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PROSPECTUS
Filed Pursuant to Rule 424(b)(1)
File Nos. 333-82145 and
333-82145-01
$50,000,000
AOA HOLDING LLC
AOA CAPITAL CORP
OFFER TO EXCHANGE
ALL OUTSTANDING 10-3/8% SENIOR NOTES DUE 2006
FOR 10-3/8% SENIOR NOTES DUE 2006
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON NOVEMBER 30, 1999
----------------
The Registered Notes --
. The terms of the exchange notes to be issued are substantially identical
to the outstanding notes that we issued on May 26, 1999, except for
transfer restrictions and registration rights relating to the
outstanding notes that will not apply to the exchange notes.
. Interest on the notes accrues at the rate of 10-3/8% per year, payable
in cash every six months on March 15 and September 15, with the first
payment on September 15, 1999.
. The notes are not secured by any collateral.
. The notes are not guaranteed by any of our subsidiaries.
Material Terms of the Exchange Offer --
. Expires at 5:00 p.m., New York City time, on November 30, 1999, unless
extended.
. The exchange offer is subject to customary conditions, which we may
waive.
. All outstanding notes that are validly tendered and not validly
withdrawn will be exchanged for equal principal amount of exchange notes
which are registered under the Securities Act of 1933.
. Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
. We will not receive any cash proceeds from the exchange offer.
----------------
Please consider carefully the "Risk Factors" beginning on page 13 of this
prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved the notes to be distributed in the exchange offer, nor
have any of these organizations determined that this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
----------------
The date of this prospectus is October 28, 1999
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TABLE OF CONTENTS
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Prospectus Summary........................................................ 1
Summary of the Exchange Offer........................................... 3
Summary of the Exchange Notes........................................... 6
Risk Factors............................................................ 8
Principal Executive Office.............................................. 9
Summary Historical and Pro Forma Financial Data......................... 10
Risk Factors.............................................................. 13
Our ability to service our indebtedness will require a significant
amount of cash, which we may be unable to generate..................... 13
Our substantial indebtedness could adversely affect our financial
condition and prevent us from fulfilling our obligations under the
exchange notes......................................................... 13
The issuers are relying upon distributions from Adams Outdoor
Advertising Limited Partnership to generate the funds necessary to make
payments of principal and interest on the exchange notes, however, the
terms of the financing documents of Adams Outdoor Advertising Limited
Partnership impose limitations on its ability to make distributions to
AOA Holding............................................................ 14
Your right to receive payments on the exchange notes will effectively
rank junior to claims of creditors of Adams Outdoor Advertising Limited
Partnership and Adams Outdoor Advertising, Inc. because AOA Holding is
a holding company with no significant assets other than its investment
in Adams Outdoor Advertising Limited Partnership....................... 14
Cutbacks in tobacco advertising may cause a reduction in our net
revenues............................................................... 15
Holders of outstanding notes that fail to exchange their notes may be
unable to resell their notes........................................... 15
Your notes will not be accepted for exchange if you fail to follow the
exchange offer procedures.............................................. 15
The restrictions imposed by the indentures governing the exchange notes
and the Adams Outdoor Advertising Limited Partnership notes and our
credit facilities may limit our management's discretion................ 15
AOA Capital has no ability to make payments on the exchange notes....... 16
Governmental regulations place restrictions on billboard advertising
that may cause a reduction in our net revenues......................... 16
The loss of key executives may hinder our ability to implement our
business strategy and to operate profitably............................ 17
Our failure, or the failure of our third party suppliers or customers,
to address information technology issues related to the year 2000 could
result in an interruption to our business that may adversely affect our
financial results...................................................... 17
The controlling equity holder of AOA Holding may have interests in
conflict with the interests of our noteholders......................... 17
The governors and directors of the issuers are also directors of their
subsidiaries and may develop a conflict of interest.................... 17
$35 million of approximately $48.25 million of the net proceeds from the
issuance of the outstanding notes were distributed to Stephen Adams and
family members rather than retained by us for use in our business ..... 18
We may not have the ability to raise the funds necessary to finance the
change of control offer required by the indenture...................... 18
The absence of a well-developed body of legal precedent relating to
limited liability companies makes the outcome of legal proceedings
against AOA Capital difficult to predict............................... 18
If a bankruptcy case or lawsuit is initiated by unpaid creditors of
either issuer, the debt represented by the exchange notes may be
reviewed under the federal bankruptcy laws and comparable provisions of
state fraudulent transfer laws......................................... 18
You cannot be sure that an active trading market will develop for the
exchange notes......................................................... 19
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Forward-Looking Statements............................................... 20
The Issuers.............................................................. 21
Exchange Offer........................................................... 23
Purpose and Effect of the Exchange Offer............................... 23
Terms of the Exchange Offer............................................ 25
Expiration Date; Extensions; Amendments................................ 26
Interest on the Exchange Notes......................................... 26
Procedures for Tendering............................................... 26
Guaranteed Delivery Procedures......................................... 28
Withdrawal of Tenders.................................................. 29
Conditions............................................................. 29
Exchange Agent......................................................... 30
Fees and Expenses...................................................... 30
Accounting Treatment................................................... 31
Consequences of Failure to Exchange.................................... 31
Resale of the Exchange Notes........................................... 31
Use of Proceeds.......................................................... 32
Capitalization........................................................... 33
Selected Historical and Pro Forma Financial Data......................... 34
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 37
Business................................................................. 44
Management............................................................... 52
Principal Security Holders............................................... 57
Certain Transactions..................................................... 58
Limited Liability Company Agreement...................................... 58
Description of Certain Indebtedness...................................... 59
Description of the Notes................................................. 61
United States Federal Income Tax Consequences............................ 92
Plan of Distribution..................................................... 93
Legal Matters............................................................ 93
Experts.................................................................. 93
Change in Accountants.................................................... 93
Additional Information................................................... 94
Index to Financial Statements............................................ F-1
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PROSPECTUS SUMMARY
The following summary contains basic information about us and the exchange
offer. It likely does not contain all the information that is important to you.
We encourage you to read this entire document and the documents we have
referred you to. Unless the context otherwise requires, the terms "Adams
Outdoor," "we," "ours" and "us" collectively refer to AOA Holding LLC and its
direct and indirect subsidiaries including AOA Capital Corp, Adams Outdoor
Advertising Limited Partnership and Adams Outdoor Advertising, Inc. after
giving effect to the transfers into the holding company structure which were
effected immediately prior to the issuance of our outstanding notes which are
the subject of this exchange offer (see "The Issuers"). Unless otherwise
indicated, the information contained in this offering memorandum describes
Adams Outdoor as if the transfers had been completed and the outstanding notes
issued prior to the period described. Substantially all of our operations are
conducted by Adams Outdoor Advertising Limited Partnership.
Adams Outdoor
Adams Outdoor is the seventh largest owner and operator of outdoor
advertising structures in the United States. We currently provide outdoor
advertising services in fourteen markets and surrounding areas in the Midwest,
Southeast and mid-Atlantic states: Peoria, IL; Jackson, MI; Kalamazoo, MI;
Lansing, MI; Minneapolis, MN; Charlotte, NC; Lehigh Valley, PA; Northeast PA;
Charleston, SC; Florence, SC; Laurens, SC; Orangeburg, SC; Norfolk, VA; and
Madison, WI. As of December 31, 1998, we operated, in the aggregate,
approximately 9,600 advertising displays, including 2,891 painted bulletins,
6,541 30-sheet posters and 222 junior (8-sheet) posters.
Our strategy is to focus our outdoor advertising operations in medium-sized
markets in which we are or could be the leading provider of such services. We
offer our customers comprehensive outdoor advertising services, including local
creative professionals, account executives, production facilities and business
development staffs. These resources allow us to educate current customers and
potential customers on the effectiveness of the outdoor advertising medium and
to demonstrate to customers how to integrate outdoor advertising into their
marketing plans. We also develop creative ideas and displays to advertise
customers' products or services and provide them with detailed local market
research and information about potential advertising opportunities.
From 1994 through the latest twelve months ended June 30, 1999, our net
revenues increased from $37.7 million to $66.3 million and our Operating Cash
Flow, as defined below, grew from $16.9 million to $30.2 million. We have
improved our financial performance primarily through a strategy of increasing
revenues from existing display faces in each market by developing programs that
maximize advertising rates and optimize occupancy levels and through lowering
operating expenses by reducing accounting, administrative and operations staff.
In recent years, this strategy has resulted in high operating leverage. We
define Operating Cash Flow as operating income (loss) before depreciation and
amortization expense and deferred compensation expense. Operating Cash Flow is
not intended to represent net cash provided by operating activities as defined
by generally accepted accounting principles and should not be considered as an
alternative to net income or loss as an indicator of our operating performance
or to net cash provided by operating, investing and financing activities as a
measure of our liquidity or ability to meet cash needs. We are providing
information regarding Operating Cash Flow to permit a more complete comparative
analysis of our performance relative to other companies in the media industry
that publicly report Operating Cash Flow or similarly defined measures.
However, other companies may use different definitions of these measures.
We believe that our strong position in our markets, our emphasis on local and
regional advertisers and the geographical diversity of our operations provide
stability to our revenue base, reduce our reliance upon any single local
economy or advertiser, and mitigate the effect of fluctuations in national
advertising expenditures. Net revenues attributable to local and regional
advertising represented 89.7% of our total net revenues in 1998.
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We have been able to maintain our position as a leading provider of outdoor
advertising services in our primary markets due to the barriers to entry
created by the combination of our existing site locations and government
regulations limiting the erection of new displays. We intend to build upon our
position as the dominant provider of outdoor advertising in our markets and the
competitive advantage provided by our sales, creative and business development
staffs. We plan to accomplish this by continuing to develop our customer base
among local and regional advertisers, improving the utilization and rate
structure of our display faces and expanding the number of our displays through
building in our existing markets and, when appropriate, through making
acquisitions.
The Adams Outdoor business was founded in 1983 with the acquisition of
Central Outdoor Advertising, which had offices in Lansing, Jackson and
Kalamazoo, MI. Over the next five years, we pursued a strategy of geographic
expansion into additional medium-sized markets, primarily through the
acquisition of existing outdoor advertising businesses in selected Midwest,
Southeast and mid-Atlantic markets. This geographic expansion strategy has
enabled us to capitalize on the efficiencies, economies of scale and marketing
opportunities associated with operating outdoor advertising businesses located
in proximate or contiguous geographic markets to our primary markets. Since
1988, our sales and Operating Cash Flow growth has resulted from increased
display inventory, primarily through new construction and, to a lesser extent,
from acquisitions of displays in existing markets and the significant upgrading
of our existing display inventory. We have also been able to reduce operating
expenses while achieving higher rate and occupancy levels.
We are privately held by Mr. Stephen Adams and members of his family. AOA
Holding is a single member Minnesota limited liability company of which Stephen
Adams is the sole member. AOA Capital is a wholly owned subsidiary of AOA
Holding with no assets, no liabilities (other than the notes) and no
operations. AOA Holding directly, or indirectly through its ownership of Adams
Outdoor Advertising, Inc., owns a 0.71% general partnership interest and a
69.29% priority limited partnership interest in Adams Outdoor Advertising
Limited Partnership, through which we conduct substantially all of our
operations. The remaining limited partnership interests are held by a
partnership consisting of Stephen Adams and other family members. See "The
Issuers" and "Principal Security Holders." The partnership agreement of Adams
Outdoor Advertising Limited Partnership provides that the limited partner
interest of AOA Holding is a "priority" interest by virtue of which all limited
partner distributions (other than Permitted Tax Distributions) will be made
only to AOA Holding until the notes are paid in full. See "The Issuers."
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Summary of the Exchange Offer
The Exchange Offer.................... AOA Holding and AOA Capital offer to
exchange $50,000,000 in principal
amount of their 10-3/8% Senior Notes
due 2006, which have been registered
under the federal securities laws, for
$50,000,000 in principal amount of
their outstanding unregistered 10-3/8%
Senior Notes due 2006, which they
issued on May 26, 1999 in a private
offering. You have the right to
exchange your outstanding notes for
exchange notes with substantially
identical terms.
Registration Rights Agreement......... AOA Holding and AOA Capital issued the
outstanding notes on May 26, 1999 to
CIBC World Markets Corp. At that time,
they signed a registration rights
agreement with CIBC, which requires
them to conduct this exchange offer.
This exchange offer is intended to
satisfy those rights set forth in the
registration rights agreement. After
the exchange offer is complete, you
will no longer be entitled to
registration rights with respect to
outstanding notes that you do not
exchange.
If You Fail to Exchange Your If you do not exchange your outstanding
Outstanding Notes..................... notes for exchange notes in the
exchange offer, you will continue to be
subject to the restrictions on transfer
provided in the outstanding notes and
the indenture governing those notes. In
general, you may not offer or sell your
outstanding notes unless they are
registered under the federal securities
laws or are sold in a transaction
exempt from or not subject to the
registration requirements of the
federal securities laws and applicable
state securities laws.
Expiration Date....................... The exchange offer will expire at 5:00
p.m., New York City time, on November
30, 1999, unless we decide to extend
the expiration date. See "The Exchange
Offer--Expiration Date; Extensions;
Amendments."
Conditions to the Exchange Offer...... The exchange offer is subject to
conditions that we may waive. The
exchange offer is not conditioned upon
any minimum amount of outstanding notes
being tendered for exchange. See "The
Exchange Offer--Conditions."
We reserve the right, subject to
applicable law, at any time and from
time to time:
. to extend the exchange offer or
to terminate the exchange offer
if specified conditions have not
been satisfied; and
. to amend the terms of the
exchange offer in any manner
consistent with the registration
rights agreement.
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See "The Exchange Offer--Expiration
Date; Extensions; Amendments."
Procedures for Tendering Outstanding
Notes................................. If you wish to tender your outstanding
notes for exchange, you must:
. complete and sign the enclosed
Letter of Transmittal by
following the related
instructions; and
. send the Letter of Transmittal,
as directed in the instructions,
together with any other required
documents, to the exchange
agent, either:
(1) with the outstanding notes
to be tendered, or
(2) in compliance with the
specified procedures for
guaranteed delivery of the
outstanding notes.
Brokers, dealers, commercial banks,
trust companies and other nominees may
also effect tenders by book-entry
transfer.
Please do not send your Letter of
Transmittal or certificates
representing your outstanding notes to
us. Those documents should only be sent
to the exchange agent. Questions
regarding how to tender and requests
for information should be directed to
the exchange agent. See "The Exchange
Offer--Exchange Agent."
Special Procedures for Beneficial
Owners................................ If your outstanding notes are
registered in the name of a broker,
dealer, commercial bank, trust company
or other nominee, we urge you to
contact that person promptly if you
wish to tender your outstanding notes
in accordance with the exchange offer.
See "The Exchange Offer--Procedures for
Tendering."
Withdrawal Rights..................... You may withdraw the tender of your
outstanding notes at any time prior to
the expiration date of the exchange
offer by delivering a written notice of
your withdrawal to the exchange agent.
You must also follow the withdrawal
procedures as described under the
heading "The Exchange Offer--Withdrawal
of Tenders."
Tax Considerations.................... Based on the opinion of our counsel,
your exchange of outstanding notes for
exchange notes in the exchange offer
will not result in any gain or loss to
you for federal income tax purposes.
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Resale of Exchange Notes.............. We believe that you will be able to
offer for resale, resell or otherwise
transfer exchange notes issued in the
exchange offer without compliance with
the registration and prospectus
delivery provisions of the federal
securities laws, provided that:
. you are acquiring the exchange
notes in the ordinary course of
business;
.you are not participating, and
have no arrangement or
understanding with any person to
participate, in the distribution
of the exchange notes; and
.you are not an affiliate of AOA
Holding or AOA Capital, or if
you are an affiliate, you will
comply with the registration and
prospectus delivery requirements
of the Securities Act to the
extent applicable. As defined in
Rule 405 of the Securities Act,
an affiliate of AOA Holding or
AOA Capital is a person that
"controls or is controlled by or
is under common control with"
AOA Holding or AOA Capital.
Our belief is based on interpretations
by the SEC, as set forth in no-action
letters issued to third parties
unrelated to us. The Staff has not
considered this exchange offer in the
context of a no-action letter, and we
cannot assure you that the Staff would
make a similar determination with
respect to this exchange offer.
If our belief is not accurate and you
transfer an exchange note without
delivering a prospectus meeting the
requirements of the federal securities
laws or without an exemption from these
laws, you may incur liability under the
federal securities laws. We do not and
will not assume or indemnify you
against this liability.
Each broker-dealer that receives
exchange notes for its own account in
exchange for outstanding notes which
were acquired by that broker-dealer as
a result of market-making or other
trading activities must agree to
deliver a prospectus meeting the
requirements of the federal securities
laws in connection with any resale of
the exchange notes. See "The Exchange
Offer--Resale of the Exchange Notes."
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Exchange Agent........................ The exchange agent for the exchange
offer is United States Trust Company of
New York. The address, telephone number
and facsimile number of the exchange
agent are set forth in "The Exchange
Offer--Exchange Agent" and in the
Letter of Transmittal.
See "The Exchange Offer" for more detailed information concerning the exchange
offer.
Summary of the Exchange Notes
Issuers............................... AOA Holding LLC and AOA Capital Corp,
as joint and several obligors.
Exchange Notes........................ $50,000,000 principal amount of 10 3/8%
senior notes due 2006 (the "exchange
notes").
Maturity Date......................... June 1, 2006.
Interest Rate......................... 10 3/8% per year.
Interest Payment Dates................ Every March 15 and September 15,
beginning September 15, 1999.
Ranking............................... The exchange notes will not be secured
by any collateral.
The exchange notes will be our joint
and several obligations.
The exchange notes will be our general
unsecured obligations and will rank
equal in right of payment to all of our
unsubordinated debt. None of our debt
will be senior in right of payment to
the exchange notes, however, the
exchange notes effectively will be
subordinate to all of our secured debt.
Therefore, if we default, your right to
payment under the exchange notes will
be equal to the rights of the holders
of our unsecured senior debt, and
effectively subordinate to the rights
of the holders of our secured debt, to
collect money we owe them at the time.
At June 30, 1999, we had no debt other
than the exchange notes.
Our subsidiaries will not guarantee the
exchange notes. Because we are a
holding company and we conduct our
business through subsidiaries, the
exchange notes will be effectively
subordinated to all debt and other
liabilities (including trade payables)
of our subsidiaries which, as of June
30, 1999, totaled approximately $136.3
million. Therefore, if we default, your
right to payment under the exchange
notes will be junior to the rights of
holders of the debt of our subsidiaries
to collect money our subsidiaries owe
them at the time. In the event of a
bankruptcy, liquidation or
reorganization of our subsidiaries,
they
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will pay the holders of their debt and
their trade creditors before they will
be able to distribute any of their
assets to us.
Distributions to us from our
subsidiaries constitute the only source
of funds for the payment of the
exchange notes. As of June 30, 1999,
our subsidiaries would have been
permitted to make distributions of
$13.25 million.
Optional Redemption after Four Except in connection with a special
Years................................. optional redemption, we cannot choose
to redeem the exchange notes until June
1, 2003. At any time after that date
(which may be more than once), we can
choose to redeem some or all of the
exchange notes at certain specified
prices, plus accrued interest.
Special Optional Redemption........... From April 15, 2001 through January 15,
2002, we can choose to buy back the
exchange notes, in whole but not in
part, at their face amount plus accrued
interest, in the event of a concurrent
optional redemption of the 10 3/4%
senior notes due 2006 of our
subsidiaries, Adams Outdoor Advertising
Limited Partnership and Adams Outdoor
Advertising, Inc..
Change of Control Offer............... If we experience a change of control,
we must give holders of the exchange
notes the opportunity to sell us their
exchange notes at 101% of their face
amount, plus accrued interest.
We might not be able to pay you the
required price for exchange notes you
present to us at the time of a change
of control, because we might not have
enough funds at that time or the terms
of our other debt, including the debt
of our subsidiaries, may prevent us
from paying such amount.
Asset Sale Proceeds................... We may have to use the cash proceeds
from selling assets to offer to buy
back exchange notes at their face
amount, plus accrued interest.
Certain Indenture Provisions.......... The indenture governing the exchange
notes will limit what we (and most or
all of our subsidiaries) may do. The
provisions of the indenture will limit
our ability to:
. incur more debt;
. pay dividends and make
distributions;
. issue stock of subsidiaries;
. make certain investments;
. repurchase stock;
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. create subsidiaries;
. create liens;
. enter into transactions with
affiliates;
. enter into sale-leaseback
transactions;
. create dividend or other payment
restrictions affecting
subsidiaries;
. merge or consolidate; and
. transfer or sell assets.
These covenants are subject to a number
of important exceptions, including the
allowance of Permitted Tax
Distributions (as defined in the
indenture).
Use of Proceeds....................... We will not receive any cash proceeds
from the issuance of the exchange
notes.
For more complete information about the exchange notes, see the "Description
of the Exchange Notes" section of this prospectus.
Risk Factors
You should consider carefully the information included in the "Risk Factors"
section, as well as other information contained in this prospectus.
We believe the most significant risks include:
. To service our indebtedness, we will require a significant amount of
cash, which we may be unable to generate.
. Our high level of indebtedness could adversely affect our financial
condition and prevent us from fulfilling our obligations under the
exchange notes.
. We are relying upon distributions from Adams Outdoor Advertising Limited
Partnership to make payments on the exchange notes and its ability to
make those payments is limited by the terms of its financing documents.
. AOA Holding has no significant assets other than its investment in Adams
Outdoor Advertising Limited Partnership so that in effect your right to
receive payments on the exchange notes is junior to claims by creditors
of Adams Outdoor Advertising Limited Partnership and Adams Outdoor
Advertising, Inc.
. Cutbacks in tobacco advertising may cause a reduction in our net
revenues.
. Holders who fail to exchange their outstanding notes may be unable to
resell their notes.
. Your notes will not be accepted for exchange if you fail to follow the
exchange offer procedures
. AOA Capital has no ability to make payments on the exchange notes.
. The exchange notes being issued are solely our obligations and no
officer, director or other person has any liability for any of our
obligations under the exchange notes.
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. The loss of key executives may hinder our ability to implement our
business strategy and to operate profitably.
. Our failure, or the failure of our third party suppliers or customers,
to address information technology issues related to the year 2000 could
adversely affect our operations.
. If there is a change of control, we may not have the ability to raise
the funds necessary to finance the change of control offer required by
the indenture.
. The absence of a well-developed body of legal precedent relating to
limited liability companies makes the outcome of legal proceedings
against AOA Holding difficult to predict.
Principal Executive Office
Our principal executive office is located at 1380 West Paces Ferry Road,
N.W., Suite 170, South Wing, Atlanta, Georgia, 30327 and our telephone number
is (404) 233-1366.
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Summary Historical and Pro Forma Financial Data
AOA Holding and AOA Capital, the co-issuers of the exchange notes, were
formed in 1999 for the purpose of acquiring the direct interests of Mr. Adams
in Adams Outdoor Advertising Inc. and Adams Outdoor Advertising Limited
Partnership and to serve as the co-issuers of the outstanding notes and the
exchange notes. AOA Holding's only assets are 100% of the outstanding capital
stock of Adams Outdoor Advertising Inc. and a 0.70% general partnership
interest and a 68.3% limited partnership interest in Adams Outdoor Advertising
Limited Partnership. The historical information of AOA Holding presents the
aforementioned transfer of ownership of Adams Outdoor Advertising, Inc. and
Adams Outdoor Advertising Limited Partnership, the predecessor companies, to
AOA Holding as a reorganization of entities under common control similar to a
pooling of interests.
The following summary historical and pro forma financial data, insofar as it
relates to each of the five years ended December 31, 1998, has been prepared by
us and is based upon the financial statements of AOA Holding and should be read
in conjunction with the audited financial statements, including the balance
sheets of AOA Holding as of December 31, 1997 and 1998 and the related
statements of operations for each of the years in the three-year period ended
December 31, 1998, and the notes thereto appearing elsewhere in this
prospectus. Separate summary data of AOA Capital has not been presented because
AOA Capital does not and will not have substantial operations or assets of any
kind and will not have any revenues. The summary historical and pro forma
financial data as of June 30, 1999 and for the six months ended June 30, 1998
and 1999 has been derived from unaudited financial statements appearing
elsewhere in this prospectus which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the unaudited interim periods. Results for
the six months ended June 30, 1999 are not necessarily indicative of results
that may be expected for the entire year. The summary historical and pro forma
financial data should be read in conjunction with the information contained in
the financial statements of AOA Holding and the notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Selected Historical Financial Data" included elsewhere herein.
The following unaudited summary pro forma statement of operations data and
other data for the year ended December 31, 1998 and for the six months ended
June 30, 1999 give effect to the sale of the outstanding notes as if they had
been completed at the beginning of the respective periods. Certain management
assumptions and adjustments are described in the accompanying notes hereto. The
pro forma financial data should be read in conjunction with the financial
statements of AOA Holding and the notes thereto appearing elsewhere in this
prospectus. This pro forma financial data is not necessarily indicative of the
results that would have occurred had the sale of the outstanding notes been
completed on the dates indicated or our actual or future operating results or
financial position.
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Summary Historical and Pro Forma Financial Data (dollars in thousands)
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Six Months Ended
Year Ended December 31, June 30,
----------------------------------------------------- -------------------------
Pro Pro
Forma Forma
1994 1995 1996 1997 1998 1998(a) 1998 1999 1999(a)
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Statement of Operations
Data:
Gross revenues......... $41,748 $47,589 $ 52,421 $63,302 $71,592 $71,592 $34,364 $35,926 $35,926
Agency commissions..... 4,097 4,698 5,161 6,017 7,023 7,023 3,393 3,264 3,264
------- ------- -------- ------- ------- ------- ------- ------- -------
Net revenues........... 37,651 42,891 47,260 57,285 64,569 64,569 30,971 32,662 32,662
Direct advertising
expenses.............. 19,561 20,848 22,412 29,089 32,097 32,097 15,367 16,275 16,275
Corporate, general and
administrative
expense............... 1,183 1,114 2,405 3,589 3,903 3,903 2,109 1,298 1,298
Depreciation and
amortization.......... 5,684 5,568 6,105 8,149 7,875 7,875 4,133 3,749 3,749
Deferred compensation
expense(b)............ 1,530 2,427 1,451 901 4,316 4,316 331 870 870
------- ------- -------- ------- ------- ------- ------- ------- -------
Operating income....... 9,693 12,934 14,887 15,557 16,378 16,378 9,031 10,470 10,470
Interest expense....... 9,877 11,263 12,523 14,601 14,408 18,919 7,305 7,435 9,227
Other expenses
(income), net......... 38 16 (32) 43 78 78 62 2,486 2,486
(Gain) loss on
disposals of assets,
net................... 388 93 861 122 378 378 19 21 21
Income before
extraordinary loss on
early extinguishment
of debt............... (610) 1,562 1,535 791 1,514 (2,997) 1,645 528 (1,264)
------- ------- -------- ------- ------- ------- ------- ------- -------
Extraordinary loss on
early extinguishment
of debt............... -- -- -- -- 330 330 -- -- --
------- ------- -------- ------- ------- ------- ------- ------- -------
Net income (loss).... $ (610) $ 1,562 $ 1,535 $ 791 $ 1,184 $(3,327) $ 1,645 $ 528 $(1,264)
======= ======= ======== ======= ======= ======= ======= ======= =======
Other Data:
Operating Cash
Flow(c)............... $16,907 $20,929 $ 22,443 $24,607 $28,569 $28,569 $13,495 $15,089 $15,089
Capital expenditures... 1,895 2,042 4,419 7,646 10,144 10,144 2,799 4,856 4,856
Ratio of earnings to
fixed charges (d)..... -- 1.06x 1.11x 1.05x 1.09x -- 1.20x 1.06x --
Ratio of debt to net
income (e)............ -- 68.79 86.92 170.71 112.13 -- 83.24 329.36 --
Cash flow provided by
(used in):
Operating
activities.......... $ 7,092 $ 9,151 $ 12,537 $ 7,150 $11,873 $ 8,676 $ 2,322 $ 23 $222
Investing
activities.......... (1,791) (1,979) (28,675) (7,462) (9,659) (9,659) (2,798) (4,848) (4,848)
Financing
activities.......... (5,569) (6,763) 17,540 (100) (3,647) (2,139) 1,301 6,177 6,177
</TABLE>
see notes on the following page
11
<PAGE>
- --------
(a) Gives effect to the issuance of the outstanding notes as if they had
occurred at the beginning of such periods for Statement of Operations Data.
Pro forma interest expense is computed as follows:
<TABLE>
<CAPTION>
Six
Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ --------
<S> <C> <C>
$50,000,000 10 3/8% Senior notes...................... $5,189 $2,062
Adams Outdoor Advertising Limited Partnership Credit
Facility
$13,250,000 at 7.00%................................. (928) (369)
Amortization of deferred financing costs.............. 250 99
------ ------
Interest expense...................................... $4,511 $1,792
====== ======
</TABLE>
(b) Deferred compensation expense represents accrued expenses under certain
deferred compensation arrangements, including phantom stock agreements with
certain key management personnel. The phantom stock agreements in effect
provide for the repurchase of "phantom stock" in three equal annual payments
after a covered executive's termination, death or disability, the sale of
Adams Outdoor, or the fifth anniversary of the agreement's execution. See
"Management--Agreements with Management--Incentive Compensation under
Phantom Stock Agreements."
(c) The following table sets forth the calculation of "Operating Cash Flow."
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------------------------------- -----------------------
Pro Pro
Forma Forma
1994 1995 1996 1997 1998 1998 1998 1999 1999
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating income........ $ 9,693 $12,934 $14,887 $15,557 $16,378 $16,378 $ 9,031 $10,470 $10,470
Depreciation and
amortization........... 5,684 5,568 6,105 8,149 7,875 7,875 4,133 3,749 3,749
Deferred compensation
expense................ 1,530 2,427 1,451 901 4,316 4,316 331 870 870
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating Cash Flow.... $16,907 $20,929 $22,443 $24,607 $28,569 $28,569 $13,495 $15,089 $15,089
</TABLE>
As a limited liability company, we are not subject to federal corporate
income tax. Operating Cash Flow is not a measure of performance under
generally accepted accounting principles. Operating Cash Flow is not
intended to represent net cash flow provided by operating activities as
defined by GAAP and should not be considered as an alternative to net income
or loss as an indicator of our operating performance or to net cash provided
by operating, investing and financing activities as a measure of our
liquidity or ability to meet cash needs. We are providing information
regarding Operating Cash Flow to permit a more complete comparative analysis
of our performance relative to other companies in the media industry that
publicly report Operating Cash Flow or similarly defined measures. However,
other companies may use different definitions of these measures. See
"Management's Discussion and Analysis of Results of Financial Condition and
Operations."
(d) Earnings consist of operating income plus fixed charges adjusted to exclude
capitalized interest. Our fixed charges consist of interest expense plus
amortization of deferred financing costs and the estimated interest portion
of rents. Earnings were inadequate to cover fixed charges by approximately
$1.3 million for the year ended December 31, 1994, $3 million for the pro
forma year ended December 31, 1998 and $1,264,000 for the pro forma six
months ended June 30, 1999.
(e) The ratio of total debt to net income for the periods ended December 31,
1994 and for the pro forma periods ended December 31, 1998 and June 30,
1999 are not meaningful due to the net loss for those periods.
12
<PAGE>
RISK FACTORS
You should carefully consider the following factors and all of the other
information included in this prospectus when you evaluate tendering your notes
in the exchange offer.
Our ability to service our indebtedness will require a significant amount of
cash, which we may be unable to generate.
Our ability to make payments on and to repay or refinance our debt,
including the exchange notes, and to fund planned capital expenditures will
depend on our ability to generate cash in the future. We cannot assure you
that our business will generate sufficient cash flow from operations, or that
future borrowings will be available to us under our credit facilities in an
amount sufficient to enable us to pay interest and principal amounts on our
debt, including the exchange notes, or to fund our other liquidity needs. If
our future cash flow from operations and other capital resources are
insufficient to pay our obligations as they mature or to fund our liquidity
needs, we may be forced to reduce or delay our business activities and capital
expenditures, sell assets, obtain additional equity capital or restructure or
refinance all or a portion of our debt, including the exchange notes and
certain debt of Adams Outdoor Advertising Limited Partnership and Adams
Outdoor Advertising, Inc.,on or before maturity. We cannot assure you that we
can accomplish any of these alternatives on a timely basis or on satisfactory
terms, if at all, which would limit our flexibility to react to changes in
general economic, financial and industry conditions, competitive challenges,
adverse changes in government regulation and our ability to capitalize on
significant business opportunities. In addition, the terms of certain existing
indebtedness such as the exchange notes and the Adams Outdoor Advertising
Limited Partnership notes and other future indebtedness may limit our ability
to pursue any of these alternatives.
Our substantial indebtedness could adversely affect our financial condition
and prevent us from fulfilling our obligations under the exchange notes.
We now have and will continue to have a significant amount of debt. The
following chart shows important information as of June 30, 1999 regarding our
indebtedness:
<TABLE>
<CAPTION>
June 30, 1999
-------------
(dollars in
millions)
<S> <C>
Total subsidiary debt......................................... $123.9
------
Total debt.................................................... 173.9
------
</TABLE>
On a pro forma basis for the twelve months ended June 30, 1999, our earnings
would have been insufficient to cover fixed charges by approximately $3.7
million.
Our substantial debt could have important consequences to you. For example,
it could:
. make it more difficult for us to satisfy our obligations with respect to
the exchange notes;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing the availability of
our cash flow to fund working capital, capital expenditures,
acquisitions and other general corporate purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage compared to our competitors that
have less debt;
. increase our vulnerability to general adverse economic and industry
conditions; and
13
<PAGE>
. limit, along with the financial and other restrictive covenants in our
debt, among other things, our ability to borrow additional funds.
Failing to comply with these covenants could result in an event of
default which, if not cured or waived, could have a material adverse
effect on us.
A portion of our debt bears interest at variable rates. An increase in the
interest rates on our debt will reduce the funds available to repay the
exchange notes and our other debt and for operations and future business
opportunities and will intensify the consequences of our leveraged capital
structure. See "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Description of the Exchange
Notes" and "Description of Certain Indebtedness."
The issuers are relying upon distributions from Adams Outdoor Advertising
Limited Partnership to generate the funds necessary to make payments of
principal and interest on the exchange notes, however, the terms of the
financing documents of Adams Outdoor Advertising Limited Partnership impose
limitations on its ability to make distributions to AOA Holding.
The indenture governing the $101 million of outstanding 10 3/4% Senior Notes
due 2006 of Adams Outdoor Advertising Limited Partnership and Adams Outdoor
Advertising, Inc. preclude them from declaring or paying any dividend or
making any distributions on their equity interests unless they can incur at
least $1.00 of indebtedness in accordance with the covenants under the
indenture that restrict their ability to incur indebtedness. That indenture
also provides that the aggregate amount of such dividends, distributions and
payments may not exceed the sum of:
. 50% of their consolidated net income (or in the event such consolidated
net income is a deficit, minus 100% of such deficit) after March 12,
1996, and
. 100% of the aggregate net proceeds received after March 12, 1996 by
either one of them from (1) the issue or sale of certain equity
interests and (2) dividends or other distributions received from certain
subsidiaries.
After giving effect to the sale of the outstanding notes and the application
of the net proceeds, the aggregate amount available for distribution from them
to the issuers would have been $13.25 million as of June 30, 1999. In
addition, the credit facilities of Adams Outdoor Advertising Limited
Partnership contain restrictions on the payment of dividends to AOA Holding.
These credit facilities permit distributions to AOA Holding in an amount equal
to the amount of interest due and payable on the exchange notes, provided
that, Adams Outdoor Advertising Limited Partnership is in compliance with the
financial covenants contained therein and no default is continuing or occurs
as a result of the distributions. The credit facilities contain more covenants
than the indenture which if breached could result in further restrictions on
the ability of Adams Outdoor Advertising Limited Partnership to pay dividends.
See "Description of Certain Indebtedness."
Your right to receive payments on the exchange notes will effectively rank
junior to claims of creditors of Adams Outdoor Advertising Limited Partnership
and Adams Outdoor Advertising, Inc. because AOA Holding is a holding company
with no significant assets other than its investment in Adams Outdoor
Advertising Limited Partnership.
The exchange notes will be general unsecured obligations of the issuers and
will rank equal with their other unsubordinated debt. The exchange notes will
be effectively subordinated to claims of creditors of Adams Outdoor
Advertising Limited Partnership and Adams Outdoor Advertising, Inc., including
the lenders under the limited partnership's credit facilities, the holders of
the Adams Outdoor Advertising Limited Partnerhsip notes and trade creditors.
As a result, the rights of the issuers and their creditors, including the
holders of the exchange notes, to realize upon the assets of Adams Outdoor
Advertising Limited Partnership or Adams Outdoor Advertising, Inc. in the
event of their liquidation or reorganization (and the consequent rights of the
holders of the exchange notes to participate in the realization of those
assets) will be subject to the prior claims of their creditors, including the
lenders under the Adams Outdoor Advertising Limited Partnership credit
facilities and the holders of the Adams Outdoor Advertising Limited
Partnership notes. In such event, there may not be
14
<PAGE>
sufficient assets remaining to pay amounts due on any or all of the exchange
notes then outstanding. As of June 30, 1999, there were $101 million of Adams
Outdoor Advertising Limited Partnership notes outstanding. At June 30, 1999,
Adams Outdoor Advertising Limited Partnership had $22.9 million of
indebtedness outstanding and $12.1 million available under its secured credit
facility and $8 million available under its unsecured credit facility. All
such available amounts could have been borrowed under the limitations on
additional indebtedness imposed by the indenture governing the Adams Outdoor
Advertising Limited Partnership notes and the Adams Outdoor Advertising
Limited Partnership credit facilities. Currently, the Adams Outdoor
Advertising Limited Partnership secured credit facility matures on December
31, 2001 and the Adams Outdoor Advertising Limited Partnership unsecured
credit facility matures on December 31, 2001. See "Description of Certain
Indebtedness."
Cutbacks in tobacco advertising may cause a reduction in our net revenues.
In November 1998, the major U.S. tobacco companies reached an out of court
settlement with 46 states, the District of Columbia, the Commonwealth of
Puerto Rico and four other U.S. territories. The remaining four states had
already reached similar settlements with the tobacco companies. The agreement
requires the removal of tobacco advertising from out-of-home media, including
billboards, along with signs and placards in arenas, stadiums, shopping malls
and video game arcades by April 23, 1999. Additionally, the agreement provides
that, at the settling states' option, the tobacco companies must, at their
expense, substitute for tobacco advertising alternative advertising which
discourages youth smoking. That alternative advertising must remain in place
for the duration of the tobacco companies' out-of-home media advertising
contracts which existed as of the date of the agreement.
The elimination of tobacco advertising as called for by the agreement will
cause a reduction in direct revenues from tobacco companies and may
simultaneously increase the available space on the existing inventory of
billboards in the outdoor advertising industry. Revenues attributable to
tobacco products represented 10.3% of our net revenues in 1998. We can give no
assurance that the further cutbacks in tobacco advertising during 1999 will
not have an adverse effect on operations for 1999 and beyond. See "Business--
Government Regulation."
Holders of outstanding notes that fail to exchange their notes may be unable
to resell their notes.
We did not register the outstanding notes under the federal or any state
securities laws, nor do we intend to register them following the exchange
offer. As a result, the outstanding notes may only be transferred in limited
circumstances under the securities laws. If the holders of outstanding notes
do not exchange their notes in the exchange offer, they lose their right to
have the outstanding notes registered under the federal securities laws. As a
result, a holder of outstanding notes after the exchange offer may be unable
to sell its notes.
Your notes will not be accepted for exchange if you fail to follow the
exchange offer procedures.
Neither the exchange agent nor either of the issuers is under any duty to
give you notification of defects or irregularities with respect to tenders of
outstanding notes for exchange. Outstanding notes that are not tendered or are
tendered but not accepted will, following the exchange offer, continue to be
subject to the existing transfer restrictions on the outstanding notes. In
addition, if you tender your outstanding notes in the exchange offer to
participate in a distribution of the exchange notes, you will be required to
comply with the registration and prospectus delivery requirements of the
federal securities laws in connection with any resale transaction. For
additional information, please refer to "The Exchange Offer" and "Plan of
Distribution" sections of this prospectus.
The restrictions imposed by the indentures governing the exchange notes and
the Adams Outdoor Advertising Limited Partnership notes and our credit
facilities may limit our management's discretion.
The indenture for the exchange notes will contain various provisions that
limit our management's discretion by restricting our ability to:
. incur more debt;
. pay dividends and make distributions;
15
<PAGE>
. issue stock of subsidiaries;
. make certain investments;
. repurchase stock;
. create subsidiaries;
. create liens;
. enter into transactions with affiliates;
. enter into sale-leaseback transactions;
. create dividend or other payment restrictions affecting subsidiaries;
. merge or consolidate; and
. transfer or sell assets.
The indenture for the Adams Outdoor Advertising Limited Partnership notes
contains restrictions similar to those under the indenture for the exchange
notes. The Adams Outdoor Advertising Limited Partnership credit facilities
also require us to meet certain financial ratios. If we do not comply with the
restrictions in our credit facilities, the indentures, or any other financing
agreement, a default may occur. This default may allow our creditors to
accelerate the related debt as well as any other debt to which a cross-
acceleration or cross-default provision applies. In addition, our lenders may
be able to terminate any commitments they had made to provide us with further
funds. See "Description of the Certain Indebtedness."
AOA Capital has no ability to make payments on the exchange notes.
AOA Capital is a wholly-owned subsidiary of AOA Holding that was
incorporated for the sole purpose of serving as co-issuer of the exchange
notes. AOA Capital will not have any operations or assets of any kind and will
not have any revenues. You should not expect AOA Capital to participate in
servicing the interest or principal obligations or additional interest, if
any, on the exchange notes. See "Description of the Exchange Notes."
Governmental regulations place restrictions on billboard advertising that may
cause a reduction in our net revenues.
The outdoor advertising business is subject to regulation by federal, state
and local governments. Federal law requires states to restrict billboards on
federally-aided roads to commercial and industrial areas and imposes certain
additional size, spacing and other limitations on billboards. Some states have
adopted standards more restrictive than federal requirements. Local
governments generally control billboards as part of their zoning regulations,
and some local governments prohibit construction of new billboards or allow
new construction only to replace existing structures. In addition, some
jurisdictions have adopted amortization ordinances under which owners and
operators of outdoor advertising displays are required to remove existing
structures at some future date, often without receipt of condemnation
proceeds. Although we have been successful in the past in negotiating
acceptable compensation arrangements in circumstances in which our displays
have been removed, there can be no assurance we will be successful in the
future, and the extent of the possible adverse effect of such legislation
cannot be reliably determined at this time. In addition, we are unable to
predict what additional regulation may be imposed on outdoor advertising in
the future. Legislation regulating the content of billboard
16
<PAGE>
advertisements has been introduced in Congress from time to time in the past,
although no laws which, in the opinion of our management, would materially
adversely affect our business have been enacted to date. Changes in laws and
regulations affecting outdoor advertising at any level of government may have
a material adverse affect on our results of operations. See "Business--
Government Regulation."
The loss of key executives may hinder our ability to implement our business
strategy and to operate profitably.
Our Chief Executive Officer has been with Adams Outdoor for twelve years and
has fourteen years of experience in the outdoor advertising business during
which he has held a number of positions and been active in various industry
activities. Our Chief Financial Officer has been with Adams Outdoor for eleven
years, serving in a number of increasingly responsible financial positions.
Both executives have a strong understanding of our business, our competitors
and the markets in which we compete as well as a broad range of relationships
in the advertising industry from which we benefit. Although we believe we
could replace either our Chief Executive Officer and our Chief Financial
Officer in an orderly fashion should the need arise, the loss of one or both
of them could have a material adverse effect on our business, operating
results or financial condition.
Our failure, or the failure of our third party suppliers or customers, to
address information technology issues related to the year 2000 could result in
an interruption to our business that may adversely affect our financial
results.
Like other business entities, we must address the ability of our computer
software applications and other business systems (e.g., embedded microchips)
to properly identify the year 2000 due to a commonly used programming
convention of using only two digits to identify a year. Unless modified or
replaced, these systems could fail or create erroneous results when
referencing the year 2000. We believe we have assessed the relevant issues
related to the year 2000 problem. However, we cannot be sure that we will have
adequately addressed the issue and, if we have not done so, our operations
could be adversely affected. Moreover, we rely on third party suppliers for
certain finished goods, raw materials, water, other utilities, transportation
and a variety of other key services. If one or more of these suppliers fail to
address the year 2000 problem adequately, these suppliers' operations could be
interrupted. Such interruptions, in turn, could adversely affect our
operations. In addition, the failure of our customers to address the year 2000
problem adequately could adversely affect our financial results.
The controlling equity holder of AOA Holding may have interests in conflict
with the interests of our noteholders.
Stephen Adams is the sole member of AOA Holding. See "The Issuers,"
"Principal Security Holders" and "Management." As a result, Mr. Adams can
effectively control the policies and operations of Adams Outdoor, including
the payment of distributions and transactions with affiliates. Circumstances
could occur where the interests of Mr. Adams, as the principal equity holder
of Adams Outdoor, could conflict with your interests as a holder of the
exchange notes.
The governors and directors of the issuers are also directors of their
subsidiaries and may develop a conflict of interest.
Each of the governors of AOA Holding is also a director of AOA Capital and
Adams Outdoor Advertising, Inc., the managing general partner of Adams Outdoor
Advertising Limited Partnership. Under some circumstances, including an
insolvency of Adams Outdoor Advertising Limited Partnership and Adams Outdoor
Advertising, Inc., there may be conflicts between their duties as directors of
Adams Outdoor Advertising, Inc. and as governors of AOA Holding.
17
<PAGE>
$35 million of approximately $48.25 million of the net proceeds from the
issuance of the outstanding notes were distributed to Stephen Adams and family
members rather than retained by us for use in our business.
Approximately $35.0 million of the net proceeds of the offering was directly
or indirectly distributed to Stephen Adams and members of his family rather
than being invested in our business. These funds will not be available for use
by us to fund working capital needs or future growth or to repay outstanding
indebtedness. See "Use of Proceeds."
We may not have the ability to raise the funds necessary to finance the change
of control offer required by the indenture.
If we undergo a change of control, we may need to refinance large amounts of
our debt, including the exchange notes, the Adams Outdoor Advertising Limited
Partnership notes and our credit facilities. If a change of control occurs, we
must offer to buy back your exchange notes for a price equal to 101% of the
principal amount, plus accrued and unpaid interest. We cannot assure you that
in such an event we will have sufficient funds to pay our debts. In addition,
our credit facilities will prohibit us from repurchasing the exchange notes
after a change of control until we have repaid in full our debt under the
credit facilities. If we fail to repurchase the exchange notes upon a change
of control, we will be in default under both the exchange notes and our credit
facilities. Any future debt that we incur may also contain restrictions on
repurchases in the event of a change of control or similar event. See
"Description of the Exchange Notes--Change of Control Offer" and "Description
of Certain Indebtedness."
The absence of a well-developed body of legal precedent relating to limited
liability companies makes the outcome of legal proceedings against AOA Capital
difficult to predict.
AOA Holding is a limited liability company organized under the laws of the
State of Minnesota. Limited liability companies are relatively recent
creations not only under the laws of the State of Minnesota but also under the
laws of other jurisdictions. Generally stated, LLCs are intended to provide
both the limited liability of the corporate form for their members and certain
advantages of partnerships, including "pass-through" income tax treatment for
members, and thus have attributes of both corporations and partnerships. Given
their recent creation, LLCs and their members have been involved in relatively
few bankruptcy cases as debtors, and there has been little reported judicial
authority addressing bankruptcy issues as they pertain to LLCs. Moreover, the
existing judicial authority on such issues in bankruptcies of analogous
entities (e.g., partnerships) is not well settled. Consequently, a bankruptcy
of AOA Holding, its members or any of its affiliates may be litigated and
decided in the absence of dispositive judicial precedent, and thus, no
assurance can be made as to any particular outcome.
If a bankruptcy case or lawsuit is initiated by unpaid creditors of either
issuer, the debt represented by the exchange notes may be reviewed under the
federal bankruptcy laws and comparable provisions of state fraudulent transfer
laws.
Under these laws, the debt could be voided, or claims in respect of the
exchange notes could be subordinated to all other debts of either issuer if,
among other things, the court found that, at the time we incurred the debt
represented by the exchange notes, we:
. intended to hinder, delay or defraud creditors; or
. received less than reasonable equivalent value or fair consideration for
the incurrence of such debt and
. were insolvent or rendered insolvent by reason of such incurrence;
or
. were engaged in a business or transaction for which our remaining
assets constituted unreasonably small capital; or
18
<PAGE>
. intended to incur, or believed that we would incur, debts beyond our
ability to pay such debts as they matured.
The measure of insolvency for purposes of fraudulent transfer laws varies
depending on the law applied. Generally, however, a debtor would be considered
insolvent if:
. the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets; or
. the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
. it could not pay its debts as they become due.
We believe that we will receive fair value for the exchange notes. On the
basis of historical financial information, recent operating history and other
factors, we believe that after giving effect to the transfers into the holding
company structure and to the offering, we will not be insolvent, will not have
unreasonably small capital for the business in which we are engaged, and will
not have incurred debts beyond our ability to pay such debts as they mature.
We can give no assurance, however, what standard a court would apply in
reviewing the transactions or that a court would agree with our conclusions in
this regard.
You cannot be sure that an active trading market will develop for the exchange
notes.
We have been informed by the initial purchaser of the outstanding notes that
it intends to make a market, after the exchange offer is completed, in the
exchange notes. However, the initial purchaser has no obligation to make a
market and may cease its market-making at any time.
We have applied to have the exchange notes designated as eligible for
trading in the PORTAL Market. However, we do not intend to apply for listing
of the exchange notes on any securities exchange or for quotation through the
Nasdaq National Market.
The liquidity of any market for the exchange notes and the market price
quoted for the exchange notes will depend on the number of holders of the
exchange notes, our performance, the market for similar securities, the
interest of securities dealers in making a market in the exchange notes and
other factors. A liquid trading market may not develop for the exchange notes.
19
<PAGE>
FORWARD-LOOKING STATEMENTS
We make forward-looking statements throughout this prospectus. Whenever you
read a statement that is not simply a statement of historical fact, such as
when we describe what we believe, expect or anticipate will occur, and other
similar statements, you must remember that our expectations may not be
correct, even though we believe they are reasonable. We do not guarantee that
the transactions and events described in this prospectus will happen as
described, or that they will happen at all. You should read this prospectus
completely and with the understanding that actual future results may be
materially different from what we expect. Whether actual results will conform
with our expectations and predictions is subject to a number of risks and
uncertainties, including the significant considerations discussed in this
prospectus.
20
<PAGE>
THE ISSUERS
Immediately prior to the sale of the outstanding notes, Mr. Stephen Adams
contributed his direct and indirect interests, other than his interest in Adams
Outdoor Advertising Limited Partnership as a partner in ASSKM, L.P. (the "Adams
Family Partnership"), in Adams Outdoor Advertising Limited Partnership and
Adams Outdoor Advertising, Inc. to AOA Holding. In connection therewith, the
partnership agreement of Adams Outdoor Advertising Limited Partnership was
amended to provide that the limited partner interest of AOA Holding is a
"priority" interest by virtue of which all limited partner distributions, other
than Permitted Tax Distributions, will be made only to AOA Holding until the
exchange notes are paid in full.
Our structure is as follows:
[Flow Chart Appears Here]
AOA Holding was formed in 1999 to acquire Mr. Stephen Adams' direct interests
in Adams Outdoor Advertising, Inc. and Adams Outdoor Advertising Limited
Partnership and to serve as a co-issuer of the outstanding notes and the
exchange notes. AOA Holding's only assets are 100% of the outstanding capital
stock of Adams Outdoor Advertising, Inc. and AOA Capital and a 0.70% general
partnership interest and a 68.30% limited partnership interest in Adams Outdoor
Advertising Limited Partnership. All of our operations are
21
<PAGE>
conducted through Adams Outdoor Advertising Limited Partnership. Mr. Adams is
the sole member of AOA Holding and effectively controls the affairs of Adams
Outdoor.
AOA Capital, a wholly-owned subsidiary of AOA Holding, was incorporated in
1999 for the purpose of serving as a co-issuer of the outstanding notes and
the exchange notes. AOA Capital does not and will not have substantial
operations or assets of any kind and will not have any revenues. As a result,
prospective purchasers of the exchange notes should not expect AOA Capital to
participate in servicing the interest or principal obligations of the exchange
notes. AOA Capital is a co-issuer of the exchange notes because we were
advised by the initial purchaser of the outstanding notes that certain
possible purchasers of the outstanding notes require corporate co-issuers for
notes issued by limited liability companies. We understand that this is the
result of historic requirements in the charters of these purchasers that
limited their investments to securities issued by corporations.
22
<PAGE>
EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The issuers originally issued the outstanding notes on May 26, 1999 to CIBC
World Markets Corp. pursuant to a Securities Purchase Agreement dated May 21,
1999. The initial purchaser subsequently resold the notes to qualified
institutional buyers in reliance on Rule 144A under the Securities Act. As a
condition of the Securities Purchase Agreement, the issuers entered into a
Registration Rights Agreement with the initial purchaser pursuant to which the
issuers agreed, for the benefit of the holders of the outstanding notes, at
their cost, to:
. file a registration statement within 45 days after the date of the
original issuance of the outstanding notes with the SEC with respect to
the exchange offer for the exchange notes;
. use their best efforts to cause the registration statement to be
declared effective under the Securities Act within 150 days after the
date of the original issuance of the outstanding notes;
. keep the exchange offer open for not less than 30 days (or longer if
required by applicable law) after the date that notice of the exchange
offer is mailed to holders of the outstanding notes; and
. use their best efforts to consummate the exchange offer on or prior to
the 30th day following the date upon which the registration statement is
declared effective.
Upon the registration statement being declared effective, we will offer the
exchange notes in exchange for surrender of the outstanding notes. For each
outstanding note surrendered to the issuers pursuant to the exchange offer,
the holder of such outstanding note will receive an exchange note having a
principal amount equal to that of the surrendered outstanding note.
Under existing interpretations of the staff of the SEC contained in several
no-action letters to third parties, we believe that the exchange notes will in
general be freely tradeable after the exchange offer without further
registration under the Securities Act. However, any purchaser of outstanding
notes who is an "affiliate" of the issuers or who intends to participate in
the exchange offer for the purpose of distributing the exchange notes:
. will not be able to rely on the interpretation of the staff of the SEC;
. will not be able to tender its outstanding notes in the exchange offer;
and
. must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the
outstanding notes, unless such sale or transfer is made pursuant to an
exemption from such requirements.
As contemplated by these no-action letters and the registration rights
agreement related to this exchange offer, each holder accepting the exchange
offer is required to represent to us in the Letter of Transmittal that:
. the exchange notes are to be acquired by the holder or the person
receiving such exchange notes, whether or not such person is the holder,
in the ordinary course of business;
. the holder or any such other person, other than a broker-dealer referred
to in the next sentence, is not engaging and does not intend to engage,
in distribution of the exchange notes;
. the holder or any such other person has no arrangement or understanding
with any person to participate in the distribution of the exchange
notes;
. neither the holder nor any such other person is an "affiliate" of ours
within the meaning of Rule 405 under the Securities Act; and
. the holder or any such other person acknowledges that if such holder or
any other person participates in the exchange offer for the purpose of
distributing the exchange notes it must comply with the
23
<PAGE>
registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the exchange notes and cannot rely on
those no-action letters.
All broker-dealers who hold outstanding notes are prohibited from relying on
the staff's interpretations of the no-action letters referred to above and,
unless there is an available exemption, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or transfer of the outstanding notes and any exchange notes they purchase
in this offering. In addition, each broker-dealer that receives exchange notes
for its own account in exchange for outstanding notes must acknowledge to us
in the Letter of Transmittal that it:
. acquired the exchange notes for its own account as a result of market-
making activities or other trading activities;
. has not entered into any arrangement or understanding with us or any
"affiliate" (within the meaning of Rule 405 under the Securities Act) to
distribute the exchange notes to be received in the exchange offer; and
. will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such exchange notes.
For a description of the procedure for resales by broker-dealers who receive
exchange notes in this offering, see "Plan of Distribution."
In the event that changes in the law or the applicable interpretations of
the staff of the SEC do not permit us to effect such an exchange offer, or if
for any other reason the exchange offer is not consummated within 180 days of
the date of the original issuance of the outstanding notes, we will, at our
own cost:
. file a shelf registration statement covering the resale of the
outstanding notes;
. use our best efforts to cause the shelf registration statement to be
declared effective under the Securities Act; and
. use our best efforts to keep effective the shelf registration statement
until the earlier of the disposition of the outstanding notes or two
years after its effective date.
We will, in the event of the filing of the shelf registration statement,
provide to each applicable holder of the outstanding notes copies of the
prospectus which is a part of the shelf registration statement, notify each
such holder when the shelf registration statement has been effective, and take
certain other actions as are required to permit unrestricted resale of the
outstanding notes. A holder of the outstanding notes that sells such
outstanding notes pursuant to the shelf registration statement generally will
be required to be named as a selling security holder in the related prospectus
and to deliver a prospectus to purchasers, 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 which are applicable to such a holder, including certain
indemnification obligations. In addition, each holder of the outstanding notes
will be required to deliver information to be used in connection with the
shelf registration statement and to provide comments on the shelf registration
statement within the time periods set forth in the registration rights
agreement in order to have their outstanding notes included in the shelf
registration statement and to benefit from the provisions set forth in the
following paragraph.
If:
(a) we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for such
filing;
(b) any of such registration statements is not declared effective by the
SEC on or prior to the date specified for such effectiveness;
(c) we fail to consummate the exchange offer within 180 days of the date of
the original issuance of the outstanding notes; or
24
<PAGE>
(d) the shelf registration statement or the registration statement relating
to this exchange offer is declared effective but thereafter ceases to
be effective during the period specified in the registration rights
agreement (each such event referred to in clauses (a) through (d) above
a "registration default"),
the sole remedy available to holders of the outstanding notes will be the
immediate assessment of additional interest as follows: the per annum interest
rate on the outstanding notes will increase by .50% for each 90-day period
during which the registration default continues, up to a maximum additional
interest rate of 2% per annum in excess of 10-3/8% per annum.
All additional interest will be payable to holders of the outstanding notes
in cash on March 15 and September 15, commencing with the first such date
occurring after any such additional interest commences to accrue, until such
registration default is cured. After the date on which such registration
default is cured, the interest rate on the outstanding notes will revert to
10-3/8% per annum. Holders of the outstanding notes have no right to receive
such additional interest, if any.
The summary herein of certain provisions of the registration rights
agreement is subject to, and is qualified in its entirety by, all the
provisions of the registration rights agreement, a copy of which is filed as
an exhibit to the registration statement of which this prospectus is a part.
Following the consummation of the exchange offer, holders of the outstanding
notes who are eligible to participate in the exchange offer, but who did not
tender their outstanding notes will not have any further registration rights
and such outstanding notes will continue to be subject to certain restrictions
on transfer. Accordingly, the liquidity of the market for such outstanding
notes could be adversely affected.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the Letter of Transmittal, we will accept any and all outstanding notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
November 30, 1999, or such later date and time as to which the exchange offer
has been extended. We will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding notes accepted in the
exchange offer. Holders may tender some or all of their outstanding notes
pursuant to the exchange offer. However, outstanding notes may be tendered
only in integral multiples of $1,000.
The form and terms of the exchange notes are substantially the same as the
form and terms of the outstanding notes except that:
. the exchange notes bear an exchange note designation and a different
CUSIP number from the outstanding notes;
. the exchange notes have been registered under the federal securities
laws and hence will not bear legends restricting the transfer thereof as
the outstanding notes do; and
. the holders of the exchange notes will generally not be entitled to
rights under the registration rights agreement, which rights generally
will be satisfied when the exchange offer is consummated.
The exchange notes will evidence the same debt as the tendered outstanding
notes and will be entitled to the benefits of the indenture under which the
outstanding notes were issued. As of the date of this prospectus, $50,000,000
aggregate principal amount of outstanding notes were outstanding.
Holder of outstanding notes do not have any appraisal or dissenters' rights
under the Minnesota Business Corporations Act, the Minnesota Liability
Companies Act or the indentures relating to such notes in connection with the
exchange offer. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Securities Exchange Act of 1934, and the rules
and regulations of the SEC thereunder.
25
<PAGE>
We shall be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral or written notice thereof, such notice if given
orally, to be confirmed in writing, to the exchange agent. The exchange agent
will act as agent for the tendering holders for the purpose of receiving the
exchange notes.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted outstanding notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the expiration date.
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
outstanding notes pursuant to the exchange offer. We will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the exchange offer. For additional information, please refer to the "--
Fees and Expenses" section of this prospectus.
Expiration Date; Extensions; Amendments
The expiration date is 5:00 p.m., New York City time, on November 30, 1999,
unless we extend the exchange offer, in which case the expiration date will be
the latest date and time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice, such notice if given orally, to be
confirmed in writing, and will issue a press release or other public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
We reserve the right:
. to delay accepting any outstanding notes, to extend the exchange offer
or to terminate the exchange offer if any of the conditions set forth
below under "conditions" shall not have been satisfied, by giving oral
or written notice, such notice if given orally, to be confirmed in
writing, of such delay, extension or termination to the exchange agent,
or
. to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders. In the event an amendment fundamentally changes the terms
of the exchange offer, we will file a post-effective amendment to the
registration statement of which this prospectus is a part. We will deliver a
copy of any post-effective amendment filed with the SEC to the holders of the
outstanding notes.
Interest on the Exchange Notes
The exchange notes will bear interest from their date of issuance. Holders
of outstanding notes that are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the date of issuance of the
exchange notes. Such interest will be paid with the first interest payment on
the exchange notes on September 15, 1999 to persons who are registered holders
of the exchange notes on September 1, 1999. Interest on the outstanding notes
accepted for exchange will cease to accrue upon issuance of the exchange
notes.
Interest on the exchange notes is payable semi-annually on each March 15 and
September 15, commencing on September 15, 1999.
Procedures for Tendering
Only a registered holder of outstanding notes may tender such notes in the
exchange offer. To tender in the exchange offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the
26
<PAGE>
signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile,
together with the outstanding notes and any other required documents, or cause
The Depository Trust Company to transmit an agent's message as described below
in connection with a book-entry transfer, to the exchange agent prior to 5:00
p.m., New York City time, on the expiration date. To be tendered effectively,
the outstanding notes, the Letter of Transmittal or agent's message and other
required documents must be completed and received by the exchange agent at the
address set forth below under "--Exchange Agent" prior to the expiration date.
Delivery of the outstanding notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-
entry transfer must be received by the exchange agent prior to the expiration
date.
The term "agent's message" means a message, transmitted by a book-entry
transfer facility to, and received by, the exchange agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgement from the participant in such
book-entry transfer facility tendering the outstanding notes that such
participant has received and agrees:
. to participate in the Automated Tender Option Program ("ATOP")
. to be bound by the terms of the Letter of Transmittal; and
. that we may enforce such agreement against such participant.
By executing the Letter of Transmittal or agent's message, each holder will
make to us the representations set forth above in the fourth paragraph under
the heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by us will constitute
agreement between such holder and the issuers in accordance with the terms and
subject to the conditions set forth in this prospectus and in the Letter of
Transmittal or agent's message.
The method of delivery of outstanding notes and the Letter of Transmittal or
agent's message and all other required documents to the exchange agent is at
the election and sole risk of the holder. As an alternative to delivery by
mail, holders may wish to consider overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure delivery to the exchange
agent before the expiration date. No Letter of Transmittal for outstanding
notes should be sent to any of the issuers or any of their affiliates. Holders
may request their respective brokers, dealers, commercial banks, trust
companies or nominees to effect the above transactions for such holders.
Any beneficial owner whose outstanding notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered hold to tender on such beneficial owner's behalf. For additional
information, please refer to the "Instructions to Registered Holder and/or
Book-Entry Transfer Facility Participant from Beneficial Owner" included with
the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an eligible institution (as defined below)
unless the outstanding notes tendered pursuant thereto are tendered by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal,
or for the account of an eligible institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System, an "eligible institution".
If the Letter of Transmittal is signed by a person other than the registered
holder of any outstanding notes listed therein, such notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on which notes with the
signature thereon guaranteed by an eligible institution.
27
<PAGE>
If the Letter of Transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or other acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence to our
satisfaction of their authority to so act must be submitted with the Letter of
Transmittal.
We understand that the exchange agent will make a request promptly after the
date of this prospectus to establish accounts with respect to the outstanding
notes at the book-entry transfer facility, The book-entry transfer facility
for the purpose of facilitating this exchange offer will be the Depository
Trust Company. Any financial institution that is a participant in the book-
entry transfer facility's system may make book-entry delivery of outstanding
notes by causing such book-entry transfer facility to transfer such
outstanding notes into the exchange agent's account with respect to the
outstanding notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of the outstanding notes may
be effected through book-entry transfer into the exchange agent's account at
the book-entry transfer facility, unless an agent's message is transmitted to
and received by the exchange agent in compliance with ATOP on or prior to the
expiration date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures, the
tender of such notes will not be valid. Delivery of documents to the book-
entry transfer facility does not constitute delivery to the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered outstanding notes and withdrawal of tendered
outstanding notes will be determined by the issuers, in their sole discretion,
which determination will be final and binding. The issuers reserve the
absolute right to reject any and all outstanding notes not properly tendered
or any outstanding notes our acceptance of which would, in the opinion of the
issuers' counsel, be unlawful. The issuers also reserve the right to waive any
defects, irregularities or conditions of tender as to particular outstanding
notes. The issuers may not waive any condition to the exchange offer unless
such condition is legally waiveable. In the event such a waiver by the issuers
gives rise to the legal requirements to do so, the issuers will hold the
exchange offer open for at least five business days thereafter. The issuers'
interpretation of the terms and conditions of the exchange offer, including
the instructions in the Letter of Transmittal, will be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
tenders of outstanding notes must be cured within such time as the issuers
shall determine. Although the issuers intend to notify holders of defects or
irregularities with respect to tenders of outstanding notes, neither the
issuers, the exchange agent nor any other person shall incur any liability for
failure to give such notification. Tender of outstanding notes will not be
deemed to have been made until such defects or irregularities have been cured
or waived. Any outstanding notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the exchange agent to the tendering
holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the expiration date.
Guaranteed Delivery Procedures
Holders who wish to tender their outstanding notes and whose outstanding
notes are not immediately available, who cannot deliver their outstanding
notes, the Letter of Transmittal or any other required documents to the
exchange agent, or who cannot complete the procedures for book-entry transfer,
prior to the expiration date, may effect a tender if:
(a) the tender is made through an eligible institution;
(b) prior to the expiration date, the exchange agent receives by facsimile
transmission, mail or hand delivery from such eligible institution, a
properly completed and duly executed Notice of Guaranteed Delivery,
setting forth the name and address of the holder, the certificate
number(s) of such outstanding notes and the principal amount of
outstanding notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange
trading days after the expiration date, the Letter of Transmittal, or
facsimile thereof, or, in the case of a book-entry transfer, an agent's
message, together with the certificate(s) representing the outstanding
notes, or a confirmation of book-
28
<PAGE>
entry transfer of such notes into the exchange agent's account at the
book-entry transfer facility, and any other documents required by the
Letter of Transmittal will be deposited by the eligible institution with
the exchange agent; and
(c) the certificate(s) representing all tendered outstanding notes in
proper form for transfer, or a confirmation of a book-entry transfer of
such outstanding notes into the exchange agent's account at the book-
entry transfer facility, together with a Letter of Transmittal, or
facsimile thereof, properly completed and duly executed, with any
required signature guarantees, or, in the case of a book-entry
transfer, an agent's message, are received by the exchange agent within
three New York Stock Exchange trading days after the expiration date of
the exchange offer.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of outstanding notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
expiration date of the exchange offer.
To withdraw a tender of outstanding notes in the exchange offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received
by the exchange agent at its address set forth herein prior to 5:00 p.m., New
York City time, on the expiration date of the exchange offer. Any such notice
of withdrawal must:
. specify the name of the person having deposited notes to be withdrawn;
. identify the notes to be withdrawn, including the certificate number(s)
and principal amount of such notes, or, in the case of outstanding notes
transferred by book-entry transfer, the name and number of the account
at the book-entry transfer facility to be credited;
. be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which such notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfer sufficient to have the trustee with respect to the outstanding
notes register the transfer of such notes into the name of the person
withdrawing the tender; and
. specify the name in which any such outstanding notes are to be
registered, if different from that of the depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by us and shall be final and
binding on all parties. Any outstanding notes so withdrawn will be deemed not
to have been validly tendered for purposes of the exchange offer and no
exchange notes will be issued with respect thereto unless the outstanding
notes so withdrawn are validly retendered. Any outstanding notes which have
been tendered but which are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn outstanding notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time
prior to the expiration date.
Conditions
Notwithstanding any other terms of the exchange offer, the issuers shall not
be required to accept for exchange, or exchange notes for, any outstanding
notes, and may terminate or amend the exchange offer as provided herein before
the acceptance of such outstanding notes, if:
. any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in the issuers' sole judgment, might materially impair the
issuers' ability to proceed with the exchange offer, or any material
adverse development has occurred in any existing action or proceeding
with respect to the issuers or any of their subsidiaries; or
29
<PAGE>
. any law, statute, rule, regulation or interpretation by the staff of the
SEC is proposed, adopted or enacted, which, in the issuers' sole
judgment, might materially impair the issuers' ability to proceed with
the exchange offer or materially impair the contemplated benefits of the
exchange offer; or
. any governmental approval has not been obtained, which approval the
issuers shall, in their sole discretion, deem necessary for the
consummation of the exchange offer as contemplated hereby.
If the issuers determine, in their sole reasonable discretion, that any of
the conditions are not satisfied, the issuers may:
. refuse to accept any outstanding notes and return all tendered
outstanding notes to the tendering holders;
. extend the exchange offer and retain all outstanding notes tendered
prior to the expiration of the exchange offer, subject, however, to the
rights of holders to withdraw such outstanding notes as described in "--
Withdrawal of Tenders" above;
. waive such unsatisfied conditions with respect to the exchange offer and
accept all properly tendered outstanding notes which have not been
withdrawn.
Exchange Agent
United States Trust Company of New York has been appointed as exchange agent
for the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the exchange
agent addressed as follows:
By Overnight Courier & By Hand up to 4:30 PM: By Registered or
by Hand after 4:30 PM Certified Mail:
on the expiration date
only
United States Trust United States Trust United States Trust
Company of New York 770 Company of New York 111 Company of New York
Broadway, 13th Floor Broadway Lower Level P.O. Box 844 Attn:
New York, NY 10003 Attn: Corporate Trust Corporate Trust
Attn: Corporate Trust Services New York, NY Services Cooper Station
Services 10006 New York, NY 10276-0844
By Facsimile
(For Eligible Institutions Only):
(212) 420-6211
Confirm by Telephone
(800) 548-6565
Delivery to an address other than set forth above will not constitute a
valid delivery.
Fees and Expenses
The expenses of soliciting tenders will be borne by the issuers. The
principal solicitation is being made by mail, however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the issuers and their affiliates.
The issuers have not retained any dealer-manager in connection with the
exchange offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the exchange offer. The issuers, however, will pay
the exchange agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The issuers will pay the cash expenses to be incurred in connection with the
exchange offer. Such expenses include fees and expenses of the exchange agent
and trustee, accounting and legal fees and printing costs, among others.
30
<PAGE>
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the
outstanding notes, which is face value, as reflected in the issuers'
accounting records on the date of exchange. Accordingly, the issuers will
recognize no gain or loss for accounting purposes. The expenses of the
exchange offer will be expensed over the term of the exchange notes.
Consequences of Failure to Exchange
The outstanding notes that are not exchanged for exchange notes pursuant to
the exchange offer will remain restricted securities. Accordingly, such
outstanding notes may be resold only:
. to the issuers, upon redemption thereof or otherwise;
. so long as the outstanding notes are eligible for resale pursuant to
Rule 144A under the Securities Act, to a person inside the United States
whom the seller reasonably believes is a qualified institutional buyer
within the meaning of Rule 144A in a transaction meeting the
requirements of Rule 144A;
. in accordance with Rule 144 under the Securities Act;
. outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act;
. pursuant to another exemption from the registration requirements of the
Securities Act, and based upon an opinion of counsel reasonably
acceptable to the issuers; or
. pursuant to an effective registration statement under the Securities
Act, in each case in accordance with any applicable securities laws of
any state of the United States.
Resale of the Exchange Notes
Based on existing interpretations of the staff of the SEC contained in
several no-action letters issued to third parties, we believe that the holders
of the exchange notes may transfer the exchange notes without complying with
the registration requirements under the Securities Act and without delivering
a prospectus that meets the requirements of Section 10 of the Securities Act
if the holders:
. are not affiliates of AOA Holding or AOA Capital within the meaning of
Rule 405 under the Securities Act;
. acquired the exchange notes in the ordinary course of their business;
. are not engaged in, and do not intend to engage in, a distribution of
the exchange notes;
. have no arrangement or understanding with any person to participate in
the distribution of the exchange notes;
. are not broker-dealers that acquired existing notes as a result of
market-making activities or other trading activities.
Each holder of outstanding notes that participates in the exchange offer is
required to make these representations to us in the Letter of Transmittal.
In the event a holder acquires exchange notes in the exchange offer for the
purpose of distributing or participating in a distribution of the exchange
notes, such holder cannot rely on the position of the staff of the SEC
enunciated in its no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available.
31
<PAGE>
As indicated above, each broker-dealer that receives exchange notes for its
own account in exchange for outstanding notes, and acquired those outstanding
notes as a result of market-making activities, must acknowledge that it will
deliver a prospectus in connection with any resale of the exchange notes. For
a description of the procedures for such resales by broker-dealers, see "Plan
of Distribution."
USE OF PROCEEDS
The issuers will not receive any cash proceeds from the issuance of the
exchange notes in the exchange offer. In consideration for issuing these notes
as contemplated in this prospectus, they will receive outstanding notes in
like principal amount, the terms of which are the same in all material
respects to the exchange notes. The outstanding notes surrendered in exchange
for the exchange notes will be retired and cancelled and not reissued.
Accordingly, the issuance of the exchange notes will not result in any
increase or decrease in our debt.
The net proceeds to the issuers from the issuance of the outstanding notes
was approximately $48.25 million after deducting discounts and expenses. AOA
Holding received 100% of the net proceeds, of which an aggregate of $35.0
million was paid to equity holders and $13.25 million was used to reduce
indebtedness.
More specifically, contemporaneous with the closing of the sale of the
outstanding notes, AOA Holding made a distribution of $32.5 million to its
sole member, Mr. Stephen Adams, and made a contribution to capital of
approximately $15.75 million to Adams Outdoor Advertising Limited Partnership.
Adams Outdoor Advertising Limited Partnership made an allocation of $2.5
million to its limited partner, the Adams Family Partnership, and repaid
approximately $13.25 million of indebtedness outstanding under the Adams
Outdoor Advertising Limited Partnership credit facilities without reducing the
commitments of the lenders thereunder. The credit facility indebtedness repaid
bears interest at rates varying from 6.42% to 8.25%. Currently, the Adams
Outdoor Advertising Limited Partnership unsecured credit facility matures on
December 31, 2001 and the Adams Outdoor Advertising Limited Partnership
secured credit facility matures on December 31, 2001. The payments made to Mr.
Adams and to the Adams Family Partnership provided a return on investment to
the equity holders of our business.
32
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of June 30, 1999.
<TABLE>
<CAPTION>
June 30,
1999
----------
(dollars
in
thousands)
<S> <C>
Total debt:
Adams Outdoor Advertising Limited Partnership credit facilities.... $ 22,900
Adams Outdoor Advertising Limited Partnership notes................ 101,000
Outstanding notes.................................................. 50,000
---------
Total debt......................................................... 173,900
Member's deficit.................................................... (102,420)
---------
Total capitalization............................................... $ 71,480
=========
</TABLE>
33
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
AOA Holding and AOA Capital, the co-issuers of the exchange notes, were
formed in 1999 for the purpose of acquiring the direct interests of Mr. Adams
in Adams Outdoor Advertising Inc. and Adams Outdoor Advertising Limited
Partnership and to serve as the co-issuers of the outstanding notes and the
exchange notes. AOA Holding's only assets are 100% of the outstanding capital
stock of Adams Outdoor Advertising Inc. and a 0.70% general partnership
interest and a 68.3% limited partnership interest in Adams Outdoor Advertising
Limited Partnership. The historical information of AOA Holding presents the
aforementioned transfer of ownership of Adams Outdoor Advertising, Inc. and
Adams Outdoor Advertising Limited Partnership, the predecessor companies, to
AOA Holding as a reorganization of entities under common control similar to a
pooling of interests.
The following selected historical and pro forma financial data, insofar as
it relates to each of the five years ended December 31, 1998, has been
prepared by us and is based upon the financial statements of AOA Holding and
should be read in conjunction with the audited financial statements. Separate
summary data of AOA Capital has not been presented because AOA Capital does
not have and will not have substantial operations or assets of any kind and
will not have any revenues. The selected historical and pro forma financial
data as of and for the six months ended June 30, 1998 and 1999 has been
derived from unaudited financial statements appearing elsewhere in this
prospectus which, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for the unaudited interim periods. Results for the
six months ended June 30, 1999 are not necessarily indicative of results that
may be expected for the entire year. The selected historical and pro forma
financial data should be read in conjunction with the information contained in
the financial statements of AOA Holding and the notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Summary Historical and Pro Forma Financial Data" included elsewhere in this
prospectus.
The following unaudited selected pro forma statement of operations data and
other data for the year ended December 31, 1998 and for the six months ended
June 30, 1999 give effect to the sale of the outstanding notes as if they had
been completed at the beginning of the respective periods. Certain management
assumptions and adjustments are described in the accompanying notes hereto.
The pro forma financial data should be read in conjunction with the financial
statements of AOA Holding and the notes thereto appearing elsewhere in this
prospectus. This pro forma financial data is not necessarily indicative of the
results that would have occurred had the sale of the outstanding notes been
completed on the dates indicated or our actual or future operating results or
financial position.
34
<PAGE>
Selected Historical and Pro Forma Financial Data (dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------------------------------------- -------------------------
Pro Pro
Forma Forma
1994 1995 1996 1997 1998 1998(a) 1998 1999 1999(a)
------- ------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Gross revenues......... $41,748 $47,589 $ 52,421 $63,302 $71,592 $71,592 $34,364 $35,926 $35,926
Agency commissions..... 4,097 4,698 5,161 6,017 7,023 7,023 3,393 3,264 3,264
------- ------- -------- ------- ------- ------- ------- ------- -------
Net revenues........... 37,651 42,891 47,260 57,285 64,569 64,569 30,971 32,662 32,662
Direct advertising
expenses.............. 19,561 20,848 22,412 29,089 32,097 32,097 15,367 16,275 16,275
Corporate, general and
administrative
expense............... 1,183 1,114 2,405 3,589 3,903 3,903 2,109 1,298 1,298
Depreciation and
amortization.......... 5,684 5,568 6,105 8,149 7,875 7,875 4,133 3,749 3,749
Deferred compensation
expense(b)............ 1,530 2,427 1,451 901 4,316 4,316 331 870 870
------- ------- -------- ------- ------- ------- ------- ------- -------
Operating income....... 9,693 12,934 14,887 15,557 16,378 16,378 9,031 10,470 10,470
Interest expense....... 9,877 11,263 12,523 14,601 14,408 18,919 7,305 7,435 9,227
Other expenses
(income), net......... 38 16 (32) 43 78 78 62 2,486 2,486
(Gain) loss on
disposals of assets,
net................... 388 93 861 122 378 378 19 21 21
------- ------- -------- ------- ------- ------- ------- ------- -------
Income before
extraordinary loss on
early extinguishment
of debt............... (610) 1,562 1,535 791 1,514 (2,997) 1,645 528 (1,264)
Extraordinary loss on
early extinguishment
of debt............... -- -- -- -- 330 330 -- -- --
------- ------- -------- ------- ------- ------- ------- ------- -------
Net income (loss).... $ (610) $ 1,562 $ 1,535 $ 791 $ 1,184 $(3,327) $ 1,645 $ 528 $(1,264)
======= ======= ======== ======= ======= ======= ======= ======= =======
Other Data:
Operating Cash
Flow(c)............... $16,907 $20,929 $ 22,443 $24,607 $28,569 $28,569 $13,495 $15,089 $15,089
Capital expenditures... 1,895 2,042 4,419 7,646 10,144 10,144 2,799 4,856 4,856
Ratio of earnings to
fixed charges (d)..... -- 1.06x 1.11x 1.05x 1.09x -- 1.20x 1.06x --
Ratio of debt to net
income (e)............ -- 68.79 86.92 170.71 112.13 -- 83.24 329.36 --
Cash flow provided by
(used in):
Operating
activities.......... $ 7,092 $ 9,151 $ 12,537 $ 7,150 $11,873 $8,676 $ 2,322 $ 23 $ 222
Investing
activities.......... (1,791) (1,979) (28,675) (7,462) (9,659) (9,659) (2,798) (4,848) (4,848)
Financing
activities.......... (5,569) (6,763) 17,540 (100) (3,647) (2,139) 1,301 6,177 6,177
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of June 30,
------------------------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents........... $ 1,722 $ 2,131 $ 3,533 $ 3,121 $ 1,687 $ 3,946 $ 3,039
Working capital(f)..... 4,646 5,944 4,969 3,096 4,805 11,098 11,698
Total assets........... 50,650 48,211 77,114 77,474 78,193 79,766 84,442
Total debt............. 113,261 107,443 133,421 135,034 132,728 136,934 173,900
Total member's
deficit............... (68,391) (66,829) (68,444) (69,586) (69,447) (68,459) (102,420)
</TABLE>
see notes on the following page
35
<PAGE>
- --------
(a) Gives effect to the outstanding notes as if they had occurred at the
beginning of such periods for Statement of Operations Data. Pro forma
interest expense is computed as follows:
<TABLE>
<CAPTION>
Six
Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ --------
<S> <C> <C>
$50,000,000 10 3/8% Senior notes...................... $5,189 $2,062
Adams Outdoor Advertising Limited Partnership Credit
Facility
$13,250,000 at 7.00%................................. (928) (369)
Amortization of deferred financing costs.............. 250 99
------ ------
Interest expense...................................... $4,511 $1,792
====== ======
</TABLE>
(b) Deferred compensation expense represents accrued expenses under certain
deferred compensation arrangements, including phantom stock agreements
with certain key management personnel. The phantom stock agreements in
effect provide for the repurchase of "phantom stock" in three equal annual
payments after a covered executive's termination, death or disability, the
sale of Adams Outdoor, or the fifth anniversary of the agreement's
execution. See "Management--Agreements with Management--Incentive
Compensation under Phantom Stock Agreements."
(c) The following table sets forth the calculation of "Operating Cash Flow."
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------------------------------- -----------------------
Pro Pro
Forma Forma
1994 1995 1996 1997 1998 1998 1998 1999 1999
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating income........ $ 9,693 $12,934 $14,887 $15,557 $16,378 $16,378 $ 9,031 $10,470 $10,470
Depreciation and
amortization........... 5,684 5,568 6,105 8,149 7,875 7,875 4,133 3,749 3,749
Deferred compensation
expense................ 1,530 2,427 1,451 901 4,316 4,316 331 870 870
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating Cash Flow..... $16,907 $20,929 $22,443 $24,607 $28,569 $28,569 $13,495 $15,089 $15,089
</TABLE>
Operating Cash Flow is defined as operating income (loss) before
depreciation and amortization expense and deferred compensation expense. As
a limited liability company, we are not subject to federal corporate income
tax. Operating Cash Flow is not a measure of performance under GAAP.
Operating Cash Flow is not intended to represent net cash flow provided by
operating activities as defined by GAAP and should not be considered as an
alternative to net income or loss as an indicator of our operating
performance or to net cash provided by operating, investing and financing
activities as a measure of our liquidity or ability to meet cash needs. We
are providing information regarding Operating Cash Flow to permit a more
complete comparative analysis of our performance relative to other
companies in the media industry that publicly report Operating Cash Flow or
similarly defined measures. However, other companies may use different
definitions of these measures.
(d) Earnings consist of pre-tax income plus fixed charges adjusted to exclude
capitalized interest. Fixed charges consist of interest expense plus
amortization of deferred financing cost and the estimated interest portion
of rent expense. Earnings were insufficient to cover fixed charges by
approximately $1.3 million for the year ended December 31, 1994, $3
million for the pro forma year ended December 31, 1998 and $1,264,000 for
the pro forma six months ended June 30, 1999.
(e) The ratio of total debt to net income for the periods ended December 31,
1994, and for the pro forma periods ended December 31, 1998 and June 30,
1999 are not meaningful due to the net loss for those periods.
(f) Working capital is defined as current assets less current liabilities.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Historical Financial Data" and the related notes thereto and the financial
statements of AOA Holding and the related notes thereto appearing elsewhere in
this prospectus. This prospectus contains certain forward-looking statements
that involve risks and uncertainties. Future results could differ materially
from those discussed in this prospectus. Factors that could cause or
contribute to such differences include, but are not limited to, those set
forth under "Risk Factors" and elsewhere in this prospectus.
General
Adams Outdoor is the seventh largest owner and operator of outdoor
advertising structures in the United States. We currently provide outdoor
advertising services in fourteen markets and surrounding areas in the Midwest,
Southeast and mid-Atlantic states: Peoria, IL; Jackson, MI; Kalamazoo, MI;
Lansing, MI; Minneapolis, MN; Charlotte, NC; Lehigh Valley, PA; Northeast PA;
Charleston, SC; Florence, SC; Laurens, SC; Orangeburg, SC; Norfolk, VA; and
Madison, WI. As of December 31, 1998, we operated, in the aggregate,
approximately 9,600 advertising displays, including 2,891 painted bulletins,
6,541 30-sheet posters and 222 junior (8-sheet) posters.
The Adams Outdoor business was founded in 1983 with the acquisition of
Central Outdoor Advertising, which had offices in Jackson, Kalamazoo and
Lansing, MI. Over the next five years, we pursued a strategy of geographic
expansion into additional medium-sized markets, primarily through the
acquisition of existing outdoor advertising businesses in selected Midwest,
Southeast and mid-Atlantic markets. This geographic expansion strategy has
enabled us to capitalize on the efficiencies, economies of scale and marketing
opportunities associated with operating outdoor advertising businesses located
in proximate or contiguous geographic markets.
Since 1991, we have continued to strengthen our market share through the
construction and acquisition of displays in our existing markets and
acquisitions, in the last quarter of 1996, of operations in South Carolina and
Pennsylvania. This expansion has been financed through our internally
generated cash flow and borrowings under our credit facilities.
The following table presents certain information from the Statements of
Operations as a percentage of net revenues for each of the years in the three-
year period ended December 31, 1998 and the six months ended June 30, 1998 and
1999.
<TABLE>
<CAPTION>
Six Months
Year Ended Ended June
December 31, 30,
------------------- ------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Direct advertising expenses................ 47.4 50.8 49.7 49.6 49.8
Corporate, general and administrative
expenses.................................. 5.1 6.2 6.0 6.8 4.0
----- ----- ----- ----- -----
Operating Cash Flow........................ 47.5 43.0 44.3 43.6 46.2
Depreciation and amortization.............. 12.9 14.2 12.2 13.3 11.5
Deferred compensation expense.............. 3.1 1.6 6.7 1.1 2.7
----- ----- ----- ----- -----
Operating income........................... 31.5 27.2 25.4 29.2 32.0
Interest expense........................... 26.5 25.5 22.3 23.7 22.8
Other expenses (income), net............... (0.1) 0.1 0.2 0.2 7.6
Loss on disposals of property and
equipment, net............................ 1.8 0.2 0.6 -- --
Extraordinary loss on early extinguishment
of debt................................... -- -- 0.5 -- --
----- ----- ----- ----- -----
Net income (loss).......................... 3.3% 1.4% 1.8% 5.3% 1.6%
===== ===== ===== ===== =====
</TABLE>
37
<PAGE>
Our revenues are a function of both the occupancy rate of our outdoor
advertising display inventory (the percentage of time that our displays
contain paid-for advertisements) and the rates that we charge for use of our
displays. Our business strategy includes the optimization of the mix of rate
and occupancy of our display inventory in order to maximize revenues.
Advertising rates for our displays are based upon a variety of factors,
including historical base rates, the time of year, and the occupancy rate of a
particular market's display inventory.
The following table presents the average number of painted bulletins and 30-
sheet poster displays operated by us and the average rates and occupancy
levels with respect to such displays for the three years ended December 31,
1998 and the six months ended June 30, 1999. These figures do not include
junior-posters and route town paints.
<TABLE>
<CAPTION>
Year Ended December
31, Six Months
----------------------- Ended
1996(a) 1997 1998 June 30, 1999
------- ------ ------ -------------
<S> <C> <C> <C> <C>
Number of Displays:
Painted Bulletins........................ 1,750 2,446 2,891 2,891
30-Sheet Posters......................... 4,418 6,387 6,541 6,541
Average Rates:(b)(c)
Painted Bulletin......................... $1,610 $1,624 $1,933 $1,971
30-Sheet Posters......................... 523 529 536 549
Average Occupancy:(c)
Painted Bulletins........................ 78% 73% 78% 76%
30-Sheet Posters......................... 71% 69% 74% 57%
</TABLE>
- --------
(a) The above figures for 1996 do not include our operations in Northeast PA
or South Carolina acquired during the fourth quarter of 1996.
(b) Represents average rate per display per month.
(c) Excludes results from our South Carolina market.
Our primary operating expenses are advertising agency commissions, lease
payments to property owners for use of the land on which our displays are
located, operational and administrative costs and sales expenses (primarily
commissions). Of these expenses, advertising agency commissions, sales
expenses, and certain operational and administrative costs are considered
direct costs. Commissions are paid to advertising agencies that contract for
the use of our advertising displays on behalf of advertisers. These agency
commissions are deducted from gross revenues to calculate net revenues.
We currently maintain a phantom stock program under which certain executive
management personnel and general managers have the ability to earn deferred
compensation based upon our operating performance or, in the case of the
general managers, the operating performance of their respective divisions.
Annual accruals under the program are based upon exceeding a base level of
operating profit. We believe that our phantom stock program provides our
senior employees incentives to continue improving our operating performance.
Our marketing strategy of servicing local and regional advertisers and
reducing our dependence on national and tobacco advertising resulted in
moderate increases in overall revenues during a time when tobacco advertising
was declining. We concentrate our marketing efforts on generating sales from
local and regional advertisers in each of our markets, including those
advertisers within industries and product categories that have not
historically been traditional users of outdoor media. These potential
advertisers include fast food restaurants, retailers, food stores, casinos,
cellular and telecommunications companies, building supply retailers, radio
stations, travel-related industries and medical care providers. This focus on
local and regional advertisers has been critical to our ability to control
revenue fluctuations resulting from the variability and potential long-term
decline of revenues attributable to the decline in revenue from tobacco
advertising, the latter of which represented 10.3% of our net revenues in
1998, 10.5% in 1997, 12.5% in 1996, 12.6% in 1995, and 10.3% in 1994. Sales to
local and regional advertisers accounted for 89.7% of our net revenues in
1998.
38
<PAGE>
Our sales and marketing strategy has been successful largely due to our team
of general managers in our markets. These key managers have an average of 15
years of industry experience. We also have an integrated business development
department in each market, making available to each region's sales force
comprehensive information about local market research, customer needs and
advertising opportunities. The business development departments have given our
sales departments significantly improved information and tools to develop
additional local and regional advertising customers, especially those
customers that have not historically advertised through the outdoor medium.
Sales representatives have been able to use these additional resources to
develop creative ideas for new customers and educate them about the cost
effectiveness of outdoor advertising in attempting to reach their customers.
We consider our emphasis on local and regional sales, the expertise and tenure
of our managers and our marketing and customer service capabilities to be
factors which enhance the productivity of our inventory of advertising
displays.
Zoning Regulations
In 1988, the city of Charlotte, North Carolina, adopted a comprehensive sign
ordinance prohibiting the construction of virtually all new, off-premise
outdoor advertising signs within the city limits and mandating that all
nonconforming signs either be brought into compliance or be removed by
February 1, 1998 at the owner's expense without payment of compensation.
Through March 1998, Adams Outdoor had received a total of 307 notices of
violation ("NOVs"). Adams Outdoor does not anticipate receiving any additional
NOVs at this time. In 1988, Adams Outdoor filed a lawsuit in the Superior
Court of Mecklenburg County, North Carolina, challenging the constitutionality
of the Charlotte sign ordinance. In 1998 the case was settled, and
approximately 160 of the billboards in question must be removed at our expense
by December 5, 2002. It is difficult to estimate the financial impact on our
Charlotte market because we do not separately account for revenues on a per
structure basis in as much as most posters are sold on a "showing" basis,
which reflects total market exposure for an advertiser. Net income, similarly,
is not accounted for by us on a per structure basis in as much as the removal
of a discrete number of structures would not affect non-variable expenses,
eliminating only expenses such as lease, selling and lighting costs which,
generally, amount to only 15-20% of revenues and agency commissions, generally
15% of revenues, for sales in which an agency is involved. We believe that,
with the removal of structures and the attendant reduction in inventory in the
Charlotte market, rates would increase on structures which are not removed.
However, applying the average "showing" rate to the structures to be removed
and applying the operating profit margin for the Charlotte division as a whole
to the structures to be removed, we estimate that the revenue applicable to
such structures for 1996, 1997, 1998 and the six months ended June 30, 1998
and 1999 was approximately $1.5 million, $1.7 million, $1.9 million, $900,000
and $900,000, respectively, and the net income applicable to such structures
for such periods was approximately $750,000, $880,000, $980,000, $460,000, and
$500,000, respectively. We estimate the aggregate costs of removing such
structures would be approximately $320,000.
In other localities in which Adams Outdoor operates, outdoor advertising is
subject to restrictive and, in some cases, prohibitive, zoning regulations.
Management expects federal, state, and local regulations to continue to be a
significant factor in the operation of our business.
Results of Operations
Six Months Ended June 30, 1999 Compared With Six Months Ended June 30, 1998
Net revenues for the six months ended June 30, 1999 of $32.7 million
increased by 5.5% from $31.0 million for the comparable period in 1998. This
increase resulted from higher advertising rates and an increase in the number
of displays sold.
Direct advertising expenses for the six months ended June 30, 1999 of $16.3
million increased by 5.9% from $15.4 million for the comparable period in
1998. This increase was attributable to direct costs associated with increased
sales from new displays and an increase in sales commissions due to higher
average rates.
Corporate, general and administrative expenses for the six months ended June
30, 1999 of $1.3 million decreased by 38.5% from $2.1 million for the
comparable period in 1998. This decrease was attributable to a decrease in
professional fees, travel expenses and costs associated with our new logo and
identification project, which was completed in 1998.
39
<PAGE>
Depreciation and amortization for the six months ended June 30, 1999 of $3.7
million decreased by 9.3% from $4.1 million for the comparable period in 1998.
Depreciation expense decreased as a result of the expiration of the
depreciable life of certain assets during 1998.
Deferred compensation expenses for the six months ended June 30, 1999 of
$870,000 increased significantly from $331,000 for the comparable period in
1998 primarily due to increased operating profit and vesting and the
participation of our Chief Executive Officer in our phantom stock plan.
Interest expense for the six months ended June 30, 1999 of $7.4 million
increased by 1.6% from $7.3 million for the comparable period in of 1998. For
the six months ended June 30, 1999 and June 30, 1998, the effective interest
rates were 10.0% and 10.3%, respectively, on average outstanding balances of
$143.9 million and $137.1 million, respectively, primarily due to the issuance
of $50 million of new debt in May 1999.
Other expenses, excluding interest expense, for the six months ended June
30, 1999 of $2.5 million increased from $81,000 for the comparable period in
1998. The increase was due to a consent fee paid to the minority limited
partner of Adams Outdoor Advertising Limited Partnership in connection with
amendments to the partnership agreement by virtue of which Adams withdrew as
general and limited partner, AOA Holding LLC was admitted as a substitute
general and limited partner, and AOA Holding was granted a "priority" limited
partnership interest in consideration of its $13.75 million capital
contribution.
Net income for the six months ended June 30, 1999 decreased to $528,000 from
$1.7 million for the comparable period in 1998 as a result of the items
discussed above.
Operating Cash Flow for the six months ended June 30, 1999 of $15.1 million
increased by 11.8% from $13.5 million for the comparable period in 1998.
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
Net revenues for 1998 of $64.6 million increased by 12.7% from $57.3 million
for 1997. This increase resulted from higher advertising rates in certain
markets and an increase in the number of displays sold.
Direct advertising expenses for 1998 of $32.1 million increased by 10.3%
from $29.1 million in 1997. This increase was attributable to direct costs
associated with increased sales from new displays and an increase in sales
commissions due to higher average rates.
Corporate, general and administrative expenses for 1998 of $3.9 million
increased by 8.8% from $3.6 million in 1997. This increase was attributable to
increased travel expenses and costs associated with our new logo and
identification project.
Depreciation and amortization for 1998 of $7.9 million decreased by 3.4%
from $8.1 million in 1997. Depreciation expense decreased as a result of the
expiration of the depreciable life of certain assets during 1998.
Deferred compensation expense for 1998 of $4.3 million increased
significantly from $901,000 in 1997 primarily due to the inclusion of the
Chief Executive Officer in the phantom stock plan to acquire his 3% interest
in Adams Outdoor, the grant to our Chief Executive Officer of a signing bonus
and the additional vesting of General Managers under the phantom stock plan.
In 1995, our Chief Executive Officer's then existing phantom stock agreement
was terminated by the Board of Directors because they determined that the
incentives provided by the agreement were unnecessary due, among other things,
to his equity interest in Adams Outdoor. Additionally, our Chief Executive
Officer received a $2 million payment in consideration of the termination of
the agreement, which our board of directors considered appropriate because,
among other things, that amount approximated the amount that would have been
payable to him under the agreement had the agreement been terminated due to
his death or disability. We had no phantom stock agreement in effect for our
Chief Executive Officer during 1996 or 1997. In 1998, our board of directors
determined that the incentives provided to the Chief Executive Officer through
a phantom stock arrangement were in the best interests of Adams Outdoor
notwithstanding his equity holdings and adopted a new phantom stock
arrangement to be effective commencing in 1998. In order to induce our Chief
Executive Officer to enter into this compensatory arrangement, the board
40
<PAGE>
of directors determined that a $2.7 million signing bonus should be provided
to him through the phantom arrangement, which took into account, among other
things, operating profit of Adams Outdoor during 1996 and 1997.
Interest expense for 1998 of $14.4 million decreased by 1.2% from $14.6
million in 1997. This decrease was attributable to a lower interest rate in
1998. Our effective interest rate decreased to 10.2% for 1998 from 10.4% for
1997.
Net income for 1998 increased to $1.2 million from $791,000 in 1997 as a
result of the items discussed above.
Operating Cash Flow for 1998 of $28.6 million increased by 16.1% from $24.6
million in 1997. This increase was attributable to the aforementioned increase
in net revenues coupled with only a modest increase in total operating
expenses.
Year Ended December 31, 1997 Compared With Year Ended December 31, 1996
Net revenues for 1997 of $57.3 million increased by 21.2% from $47.3 million
for 1996. This increase resulted from higher advertising rates in certain
markets and an increase in the number of displays sold as well as the
increased net revenues of $6.4 million from operations in South Carolina and
Northeast Pennsylvania which were acquired in the fourth quarter of 1996.
Direct advertising expenses for 1997 of $29.1 million increased by 29.8%
from $22.4 million in 1996. This increase was attributable to direct costs
associated with increased sales from new displays, an increase in sales
commissions due to higher average rates, and $5.0 million in additional direct
costs associated with the first full year of operations for the South Carolina
and Northeast Pennsylvania branches acquired in 1996.
Corporate, general and administrative expenses for 1997 of $3.6 million
increased by 49.2% from $2.4 million in 1996. This increase was attributable
to increased professional fees, travel expenses, relocation expenses, and
single use business taxes.
Depreciation and amortization for 1997 of $8.1 million increased by 33.5%
from $6.1 million in 1996. Depreciation expense increased as a result of
additions to property, plant and equipment during 1996 and early 1997 from
acquisitions and building of new structures.
Deferred compensation expense for 1997 of $901,000 decreased by 37.9% from
$1.5 million in 1996 primarily due to the removal of the Chief Financial
Officer from the phantom stock plan and management changes in the Michigan
market.
Interest expense for 1997 of $14.6 million increased 16.6% from $12.5
million in 1996. This increase was attributable to a higher outstanding
balance in 1997. Our effective interest rate was 10.4% for 1997 and 1996.
Loss on disposals of property and equipment for 1997 of $122,000 decreased
85.8% from $861,000 in 1996. The decrease was primarily attributable to a
$662,000 impairment writedown associated with the disposal of in-store
advertising equipment.
Net income for 1997 decreased to $791,000 from $1.5 million in 1996 as a
result of the items discussed above.
Operating Cash Flow for 1997 of $24.6 million increased by 9.6% from $22.4
million in 1996. This increase was attributable to the aforementioned increase
in net revenues coupled with only a modest increase in total operating
expenses.
Liquidity and Capital Resources
Historically, our cash needs have arisen from operating expenses (primarily
direct advertising expenses and corporate general and administrative
expenses), debt service, capital expenditures and deferred compensation
payments under phantom stock agreements. Our interest expense was $14.4
million in 1998, $14.6 million in 1997, and $12.5 million in 1996. We also
made capital expenditures, primarily for new billboard construction in
41
<PAGE>
existing markets, of $10.1 million in 1998, $7.6 million in 1997, and $4.4
million in 1996. We expect that our capital expenditures during 1999 will be
approximately $6.0 million and will be primarily for new billboard
construction and the upgrading of existing displays. We expect to finance
these capital expenditures with cash flow provided by operating activities or
borrowings under the Adams Outdoor Advertising Limited Partnership credit
facilities. We made payments under our phantom stock agreements of
approximately $1.3 million in 1998, $1.1 million in 1997 and $1.2 million in
1996.
Our primary sources of cash are net cash generated from operating activities
and borrowings under Adams Outdoor Advertising Limited Partnership's credit
facilities. Our net cash provided from operations increased by 66.1% to $11.9
million for 1998, decreased by 43.0% to $7.1 million for 1997 and increased by
36.6% to $12.5 million for 1996.
In 1996 Adams Outdoor Advertising Limited Partnership and Adams Outdoor
Advertising, Inc. issued $105 million in aggregate principal amount of the
Adams Outdoor Advertising Limited Partnership notes and Adams Outdoor
Advertising Limited Partnership entered into a secured revolving credit
facility, which was increased to $35 million in December 1996. See
"Description of Certain Indebtedness."
On March 31, 1998, Adams Outdoor Advertising Limited Partnership entered
into an additional $3 million unsecured credit facility. In September 1998,
the proceeds from the Adams Outdoor Advertising Limited Partnership unsecured
facility, together with borrowings under the Adams Outdoor Advertising Limited
Partnership secured credit facility, were used to purchase on the open market
and cancel $4 million of the Adams Outdoor Advertising Limited Partnership
notes at 105% of their principal amount plus accrued interest. As a result of
the purchase, we recognized an extraordinary loss of $330,000, which
represented the purchase premium plus recognition of a proportionate share of
the associated deferred financing fees. In November 1998, the Adams Outdoor
Advertising Limited Partnership unsecured credit facility was increased to $8
million. At June 30, 1999, Adams Outdoor Advertising Limited Partnership had
$22.9 million outstanding and $12.1 million available under the Adams Outdoor
Advertising Limited Partnership secured credit facility and $8 million
available under the Adams Outdoor Advertising Limited Partnership unsecured
credit facility. During 1998 we had interest expense of $14.4 million on
average outstanding indebtedness of $136.7 million, resulting in an effective
annual interest rate of 10.2%.
We believe that net cash provided from operations and available credit under
the Adams Outdoor Advertising Limited Partnership credit facilities will be
sufficient to meet our cash needs for our current operations, required debt
payments, anticipated capital expenditures and the deferred compensation
payments for the next few years.
Impact of Inflation
Though increases in operating costs could adversely affect our operations,
our management does not believe that inflation has had a material effect on
operating profit during the past several years.
Seasonality
Although revenues during the first and fourth quarters are slightly lower
than the other quarters, management does not believe that seasonality has a
significant impact on our operations or cash flow.
Year 2000 Compliance
Overview
The "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the year 2000
approaches. The Year 2000 issue exists because many existing computer systems
and software products have been written using two digits, rather than four, to
define the applicable year, thus not properly recognizing dates after December
31, 1999.
42
<PAGE>
Our State of Readiness
We recognize the need to ensure that our operations will not be adversely
impacted by Year 2000 software failures and have therefore undertaken the
project of identifying and resolving our Year 2000 issues. Our assessment
included both our software and hardware. We have identified all significant
applications that require modification to ensure Year 2000 compliance and
during the second quarter of 1998, Year 2000 compliant versions of these
programs (primarily financial applications) were installed. The vendor
upgrades have been tested and certified as Year 2000 compliant by an
independent third party. We have also completed our assessment of computer
hardware and have replaced all our significant computer hardware with hardware
that is Year 2000 compliant. Our assessment of non-information technology
systems, which includes systems that contain embedded technology (primarily
phone systems, security systems, fax machines and copiers) is still in process
and is expected to be completed, along with any necessary remediation efforts
in the fourth quarter of 1999. We believe that these systems do not present a
significant risk to the Company's operations.
In addition, we have communicated with others with whom we do significant
business to determine their Year 2000 compliance readiness and the extent to
which we are vulnerable to any third party Year 2000 issues. Our principal
suppliers are local power companies. We have contacted all local power
companies on which we rely to supply power to illuminate our signs. While
those companies have not responded directly to our inquiries, public
information indicates that all our suppliers are meeting federal guidelines
for Year 2000 compliance. However, there can be no assurance that the systems
of other companies on which our systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is incompatible
with our systems, would not have a material adverse effect on us. Certain
power companies may experience problems supplying power to us. If that occurs,
our only liability will be to issue immaterial illumination credits.
Costs to Address Our Year 2000 Issues
During 1997 and 1998, we incurred approximately $100,000 and $150,000,
respectively in Year 2000 compliance efforts. Estimates of additional costs to
complete our Year 2000 compliance plan are not anticipated to be material to
our financial condition or results of operations.
Risks of Our Year 2000 Issues and Our Contingency Plans
Based on the results of our review of Year 2000 issues to date and
compliance efforts completed, we do not believe that the Year 2000 issue
presents a significant risk of disruption of our ability to transact business
with our major customers and suppliers. However, a most reasonably likely
worst case Year 2000 scenario is that we will experience some disruption in
the supply of power to illuminate our signs or some delay in supply of
necessary materials for our outdoor advertising displays. Our contingency
plans to handle Year 2000 problems include ensuring that we have adequate
levels of materials on hand to mitigate the impact of any potential short-term
disruption in supply and identifying and ensuring that adequate levels of
materials will be available from alternative sources. We do not believe that
further contingency plans to handle Year 2000 problems are necessary at this
time, and therefore we have not developed further plans. We will, however,
continue to monitor the Year 2000 issues and evaluate the need for further
contingency plans to handle any changes to the most reasonably likely worst
case Year 2000 scenario.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement, which will be effective for us beginning January 1, 2001,
establishes accounting and reporting standards requiring that every derivative
instrument (including certain embedded in other contracts) be recorded in the
balance sheet as either assets or liabilities measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. We
have not yet quantified the impact of adopting SFAS No. 133 and have not
determined the timing or method of its adoption; however it is not expected
that adoption will have a material impact on earnings.
43
<PAGE>
BUSINESS
General
Adams Outdoor is the seventh largest owner and operator of outdoor
advertising structures in the United States. We currently provide outdoor
advertising services in fourteen markets and surrounding areas in the Midwest,
Southeast and mid-Atlantic states: Peoria, IL; Jackson, MI; Kalamazoo, MI;
Lansing, MI; Minneapolis, MN; Charlotte, NC; Lehigh Valley, PA; Northeast PA;
Charleston, SC; Florence, SC; Laurens, SC; Orangeburg, SC; Norfolk, VA; and
Madison, WI. As of December 31, 1998, we operated, in the aggregate,
approximately 9,600 advertising displays, including 2,891 painted bulletins,
6,541 30-sheet posters and 222 junior (8-sheet) posters.
History
The Adams Outdoor business was founded in 1983 with the acquisition of
Central Outdoor Advertising, which had offices in Lansing, Jackson and
Kalamazoo, MI. Over the next five years, we pursued a strategy of geographic
expansion into additional medium-sized markets, primarily through the
acquisition of existing outdoor advertising businesses in selected Midwest,
Southeast and mid-Atlantic markets. This geographic expansion strategy has
enabled us to capitalize on the efficiencies, economies of scale and marketing
opportunities associated with operating outdoor advertising businesses located
in proximate or contiguous geographic markets to our primary markets. Since
1988, our growth in sales and Operating Cash Flow has resulted from a
concentration on maximizing rate and occupancy levels of existing inventory,
construction of new displays, upgrading of displays in existing markets,
acquisition of displays in existing markets, and new market acquisitions in
South Carolina and Pennsylvania.
Industry Overview
Outdoor advertising is one of several major advertising media that includes
television, radio, newspapers and magazines, among others. Because of its
repetitive impact and relatively low cost-per-thousand impressions (a commonly
used media standard), outdoor advertising is attractive to both large national
advertisers and smaller local and regional businesses.
The principal outdoor advertising display is the billboard, of which there
are three standardized formats:
. Painted bulletins are generally 14 feet high and 48 feet wide (672
square feet) and consist of panels or a single sheet of vinyl that are
hand painted at the facilities of the outdoor advertising company or
computer painted in accordance with design specifications supplied by
the advertiser. The panels or vinyl are then transported to the
billboard site and mounted to the face of the display. On occasion, to
attract more attention, some of the displays are designed to extend
beyond the linear edges of the display face and may include three-
dimensional embellishments for which the outdoor advertising company
often receives additional revenue. Because of painted bulletins' greater
impact and higher cost relative to other types of billboards, they are
usually located near major highways, and space is usually sold to
advertisers for periods of four to twelve months.
. 30-sheet posters are generally 12 feet high by 25 feet wide (300 square
feet) and are the most common type of billboard. Lithographed or silk-
screened paper sheets that are supplied by the advertiser are pre-pasted
and packaged in airtight bags by the outdoor advertising company and
applied, like wallpaper, to the face of the display. The 30-sheet
posters are concentrated on major traffic arteries, and space is usually
sold to advertisers for periods of one to twelve months.
. Junior (8-sheet) posters are usually 6 feet high by 12 feet wide (72
square feet). The displays are prepared and mounted in the same manner
as 30-sheet posters. Most junior posters, because of their smaller size,
are generally concentrated on city streets and are targeted at
pedestrian traffic. Space on junior posters is usually sold to
advertisers for periods of one to twelve months.
44
<PAGE>
Typically, billboards are mounted on structures that are owned by the
outdoor advertising company and located on sites that are owned or leased by
it or on which it has an easement. Leases of structure sites usually provide
for a term of three to ten years depending on locale. A structure may contain
one or more displays (generally two), each of which is referred to as a
"face."
Advertisers usually contract for outdoor displays (and other media exposure)
through advertising agencies, which are responsible for the artistic design
and written content of the advertising as well as the choice of media and the
planning and implementation of the overall campaign. Outdoor advertising
companies pay commissions to the agencies for advertising contracts secured
through such agencies. Advertising contracts are negotiated on the basis of
the monthly rates that are published in the outdoor advertising company's
"rate card." These rates, which are typically set annually during the first
quarter of each year, are based on a particular display's exposure (or number
of "impressions" delivered) in relation to the demographics of the particular
market and its location within that market. The number of "impressions"
delivered by a display (measured by the number of vehicles passing the site
during a defined period and weighted to give effect to such factors as its
proximity to other displays and the speed and viewing angle of approaching
traffic) are determined by surveys that are verified by the Traffic Audit
Bureau, an independent agency which is the outdoor advertising industry's
equivalent of radio's Arbitron ratings and which audits approximately 175,000
outdoor advertising sites annually.
Advertisers purchase outdoor advertising for a variety of reasons. In the
case of restaurants, motels, service stations and similar roadside businesses,
the message reaches potential customers close to the point of sale and
provides ready directional information. For advertisers seeking to build
product brand name awareness, outdoor advertising is attractive because of its
constant repetition and comparatively low cost per thousand impressions.
According to Competitive Media Reporting, an independent revenue reporting
firm, the top ten categories of businesses ranked by outdoor advertising
expenditures for 1998 were local services and amusements, hotels and resorts,
retail establishments, miscellaneous merchandise (as of 1998 includes
tobacco), restaurants, media and advertising, automotive: dealers and
services, insurance and real estate, automotive: auto access and equipment,
and financial.
Business Strategy
Our strategy is to focus our operations on providing value-added outdoor
advertising services to advertisers in medium-sized markets in which we are or
could be the leading provider of such services. We believe that our focus on
medium-sized markets allows us to achieve a dominant share of outdoor
advertising revenues and display faces within those markets. We also believe
that by educating current and potential customers on the effectiveness of the
outdoor medium, we have a significant opportunity to gain a larger share of
overall advertising expenditures. Our business strategy comprises the
following elements:
. Focus marketing efforts on local and regional advertisers in order to
develop and maintain a diverse client base and to limit reliance on
national advertising accounts. We believe that focusing on local and
regional advertisers helps generate stable revenue growth and reduce our
reliance on any single local economy or industry segment. In 1998, net
revenues attributable to local and regional advertising accounted for
89.7% of total net revenues.
. Take advantage of recent technological advances in computer and printing
technology, which allow us to provide higher quality reproduction to our
customers, thereby attracting new advertisers to the outdoor medium.
. Raise potential customers' awareness of the reach, impact and value of
outdoor advertising and convince customers to use outdoor advertising as
an integral part of their advertising plan.
. Continue to enhance sales, marketing and customer service capabilities.
Our salespersons are paid pursuant to a performance-based compensation
system and supervised by a local sales manager executing a coordinated
marketing plan.
45
<PAGE>
. Increase revenues from existing display faces by developing programs
that maximize advertising rates and optimize occupancy levels in each
market. We also plan to continue to pursue new advertising categories,
such as transit buses and passenger shelters, to further diversify our
revenue base.
. Expand operations within our markets through construction of new display
faces and the upgrading of existing displays, placing an emphasis on
painted bulletins, which generally command higher rates and longer
contracts from advertisers.
. Pursue strategic acquisitions of outdoor displays in existing and
contiguous markets and capitalize on the efficiencies, economies of
scale and significant opportunities for inter-market cross-selling that
are associated with operating in proximate or contiguous geographic
markets.
We recognize, and closely monitor, the needs of our customers and seek to
provide them with a quality advertising product at a lower cost than
competitive media. We believe we have a reputation of providing excellent
customer service and quality outdoor advertising space.
Markets
Adams Outdoor operates in fourteen geographically diverse medium-sized
markets that offer to local, regional and national advertisers significant
areas of population to whom advertising may be targeted. In addition, we offer
comprehensive outdoor advertising services, including local production
facilities and local representation, in all of our markets except in
Minneapolis.
The following table sets forth information as of December 31, 1998 with
respect to each of our markets, including the DMA (as defined herein) rank of
that market and the number of each display type operated by us in that market:
<TABLE>
<CAPTION>
DMA Painted
Market Ranking(a) Bulletins 30-Sheet Posters 8-Sheet Posters Total
- ------ ---------- --------- ---------------- --------------- -----
<S> <C> <C> <C> <C> <C>
Peoria, IL.............. 116 74 319 32 425
Jackson, MI(b).......... -- 128 433 -- 561
Kalamazoo, MI........... 38 289 749 -- 1,038
Lansing, MI(b).......... 107 312 482 -- 794
Minneapolis, MN......... 13 112 -- -- 112
Charlotte, NC........... 29 663 841 56 1,560
Lehigh Valley, PA(c).... -- 207 734 -- 941
Northeast PA............ 46 193 543 -- 736
South Carolina(d)....... 114 672 1,597 105 2,374
Norfolk, VA............. 39 160 583 29 772
Madison, WI............. 88 81 260 -- 341
----- ----- --- -----
Total................ 2,891 6,541 222 9,654
===== ===== === =====
</TABLE>
- --------
(a) Indicates the 1998 market rank of the designated market area ("DMA"), as
determined by Nielson Media Research, within which the office is located.
DMAs are ranked based on population, with the market having the largest
population ranked first. DMA rank is the standard measure of market size
used by the media industry.
(b) The Jackson, MI market is included in the Lansing, MI DMA ranking.
(c) The Lehigh Valley market is included in the Philadelphia DMA ranking.
According to the U.S. Census Bureau, the Lehigh Valley market was the 86th
largest metropolitan statistical area in the United States at December 31,
1990, the latest date for which such information is available.
(d)Consists of four markets: Charleston, Florence, Laurens and Orangeburg.
46
<PAGE>
The following tables set forth information with respect to the net revenues,
operating income and operating margins for our displays in each of our markets
for each of the past five years. Amounts presented for Northeast PA and South
Carolina include results from their acquisition dates of November 8, 1996 and
December 2, 1996, respectively, through December 31, 1998.
Net Revenues
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
Market 1994 1995 1996 1997 1998
- ------ ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Charlotte, NC...................... $ 8,646 $ 9,680 $10,499 $11,882 $12,932
Lansing/Jackson, MI(a)............. 7,541 8,227 8,683 9,296 10,719
Lehigh Valley, PA.................. 5,045 5,909 6,293 6,461 7,113
Kalamazoo, MI...................... 4,976 5,535 5,628 6,460 7,094
Norfolk, VA........................ 4,827 5,672 6,359 6,065 6,980
South Carolina(b).................. -- -- 329 4,837 6,119
Madison, WI........................ 2,545 3,070 3,430 3,782 3,951
Minneapolis, MN.................... 1,674 2,236 2,930 3,274 3,710
Peoria, IL......................... 2,397 2,562 2,836 3,016 3,266
Northeast PA....................... -- -- 273 2,212 2,685
------- ------- ------- ------- -------
Total........................... $37,651 $42,891 $47,260 $57,285 $64,569
======= ======= ======= ======= =======
Operating Income
<CAPTION>
Year Ended December 31,
-------------------------------------------
Market 1994 1995 1996 1997 1998
- ------ ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Charlotte, NC...................... $ 2,701 $ 3,602 $ 4,251 $ 5,425 $ 6,322
Lansing/Jackson, MI(a)............. 3,044 3,570 3,738 3,636 4,049
Lehigh Valley, PA.................. 1,466 2,161 2,495 2,500 3,107
Kalamazoo, MI...................... 1,967 2,440 2,409 2,646 3,141
Norfolk, VA........................ 1,387 2,279 2,798 2,479 3,424
South Carolina(b).................. -- -- (50) (735) (131)
Madison, WI........................ 915 1,232 1,597 1,799 1,844
Minneapolis, MN.................... 233 631 889 1,036 1,188
Peoria, IL......................... 851 863 1,110 1,329 1,494
Northeast PA....................... -- -- (8) 166 379
Corporate.......................... (2,871) (3,844) (4,342) (4,724) (8,439)
------- ------- ------- ------- -------
Total........................... $ 9,693 $12,934 $14,887 $15,557 $16,378
======= ======= ======= ======= =======
Operating Margin
<CAPTION>
Year Ended December 31,
-------------------------------------------
Market 1994 1995 1996 1997 1998
- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Charlotte, NC...................... 31.2% 37.2% 40.5% 45.7% 48.9%
Lansing/Jackson, MI(a)............. 40.4 43.4 43.1 39.1 37.8
Lehigh Valley, PA.................. 29.1 36.6 39.6 38.7 43.7
Kalamazoo, MI...................... 39.5 44.1 42.8 41.0 44.3
Norfolk, VA........................ 28.7 40.2 44.0 40.9 49.1
South Carolina(b).................. -- -- (15.2) (15.2) (2.1)
Madison, WI........................ 36.0 40.1 46.6 47.6 46.7
Minneapolis, MN.................... 13.9 28.2 30.3 31.6 32.0
Peoria, IL......................... 35.3 33.7 39.1 44.1 45.7
Northeast PA....................... -- -- (2.9) 7.5 14.1
------- ------- ------- ------- -------
Total........................... 25.7% 30.2% 31.5% 27.2% 25.4%
======= ======= ======= ======= =======
</TABLE>
- --------
(a) Prior to 1997, Jackson and Lansing were consolidated as one market.
(b)Consists of four markets: Charleston, Florence, Laurens and Orangeburg.
47
<PAGE>
Sales and Marketing
The growth in our revenues and Operating Cash Flow is primarily a result of
our focus on the use of sales and marketing staff to increase the productivity
of our inventory of displays while maintaining strict controls on our
expenses.
Historically, outdoor advertising companies have derived a significant
portion of their revenues from large national advertisers, such as tobacco
companies, auto manufacturers and distributors of alcoholic beverages. As
tobacco industry advertising purchases have declined in recent years, some
outdoor advertising companies have recently shifted their marketing focus to
local and regional advertisers to replace these lost revenues. Nonetheless,
large national advertisers continue to account for a significant percentage of
outdoor advertising industry revenues. Despite this fact, we believe that
sales to local and regional advertisers lend stability to our revenue stream
by diversifying our customer base. We emphasize sales to local and regional
customers. In 1998, we generated approximately 89.7% of our net revenues from
local and regional sales. We believe that our local and regional focus enables
us to capitalize on the growing use of outdoor media by advertisers that
historically have relied on other media in marketing their products and
services, such as consumer product companies, professional service firms,
health care providers and financial institutions.
Our sales and marketing strategy has been successful largely due to the
efforts of our team of general managers in our markets. These general managers
have an average of over 15 years of experience in the outdoor advertising
industry and are responsible for implementing our sales and marketing
strategy. Each of our markets has a team of account executives that is
supported locally by a creative department, which provides innovative
marketing ideas, generates art work and designs billboard advertising for
potential customers' advertising campaigns. In addition, each market has a
business development staff, which makes available comprehensive information
about local market research, customer needs and advertising opportunities.
This allows us to assess the impact and potential reach for a potential target
customer's display in a given market. The sales and marketing departments
focus on increasing revenues through developing new marketing programs for
customers, educating both current and potential customers on the effectiveness
of the outdoor advertising product relative to other advertising media and
integrating this medium into a customer's marketing plan. Our sales personnel
are compensated primarily on a commission basis which maximizes their
incentive to perform.
The following table illustrates the diversity of our customers by setting
forth the percentage of our gross revenues for 1998 attributable to each of
the top ten advertising categories:
1998 Revenues by Category
(Percent of Gross Revenues)
<TABLE>
<CAPTION>
Total
-----
<S> <C>
Tobacco............................................................. 12.0%*
Restaurants......................................................... 9.1
Automotive.......................................................... 8.2
Entertainment....................................................... 5.5
Hotel/Motel......................................................... 4.5
Grocery/Convenience Stores.......................................... 4.1
Telecommunications.................................................. 3.5
Financial institutions.............................................. 3.3
Radio/Television.................................................... 2.9
Hospital/Nursing.................................................... 2.8
All Others.......................................................... 44.1
-----
Total............................................................ 100.0%
=====
</TABLE>
--------
*Tobacco products represented 10.3% of net revenues (gross revenues net of
agency commissions).
48
<PAGE>
Local Market Operations
In each of our primary markets, we maintain a complete outdoor advertising
operation including a sales office, a construction and maintenance facility,
an art department equipped with state-of-the-art computer technology, a real
estate unit and support staff. We conduct our outdoor advertising operations
through these local offices, which is consistent with senior management's
belief that an organization with decentralized sales and operations is more
responsive to local market demand and provides greater incentives to
employees. At the same time, we maintain consolidated accounting and financial
controls, which allow us to monitor closely the operating and financial
performance of each market. Our general managers, who report directly to our
chief executive officer, are responsible for the day-to-day operations of
their offices and are compensated based on the financial performance of their
respective markets. In general, these local managers oversee market
development, production and local sales.
Each local office is responsible for locating and ultimately obtaining sites
for the displays in its market. Each office has a leasing department, which
maintains an extensive data base containing information on local property
ownership, lease contract terms, zoning ordinances and permit requirements. We
own certain of the sites on which our displays are located and lease others.
Site lease contracts vary in term but typically range from three to ten years
with various termination and renewal provisions. As of and for the twelve
months ended December 31, 1998, we had approximately 4,561 active site leases
accounting for a total land lease expense of approximately $7.3 million,
representing approximately 11.0% of net revenues.
In each of our primary markets, we have construction and maintenance
facilities, which facilitate the expeditious and economical construction and
maintenance of displays and the painting and mounting of customers'
advertisements. Typically, we use vinyl skins for bulletins. The vinyl skins
are reusable, thereby reducing our production costs, and are easily
transportable. Due to the geographic proximity of our markets and the
transportability of vinyl skins, we can shift production among markets to use
our available capacity more effectively. The local offices also maintain fully
equipped art departments to assist local customers in the development and
production of creative, effective advertisements.
Competition
We compete in each of our markets with other outdoor advertisers as well as
other media, including broadcast and cable television, radio, newspaper and
direct mail marketers. In competing with other media, outdoor advertising
relies on its low cost-per-thousand impressions and its ability to
repetitively reach a broad segment of the population in a specific market or
geographic area within that market. In most of our markets, we encounter
direct competition from other major outdoor media companies, including Outdoor
Systems, Inc. and Whiteco, among others, each of which has a large national
network and resources significantly greater than ours. We believe that our
focus on local and regional advertisers and our position as the leading
provider of full service outdoor advertising in each of our primary markets
enable us to compete effectively with other outdoor media operators, as well
as other media, both within those markets and in each respective region. We
also compete with other outdoor advertising companies for sites on which to
build new structures.
Government Regulation
The outdoor advertising industry is subject to governmental regulation at
the federal, state and local level. Federal law, principally the Highway
Beautification Act of 1965, encourages states, by the threat of withholding
federal appropriations for the construction and improvement of highways within
such states, to implement legislation to control outdoor advertising
structures located within 660 feet of or visible from interstates and primary
highways, except in commercial or industrial areas, and to force the removal
at the owner's expense and without any compensation of any nonconforming
structures on such highways. The Highway Beautification Act and the various
state statutes implementing it require the payment of just compensation
whenever governmental authorities require legally erected and maintained
structures to be removed from federally-aided highways.
49
<PAGE>
States and local jurisdictions have, in some cases, passed additional
regulation on the construction, repair, upgrading, height, size and location
of outdoor advertising structures adjacent to federally-aided highways and
other thoroughfares. Such regulations, often in the form of municipal
building, sign or zoning ordinances, specify standards for the height, size
and location of outdoor advertising structures. In the event non-conforming
advertising structures are damaged, including damage caused by natural events,
such as windstorms and hurricanes, we may not be able to repair the
structures. In some cases, the construction of new or relocation of existing
structures is prohibited. Some jurisdictions also have restricted the ability
to enlarge or upgrade existing structures, such as converting from wood to
steel or from non-illuminated to illuminated structures. From time to time,
governmental authorities order the removal of structures by the exercise of
eminent domain or through various regulatory actions or other litigation. In
such cases, we seek compensation under appropriate procedures and thus far, we
have been able to obtain satisfactory compensation for any of our structures
removed at the direction of governmental authorities. However, compensation
may not always be available in such circumstances. Some municipalities have
attempted to regulate outdoor advertising by taxing revenues attributable to
advertising structures, or by requiring the payment of annual permit fees
based on factors such as the square footage of an outdoor advertising
company's display faces, located in those municipalities. Other municipalities
take into account lease payments received by lessors of property on which
advertising structures are located in making property tax assessments. These
taxes and fees can increase an outdoor advertising company's direct operating
costs.
Amortization legislation has also been adopted in some areas across the
country, including Charlotte, NC, one of our markets. Amortization only
permits the owner of an outdoor advertising structure to operate its structure
as a non-conforming use for a specified period of time, after which it must
remove or otherwise conform its structure to the applicable regulations at its
own cost without any compensation. Some jurisdictions require the removal of
certain structures without any compensation if there is a change in use of the
premises (e.g., construction on previously unimproved land). Amortization and
such other regulations requiring the removal of structures without
compensation currently are subject to vigorous litigation in the state and
federal courts, which have reached differing conclusions as to their
constitutionality.
On February 1, 1988, the city of Charlotte, NC, adopted a comprehensive sign
ordinance prohibiting the construction of all new off-premises outdoor
advertising signs except those built adjacent to interstate highways. The
ordinance also mandated that all nonconforming signs either be brought into
compliance or be removed by February 1, 1996 at the owner's expense without
compensation. Assuming failure by the city to grant any variances, we could
have been forced to remove approximately 135 structures at our expense without
payment of compensation. In 1988, we filed a lawsuit in the Superior Court of
Mecklenburg County, NC, challenging the constitutionality of the Charlotte
sign ordinance. In 1998, we reached an agreement with the city of Charlotte,
NC which provides that none of our boards will have to be removed until at
least 2003.
In other localities in which we operate, outdoor advertising is subject to
restrictive and, in some cases, prohibitive zoning regulations. Management
expects federal, state, and local regulations to continue to be a significant
factor in the operation of our business.
In recent years, there have been efforts to restrict billboard advertising
of certain products, including tobacco and alcohol. Congress has passed no
legislation at the federal level except legislation requiring health hazard
warnings similar to those on cigarette packages and print advertisements.
In November 1998, the major U.S. tobacco companies reached an out of court
settlement with 46 states, the District of Columbia, the Commonwealth of
Puerto Rico and four other U.S. territories. The remaining four states had
already reached similar settlements with the tobacco companies. The agreement
calls for the removal of tobacco advertising from out-of-home media, including
billboards, along with signs and placards in arenas, stadiums, shopping malls
and video game arcades by April 23, 1999. Additionally, the agreement provides
that, at the settling states' option, the tobacco companies must, at their
expense, substitute for tobacco advertising alternative advertising which
discourages youth smoking. That alternative advertising must remain in place
for
50
<PAGE>
the duration of the tobacco companies' out-of-home media advertising contracts
which existed as of the date of the agreement.
The elimination of tobacco advertising as called for by the agreement will
cause a reduction in direct revenues from tobacco companies and may increase
the available space on the existing inventory of billboards in the outdoor
advertising industry. Although the extent of the future impact on operations
is not known, we have been successful thus far in replacing tobacco
advertising in our Minneapolis market, where all of our displays are painted
bulletins, as part of a settlement reached prior to the agreement. However, we
can give no assurance that the further cutbacks in tobacco advertising during
1999 will not have an adverse effect on operations for 1999 or beyond.
To date regulations applicable in our markets have not materially affected
our operations, and compliance with those regulations has not had a material
impact on our costs. No assurance can be given, however, as to the effect of
changes in those regulations or of new regulations that may be adopted in the
future.
Legal Proceedings
From time to time, we are involved in litigation in the ordinary course of
business, including disputes involving advertising contracts, site leases,
employment claims, construction matters, condemnation and amortization. We are
also involved in routine administrative and judicial proceedings regarding
permits and fees relating to outdoor advertising structures and compensation
for condemnations. We are not a party to any lawsuit or proceeding which, in
the opinion of management, is likely to have a material adverse effect on us.
See "Business--Government Regulation."
Employees
As of December 31, 1998, we employed 334 persons, of whom approximately 117
were primarily engaged in sales and marketing, 157 were engaged in painting,
posting, construction and maintenance of displays, and the balance were
employed in financial, administrative and similar capacities. No employees are
covered by a collective bargaining agreement except for five production shop
workers in Peoria, IL covered by a collective bargaining agreement with the
Brotherhood and Painters and Allied Trades that expires on December 31, 1999.
Management considers its employee relations to be good.
Facilities
Our corporate office is located in Atlanta, GA. In addition, we have an
office and complete production and maintenance facilities in each of
Charlotte, NC; Charleston, SC; Orangeburg, SC; Florence, SC; Laurens, SC;
Kalamazoo, MI; Lansing, MI; Jackson, MI; Lehigh Valley, PA; Northeast PA;
Madison, WI; Norfolk, VA; and Peoria, IL. Additionally, we have a sales office
in Minneapolis, MN. The Peoria and Minneapolis facilities are leased, and all
other facilities are owned. We consider our facilities to be well maintained
and adequate for our current and reasonably anticipated future needs.
We own approximately 146 parcels of real property that serve as the sites
for our outdoor displays. We also have easements on approximately 48 parcels
of real property on which we have outdoor displays. Additionally, our displays
are located on sites leased or licensed by us, typically for three to ten
years with renewal options.
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<PAGE>
MANAGEMENT
AOA Holding is a limited liability company whose affairs are governed by a
Board of Governors. AOA Capital and Adams Outdoor Advertising, Inc. are
wholly-owned subsidiaries of AOA Holding. Adams Outdoor Advertising, Inc. is
the managing general partner of Adams Outdoor Advertising Limited Partnership.
The governors of AOA Holding, who are also directors of AOA Capital and of
Adams Outdoor Advertising, Inc., and the executive officers of AOA Holding,
AOA Capital and Adams Outdoor Advertising, Inc. are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Stephen Adams.................... 61 Governor and Chairman
J. Kevin Gleason................. 47 Chief Executive Officer, President,
Director and Governor
Abe Levine....................... 45 Chief Financial Officer, Vice
President, Secretary and Treasurer
George Pransky................... 58 Director and Governor
David Frith-Smith................ 54 Director and Governor
Andris A. Baltins................ 54 Director and Governor
</TABLE>
Stephen Adams has been Chairman of Adams Outdoor Advertising, Inc. since its
founding in 1983 and of AOA Capital Corp. since 1999. Since the 1970's, Mr.
Adams has served as chairman of privately owned banking, bottling, publishing,
outdoor advertising, television and radio companies in which he held a
controlling ownership interest. Mr. Adams is Chairman of the Board of
Directors of Affinity Group, Inc., a membership-based marketing company.
J. Kevin Gleason has served as the Chief Executive Officer of Adams Outdoor
Advertising Limited Partnership and President of Adams Outdoor Advertising,
Inc. since 1991 and as President of AOA Holding LLC and AOA Capital Corp.
since 1999. Mr. Gleason has twenty years of experience in advertising,
fourteen of which have been dedicated to the outdoor advertising industry. Mr.
Gleason has been with Adams Outdoor Advertising, Inc. since 1987, serving as
General Manager of various local markets and then as Executive Vice President
at the corporate level. Prior to joining Adams Outdoor Advertising, Inc., Mr.
Gleason served as General Manager of Naegele Outdoor Advertising ("Naegele")
of Southern California from 1985 to 1987. Mr. Gleason also currently serves as
a Vice-Chairman of the Outdoor Advertising Association of America.
Abe Levine has served as Chief Financial Officer of Adams Outdoor
Advertising Limited Partnership and as Vice President of Adams Outdoor
Advertising, Inc. since 1991 and as Vice President and Treasurer of AOA
Holding LLC and AOA Capital Corp. since 1999. From 1988 to 1991, Mr. Levine
worked as Controller of Adams Outdoor Advertising of Atlanta, Inc. Mr. Levine
was employed by Gulf + Western Industries, Inc. from 1979 through 1987 in
various senior accounting and financial positions, and by KPMG Peat Marwick
from 1975 through 1979 in various auditing positions.
George Pransky, Ph.D. has been in private practice as co-director of Pransky
and Associates in La Conner, Washington since 1988. He is a frequent
consultant for government and private agencies and has been a contract faculty
member for a number of educational institutions, including the University of
Washington, the University of Oregon and Antioch College. Dr. Pransky has
trained management groups in team building, stress elimination and management
development for fifteen years.
David Frith-Smith has served as managing partner of Biller, Frith-Smith &
Archibald, Certified Public Accountants, since 1988. Mr. Frith-Smith was a
principal in Maidy and Lederman, Certified Public Accountants, from 1980 to
1984, and with Maidy Biller Frith-Smith & Brenner, Certified Public
Accountants, from 1984 to 1988. Mr. Frith-Smith is a director of various
private and non-profit corporations.
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<PAGE>
Andris A. Baltins has been a member of the law firm of Kaplan, Strangis and
Kaplan, P.A. since 1979. He is a director of Polaris Industries Inc., a
manufacturer of snowmobiles, all-terrain vehicles, personal watercraft and
related products. Mr. Baltins is also a director of various private and non-
profit corporations.
Other Significant Management Personnel
The following table sets forth certain information with respect to other
significant management personnel:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Jon Kane.............................. 34 General Manager--Lansing, MI
Jim Balestino......................... 35 General Manager--Jackson, MI
Mike Peters........................... 37 General Manager--Kalamazoo, MI
John Hayes............................ 46 General Manager--Lehigh Valley
and Northeast PA
Michelle Kullmann..................... 31 General Manager--Madison, WI
Gardner King.......................... 47 General Manager--Norfolk, VA
Barry Asmann.......................... 42 General Manager--Charlotte, NC
Robert Lord........................... 40 General Manager--Peoria, IL
Robert Graiziger...................... 46 General Manager--Minneapolis,
MN
Jerry Heinz........................... 57 General Manager--South Carolina
</TABLE>
Jon Kane has been general manager of our Lansing, MI division since July
1997. Prior thereto, he was general manager of our Madison, WI division. He
joined us in 1989 as an account executive in our Lehigh Valley, PA division.
He also served as regional sales manager and poster sales manager for our
Lehigh Valley division until his promotion to general manager of Madison.
Jim Balestino has served as general manager of our Jackson, MI division
since January 1999. He joined us in 1997 as the sales manager in our Florence,
SC division. Mr. Balestino previously held the position of General Sales
Manager with FKM Advertising in Youngstown, OH. In addition he served as the
Regional Account Manager and Market Development Manager from 1992 until 1995.
He began his career in 1988 as a Real Estate/Account Executive for Penn
Advertising in Altoona, PA.
Mike Peters has been general manager of our Kalamazoo, MI division since
October 1996. He began his outdoor advertising career in 1985 as an account
executive with Creative Displays in Lehigh Valley, PA. Mr. Peters stayed on as
an account executive when Adams purchased Creative Displays and in 1989 was
promoted to sales manager. He has 13 years of experience in the outdoor
advertising industry.
John Hayes has served as general manager of our Lehigh Valley, PA division
from 1985 to 1991 and from 1994 to the present and has served as general
manager of our Northeast PA market since its acquisition in 1996. He began his
career in outdoor advertising in 1976 as an account executive with Creative
Displays in the Lehigh Valley market, later becoming sales manager in 1979 and
assistant manager in 1981. From 1991 to 1994, Mr. Hayes managed a paging
business in the Lehigh Valley area.
Michelle Kullmann has been general manager of our Madison, WI division since
June 1997. Michelle first started with Adams in 1991 as an account executive.
In 1993, she was promoted to sales manager of Madison and held that position
until her most recent promotion to general manager.
Gardner King has served as general manager of our Norfolk, VA division since
January 1988. From 1980 through 1985, Mr. King was the founder and sole
proprietor of an outdoor advertising company in Norfolk, VA, which he sold to
Whiteco. After the expiration of his non-compete agreement with Whiteco, Mr.
King joined us in 1988. Mr. King has 16 years of experience in the outdoor
advertising industry.
Barry Asmann has served as general manager of our Charlotte, NC division
since January 1993 and prior thereto was sales manager in both our Charlotte,
NC and Lehigh Valley, PA divisions. Mr. Asmann has 13 years
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<PAGE>
of experience in the outdoor advertising industry, working in various markets
throughout the country with us and Naegele.
Robert Lord has served as general manager of our Peoria, IL division since
December 1993. From February 1993 to December 1993, he served as the sales
manager of our Charlotte division and from 1989 to January 1993 as the sales
manager of our Peoria, IL division. Mr. Lord served as an account executive in
our Peoria division from 1986 to 1989.
Robert Graiziger has served as general manager of our Minneapolis, MN
division since 1988, when he sold an outdoor advertising company that he
founded and operated in Minneapolis to us. Mr. Graiziger has been involved in
the outdoor advertising business in various capacities since 1978.
Jerry Heinz has served as general manager of our South Carolina division
since December 1996. He joined us from Burkhart Advertising, Inc. Mr. Heinz
joined Burkhart Advertising, Inc. in 1969 as an account executive. During the
next 27 years Mr. Heinz held the positions of sales manager, general manager
and finally as President and CEO.
Executive Compensation
The following table provides certain summary information concerning the
compensation paid by us to our Chief Executive Officer and each of the two
other executive officers for the years ended December 31, 1998, 1997, and
1996. All of the compensation was paid by Adams Outdoor Advertising Limited
Partnership during these periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------
Other All
Name and Principal Annual Other
Position Year Salary Bonus(a) Compensation(b) Compensation(c)
------------------ ---- -------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Stephen Adams........... 1998 $200,000(e)
Chairman(d) 1997 200,000(e)
1996 150,000(e)
J. Kevin Gleason........ 1998 443,000 $3,621,000(f) $35,000
Chief Executive Officer 1997 436,000 34,750
1996 384,000 34,750
Abe Levine.............. 1998 180,000 18,923
Chief Financial Officer 1997 186,000 19,750
1996 181,000 400,000 19,154
</TABLE>
- --------
(a) All amounts represent accruals under deferred phantom stock agreements.
(b) Less than the lesser of (i) 10% of total annual salary and bonus and (ii)
$50,000.
(c) Amounts for 1998, 1997, and 1996 include contributions to the accounts of
Messrs. Gleason and Levine under our nonqualified retirement plan of
$30,000 and $15,000, respectively. All other amounts represent our
contributions to our 401(k) plan.
(d) We have an employment agreement with Mr. Adams providing for a salary of
$220,000 per year (plus an annual cost of living increase) and the
reimbursement of business expenses.
(e) Does not include reimbursement of company travel and entertainment expense
advanced by Mr. Adams aggregating $105,298 in 1997 and $200,000 in 1996.
Nothing was reimbursed to Mr. Adams in 1998.
(f) Mr. Gleason, our Chief Executive Officer, entered into a phantom stock
agreement with us in 1998. Our prior phantom stock agreement with Mr.
Gleason was terminated by mutual agreement in 1996 and we last
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<PAGE>
incurred compensation expense with respect to that agreement in 1995. The
$3.6 million accrual under Mr. Gleason's phantom stock agreement in 1998
($2.7 million of which was paid in 1999) reflects, in addition to his 1998
performance, his performance in 1996 and 1997, when he was not a party to a
phantom stock agreement. We do not expect the amounts accrued in 1998 to be
indicative of future annual compensation expense incurred with respect to
the phantom stock agreements.
Employment Agreement
We entered into an employment agreement with Mr. Stephen Adams effective
January 1, 1996. Under the employment agreement, Mr. Adams is employed as
Chairman of Adams Outdoor Advertising, Inc. until December 31, 2001 at an
initial base salary of $200,000 plus an annual cost of living increase. Mr.
Adams' base salary in 1999 is $220,000, reflecting the cost of living increase
from January 1, 1996.
Agreements with Management--Incentive Compensation under Phantom Stock
Agreements
We have deferred phantom stock agreements with certain managers, including
each general manager with respect to the performance of his or her respective
division. The compensation is calculated using a multiple of the operating
profit of the general manager's respective division for the fiscal year ending
immediately prior to the determination date over the value of the division at
the time of agreement. The agreements provide for three equal annual payments
to the participants upon the determination date, which is defined as
termination of employment, death, disability, sale of Adams Outdoor or the
fifth anniversary of the execution of the agreement. We incurred deferred
compensation expense related to the phantom stock agreements of $4.3 million,
$901,000, and $1.5 million, for the years ended December 31, 1998, 1997, and
1996 respectively.
As of December 31, 1998, we had accrued the following amounts of deferred
compensation expense payable related to the phantom stock agreements:
<TABLE>
<CAPTION>
Name Amount
---- ----------
(dollars
in
thousands)
<S> <C>
J. Kevin Gleason.................................................. $3,620
Abe Levine........................................................ 667
Others............................................................ 1,999
------
Total........................................................... $6,286
</TABLE>
If amounts accrued as of December 31, 1998 as deferred compensation payable
related to the phantom stock agreements are paid as currently scheduled
(assuming no executive terminations, deaths or disabilities), such payments
will occur as follows:
<TABLE>
<CAPTION>
Name 1999(a) 2000 2001 2002 2003 2004 2005 Total
---- ------- ---- ---- ---- ---- ---- ---- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Kevin Gleason................ $2,696 $-- $-- $308 $308 $308 $-- $3,620
Abe Levine...................... 667 -- -- -- -- -- -- 667
Others.......................... 745 695 170 169 107 83 30 1,999
------ ---- ---- ---- ---- ---- ---- ------
Total......................... $4,108 $695 $170 $477 $415 $391 $ 30 $6,286
====== ==== ==== ==== ==== ==== ==== ======
</TABLE>
--------
(a) Paid in 1999.
Agreements with Management--Incentive Compensation under Nonqualified
Retirement Plan
We also maintain a deferred compensation plan for each of Messrs. Gleason,
Levine and each of the area general managers. Under such plan, we contribute
$30,000 per year to the retirement account of Mr. Gleason
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<PAGE>
and $15,000 per year to the account of each of the other participants. In
addition, Messrs. Gleason and Levine deferred a substantial portion of their
1999, 1998 and 1997 compensation into a similar plan. As of December 31, 1998
the aggregate amount of deferred compensation payable under those nonqualified
retirement plans was approximately $1.9 million.
401(k) Savings Plan
Our employees also participate in a deferred savings and profit sharing plan
qualified under Section 401(a) and 401(k) of the Internal Revenue Code. All
employees over age 21 who have completed one year of service are eligible to
participate in the 401(k) Plan. Eligible employees may contribute to the
401(k) Plan up to 10% of their salary subject to an annual maximum established
under the Code, and we match these employee contributions at a rate of 50% up
to the first 6% of the employee's salary. Employees may make additional
voluntary contributions.
Governor and Director Compensation
We pay each of our governors and directors who are not also our employees
(Messrs. Pransky, Frith-Smith and Baltins) a fee of $4,500 per quarter. Each
of these individuals also serves as a director of certain of our subsidiaries
for which they are paid no additional compensation.
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<PAGE>
PRINCIPAL SECURITY HOLDERS
All of the membership interests of AOA Holding are owned by Stephen Adams.
AOA Holding owns all of the outstanding capital stock of AOA Capital and of
Adams Outdoor Advertising, Inc. See "The Issuers." The table below sets forth
the beneficial ownership of Adams Outdoor Advertising Limited Partnership as
of June 30, 1999.
<TABLE>
<CAPTION>
General Limited Aggregate
Partnership Partnership Partnership
Name Interest Interest Interests
- ---- ----------- ----------- -----------
<S> <C> <C> <C>
Adams Outdoor Advertising, Inc.(a).......... 0.01% 0.99% 1.00%
1380 W. Paces Ferry Road, NW
Suite 170, South Wing
Atlanta, GA 30327
AOA Holding LLC............................. 0.70 68.30 69.00
1380 W. Paces Ferry Road, NW
Suite 170, South Wing
Atlanta, GA 30327
ASSKM, L.P.(b).............................. -- 30.00 30.00
---- ----- ------
2575 Vista Del Mar Drive
Ventura, CA 93001
Total..................................... 0.71% 99.29% 100.00%
==== ===== ======
</TABLE>
- --------
(a) Stephen Adams is the sole member of AOA Holding which holds 100% of the
issued and outstanding shares of AOA Capital and of Adams Outdoor
Advertising, Inc., the managing general partner of Adams Outdoor
Advertising Limited Partnership, and, accordingly, may control the affairs
of Adams Outdoor.
(b) The partnership interests in the Adams Family Partnership are beneficially
owned by Stephen Adams and his four sons. The Adams Outdoor Advertising
Limited Partnership partnership agreement provides that distributions
(other than Permitted Tax Distributions) may not be made in respect of the
limited partnership interest of the Adams Family Partnership until such
time as the exchange notes have been paid in full.
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<PAGE>
CERTAIN TRANSACTIONS
Stephen Adams, J. Kevin Gleason and Abe Levine own 46%, 12% and 12%,
respectively, of HSP Graphics, a printing company headquartered in Canada. We
pay the salary and expenses of the HSP salesmen who operate in the Atlanta, GA
area and HSP reimburses us for those expenses in cash and services. At
December 31, 1998, 1997 and 1996, we had accounts receivable of $114, $227,991
and $208,669, respectively, outstanding from HSP. We expensed $11,000,
$84,000, and $54,000 for printing services provided during 1998, 1997, and
1996, respectively.
Andris A. Baltins is a member of the law firm of Kaplan, Strangis and
Kaplan, P.A., which provides legal services to us.
During 1998, Adams Outdoor Advertising Limited Partnership loaned $100,000
to J. Kevin Gleason, our Chief Executive Officer. These funds were used as a
down payment on a building leased to us. The loan, which accrued interest at
7.0% per annum, has subsequently been repaid.
During 1998, Adams Outdoor Advertising Limited Partnership entered into a
building lease with J. Kevin Gleason, our Chief Executive Officer. The lease
term is for 10 years and has been classified as an operating lease. Rent
expense of approximately $52,000 related to this transaction has been included
in direct advertising expense during the year ended December 31, 1998. We have
an option to purchase the building from Mr. Gleason at any time.
Mr. Stephen Adams and AOA Holding are parties to a deficit capital
contribution agreement under which Mr. Adams has agreed, in his capacity as a
member of AOA Holding, to make a limited contribution to the capital of AOA
Holding in an amount equal to amounts payable by AOA Holding to certain third
parties, including holders of the Adams Outdoor Advertising Limited
Partnership notes, as the result of its being a general partner of Adams
Outdoor Advertising Limited Partnership. Payments under the agreement are
intended to benefit only certain creditors of Adams Outdoor Advertising
Limited Partnership and would not be available to holders of the notes.
AOA Holding and AOA Capital are parties to a proceeds allocation and
indemnity agreement by virtue of which the parties thereto acknowledge that
all of the proceeds of the sale of the notes will be paid to AOA Holding, that
AOA Holding will bear all costs and expenses attendant to the issuance of the
notes and AOA Holding will indemnify AOA Capital against any claims or
liabilities in respect thereof.
LIMITED LIABILITY COMPANY AGREEMENT
AOA Holding is a limited liability company organized under the Minnesota
Limited Liability Company Act and is governed by the Articles of Organization
of AOA Holding LLC and the Operating Agreement of AOA Holding LLC that govern
the rights and duties of its members. The LLC Agreements provide that the
business and affairs of AOA Holding are to be managed by or under the
direction of a Board of Governors (the "Board"). The governors are to be
elected by the members, although the Board may fill a vacancy. Governors serve
for an indefinite term until their successors are elected or qualified or
until their death, resignation, disqualification or removal. The number of
governors may be increased or decreased by the governors. Each governor is
entitled to one vote. Any decisions to be made by the Board requires the
approval of a majority of the governors voting. Stephen Adams owns 100% of the
membership interests of AOA Holding, and controls the policies and operations
of AOA Holding and of AOA Capital, Adams Outdoor Advertising, Inc. and Adams
Outdoor Advertising Limited Partnership through AOA Holding. The LLC
Agreements provide that AOA Holding shall have perpetual existence.
58
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
Secured Credit Facility of Adams Outdoor Advertising Limited Partnership
The secured credit facility of Adams Outdoor Advertising Limited Partnership
is a senior secured facility consisting of a revolving line of credit, in the
aggregate principal amount of $35 million. The aggregate available commitment
under the secured credit facility is reduced incrementally on a quarterly
basis. The secured credit facility matures on December 31, 2001 unless
previously terminated.
Borrowings under the secured credit facility bear interest at a rate equal
to, at the option of Adams Outdoor Advertising Limited Partnership, either (i)
the ABR (which is defined as the prime rate most recently announced by the
agent under the secured credit facility), or (ii) the Eurodollar Base Rate, in
each case plus an applicable margin determined by reference to the ratio of
total debt to cash flow of Adams Outdoor Advertising Limited Partnership.
Adams Outdoor Advertising Limited Partnership is required to pay a commitment
fee of 0.5% per annum on the unused amount of this facility, payable
quarterly.
The obligations of Adams Outdoor Advertising Limited Partnership under the
secured credit facility are secured by a first priority pledge of the stock of
Adams Outdoor Advertising, Inc., a first priority pledge of the partnership
interests in Adams Outdoor Advertising Limited Partnership and a first
priority lien on all the assets of Adams Outdoor Advertising Limited
Partnership, with the exception of certain real estate assets, which are
subject to a negative pledge.
The secured credit facility contains, among other things, covenants
restricting the ability of Adams Outdoor Advertising Limited Partnership to
dispose of assets, make distributions to its partners, create liens, make
capital expenditures, make certain investments or acquisitions, enter into
transactions with affiliates and otherwise restrict certain activities. The
secured credit facility also contains the following financial covenants:
maximum ratio of total debt to operating cash flow, minimum permitted interest
coverage ratio and minimum permitted fixed charge coverage ratio.
Events of default under the secured credit facility include those usual and
customary for facilities of this type, including, among other things, default
in the payment of principal or interest in respect of material amounts of
indebtedness of Adams Outdoor Advertising Limited Partnership or its
subsidiaries, any non-payment default on such indebtedness, a Change of
Control (as defined in the secured credit facility), any material breach of
the covenants or representations and warranties included in the secured credit
facility and related documents, the institution of any bankruptcy proceedings,
the failure of any security agreement related to the secured credit facility
or lien granted thereunder to be valid and enforceable and the loss, without
replacement using insurance proceeds, of a material number of outdoor
advertising displays during any twelve month period. Upon the occurrence and
continuance of an event of default under the secured credit facility, the
lenders may terminate their commitments to lend and declare the then
outstanding loans due and payable.
Unsecured Credit Facility of Adams Outdoor Advertising Limited Partnership
The unsecured credit facility of Adams Outdoor Advertising Limited
Partnership is an unsecured facility consisting of a revolving line of credit,
originally in the aggregate principal amount of $3 million but increased in
November 1998 to $8 million. The aggregate available commitment under the
unsecured credit facility is reduced incrementally on a quarterly basis. The
unsecured credit facility matures on December 31, 2001 unless previously
terminated.
Borrowings under the unsecured credit facility bear interest at a rate equal
to, at the option of Adams Outdoor Advertising Limited Partnership, either (i)
the ABR (which is defined as the prime rate most recently announced by the
agent under the unsecured credit facility), or (ii) the Eurodollar Rate, in
each case plus an applicable margin. Adams Outdoor Advertising Limited
Partnership is required to pay a commitment fee of 0.75% per annum on the
unused amount of this facility, payable quarterly.
59
<PAGE>
Other than the covenants and events of default relating to security
interests, the unsecured credit facility contains the same covenants and
events of default as are contained in the secured credit facility.
Notes of Adams Outdoor Advertising Limited Partnership
In 1996, Adams Outdoor Advertising Limited Partnership issued a total of
$105 million in aggregate principal amount of senior notes. In 1998, Adams
Outdoor Advertising Limited Partnership purchased and cancelled $4 million in
principal amount of these notes, leaving $101 million in principal amount
outstanding. These notes bear interest at the rate of 10 3/4% per annum and
mature on March 15, 2006. No sinking fund payments are required. These notes
are unsecured obligations of Adams Outdoor Advertising Limited Partnership.
The indenture governing these notes contains certain restrictive covenants
including, but not limited to restricting the ability of Adams Outdoor
Advertising Limited Partnership to incur additional indebtedness, pay
dividends and make distributions, issue equity interests in subsidiaries, make
certain investments, repurchase equity investments, create liens, enter into
transactions with affiliates, enter into sale and leaseback transactions,
merge or consolidate Adams Outdoor Advertising Limited Partnership or Adams
Outdoor Advertising, Inc., and transfer and sell assets. The indenture limits
indebtedness that can be outstanding under the secured credit facility to $35
million (plus interest, premium, fees and other obligations associated
therewith). These notes may be redeemed by Adams Outdoor Advertising Limited
Partnership beginning March 15, 2001 at a redemption price of 105.375% of
principal plus accrued interest which decreases annually until it reaches 100%
on and after March 15, 2004.
After giving effect to the application of the net aggregate proceeds from
this offering, Adams Outdoor Advertising Limited Partnership had the ability
to make distributions to AOA Holding in the amount of $13.25 million as of
June 30, 1999 under the terms of the indenture governing these notes.
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<PAGE>
DESCRIPTION OF THE NOTES
You can find the definition of selected terms used in this description under
the subheading "Certain Definitions" beginning on page 76.
We issued the outstanding notes and will issue the exchange notes under an
indenture, dated as of May 26, 1999, among the issuers and United States Trust
Company of New York, as 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 following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights
as holders of these notes. A copy of the indenture may be obtained from the
issuers by any holder or prospective investor upon request.
General Description of the Notes
These notes:
. are general unsecured joint and several obligations of the issuers
. are equal in right of payment to all existing and future unsubordinated
indebtedness of the issuers
. are senior in right of payment to all existing and future indebtedness
of the issuers that by its terms is subordinated in right of payment to
these notes
. are not guaranteed by any subsidiaries of the issuers
. are effectively subordinated to all indebtedness and other liabilities
(including trade payables) of the subsidiaries of AOA Holding other than
AOA Capital because AOA Holding is a holding company and conducts it
business through its subsidiaries
. in the event of a default, will rank junior in right of payment to all
existing and future indebtedness of the subsidiaries of AOA Holding,
other than AOA Capital
. because they are not secured by any collateral, are effectively
subordinated to any secured indebtedness of the issuers to the extent of
the value of the assets securing such indebtedness.
AOA Holding is a holding company and conducts its business through
subsidiaries. None of our subsidiaries will guarantee these notes. In the
event of a bankruptcy, liquidation or reorganization of any of AOA Holding's
subsidiaries other than AOA Capital, they will pay the holders of their debt
and their trade creditors before they will be able to distribute any of their
assets to us.
Principal, Maturity and Interest
The notes will be limited in aggregate principal amount to $50.0 million.
The notes will mature on June 1, 2006. The notes will bear interest at a rate
of 10 3/8% per year from the date of original issuance until maturity.
Interest is payable semi-annually in arrears on March 15 and September 15,
commencing September 15, 1999, to holders of record of the notes at the close
of business on the immediately preceding March 1 and September 1, respectively
(whether or not a business day). The interest rate on the notes is subject to
increase. Additional interest will be payable on the payment dates set forth
above, in certain circumstances, if the notes (or other securities
substantially similar to the notes) are not registered with the SEC and
declared effective within certain prescribed time periods. See "Exchange
Offer; Registration Rights."
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Optional Redemption
The issuers may redeem all or part of these notes at any time on or after
June 1, 2003 at the following redemption prices (expressed as a percentage of
principal amount), together, in each case, with accrued and unpaid interest to
the applicable redemption date, if redeemed during the twelve-month period
beginning on June 1 of each year listed below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003........................................ 105.188%
2004........................................ 102.594%
2005 and thereafter......................... 100.000%
</TABLE>
In the event that the issuers choose to redeem less than all of the notes,
selection of the notes for redemption will be made by the trustee on a pro
rata basis either by lot or by any method which the trustee deems fair and
equitable. Notice of redemption will be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each holder at its
registered address. To the extent any note is redeemed in part only, the
notice of redemption relating to such note must state the amount of principal
then being redeemed. A new note, in principal amount equal to the unredeemed
portion of the original note, will be issued in the name of the registered
holder upon cancellation of the original note. After any redemption date,
interest will cease to accrue on the notes or portions of the notes called for
redemption unless the issuers fail to pay the redemption price.
During the nine-month period beginning on April 15, 2001, the issuers may
redeem all, but not less than all, of the notes at a redemption price of 100%
of the aggregate principal amount of the notes, plus accrued and unpaid
interest to the redemption date, provided the Subsidiary Issuers are
concurrently redeeming the Existing Subsidiary Notes.
Certain Covenants
The indenture will contain, among others, the following covenants.
Limitation on Additional Indebtedness
AOA Holding will not, and will not permit any of its Subsidiaries to,
directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness) other than Permitted Indebtedness; provided, however, that AOA
Holding and its Subsidiaries may incur Indebtedness (including Acquired
Indebtedness) and interest, premium, fees and other obligations associated
with the Indebtedness if
(1) (a) after giving effect to the incurrence of Indebtedness by Adams
Outdoor Advertising Limited Partnership or any of its Subsidiaries, and the
receipt and application of the proceeds of such Indebtedness, the ratio of
their total Indebtedness to Adams Outdoor Advertising Limited Partnership's
EBITDA, as determined on a pro forma basis for the most recently ended four
full fiscal quarters of Adams Outdoor Advertising Limited Partnership for
which financial statements are available on the determination date, is less
than
. 5.25 to 1 if the Indebtedness is incurred prior to March 15, 2001
and
. 5.0 to 1 if the Indebtedness is incurred on or after March 15,
2001; and
(b) after giving effect to the incurrence of Indebtedness by AOA
Holding or any of its Subsidiaries, and the receipt and application of the
proceeds of such Indebtedness, the ratio of their total Indebtedness to AOA
Holding's EBITDA, as determined above, is less than
. 6.25 to 1 if the Indebtedness is incurred prior to March 15, 2001
and
. 6.0 to 1 if the Indebtedness is incurred on or after March 15,
2001;
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provided, however, that if the Indebtedness which is the subject of a
determination under this provision is Acquired Indebtedness, or Indebtedness
incurred in connection with the simultaneous acquisition of any Person,
business, property or assets, then such ratio will be determined by giving
effect to (on a pro forma basis, as if the transaction had occurred at the
beginning of the four-quarter period) both the incurrence or assumption of
such Acquired Indebtedness or such other Indebtedness by AOA Holding or Adams
Outdoor Advertising Limited Partnership, as the case may be, and the inclusion
in AOA Holding's EBITDA or Adams Outdoor Advertising Limited Partnership's
EBITDA, as the case may be, of the EBITDA of the acquired Person, business,
property or assets and
(2) no Default or Event of Default has occurred and is continuing at the
time or as a consequence of the incurrence of such Indebtedness.
AOA Holding will not, directly or indirectly, incur any Indebtedness unless
it is both (1) subordinated in right of payment to any other Indebtedness of
AOA Holding and (2) subordinated in right of payment to the notes; provided,
however, that no Indebtedness of AOA Holding will be deemed to be subordinated
to any other Indebtedness of AOA Holding solely because such other
Indebtedness is secured.
Limitation on Additional Indebtedness of the Issuers
The issuers will not incur any Indebtedness which is senior to or pari passu
with the notes other than Permitted Indebtedness.
Limitation on Indebtedness of Certain Subsidiaries
AOA Holding will not permit any Subsidiary of Adams Outdoor Advertising
Limited Partnership to incur any Indebtedness except Permitted Indebtedness or
Acquired Indebtedness; provided, however, that such Acquired Indebtedness was
not incurred in connection with, or in anticipation of, such Person becoming a
Subsidiary.
Limitation on Restricted Payments
AOA Holding will not make, and will not permit any of its Subsidiaries to,
directly or indirectly, make, any Restricted Payment prior to January 15,
2002, except cash payments in respect of Phantom Compensation so long as
subparagraphs (1), (2) and (3) below are satisfied. Thereafter, AOA Holding
will not make, and will not permit any of its Subsidiaries to, directly or
indirectly, make, any Restricted Payment unless:
(1) no Default or Event of Default has occurred and is continuing at the
time of or immediately after giving effect to such Restricted Payment;
(2) immediately after giving pro forma effect to such Restricted Payment,
AOA Holding (or, in the case of Phantom Compensation, Adams Outdoor
Advertising Limited Partnership) could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the covenant set
forth under "Limitation on Additional Indebtedness"; and
(3) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
through and including the date of such Restricted Payment (the "Base
Period") does not exceed the sum of
(a) (i) in the case of Phantom Compensation, 50% of AOA Holding's
Consolidated Net Income before reduction for interest expense with
respect to the notes (or in the event such Consolidated Net Income
before reduction for interest expense with respect to the notes shall
be a deficit, minus 100% of such deficit) during the Base Period, or
(ii) in the case of other Restricted Payments, 50% of AOA Holding's
Consolidated Net Income (or in the event such Consolidated Net Income
shall be a deficit, minus 100% of such deficit) during the Base Period
and
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(b) 100% of the aggregate Net Proceeds, including the fair market
value (as defined) of securities or other property received by AOA
Holding from the issue or sale, during the Base Period, of Equity
Interests (other than Disqualified Equity Interests or Equity Interests
of AOA Holding issued to any Subsidiary of AOA Holding) of AOA Holding
or any Indebtedness or other securities of AOA Holding convertible into
or exercisable or exchangeable for Equity Interests (other than
Disqualified Equity Interests) of AOA Holding which have been so
converted or exercised or exchanged, as the case may be. For purposes
of determining under this clause (3) the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof
and property other than cash shall be valued at its fair market value.
The provisions of this covenant do not prohibit
(a) the payment of any distribution permitted under the indenture within
60 days after the date of declaration of a distribution, if at such date of
declaration the payment would comply with the provisions of the indenture
and all such payments will constitute "Permitted Indebtedness";
(b) the retirement of any Equity Interests of AOA Holding or subordinated
Indebtedness of AOA Holding by conversion into, or by or in exchange for,
Equity Interests (other than Disqualified Equity Interests), or out of, the
Net Proceeds of the substantially concurrent sale, other than to a
Subsidiary of AOA Holding, of other shares of Equity Interests of AOA
Holding, other than Disqualified Equity Interests;
(c) the redemption or retirement of Indebtedness of AOA Holding
subordinated to the notes in exchange for, by conversion into, or out of
the Net Proceeds of, a substantially concurrent sale or incurrence of
Indebtedness, other than any Indebtedness owed to a Subsidiary, of AOA
Holding that is contractually subordinated in right of payment to the notes
to at least the same extent as the subordinated Indebtedness being redeemed
or retired;
(d) the retirement of any shares of Disqualified Equity Interests by
conversion into, or by exchange for, shares of Disqualified Equity
Interests, or out of the Net Proceeds of the substantially concurrent sale,
other than to a Subsidiary of AOA Holding, of other shares of Disqualified
Equity Interests; or
(e) Prior Accrued Bonus Payments, provided, however, that the aggregate
amount of all such payments made after the Issue Date does not exceed
$500,000;
provided, however, that in the case of the immediately preceding clauses (b),
(c) and (e), no Default or Event of Default shall have occurred and be
continuing at the time of such Restricted Payment or would occur as a result
of such Restricted Payment.
The indenture provides that all amounts expended in reliance on clauses (a)
and (b) of the immediately preceding paragraph are to be included in the
calculation of the aggregate amount of Restricted Payments made subsequent to
the Issue Date for purposes of subparagraph (3) above.
For purposes of calculating the net proceeds received by AOA Holding from
the issuance or sale of its Equity Interests either upon the conversion of, or
exchange for, Indebtedness of AOA Holding or any Subsidiary, such amount will
be deemed to be an amount equal to the difference of
(1) the sum of
(a) the principal amount or accreted value (whichever is less) of such
Indebtedness on the date of such conversion or exchange and
(b) the additional cash consideration, if any, received by AOA Holding
upon such conversion or exchange, less any payment on account of fractional
shares, minus
(2) all expenses incurred in connection with such issuance or sale.
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In addition, for purposes of calculating the net proceeds received by AOA
Holding from the issuance or sale of its Equity Interests upon the exercise of
any options or warrants of AOA Holding, such amount will be deemed to be an
amount equal to the difference of
(1) the additional cash consideration, if any, received by AOA Holding
upon such exercise, minus
(2) all expenses incurred in connection with such issuance or sale.
Not later than the date of making any Restricted Payment, AOA Holding will
deliver to the trustee an officers' certificate stating that the Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this covenant were computed, which calculations may be based upon
AOA Holding's latest available financial statements, and that no Default or
Event of Default exists and is continuing and no Default or Event of Default
will occur immediately after giving effect to such Restricted Payment.
Limitation on Subsidiaries and Unrestricted Subsidiaries
Adams Outdoor Advertising Limited Partnership or any of its Subsidiaries may
designate any Subsidiary of Adams Outdoor Advertising Limited Partnership
(including a newly acquired or a newly formed Subsidiary of Adams Outdoor
Advertising Limited Partnership) to be an Unrestricted Subsidiary. For
purposes of the covenant described under "Limitation on Restricted Payments"
above,
(1) an "Investment" is deemed to have been made at the time any
Subsidiary of Adams Outdoor Advertising Limited Partnership is designated
as an Unrestricted Subsidiary in an amount (proportionate to AOA Holding's
or Adams Outdoor Advertising Limited Partnership's, as the case may be,
percentage Equity Interest in such Subsidiary) equal to the net worth of
such Subsidiary at the time it is designated as an Unrestricted Subsidiary;
(2) at any date the aggregate of all Restricted Payments made as
Investments since the Issue Date shall exclude and be reduced by an amount
(proportionate to AOA Holding's or Adams Outdoor Advertising Limited
Partnership's, as the case may be, percentage Equity Interest in such
Subsidiary) equal to the net worth of any Unrestricted Subsidiary at the
time it is designated a Subsidiary of Adams Outdoor Advertising Limited
Partnership, not to exceed, in the case of any such redesignation of an
Unrestricted Subsidiary as a Subsidiary of Adams Outdoor Advertising
Limited Partnership, the amount of Investments previously made by Adams
Outdoor Advertising Limited Partnership and its Subsidiaries in such
Unrestricted Subsidiary; and
(3) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer.
For purposes of determining "net worth" under clauses (1) and (2) above the
calculation will be based on the fair market value of the assets of such
Subsidiary as of the date of its designation as an Unrestricted Subsidiary.
Notwithstanding the foregoing, the Board of Directors of Adams Outdoor
Advertising Limited Partnership or any of its Subsidiaries may not designate
any Subsidiary of Adams Outdoor Advertising Limited Partnership to be an
Unrestricted Subsidiary if, after such designation,
(1) AOA Holding or any Subsidiary of AOA Holding
(a) provides credit support for, or a guarantee of, any Indebtedness
of such Subsidiary, including any undertaking, agreement or instrument
evidencing such Indebtedness or
(b) is directly or indirectly liable for any Indebtedness of such
Subsidiary,
(2) a default with respect to any Indebtedness of such Subsidiary
(including any right which the holders thereof may have to take enforcement
action against such Subsidiary) would permit (upon notice, lapse of time or
both) any holder of any other Indebtedness of AOA Holding or any Subsidiary
of AOA
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Holding to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its final scheduled
maturity or
(3) such Subsidiary owns any Equity Interests in, or owns or holds any
Lien on any property of, any Subsidiary which is not a Subsidiary of the
Subsidiary to be so designated.
Limitations on Investments
AOA Holding will not and will not permit any of its Subsidiaries to make any
Investment other than (1) a Permitted Investment or (2) an Investment by Adams
Outdoor Advertising Limited Partnership or any of its Subsidiaries that is
made as a restricted payment in compliance with the covenant described under
"Limitation on Restricted Payments."
Limitations on Liens
Other than Permitted Liens, AOA Holding will not, and will not permit any of
its Subsidiaries to, create, incur or otherwise cause or suffer to exist or
become effective any Liens of any kind upon any property or asset of AOA
Holding or any Subsidiary whether owned on the Issue Date or later acquired or
on any shares of stock or debt of any Subsidiary which owns property or
assets, now owned or later acquired or on any income or profits therefrom, or
assign or otherwise convey any right to receive income or profits thereon.
Limitation on Transactions with Affiliates
AOA Holding will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions with any Affiliate of AOA Holding, including
entities in which AOA Holding or any of its Subsidiaries own a minority
interest, or holder of 10% or more of an Issuer's Equity Interests (each such
transaction, an "Affiliate Transaction") or extend, renew, waive or otherwise
modify the terms of any Affiliate Transaction entered into prior to the Issue
Date unless
(1) such Affiliate Transaction is solely between or among AOA Holding and
its Wholly-Owned Subsidiaries;
(2) such Affiliate Transaction is solely between or among Wholly-Owned
Subsidiaries of AOA Holding;
(3) such Affiliate Transaction is for reasonable fees and compensation
paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of AOA Holding or any Subsidiary thereof as
determined in good faith by the Board of Directors or senior management of
AOA Holding or of such Subsidiary, as the case may be; or
(4) the terms of such Affiliate Transaction are fair and reasonable to
AOA Holding or such Subsidiary, as the case may be, and the terms of such
Affiliate Transaction are at least as favorable as the terms which could be
obtained by AOA Holding or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis between unaffiliated
parties.
In any Affiliate Transaction involving an amount or having a value in excess
of $250,000 in any one year which is not permitted under clause (1) or (2)
above, AOA Holding or such Subsidiary, as the case may be, must obtain a
resolution of its Board of Directors certifying that such Affiliate
Transaction complies with clause (4) above. In transactions with a value in
excess of $2.5 million which are not permitted under clause (1) or (2) above,
AOA Holding or such Subsidiary, as the case may be, must obtain a written
opinion as to the fairness of such a transaction, from a financial point of
view, from an Independent Financial Advisor.
The limitations set forth in the preceding paragraphs will not apply to
(1) the payment of reasonable annual compensation to directors or
executive officers of the issuers;
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(2) payments to Stephen Adams pursuant to the employment agreement by and
between Adams Outdoor Advertising, Inc. and Stephen Adams as in effect on
the Issue Date and
(3) Restricted Payments made in compliance with the covenant described
under "Limitation on Restricted Payments."
Limitation on Certain Asset Sales
AOA Holding will not, and will not permit any of its Subsidiaries to,
consummate an Asset Sale unless:
(1) AOA Holding or such Subsidiary, as the case may be, receives
consideration at the time of the asset sale or other disposition at least
equal to the fair market value of the equity interests, property or assets
constituting the asset sale, as determined for Asset Sales other than
eminent domain, condemnation or similar governmental proceedings in good
faith by its Board of Directors; and
(2) either
(a) not less than 85% of the consideration received by AOA Holding or
the Subsidiary, as the case may be, from such Asset Sale is in the form
of cash or cash equivalents, those equivalents allowed under "Temporary
Cash Investments" or
(b) after giving effect to such Asset Sale, AOA Holding and its
Subsidiaries hold in the aggregate no more than $2.5 million of Asset
Sale Proceeds that are in a form other than cash or cash equivalents;
and
(3) the Asset Sale Proceeds received by AOA Holding or such Subsidiary
are applied, to the extent elected by AOA Holding,
(a) to repay and permanently reduce outstanding Permitted Secured
Indebtedness, Existing Subsidiary Notes and/or Refinancing Indebtedness
incurred to refinance the Existing Subsidiary Notes and to permanently
reduce the commitments in respect thereof; provided, however, that such
repayment and commitment reduction occurs within 270 days following the
receipt of the asset sale proceeds from any asset sale or
(b) to an investment in assets (including Equity Interests or other
securities purchased in connection with the acquisition of Equity
Interests or property of another person) used or useful in businesses
similar or ancillary to the business of AOA Holding or such Subsidiary
as conducted at the time of such Asset Sale; provided, however, that
the investment occurs or AOA Holding or such Subsidiary enters into
contractual commitments to make the investment, subject only to
customary conditions, other than the obtaining of financing, on or
prior to the 180th day following receipt of the Asset Sale Proceeds on
this "reinvestment date" and Asset Sale Proceeds contractually
committed are so applied within 270 days following the receipt of such
Asset Sale Proceeds.
Any Asset Sale Proceeds that are not applied as permitted by clause (3) of
the preceding sentence shall constitute "Excess Proceeds." If at any time the
aggregate amount of available asset sale proceeds exceeds $3 million, the
issuers shall offer to purchase from all holders the maximum principal amount
of notes that may be purchased with such Excess Proceeds at a purchase price
in cash equal to 100% of the principal amount thereof plus accrued interest,
if any, to the date of the purchase. To the extent that the aggregate amount
of notes tendered pursuant to any excess proceeds offer is less than the
amount of the Excess Proceeds, AOA Holding may use such portion of the Excess
Proceeds that is not used to purchase notes so tendered for general corporate
purposes. If the aggregate principal amount of notes tendered pursuant to any
excess proceeds offer is more than the amount of the Excess Proceeds, the
notes tendered will be repurchased on a pro rata basis or by such other method
as the trustee shall deem fair and appropriate. Upon the closing of any
repurchase of notes tendered pursuant to an excess proceeds offer, the amount
of Excess Proceeds shall be deemed to be zero.
If the issuers are required to make an excess proceeds offer, the issuers
will mail, within 30 days following the reinvestment date, a notice to the
holders of the notes stating, among other things:
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(1) that such holders have the right to require the issuers to apply the
Excess Proceeds to repurchase such notes at a purchase price in cash equal
to 100% of the principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase;
(2) the purchase date, which shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed;
(3) the instructions, determined by the issuers, that each holder must
follow in order to have such notes repurchased; and
(4) the calculations used in determining the amount of available asset
sale proceeds to be applied to the repurchase of such notes.
In the event of the transfer of substantially all, but not all, of the
assets of AOA Holding or any Subsidiary of AOA Holding or substantially all,
but not all, of the assets of any division or line of business of AOA Holding
or any Subsidiary of AOA Holding as an entirety to a Person in a transaction
permitted under "--Mergers, Consolidations and Sales of Assets," the successor
corporation shall be deemed to have sold the assets of AOA Holding, the
Subsidiary or the division or line of business, as the case may be, not so
transferred for purposes of this covenant, and shall comply with the
provisions of this covenant with respect to such deemed sale as if it were an
Asset Sale. In addition, the fair market value of such assets of AOA Holding,
the Subsidiary or the division or line of business, as the case may be, deemed
to be sold shall be deemed to be Asset Sale Proceeds for purposes of this
covenant.
Any excess proceeds offer will be made in substantially the same manner as a
Change of Control Offer discussed below. AOA Holding will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations to the extent such laws and regulations are applicable to
an Excess Proceeds Offer.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
AOA Holding will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any of its Subsidiaries to
(1) pay dividends or make any other distributions to AOA Holding or any
Subsidiary on its Equity Interests,
(2) pay any Indebtedness owed to AOA Holding or any Subsidiary,
(3) make loans or advances to AOA Holding or any of its Subsidiaries or
(4) transfer any of its properties or assets to AOA Holding or any of its
Subsidiaries,
except, in each case, for such encumbrances or restrictions existing under
or contemplated by or by reason of
(a) the notes or the indenture for the notes,
(b) any restrictions existing under or contemplated by agreements in
effect on the Issue Date, including, without limitation, restrictions
under the Credit Facility as in effect on the Issue Date and comparable
provisions in the agreements evidencing any other Permitted Secured
Indebtedness, the Existing Subsidiary Notes and the related indenture,
(c) any restrictions, with respect to a Subsidiary of AOA Holding
that is not a Subsidiary of AOA Holding on the Issue Date, in existence
at the time such Person becomes a Subsidiary of AOA Holding (but not
created in contemplation of such Person becoming a Subsidiary of AOA
Holding and which encumbrance or restriction is not applicable to any
Person or the property or assets of any Person other than such Person
or the property or assets of such Person so acquired) and
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(d) any restrictions existing under any agreement that refinances or
replaces an agreement containing a restriction permitted by clause (a),
(b) or (c) above; provided, however, that the terms and conditions of
any such restrictions are not materially less favorable in the
aggregate to the holders of the notes than those under the agreement
being replaced or the agreement evidencing the Indebtedness being
refinanced or replaced.
Limitation on Equity Interests of Subsidiaries
AOA Holding will at all times directly or indirectly own 100% of the Equity
Interests of its Subsidiaries other than limited partnership interests in
Adams Outdoor Advertising Limited Partnership held by ASSKM, L.P., a
California limited partnership, which interests may not exceed 30.0% of the
total outstanding Equity Interest of Adams Outdoor Advertising Limited
Partnership. AOA Holding will not
(1) sell, pledge, hypothecate or otherwise convey or dispose of any
Equity Interests of a Subsidiary, other than pursuant to an agreement
evidencing Permitted Secured Indebtedness, Refinancing Indebtedness
incurred to refinance the Existing Subsidiary Notes or a successor facility
or to AOA Holding or a Wholly-Owned Subsidiary of AOA Holding or
(2) permit any of its Subsidiaries to issue any Equity Interests, other
than to AOA Holding or a Subsidiary of AOA Holding.
These restrictions will not apply to an Asset Sale made in compliance with
the "Limitation on Certain Asset Sales" covenant or the issuance of Preferred
Equity Interests in compliance with the "Limitation on Additional
Indebtedness" covenant.
Limitation on Creation of Subsidiaries
AOA Holding will not create or acquire, and will not permit any of its
Subsidiaries to create or acquire, any Subsidiary other than
(1) a Wholly-Owned Subsidiary existing as of the Issue Date;
(2) a Wholly-Owned Subsidiary that is acquired or created after the date
of the indenture for the notes; or
(3) an Unrestricted Subsidiary.
Limitation on Sale and Lease-Back Transactions
AOA Holding will not, and will not permit any of its Subsidiaries to, enter
into any Sale and Lease-Back Transaction unless
(1) the consideration received is at least equal to the fair market value
of the property sold and
(2) immediately prior to and after giving effect to the Attributable
Indebtedness in respect of such a transaction, AOA Holding could incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
in compliance with the "Limitation on Additional Indebtedness" covenant.
Limitation of Guarantees by Subsidiaries
AOA Holding will not permit any of its Subsidiaries, directly or indirectly,
by way of the pledge of any intercompany note or otherwise, to assume,
guarantee or in any other manner become liable with respect to any
Indebtedness of AOA Holding, unless, in any such case
(1) such Subsidiary executes and delivers a supplemental indenture that
provides a guarantee of payment of the notes by such Subsidiary (the
"Guarantee") and
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(2) if any such assumption, guarantee or other liability of such
Subsidiary is provided in respect of Indebtedness that is expressly
subordinated to the notes, the guarantee or other instrument provided by
such Subsidiary in respect of such subordinated Indebtedness must be
subordinated to the Guarantee substantially to the same extent as such
Indebtedness is subordinated to the notes.
Notwithstanding the foregoing, any such guarantee by a Subsidiary of the
notes shall provide by its terms that it will be automatically and
unconditionally released and discharged, without any further action required
on the part of the trustee or any holder, upon
(1) the unconditional release of such Subsidiary from its liability in
respect of the Indebtedness in connection with which such guarantee was
executed and delivered pursuant to the preceding paragraph or
(2) any sale or other disposition by merger or otherwise, to any Person
which is not a Subsidiary of AOA Holding of all of AOA Holding's Equity
Interests in, or all or substantially all of the assets of, such
Subsidiary; provided that
(a) such sale or disposition of such Equity Interests or assets is
otherwise in compliance with the terms of the indenture and
(b) such assumption, guarantee or other liability of such Subsidiary
has been released by the holders of the other Indebtedness so
guaranteed.
Payments for Consent
Neither of the issuers nor any of their Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
indenture or the notes unless such consideration is offered to be paid or
agreed to be paid to all holders of the notes which so consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
Line of Business
AOA Holding will not, and will not permit any of its Subsidiaries to, engage
in any business other than the owning, operating or managing of outdoor
advertising businesses or out-of-home media businesses and related or
ancillary activities.
Change of Control Offer
Within 30 days of the occurrence of a Change of Control, the issuers will be
obligated to make an offer to purchase the outstanding notes at a purchase
price equal to 101% of the principal amount of the outstanding notes plus any
accrued and unpaid interest on the outstanding notes to the change of control
payment date in accordance with the procedures set forth in this covenant.
Within 30 days of the occurrence of a Change of Control, the issuers also
will send
(1) a notice of the change of control offer at least once to the Dow
Jones News Service or similar business news service in the United States
and
(2) by first-class mail, postage prepaid, to the trustee and to each
holder of the notes, at the address appearing in the register maintained by
the registrar of the notes, a notice stating:
(a) that the change of control offer is being made pursuant to this
covenant and that all notes tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth in this
prospectus;
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(b) the change of control purchase price and the change of control
purchase date, which shall be a business day no earlier than 20
business days from the date notice is mailed;
(c) that any note not tendered will continue to accrue interest;
(d) that, unless the issuers default in the payment of the change of
control purchase price, any notes accepted for payment pursuant to the
change of control offer shall cease to accrue interest after the change
of control payment date;
(e) that holders accepting the offer to have their notes purchased
pursuant to a change of control offer will be required to surrender the
notes to the paying agent at the address specified in the notice prior
to the close of business on the business day preceding the change of
control payment date;
(f) that holders will be entitled to withdraw their acceptance if the
paying agent receives, not later than the close of business on the
third business day preceding the change of control payment date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the holder, the principal amount of the notes delivered for
purchase, and a statement that such holder is withdrawing his election
to have the notes purchased;
(g) that holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased portion
of the notes surrendered, provided that each note purchased and each
new note issued shall be in an original principal amount in
denominations of $1,000 and integral multiples of $1,000;
(h) any other procedures that a holder must follow to accept a change
of control offer or effect withdrawal of such acceptance; and
(i) the name and address of the paying agent.
On the change of control payment date, the issuers will, to the extent
lawful,
(1) accept for payment all notes or portions of notes or beneficial
interests under a Global Note tendered pursuant to the change of control
offer,
(2) deposit with the paying agent money sufficient to pay the purchase
price of all notes or portions of the notes or beneficial interests
tendered and
(3) deliver or cause to be delivered to the trustee notes so accepted
together with an officers' certificate stating the notes or portions of the
notes tendered to the issuers.
The paying agent shall promptly mail to each holder of accepted notes and
cause to be credited to the respective accounts of the holders under a Global
Note of accepted beneficial interests payment in an amount equal to the change
of control purchase price for such notes. The issuers will then execute, issue
and mail to such holder, a new note, properly authenticated by the trustee,
equal in principal amount to any unpurchased portion of the surrendered notes
and will issue a new Global Note equal in principal amount to any unpurchased
portion of surrendered beneficial interests; provided, however, that each new
note will be issued in an original principal amount in denominations of $1,000
and integral multiples of $1,000.
The indenture requires that if the Credit Facility is in effect, or any
Existing Subsidiary Notes are outstanding, or any other Permitted Secured
Indebtedness or Refinancing Indebtedness incurred to refinance the Existing
Subsidiary Notes, to the extent such Refinancing Indebtedness contains
provisions requiring repayment or an offer to repay upon such Change of
Control or prohibiting or limiting the repurchase of the notes as described
above, is outstanding, then at the time of the occurrence of a Change of
Control, prior to the mailing of the notice to holders described in the
preceding paragraphs, but in any event within 30 days following any Change of
Control, AOA Holding covenants to
(1) repay in full all obligations and terminate all commitments under
such Permitted Secured Indebtedness, Existing Subsidiary Notes and/or
Refinancing Indebtedness or offer to repay in full all
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obligations and terminate all commitments under such Permitted Secured
Indebtedness, Existing Subsidiary Notes and/or Refinancing Indebtedness of
each lender or holder who has accepted such offer or
(2) obtain the requisite consent under such Permitted Secured
Indebtedness to permit the repurchase of the notes as described above.
AOA Holding must first comply with the covenant described in the preceding
paragraph before it is required to purchase notes in the event of a Change of
Control; provided, however, that AOA Holding's failure to comply with that
covenant constitutes an Event of Default described in clause (3) under "Events
of Default" below. As a result, a holder of the notes may not be able to
compel the issuers to purchase the notes unless AOA Holding is able at the
time to refinance all of the Credit Facility or obtain requisite consents
under the Credit Facility. Failure by the issuers to make a change of control
offer when required by the indenture constitutes an Event of Default under the
indenture.
The indenture requires that,
(1) if AOA Holding or any Subsidiary of AOA Holding has issued any
outstanding (a) Indebtedness that is subordinated in right of payment to
the notes or (b) Preferred Equity Interests, and AOA Holding or such
Subsidiary is required to make a change of control offer or to make a
distribution with respect to such subordinated Indebtedness or Preferred
Equity Interests in the event of a change of control, AOA Holding and such
Subsidiary shall not consummate the offer or distribution with respect to
the subordinated Indebtedness or Preferred Equity Interests until the
issuers have paid the change of control purchase price in full to the
holders of notes that have accepted the issuers' change of control offer
and shall otherwise have consummated the change of control offer made to
holders of the notes and
(2) AOA Holding will not issue Indebtedness that is subordinated in right
of payment to the notes or Preferred Equity Interests with change of
control provisions requiring the payment of such Indebtedness or Preferred
Equity Interests prior to the payment of the notes in the event of a change
in control under the indenture.
In the event that a change of control occurs and the holders of notes
exercise their right to require the issuers to purchase notes, if such
purchase constitutes a "tender offer" for purposes of Rule l4e-1 under the
Exchange Act at that time, the issuers will comply with the requirements of
Rule 14e-1 as then in effect with respect to such repurchase.
The issuers' ability to purchase the notes will be limited by AOA Holding's
then available financial resources and, if such financial resources are
insufficient, their ability to arrange financing to effect the purchases.
There can be no assurance that the issuers will have sufficient funds to
repurchase the notes upon a change of control or that the issuers will be able
to arrange financing for such purpose.
Release from Liability
The indenture provides that the notes are being issued solely by the
issuers, and none of the issuers' respective members, managers, directors,
officers, partners, stockholders (other than AOA Holding), employees or
affiliates will be an obligor under the notes, and that such persons will not
have any liability for any obligations of the issuers under the notes or the
indenture or any claim based on, in respect of or by reason of such
obligations, and that by accepting the notes, each holder waives and releases
all such liability, which waiver and release are part of the consideration for
the notes. A waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the SEC that such a waiver is
against public policy.
Merger, Consolidation or Sale of Assets
AOA Holding will not and will not permit any of its Subsidiaries to
consolidate with, merge with or into, or transfer all or substantially all of
its assets to, any Person unless:
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(1) AOA Holding or such Subsidiary, as the case may be, shall be the
continuing Person, or the Person (if other than AOA Holding or such
Subsidiary) formed by such consolidation or into which AOA Holding or such
Subsidiary, as the case may be, is merged or to which the properties and
assets of AOA Holding or such Subsidiary, as the case may be, are
transferred shall be a corporation, partnership or limited liability
company organized and existing under the laws of the United States or any
State of the United States or the District of Columbia and shall expressly
assume, by a supplemental indenture, executed and delivered to the trustee,
all of the obligations of AOA Holding or such Subsidiary, as the case may
be, under the notes and the indenture, and the obligations under the
indenture shall remain in full force and effect; provided, however, that at
any time AOA Holding or its successor is a partnership or limited liability
company, there shall be a co-issuer of the notes that is a corporation;
(2) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default has occurred and is continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis AOA Holding or such Person could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the "Limitation on
Additional Indebtedness" covenant; and
(4) immediately thereafter, AOA Holding, such Subsidiary or the other
surviving entity, as the case may be, shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of AOA Holding or such
Subsidiary, as the case may be, immediately prior to such transaction.
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, AOA Holding will deliver to the trustee an
officers' certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent relating
to the transaction, as provided in the preceding paragraph, have been complied
with.
Events of Default
The following events are defined in the indenture as "Events of Default":
(1) default in payment of any principal of, or premium, if any, on the
notes when such principal becomes due and payable;
(2) default for 30 days in the payment of any interest on the notes after
such interest becomes due and payable;
(3) the failure of the issuers to comply with any of the terms or
provisions of "--Change of Control Offer" or "--Limitation on Certain Asset
Sales";
(4) default by the issuers in the observance or performance of any other
provision in the notes or the indenture for 30 days after written notice
from the trustee or the holders of not less than 25% in aggregate principal
amount of the notes then outstanding;
(5) failure to pay when due principal, interest or premium in an
aggregate amount of $3 million or more with respect to any Indebtedness of
AOA Holding or any Subsidiary of AOA Holding, or the acceleration prior to
its express maturity of any such Indebtedness aggregating $3 million or
more;
(6) any final judgment or judgments which can no longer be appealed for
the payment of money in excess of $3 million, excluding amounts covered by
third party insurance by financially sound insurers that have not
disclaimed coverage, rendered against AOA Holding or any Subsidiary of AOA
Holding, and not discharged for any period of 60 consecutive days during
which a stay of enforcement is not in effect; and
(7) certain events involving bankruptcy, insolvency or reorganization of
either of the issuers or any Subsidiary of AOA Holding.
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The indenture provides that the trustee may withhold notice to the holders
of the notes of any default, except in payment of principal or premium, if
any, or interest on the notes or that resulted from the failure of the issuers
to comply with the provisions of "--Change of Control Offer" or "--Limitation
on Certain Asset Sales," if the trustee considers it to be in the best
interest of the holders of the notes to do so.
The indenture provides that if an Event of Default, other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization, has occurred and is continuing, then the trustee or the
holders of not less than 25% in aggregate principal amount of the notes then
outstanding may declare to be immediately due and payable the entire principal
amount of all the notes then outstanding plus accrued interest to the date of
acceleration; provided, however, that after such acceleration but before a
judgment or decree based on acceleration is obtained by the trustee, the
holders of a majority in aggregate principal amount of outstanding notes may,
under certain circumstances, rescind and annul such acceleration if all Events
of Default, other than nonpayment of accelerated principal, premium or
interest, have been cured or waived as provided in the indenture. In case an
Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization occurs, the principal, premium and interest amount with respect
to all of the notes shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the trustee or the holders
of the notes.
The holders of a majority in principal amount of the notes then outstanding
have the right to waive any existing default or compliance with any provision
of the indenture or the notes and to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee, subject to
certain limitations specified in the indenture.
No holder of any note will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless such holder has
previously given to the trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding notes shall have made written request and offered
reasonable indemnity to the trustee to institute such proceeding as a trustee,
and unless the trustee has not received from the holders of a majority in
aggregate principal amount of the outstanding notes a direction inconsistent
with such request and has failed to institute such proceeding within 60 days.
However, these limitations do not apply to a suit instituted on such note on
or after the respective due dates expressed in such note.
Defeasance and Covenant Defeasance
The indenture provides that the issuers may elect either
(1) to defease and be discharged from any and all obligations with
respect to the notes, except for the obligations to register the transfer
or exchange of such notes, to replace temporary or mutilated, destroyed,
lost or stolen notes, to maintain an office or agency in respect of the
notes and to hold monies for payment in trust ("defeasance") or
(2) to be released from their obligations with respect to the notes under
certain covenants contained in the indenture and described above under
"Certain Covenants" ("covenant defeasance"), upon the deposit with the
trustee, or other qualifying trustee, in trust for such purpose, of money
and/or U.S. Government Obligations which through the payment of principal
and interest in accordance with their terms will provide money, in an
amount sufficient to pay the principal of, premium, if any, and interest on
the notes, on the scheduled due dates therefor or on a selected date of
redemption in accordance with the terms of the indenture. Such a trust may
only be established if, among other things, the issuers have delivered to
the trustee an opinion of counsel as specified in the indenture
(a) to the effect that neither the trust nor the trustee will be
required to register as an investment company under the Investment
Company Act of 1940, as amended, and
(b) describing either a private ruling concerning the notes or a
published ruling of the Internal Revenue Service, to the effect that
holders of the notes or persons in their positions will not recognize
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income, gain or loss for federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to federal
income tax on the same amount and in the same manner and at the same
times, as would have been the case if such deposit, defeasance and
discharge had not occurred.
Modification of Indenture
From time to time, the issuers and the trustee may, without the consent of
holders of the notes, modify, amend, waive or supplement the provisions of the
indenture or the notes for certain specified purposes, including providing for
uncertificated notes in addition to certificated notes, and curing any
ambiguity, defect or inconsistency, or making any other change that does not
materially and adversely affect the rights of any holder. The indenture
contains provisions permitting the issuers and the trustee, with the consent
of holders of at least a majority in principal amount of the outstanding
notes, to modify, amend, waive or supplement the indenture or the notes,
except that no such modification shall, without the consent of each holder
affected thereby,
(1) reduce the amount of notes whose holders must consent to an
amendment, supplement, or waiver to the indenture or the notes;
(2) reduce the rate of or change the time for payment of interest on any
note;
(3) reduce the principal of or premium on or change the stated maturity
of any note;
(4) make any note payable in money other than that stated in the note or
change the place of payment from New York, New York;
(5) change the amount or time of any payment required by the notes or
reduce the premium payable upon any redemption of notes, or change the time
before which no such redemption may be made;
(6) waive a default on the payment of the principal of, interest on, or
redemption payment with respect to any note;
(7) subordinate in right of payment, or otherwise subordinate, the notes
to any other Indebtedness or obligation of the issuers;
(8) amend, alter, change or modify the obligation of the issuers to make
and consummate a change of control offer in the event of a change of
control or make and consummate an excess proceeds offer or waive any
default in the performance of any such offers or modify any of the
provisions or definitions with respect to any such offers or
(9) take any other action otherwise prohibited by the indenture to be
taken without the consent of each holder affected thereby.
Reports to Holders
So long as any of the notes are outstanding, whether or not the issuers are
required to be subject to Section 13(a) or 15(d) of the Exchange Act, the
issuers will furnish the information required thereby to the SEC, the holders
of the notes and to the trustee. The indenture provides that even if the
issuers are entitled under the Exchange Act not to furnish such information to
the SEC or to the holders of the notes, they will nonetheless continue to
furnish such information to the SEC, the holders of the notes and the trustee.
Compliance Certificate
The issuers will deliver to the trustee on or before 120 days after the end
of the issuers' fiscal year and on or before 50 days after the end of each of
the first, second and third fiscal quarters in each year an officers'
certificate stating whether or not the signers know of any Default or Event of
Default that has occurred. If they do, the certificate will describe the
Default or Event of Default and its status.
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The Trustee
The trustee under the indenture will be the registrar and paying agent with
regard to the notes. The indenture provides that, except during the
continuance of an Event of Default, the trustee will perform only the duties
specifically set forth in the indenture. During the existence of an Event of
Default, the trustee will exercise the 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 that
person's own affairs.
Transfer and Exchange
Holders of the notes may transfer or exchange the notes in accordance with
the indenture. The registrar under the indenture may require a holder, among
other things, to furnish appropriate endorsements and transfer documents, and
to pay any taxes and fees required by law or permitted by the indenture. The
registrar is not required to transfer or exchange any note selected for
redemption. Also, the registrar is not required to transfer or exchange any
note for a period of 15 days before selection of the notes to be redeemed.
The notes will be issued in a transaction exempt from registration under the
Securities Act and will be subject to the restrictions on transfer described
in "Notice To Investors."
The registered holder of a note may be treated as the owner of it for all
purposes.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the indenture. We refer you to the indenture for the
full definition of all these terms as well as any other capitalized terms used
in this prospectus for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including a
Subsidiary) existing at the time the Person becomes a Subsidiary or assumed in
connection with the acquisition of assets from the Person.
"Asset Sale" means the direct or indirect sale, transfer, issuance,
conveyance, lease (other than operating leases entered into in the ordinary
course of business pursuant to ordinary business terms), assignment or other
disposition for value (including, without limitation, by eminent domain,
condemnation or similar governmental proceeding) or any merger or
consolidation of any Subsidiary of AOA Holding with or into another Person
(other than AOA Holding or any Wholly-Owned Subsidiary of AOA Holding) whereby
such Subsidiary shall cease to be a Wholly-Owned Subsidiary in any single
transaction or series of related transactions (separate eminent domain,
condemnation or similar governmental proceedings to each be considered a
single transaction but not to be considered together as a series of related
transactions) involving property or assets with a fair market value in excess
of $250,000 of
(1) any Equity Interest in any Subsidiary;
(2) real property owned by AOA Holding or any Subsidiary of AOA Holding,
or a division, line of business or comparable business segment of AOA
Holding or any Subsidiary of AOA Holding or
(3) other property, assets or rights of AOA Holding, any Subsidiary of
AOA Holding or any division or line of business of AOA Holding or any
Subsidiary of AOA Holding;
provided, however, the following terms shall not be deemed to be Asset
Sales:
(a) sales, leases, conveyances, transfers or other dispositions to
AOA Holding or to a Subsidiary of AOA Holding or to any other Person if
after giving effect to such sale, lease, conveyance, transfer or other
disposition such other Person becomes a Wholly-Owned Subsidiary of AOA
Holding,
(b) transactions complying with "--Merger, Consolidation or Sale of
Assets" above (except as otherwise provided in the penultimate
paragraph set forth under "--Limitation on Certain Asset Sales" above),
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(c) sales, transfers, issuances, conveyances, leases, assignments or
other dispositions for value to AOA Holding or any Wholly-Owned
Subsidiary of AOA Holding,
(d) transfers or other distributions of assets which constitute
(i) Permitted Investments or
(ii) Restricted Payments made in compliance with the covenant
described under "Limitation on Restricted Payments" and
(e) the exchange of property or assets of AOA Holding or a Subsidiary
of AOA Holding for similar assets constituting one or more outdoor
advertising properties owned by another Person.
"Asset Sale Proceeds" means, with respect to any Asset Sale,
(1) cash received by AOA Holding or any Subsidiary thereof from the Asset
Sale, including cash received as consideration for the assumption of
liabilities incurred in connection with or in anticipation of the Asset
Sale, after
(a) provision for all income or other taxes measured by or resulting
from such Asset Sale (calculated as provided in "Permitted Tax
Distributions"),
(b) payment of all brokerage commissions, underwriting and other fees
and expenses related to the Asset Sale,
(c) provision for minority interest holders in any Subsidiary as a
result of the Asset Sale,
(d) payments made to retire Indebtedness secured by the assets
subject to the Asset Sale and
(e) deduction of appropriate amounts to be provided by AOA Holding or
a Subsidiary of AOA Holding as a reserve, in accordance with GAAP,
against any liabilities associated with the assets sold or disposed of
in the Asset Sale and retained by AOA Holding or a Subsidiary of AOA
Holding after the Asset Sale, including, without limitation, pension
and other post employment benefit liabilities and liabilities related
to environmental matters or against any indemnification obligations
associated with the assets sold or disposed of in the Asset Sale, and
(2) promissory notes and other noncash consideration received by AOA
Holding or any Subsidiary thereof from such Asset Sale or other disposition
upon the liquidation or conversion of such notes or noncash consideration
into cash.
"Attributable Indebtedness" under the indenture in respect of a Sale and
Lease-Back Transaction means, as at the time of determination, the greater of
(1) the fair value of the property subject to such arrangement, as
determined in good faith by the Board of Directors, and
(2) the present value of the notes, discounted at the rate of interest
implicit in such transaction, of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such
Sale and Lease-Back Transaction, including any period for which such lease
has been extended.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such
Indebtedness shall be the capitalized amount of such obligations determined in
accordance with GAAP.
A "Change of Control" will be deemed to have occurred at such time as
(1) the Permitted Holders, individually or in the aggregate, shall cease
to beneficially own (as defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act), directly or indirectly,
50.1% or more of the Common Equity Interests of AOA Holding, Adams Outdoor
Advertising Limited Partnership or Adams Outdoor Advertising, Inc. and any
Person (including a Person's Affiliates
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and associates), other than a Permitted Holder, beneficially owns (as
defined under Rule 13d-3 or any successor rule or regulation promulgated
under the Exchange Act), directly or indirectly, 35% or more of the Common
Equity Interests of AOA Holding, Adams Outdoor Advertising Limited
Partnership or Adams Outdoor Advertising, Inc.;
(2) there shall be consummated any consolidation or merger of AOA
Holding, Adams Outdoor Advertising Limited Partnership or Adams Outdoor
Advertising, Inc. in which AOA Holding, Adams Outdoor Advertising Limited
Partnership or Adams Outdoor Advertising, Inc., as the case may be, is not
the continuing or surviving corporation or pursuant to which the Common
Equity Interests of AOA Holding, Adams Outdoor Advertising Limited
Partnership or Adams Outdoor Advertising, Inc., as the case may be, would
be converted into cash, securities or other property, other than a merger
or consolidation of AOA Holding, Adams Outdoor Advertising Limited
Partnership or Adams Outdoor Advertising, Inc. in which the holders of the
Common Equity Interests of AOA Holding, Adams Outdoor Advertising Limited
Partnership or Adams Outdoor Advertising, Inc., as the case may be,
outstanding immediately prior to the consolidation or merger hold, directly
or indirectly, at least a majority of the Common Equity Interests of the
surviving corporation immediately after such consolidation or merger;
(3) there is a sale, lease or transfer of all or substantially all of the
assets of AOA Holding, Adams Outdoor Advertising Limited Partnership or
Adams Outdoor Advertising, Inc. to any Person or group (as such term is
defined in Section 13(d)(3) of the Exchange Act), other than a Permitted
Holder;
(4) the members of AOA Holding, the shareholders of Adams Outdoor
Advertising, Inc. or the partners of Adams Outdoor Advertising Limited
Partnership shall approve any plan or proposal for the liquidation or
dissolution of AOA Holding, Adams Outdoor Advertising, Inc. or Adams
Outdoor Advertising Limited Partnership, as the case may be;
(5) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of AOA Holding
or Adams Outdoor Advertising, Inc. (together with any new members of such
Board of Directors whose election by such Board of Directors has been
approved by 66 2/3% of the members of such Board of Directors still in
office who either were members of such Board of Directors at the beginning
of such period or whose election or recommendation for election was
previously so approved) cease to constitute a majority of the Board of
Directors of AOA Holding or Adams Outdoor Advertising, Inc., as the case
may be; or
(6) any Person is admitted as general partner of Adams Outdoor
Advertising Limited Partnership after which Adams Outdoor Advertising, Inc.
does not have the responsibility to take all of the actions to the same
extent it is entitled or required to take under the partnership agreement
of Adams Outdoor Advertising Limited Partnership as in effect on the Issue
Date.
"Common Equity Interests" of any Person means all Equity Interests of such
Person that are generally entitled to
(1) vote in the election of directors of such Person or
(2) if such Person is not a corporation, vote or otherwise participate in
the selection of the governing body, partners, managers or others that will
control the management and policies of such Person.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Subsidiaries on a consolidated basis
(1) imputed interest included in Capitalized Lease Obligations,
(2) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(3) the net costs associated with hedging obligations,
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(4) amortization of other financing fees and expenses,
(5) the interest portion of any deferred payment obligation,
(6) amortization of discount or premium, if any, and
(7) all other non-cash interest expense other than interest amortized to
cost of sales,
plus, without duplication,
(1) all net capitalized interest for such period
(2) all interest incurred or paid under any guarantee of Indebtedness,
including a guarantee of principal, interest or any combination thereof, of
any Person, and
(3) the amount of all dividends or distributions paid on Disqualified
Equity Interests, other than dividends paid or payable in Equity Interests
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP, plus the
amount of any dividends or distributions received by such Person from
Unrestricted Subsidiaries; provided, however, that
(1) the Net Income of any other Person in which the Person in question or
any of its Subsidiaries has less than a 100% interest, which interest does
not cause the net income of such other Person to be consolidated into the
net income of the Person in question in accordance with GAAP, shall be
included only to the extent of the amount of dividends or distributions
paid to the Person in question or the Subsidiary;
(2) the Net Income of any Subsidiary of the Person in question that is
subject to any restriction or limitation on the payment of dividends or the
making of other distributions, other than pursuant to the notes, the
indenture, the Credit Facility, the Existing Subsidiary Notes and the
related indenture, shall be excluded to the extent such restriction or
limitation would prevent such Subsidiary from being able to pay dividends
or make other distributions out of its Net Income;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) any net gain (but not loss) resulting from an Asset Sale by the
Person in question or any of its Subsidiaries other than in the ordinary
course of business shall be excluded;
(5) extraordinary gains and losses, including any related tax effects on
AOA Holding, shall be excluded;
(6) the net income of any Subsidiary to the extent of any restrictions or
encumbrances on its ability to distribute such net income to such Person
shall be excluded and
(7) the amount of any Permitted Tax Distributions shall be excluded.
Consolidated Net Income shall be calculated without deducting any accruals
made for Phantom Compensation.
"Consolidated Net Worth" with respect to any Person means the equity of the
holders of Equity Interests of such Person and its Subsidiaries, excluding any
Disqualified Equity Interests, as reflected in a balance sheet of such Person
determined on a consolidated basis and in accordance with GAAP.
"Credit Facility" means the credit facility by and among the Subsidiary
Issuers, Canadian Imperial Bank of Commerce as administrative agent and
collateral agent and the lenders listed therein, as the same may be amended,
modified, replaced, renewed, refunded or refinanced from time to time.
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"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Equity Interests" means any Equity Interest which, by its
terms, or by the terms of any security into which it is convertible or for
which it is exchangeable at the option of the holder, or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the maturity date of the notes, for cash
or securities constituting Indebtedness. Without limitation of the foregoing,
Disqualified Equity Interests shall be deemed to include
(1) any Preferred Equity Interests of a Subsidiary of AOA Holding and
(2) any Preferred Equity Interests of AOA Holding, with respect to either
of which, under the terms of such Preferred Equity Interests, by agreement
or otherwise, such Subsidiary or AOA Holding is obligated to pay current
dividends or distributions in cash during the period prior to the maturity
date of the notes; provided, however, that Preferred Equity Interests of
AOA Holding or any Subsidiary thereof that is issued with the benefit of
provisions requiring a change of control offer to be made for such
Preferred Equity Interests in the event of a change of control of AOA
Holding or such Subsidiary, which provisions have substantially the same
effect as the provisions of the indenture described under "Change of
Control," shall not be deemed to be Disqualified Equity Interests solely by
virtue of such provisions.
"EBITDA" means, with respect to any Person for any period, the sum, without
duplication, of
(1) Consolidated Net Income;
(2) Consolidated Interest Expense;
(3) provision for taxes based on income or profits of such Person for
such period;
(4) depreciation;
(5) amortization;
(6) Phantom Compensation;
(7) the amount of any Permitted Tax Distributions and
(8) any other non-cash charges to the extent deducted from Consolidated
Net Income, including non-cash expenses recognized in accordance with
Financial Accounting Standards Bulletin Number 106 but excluding any non-
cash charge to the extent that it requires an accrual of or a reserve for
cash disbursements for any future period,
in each case to the extent deducted from Consolidated Net Income for the
period as to which the computation of EBITDA is made, all as determined in
accordance with GAAP.
"Equity Interests" means, with respect to any Person, any and all shares or
other equivalents, however designated, of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into or exchangeable for any of the foregoing.
"Existing Subsidiary Notes" means the 10 3/4% senior notes of the Subsidiary
Issuers.
"fair market value" or "fair value" means, with respect to any assets or
property, the price which could be negotiated in an arm's-length free market
transaction, for cash, between a willing seller and a fully informed, willing
and able buyer, neither of whom is under undue pressure or compulsion to
complete the transaction, all as determined by a majority of the Board of
Directors acting in good faith, such determination to be evidenced by a board
resolution delivered to the trustee. No such determination need be supported
by an appraisal or expert opinion.
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"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become, directly or indirectly, liable in
respect of such Indebtedness or other obligation or the recording, as required
pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on
the balance sheet of such person, and "incurrence," "incurred," "incurable,"
and "incurring" shall have meanings correlative to the foregoing; provided,
however, that a change in GAAP that results in an obligation of such Person
that exists at such time becoming Indebtedness shall not be deemed an
incurrence of such Indebtedness.
"Indebtedness" means, without duplication, with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money, whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof, or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property, excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other liabilities arising in the ordinary
course of business, if and to the extent any of the foregoing indebtedness
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, and shall also include, to the extent not otherwise
included
(1) any Capitalized Lease Obligations;
(2) obligations secured by a lien to which the property or assets owned
or held by such Person is subject, whether or not the obligation or
obligations secured thereby have been assumed;
(3) all Indebtedness of others of the type described in the other clauses
of this definition (including all dividends of other Persons) the payment
of which is guaranteed, directly or indirectly, by such Person or that is
otherwise its legal liability or which such Person has agreed to purchase
or repurchase or in respect of which such Person has agreed contingently to
supply or advance funds, whether or not such items would appear upon the
balance sheet of the guarantor;
(4) all obligations for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction;
(5) in the case of AOA Holding, Disqualified Equity Interests of AOA
Holding or any Subsidiary of AOA Holding; and
(6) obligations of any such Person under any Interest Rate Agreement
applicable to any of the foregoing, if and to the extent such Interest Rate
Agreement obligations would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP.
The amount of Indebtedness of any Person at any date will be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided,
however, that
(1) the amount outstanding at any time of any Indebtedness issued with
original issue discount, including the notes, is the principal amount of
such Indebtedness less the remaining unamortized portion of the original
issue discount of such Indebtedness at such time as determined in
conformity with GAAP;
(2) Indebtedness will not include any liability for federal, state, local
or other taxes; and
(3) Indebtedness will not include obligations for Phantom Compensation or
Prior Accrued Bonus Payments.
Notwithstanding any other provision of the foregoing definition, any trade
payable arising from the purchase of goods or materials or for services
obtained in the ordinary course of business shall not be deemed to be
"Indebtedness" of the issuers or any Subsidiaries for purposes of this
definition. Furthermore, guarantees of, or obligations with respect to letters
of credit supporting, Indebtedness otherwise included in the determination of
such amount shall not also be included.
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"Independent Financial Advisor" means an accounting, appraisal, investment
banking or consulting firm of nationally recognized standing that is, in the
reasonable and good faith judgment of the Board of Directors of AOA Holding,
qualified to perform the task for which such firm has been engaged and
disinterested and independent with respect to AOA Holding and its Affiliates.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect the party indicated therein
against fluctuations in interest rates.
"Investments" means, directly or indirectly,
(1) any advance, account receivable, other than an account receivable
arising in the ordinary course of business or acquired as a part of the
assets acquired by Adams Outdoor Advertising Limited Partnership or any of
its Subsidiaries in connection with an acquisition of assets which is
otherwise permitted by the terms of the indenture,
(2) any loan or capital contribution to, by means of transfers of
property to others, payments for property or services for the account or
use of others or otherwise,
(3) the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by
purchase or otherwise, of all or substantially all of the business or stock
or other evidence of beneficial ownership of, any Person,
(4) the guarantee or assumption of the Indebtedness of any other Person,
except for an assumption of Indebtedness for which the assuming Person
receives consideration with a fair market value at least equal to the
principal amount of the Indebtedness assumed,
(5) the designation of a Subsidiary of Adams Outdoor Advertising Limited
Partnership as an Unrestricted Subsidiary or
(6) the making of any investment in any Person and all other items that
would be classified as investments on a balance sheet of such Person
prepared in accordance with GAAP.
Investments shall exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices.
"Issue Date" means the closing date for the sale and original issuance of
the notes.
"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance,
preference, priority, or other security agreement or preferential arrangement
of any kind or nature whatsoever on or with respect to such property or
assets, including, without limitation, any Capitalized Lease Obligation,
conditional sales, or other title retention agreement having substantially the
same economic effect as any of the foregoing.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Investments" means the excess of
(1) the aggregate of all Investments made by AOA Holding or a Subsidiary
of AOA Holding on or after the Issue Date, in the case of an Investment
made other than in cash, the amount shall be the fair market value of such
Investment as determined in good faith by the Board of Directors of AOA
Holding, over
(2) the sum of
(a) the aggregate amount returned in cash on such Investments whether
through interest payments, principal payments, dividends or other
distributions and
(b) the net cash proceeds received by AOA Holding or such Subsidiary
from the disposition of all or any portion of such Investments, other
than to a Subsidiary of AOA Holding;
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provided, however, that with respect to all Investments made in Unrestricted
Subsidiaries the sum of clauses (a) and (b) above with respect to such
Investments shall not exceed the aggregate amount of all Investments made in
all Unrestricted Subsidiaries.
"Net Proceeds" means
(1) in the case of any sale of Equity Interests by the issuers, the
aggregate net proceeds received by AOA Holding, after payment of expenses,
commissions and the like incurred in connection therewith, whether the
proceeds are in cash or in property, valued at the fair market value, as
determined in good faith by the Board of Directors of AOA Holding, at the
time of receipt and
(2) in the case of any exchange, exercise, conversion or surrender of
outstanding securities of any kind for or into Equity Interests of AOA
Holding which are not Disqualified Equity Interests, the net book value of
such outstanding securities on the date of such exchange, exercise,
conversion or surrender, plus any additional amount required to be paid by
the holder to AOA Holding upon such exchange, exercise, conversion or
surrender, less any and all payments made to the holders, e.g., on account
of fractional shares and less all expenses incurred by AOA Holding in
connection with the payments.
"Permitted Holders" means Stephen Adams, his spouse and lineal descendants
and trusts for the exclusive benefit of any of the foregoing persons.
"Permitted Indebtedness" means:
(1) Indebtedness, plus interest, premium, fees and other obligations
associated therewith, arising under or in connection with Permitted Secured
Indebtedness;
(2) Indebtedness under the notes;
(3) Indebtedness not covered by any other clause of this definition which
is outstanding on the date of the indenture, including the Existing
Subsidiary Notes;
(4) Interest Rate Agreements;
(5) Additional Indebtedness, including Indebtedness incurred in
connection with or arising out of Capitalized Lease Obligations, in an
aggregate principal amount outstanding at any time not to exceed $1
million;
(6) Indebtedness of a Subsidiary of AOA Holding issued to and held by AOA
Holding or a Wholly-Owned Subsidiary of AOA Holding; provided, however,
that any subsequent issuance or transfer of any Equity Interest that
results in such Subsidiary ceasing to be a Wholly-Owned Subsidiary of AOA
Holding or any transfer of such Indebtedness to any Person other than AOA
Holding or a Wholly-Owned Subsidiary of AOA Holding shall be deemed to be
the incurrence of such Indebtedness by AOA Holding;
(7) Indebtedness of AOA Holding to a Wholly-Owned Subsidiary in respect
of intercompany advances or transactions; and
(8) Refinancing Indebtedness.
"Permitted Investments" means, for any Person, Investments made on or after
the date of the indenture consisting of:
(1) Temporary Cash Investments;
(2) Investments by AOA Holding or any of its Subsidiaries in AOA Holding
or a Wholly-Owned Subsidiary of AOA Holding; provided, however, that the
proceeds of any such Investment by AOA Holding in a Wholly-Owned Subsidiary
of AOA Holding other than Adams Outdoor Advertising Limited Partnership or
one of its Wholly-Owned Subsidiaries may only be used for the purpose of
making Investments in Adams Outdoor Advertising Limited Partnership or
Investments in accordance with clause (1) above or clause (4) below;
(3) Investments by Adams Outdoor Advertising Limited Partnership or any
of its Subsidiaries in any Person, if
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(a) as a result of the Investment
(i) the Person becomes a Wholly-Owned Subsidiary of Adams Outdoor
Advertising Limited Partnership or
(ii) the Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or
is liquidated into, Adams Outdoor Advertising Limited Partnership or
a Wholly-Owned Subsidiary of Adams Outdoor Advertising Limited
Partnership and
(b) after giving effect to such Investment AOA Holding is in
compliance with the covenant described under "Line of Business" above;
(4) (a) Net Investments of AOA Holding and its Subsidiaries, other than
Adams Outdoor Advertising Limited Partnership and any of its Subsidiaries,
in securities that are not equity securities or debt securities maturing
more than 365 days after the date of such Investment and (b) Net
Investments of Adams Outdoor Advertising Limited Partnership or any of its
Subsidiaries in any Person; provided, however, that the aggregate amount of
all such Net Investments made pursuant to this clause (4) shall not exceed
$3.0 million at any one time outstanding;
(5) Investments by Adams Outdoor Advertising Limited Partnership or any
of its Subsidiaries represented by accounts receivable created or acquired
in the ordinary course of business;
(6) Advances by Adams Outdoor Advertising Limited Partnership or any of
its Subsidiaries to employees in the ordinary course of business not to
exceed an aggregate of $100,000 outstanding at any one time;
(7) Investments by AOA Holding or any of its Subsidiaries under or
pursuant to Interest Rate Agreements;
(8) Investments by Adams Outdoor Advertising Limited Partnership or any
of its Subsidiaries in the notes and the Existing Subsidiary notes; and
(9) Investments existing on the Issue Date.
"Permitted Liens" means, without duplication,
(1) Liens existing on the date of the indenture;
(2) Liens in favor of AOA Holding or any Subsidiary of AOA Holding;
(3) Liens on property of a Person existing at the time such Person is
acquired by, merged into or consolidated with AOA Holding or any Subsidiary
of AOA Holding; provided, however, that such Liens
(a) were not created in anticipation of such acquisition, merger or
consolidation and
(b) are not applicable to any other property of AOA Holding or any of
the other Subsidiaries of AOA Holding,
(4) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted;
provided, however, that any reserve or other appropriate provision as shall
be required in conformity with GAAP shall have been made therefor;
(5) landlords', carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
and with respect to amounts which are not yet delinquent or are being
contested in good faith by appropriate proceedings;
(6) pledges or deposits made in the ordinary course of business in
connection with
(a) leases, performance bonds and similar obligations,
(b) workers' compensation, unemployment insurance and other social
security legislation, or
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(c) securing the performance of surety bonds and appeal bonds
required
(i) in the ordinary course of business or in connection with the
enforcement of rights or claims of AOA Holding or a Subsidiary of
AOA Holding or
(ii) in connection with judgments that do not give rise to an
Event of Default and which do not exceed $3 million in the
aggregate,
(7) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar encumbrances which, in the
aggregate, do not materially detract from the value of the property subject
thereto or materially interfere with the ordinary conduct of the business
of AOA Holding or any Subsidiary of AOA Holding;
(8) Liens on property or assets of, or any Equity Interests of or secured
debt of, any Person existing at the time such Person becomes a Subsidiary
of AOA Holding or at the time such Person is merged into AOA Holding or any
Subsidiary of AOA Holding; provided, however, that such Liens are not
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary of AOA Holding or merging into AOA Holding or any of its
Subsidiaries;
(9) Liens in favor of AOA Holding or any of its Subsidiaries;
(10) Liens granted by Adams Outdoor Advertising Limited Partnership or
any Subsidiary thereof to secure Purchase Money Indebtedness that is
otherwise permitted under the indenture; provided, however, that
(a) any such Lien is created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund,
the cost, including sales and excise taxes, installation and delivery
charges and other direct costs of, and other direct expenses paid or
charged in connection with, such purchase or construction, of such
Property,
(b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such costs, and
(c) such Lien does not extend to or cover any Property other than
such item of Property and any improvements on such item,
(11) Liens granted by AOA Holding or any Subsidiary of AOA Holding
securing (a) Permitted Secured Indebtedness and (b) Refinancing
Indebtedness incurred to refinance the Existing Subsidiary Notes;
(12) Liens granted by AOA Holding or any Subsidiary of AOA Holding or any
securing Capitalized Lease Obligations permitted to be incurred under
clause (5) of the definition of "Permitted Indebtedness," provided,
however, that such Lien does not extend to any property other than that
subject to the underlying lease;
(13) Liens pursuant to leases and subleases of real property which do not
interfere with the ordinary conduct of the business of AOA Holding or any
of its Subsidiaries and which are made on customary and usual terms
applicable to similar properties;
(14) Liens securing reimbursement obligations under letters of credit,
but only in or upon the goods the purchase of which was financed by such
letters of credit; and
(15) Liens securing Refinancing Indebtedness; provided, however, that
such Liens extend only to the assets securing the Indebtedness being
extended, refinancing, renewed or replaced, and such Indebtedness was
previously secured by such assets; and provided, further, the terms of such
Liens are no less favorable to the holders of the notes than the Liens
being extended, refinanced, renewed or replaced.
"Permitted Secured Indebtedness" means any Indebtedness of AOA Holding or
any Subsidiary of AOA Holding, plus interest, premium, fees and other
obligations associated therewith, and any refinancing, refunding, replacement,
renewal or extension thereof, under
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(1) the Credit Facility, and
(2) agreements evidencing any other Indebtedness which is secured by
assets of AOA Holding or any Subsidiary of AOA Holding, whether involving
the same or any other lender or creditor or group of lenders or creditors
that provided the Credit Facility; provided, however, that the aggregate
amount of all such Indebtedness outstanding, or committed to be advanced
under the agreements to which such Indebtedness relates, at any time shall
not exceed $35 million.
"Permitted Tax Distributions" means,
(1) with respect to Adams Outdoor Advertising Limited Partnership, for so
long as Adams Outdoor Advertising Limited Partnership is a partnership or
substantially similar pass-through entity for federal income tax purposes,
distributions to the partners of Adams Outdoor Advertising Limited
Partnership based on estimates of the amount of federal, state and local
income taxes that Adams Outdoor Advertising Limited Partnership would be
required to pay with respect to a fiscal year calculated as if, for the
applicable fiscal year, Adams Outdoor Advertising Limited Partnership were
treated as a "C corporation" incorporated under the laws of the State of
Minnesota rather than as a partnership and
(2) without duplication of the payments made pursuant to clause (1), with
respect to AOA Holding, for so long as AOA Holding is a limited liability
company or substantially similar pass-through entity for federal income tax
purposes, distributions to the members of AOA Holding based on estimates of
the amount of federal, state and local income taxes that AOA Holding would
be required to pay with respect to a fiscal year calculated as if, for the
applicable fiscal year, AOA Holding were treated as a "C corporation"
incorporated under the laws of the State of Minnesota rather than as a
limited liability company.
"Phantom Compensation" means the compensation accrued after the Issue Date
pursuant to Article II of the "phantom stock" agreements entered into, in
writing, between Adams Outdoor Advertising Limited Partnership and certain of
its employees other than Stephen Adams or substitutions to or replacements of
such article of such agreements, and any comparable subordinated incentive
compensation agreement with its employees on the basis of the increase in
value of Adams Outdoor Advertising Limited Partnership or a division or
Subsidiary thereof.
"Preferred Equity Interest" means any Equity Interest of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the
holders of other Equity Interests issued by such Person.
"Prior Accrued Bonus Payments" means payments in respect of Phantom
Compensation accrued prior to the Issue Date.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost, including the
cost of construction, of an item of property, the principal amount of which
Indebtedness does not exceed the sum of
(1) 100% of such cost and
(2) reasonable fees and expenses of the Person incurred in connection
with purchase money indebtedness.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
renews, replaces or extends any Indebtedness of AOA Holding or its
Subsidiaries outstanding on the Issue Date or other Indebtedness permitted to
be incurred by the issuers or the Subsidiaries pursuant to the terms of the
indenture, whether involving the same or any other lender or creditor or group
of lenders or creditors, but only to the extent that
(1) the Refinancing Indebtedness is subordinated to the notes to at least
the same extent as the Indebtedness being refunded, refinanced or extended,
if at all;
(2) the Refinancing Indebtedness is scheduled to mature either
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(a) no earlier than the Indebtedness being refunded, refinanced or
extended, or
(b) after the maturity date of the notes,
(3) the Refinancing Indebtedness has a weighted average life to maturity
at the time it is incurred that is equal to or greater than the weighted
average life to maturity of the Indebtedness being refunded, refinanced or
extended;
(4) such Refinancing Indebtedness is in an aggregate principal amount
that is less than or equal to the sum of (a) aggregate principal or
accreted amount, in the case of any Indebtedness issued with original issue
discount, as such, then outstanding and (b) any applicable prepayment
premiums or penalties and accrued interest thereon, under the Indebtedness
being refunded, refinanced or extended; and
(5) such Refinancing Indebtedness is incurred by the same Person that
initially incurred the Indebtedness being refunded, refinanced or extended,
except that AOA Holding may incur Refinancing Indebtedness to refund,
refinance or extend Indebtedness of any Wholly-Owned Subsidiary of AOA
Holding.
"Restricted Payment" means any of the following:
(1) the declaration or payment of any dividend or any other distribution
or payment on Equity Interests of AOA Holding or any Subsidiary of AOA
Holding or any payment made to the direct or indirect holders of Equity
Interests of AOA Holding or any Subsidiary of AOA Holding, other than
(a) dividends or distributions payable solely in Equity Interests,
other than Disqualified Equity Interests, or in options, warrants or
other rights to purchase Equity Interests, other than Disqualified
Equity Interests,
(b) in the case of Subsidiaries of AOA Holding, dividends or
distributions payable to AOA Holding or to a Wholly-Owned Subsidiary of
AOA Holding and
(c) Permitted Tax Distributions,
(2) the purchase, redemption or other acquisition or retirement for value
of any Equity Interests of AOA Holding or any Subsidiary of AOA Holding,
other than Equity Interests owned by AOA Holding or a Wholly-Owned
Subsidiary, excluding Disqualified Equity Interests;
(3) the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value, prior
to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Indebtedness which is subordinated in right of payment to
the notes;
(4) the making of any Investment or guarantee of any Investment in any
Person other than a Permitted Investment;
(5) forgiveness of any Indebtedness of an Affiliate of AOA Holding to AOA
Holding or a Subsidiary of AOA Holding;
(6) cash payments in respect of Phantom Compensation and
(7) the payment of amounts to Stephen Adams, other than dividends or
distributions otherwise permitted by the terms of the indenture, to the
extent the aggregate amount of such payments made in any one year exceeds
the sum of
(a) $200,000 and
(b) the cumulative effect of reasonable annual cost-of-living
adjustments made from the Issue Date to the date of such payment.
For purposes of determining the amount expended for Restricted Payments,
cash distributed or invested shall be valued at the face amount thereof and
property other than cash shall be valued at its fair market value.
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"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by AOA Holding or any Subsidiary of AOA Holding of
any real or tangible personal property, which property
(1) has been or is to be sold or transferred by AOA Holding or such
Subsidiary to the Person in contemplation of such leasing and
(2) would constitute an Asset Sale if such property had been sold in an
outright sale of the property.
"Subsidiary" of any specified Person means any corporation, partnership,
limited liability company, joint venture, association or other business
entity, whether now existing or hereafter organized or acquired,
(1) in the case of a corporation, of which more than 50% of the total
voting power of the Equity Interests entitled, without regard to the
occurrence of any contingency, to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of
its Subsidiaries; or
(2) in the case of a partnership, limited liability company, joint
venture, association or other business entity, with respect to which such
first-named Person or any of its Subsidiaries has the power to direct or
cause the direction of the management and policies of that entity by
contract or otherwise or if in accordance with GAAP such entity is
consolidated with the first-named Person for financial statement purposes.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be
deemed a Subsidiary of AOA Holding or of Adams Outdoor Advertising Limited
Partnership other than for purposes of the definition of Unrestricted
Subsidiary, unless Adams Outdoor Advertising Limited Partnership or a
Subsidiary of Adams Outdoor Advertising Limited Partnership shall have
designated such Unrestricted Subsidiary as a "Subsidiary" of Adams Outdoor
Advertising Limited Partnership by written notice to the trustee. An
Unrestricted Subsidiary may be designated as a Subsidiary of Adams Outdoor
Advertising Limited Partnership at any time by Adams Outdoor Advertising
Limited Partnership or a Subsidiary of Adams Outdoor Advertising Limited
Partnership by written notice to the trustee; provided, however, that
(1) no Default or Event of Default has occurred and is continuing or
would arise therefrom and
(2) if such Unrestricted Subsidiary is an obligor of any Indebtedness,
any such designation shall be deemed to be an incurrence as of the date of
such designation by Adams Outdoor Advertising Limited Partnership or a
Subsidiary of Adams Outdoor Advertising Limited Partnership of such
Indebtedness and immediately after giving effect to such designation, Adams
Outdoor Advertising Limited Partnership could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "Limitation on Additional Indebtedness."
"Subsidiary Issuers" means Adams Outdoor Advertising Limited Partnership and
Adams Outdoor Advertising, Inc.
"Temporary Cash Investments" means
(1) Investments in marketable, direct obligations issued or guaranteed by
the United States, or of any governmental agency or political subdivision
thereof, maturing within 365 days of the date of purchase;
(2) Investments in certificates of deposit issued by a bank organized
under the laws of the United States or any state of the United States or
the District of Columbia, in each case having capital, surplus and
undivided profits totaling more than $500 million and rated at least A by
Standard & Poor's Corporation and A-2 by Moody's Investors Service, Inc.,
maturing within 365 days of purchase;
(3) commercial paper with a maturity of 180 days or less issued by a
corporation, except any Affiliate of AOA Holding, organized under the laws
of any state of the United States or the District of Columbia and rated at
the time of investment at least A-1 by Standard & Poor's Corporation or at
least P-1 by Moody's Investors Service, Inc.;
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<PAGE>
(4) repurchase agreements and reverse repurchase agreements relating to
marketable obligations issued or unconditionally guaranteed by the United
States or issued by any agency thereof and backed by the full faith and
credit of the United States Government, in each case maturing within one
year from the date of acquisition, provided, however, that the terms of
such agreements comply with the guidelines set forth in the Federal
Financial Agreements of Depository Institutions with Securities Dealers and
Others, as adopted by the Comptroller of the Currency;
(5) instruments backed by letters of credit satisfying the conditions of
clause (2) above; or
(6) investments not exceeding 365 days in duration in money market funds
that invest substantially all of such funds' assets in the Investments
described in the preceding clauses (1) through (5).
"Unrestricted Subsidiary" means any Subsidiary of Adams Outdoor Advertising
Limited Partnership which has been designated as an Unrestricted Subsidiary by
Adams Outdoor Advertising Limited Partnership or any Subsidiary of Adams
Outdoor Advertising Limited Partnership by written notice to the trustee and
any Subsidiary of an Unrestricted Subsidiary. A Subsidiary of Adams Outdoor
Advertising Limited Partnership may be designated as an Unrestricted
Subsidiary at any time by Adams Outdoor Advertising Limited Partnership or any
Subsidiary of Adams Outdoor Advertising Limited Partnership by written notice
to the trustee; provided, however, that
(1) no Default or Event of Default has occurred and is continuing or
would arise therefrom;
(2) such designation is at that time permitted under the covenant
described under "Limitation on Restricted Payments"; and
(3) immediately after giving effect to such designation, Adams Outdoor
Advertising Limited Partnership could incur $1.00 of additional
Indebtedness, other than Permitted Indebtedness, pursuant to the covenant
described under "Limitation on Additional Indebtedness."
An Unrestricted Subsidiary may be designated as a Subsidiary of Adams
Outdoor Advertising Limited Partnership at a later date in the manner provided
in the definition of "Subsidiary" above.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary, all of the
outstanding voting securities, other than directors' qualifying shares, of
which are owned, directly or indirectly, by such Person. As used herein, Adams
Outdoor Advertising Limited Partnership will be deemed a Wholly-Owned
Subsidiary of AOA Holding as long as
(1) at least 69.0% of the aggregate partnership interests of Adams
Outdoor Advertising Limited Partnership are owned, directly or indirectly,
of record and beneficially by AOA Holding,
(2) the general partner or partners of Adams Outdoor Advertising Limited
Partnership are AOA Holding or a Wholly-Owned Subsidiary of AOA Holding and
(3) the partnership agreement of Adams Outdoor Advertising Limited
Partnership provides that all limited partner distributions (other than
Permitted Tax Distributions) may be made only to AOA Holding, directly or
through a Wholly-Owned Subsidiary of AOA Holding, until the notes have been
paid in full.
Book-Entry, Delivery and Form
The exchange notes initially will be represented by one or more notes in
registered, global form without interest coupons (collectively, the "Global
Notes"). The Global Notes will be deposited upon issuance with the trustee as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant as described below.
Except as set forth below, the Global Notes may be transferred, in whole but
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be
89
<PAGE>
exchanged for exchange notes in certificated form except in the limited
circumstances described below. Except in the limited circumstances described
below, owners of beneficial interests in the Global Note will not be entitled
to receive physical delivery of certificated notes. See "--Exchange of Book-
Entry Notes for Certificated Notes."
The exchange notes may be presented for registration of transfer and
exchange at the offices of the registrar.
Depository Procedures
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between the Participants through electronic book-entry
changes in accounts of the Participants. The Participants include securities
brokers and dealers, including the initial purchaser, banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's system
is also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership
interest of each actual purchaser of each security held by or on behalf of DTC
are recorded on the records of the Participants and the Indirect Participants.
DTC has also advised us that pursuant to procedures established by it:
. upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the initial purchaser with portions of the
principal amount of the Global Notes and
. ownership of such interests in the Global Notes will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners
of beneficial interests in the Global Notes).
Except as described below, owners of interests in the Global Notes will not
have exchange notes registered in their names, will not receive physical
delivery of exchange notes in certificated form and will not be considered the
registered owners or holders thereof under the indenture for any purpose.
Payments in respect of the principal of, and premium, if any, and interest
on a Global Notes registered in the name of DTC or its nominee will be payable
to DTC or its nominee in its capacity as the registered holder under the
indenture. Under the terms of the indenture, the issuers and the trustee will
treat the persons in whose names the exchange notes, including the Global
Note, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, none of
the issuers, the trustee nor any agent of the issuers or the trustee has or
will have any responsibility or liability for:
. any aspect or accuracy of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership or
. any other matter relating to the actions and practices of DTC or any of
the Participants or the Indirect Participants.
DTC has advised us that its current practice, upon receipt of any payment in
respect of securities such as the exchange notes, including principal and
interest, is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
as shown on the records of DTC. Payments by the Participants and the Indirect
Participants to the beneficial owners of exchange notes will be governed by
standing instructions and customary practices and will not be the
responsibility of DTC, the trustee or the issuers. Neither the issuers nor the
trustee will be liable for any delay by DTC or any of the Participants in
identifying the beneficial owners
90
<PAGE>
of the exchange notes, and the issuers and the trustee may conclusively rely
on and will be protected in relying on instructions from DTC or its nominee as
the registered owner of the Global Notes for all purposes.
Interests in the Global Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and the Participants.
DTC has advised the issuers that it will take any action permitted to be
taken by a holder of exchange notes only at the direction of one or more
Participants to whose account with DTC interests in the Global Note are
credited and only in respect of such portion of the aggregate principal amount
of the notes as to which such Participant or Participants has or have given
such direction. However, if any of the events described under "--Exchange of
Book-Entry Notes for Certificated Notes" occurs, DTC reserves the right to
exchange the Global Notes for legended exchange notes in certificated form and
to distribute such exchange notes to its Participants.
The information in this section concerning DTC and its book-entry system has
been obtained from sources that the issuers believe to be reliable, but the
issuers take no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Note among accountholders in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the issuers, the initial
purchaser or the trustee nor any agent of the issuers, the initial purchaser
or the trustee will have any responsibility for the performance by DTC or its
participants, indirect participants or accountholders of their respective
obligations under the rules and procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive exchange notes in registered
certificated form if:
. DTC (1) notifies the issuers that it is unwilling or unable to continue
as depository for the Global Note and the issuers then fail to appoint a
successor depository or (2) has ceased to be a clearing agency
registered under the Exchange Act,
. the issuers, at their option, notify the trustee in writing that they
elect to cause the issuance of the exchange notes in certificated form
or
. there shall have occurred and be continuing a Default or an Event of
Default with respect to the exchange notes.
Neither the issuers nor the trustee will be liable for any delay by the
Global Note holder or DTC in identifying the beneficial owners of exchange
notes and the issuers and the trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note holder or DTC for
all purposes.
Exchange of Certificated Notes for Book-Entry Notes
Certificated exchange notes may not be exchanged for a beneficial interest
in any Global Note unless the transferor first delivers to the trustee a
written certificate, in the form provided in the indenture, to the effect that
such transfer will comply with the appropriate transfer restrictions
applicable to the notes.
91
<PAGE>
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion, including the opinion of counsel described below,
is based upon current provisions of the Internal Revenue Code of 1986, as
amended, applicable Treasury regulations, judicial authority and
administrative rulings and practice. The Internal Revenue Service may take a
contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the following statements and
conditions. Any changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Some holders (including
insurance companies, tax-exempt organizations, financial institutions, broker-
dealers, foreign corporations and persons who are not citizens or residents of
the United States) may be subject to special rules not discussed below. We
recommend that each holder consult its own tax advisor as to the particular
tax consequences of exchanging such holder's existing notes for exchange
notes, including the applicability and effect of any state, local or foreign
tax laws. The summary is applicable only to persons who tender their old notes
in exchange for newly issued exchange notes and does not address other
purchasers.
Kaplan, Strangis and Kaplan, P.A., counsel to the issuers, has advised us
that in its opinion, the exchange of the existing notes for exchange notes
pursuant to the exchange offer will not be treated as an "exchange" for
federal income tax purposes because the exchange notes will not be considered
to differ materially in kind or extent from the existing notes. Rather, the
exchange notes received by a holder will be treated as a continuation of the
existing notes in the hands of such holder. As a result, there will be no
federal income tax consequences to holders exchanging existing notes for
exchange notes pursuant to the exchange offer.
92
<PAGE>
PLAN OF DISTRIBUTION
Each Participating 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 Participating Broker-Dealer in connection with the resale of
exchange notes received in exchange for outstanding notes where such existing
notes were acquired as a result of market-making activities or other trading
activities. The issuers have agreed that for a period of 180 days from the
consummation of the exchange offer, they will make this prospectus, as amended
or supplemented, available to any Participating Broker-Dealer for use in
connection with any such resale.
The issuers will not receive any proceeds from any sales of the exchange
notes by Participating Broker-Dealers. Exchange notes received by
Participating 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 negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such exchange notes. Any Participating
Broker-Dealer that resells the 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 Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
LEGAL MATTERS
Kaplan, Strangis and Kaplan, P.A. will pass upon the validity of the notes
offered hereby and certain other legal matters on behalf of the issuers.
EXPERTS
The consolidated financial statements of AOA Holding LLC and subsidiaries as
of and for the year ended December 31, 1998 included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said report.
The consolidated financial statements of Adams Outdoor Advertising Limited
Partnership and subsidiaries as of December 31, 1997 and for each of the years
in the two-year period ended December 31, 1997 have been included in this
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, upon the authority of said firm as experts in
accounting and auditing.
CHANGE IN ACCOUNTANTS
In August 1998, the issuers engaged Arthur Andersen LLP as its independent
public accountants to audit the financial statements as of and for the year
ended December 31, 1998. The decision to dismiss KPMG LLP and engage Arthur
Andersen LLP as its independent public accountants was approved by the Board
of Directors. The report of KPMG LLP on the issuer's financial statements as
of December 31, 1997 and for the year then
93
<PAGE>
ended, does not contain an adverse opinion or a disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or accounting
principles. During the issuers' two most recent fiscal years preceding the
dismissal and through August 21, 1998, there were no disagreements with the
former auditors on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedures which
disagreements, if not resolved to the former auditor's satisfaction, would
have caused them to make reference to the subject matter in their report.
Prior to retaining Arthur Andersen LLP, the issuers did not consult with
Arthur Andersen LLP regarding the application of accounting principles to a
specified transaction, the type of audit opinion that might be rendered on the
issuer's financial statements or any other matter.
ADDITIONAL INFORMATION
We have filed with the SEC a Registration Statement on Form S-4 (the
"Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules
and regulations promulgated thereunder, covering the exchange offer
contemplated hereby. This prospectus does not contain all the information set
forth in the Registration Statement. For further information with respect to
the issuers and the exchange offer, reference is made to the Registration
Statement. Statements made in this prospectus as to the contents of any
contract, agreement, or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the document or matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
We are not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934. Upon the
effectiveness of the Registration Statement, we will become subject to the
periodic reporting and other informational requirements of the Exchange Act,
and in accordance therewith, will be required to file periodic reports and
other information with the SEC. We have agreed that, whether or not we are
required to do so by the rules and regulations of the SEC, for so long as any
of the exchange notes remain outstanding, we will furnish to the holders of
the exchange notes, on a combined consolidated basis:
. quarterly and annual financial statements substantially equivalent to
financial statements that would have been included in a filing with the
SEC on Forms 10-Q and 10-K if we were required to file such financial
information, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that describes our
financial condition and results of operations and, with respect to the
annual information only, reports thereon by our independent public
accountants, and
. all information that would be required to be filed with the SEC on Form
8-K if we were required to file such reports.
In addition, for so long as any of the exchange notes remain outstanding, we
have agreed to furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered by Rule 144A(d)(4) under the Securities Act.
The Registration Statement may be inspected at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the SEC located at 7 World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials may
be obtained from the Public Reference Section of the SEC, 450 Fifth Street
N.W., Washington, D.C. 20549 at prescribed rates. The SEC maintains a web site
at http://www.sec.gov that contains reports and other information regarding
registrants that file electronically with the SEC.
94
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AOA HOLDING LLC AND SUBSIDIARIES
Audited Financial Statements:
<TABLE>
<S> <C>
Report of Independent Public Accountants................................ F-2
Independent Auditors' Report ........................................... F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997............ F-4
Consolidated Statements of Operations for the years ended December 31,
1998, 1997, and 1996................................................... F-5
Consolidated Statements of Changes in Member's Deficit for years ended
December 31, 1998, 1997, and 1996...................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
Unaudited Interim Financial Statements:
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and December
31, 1998............................................................... F-19
Consolidated Statements of Operations for the quarters and six months
ended June 30, 1999, and 1998 (unaudited).............................. F-20
Consolidated Statement of Changes in Member's Deficit for the six months
ended June 30, 1999 (unaudited)........................................ F-21
Consolidated Statements of Cash Flows for the six months ended June 30,
1999 and 1998 (unaudited).............................................. F-22
Notes to Interim Consolidated Financial Statements (unaudited).......... F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AOA Holding LLC
We have audited the accompanying consolidated balance sheet of AOA HOLDING
LLC (a Minnesota limited liability company) AND SUBSIDIARIES (Note 2) as of
December 31, 1998 and the related consolidated statements of operations,
changes in member's 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. The financial statements of AOA Holding LLC and subsidiaries as of
and for the two years ended December 31, 1997, were audited by other auditors
whose report dated March 18, 1998, expressed an unqualified opinion on those
statements.
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 AOA Holding LLC as of
December 31, 1998 and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Atlanta, Georgia
March 26, 1999
(except with respect to the
matter discussed in Note 15, as
to which the date is May 26,
1999)
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To AOA Holding LLC:
We have audited the accompanying consolidated balance sheet of Adams Outdoor
Advertising Limited Partnership and Subsidiaries as of December 31, 1997 and
the related consolidated statements of operations, changes in partners'
deficit, and cash flows for each of the years in the two-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1997 and the results of their operations and their cash flows for each of
the years in the two-year period ended December 31, 1997 in conformity with
generally accepted accounting principles.
KPMG LLP
Atlanta, Georgia
March 18, 1998
F-3
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 1,686,788 $ 3,120,542
Investments...................................... 1,878,977 1,280,765
Trade accounts receivable, less allowance for
doubtful accounts of $648,101 and $700,429,
respectively.................................... 8,423,606 7,576,375
Other accounts receivable (Note 3)............... 129,059 316,485
Inventories...................................... 68,674 142,274
Prepaid rent..................................... 2,826,362 2,452,455
Prepaid expenses................................. 647,103 794,911
------------ ------------
Total current assets........................... 15,660,569 15,683,807
PROPERTY, PLANT, AND EQUIPMENT, NET................ 53,350,148 51,090,177
INTANGIBLE ASSETS, NET............................. 9,107,911 10,449,973
OTHER ASSETS....................................... 74,076 250,203
------------ ------------
$ 78,192,704 $ 77,474,160
============ ============
LIABILITIES AND MEMBER'S DEFICIT
CURRENT LIABILITIES:
Current installments of long-term debt........... $ 0 $ 4,000,000
Accounts payable................................. 557,626 540,377
Interest payable................................. 3,606,150 4,042,392
Accrued expenses and other liabilities........... 2,583,609 2,673,505
Deferred compensation............................ 4,108,077 1,331,713
------------ ------------
Total current liabilities...................... 10,855,462 12,587,987
LONG-TERM DEBT, LESS CURRENT INSTALLMENTS.......... 132,727,500 131,033,750
DEFERRED COMPENSATION.............................. 4,057,232 3,438,651
------------ ------------
Total liabilities.............................. 147,640,194 147,060,388
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
MEMBER'S DEFICIT................................... (69,447,490) (69,586,228)
------------ ------------
$ 78,192,704 $ 77,474,160
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
GROSS REVENUES........................... $71,591,716 $63,301,642 $52,421,172
Less agency commissions................ 7,023,144 6,017,105 5,161,376
----------- ----------- -----------
Net outdoor advertising revenue...... 64,568,572 57,284,537 47,259,796
----------- ----------- -----------
OPERATING EXPENSES:
Direct advertising expenses............ 32,096,318 29,089,188 22,411,959
Corporate, general and administrative.. 3,903,136 3,589,189 2,404,834
Depreciation and amortization.......... 7,875,001 8,148,621 6,105,151
Deferred compensation.................. 4,315,971 900,876 1,451,031
----------- ----------- -----------
Total operating expenses............. 48,190,426 41,727,874 32,372,975
----------- ----------- -----------
OPERATING INCOME......................... 16,378,146 15,556,663 14,886,821
----------- ----------- -----------
OTHER EXPENSES (INCOME):
Interest expense....................... 14,407,950 14,586,568 12,247,794
Interest expense--related party........ 0 13,934 275,175
Other expenses (income), net........... 78,827 42,517 (31,362)
Loss on disposals of property and
equipment, net........................ 377,853 122,287 860,706
----------- ----------- -----------
Total other expenses................. 14,864,630 14,765,306 13,352,313
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT.................. 1,513,516 791,357 1,534,508
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT.................. 329,778 0 0
----------- ----------- -----------
NET INCOME............................... $ 1,183,738 $ 791,357 $ 1,534,508
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
CONSOLIDATED STATEMENTS OF CHANGES
IN MEMBER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
Member's
Deficit
------------
<S> <C>
BALANCE, December 31, 1995....................................... $(66,829,366)
Net income..................................................... 1,534,508
Distributions.................................................. (3,149,620)
------------
BALANCE, December 31, 1996....................................... (68,444,478)
Net income..................................................... 791,357
Distributions.................................................. (1,933,107)
------------
BALANCE, December 31, 1997....................................... (69,586,228)
Net income..................................................... 1,183,738
Distributions.................................................. (1,045,000)
------------
BALANCE, December 31, 1998....................................... $(69,447,490)
============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................... $ 1,183,738 $ 791,357 $ 1,534,508
Adjustments to reconcile net income
to net cash provided by operating
activities:
Extraordinary loss on early
extinguishment of debt............. 329,778 0 0
Depreciation........................ 7,043,434 7,294,989 5,811,083
Amortization of intangible assets... 1,308,205 1,423,664 1,126,505
Deferred compensation expense....... 4,315,971 900,876 1,451,031
Payments for deferred
compensation....................... (1,332,193) (1,118,144) (1,226,579)
Loss on disposals of property and
equipment, net..................... 377,853 122,287 860,706
Change in unrealized gain on
investments........................ (712) (122,682) 0
Barter (income) loss................ (24,729) 42,692 86,729
Purchases of investments............ (183,604) (2,545,125) (315,000)
Proceeds from sale of investments... 0 1,735,345 0
Changes in assets and liabilities,
net of effects from acquisitions
of businesses:
Accounts receivable................ (659,805) (978,663) (1,171,643)
Inventories........................ 73,600 74,438 61,705
Prepaid rent, expenses, and other
assets............................ (49,972) (346,265) 339,399
Accounts payable, accrued
expenses, and other liabilities... (72,647) (420,808) 1,374,950
Interest payable................... (436,242) 402,018 2,619,687
Other liabilities--long-term....... 0 (106,407) (16,321)
------------ ----------- -------------
Net cash provided by operating
activities....................... 11,872,675 7,149,572 12,536,760
------------ ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and
equipment.......................... (10,144,346) (7,645,961) (4,419,452)
Proceeds from sales of property,
plant, and equipment............... 485,088 184,416 45,017
Acquisitions of businesses.......... 0 0 (24,300,464)
------------ ----------- -------------
Net cash used in investing
activities....................... (9,659,258) (7,461,545) (28,674,899)
------------ ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs................ (97,921) (11,703) (5,288,384)
Advances from long-term debt........ 19,910,007 12,037,500 145,725,354
Payments on long-term debt.......... (22,216,257) (10,193,133) (119,747,164)
Premium on senior notes redemption.. (198,000) 0 0
Distributions....................... (1,045,000) (1,933,107) (3,149,620)
------------ ----------- -------------
Net cash (used in) provided by
financing activities............. (3,647,171) (100,443) 17,540,186
------------ ----------- -------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS.................... (1,433,754) (412,416) 1,402,047
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR............................. 3,120,542 3,532,958 2,130,911
------------ ----------- -------------
CASH AND CASH EQUIVALENTS, END OF
YEAR................................ $ 1,686,788 $ 3,120,542 $ 3,532,958
============ =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
1. Organization and Nature of Operations
AOA Holding LLC ("AOA Holding" or the "Company") was incorporated on May 4,
1999, as a Minnesota limited liability company. AOA Holding was formed to
acquire the direct individual interests of Stephen Adams in Adams Outdoor
Advertising Limited Partnership and Adams Outdoor Advertising Inc. and to
serve as a co-issuer of the 10 3/8% Senior Notes due 2006 (the "Senior Notes")
(Note 15). AOA Holding's assets consist of 100% of the outstanding capital
stock of Adams Outdoor Advertising Inc., a 0.70% general partnership interest
and a 68.3% limited partnership interest in Adams Outdoor Advertising Limited
Partnership. Mr. Adams is the sole member of AOA Holdings and all operations
are conducted through Adams Outdoor Advertising Limited Partnership.
AOA Capital Corp. ("AOA Capital"), a wholly-owned subsidiary of AOA Holding,
was incorporated on May 4, 1999 for the sole purpose of serving as co-issuer
of the Senior Notes. AOA Capital has no independent operations and has entered
into an indemnification agreement with AOA Holding which effectively provides
a full and unconditional guarantee of the Senior Notes. For the foregoing
reasons, separate financial statements of AOA Capital have not been presented
because in management's opinion full financial statement disclosure of AOA
Capital would not be meaningful.
Adams Outdoor Advertising Limited Partnership owns and operates outdoor
advertising structures in 14 markets in the Midwest, Southeast, and Mid-
Atlantic states.
2. Summary of Significant Accounting Policies
Basis for Presentation
The transfer of ownership of Adams Outdoor Advertising Inc. and Adams
Outdoor Advertising Limited Partnership to AOA Holding has been accounted for
as a reorganization of entities under common control similar to a pooling of
interests. Therefore, the consolidated financial statements of AOA Holding for
the periods prior to its formation include the accounts of Adams Outdoor
Advertising Inc. and Adams Outdoor Advertising Limited Partnership, the
predecessor companies, and for the periods subsequent to its formation, the
Company and its majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
Use of Estimates
The Company's consolidated financial statements are prepared in accordance
with generally accepted accounting principles, which require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all short-term, highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
Investments
Investments consist primarily of corporate and U.S. government debt
instruments and equity securities. Securities are classified in one of three
categories: trading, available-for-sale, or held-to-maturity. Management of
the Company determines the appropriate classification of its investments at
the time of acquisition and reevaluates such determination at each balance
sheet date.
F-8
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997, AND 1996
The Company has classified all securities purchased and held during 1998 and
1997 as trading securities, as they are intended to be sold in the near term.
Trading securities are carried at fair value, with realized and unrealized
gains and losses included in net income.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
using the first-in, first-out method. Market approximates net realizable
value.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which are as follows:
<TABLE>
<S> <C>
Buildings and equipment................................... 5 to 32 years
Outdoor advertising structures............................ 12 to 15 years
Vehicles, machinery and equipment, and office equipment... 3 to 5 years
</TABLE>
Intangible Assets
Intangible assets include financing costs, noncompete agreements, and
goodwill. Goodwill is being amortized using the straight-line method over
periods of between 12 and 40 years. The remaining intangible assets are
recorded at cost and are amortized using the straight-line method over the
assets' estimated useful lives of two to five years for noncompete agreements
and the terms of the related debt for financing costs. The Company assesses
the recoverability of intangible assets based on expected future cash flows.
Income Taxes
The Company is not considered a taxable entity for federal and state income
tax purposes. Any taxable income or loss, tax credits, and certain other items
are reported by the partners on their own tax returns in accordance with the
partnership agreement.
Revenue Recognition
Revenues represent outdoor advertising services provided by the Company. The
Company recognizes revenue when rendered, usually on a monthly basis in
accordance with contract terms, as advertising services are provided.
Barter Transactions
Barter transactions, which represent the exchange of advertising for goods
or services, are recorded at the estimated fair value of the advertising
provided and the products or services received. Barter revenue is recognized
when advertising services are rendered, and barter expense is recognized when
the related products or services are received and were not material for each
of the three years presented.
Impairment of Long-lived Assets and Long-lived Assets to Be Disposed Of
The Company adopted the provisions of 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," on
F-9
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997, AND 1996
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this statement resulted in the
recognition of a loss during the year ended December 31, 1996 related to
impairment of long-lived assets to be disposed of (Note 14).
New Accounting Standards
The Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way enterprises report information about operating segments in annual
financial statements and requires that enterprises report selected information
about operating segments in interim financial statements. Adams operates in a
single reportable segment in the outdoor advertising industry.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement, which will be effective for the Company beginning January 1, 2000,
establishes accounting and reporting standards requiring that every derivative
instrument (including certain embedded in other contracts) be recorded in the
balance sheet as either assets or liabilities measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. The
Company has not yet quantified the impact of adopting SFAS No. 133 and has not
determined the timing or method of its adoption, however it is not expected
that adoption will have a material impact on earnings.
3. Related-Party Transactions
Certain partners and employees of the general partner have ownership in HSP
Graphics ("HSP"), a printing operation headquartered in Canada. The Company
pays the salary and expenses of HSP employees, and HSP reimburses the Company
for these expenses in cash or services. At December 31, 1998 and 1997, the
Company had accounts receivable of $114 and $227,991, respectively,
outstanding related to this arrangement with HSP. The Company expensed
$11,000, $84,000, and $54,000 for printing services provided by HSP during
1998, 1997, and 1996, respectively.
During 1998, the Company loaned $100,000 to an officer of the Company which
is to be repaid during 1999. This amount is included in other accounts
receivable.
During 1998, the Company entered into a building lease with an officer of
the Company. The lease term is for ten years and has been classified as an
operating lease. Rent expense of approximately $52,000 related to this
transaction has been included in direct advertising expense during the year
ended December 31, 1998.
During 1997, the Company entered an aircraft lease with a related party to
the Company. The lease term is for seven years and has been classified as an
operating lease. Lease and operating expenses of approximately $549,000 and
$466,000 related to this transaction have been included in corporate, general
and administrative expense during the year ended December 31, 1998 and 1997,
respectively.
F-10
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997, AND 1996
Pursuant to the refinancing discussed in Note 8, notes payable of $6,730,436
to Central Advertising Company and $1,900,293 to Illinois Outdoor Advertising
Company Limited Partnership were repaid in 1996, except for $231,379 payable
to an unlocated noteholder which remains outstanding at December 31, 1998.
Both entities are related to the Company through common ownership.
Also pursuant to the refinancing discussed in Note 8, $11,389,165 in 9%
subordinated notes and convertible notes payable to an affiliate of the
general partner were repaid in 1996. Related-party interest expense of
$275,175 was recorded during the year ended December 31, 1996 related to these
notes.
4. Investments
The carrying and estimated fair values of investment securities at December
31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998
-------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Holding Holding Fair
Type of Each Issue Cost Gains Losses Value
------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Trading securities:
Cash and money market funds..... $1,127,721 $ 0 $ 0 $1,127,721
U.S. Treasury obligations....... 74,722 1,403 0 76,125
Equity securities............... 481,639 106,109 (6,592) 581,156
Fixed income debt securities.... 91,453 2,991 (469) 93,975
---------- -------- -------- ----------
$1,775,535 $110,503 $ (7,061) $1,878,977
========== ======== ======== ==========
<CAPTION>
1997
-------------------------------------------
Gross Gross
Unrealized Estimated Estimated
Holding Fair Fair
Type of Each Issue Cost Gains Losses Value
------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Trading securities:
Overnight investments........... $ 132,032 $ 0 $ 0 $ 132,032
U.S. Treasury obligations....... 73,139 0 0 73,139
Equity securities............... 793,543 150,147 (24,967) 918,723
Fixed income debt securities.... 136,403 3,128 (956) 138,575
Other........................... 15,174 3,122 0 18,296
---------- -------- -------- ----------
$1,150,291 $156,397 $(25,923) $1,280,765
========== ======== ======== ==========
</TABLE>
F-11
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997, AND 1996
5. Property, Plant, and Equipment
Property, plant, and equipment consists of the following at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land................................................ $ 2,398,489 $ 2,673,295
Buildings and improvements.......................... 4,185,364 3,929,319
Outdoor advertising structures...................... 100,950,797 95,018,461
Vehicles............................................ 3,436,538 2,931,049
Machinery and equipment............................. 739,698 724,939
Office equipment.................................... 4,065,258 2,895,530
Construction in progress............................ 1,459,417 824,196
----------- -----------
117,235,561 108,996,789
Less accumulated depreciation....................... 63,885,413 57,906,612
----------- -----------
$53,350,148 $51,090,177
=========== ===========
6. Intangible Assets
Intangible assets consist of the following at December 31, 1998 and 1997:
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Goodwill............................................ $ 7,582,597 $ 7,582,597
Noncompete agreements............................... 2,425,500 2,425,500
Financing costs..................................... 5,170,270 5,304,128
----------- -----------
15,178,367 15,312,225
Less accumulated amortization....................... 6,070,456 4,862,252
----------- -----------
$ 9,107,911 $10,449,973
=========== ===========
7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following at December
31, 1998 and 1997:
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Accrued insurance................................... $ 391,872 $ 432,141
Accrued payroll..................................... 205,236 690,619
Other............................................... 1,986,501 1,550,745
----------- -----------
$ 2,583,609 $ 2,673,505
=========== ===========
</TABLE>
F-12
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997, AND 1996
8. Long-Term Debt
Long-term debt at December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
10.75% senior notes .............................. $101,000,000 $105,000,000
Revolving credit facilities ...................... 31,727,500 30,033,750
------------ ------------
132,727,500 135,033,750
Less current installments......................... 0 4,000,000
------------ ------------
Long-term debt, less current installments......... $132,727,500 $131,033,750
============ ============
</TABLE>
On March 12, 1996, the Company completed a refinancing (the "Refinancing")
of its outstanding debt. Pursuant to the Refinancing, substantially all of the
partnership's existing debt was repaid, $105 million of 10.75% senior notes
due 2006 (the "Senior Notes") were issued, and a credit agreement (the "Credit
Agreement") was executed which provided for a revolving credit facility with
total availability of $15 million. On December 2, 1996, the Credit Agreement
was amended and restated to increase the availability on the revolving credit
facility from $15 million to $35 million for a fee of $387,500. On March 31,
1998, the Company entered into an additional $3 million senior unsecured
credit facility to increase the line of credit to $38 million. In September
1998, proceeds from the senior unsecured facility were used to purchase $4
million of the Company's Senior Notes on the open market at 105% of principal
plus accrued interest. As a result of the purchase, the Company recognized an
extraordinary loss of $329,778, which represented the premium plus recognition
of a proportionate share of the associated deferred financing fees. In
November 1998, the senior unsecured credit facility was increased to $8
million.
Borrowings under the Credit Agreement bear interest at a rate equal to, at
the option of the Company, either (i) the base rate (which is defined as the
higher of the prime rate or the federal funds rate, or (ii) LIBOR, in each
case plus an applicable margin, as defined, determined by reference to the
ratio of total debt to cash flow of the Company. At December 31, 1998, the
weighted-average interest rate was 8.8% on outstanding borrowings,
respectively.
The obligations of the Company under the Credit Agreement are secured
primarily by a first priority pledge of the stock of Adams Outdoor
Advertising, Inc., the corporate general partner, a first priority pledge of
the Company interests, and a first priority lien on all the assets of the
Company, with the exception of certain real estate assets which are subject to
a negative pledge.
The Credit Agreement contains, among other things, covenants restricting the
ability of the Company to dispose of assets, make distributions to its
partners, create liens, make capital expenditures, make certain investments or
acquisitions, enter into transactions with affiliates, and otherwise restrict
certain activities. The Credit Agreement also contains financial covenants
related to minimum interest coverage, maximum leverage ratio, and a minimum
fixed-charge coverage ratio.
The Senior Notes were issued under an indenture dated March 12, 1996 (the
"Indenture") among the Company and the trustee of the Senior Notes. The Senior
Notes are senior unsecured obligations of the Company ranking pari passu in
right of payment with all existing and future senior indebtedness of the
Company and senior in right of payment to all existing and future subordinated
indebtedness of the Company that by its terms is subordinated in right of
payment to the Senior Notes. The Senior Notes are effectively subordinated to
all secured indebtedness of the Company to the extent of the value of the
assets securing such indebtedness.
F-13
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997, AND 1996
The Senior Notes mature on March 15, 2006 and bear interest at an annual
rate of 10.75% from the date of issuance until maturity. Interest is payable
semiannually in arrears on March 15 and September 15 to holders of record of
the Senior Notes.
The Senior Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after March 15, 2001 at the following redemption
prices (expressed as a percentage of principal amount), together, in each
case, with accrued and unpaid interest to the redemption date, if redeemed
during the 12-month period beginning on March 15 of each year as listed below:
<TABLE>
<S> <C>
Year:
2001.............................. 105.375%
2002.............................. 103.583
2003.............................. 101.792
2004 and thereafter............... 100.000
</TABLE>
Also, up to 25% of the Senior Notes are redeemable at the option of the
Company in the event of a public equity offering.
The Indenture contains, among other things, covenants restricting the
ability of the Company to incur additional indebtedness, make certain
distributions, make certain investments, change the status of company
subsidiaries, create liens, enter into transactions with affiliates, dispose
of assets, enter into sale and lease-back transactions, make payments for
consents, enter into any additional lines of business, and otherwise restrict
certain activities.
At December 31, 1998, the fair value of the Company's long-term debt based
on quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of similar remaining maturities was
approximately $140.3 million.
Annual minimum maturities of long-term debt based on amounts outstanding at
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................ $ 0
2000............................ 2,000,000
2001............................ 29,727,500
2002............................ 0
2003............................ 0
Thereafter...................... 101,000,000
------------
$132,727,500
============
</TABLE>
9. Employee Benefit Plan
The Company has a 401(k) plan deferred savings and profit-sharing plan.
Employees must be at least age 21 and have completed one year of service to
participate in the plan. Employees may contribute up to 10% of their salaries,
and the Company matches employee contributions at the rate of 50% up to 6% of
the employee's salary. The Company's contributions to the plan were
approximately $240,000, $188,000, and $166,000 in the years ended December 31,
1998, 1997, and 1996, respectively.
F-14
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997, AND 1996
10. Deferred Compensation Benefits
Phantom Stock Agreements
The Company has deferred compensation benefits referred to as phantom stock
agreements with certain management personnel. The compensation is calculated
using a multiple of the operating profit of a division or the Company for the
year ending immediately prior to the determination date over the base cost,
which is the assigned value of the division or the Company, at the date of the
agreement's execution. The agreements provide for three equal annual payments
to the participants on the determination date, which is defined as
termination, death, disability, the sale of the Company, or the fifth
anniversary of the agreement's execution. The Company incurred deferred
compensation expense related to these agreements of $4,098,014, $698,376, and
$1,136,031 for the years ended December 31, 1998, 1997, and 1996,
respectively.
Nonqualified Retirement Plans
The Company also maintains certain nonqualified retirement plans (the
"Plans") to provide deferred compensation benefits for certain members of
management. The Company has established trusts (the "Trusts") for
contributions to provide sources of funds for liabilities under the Plans. The
Trusts are revocable and constitute unfunded arrangements as their assets are
subject to the claims of the Company's creditors in the event of insolvency,
until such time as the obligations have been paid to plan participants in
accordance with the Plans. Earnings of the trusts are allocated
proportionately to participant accounts. During the years ended December 31,
1998, 1997, and 1996, the Company recorded deferred compensation expense of
$217,501, $202,500, and $315,000 respectively, to these plans.
11. Commitments and Contingencies
Operating Lease Commitments
The Company leases real estate to erect signs in commercial and industrial
areas along traffic routes in cities or close to populated urban areas. The
partnership also leases certain vehicles used in its operations. These leases
have terms ranging from one to ten years.
Approximate future minimum lease payments under noncancelable operating
leases with terms in excess of one year at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................. $ 4,404,357
2000............................. 3,372,665
2001............................. 2,597,828
2002............................. 2,127,747
2003............................. 3,169,800
Thereafter....................... 17,789,695
-----------
$33,462,092
===========
</TABLE>
Rent expense incurred under operating leases aggregated approximately
$7,315,000 $7,735,000, and $6,042,000 for the years ended December 31, 1998,
1997, and 1996, respectively.
Zoning Regulations
In 1988, the city of Charlotte, North Carolina, adopted a comprehensive sign
ordinance prohibiting the construction of virtually all new, off-premise
outdoor advertising signs within the city limits and mandating that
F-15
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997, AND 1996
all nonconforming signs either be brought into compliance or be removed by
February 1, 1998 at the owner's expense without payment of compensation.
Through March 1998, the Company had received a total of 307 notices of
violation ("NOVs"). The Company does not anticipate receiving any additional
NOVs at this time. In 1988, the Company filed a lawsuit in the Superior Court
of Mecklenburg County, North Carolina, challenging the constitutionality of
the Charlotte sign ordinance. In 1998 the case was settled, and approximately
160 of the billboards in question must be removed at the Company's expense by
December 5, 2002. This will result in a material adverse impact on the gross
revenues and cash flow attributable to the Charlotte market, but, in the
opinion of management, not on the financial condition of the Company as a
whole.
In other localities in which the Company operates, outdoor advertising is
subject to restrictive and, in some cases, prohibitive, zoning regulations.
Management expects federal, state, and local regulations to continue to be a
significant factor in the operation of the Company's business.
Litigation
The Company is a party to a number of lawsuits and claims which it is
vigorously defending. Such matters arise out of the normal course of business
and relate to government regulations and other issues. Certain of these
actions seek damages in significant amounts. While the results of litigation
cannot be predicted with certainty, management believes, based on advice of
Company counsel, the final outcome of such litigation will not have a material
adverse effect on the consolidated financial statements of the Company.
Concentration Of Risks
Approximately 10.3%, 10.5%, and 12.5% of the Company's net revenues for the
years ended December 31, 1998, 1997, and 1996, respectively, were attributable
to the tobacco products industry. In November 1998, the major U.S. tobacco
companies (the "Tobacco Companies") reached an out of court settlement (the
"Agreement") with 46 states, the District of Columbia, the Commonwealth of
Puerto Rico and four other U.S. territories (the "Settling States"). The
remaining four states had already reached similar settlements with the Tobacco
Companies. The Agreement calls for the removal of tobacco advertising from
out-of-home media, including billboards, along with signs and placards in
arenas, stadiums, shopping malls and video game arcades by April 23, 1999.
Additionally, the Agreement provides that, at the Settling States' option, the
Tobacco Companies must, at their expense, substitute for tobacco advertising
alternative advertising which discourages youth smoking. That alternative
advertising must remain in place for the duration of the Tobacco Companies'
out-of-home media advertising contracts which existed as of the date of the
Agreement.
The elimination of tobacco advertising as called for by the Agreement will
cause a reduction in direct revenues from Tobacco Companies and may
simultaneously increase the available space on the existing inventory of
billboards in the outdoor advertising industry. Although the extent of the
future impact on operations is not known, the Company has been successful thus
far in replacing tobacco advertising in its Minneapolis market where
settlement was reached prior to the Agreement. While this is positive, the
Company can give no assurance that the further cutbacks in tobacco advertising
during 1999 will not have an adverse effect on operations for 1999 or beyond.
12. Supplemental Cash Flow Information
The following summarizes supplemental cash paid and noncash activities for
the years ended December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Supplemental disclosure of cash paid during
the year for interest..................... $14,367,555 $13,639,516 $9,095,866
=========== =========== ==========
</TABLE>
F-16
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997, AND 1996
13. Acquisitions
During 1996, the Company completed acquisitions of two outdoor advertising
operations. Both acquisitions were accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated to the assets
purchased and the liabilities assumed based on their fair values at the dates
of acquisition. Both acquisitions were funded through borrowings.
On October 25, 1996, the Company executed a purchase agreement for the
Northeast Pennsylvania division ("NEPA") by acquiring all of the outstanding
shares of PA Outdoor, Inc., for $6,765,000 in cash, and by acquiring selected
assets and liabilities of Matthew Outdoor Advertising Acquisition Co., L.P.
for $1,450,000 in cash. The Company also paid $100,000 for noncompete
agreements which were amortized over two years, and incurred $243,000 in
transaction costs.
On November 18, 1996, the Company acquired selected assets and liabilities
of Morgan Newsome Monroe, Inc. ("MNM") for $14,029,000 in cash. The Company
also paid $1,650,000 for noncompete agreements which were amortized over three
years, and incurred $64,000 in transaction costs.
The net purchase price of the acquisitions was allocated as follows:
<TABLE>
<CAPTION>
NEPA MNM
---------- -----------
<S> <C> <C>
Working capital...................................... $ 158,000 $ 629,000
Property, plant, and equipment....................... 8,300,000 13,464,000
Other assets......................................... 100,000 1,650,000
---------- -----------
Purchase price....................................... $8,558,000 $15,743,000
========== ===========
</TABLE>
The following unaudited pro forma information presents a summary of the
results of operations of the Company, NEPA, and MNM as if the acquisitions had
occurred at the beginning of 1996, with pro forma adjustments to give effect
to additional depreciation based on the fair market value of the property,
plant, and equipment acquired; interest expense on acquisition debt; and the
amortization of intangibles arising from the transactions. The pro forma
financial information is not necessarily indicative of the results of
operations as they would have resulted if the transactions had been effected
on the assumed dates.
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
------------
(Unaudited)
<S> <C>
Net outdoor advertising revenue................................ $53,342,000
===========
Operating income............................................... $14,843,000
===========
Net loss....................................................... $ (462,000)
===========
</TABLE>
14. Disposal Of Equipment
In June 1996, the Company invested $662,098 in assets to provide in-store
advertising equipment. These assets were utilized from June through December
1996, resulting in $179,864 in operating expenses in excess of revenue. In
December 1996, management determined that the asset value had been impaired
and approved a plan of disposal to be completed in January 1997. A loss equal
to the carrying value of the assets of $662,098 was recognized in 1996 and has
been included in the consolidated statement of operations as loss on disposal
of property and equipment, net.
F-17
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997, AND 1996
15. Subsequent Event
In May 1999, following its organization, AOA Holding and its 100% owned
subsidiary, AOA Capital issued $50 million of Senior Notes. The net proceeds
from the offering were used by AOA Holding (i) to make a $32.5 million
distribution to its sole member, (ii) to repay $13.25 million of indebtedness
of Adams Partnership, and (iii) to make a $2.5 million allocation to the Adams
Outdoor Advertising Limited Partnership minority limited partner.
The Senior Notes are unsecured obligations of AOA Holding and its 100% owned
subsidiary, AOA Capital. The Senior Notes mature on June 1, 2006 and bear
interest at 10 3/8%. Interest is payable semi-annually in arrears on March 15
and September 15, commencing September 15, 1999. The interest rate is subject
to increase if the Senior Notes are not registered with the Securities and
Exchange Commission and declared effective within 150 days of the original
issuance.
The Senior Notes are redeemable at the option of the Company, in whole or in
part after June 1, 2003 at the following redemption prices (expressed as
percentage of principal amount), together, in each case, with accrued and
unpaid interest to the redemption date; 105.188% in 2003, 102.594% in 2004 and
100.00% in 2005 and thereafter. The Company may also redeem the Senior Notes
in whole but not in part at any time during the nine-month period beginning on
April 15, 2001 at 100% of the aggregate principal plus accrued and unpaid
interest in the event of a concurrent redemption by Adams Outdoor Advertising
Limited Partnership of its outstanding notes.
The Indenture contains, among other things, covenants restricting the
ability of the Company to incur additional indebtedness, make certain
distributions, make certain investments, change the status of company
subsidiaries, create liens, enter into transactions with affiliates, dispose
of assets, enter into sale-leaseback transactions, make payments for consents,
and enter into additional lines of business.
In connection with the reorganization, the Adams Outdoor Advertising Limited
Partnership agreement was amended to provide that the limited partnership
interest of AOA Holding become a "priority" interest whereby all limited
partner distributions (other than permitted tax distributions) will be made
only to AOA Holding until the notes are paid in full. In recognition of the
change in the partnership agreement, the Company paid to the minority limited
partner $2.5 million.
F-18
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
ASSETS ----------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 3,039 $ 1,687
Investments......................................... 2,569 1,879
Accounts receivable, less allowance for doubtful
accounts of $895 and $648 at June 30, 1999 and
December 31, 1998, respectively.................... 9,992 8,424
Receivables from related parties.................... 59 129
Inventories......................................... 73 69
Prepaid rent........................................ 3,084 2,826
Prepaid expenses.................................... 725 647
--------- --------
Total current assets.............................. 19,541 15,661
Property, plant and equipment, net.................... 54,907 53,350
Intangible assets, net................................ 9,918 9,108
Other assets.......................................... 76 74
--------- --------
$ 84,442 $ 78,193
========= ========
<CAPTION>
LIABILITIES AND MEMBER'S DEFICIT
<S> <C> <C>
Current liabilities:
Accounts payable.................................... $ 598 $ 558
Interest payable.................................... 3,994 3,606
Accrued expenses and other liabilities.............. 2,513 2,583
Deferred compensation............................... 738 4,108
--------- --------
Total current liabilities......................... 7,843 10,855
Long-term debt, less current installments............. 173,900 132,728
Deferred compensation................................. 5,119 4,057
--------- --------
Total liabilities................................. 186,862 147,640
Commitments and contingencies (Note 4)
Member's deficit...................................... (102,420) (69,447)
--------- --------
$ 84,442 $ 78,193
========= ========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
F-19
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Quarter Ended Six Months
June 30, Ended June 30,
---------------- ----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Gross Revenues............................... $19,374 $18,622 $35,926 $34,364
Less agency commissions.................... 1,761 1,866 3,264 3,393
------- ------- ------- -------
Net outdoor advertising revenue.......... 17,613 16,756 32,662 30,971
Operating expenses:
Direct advertising expenses................ 8,308 7,898 16,275 15,367
Corporate general and administrative....... 704 1,105 1,298 2,109
Depreciation and amortization.............. 1,892 2,070 3,749 4,133
Deferred compensation...................... 510 203 870 331
------- ------- ------- -------
Total operating expenses................. 11,414 11,276 22,192 21,940
------- ------- ------- -------
Operating income......................... 6,199 5,480 10,470 9,031
------- ------- ------- -------
Other expenses (income):
Interest expense........................... 3,990 3,646 7,435 7,291
Interest expense--related parties.......... 0 6 0 14
Payment to Adams Outdoor Advertising
Limited Partnership minority limited
partner................................... 2,500 0 2,500 0
Other (income) expense, net................ (26) 68 (14) 62
Loss on disposals of property, plant and
equipment, net............................ 22 15 21 19
------- ------- ------- -------
Total other expenses..................... 6,486 3,735 9,942 7,386
------- ------- ------- -------
Net income (loss)........................ $ (287) $ 1,745 $ 528 $ 1,645
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
F-20
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
MEMBER'S
DEFICIT
---------
<S> <C>
BALANCE, DECEMBER 31, 1998.......................................... $ (69,447)
NET INCOME........................................................ 528
DISTRIBUTIONS..................................................... (33,501)
---------
BALANCE, JUNE 30, 1999.............................................. $(102,420)
=========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
F-21
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
---------------
1999 1998
------- ------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 528 $1,645
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation.............................................. 3,354 3,713
Amortization of intangible assets......................... 684 687
Deferred compensation expense............................. 870 712
Payments of deferred compensation......................... (3,678) (1,092)
Barter income............................................. (55) (141)
(Gain) loss on disposals of property, plant and equipment,
net...................................................... 21 19
Purchases of investments.................................. (380) (571)
Changes in assets and liabilities:
Accounts receivable, net................................ (1,527) (1,966)
Inventories............................................. (4) 23
Prepaid rent and other prepaid expenses................. (336) (354)
Other assets............................................ (2) 3
Accounts payable and accrued expenses................... 160 (5)
Interest payable........................................ 388 (276)
Other liabilities--long term............................ 0 (75)
------- ------
Net cash provided by operating activities............. 23 2,322
Cash flows from investing activities:
Additions to property, plant and equipment.................. (4,856) (2,799)
Proceeds from sales of property, plant and equipment........ 8 1
------- ------
Net cash used in investing activities................. (4,848) (2,798)
Cash flows from financing activities:
Debt financing costs........................................ (1,494) (81)
Payments on revolving line of credit........................ (18,240) (4,844)
Advances on revolving line of credit........................ 9,412 6,744
Proceeds from long-term debt................................ 50,000 0
Distributions............................................... (33,501) (518)
------- ------
Net cash provided by financing activities............. 6,177 1,301
------- ------
Net increase in cash and cash equivalents..................... 1,352 825
Cash and cash equivalents at beginning of period.............. 1,687 3,121
------- ------
Cash and cash equivalents at end of period.................... $ 3,039 $3,946
======= ======
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
F-22
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999
(Unaudited)
(1) The Limited Liability Corporation
Organization
AOA Holding LLC ("AOA Holding" or the "Company") was incorporated on May 4,
1999, as a Minnesota limited liability company. AOA Holding was formed to
acquire the direct individual interests of Stephen Adams in Adams Outdoor
Advertising Limited Partnership and Adams Outdoor Advertising Inc. and to
serve as a co-issuer of the 10 3/8% Senior Notes due 2006 (the "Senior Notes")
(Note 3). AOA Holding's assets consist of 100% of the outstanding capital
stock of Adams Outdoor Advertising Inc., a 0.70% general partnership interest
and a 68.3% limited partnership interest in Adams Outdoor Advertising Limited
Partnership. Mr. Adams is the sole member of AOA Holdings and all operations
are conducted through Adams Outdoor Advertising Limited Partnership.
AOA Capital Corp. ("AOA Capital"), a wholly-owned subsidiary of AOA
Holdings, was incorporated on May 4, 1999 for the sole purpose of serving as
co-issuer of the Senior Notes.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by AOA Holding in accordance with the instructions for Form 10-Q and
therefore do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations, and cash flows in
conformity with generally accepted accounting principles. However, in the
opinion of management, all adjustments, which consist of normal recurring
accruals necessary for a fair presentation of the information for the periods
presented have been made. Certain information and footnote disclosures
normally included in consolidated financial statements prepared in accordance
with generally accepted accounting principles have been considered or omitted
pursuant to such rules and regulations. Although the Company believes that the
disclosures are adequate to make the information presented not misleading, it
is suggested that these consolidated financial statements be read in
conjunction with the audited financial statements of AOA Holding LLC and
subsidiaries as of and for the year ended December 31, 1998. Certain
reclassifications have been made to prior year amounts to conform with the
current year presentation.
The transfer of ownership of Adams Outdoor Advertising Inc. and Adams
Outdoor Advertising Limited Partnership to AOA Holding (Note 1) has been
accounted for as a reorganization of entities under common control similar to
a pooling of interests. Therefore, the consolidated financial statements of
AOA Holding for the periods prior to its formation include the accounts of
Adams Outdoor Advertising Inc. and Adams Outdoor Advertising Limited
Partnership, the predecessor companies, and for the periods subsequent to its
formation, the Company and its majority owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
(3) Offering
In May 1999, following the organization, AOA Holding and its 100% owned
subsidiary, AOA Capital issued $50 million of Senior Notes. The net proceeds
from the offering were used by AOA Holding (i) to make a $32.5 million
distribution to its sole member, (ii) to repay $13.25 million of indebtedness
of Adams Outdoor Advertising Limited Partnership, and (iii) to make a $2.5
million allocation to the Adams Outdoor Advertising Limited Partnership
minority limited partner.
F-23
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) JUNE 30, 1999
(Unaudited)
The Senior Notes are unsecured obligations of AOA Holding and its 100% owned
subsidiary, AOA Capital. The Senior Notes mature on June 1, 2006 and bear
interest at 10 3/8%. Interest is payable semi-annually in arrears on March 15
and September 15, commencing September 15, 1999. The interest rate is subject
to increase if the Senior Notes are not registered with the Securities and
Exchange Commission and declared effective within 150 days of the original
issuance.
The Senior Notes are redeemable at the option of the Company, in whole or in
part after June 1, 2003 at the following redemption prices (expressed as
percentage of principal amount), together, in each case, with accrued and
unpaid interest to the redemption date; 105.188% in 2003, 102.594% in 2004 and
100.00% in 2005 and thereafter. The Company may also redeem the Senior Notes
in whole but not in part at any time during the nine-month period beginning on
April 15, 2001 at 100% of the aggregate principal plus accrued and unpaid
interest in the event of a concurrent redemption by Adams Outdoor Advertising
Limited Partnership of its outstanding notes.
The Indenture contains, among other things, covenants restricting the
ability of the Company to incur additional indebtedness, make certain
distributions, make certain investments, change the status of company
subsidiaries, create liens, enter into transactions with affiliates, dispose
of assets, enter into sale-leaseback transactions, make payments for consents,
and enter into additional lines of business.
In connection with the reorganization, the Adams Outdoor Advertising Limited
Partnership agreement was amended to provide that the limited partnership
interest of AOA Holding become a "priority" interest whereby all limited
partner distributions (other than permitted tax distributions) will be made
only to AOA Holding until the notes are paid in full. In recognition of the
change in the partnership agreement, the Company paid to the minority limited
partner $2.5 million, which has been reflected as other expense in the
accompanying consolidated statements of operations.
(4) Commitment and Contingencies
Zoning Regulations
In 1988, the city of Charlotte, North Carolina, adopted a comprehensive sign
ordinance prohibiting the construction of virtually all new, off-premise
outdoor advertising signs within the city limits and mandating that all
nonconforming signs either be brought into compliance or be removed by
February 1, 1998 at the owner's expense without payment of compensation.
Through March 1998, the Company had received a total of 307 notices of
violation ("NOV's"). The Company does not anticipate receiving any additional
NOV's at this time. In 1998, the Company filed a lawsuit in the Superior Court
of Mecklenburg County, North Carolina, challenging the constitutionality of
the Charlotte sign ordinance. In 1998 the case was settled, and approximately
160 of the billboards in question must be removed at the Company's expense by
December 5, 2002. This will result in a material adverse impact on the gross
revenues and cash flow attributable to the Charlotte market, but, in the
opinion of management, not on the financial condition of the Company as a
whole.
In other localities in which the Company operates, outdoor advertising is
subject to restrictive and, in some cases, prohibitive, zoning regulations.
Management expects federal, state, and local regulations to continue to be a
significant factor in the operation of the Company's business.
Concentration Of Risks
Approximately 10.3%, 10.5%, and 12.5% of the Company's net revenues for the
years ended December 31, 1998, 1997, and 1996, respectively, were attributable
to the tobacco products industry. In November 1998, the major U.S. tobacco
companies (the "Tobacco Companies") reached an out of court settlement (the
F-24
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (NOTE 2)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) JUNE 30, 1999
(Unaudited)
"Agreement") with 46 states, the District of Columbia, the Commonwealth of
Puerto Rico and four other U.S. territories (the "Settling States"). The
remaining four states had already reached similar settlements with the Tobacco
Companies. The Agreement calls for the removal of tobacco advertising from
out-of-home media, including billboards, along with signs and placards in
arenas, stadiums, shopping malls and video game arcades by April 23, 1999.
Additionally, the Agreement provides that, at the Settling States' option, the
Tobacco Companies must, at their expense, substitute for tobacco advertising
alternative advertising which discourages youth smoking. That alternative
advertising must remain in place for the duration of the Tobacco Companies'
out-of-home media advertising contracts which existed as of the date of the
Agreement.
The elimination of tobacco advertising as called for by the Agreement will
cause a reduction in direct revenues from Tobacco Companies and may
simultaneously increase the available space on the existing inventory of
billboards in the outdoor advertising industry. Although the extent of the
future impact on operations is not known, the Company has been successful thus
far in replacing tobacco advertising in its Minneapolis market where
settlement was reached prior to the Agreement. While this is positive, the
Company can give no assurance that the further cutbacks in tobacco advertising
during 1999 will not have an adverse effect on operations for 1999 or beyond.
F-25
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WE HAVE NOT AUTH0RIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING TO YOU OTHER THAN THE INFORMATION CONTAINED
IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION OR
REPRESENTATIONS.
THIS PROSPECTUS DOES NOT OFFER TO SELL OR ASK FOR OFFERS TO BUY ANY OF THE
SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL, WHERE THE PERSON MAKING
THE OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHO CAN NOT LEGALLY BE
OFFERED THE SECURITIES. THE INFORMATION IN THIS PROSPECTUS IS CURRENT ONLY AS
OF THE DATE ON ITS COVER, AND MAY CHANGE AFTER THAT DATE. FOR ANY TIME AFTER
THE COVER DATE OF THIS PROSPECTUS, WE DO NOT REPRESENT THAT OUR AFFAIRS ARE
THE SAME AS DESCRIBED OR THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT--
NOR DO WE IMPLY THOSE THINGS BY DELIVERING THIS PROSPECTUS OR SELLING
SECURITIES TO YOU.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 13
Forward-Looking Statements............................................... 20
The Issuers.............................................................. 21
Exchange Offer........................................................... 23
Use of Proceeds.......................................................... 32
Capitalization........................................................... 33
Selected Historical and Pro Forma Financial Data......................... 34
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 37
Business................................................................. 44
Management............................................................... 52
Principal Security Holders............................................... 57
Certain Transactions..................................................... 58
Limited Liability Company Agreement...................................... 58
Description of Certain Indebtedness...................................... 59
Description of the Notes................................................. 61
United States Federal Income Tax Consequences............................ 92
Plan of Distribution..................................................... 93
Legal Matters............................................................ 93
Experts.................................................................. 93
Change in Accountants.................................................... 93
Additional Information................................................... 94
Index to Financial Statements............................................ F-1
</TABLE>
----------------
Until January 26, 2000 (90 days after the date of this Prospectus) all
dealers effecting transactions in the exchange notes, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
selling exchange notes received in exchange for outstanding notes held for
their own account. See "Plan of Distribution."
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$50,000,000
AOA HOLDING LLC
AOA CAPITAL CORP
Offer to Exchange their
10 3/8% Senior Notes due 2006
which have been registered
under the Securities Act
for any and all of their
outstanding
10 3/8% Senior Notes due 2006
----------------
PROSPECTUS
----------------
Dated October 28, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
