payers must generally withhold 31% of taxable interest, dividend, and
certain other payments to a payee who does not give a TIN to a payer. Certain
penalties also may apply.
<PAGE> 1
Exhibit 25.4
EXCHANGE AGENCY AGREEMENT
This Agreement is entered into as of July, 1998 between IBJ Schroder Bank
& Trust Company, a banking corporation organized under the laws of the State of
New York, as Exchange Agent (the "Agent") Tri-State Outdoor Media Group, Inc. a
corporation organized under the laws of the State of Kansas (the "Company").
The Company proposes to exchange $1,000 principal amount of the Company's
11% Senior Notes due 2008, [Series B] (the "New Notes" or "Exchange Notes") in
exchange (the "Exchange Offer") for an equal aggregate Principal amount of the
Company's outstanding 11% Senior Notes due 2008, [Series A] (the "Existing
Notes") pursuant to the Exchange Agency Agreement dated as of July 1998 and the
accompanying Letter of Transmittal. The Exchange Offer will terminate at 5:00
p.m. New York City Time on _______, unless extended by the Company in its sole
discretion (the "Expiration Date"). The New Notes are to be issued by the
Company pursuant to the terms of an Indenture dated as of May 15, 1998 (the
"Indenture") between the Company, and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee").
Subject to the provisions hereof, the Company hereby appoints and the
Agent hereby accepts the appointment as Agent for the purposes of receiving,
accepting for delivery and otherwise acting upon tenders of the Existing Notes
(the "Certificates") in accordance with the form of Letter of Transmittal
attached hereto (the "L/T") and with the terms and conditions set forth herein
and under the caption "The Exchange Offer" in the Prospectus.
The Agent has received the following documents in connection with its
appointment:
(1) L/T
(2) a form of Notice of Guaranteed Delivery
(3) the Prospectus
(4)
The Agent is authorized and hereby agrees to act as follows:
(a) to address, and deliver by hand or next day courier, a complete set
of the Exchange offer Documents to each person who, prior to the
Expiration Date, becomes a registered holder of Existing Notes
promptly after such person becomes a registered holder of Existing
Notes,
(b) to receive all tenders of Existing Notes made pursuant to the
Exchange Offer and stamp the L/T with the day, month and approximate
time of receipt;
(c) to examine each L/T and Existing Notes received to determine that
all requirements necessary to constitute a valid tender have been
met. The
<PAGE> 2
Agent shall be entitled to rely on the electronic messages sent by
the Depository Trust Company ("DTC") regarding ATOP delivery of the
Notes to the Agent s account at DTC from the DTC participants listed
on the DTC position listing provided to the Agent;
(d) to take such actions necessary and appropriate to correct any
irregularity or deficiency associated with any tender not in proper
order;
(e) to follow instructions given by Sheldon G. Hurst/William G.
McLendon, of the Company, with respect to the waiver of any
irregularities or deficiencies associated with any tender;
(f) to hold all valid tenders subject to further instructions from
Sheldon G. Hurst/William G. McLendon of the Company;
(g) to render a written report, in the form of Exhibit A attached
hereto, on each business day during the Exchange Offer and promptly
confirm, by telephone, the information contained therein to
at .
(h) to follow and act upon any written amendments, modifications or
supplements to these instructions, any of which may be given to the
Agent by the President, any Vice President or the Secretary of the
Company or such other person or persons as they shall designate in
writing;
(i) to return to the presenters, in accordance with the provisions of
the L/T, any Existing Notes that were not received in proper order
and as to which the irregularities or deficiencies were not cured or
waived;
(j) in the event the Exchange Offer is consummated, to deliver
authenticated Exchange Notes to tendering Noteholders, in accordance
with the instructions of such Noteholder's specified in the
respective L/T's, as soon as practicable after receipt thereof,
(k) to determine that all endorsements, guarantees, signatures,
authorities, stock transfer taxes (if any) and such other
requirements are fulfilled in connection with any request for
issuance of the Exchange Notes in a name other than that of the
registered owner of the Existing Notes;
(l) to deliver to, or upon the order of, the Company all Existing Notes
received under the Exchange Offer, together with any related
assignment forms and other documents; and
2
<PAGE> 3
(m) subject to the other terms and conditions set forth in this
Agreement to take all other actions reasonable and necessary in the
good faith judgment of the Agent, to effect the foregoing matters.
The Agent shall:
(a) have no duties or obligations other than those specifically set
forth herein;
(b) not be required to refer to any documents for the performance of its
obligations hereunder other than this Agreement, the L/T and the
documents required to be submitted with the L/T; other than such
documents, the Agent will not be responsible or liable for any
terms, directions or information in the Prospectus or any other
document or agreement unless the Agent specifically agrees thereto
in writing;
(c) not be required to act on the directions of any person, including
the persons named above, unless the Company provides a corporate
resolution to the Agent or other evidence satisfactory to the Agent
of the authority of such person;
(d) not be required to and shall make no representations and have no
responsibilities as to the validity, accuracy, value or genuineness
of (i) the Exchange Offer, (ii) any Certificates, L/T's or documents
prepared by the Company in connection with the Exchange Offer or
(iii) any signatures or endorsements, other than its own;
(e) not be obligated to take any legal action hereunder that might, in
its judgment, involve any expense or liability, unless it has been
finished with reasonable indemnity by the Company;
(f) be able to rely on and shall be protected in acting on the written
or oral instructions with respect to any matter relating to its
actions as Agent specifically covered by this Agreement, of any
officer of the Company authorized to give instructions under
paragraph (g) or (h) below;
(g) be able to rely on and shall be protected in acting upon any
certificate, instrument, opinion, notice, letter, telegram or any
other document or security delivered to it and believed by it
reasonably and in good faith to be genuine and to have been signed
by the proper party or parties;
(h) not be responsible for or liable in any respect on account of the
identity, authority or rights of any person executing or delivering
or purporting to execute or deliver any document or property under
this Agreement and shall
3
<PAGE> 4
have no responsibility with respect to the use or application of any
property delivered by it pursuant to the provisions hereof;
(i) be able to consult with counsel satisfactory to it (including
counsel for the Company or staff counsel of the Agent) and the
advice or opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in accordance
with advice or opinion of such counsel;
(j) not be called on at any time to advise, and shall not advise, any
person delivering an L/T pursuant to the Exchange Offer as to the
value of the consideration to be received;
(k) not be liable for anything which it may do or refrain from doing in
connection with this Agreement except for its own gross negligence,
willful misconduct or bad faith;
(l) not be bound by any notice or demand, or any waiver or modification
of this Agreement or any of the terms hereof, unless evidenced by a
writing delivered to the Agent signed by the proper authority or
authorities and, if the Agent's duties or rights are affected,
unless the Agent shall give its prior written consent thereto;
(m) have no duty to enforce any obligation of any person to make
delivery, or to direct or cause any delivery to be made, or to
enforce any obligation of any person to perform any other act; and
(n) have the right to assume, in the absence of written notice to
the contrary from the proper person or persons, that a fact or
an event by reason of which an action would or might be taken by
the Agent does not exist or has not occurred without
incurring liability for any action taken or omitted, or any
action suffered by the Agent to be taken or omitted, in good faith
or in the exercise of the Agent's best judgment, in reliance upon
such assumption.
The Agent shall be entitled to compensation as set forth in Exhibit B
attached hereto.
The Company covenants and agrees to reimburse the Agent for, indemnify it
against, and hold it harmless from any and all reasonable costs and expenses
(including reasonable fees and expenses of counsel and allocated cost of staff
counsel) that may be paid or incurred or suffered by it or to which it may
become subject without gross negligence, wilful misconduct or bad faith on its
part by reason of or as a result of its compliance with the instructions set
forth herein or with any additional or supplemental written or oral instructions
delivered to it pursuant hereto, or which may arise out of or in connection with
the administration and performance of its duties under this
4
<PAGE> 5
Agreement. The Company agrees to promptly notify the Agent of any extension of
the Expiration Date.
This Agreement shall be construed and enforced in accordance with the laws
of the State of New York and shall inure to the benefit of, and the obligations
created hereby shall be binding upon, the successors and assigns of the parties
hereto. The parties agree to submit and to the exclusive jurisdiction of the
federal or state courts located in the State of New York, New York County.
Unless otherwise expressly provided herein, all notices, requests, demands
and other communications hereunder shall be in writing, shall be delivered by
hand, facsimile or by First Class Mail, postage prepaid, shall be deemed given
when received and shall be addressed to the Agent and the Company at the
respective addresses listed below or to such other addresses as they shall
designate from time to time in writing, forwarded in like manner.
if to the Agent, to: IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Attention: Reorganization Operations Dept.
Telephone: (212) 858-2103
Facsimile: (212) 858-2611
with copies to: IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Finance Trust Services
Telephone: (212) 858-2529
Facsimile: (212) 858-2952
If to the Company, to: Tri-State Outdoor Media Group, Inc.
P.O. Box 1247
3416 Highway 41 South
Tifton, Georgia 31794
Attention: President
Telephone: (800) 835-1188
Facsimile: (912) 386-8056
with copies to: St. John & Wayne, L.L.C.
Two Penn Plaza East
Newark, New Jersey 07105
Attention: David C. Freinberg, Esq.
Telephone: (973) 491-3600
Facsimile: (973) 491-3555
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on behalf by their officers thereunto duly authorized, all as of the
day and year first above written.
IBJ Schroder Bank & Trust Company
By:
--------------------------------
Tri-State Outdoor Media Group, Inc.
By:
--------------------------------
Name: Sheldon G. Hurst
Title: President
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SAMPLE REPORT
Date:
---------------------------
Report Number:
------------------
As of Date:
--------------------
Ladies & Gentlemen:
A Exchange Agent for the Exchange Offer dated , 1998, we hereby render the
following report.
Principal Amount previously received:
--------------------
Principal Amount received today:
--------------------
Principal Amount received against Guaranteed Deliveries:
--------------------
Principal Amount withdrawn today:
--------------------
Total Principal Amount received to date:
--------------------
RECAP OF PRINCIPAL AMOUNT REPRESENTED BY GUARANTEES
Guarantees previously outstanding:
--------------------
Guarantees received today:
--------------------
Guarantees settled today:
--------------------
Guarantees withdrawn today:
--------------------
Guarantees outstanding:
--------------------
TOTAL PRINCIPAL AMOUNT AND GUARANTEES OUTSTANDING-
Very truly yours,
Reorganization Operations Dept.
<PAGE> 8
EXHIBIT B
COMPENSATION
The Agent for serving as the Exchange Agent pursuant to this Agreement,
shall receive a fee of $2,500, payable upon commencement of the Exchange
Offer, and the Agent's out-of-pocket expenses incurred in connection with
completing its duties pursuant to this Agreement.
