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Filed pursuant to Rule 424(b)(3)
Registration No. 333-39729
PROSPECTUS
LAMAR ADVERTISING COMPANY
OFFER TO EXCHANGE 8 5/8% SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL EXISTING NOTES (AS DEFINED BELOW)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 15,
1997, UNLESS EXTENDED. AS DESCRIBED HEREIN, WITHDRAWAL RIGHTS WITH RESPECT TO
THE EXCHANGE OFFER ARE EXPECTED TO EXPIRE AT THE EXPIRATION OF THE EXCHANGE
OFFER.
Lamar Advertising Company, a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal") to exchange up to $200,000,000
aggregate principal amount of its 8 5/8% Senior Subordinated Notes due 2007 (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act") pursuant to a Registration Statement of which
this Prospectus is a part, for a like principal amount of its issued and
outstanding 8 5/8% Senior Subordinated Notes due 2007 (the "Existing Notes").
The Exchange Notes and the Existing Notes, as the case may be, are referred to
herein as the "Notes." The Existing Notes were originally issued and sold by the
Company in a transaction that was exempt from registration under the Securities
Act (the "Initial Offering") and resold to certain qualified institutional
buyers in reliance on, and subject to the restrictions imposed pursuant to, Rule
144A under the Securities Act ("Rule 144A"). The terms of the Exchange Notes are
identical in all material respects to the terms of the Existing Notes for which
they may be exchanged pursuant to the Exchange Offer, except that the Exchange
Notes will have been registered under the Securities Act, and thus will not bear
restrictive legends restricting their transfer pursuant to the Securities Act.
Interest on each of the Exchange Notes issued pursuant to the Exchange
Offer will accrue from the last interest payment date on which interest was paid
or duly provided for on the Existing Notes surrendered in exchange therefor or,
if no interest has been paid or duly provided for, from the original date of
issuance of the Existing Notes.
Interest on the Notes is payable semi-annually on March 15 and September 15
of each year, commencing March 15, 1998. The Notes will mature on September 15,
2007. The Notes will be redeemable at the option of the Company, in whole or in
part, on or after September 15, 2002, at the redemption prices set forth herein
plus accrued and unpaid interest, if any, to the date of redemption. Upon a
Change of Control (as defined herein), each holder of the Notes will have the
right to require the repurchase of such holder's Notes by the Company in cash at
a purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase. In addition, at any time on or
prior to September 15, 2000, the Company may redeem up to $60 million aggregate
principal amount of the Notes with the net proceeds of one or more Public Equity
Offerings (as defined herein) at a redemption price equal to 108.625% of the
aggregate principal amount of each Note so redeemed, plus accrued and unpaid
interest, if any, to the date of redemption; provided, however, that immediately
after giving effect to any such redemption, not less than $140 million aggregate
principal amount of the Notes remains outstanding.
The Notes will be senior subordinated unsecured obligations of the Company
and will be subordinated in right of payment to all present and future Senior
Indebtedness (as defined herein) of the Company, pari passu in right of payment
with the $255 million aggregate principal amount of 9 5/8% Senior Subordinated
Notes due 2006 issued by the Company on November 27, 1996 (the "1996 Notes") and
any additional future senior subordinated indebtedness of the Company, and
senior in right of payment to all existing and any future subordinated
indebtedness of the Company. The amount of Senior Indebtedness outstanding as of
September 30, 1997 was approximately $55.9 million. Pursuant to the Senior
Credit Facility (as defined herein), the Company has the ability to incur
additional Senior Indebtedness.
The Notes will be guaranteed (the "Guarantees"), on a joint and several
basis, by all of the Company's significant subsidiaries existing on the closing
date of the Initial Offering (collectively, the "Guarantors"). The Guarantees
will be general unsecured obligations of the Guarantors and will be subordinated
in right of payment to all existing and future Senior Indebtedness of the
Guarantors, pari passu in right of payment with the Guarantors' guarantees of
the 1996 Notes (the "1996 Guarantees") and any additional future senior
subordinated indebtedness of the Guarantors, and senior in right of payment to
any future subordinated indebtedness of the Guarantors.
(cover continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is November 12, 1997
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The Exchange Offer is not conditioned upon any minimum number of Existing
Notes tendered. The Exchange Offer will expire at 5:00 p.m., New York City time,
on December 15, 1997, unless extended by the Company (such date as it may be so
extended, the "Expiration Date"). The date of acceptance for exchange of its
Existing Notes (the "Exchange Date") will be promptly following the Expiration
Date, upon surrender of the Existing Notes. Existing Notes tendered pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date;
otherwise such tenders are irrevocable. Exchange Notes to be issued in exchange
for properly tendered Existing Notes will be delivered through the facilities of
The Depository Trust Company by the Exchange Agent (as defined herein) promptly
upon acceptance thereof.
The Existing Notes were originally issued and sold on September 25, 1997 in
a transaction not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act and Rule 144A.
Accordingly, the Existing Notes may not be reoffered, resold or otherwise
pledged, hypothecated or transferred in the United States unless so registered
or unless an applicable exemption from the registration requirements of the
Securities Act is available. Based upon interpretations provided to third
parties by the Staff (the "Staff") of the Securities and Exchange Commission
(the "Commission"), the Company believes that the Exchange Notes issued pursuant
to the Exchange Offer in exchange for the Existing Notes may be offered for
resale, resold or otherwise transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the Company within the meaning of the
Securities Act (an "Affiliate"), (ii) a broker-dealer who acquired Existing
Notes directly from the Company or (iii) a broker-dealer who acquired Existing
Notes as a result of market-making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with any
person to participate in a distribution of such Exchange Notes. Since the
Commission has not considered the Exchange Offer in the context of a no action
letter, there can be no assurance that the Staff of the Commission would make a
similar determination with respect to the Exchange Offer as in such other
circumstances. Each holder of Existing Notes that desires to participate in the
Exchange Offer will be required to make certain representations discussed in
"The Exchange Offer -- Terms and Conditions of the Letter of Transmittal." Any
holder that cannot rely upon such interpretations must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Existing Notes where
such Existing Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
The Exchange Notes may be represented by one or more Global Notes (as
defined) registered in the name of a nominee of The Depository Trust Company, as
Depositary. Beneficial interest in the Global Notes will be shown on, and
transfers will be effected only through, records maintained by the Depositary
and its participants. See "Book Entry, Delivery and Form."
The Exchange Notes constitute a new issue of securities with no established
public trading market. The Company does not intend to list the Exchange Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. Moreover, to the extent that Existing Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered, and tendered by unaccepted, Existing Notes could be adversely
affected. See "Risk Factors -- Absence of Public Market for the Exchange Notes;
Restrictions on Transfer."
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The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses it incurs for the Exchange Offer. No
dealer manager is being utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE, NOR WILL THE COMPANY ACCEPT SURRENDER
FOR EXCHANGE FROM HOLDERS OF EXISTING NOTES, IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR "BLUE SKY" LAWS OF SUCH JURISDICTION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 11
USE OF PROCEEDS............................................. 16
CAPITALIZATION.............................................. 17
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL AND
OPERATING DATA............................................ 18
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS................................................ 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 28
BUSINESS.................................................... 35
THE EXCHANGE OFFER.......................................... 49
MANAGEMENT.................................................. 58
EXECUTIVE COMPENSATION...................................... 60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 62
PRINCIPAL STOCKHOLDERS...................................... 64
DESCRIPTION OF CAPITAL STOCK................................ 66
DESCRIPTION OF OTHER INDEBTEDNESS........................... 68
DESCRIPTION OF NOTES........................................ 70
EXISTING NOTES REGISTRATION RIGHTS.......................... 92
BOOK ENTRY; DELIVERY AND FORM............................... 94
PLAN OF DISTRIBUTION........................................ 96
LEGAL MATTERS............................................... 97
EXPERTS..................................................... 97
AVAILABLE INFORMATION....................................... 97
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 98
</TABLE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, risk factors and historical and pro forma financial statements,
including the related notes, appearing elsewhere and incorporated by reference
in this Prospectus. Separate financial statements of the Guarantors are not
included herein because the Guarantors are jointly and severally liable under
the Guarantees, and the aggregate assets, liabilities, earnings and equity of
the Guarantors are substantially equivalent to the assets, liabilities, earnings
and equity of the Company on a consolidated basis. Unless otherwise indicated,
as used herein, the "Company" refers to Lamar Advertising Company together with
its consolidated subsidiaries. As used in this Prospectus, the term "market"
refers to the geographic area represented by the Winter 1997 Arbitron Radio
Metro Market ranking, as determined by The Arbitron Company, which ranks,
according to population of persons 12 years or older, the largest 263 markets in
the U.S. -- from New York, NY (1) to Casper, WY (263). The Company believes that
the Metro Market ranking is a standard measure of market size used by the media
industry.
This Prospectus contains forward-looking statements concerning the
Company's operations, economic performance and financial condition. These
statements are based upon a number of assumptions and estimates that are subject
to significant uncertainties and contingencies, many of which are beyond the
control of the Company, and reflect future business decisions that are subject
to change. See "Risk Factors."
THE COMPANY
Lamar Advertising Company is one of the largest and most experienced owners
and operators of outdoor advertising structures in the United States. It
conducts a business that has operated under the Lamar name since 1902. As of
September 30, 1997, the Company operated approximately 43,000 outdoor
advertising displays in 23 states. The Company provides a full array of poster
and bulletin displays in 51 of its 64 markets. In its remaining 13 markets, the
Company operates high-profile bulletin displays along interstate and other major
highways. The Company also operates the largest logo sign business in the United
States. Logo signs are erected pursuant to state-awarded franchises on public
rights-of-way near highway exits and deliver brand name information on available
gas, food, lodging and camping services. The Company currently operates logo
sign franchises in 18 of the 22 states that have a privatized logo sign program.
As of September 30, 1997, the Company maintained over 21,900 logo sign
structures containing approximately 68,800 logo advertising displays under these
franchises. In addition, the Company operates the tourism signage franchises in
four states and the province of Ontario, Canada. The Company has also expanded
into the transit advertising business through the operation of displays on bus
shelters, bus benches and buses in ten of its primary markets and three other
markets in the state of South Carolina. For the fiscal year ended October 31,
1996, the Company reported net revenues and EBITDA (as defined herein) of $120.6
million and $50.0 million, respectively. Assuming all of the Recent Acquisitions
(as defined herein) were consummated as of October 1, 1996, the Company's net
revenues and EBITDA for the twelve months ended September 30, 1997 would have
been approximately $216.4 million and $98.5 million, respectively.
The Company's strategy is to be the leading provider of outdoor advertising
in the markets it serves, with an historical emphasis on providing a full range
of outdoor advertising services in middle markets. Important elements of the
Company's strategy are its decentralized management structure and its focus on
providing high quality local sales and service. In order to be more responsive
to local market demands, the Company offers a full complement of outdoor
advertising services coupled with local production facilities, management and
account executives through its local offices. Local advertising constituted
approximately 81% of the Company's outdoor advertising net revenues in fiscal
1996, which management believes is higher than the industry average. While
maintaining its local focus, the Company seeks to expand its operations within
existing and contiguous markets. The Company also pursues expansion
opportunities, including acquisitions, in additional markets. In this regard and
as described more fully below, the Company has increased the number of outdoor
advertising displays it operates by 72% since October 31, 1996 by completing 15
acquisitions. In the logo sign business, the Company's strategy is to maintain
its position as the largest operator of logo signs in the United States by
expanding through the addition of state logo franchises as they are
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awarded and through possible acquisitions. The Company may also pursue expansion
opportunities in transit and other out-of-home media which the Company believes
will enable it to leverage its management skills and market position.
The Company believes that the experience of its senior and local managers
has contributed greatly to its success. Its regional managers have been with the
Company, on average, for 23 years. The average tenure of the Company's 55 local
managers is eight years. In addition, each of the six regional managers and 45
of the 55 local managers began their careers with the Company as local sales
executives. The Company emphasizes decentralized local management of operations
with centralized support and financial and accounting controls. As a result of
this local focus, the Company maintains an extensive local operating presence
within its markets and employed a total of 212 local account executives at
September 30, 1997. Local account executives are typically supported by
additional local staff and have the ability to draw upon the resources of the
central office and offices in other markets in the event that business
opportunities or customers' needs support such allocation of resources.
The Company's principal executive office is located at 5551 Corporate
Boulevard, Baton Rouge, Louisiana 70808. Its telephone number is (504) 926-1000.
RECENT ACQUISITIONS
Since October 31, 1996, the Company has acquired the assets or capital
stock of several complementary businesses. The Company believes that these
acquisitions generally allow the Company to capitalize on the operating
efficiencies and cross-market sales opportunities associated with operating in
or near markets currently served by the Company.
The Company has historically financed its acquisition activity from
external sources, including the sale of securities and borrowings under bank
credit facilities. Since December 1996, when the Company entered into the Senior
Credit Facility, it has borrowed approximately $48 million, $66 million and $114
million under the facility to finance the acquisitions of Penn Advertising, Inc.
("Penn"), Headrick Outdoor, Inc. ("Headrick") and National Advertising Company
("3M"), respectively.
The FKM Acquisition
On November 1, 1996, the Company acquired all of the outstanding capital
stock of FKM Advertising Co., Inc. ("FKM") for a cash purchase price of
approximately $40 million. Upon completion of the FKM acquisition, the Company
acquired a total of 122 bulletins and 537 posters in Youngstown, OH and 553
bulletins located across the state of Pennsylvania on interstate highways and
other primary roads. FKM had approximately $7.5 million of net revenues for the
twelve months ended September 30, 1996. The acquisition of FKM expanded the
Company's operations in Ohio and gave the Company an entry into Pennsylvania.
The Outdoor East Acquisition
On December 11, 1996, the Company acquired substantially all of the assets
of Outdoor East, L.P. ("Outdoor East") for a cash purchase price of
approximately $60.5 million. Upon completion of the acquisition of Outdoor East,
the Company acquired an additional 1,780 posters and 2,070 bulletins in seven
markets in the states of Virginia, West Virginia, North Carolina, South
Carolina, Georgia and Florida. The largest market included in this acquisition
was Columbia, SC, which is the state capital, home to the University of South
Carolina and the 88th largest market in the U.S. Outdoor East had approximately
$12.2 million in net revenues for the twelve months ended September 30, 1996.
The Penn Acquisition
On April 1, 1997, the Company acquired all of the outstanding capital stock
of Penn for a cash purchase price of approximately $167.0 million. Pursuant to
the Penn acquisition, the Company acquired a total of 8,500 outdoor advertising
displays throughout the states of Maryland, New York and Pennsylvania. On June
3, 1997, the Company sold approximately 1,450 of these displays in Baltimore,
Maryland to Universal Outdoor,
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Inc. for a cash purchase price of approximately $46.5 million. The acquisition
of Penn expanded the Company's presence in Pennsylvania and gave the Company an
entry into New York. Penn had net revenues of approximately $29.5 million for
the twelve months ended December 31, 1996, excluding its revenues from the
Baltimore market.
The Headrick Acquisition
On June 4, 1997, the Company acquired substantially all of the assets of
Headrick for a cash purchase price of $76.6 million. Simultaneously with the
Headrick acquisition, the Company sold approximately 9% of the outdoor
advertising displays acquired from Headrick for $6.0 million in cash. The
Headrick acquisition added approximately 3,200 bulletins in ten southeastern and
midwestern states. These assets generated net revenues of approximately $11.5
million for the twelve months ended December 31, 1996.
The 3M Acquisition
On August 15, 1997, the Company acquired from Outdoor Systems, Inc.
("OSI"), for a cash purchase price of approximately $116.0 million (excluding
approximately $2.0 million in capitalized costs), certain outdoor advertising
assets that OSI had acquired from 3M (the "3M Acquisition"). Pursuant to the 3M
Acquisition, the Company acquired approximately 1,745 bulletin displays in the
following ten markets: Phoenix, Arizona; Sacramento, California; Denver,
Colorado; Atlanta, Georgia; Louisville, Kentucky; New Orleans, Louisiana;
Detroit and Grand Rapids, Michigan; Kansas City, Missouri; and Houston, Texas.
The acquisition marked the Company's entry into the states of Arizona,
California and Michigan and its expansion into the 50 largest U.S. markets. The
assets acquired in the 3M Acquisition generated net revenues of approximately
$23.4 million during the twelve months ended December 31, 1996.
Other Acquisitions
On May 15, 1997, the Company acquired all of the outstanding stock of
McWhorter Advertising, Inc. ("McWhorter") for a cash purchase price of $8.5
million. Pursuant to the McWhorter acquisition, the Company acquired
approximately 1,050 displays in West Virginia. In nine separate transactions
since October 31, 1996, the Company acquired an aggregate of 400 additional
outdoor advertising displays for an aggregate purchase price of approximately
$4.3 million. The Company also acquired the logo sign franchises for the states
of Kentucky and Nevada in December 1996 for approximately $3.8 million in cash,
and in February 1997 the Company acquired 450 transit advertising displays in
Georgia and South Carolina for approximately $1.1 million in cash.
The acquisitions of FKM, Outdoor East and Penn and the 3M Acquisition are
collectively referred to herein as the "Recent Acquisitions."
RECENT DEVELOPMENTS
On October 28, 1997, the Company announced that its net revenues and EBITDA
for the third quarter of 1997 were $55.5 million and $26.4 million,
respectively, representing $23.6 million and $12.2 million increases in net
revenues and EBITDA, respectively, over the third quarter of 1996. The Company's
net earnings for the third quarter of 1997 were $1.0 million as compared to $3.4
million for the same period in 1996. This decrease is attributable to additional
depreciation and amortization expense and increased interest expense resulting
from the Company's acquisition activity. For the nine months ended September 30,
1997, the Company's net revenue, EBITDA and net earnings were $143.4 million,
$65.3 million and $3.9 million, respectively, as compared to $90.7 million,
$37.0 million and $7.7 million, respectively, for the nine months ended
September 30, 1996.
THE EXCHANGE OFFER
On September 25, 1997, the Company sold the Existing Notes to Chase
Securities, Inc., Smith Barney, Inc., BT Alex. Brown Incorporated and Montgomery
Securities (the "Initial Purchasers"), which resold the Existing Notes to
qualified institutional buyers. The Company applied the net proceeds of the sale
of the Existing Notes to repay amounts outstanding under the Company's credit
facility with a syndicate of commercial banks (the "Senior Credit Facility").
The application of the proceeds did not involve any revolving credit commitment
reduction under the Senior Credit Facility. In connection with the Initial
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Offering, the Senior Credit Facility was amended to reflect the Company's recent
financial results and market and operating conditions, as well as the sale of
the Existing Notes and the prepayment of term loan and revolving credit
borrowings under the Senior Credit Facility. Modifications under the Senior
Credit Facility included an increase in the permitted capital expenditures and
an increase in the size of permitted acquisitions. The Company will not receive
any proceeds from the Exchange Offer. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition, Liquidity and Capital Resources" and
"Description of Other Indebtedness -- Senior Credit Facility."
The Exchange Offer......... The Company is offering to exchange up to
$200,000,000 aggregate principal amount of 8 5/8%
Senior Subordinated Notes due 2007 (the "Exchange
Notes") for up to $200,000,000 aggregate principal
amount of its outstanding 8 5/8 Senior Subordinated
Notes due 2007 that were issued and sold on
September 25, 1997 in reliance upon an exemption
from registration under the Securities Act (the
"Existing Notes"). The terms of the Exchange Notes
will be substantially identical in all respects
(including principal amount, interest rate,
maturity and ranking) to the terms of the Existing
Notes for which they may be exchanged pursuant to
the Exchange Offer, except that the Exchange Notes
have been registered under the Securities Act and
therefore will not be subject to certain
restrictions on transfer except as provided herein
(see "The Exchange Offer -- Terms of the Exchange"
and "-- Terms and Conditions of the Letter of
Transmittal") and will not be entitled to
registration rights except under certain limited
circumstances.
Resale of Exchange Notes... Based upon interpretations by the Staff of the
Commission, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for the Existing Notes may be offered for
resale, resold and otherwise transferred by holders
thereof (other than any holder which is (i) an
Affiliate, (ii) a broker-dealer who acquired
Existing Notes directly from the Company or (iii) a
broker-dealer who acquired Existing Notes as a
result of market-making or other trading
activities) without compliance with the
registration and prospectus delivery provisions of
the Securities Act except as provided herein and
provided that such Exchange Notes are acquired in
the ordinary course of such holders' business and
such holders have no arrangement with any person to
participate in a distribution of such Exchange
Notes.
By tendering Existing Notes in exchange for
Exchange Notes, each holder certifies that (a) it
is not an Affiliate, that it is not a broker-dealer
that owns Existing Notes acquired directly from the
Company or an Affiliate of the Company, that it is
acquiring the Exchange Notes offered hereby in the
ordinary course of such Transferor's business and
that such Transferor has no arrangement with any
person to participate in the distribution of such
Exchange Notes or (b) that it is an Affiliate of
the Company or of any of the Initial Purchasers and
that it will comply with the registration and
prospectus delivery requirements of the Securities
Act to the extent applicable to it.
Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales
of Exchange Notes received in exchange for Existing
Notes where such Existing Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities. The Company
has agreed that, for a period of 90
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<PAGE> 9
days after the Expiration Date (as defined herein),
it will make this Prospectus available to any
broker-dealer for use in connection with any such
resale. Any holder that cannot rely upon such
interpretations must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with a secondary
resale transaction. See "Plan of Distribution."
Minimum Condition.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Existing
Notes being tendered for exchange.
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on December 15, 1997 unless
extended (the "Expiration Date").
Exchange Date.............. The first date of acceptance for exchange for the
Existing Notes will be the first business day
following the Expiration Date.
Conditions to the
Exchange Offer........... The obligation of the Company to consummate the
Exchange Offer is subject to certain conditions.
See "The Exchange Offer -- Conditions to the
Exchange Offer." The Company reserves the right to
terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the occurrence of
any such condition.
Procedures for Tendering
Existing Notes........... Each holder of Existing Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, with
any required signature guarantees, or an Agent's
Message (as defined herein) in accordance with the
instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal, or
such facsimile, together with any other required
documentation to the Exchange Agent (as defined
herein) at the address set forth herein and effect
a tender of Existing Notes pursuant to the
procedures for book-entry transfer as provided for
herein. Certain other procedures may apply with
respect to certain book-entry transfers. See "The
Exchange Offer -- How to Tender."
Guaranteed Delivery
Procedures............... Holders of Existing Notes who wish to tender their
Existing Notes and who cannot deliver their
Existing Notes and a properly completed Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent prior
to the Expiration Date may tender their Existing
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer -- How
to Tender -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to the
Expiration Date. Any Existing Notes not accepted
for any reason will be returned without expense to
the tendering holders thereof as promptly as
practicable after the expiration or termination of
the Exchange Offer. See "The Exchange
Offer -- Withdrawal Rights."
Federal Income Tax
Consequences............. The exchange of Existing Notes for Exchange Notes
by holders should not constitute an exchange for
federal income tax purposes, and U.S. holders
should not realize any gain or loss upon receipt of
Exchange Notes. See "The Exchange Offer -- Federal
Income Tax Consequences."
Effect of Holders of
Existing Notes........... As a result of the making of this Exchange Offer,
and upon acceptance for exchange of all validly
tendered Existing Notes pursuant to the terms
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<PAGE> 10
of this Exchange Offer, the Company will have
fulfilled covenants contained in the terms of the
Existing Notes and the Exchange and Registration
Rights Agreement (the "Exchange and Registration
Rights Agreement") dated September 25, 1997 between
the Company and Chase Securities Inc., Smith Barney
Inc., BT Alex. Brown Incorporated and Montgomery
Securities as initial purchasers (the "Initial
Purchasers") and, accordingly, the holders of the
Existing Notes will have no further registration or
other rights under the Exchange and Registration
Rights Agreement, except under certain limited
circumstances. See "Existing Notes Registration
Rights." Holders of the Existing Notes who do not
tender their Existing Notes in the Exchange Offer
will continue to hold such Existing Notes and will
be entitled to all the rights and limitations
applicable thereto under the indenture covering the
Notes (the "Indenture"). All untendered, and
tendered but unaccepted, Existing Notes will
continue to be subject to the restrictions on
transfer provided for in the Existing Notes and the
Indenture. To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the
trading market, if any, for the Existing Notes
could be adversely affected. See "Risk
Factors -- Consequences of Exchange and Failure to
Exchange."
Fees and Expenses.......... Expenses incident to the Company's completion of
the Exchange Offer and compliance with the Exchange
and Registration Rights Agreement will be borne by
the Company. See "The Exchange
Offer -- Solicitation of Tenders; Expenses."
Use of Proceeds............ The Company will not receive any proceeds from the
Exchange Offer. The net proceeds from the sale of
Existing Notes were used to repay amounts then
outstanding under the Senior Credit Facility. See
"Use of Proceeds."
TERMS OF THE NOTES
The Exchange Offer applies to $200,000,000 aggregate principal amount of
the Existing Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Existing Notes except that the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. The Exchange Notes will evidence the same debt
as the Existing Notes and will be entitled to the benefits of the Indenture. See
"Description of Notes."
Issuer..................... Lamar Advertising Company
Securities Offered......... $200,000,000 aggregate principal amount of 8 5/8%
Senior Subordinated Notes due September 15, 2007.
Maturity Date.............. September 15, 2007.
Interest Payment Dates..... March 15 and September 15 of each year, commencing
March 15, 1998.
Optional Redemption........ The Notes will be redeemable at the Company's
option, in whole or in part, at any time on or
after September 15, 2002 at the redemption prices
set forth herein plus accrued and unpaid interest,
if any, to the date of redemption. In addition, at
any time on or prior to September 15, 2000, the
Company may redeem up to $60 million aggregate
principal amount of the Notes with the net proceeds
of one or more Public Equity Offerings at a
redemption price equal to 108.625% of the aggregate
principal of each Note so redeemed, plus accrued
and unpaid interest, if any, to the date of
redemption; provided, however, that immediately
after giving effect to any such redemption, not
less than $140 million aggregate principal amount
of the Notes remains outstanding. See "Description
of Notes -- Optional Redemption."
6
<PAGE> 11
Change of Control.......... In the event of a Change of Control, the Company
will be obligated to make an offer to purchase all
outstanding Notes at a purchase price of 101% of
the principal amount thereof plus accrued interest,
if any. See "Description of Notes -- Change of
Control."
Subsidiary Guarantees...... The Notes will be guaranteed, on a joint and
several basis, by the Guarantors. The Guarantees
will be general unsecured senior subordinated
obligations of the Guarantors and will be
subordinated in right of payment to all existing
and future Senior Indebtedness of the Guarantors
including guarantees of indebtedness outstanding
under the Senior Credit Facility, pari passu in
right of payment with the Existing Guarantees and
any future senior subordinated indebtedness of the
Guarantors, and senior in right of payment to any
future subordinated indebtedness of the Guarantors.
Ranking.................... The Notes will be senior subordinated unsecured
obligations of the Company and will be subordinated
in right of payment to all existing and future
Senior Indebtedness of the Company, including
indebtedness under the Senior Credit Facility, pari
passu in right of payment with the 1996 Notes and
any future senior subordinated indebtedness of the
Company, and senior in right of payment to all
existing and any future subordinated indebtedness
of the Company. As of September 30, 1997, the
aggregate amount of Senior Indebtedness of the
Company on a consolidated basis that would have
ranked senior to the Notes was approximately $55.9
million. Pursuant to the Senior Credit Facility,
the Company has the ability to incur additional
Senior Indebtedness.
Restrictive Covenants...... The Indenture imposes certain other limitations on
the ability of the Company and certain of its
subsidiaries to, among other things, incur
additional indebtedness, pay dividends or make
certain other restricted payments and investments,
consummate certain transactions with affiliates,
incur liens, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of
the Company's assets. The Indenture also imposes
limitations on the Company's ability to restrict
the ability of subsidiaries to pay dividends or
make certain payments to the Company or its
subsidiaries.
RISK FACTORS
Holders of Existing Notes should carefully consider all of the information
set forth in this Prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" beginning on page 13, prior to making a decision
with respect to the Exchange Offer.
7
<PAGE> 12
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The following table sets forth summary historical consolidated and pro
forma consolidated financial and operating data of the Company for the five
years ended October 31, 1996 and the six months ended July 31, 1996 and June 30,
1997, and certain pro forma consolidated financial and operating data for the
year ended October 31, 1996 and the six months ended June 30, 1997. The
financial statements of the Company for each of the years in the three-year
period ended October 31, 1996 and as of October 31, 1995 and 1996 were audited
by KPMG Peat Marwick LLP, independent auditors, as indicated in their report
incorporated by reference into this Prospectus. The consolidated statement of
operations data for the six months ended July 31, 1996 and the consolidated
statement of operations and balance sheet data as of and for the six months
ended June 30, 1997 are derived from unaudited financial statements. The
unaudited financial statements include all adjustments, consisting of normal
recurring adjustments, which management considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. The results of operations for any such period are not necessarily
indicative of the results of operations for a full year. The data presented
below should be read in conjunction with the audited consolidated financial
statements, related notes, Management's Discussion and Analysis of Financial
Condition and Results of Operations and other financial information included
herein. For purposes of the pro forma adjusted financial information, (i) the
statement of earnings of the Company for its fiscal year ended October 31, 1996
has been combined with the statements of earnings of Outdoor East and FKM for
twelve months ended September 30, 1996, the statement of earnings for Penn for
its fiscal year ended December 31, 1996 and the statement of revenues and
expenses for the assets acquired in the 3M Acquisition for the twelve month
period ended December 31, 1996, (ii) the statement of earnings of the Company
for the six month period ended June 30, 1997 has been combined with the
statement of earnings of Penn for the three months ended March 31, 1997 (the
period prior to the acquisition) and the statement of revenues and expenses for
the assets acquired in the 3M Acquisition for the six month period ended June
30, 1997 and (iii) effect has been given to the Company's public offering of
4,294,041 shares of Class A Common Stock in August 1996 (the "IPO"), the public
offering of 2,530,000 shares of Class A Common Stock in November 1996, the
November 1996 offering of the Existing Notes and the tender offer that in
November 1996 retired approximately $98.8 million of the $100 million
outstanding 11% Senior Secured Notes due 2003 (collectively, the "Transactions")
and the Offering. For a more complete description of the pro forma impact on the
Company's results of operations, see "Unaudited Pro Forma Condensed Consolidated
Financial Statements."
In December 1996, the Company changed its fiscal year from October 31 to
December 31. Therefore, the financial data presented herein compare the six
month period ended June 30, 1997 with the six month period ended July 31, 1996,
the six month period most closely approximating the presentation for the
Company's 1997 fiscal year. For a comparison of the Company's results of
operations for the six month periods ended June 30, 1996 and 1997, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
8
<PAGE> 13
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
YEAR SIX MONTHS ENDED SIX MONTHS
YEAR ENDED OCTOBER 31, ENDED -------------------- ENDED
------------------------------------------------- OCTOBER 31, JULY 31, JUNE 30, JUNE 30,
1992 1993 1994 1995 1996 1996 1996 1997 1997
------- ------- ------- -------- -------- ----------- -------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues................ $61,955 $66,524 $84,473 $102,408 $120,602 $192,879 $60,553 $ 87,955 $104,372
Operating Expenses
Direct advertising
expenses................ 22,783 23,830 28,959 34,386 41,184 72,353 20,125 28,950 37,675
General and administrative
expenses................ 18,225 19,504 24,239 27,057 29,466 38,570 15,151 20,081 21,126
Depreciation and
amortization............ 8,881 8,924 11,352 14,090 15,549 42,246 7,181 17,727 24,980
------- ------- ------- -------- -------- -------- ------- --------- --------
Total operating
expenses.............. 49,889 52,258 64,550 75,533 86,199 153,169 42,457 66,758 83,781
------- ------- ------- -------- -------- -------- ------- --------- --------
Operating income............ 12,066 14,266 19,923 26,875 34,403 39,710 18,096 21,197 20,591
------- ------- ------- -------- -------- -------- ------- --------- --------
Interest expense............ 10,454 11,502 13,599 15,783 15,441 44,529 8,130 15,404 22,332
Earnings before income taxes
and extraordinary item.... 2,625 1,677 5,227 8,308 17,948 (6,373) 9,221 6,295 (2,287)
Income tax expense
(benefit)(1).............. 270 476 (2,072) (2,390) 7,099 (478) 3,745 3,414 430
Net earnings (loss)(2)...... 2,355 (653) 7,299 10,698 10,849 (5,895) 5,476 2,881 (2,717)
Net earnings (loss)
applicable to common
stock..................... 2,355 (653) 7,299 10,698 10,484 (6,260) 5,293 2,607 (2,991)
Earnings per common share
before extraordinary
item(3)................... $ .07 $ .03 $ .21 $ .32 $ .38 $ (.19) $ .21 $ .08 $ (.09)
======= ======= ======= ======== ======== ======== ======= ========= ========
Net earnings (loss) per
common share(3)........... $ .07 $ (.02) $ .21 $ .32 $ .38 $ (.19) $ .21 $ .08 $ (.09)
======= ======= ======= ======== ======== ======== ======= ========= ========
OTHER DATA:
EBITDA(4)................... 20,947 23,190 31,275 40,965 49,952 81,956 25,277 38,924 45,571
EBITDA margin............... 34% 35% 37% 40% 41% 42% 42% 44% 44%
Ratio of EBITDA to interest
expense................... 2.0x 2.0x 2.3x 2.6x 3.2x 1.8x 3.1x 2.5x 2.0x
Ratio of earnings to fixed
charges(5)................ 1.2x 1.0x 1.3x 1.4x 1.8x .9x 1.8x 1.3x .9x
Capital expenditures:
Outdoor advertising....... 1,695 2,374 4,997 6,643 12,530 20,158 6,463 9,295 10,372
Logos..................... 3,056 2,009 2,761 1,567 13,268 13,268 4,627 5,677 5,677
Cash flows from operating
activities(6)............. 12,930 12,411 15,214 25,065 32,493 -- 18,934 15,853 --
Cash flows from investing
activities(6)............. (7,273) (10,064) (53,569) (17,817) (48,124) -- (17,745) (222,046) --
Cash flows from financing
activities(6)............. (6,734) 6,802 37,147 (9,378) 18,175 -- (1,024) 132,934 --
Number of outdoor
advertising
displays(7)(8)............ 17,835 17,659 22,369 22,547 24,792 42,310 23,089 41,071 42,816
Number of logo advertising
displays(7)............... 11,371 13,820 18,266 24,219 52,414 52,414 48,362 64,502 64,502
Cumulative logo sign
franchises(7)............. 5 7 7 11 15 15 15 18 18
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------------
PRO FORMA FOR
THE 3M ACQUISITION
ACTUAL AND THE OFFERING
-------- ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 7,748 $ 3,174
Working capital............................................. 18,753 17,753
Total assets................................................ 524,785 644,393
Total debt (including current maturities)................... 417,143 535,819
Total long-term obligations................................. 435,454 554,130
Stockholders' equity (deficit).............................. 65,739 65,739
</TABLE>
9
<PAGE> 14
NOTES TO SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING
DATA
(1) The benefit of the Company's net operating loss carryforward was fully
recognized as of October 31, 1995, resulting in the income tax expense shown
for the year ended October 31, 1996 and the six months ended July 31, 1996
and June 30, 1997.
(2) Includes, in 1993, an extraordinary loss on debt extinguishment, net of an
income tax benefit, of $1.9 million. Pro forma financial information for the
year ended October 31, 1996 does not give effect to extraordinary loss from
extinguishment of debt of $9,526, net of income tax benefit of $6,351.
(3) After giving effect to the approximately 778.9 for 1 split of the Company's
then-existing common stock and the recapitalization effected after July 31,
1996.
(4) "EBITDA" is defined as operating income before depreciation and
amortization. EBITDA represents a measure which management believes is
customarily used to evaluate the financial performance of companies in the
media industry. However, EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered
an alternative to operating income or net earnings as an indicator of the
Company's operating performance or to net cash provided by operating
activities as a measure of its liquidity.
(5) The ratio of earnings to fixed charges was computed by dividing earnings by
fixed charges. For this purpose, earnings consist of income from continuing
operations, before income taxes and fixed charges of the Company and its
subsidiaries plus the Company's share of the distributed income of less than
50% owned persons. Fixed charges consist of the Company's and its
subsidiaries' interest expense (including interest costs capitalized) and
the portion of rent expense representative of an interest factor.
(6) Cash flows from operating, investing and financing activities are obtained
from the Company's consolidated statements of cash flows prepared in
accordance with generally accepted accounting principles.
(7) As of the end of the period.
(8) The number of outdoor advertising displays for pro forma year ended October
31, 1996 and six months ended June 30, 1997 includes displays for all
acquisitions completed by the Company as of August 31, 1997.
10
<PAGE> 15
RISK FACTORS
In addition to the other information and data included and incorporated by
reference in this Prospectus, holders of Existing Notes should consider
carefully the following factors, which are generally applicable to the Existing
Notes and the Exchange Notes, before tendering their Existing Notes for Exchange
Notes.
SUBSTANTIAL INDEBTEDNESS OF THE COMPANY
The Company presently has substantial indebtedness. As of September 30,
1997 the Company's indebtedness was approximately $529.4 million and the Company
had approximately $177.0 million available for borrowing under the Senior Credit
Facility (excluding the $75 million available under the facility funded at the
discretion of the lenders). Additionally, as of September 30, 1997, the Company
had $3.6 million of Class A Preferred Stock, $638 par value per share (the
"Class A Preferred Stock"), outstanding which is entitled to a cumulative
preferential dividend of $364,903 annually. A substantial part of the Company's
cash flow from operations will be dedicated to debt service and will not be
available for other purposes. Further, if the Company's net cash provided by
operating activities were to decrease from present levels, the Company could
experience difficulty in meeting its debt service obligations without additional
financing. There can be no assurance that, in the event the Company were to
require additional financing, such additional financing would be available or,
if available, would be available on favorable terms. In addition, any such
additional financing may require the consent of lenders under the Senior Credit
Facility or holders of other debt of the Company. Certain of the Company's
competitors operate on a less leveraged basis and may have greater operating and
financial flexibility than the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Description of Notes" and "Description of Other
Indebtedness."
SUBORDINATION OF THE NOTES
The Notes are subordinated to all existing and future Senior Indebtedness
of the Company and the Guarantors. Subject to certain limitations, the Indenture
will permit the Company and the Guarantors to incur additional indebtedness,
including Senior Indebtedness. In addition, the indebtedness to be outstanding
under the Senior Credit Facility will be secured by liens on the stock of all of
its subsidiaries. In a liquidation, bankruptcy, reorganization or similar
proceeding involving the Company, its assets would be available to pay
obligations on the Notes only after all Senior Indebtedness has been paid in
full, and, in such event, there may not be sufficient assets to pay in full
amounts due on the Notes. The amount of Senior Indebtedness outstanding as of
September 30, 1997 was approximately $55.9 million. The Company is able to incur
additional Senior Indebtedness under the Senior Credit Facility and will be
permitted to incur additional Senior Indebtedness under the Indenture. See
"Description of Notes" and "Description of Other Indebtedness."
DEPENDENCE ON CASH FLOW FROM SUBSIDIARIES; FRAUDULENT CONVEYANCE CONCERNS
The Company is a holding company which derives all of its operating income
from its subsidiaries. The Company must rely on dividends and other
distributions from its subsidiaries to generate the funds necessary to meet its
obligations, including the payment of principal and interest on the Notes. The
ability of the Company's subsidiaries to pay such dividends or make such
distributions will be subject to, among other things, applicable state laws and
restrictions contained in its existing and future debt instruments. There can be
no assurance that the Company's subsidiaries will be in a position to make such
dividend or distributions.
While the Notes will be guaranteed on a senior subordinated basis by the
Guarantors, the Guarantees may be subject to limitation under federal and state
fraudulent conveyance law. To the extent that a court were to find that (x) a
Guarantee was incurred by a Guarantor with intent to hinder, delay, or defraud
any present or future creditor, or the Guarantor contemplated insolvency with a
design to prefer one or more creditors to the exclusion in whole or in part of
others, or (y) such Guarantor did not receive fair consideration or reasonable
equivalent value for issuing its Guarantee and such Guarantor (i) was insolvent,
(ii) was rendered insolvent by reason of the issuance of such Guarantee, (iii)
was engaged or about to engage in a
11
<PAGE> 16
business or transaction for which the remaining assets of such Guarantor
constituted unreasonably small capital to carry on its business or (iv) intended
to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, a court could avoid or subordinate such Guarantee in
favor of the Guarantor's other creditors. Among other things, a legal challenge
of a Guarantee on fraudulent conveyance grounds may focus on the benefits, if
any, realized by each Guarantor as a result of the issuance by the Company of
the Notes. The measure of insolvency for purposes of the foregoing will vary
depending on the law of the jurisdiction being applied. Generally, however, an
entity would be considered insolvent if the sum of its debts (including
contingent or unliquidated debts) is greater than all its property at a fair
valuation or if the present fair saleable value of its assets is less than the
amount that will be required to pay its probable liability on its existing debts
as they become absolute and matured. The obligations of each Guarantor will be
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor (including, without
limitation, any guarantees of Senior Indebtedness) and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, result in the
obligations of such Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law.
To the extent any Guarantee is avoided or subordinated as a fraudulent
conveyance, limited as described above, or held unenforceable for any other
reason, holders of the Notes would, to such extent, cease to have a claim in
respect of such Guarantee and, to such extent, would be creditors solely of the
Company and any Guarantor whose Guarantee was not avoided, subordinated,
limited, or held unenforceable. In such event, the claims of the holders of the
Notes against the issuer of an avoided, subordinated, limited or unenforceable
Guarantee wold be subject to the prior payment of all liabilities of such
Guarantor. There can be no assurance that, after providing for all prior claims,
there would be sufficient assets to satisfy the claims of the holders of the
Notes.
Based upon the financial and other information currently available to it,
management of the Company and the Company's subsidiaries believe that the Notes
and the Guarantees are being incurred for proper purposes and in good faith and
that the Company and each of the Guarantors is solvent and will, after issuing
the Notes or its Guarantee, as the case may be, have sufficient capital for
carrying on its business and be able to pay its debts as they mature. In
rendering their opinions on the validity of the Notes and the Guarantees,
counsel for the Company will express no opinion as to federal or state laws
relating to fraudulent transfers.
FLUCTUATIONS IN ECONOMIC AND ADVERTISING TRENDS
The Company relies on sales of advertising space for its revenues, and its
operating results are therefore affected by general economic conditions, as well
as trends in the advertising industry. A reduction in advertising expenditures
available for the Company's displays could result from a general decline in
economic conditions, a decline in economic conditions in particular markets
where the Company conducts business or a reallocation of advertising
expenditures to other available media by significant users of the Company's
displays. Although the Company believes that in recent years outdoor advertising
expenditures have increased more rapidly than total U.S. advertising
expenditures, there can be no assurance that this trend will continue or that in
the future outdoor advertising expenditures will not grow more slowly than the
advertising industry as a whole.
RESTRICTIVE COVENANTS IN DEBT INSTRUMENTS
The Senior Credit Facility, the indenture governing the 1996 Notes (the
"1996 Note Indenture") and the Indenture contain covenants that restrict, among
other things, the ability of the Company to dispose of assets, incur or repay
debt, create liens, and make certain investments. In addition, the Senior Credit
Facility requires the Company to maintain specified financial ratios and levels
including cash interest coverage, fixed charge coverage and total debt ratios.
The ability of the Company to comply with the foregoing restrictive covenants
will depend on its future performance, which is subject to prevailing economic,
financial and business conditions and other factors beyond the Company's
control. See "Description of Other Indebtedness."
12
<PAGE> 17
POTENTIAL ELIMINATION OR REDUCTION OF TOBACCO ADVERTISING
Approximately 10% of the Company's outdoor advertising net revenues and 8%
of consolidated net revenues in fiscal 1996 came from the tobacco products
industry, compared to 9% of outdoor advertising net revenues for fiscal 1995, 7%
for fiscal 1994 and 1993, 12% for fiscal 1992 and 17% for fiscal 1991. The
percentage for the nine months ended September 30, 1997 on a historical basis
was approximately 9%, and on a pro forma basis giving effect to the Recent
Acquisitions was approximately 9%. Manufacturers of tobacco products,
principally cigarettes, were historically major users of outdoor advertising
displays. Beginning in 1992, the leading tobacco companies substantially reduced
their domestic advertising expenditures in response to societal and governmental
pressures and other factors. There can be no assurance that the tobacco industry
will not further reduce advertising expenditures in the future either
voluntarily or as a result of governmental regulation or as to what affect any
such reduction may have on the Company. See "Business -- Company
Operations -- Categories of Business."
In June 1997 several of the major tobacco companies in the United States
and numerous state attorneys general reached agreement on a proposed settlement
of litigation between such parties. The terms of this proposed settlement
include a ban on all outdoor advertising of tobacco products commencing nine
months after finalization of the settlement. The settlement, however, is subject
to numerous conditions, the most notable of which is the enactment of
legislation by the federal government. At this time, it is uncertain when a
definitive settlement will be reached, if at all, or what the terms of any such
settlement will be. An elimination or reduction in billboard advertising by the
tobacco industry could cause an immediate reduction in the Company's outdoor
advertising revenues and may simultaneously increase the Company's available
inventory. An increase in available inventory could result in the Company
reducing its rates or limiting its ability to raise rates for some period of
time. If the tobacco litigation settlement were to be finalized in its current
form and if the Company were unable to replace revenues from tobacco advertising
with revenues from other sources, such settlement could have a material adverse
effect on the Company's results of operations. While the Company believes that
it would be able to replace a substantial portion of revenues from tobacco
advertising that would be eliminated due to such a settlement with revenues from
other sources, any replacement of tobacco advertising may take time and require
a reduction in advertising rates.
In addition, the states of Florida and Mississippi have entered into
separate settlements of litigation with the tobacco industry. These settlements
are not conditioned on federal government approval and provide for the
elimination of all outdoor advertising of tobacco products by February 1998 in
such states. The Company operates approximately 4,200 outdoor advertising
displays in seven markets in Florida and approximately $1.4 million of its
approximately $17.0 million in net revenues in Florida for the fiscal year ended
October 31, 1996 were attributable to tobacco advertising. In addition, the
Company operates approximately 2,600 outdoor advertising displays in three
markets in Mississippi and approximately $0.6 million of its approximately $7.8
million in net revenues in Mississippi for the fiscal year ended October 31,
1996 were attributable to tobacco advertising. Further, the settlement of
tobacco-related claims and litigation in other jurisdictions may also adversely
affect outdoor advertising revenues.
REGULATION OF OUTDOOR ADVERTISING
The outdoor advertising business is subject to regulation by federal, state
and local governments. Federal law requires states, as a condition to federal
highway assistance, to restrict billboards on federally-aided primary and
interstate highways to commercial and industrial areas and imposes certain
additional size, spacing and other limitations on billboards. Some states have
adopted standards more restrictive than the federal requirements. Local
governments generally control billboards as part of their zoning regulations,
and some local governments prohibit construction of new billboards and
reconstruction of substantially damaged billboards or allow new construction
only to replace existing structures. In addition, some jurisdictions (including
certain of those within the Company's markets) 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
condemnation proceeds being available. Federal and corresponding state outdoor
advertising statutes require payment of compensation for removal by governmental
order in some circumstances. Ordinances requiring the removal of a billboard
without compensation, whether through amortization
13
<PAGE> 18
or otherwise, have been challenged in various state and federal courts on both
statutory and constitutional grounds, with conflicting results. Although the
Company has been successful in the past in negotiating acceptable arrangements
in circumstances in which its displays have been subject to removal or
amortization, there can be no assurance that the Company will be successful in
the future and what effect, if any, such regulations may have on the Company's
operations. In addition, the Company is unable to predict what additional
regulation may be imposed on outdoor advertising in the future. Legislation
regulating the content of billboard advertisements has been introduced in
Congress from time to time in the past, although no laws which, in the opinion
of management, would materially and adversely affect the Company's business have
been enacted to date. Changes in laws and regulations affecting outdoor
advertising at any level of government may have a material adverse effect on the
Company's results of operations. See "-- Potential Elimination or Reduction of
Tobacco Advertising" for a discussion of recent developments concerning tobacco
advertising.
ACQUISITION AND GROWTH STRATEGY RISKS
The Company's growth has been enhanced materially by strategic acquisitions
that have substantially increased the Company's inventory of advertising
displays. One element of the Company's operating strategy is to make strategic
acquisitions in markets in which it currently competes as well as in new
markets. While the Company believes that the outdoor advertising industry is
highly fragmented and that significant acquisition opportunities are available,
there can be no assurance that suitable acquisition candidates can continue to
be found, and the Company is likely to face increased competition from other
outdoor advertising companies for available acquisition opportunities. In
addition, if the prices sought by sellers of outdoor advertising displays
continue to rise, as management believes may happen, the Company may find fewer
acceptable acquisition opportunities. There can be no assurance that the Company
will have sufficient capital resources to complete acquisitions or be able to
obtain any required consents of its bank lenders or that acquisitions can be
completed on terms acceptable to the Company. In addition, the Company recently
has entered into the transit advertising business and, while the Company
believes that it will be able to utilize its expertise in outdoor advertising to
operate this business, it has had limited experience in transit advertising and
there is no assurance that it will be successful.
Since October 31, 1996, the Company has completed the acquisition of 15
complementary businesses. The process of integrating these businesses into the
Company's operations may result in unforeseen operating difficulties and could
require significant management attention that would otherwise be available for
the development of the Company's existing business. Moreover, there can be no
assurance that the Company will realize anticipated benefits and cost savings or
that any future acquisitions will be consummated. See "Prospectus
Summary -- Recent Acquisitions" for a description of the Company's recent
acquisition activity.
COMPETITION
In addition to competition from other forms of media, including television,
radio, newspapers and direct mail advertising, the Company faces competition in
its markets from other outdoor advertising companies, some of which may be
larger and better capitalized than the Company. The Company also competes with a
wide variety of other out-of-home advertising media, the range and diversity of
which have increased substantially over the past several years to include
advertising displays in shopping centers, malls, airports, stadiums, movie
theaters and supermarkets, and on taxis, trains and buses. The Company believes
that its local orientation, including the maintenance of local offices, has
enabled it to compete successfully in its markets to date. However, there can be
no assurance that the Company will be able to continue to compete successfully
against current and future sources of outdoor advertising competition and
competition from other media or that the competitive pressures faced by the
Company will not adversely affect its profitability or financial performance. In
its logo sign business, the Company currently faces competition for state
franchises from two other logo sign providers as well as local companies.
Competition from these sources is encountered both when a franchise is first
privatized and upon renewal thereafter. See "Business -- Competition."
14
<PAGE> 19
POTENTIAL LOSSES FROM HURRICANES
A significant portion of the Company's structures are located in the
mid-Atlantic and Gulf Coast regions of the United States. These areas are highly
susceptible to hurricanes during the late summer and early fall. In the past,
severe storms have caused the Company to incur material losses resulting from
structural damage, overtime compensation, loss of billboards that could not
legally be replaced and reduced occupancy because billboards are out of service.
The Company has determined that it is not economical to obtain insurance against
losses from hurricanes and other storms. The Company has developed contingency
plans to deal with the threat of hurricanes, including plans for early removal
of advertising faces to permit the structures to better withstand high winds and
the replacement of such faces after storms have passed. As a result of these
contingency plans, the Company has experienced lower levels of losses from
recent storms and hurricanes. Structural damage attributable to Hurricane Andrew
in 1992 was less than $500,000, and the Company suffered no significant
structural damage due to hurricanes in 1996 or the first nine months of 1997.
There can be no assurance, however, that the Company's contingency plans will
continue to be effective.
RISKS IN OBTAINING AND RETAINING LOGO SIGN FRANCHISES
Logo sign franchises represent a growing portion of the Company's revenues
and operating income. The Company cannot predict the number of remaining states,
if any, that will initiate logo sign programs or convert state-run logo sign
programs to privately operated programs. Competition for new state logo sign
franchises is intense and, even after a favorable award, franchises may be
subject to challenge under state contract bidding requirements, resulting in
delays and litigation costs. In addition, state logo sign franchises are
generally, with renewal options, ten to twenty-year franchises subject to
earlier termination by the state, in most cases upon payment of compensation.
Typically, at the end of the term of the franchise, ownership of the structures
is transferred to the state without compensation to the Company. Although none
of the Company's logo sign franchises is due to terminate in the next two years,
three are subject to renewal during that period. There can be no assurance that
the Company will be successful in obtaining new logo sign franchises or renewing
existing franchises. Furthermore, following the receipt by the Company of a new
state logo sign franchise, the Company generally incurs significant start-up
capital expenditures and there can be no assurance that the Company will
continue to have access to capital to fund such expenditures.
RELIANCE ON KEY EXECUTIVES
The Company's success depends to a significant extent upon the continued
services of its executive officers and other key management and sales personnel,
in particular Kevin P. Reilly, Jr., the Company's Chief Executive Officer, the
Company's six regional managers and the manager of its logo sign business.
Although the Company believes it has incentive and compensation programs
designed to retain key employees, the Company has no employment contracts with
any of its employees, and none of its executive officers are bound by
non-compete agreements. The Company does not maintain key man insurance on its
executives. The unavailability of the continuing services of any of its
executive officers and other key management and sales personnel could have an
adverse effect on the Company's business. See "Management."
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES; RESTRICTIONS ON TRANSFER
The Exchange Notes are a new issue of securities for which there is
currently no public market. Although the Initial Purchasers have informed the
Company that they currently intend to make a market in the Exchange Notes, they
are not obligated to do so and any such market making may be discontinued at any
time without notice. In addition, such market making activity may be limited
during the pendency of the Exchange Offer or the effectiveness of a shelf
registration statement in lieu thereof. Accordingly, there can be no assurance
as to the liquidity of any market that may develop for the Exchange Notes. The
Existing Notes are eligible for trading by qualified buyers in the Private
Offerings, Resales and Trading through Automated Linkages (PORTAL) market. The
Company does not currently intend to apply for listing of the Notes or, if
issued, the Exchange Notes, on any securities exchange or for quotation of the
Notes through the National Association of Securities Dealers Automated Quotation
System.
15
<PAGE> 20
To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for the remaining untendered or tendered but not
accepted Existing Notes could be adversely affected. Because the Company
anticipates that most holders of the Existing Notes will elect to exchange such
Existing Notes for Exchange Notes due to the absence of restrictions on the
resale of Exchange Notes under the Securities Act, the Company anticipates that
the liquidity of the market for any Existing Notes remaining after the
consummation of the Exchange Offer may be substantially limited.
The liquidity of, and trading market for, the Existing Notes or the
Exchange Notes also may be adversely affected by general declines in the market
or by declines in the market for similar securities. Such declines may adversely
affect such liquidity and trading markets independent of the financial
performance of, and prospects for, the Company.
USE OF PROCEEDS
There will be no cash proceeds payable to the Company for the issuance of
the Exchange Notes pursuant to the Exchange Offer. The net proceeds to the
Company from the Initial Offering were approximately $193.4 million after
deducting discounts and estimated fees and expenses incurred in connection
therewith. The Company used such amounts to repay amounts then outstanding under
the Senior Credit Facility. The Senior Credit Facility consists of a committed
$225 million revolving credit facility (the "Revolving Facility") which matures
on December 31, 2003 and a $75 million incremental facility funded at the
discretion of the lenders (the "Incremental Facility") which matures on December
31, 2004. Borrowings under the Senior Credit Facility bear interest computed as
a margin over either The Chase Manhattan Bank's "Base Rate" or the London
Interbank Offered Rate (the "LIBOR Rate"). The margins range from 0 to 75 basis
points and from 100 to 200 basis points over the Base Rate and LIBOR Rate,
respectively, depending on the Company's current leverage ratio. In connection
with such application of proceeds, the Senior Credit Facility was amended to
increase the size of permitted capital expenditures and permitted acquisitions.
See "Management Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Financial Resources" and "Description of Other
Indebtedness -- Senior Credit Facility."
16
<PAGE> 21
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
June 30, 1997 and (ii) such capitalization on a pro forma basis giving effect to
the debt incurred to finance the 3M Acquisition and the application of the net
proceeds of the Initial Offering. This table should be read in conjunction with
"Use of Proceeds" and the "Unaudited Pro Forma Condensed Consolidated Financial
Statements" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------------------
PRO FORMA FOR
THE 3M ACQUISITION
ACTUAL AND THE INITIAL OFFERING
-------- ------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 7,748 $ 3,174
======== ===========
Current maturities of long-term debt........................ $ 4,161 $ 4,161
Long-term debt, less current maturities
11% Senior Secured Notes.................................. 1,173 1,173
9 5/8% Senior Subordinated Notes due 2006................. 255,000 255,000
8 5/8% Senior Subordinated Notes due 2007................. -- 198,676
Senior Credit Facility(1)................................. 135,000 55,000
Other long-term debt...................................... 5,490 5,490
Ten-year subordinated notes............................... 16,319 16,319
-------- -----------
Total long-term debt, less current maturities..... 412,982 531,658
Stockholders' equity
Class A Preferred Stock, $638 par value, 10,000 shares
authorized, 5,719.49 issued and outstanding............... 3,649 3,649
Preferred Stock, $0.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding.............. -- --
Class A Common Stock, $0.001 par value, 50,000,000 shares
authorized, 17,625,290 shares issued and outstanding...... 18 18
Class B Common Stock, $0.001 par value, 25,000,000 shares
authorized, 13,716,387 shares issued and outstanding...... 14 14
Additional paid-in capital.................................. 92,483 92,483
Accumulated deficit......................................... (30,189) (30,189)
Unrealized loss on investment securities net of deferred
taxes..................................................... (236) (236)
-------- -----------
Total stockholders' equity............................. 65,739 65,739
-------- -----------
Total capitalization.............................. $482,882 $601,558
======== ===========
</TABLE>
- ---------------
(1) Following completion of the Initial Offering and the application of the net
proceeds therefrom, approximately $172 million was available under the
Revolving Facility and $75 million, subject to the discretion of the
lenders, was available under the Incremental Facility.
17
<PAGE> 22
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL
AND OPERATING DATA
The following table sets forth summary historical consolidated and pro
forma consolidated financial and operating data of the Company for the five
years ended October 31, 1996 and the six months ended July 31, 1996 and June 30,
1997 and certain pro forma consolidated financial and operating data for the
year ended October 31, 1996 and the six months ended June 30, 1997. The
financial statements of the Company for each of the years in the three-year
period ended October 31, 1996 and as of October 31, 1995 and 1996 were audited
by KPMG Peat Marwick LLP, independent auditors, as indicated in their report
incorporated by reference into this Prospectus. The consolidated statement of
operations and balance sheet data as of and for the six months ended July 31,
1996 and June 30, 1997 are derived from unaudited financial statements. The
unaudited financial statements include all adjustments, consisting of normal
recurring adjustments, which management considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. The results of operations for any such period are not necessarily
indicative of the results of operations for a full year. The data presented
below should be read in conjunction with the audited consolidated financial
statements, related notes, Management's Discussion and Analysis of Financial
Condition and Results of Operations and other financial information included
herein. For purposes of the pro forma adjusted financial information, (i) the
statement of earnings of the Company for its fiscal year ended October 31, 1996
has been combined with the statements of earnings of Outdoor East and FKM for
twelve months ended September 30, 1996, the statement of earnings for Penn for
its fiscal year ended December 31, 1996 and the statement of revenues and
expenses for the assets acquired in the 3M Acquisition for the twelve month
period ended December 31, 1996, (ii) the statement of earnings of the Company
for the six month period ended June 30, 1997 has been combined with the
statements of earnings of Penn for the three months ended March 31, 1997 (the
period prior to the acquisition) and the statement of revenues and expenses for
the assets acquired in the 3M Acquisition for the six month period ended June
30, 1997 and (iii) effect has been given to the Transactions and the Offering.
See "Summary -- Recent Acquisitions." For a more complete description of the pro
forma impact on the Company's results of operations, see "Unaudited Pro Forma
Condensed Consolidated Financial Statements."
In December 1996, the Company changed its fiscal year from October 31 to
December 31. Therefore, the financial data presented herein compare the six
month period ended June 30, 1997 with the six month period ended July 31, 1996,
the six month period most closely approximating the presentation for the
Company's 1997 fiscal year. For a comparison of the Company's results of
operations for the six month periods ended June 30, 1996 and 1997, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
18
<PAGE> 23
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL
AND OPERATING DATA
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
YEAR SIX MONTHS ENDED SIX MONTHS
YEAR ENDED OCTOBER 31, ENDED ------------------- ENDED
---------------------------------------------------- OCTOBER 31, JULY 31, JUNE 30, JUNE 30,
1992 1993 1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- -------- -------- ----------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Net advertising
revenues.............. $ 60,760 $ 65,365 $ 83,627 $101,871 $119,900 $192,130 $ 60,224 $ 87,644 $104,045
Other Income............ 1,195 1,159 846 537 702 749 329 311 327
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total net revenues.... 61,955 66,524 84,473 102,408 120,602 192,879 60,553 87,955 104,372
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating Expenses
Direct advertising
expenses.............. 22,783 23,830 28,959 34,386 41,184 72,353 20,125 28,950 37,675
General and
administrative
expenses.............. 18,225 19,504 24,239 27,057 29,466 38,570 15,151 20,081 21,126
Depreciation and
amortization.......... 8,881 8,924 11,352 14,090 15,549 42,246 7,181 17,727 24,980
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses............ 49,889 52,258 64,550 75,533 86,199 153,169 42,457 66,758 83,781
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income.......... 12,066 14,266 19,923 26,875 34,403 39,710 18,096 21,197 20,591
-------- -------- -------- -------- -------- -------- -------- -------- --------
Non-operating expense
(income):
Interest income......... (96) (218) (194) (199) (240) (264) (87) (1,421) (376)
Interest expense........ 10,454 11,502 13,599 15,783 15,441 44,529 8,130 15,404 22,332
Loss (gain) on
disposition of
assets................ (1,309) 729 675 2,328 1,012 1,297 730 742 745
Other expenses.......... 392 576 616 655 242 521 102 177 177
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total non-operating
expenses............ 9,441 12,589 14,696 18,567 16,455 46,083 8,875 14,902 22,878
-------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) before
income taxes and
extraordinary item...... 2,625 1,677 5,227 8,308 17,948 (6,373) 9,221 6,295 (2,287)
Income tax expense
(benefit)(1)............ 270 476 (2,072) (2,390) 7,099 (478) 3,745 3,414 430
-------- -------- -------- -------- -------- -------- -------- -------- --------
Extraordinary loss on debt
extinguishment, net of
income tax benefit of
$98..................... -- (1,854) -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net earnings (loss)(2).... 2,355 (653) 7,299 10,698 10,849 (5,895) 5,476 2,881 (2,717)
Preferred stock
dividends............... -- -- -- -- (365) (365) 183 274 274
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net earnings (loss)
applicable to common
stock................... 2,355 (653) 7,299 10,698 10,484 (6,260) 5,293 2,607 (2,991)
======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings per common share
before extraordinary
item(3)................. $ .07 $ .03 $ .21 $ .32 $ .38 $ (.19) $ .21 $ .08 $ (.09)
======== ======== ======== ======== ======== ======== ======== ======== ========
Net earnings (loss) per
common share(3)......... $ .07 $ (.02) $ .21 $ .32 $ .38 $ (.19) $ .21 $ .08 $ (.09)
======== ======== ======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(4)................. 20,947 23,190 31,275 40,965 49,952 81,956 25,277 38,924 45,571
EBITDA margin............. 34% 35% 37% 40% 41% 42% 42% 44% 44%
Ratio of EBITDA to
interest expense........ 2.0x 2.0x 2.3x 2.6x 3.2x 1.8x 3.1x 2.5x 2.0x
Ratio of earnings to fixed
charges(5).............. 1.2x 1.0x 1.3x 1.4x 1.8x .9x 1.8x 1.3x .9x
Capital expenditures:
Outdoor advertising..... 1,695 2,374 4,997 6,643 12,530 20,158 6,463 9,295 10,372
Logos................... 3,056 2,009 2,761 1,567 13,268 13,268 4,627 5,677 5,677
Cash flows from operating
activities(6)........... 12,930 12,411 15,214 25,065 32,493 -- 18,934 15,853 --
Cash flows from investing
activities(6)........... (7,273) (10,064) (53,569) (17,817) (48,124) -- (17,745) (222,046) --
Cash flows from financing
activities(6)........... (6,734) 6,802 37,147 (9,378) 18,175 -- (1,024) 132,934 --
</TABLE>
19
<PAGE> 24
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
YEAR SIX MONTHS ENDED SIX MONTHS
YEAR ENDED OCTOBER 31, ENDED ------------------- ENDED
---------------------------------------------------- OCTOBER 31, JULY 31, JUNE 30, JUNE 30,
1992 1993 1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- -------- -------- ----------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of outdoor
advertising
displays(7)(8).......... 17,835 17,659 22,369 22,547 24,792 42,310 23,089 41,071 42,816
Number of logo advertising
displays(7)............. 11,371 13,820 18,266 24,219 52,414 52,414 48,362 64,502 64,502
Cumulative logo sign
franchises(7)........... 5 7 7 11 15 15 15 18 18
BALANCE SHEET DATA(7):
Cash and cash
equivalents............. 75 9,224 8,016 5,886 8,430 -- 1,965 7,748 3,174
Working capital........... (7,557) 7,274 1,691 1,737 1,540 -- 1,479 18,753 17,753
Total assets.............. 78,649 92,041 130,008 133,885 173,189 -- 150,267 524,785 644,393
Total debt (including
current maturities)..... 104,222 115,380 153,929 146,051 131,955 -- 160,007 417,143 535,819
Total long-term
obligations............. 103,567 122,774 147,957 143,944 130,211 -- 156,674 435,454 554,130
Stockholders' equity
(deficit)............... (41,870) (43,249) (37,352) (28,154) 19,041 -- (25,289) 65,739 65,739
</TABLE>
- ---------------
(1) The benefit of the Company's net operating loss carryforward was fully
recognized as of October 31, 1995, resulting in the income tax expense shown
for the year ended October 31, 1996 and the six months ended July 31, 1996
and June 30, 1997.
(2) Includes, in 1993, an extraordinary loss on debt extinguishment, net of an
income tax benefit, of $1.9 million. Pro forma financial information for the
year ended October 31, 1996 does not give effect to extraordinary loss from
extinguishment of debt of $9,526, net of income tax benefit of $6,351.
(3) After giving effect to the approximately 778.9 for 1 split of the Company's
then-existing common stock and the recapitalization effected after July 31,
1996.
(4) "EBITDA" is defined as operating income before depreciation and
amortization. EBITDA represents a measure which management believes is
customarily used to evaluate the financial performance of companies in the
media industry. However, EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered
an alternative to operating income or net earnings as an indicator of the
Company's operating performance or to net cash provided by operating
activities as a measure of its liquidity.
(5) The ratio of earnings to fixed charges was computed by dividing earnings by
fixed charges. For this purpose, earnings consist of income from continuing
operations, before income taxes and fixed charges of the Company and its
subsidiaries plus the Company's share of the distributed income of less than
50% owned persons. Fixed charges consist of the Company's and its
subsidiaries' interest expense (including interest costs capitalized) and
the portion of rent expense representative of an interest factor.
(6) Cash flows from operating, investing and financing activities are obtained
from the Company's consolidated statements of cash flows prepared in
accordance with generally accepted accounting principles.
(7) As of the end of the period.
(8) The number of outdoor advertising displays for pro forma year ended October
31, 1996 and six months ended June 30, 1997 includes displays for all
acquisitions completed by the Company as of August 31, 1997.
20
<PAGE> 25
LAMAR ADVERTISING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth unaudited pro forma condensed consolidated
financial information for the Company. The unaudited pro forma condensed
consolidated statements of earnings for the year ended October 31, 1996 and for
the six month period ended June 30, 1997 give effect to (i) the acquisitions of
FKM, Outdoor East and Penn and the 3M Acquisition, (ii) the IPO and the
application of the net proceeds therefrom, (iii) the Company's November 1996
public offerings of 2,530,000 shares of Class A Common Stock and the 1996 Notes
and the application of the net proceeds therefrom, (iv) the tender offer that
retired in November 1996 approximately $98.8 million of the $100 million
outstanding 11% Senior Secured Notes due 2003 and (v) the issuance of the
Existing Notes and the application of the estimated net proceeds therefrom, as
if each had occurred on November 1, 1995.
For purposes of the pro forma financial information (i) the statement of
earnings of the Company for its fiscal year ended October 31, 1996 has been
combined with the statements of earnings of Outdoor East and FKM for the twelve
months ended September 30, 1996, the statement of earnings of Penn for its
fiscal year ended December 31, 1996 and the statement of revenues and direct
expenses for the assets acquired in the 3M Acquisition for the twelve month
period ended December 31, 1996, (ii) the statement of earnings of the Company
for the six months ended June 30, 1997 has been combined with the statement of
earnings of Penn for the three months ended March 31, 1997 (the period prior to
the acquisition) and the statement of revenues and direct expenses for the
assets acquired in the 3M Acquisition for the six month period ended June 30,
1997 and (iii) the balance sheet of the Company as of June 30, 1997 has been
adjusted to reflect the debt incurred to finance the 3M Acquisition and the
application of net proceeds of the Initial Offering.
The unaudited pro forma condensed consolidated financial statements give
effect to the Recent Acquisitions under the purchase method of accounting.
The unaudited pro forma condensed consolidated financial statements have
been prepared by the Company's management. The unaudited pro forma data are not
designed to represent and do not represent what the Company's results of
operations or financial position would have been had the aforementioned
transactions been completed on or as of the dates assumed, and are not intended
to project the Company's results of operations for any future period or as of
any future date. The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the audited and unaudited
consolidated financial statements and notes of the Company and certain acquired
businesses incorporated herein by reference.
21
<PAGE> 26
LAMAR ADVERTISING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (LOSS)
YEAR ENDED OCTOBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE OUTDOOR ACQUISITION PRO FORMA
LAMAR TRANSACTIONS PENN FKM EAST ADJUSTMENTS COMBINED
---------- ------------ ------- ------ ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Outdoor advertising, net.... $ 119,900 $ $32,814.. $7,376 $12,142 $(3,405)(4) $ 168,827
Other income................ 702 47 109 100 (209)(4)(5) 749
---------- --------- ------- ------ ------- ------- ----------
120,602 32,861 7,485 12,242 (3,614) 169,576
---------- --------- ------- ------ ------- ------- ----------
Direct expenses:
Direct advertising
expenses.................. 41,184 9,575 2,214 3,942 2,671(4)(6) 59,586
General and administrative
expenses.................. 29,466 10,730 1,632 3,510 (6,768)(4)(6) 38,570
Depreciation and
amortization.............. 15,549 125(1) 3,221 2,453 2,941 8,398(7) 32,687
---------- --------- ------- ------ ------- ------- ----------
86,199 125 23,526 6,299 10,393 4,301 130,843
---------- --------- ------- ------ ------- ------- ----------
Operating income.............. 34,403 (125) 9,335 1,186 1,849 (7,915) 38,733
Other expense (income):
Interest income............. (240) (24)(4) (264)
Interest expense............ 15,441 11,740(2)(3) 4,360 1,965 2,672 (5,450)(8) 30,728
Loss on disposition of
assets.................... 1,012 4 281(4) 1,297
Other expenses.............. 242 1,064 10 985 (1,780)(4)(11) 521
---------- --------- ------- ------ ------- ------- ----------
16,455 11,740 5,424 1,979 3,657 (6,973) 32,282
---------- --------- ------- ------ ------- ------- ----------
Earnings (loss) before income
taxes....................... 17,948 (11,865) 3,911 (793) (1,808) (942) 6,451
Income tax expense
(benefit)................. 7,099 (4,746)(12) 1,117 (157) 1,339(12) 4,652
---------- --------- ------- ------ ------- ------- ----------
Net earnings (loss)........... $ 10,849 $ (7,119) $ 2,794 $ (636) $(1,808) $(2,281) $ 1,799
========== ========= ======= ====== ======= ======= ==========
Preferred stock dividends..... 365 365
---------- ----------
Net earnings (loss) applicable
to common stock............. $ 10,484 $ 1,434
========== ==========
Net earnings (loss) per common
share....................... $ 0.38 $ 0.04
========== ==========
Weighted average number of
shares outstanding.......... 27,562,564 6,270,034 33,832,598
========== ========= ==========
<CAPTION>
PRO FORMA ADJUSTMENTS PRO FORMA
3M COMBINED FOR THE COMBINED
ACQUISITION AS ADJUSTED INITIAL AS
3M ADJUSTMENTS FOR 3M OFFERING ADJUSTED
------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Outdoor advertising, net.... $23,303 $ $ 192,130 $ $ 192,130
Other income................ 749 749
------- -------- ---------- ------- ----------
23,303 192,879 192,879
------- -------- ---------- ------- ----------
Direct expenses:
Direct advertising
expenses.................. 16,038 (3,271)(15) 72,353 72,353
General and administrative
expenses.................. 1,389 (1,389)(15) 38,570 38,570
Depreciation and
amortization.............. 1,333 7,701(16) 41,721 525(10) 42,246
------- -------- ---------- ------- ----------
18,760 3,041 152,644 525 153,169
------- -------- ---------- ------- ----------
Operating income.............. 4,543 (3,041) 40,235 (525) 39,710
Other expense (income):
Interest income............. (264) (264)
Interest expense............ 8,550(17) 39,278 5,251(9) 44,529
Loss on disposition of
assets.................... 1,297 1,297
Other expenses.............. 521 521
------- -------- ---------- ------- ----------
8,550 40,832 5,251 46,083
------- -------- ---------- ------- ----------
Earnings (loss) before income
taxes....................... 4,543 (11,591) (597) (5,776) (6,373)
Income tax expense
(benefit)................. (2,819)(12) 1,832 (2,310)(12) (478)
------- -------- ---------- ------- ----------
Net earnings (loss)........... $ 4,543 (8,772) $ (2,429) $(3,466) (5,895)
======= ======== ========== ======= ==========
Preferred stock dividends..... 365 365
---------- ----------
Net earnings (loss) applicable
to common stock............. $ (2,794) $ (6,260)
========== ==========
Net earnings (loss) per common
share....................... $ (0.08) $ (0.19)
========== ==========
Weighted average number of
shares outstanding.......... 33,832,598 33,832,598
========== ==========
</TABLE>
22
<PAGE> 27
LAMAR ADVERTISING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (LOSS)
SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITION PRO FORMA 3M ACQUISITION
LAMAR PENN ADJUSTMENTS COMBINED 3M ADJUSTMENTS
---------- ------ ----------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Outdoor advertising, net........... $ 87,644 $6,480 $ (639)(4) $ 93,485 $ 10,560 $
Other income....................... 311 20 (4)(4) 327
---------- ------ ------- ----------- ----------
87,955 6,500 (643) 93,812 10,560
---------- ------ ------- ----------- ----------
Direct adverting expenses.......... 28,950 2,412 488(4)(6) 31,850 7,364 (1,539)(15)
General and administrative
expenses......................... 20,081 2,240 (1,195)(4)(6) 21,126 533 (533)(15)
Depreciation and amortization...... 17,727 727 1,709(7) 20,163 738 3,817(16)
---------- ------ ------- ----------- ---------- -------
66,758 5,379 1,002 73,139 8,635 1,745
---------- ------ ------- ----------- ---------- -------
Operating income..................... 21,197 1,121 (1,645) 20,673 1,925 (1,745)
---------- ------ ------- ----------- ---------- -------
Other expense (income):
Interest income.................... (1,421) 1,045(4)(13) (376)
Interest expense................... 15,404 976 (93)(8) 16,287 4,275(17)
Loss on disposition of assets...... 742 3(4) 745
Other expenses..................... 177 287 (287)(4) 177
---------- ------ ------- ----------- -------
14,902 1,263 668 16,833 4,275
---------- ------ ------- ----------- -------
Earnings (loss) before income
taxes.............................. 6,295 (142) (2,313) 3,840 1,925 (6,020)
Income tax expense (benefit)......... 3,414 (50) (483)(12) 2,881 (1,638)(12)
---------- ------ ------- ----------- ---------- -------
Net earnings (loss).................. $ 2,881 $ (92) $(1,830) $ 959 $ 1,925 $(4,382)
========== ====== ======= =========== ========== =======
Preferred stock dividends............ 274 274
---------- -----------
Net earnings (loss) applicable to
common stock....................... $ 2,607 $ 685
========== ===========
Net earnings (loss) per common
share.............................. $ 0.08 $ 0.02
========== ===========
Weighted average number of shares
outstanding........................ 31,840,641 31,840,641
========== ===========
<CAPTION>
ADJUSTMENTS
PRO FORMA FOR THE PRO FORMA
COMBINED AS INITIAL COMBINED
ADJUSTED FOR 3M OFFERING AS ADJUSTED
--------------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Outdoor advertising, net........... $ 104,045 $ $ 104,045
Other income....................... 327 327
---------- ----------
104,372 104,372
---------- ----------
Direct adverting expenses.......... 37,675 37,675
General and administrative
expenses......................... 21,126 21,126
Depreciation and amortization...... 24,718 262(10) 24,980
---------- ------- ----------
83,519 262 83,781
---------- ------- ----------
Operating income..................... 20,853 (262) 20,591
---------- ------- ----------
Other expense (income):
Interest income.................... (376) (376)
Interest expense................... 20,562 1,770(9) 22,332
Loss on disposition of assets...... 745 745
Other expenses..................... 177 177
---------- ------- ----------
21,108 1,770 22,878
---------- ------- ----------
Earnings (loss) before income
taxes.............................. (255) (2,032) (2,287)
Income tax expense (benefit)......... 1,243 (813)(12) 430
---------- ------- ----------
Net earnings (loss).................. $ (1,498) $(1,219) $ (2,717)
========== ======= ==========
Preferred stock dividends............ 274 274
---------- ----------
Net earnings (loss) applicable to
common stock....................... $ (1,772) $ (2,991)
========== ==========
Net earnings (loss) per common
share.............................. $ (0.06) $ (0.09)
========== ==========
Weighted average number of shares
outstanding........................ 31,840,641 31,840,641
========== ==========
</TABLE>
23
<PAGE> 28
LAMAR ADVERTISING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENT PRO FORMA
PRO FORMA PRO FORMA FOR THE COMBINED
LAMAR 3M ADJUSTMENTS COMBINED INITIAL OFFERING AS ADJUSTED
-------- ------- ----------- ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash.................................. $ 7,748 $ $ (4,000)(18) $ 3,748 $ (574)(18) $ 3,174
Net receivables....................... 25,840 2,550 28,390 28,390
Other current assets.................. 8,757 1,956 10,713 10,713
-------- ------- -------- -------- ------- --------
Total current assets............... 42,345.. 4,506 (4,000) 42,851 (574) 42,277
-------- ------- -------- -------- ------- --------
Property, plant and equipment:
Property, plant and equipment, net.... 280,603 13,516 13,932(19) 308,051 308,051
-------- ------- -------- -------- ------- --------
Other assets:
Investment securities................. 870 870 870
Intangible assets..................... 195,874 86,522(20) 282,396 5,250(20) 287,646
Other assets.......................... 5,093 456 5,549 5,549
-------- ------- -------- -------- ------- --------
Total assets....................... $524,785 $18,478 $ 96,454 $639,717 $4,676 $644,393
======== ======= ======== ======== ======= ========
Current liabilities:
Current maturities of long-term
debt............................... $ 4,161 $ $ 4,161 $ $ 4,161
Other current liabilities............. 19,431.. 932 20,363 20,363
-------- ------- -------- -------- ------- --------
Total current liabilities............... 23,592 932 24,524 24,524
-------- ------- -------- -------- ------- --------
Long-term liabilities:
Long-term debt........................ 412,982 114,000(21) 526,982 4,676(21) 531,658
Deferred income -- long term.......... 827 827 827
Other liabilities..................... 2,147 2,147 2,147
Deferred tax liability................ 19,498 19,498 19,498
-------- ------- -------- -------- ------- --------
Total liabilities.................. 459,046 932 114,000 573,978 4,676 578,654
-------- ------- -------- -------- ------- --------
Net assets acquired..................... 17,546 (17,546)(22)
-------- ------- -------- -------- ------- --------
Stockholders' equity:
Stockholders' equity.................. 65,739 65,739 65,739
-------- ------- -------- -------- ------- --------
Total liabilities and stockholders'
equity........................... $524,785 $18,478 $ 96,454 $639,717 $4,676 $644,393
======== ======= ======== ======== ======= ========
</TABLE>
24
<PAGE> 29
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
For purposes of determining the pro forma effect of the Recent
Acquisitions, the Transactions, and the Initial Offering on the Company's
unaudited Condensed Consolidated Statements of Earnings for the year ended
October 31, 1996 and the six months ended June 30, 1997, the following
adjustments have been made:
<TABLE>
<CAPTION>
YEAR SIX
ENDED MONTHS
OCTOBER 31, JUNE 30,
1996 1997
----------- --------
<C> <S> <C> <C> <C> <C>
(1) To record the net effect on amortization expense related to the
debt issuance fees for the November 1996 Note Offering and the
elimination of amortization expense related to the November 1996
Tender Offer.................................................... $ 125
(2) To eliminate historical interest expense related to the Senior
Secured Notes and record interest expense on the 1996 Notes:
Interest expense on 1996 Notes........... 24,544
Interest expense related to Senior
Secured Notes............................ (10,870) 13,674
(3) To record incremental interest expense on the $20 million
ten-year subordinated notes issued to existing shareholders at
the time of the IPO in order to give effect as if the
transaction had taken place at the beginning of the period and
eliminate historical interest expense related to the Company's
credit facility that was paid off at the time of the IPO........ (1,934)
(4) To reclassify amounts in order to conform to the Company's
presentation:
Outdoor advertising, net........................................ $(3,405) $ (639)
Other income.................................................... (109) (4)
Direct expenses................................................. 2,946 559
General and administrative expenses............................. (5,653) (914)
Interest income................................................. (24) (4)
Loss on disposition of assets................................... 281 3
Other expenses.................................................. (1,064) (287)
(5) To eliminate management fee income on Outdoor East historical
financial statements that would not have been earned had the
Outdoor East acquisition been consummated on November 1, 1995... (100)
(6) To eliminate management fees charged by Penn's former parent
company included in the historical financial statements that
would not have existed had the transaction taken place in the
beginning of the period:
Direct expenses................................................. (275) (71)
General and administrative...................................... (1,115) (281)
(7) Represents incremental amortization and depreciation due to the
application of purchase accounting. Depreciation and
amortization are calculated using accelerated and straight line
methods over the estimated useful lives of the assets........... 8,398 1,709
(8) Represents the net effect on interest expense resulting from (i)
additional borrowings assumed in the acquisitions and (ii) the
elimination of interest expense on debt not assumed in the
acquisitions.................................................... (5,450) (93)
(9) To eliminate historical interest expense under the Senior Credit
Facility and to record interest expense on the Notes at an
effective rate of 8.725%:
Interest expense on the Initial
Offering................................. $ 17,334 $ 8,667
Interest expense under the Senior Credit
Facility................................. (12,083) (6,897) 5,251 1,770
</TABLE>
25
<PAGE> 30
<TABLE>
<C> <S> <C> <C> <C> <C>
(10) The increase in amortizing debt issuance costs associated with the Initial
Offering.................................................................. 525 262
(11) To eliminate costs associated with the sale and reorganization of Outdoor
East which would not have been incurred had the Outdoor East acquisition
been consummated on November 1, 1995...................................... (716)
(12) To record the tax effect on pro forma statements for:
The Transactions................................... (4,746)
Recent Acquisitions................................ 1,339 (483)
3M Acquisition..................................... (2,819) (1,638)
The Initial Offering............................... (2,310) (813)
(13) To eliminate interest income on the Company's historical financial
statements that would not have existed had the Recent Acquisitions taken
place at the beginning of the period...................................... 1,049
(14) The accompanying pro forma results of operations do not give effect to the
extraordinary loss on the extinguishment of debt of $9,526, net of income
tax benefit of $6,351 for the year ended October 31, 1996
(15) To record (a) a decrease in payroll and payroll related costs in direct
advertising and general and administrative expense categories due to the
termination of employees in the following functions; and (b) the
elimination of general corporate allocations not considered attributable
to assets acquired as follows:
Direct Advertising:
Elimination of production and sales overhead functions and corporate
overhead allocations................................................. (2,077) (1,053)
--------- ----------
Elimination of national sales and marketing costs....................... (1,194) (486)
========= ==========
Total direct advertising.................................................. (3,271) (1,539)
========= ==========
General and Administrative:
Elimination of national office function, accounting and administrative
personnel and corporate allocations.................................. (1,389) (533)
========= ==========
(16) Represents incremental amortization and depreciation due to the
application of purchase accounting in recording the 3M Acquisition........ 7,701 3,817
========= ==========
(17) Represents the incremental interest expense resulting from the borrowing
of $114 million used to finance the 3M Acquisition, as if the transaction
had taken place at the beginning of the period............................ 8,550 4,275
========= ==========
</TABLE>
For purposes of determining the pro forma effect of the Initial Offering on
the Company's unaudited Condensed Consolidated Balance Sheet as of June 30,
1997, the following adjustments have been made:
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
PRO FORMA INITIAL
ADJUSTMENTS OFFERING
----------- ---------------
<C> <S> <C> <C>
(18) Cash:
Net proceeds from the Initial Offering...................... $ $ 193,426
To record cash used to pay off loans under the Senior Credit
Facility.................................................... (194,000)
---------
(574)
=========
To record cash used to finance the 3M Acquisition........... (4,000)
========
</TABLE>
26
<PAGE> 31
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
PRO FORMA INITIAL
ADJUSTMENTS OFFERING
----------- ---------------
<C> <S> <C> <C>
(19) Property, Plant and Equipment, net:
To record the increase in property, plant and equipment from
the allocation of the purchase price for the 3M
Acquisition................................................. 13,932
========
(20) Intangibles:
To record capitalized fees of the Initial Offering.......... 5,250
To record intangibles resulting from the allocation of the
purchase price of the 3M Acquisition........................ 86,522
(21) Long-term debt:
To record payoff of loans under the Senior Credit
Facility.................................................... (194,000)
To record effect of the issuance of the Existing Notes...... 198,676
---------
4,676
=========
To record the borrowings under the Senior Credit Facility
used to finance the 3M Acquisition.......................... 114,000
========
(22) Net assets to be acquired
To eliminate historical net assets of 3M.................... (17,546)
========
</TABLE>
27
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the three fiscal years ended October
31, 1996, and for the six months ended June 30, 1997 compared to the six months
ended June 30, 1996. This discussion should be read in conjunction with the
consolidated financial statements of the Company and the related notes, and the
pro forma condensed consolidated statements of the Company and the related
notes, incorporated by reference in this Prospectus. References herein to
specific years refer to the Company's fiscal year ending on October 31 of such
years.
As a result of the change in the Company's fiscal year end from October 31
to December 31, the results of operations set forth in the accompanying
financial statements reflect the six month periods ended June 30, 1997 and July
31, 1996. As a result, the results of operations do not reflect comparative
periods. As an aid to understanding and comparing the Company's results, the
following table sets forth results of operations for the six month periods ended
June 30, 1996 and 1997. The discussion that follows compares these two periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
1996 1997
-------- --------
<S> <C> <C>
Outdoor advertising, net.................................... $58,497 $87,644
Other income................................................ 295 311
------- -------
58,792 87,955
Direct advertising expenses................................. 21,108 28,950
General and administrative expenses......................... 14,863 20,081
Depreciation and amortization............................... 7,035 17,727
------- -------
43,006 66,758
------- -------
Operating income............................................ 15,786 21,197
------- -------
Other expenses (income)
Interest income............................................. (91) (1,421)
Interest expense............................................ 7,983 15,404
Other expenses.............................................. 820 919
------- -------
8,712 14,902
------- -------
Earnings before income taxes................................ 7,074 6,295
Income tax expense.......................................... 2,829 3,414
------- -------
Net earnings................................................ $ 4,245 $ 2,881
======= =======
</TABLE>
The future operating results of the Company may differ materially from the
results described below. See "Risk Factors" for a discussion of certain factors
that may affect the Company's future operating results.
OVERVIEW
The Company's net revenues, which represent gross revenues less commissions
paid to advertising agencies that contract for the use of advertising displays
on behalf of advertisers, are derived primarily from the sale of advertising on
outdoor advertising displays owned and operated by the Company. In recent years,
the Company's logo sign business has expanded rapidly and may in the future have
an increasing impact on the Company's revenues and operating income.
The Company has grown significantly during the last three years, primarily
as the result of (i) internal growth in its existing outdoor advertising
business resulting from construction of additional outdoor advertising displays,
general improvements in occupancy and operating efficiency and increases in
advertising rates, (ii) acquisitions of outdoor advertising businesses and
structures, including the Recent Acquisitions, the 3M Acquisition and the
Company's acquisition of the 50.6% interest that it did not already own in Lamar
Holding
28
<PAGE> 33
Corporation ("LHC") in 1994, and (iii) the rapid expansion of the Company's logo
sign business. The Company's net advertising revenues increased by $36.3
million, representing a compound annual growth rate of 19.8% from $83.6 million
for the fiscal year ended October 31, 1994 to $119.9 million for the fiscal year
ended October 31, 1996. During the same period, EBITDA increased $18.7 million,
representing a compound annual growth rate of 26.4%, from $31.3 million for the
fiscal year ended October 31, 1994 to $50.0 million for the fiscal year ended
October 31, 1996.
The Company plans to continue a strategy of expanding through both internal
growth and acquisitions. As a result of acquisitions, the operating performance
of certain markets and of the Company as a whole are not necessarily comparable
on a year-to-year basis. All recent acquisitions have been accounted for using
the purchase method of accounting and, consequently, operating results from
acquired operations are included from the respective dates of those
acquisitions. Since October 31, 1996, the Company has (i) increased the number
of outdoor advertising displays it operates by 72% by completing 15 acquisition
transactions for an aggregate cash purchase price of approximately $420.7
million and (ii) acquired the logo sign franchises in Kansas and Tennessee for
an aggregate cash purchase price of $1.4 million. The Company intends to finance
its acquisition activities from external sources and borrowings under the Senior
Credit Facility. The proceeds of the Offering were used to repay amounts then
outstanding under the Senior Credit Facility. See "Recent Acquisitions" and "Use
of Proceeds."
The Company relies on sales of advertising space for its revenues, and its
operating results are therefore affected by general economic conditions, as well
as trends in the advertising industry. The Company believes that in recent years
outdoor advertising expenditures have increased more rapidly than total U.S.
advertising expenditures, but there can be no assurance that this trend will
continue or that in the future outdoor advertising will not grow more slowly
than the advertising industry as a whole.
Manufacturers of tobacco products, primarily cigarettes, were historically
major users of outdoor advertising displays. Due to societal and governmental
pressures and other factors, leading tobacco manufacturers have substantially
reduced their domestic advertising expenditures since the early 1990s. The
Company's tobacco revenues, as a percentage of billboard advertising net
revenues, declined from 17% in fiscal 1991 to 10% in fiscal 1996. During this
period, the Company has replaced the reduced tobacco advertising by diversifying
its customer base and increasing sales to local advertisers. Recent developments
in litigation involving the tobacco industry may result in the elimination of
tobacco advertising altogether. See "Risk Factors -- Potential Elimination or
Reduction of Tobacco Advertising."
Growth of the Company's business requires capital expenditures to finance
internal growth, for maintenance and for capitalized costs associated with new
logo sign franchises. The Company expended $13.4 million in fiscal 1994, $14.0
million in fiscal 1995 and $25.9 in fiscal 1996. Of these amounts, $2.8 million,
$1.6 million and $13.1 million, respectively, were attributable to the logo sign
business. See "-- Liquidity and Capital Resources."
In the fiscal year ended October 31, 1995, the Company recognized an income
tax benefit from a net operating loss carryforward. The benefit of the Company's
net operating loss carryforward was fully recognized as of October 31, 1995,
resulting in the recognition of income tax expense of $7.1 million for the year
ended October 31, 1996 and $3.4 million for six months ended June 30, 1997.
29
<PAGE> 34
The following table presents certain items in the Consolidated Statements
of Earnings (Loss) as a percentage of net revenues for the years ended October
31, 1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, SIX MONTHS ENDED
----------------------- ------------------------------
1994 1995 1996 JUNE 30, 1996 JUNE 30, 1997
----- ----- ----- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct advertising expenses............ 34.3 33.6 34.1 35.9 32.9
General & administrative expenses...... 28.7 26.4 24.4 25.3 22.8
Operating cash flow...................... 37.0 40.0 41.4 38.8 44.3
Depreciation and amortization............ 13.4 13.8 12.9 12.0 20.2
Operating income......................... 23.6 26.2 28.5 26.9 24.1
Interest expense......................... 16.1 15.4 12.8 13.6 17.5
Other expense............................ 17.4 18.1 13.6 14.8 16.9
Net earnings............................. 8.6 10.4 9.0 7.2 3.3
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues increased $29.2 million or 49.6% to $88.0 million for the six
months ended June 30, 1997. This increase was the result of (i) a $24.7 million
increase in billboard net revenues, of which $20.3 million is attributable to
the Company's acquisitions of FKM, Outdoor East, Penn and Headrick, with the
remaining $4.4 million attributable to existing operations and (ii) a $4.0
million increase in logo sign revenue due to the completion of development of
the seven new state logo sign franchises awarded and acquired in 1996 and the
continued expansion of the Company's existing logo sign franchises. Net
billboard advertising revenue for the six months ended June 30, 1997 was $76.4
million and net logo sign revenue was $9.9 million.
Operating expenses, exclusive of depreciation and amortization, increased
$13.1 million or 36.3% for the six months ended June 30, 1997 as compared to the
same period in 1996. This increase was primarily the result of the additional
operating expenses related to acquisition of outdoor advertising assets and the
newly developed and acquired logo sign franchises.
Depreciation and amortization expense increased $10.7 million or 152.0%
from $7.0 million for the six months ended June 30, 1996 to $17.7 million for
six months ended June 30, 1997 as a result of an increase in capital assets due
to the Company's recent acquisitions.
Due to the above factors, operating income increased $5.4 million or 34.3%
to $21.2 million for the six months ended June 30, 1997 from $15.8 for the same
period in 1996.
Interest income increased $1.3 million as a result of earnings on excess
cash investments made during the period. Interest expense increased $7.4 million
from $8.0 million for the six months ended June 30, 1996 to $15.4 million for
six months ended June 30, 1997 as a result of interest expense on the Existing
Notes and additional borrowings under the Senior Credit Facility.
The effective income tax rate increased from 40% for the six months ended
June 30, 1996 to 54% for the six months ended June 30, 1997. This increase was
due to goodwill recorded as part of the acquisitions of FKM and Penn. The
amortization of this goodwill is nondeductible for income tax purposes and
generates the increased tax rate.
As a result of the above factors, the Company recognized net earnings for
the six months ended June 30, 1997 of $2.9 million.
YEAR ENDED OCTOBER 31, 1996 COMPARED TO YEAR ENDED OCTOBER 31, 1995
Total revenues increased $18.2 million or 17.8% to $120.6 million for the
twelve months ended October 31, 1996 from $102.4 million for the same period in
1995. This increase was predominantly
30
<PAGE> 35
attributable to an increase in billboard net revenues of $11.6 or 12.1%,
principally due to increases in the number of displays and in advertising rates,
with occupancy rates remaining relatively steady. Logo sign revenue increased
$6.5 million, which represents a 100% increase over the prior fiscal year. This
significant increase was due to the build-out of the following logo sign
franchises awarded in 1995 and 1996: Georgia, Minnesota, South Carolina,
Virginia, New Jersey and Michigan. In addition, during this period the Company
also acquired the Kansas and Tennessee franchises and was awarded the right to
build out and operate logo signs along additional highways in Texas, where it
currently has the logo sign franchise.
Operating expenses, exclusive of depreciation and amortization, increased
$9.2 million or 15.0% to $70.7 million for the twelve months ended October 31,
1996 from $61.4 million for the same period in 1995. This increase was the
result of an increase in personnel costs, sign site rent, graphics expense,
other costs related to the increase in revenue and additional operating expenses
related to outdoor asset acquisitions and the continued development of the logo
sign business.
Depreciation and amortization expense increased $1.5 million or 10.4% from
$14.1 million for the year ended October 31, 1995 to $15.5 million for the year
ended October 31, 1996. This increase in depreciation and amortization was
generated by the assets purchased during fiscal years 1995 and 1996.
Because the Company's operating expenses declined as a percentage of net
revenues to 71.5% for fiscal 1996 from 73.8% for fiscal 1995, operating income
increased $7.5 million or 28% from $26.9 million for the twelve months ended
October 31, 1995 to $34.4 million for the twelve months ended October 31, 1996.
Interest expense remained relatively constant for both periods as did total
outstanding debt until August 1996, when proceeds from the IPO were used to
retire approximately $43.8 million in outstanding bank debt.
Income tax expense for the twelve months ended October 31, 1996 increased
$9.5 million over the same period in 1995. For the past several years the
Company has had a significant net operating loss carryforward. The benefit of
the Company's net operating loss carryforward was fully recognized as of October
31, 1995.
As a result of the foregoing factors, the Company's net earnings of $10.8
million for the twelve months ended October 31, 1996 remained relatively
constant as compared to the same period in 1995.
YEAR ENDED OCTOBER 31, 1995 COMPARED TO YEAR ENDED OCTOBER 31, 1994
Net revenues increased $17.9 million or 21.2% to $102.4 million for the
twelve months ended October 31, 1995 from $84.5 million for the same period in
1994. This increase was predominantly attributable to higher outdoor advertising
net revenues, which rose $17.9 million or 23.0% during this period. The increase
in outdoor advertising net revenues was principally attributable to increases in
number of displays and advertising rates, with occupancy rates remaining
relatively steady. Operations acquired subsequent to fiscal 1993 generated $9.1
million of this increase in outdoor advertising net revenues. This increase in
net revenues was partially offset by a decrease in management fees resulting
from the LHC acquisition. Continued development of the logo sign business
resulted in logo advertising revenue increasing $0.3 million or 5.5% for the
twelve months ended October 31, 1995 as compared to the prior fiscal year.
Operating expenses, exclusive of depreciation and amortization, increased
$8.2 million or 15.5% to $61.4 million for the twelve months ended October 31,
1995 from $53.2 million for the same period in 1994. The LHC operations acquired
in May 1994 generated $5.5 million of this increase in operating expenses; the
remaining $2.7 million of the increase was generated by previously existing
operations. This $2.7 million increase was primarily the result of acquisitions
which caused an expansion of the Company's work force, which required higher
aggregate commissions, workers' compensation costs and employee benefit
expenses.
Depreciation and amortization expense increased $2.7 million or 24% from
$11.4 million for the year ended October 31, 1994 to $14.1 million for the year
ended October 31, 1995. This increase in depreciation and amortization was
generated by the assets purchased during fiscal years 1994 and 1995.
Because the Company's operating expenses declined as a percentage of net
revenues to 73.8% for fiscal 1995 from 76.4% for fiscal 1994, operating income
increased $7.0 million or 34.9% from $19.9 million for the twelve months ended
October 31, 1994 to $26.9 million for the twelve months ended October 31, 1995.
31
<PAGE> 36
Interest expense increased $2.2 million or 16.1% to $15.8 million for the
twelve months ended October 31, 1995 from $13.6 million for the same period in
1994. Approximately $1.8 million of the increase in interest expense reflected
an additional $35.0 million in debt incurred in May 1994 to finance the LHC
acquisition. The remaining $0.4 million increase in interest expense was due to
increased working capital borrowings throughout fiscal 1995.
The Company had a significant net operating loss carryforward and,
therefore, income tax expense for this period reflected the alternative minimum
tax, state income tax and the recognition in the current year of the deferred
tax benefit generated by the net operating loss carryforward.
As a result of the foregoing factors, net earnings increased $3.4 million
or 46.6% to $10.7 million for the twelve months ended October 31, 1995 from $7.3
million for the same period in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied its working capital requirements
with cash from operations and revolving credit borrowings. Its acquisitions have
been financed primarily with borrowed funds.
In November and December of 1996, the Company engaged in several
transactions which significantly changed its capital structure and positioned it
to expand operations through acquisitions. These transactions were: (i) a public
offering of 2,530,000 shares of Class A Common Stock at $23 per share, (ii) a
tender offer that retired approximately $98.8 million of the $100 million
outstanding 11% Senior Secured Notes due 2003, (iii) the offering of $255
million in principal amount of the Existing Notes, and (iv) entering into the
Senior Credit Facility, which consists of a committed $225 million revolving
credit facility and a $75 million incremental facility funded at the discretion
of the lenders. The Senior Credit Facility replaced the Company's previous bank
credit facilities.
Net proceeds to the Company, after underwriting discounts, from the equity
and Existing Note offerings were $55.4 million and $248 million, respectively.
These proceeds were used to extinguish outstanding bank debt of approximately
$47 million, fund the tender offer for the Senior Secured Notes, purchase
substantially all of the assets of Outdoor East for $60.5 million and pay
investment banking fees as well as other related costs of approximately $12
million related to the above transactions. The balance of approximately $85
million was used for acquisitions (including a portion of the purchase price for
the Penn acquisition) and to fund operations.
The Company has primarily used the Senior Credit Facility to finance its
acquisition activity. In this regard, the Company borrowed approximately $48
million and $66 million under the Senior Credit Facility to finance the Penn
acquisition and Headrick acquisition, respectively, in each case after giving
effect to proceeds received by the Company from the disposition of certain
assets acquired in these acquisitions, which were applied to reduce the amount
outstanding under the Senior Credit Facility. In addition, the Company completed
the 3M Acquisition in August 1997, which was financed with $74 million in
borrowings under the Revolving Facility and $40 million of borrowing under the
Incremental Facility.
In September 1997, the Company completed the Initial Offering, the net
proceeds of which (approximately $193.4 million) were used to repay amounts then
outstanding under the Senior Credit Facility. Following the application of such
proceeds, approximately $172 million was available under the Revolving Facility
and $75 million was available but not committed under the Incremental Facility.
In connection with the Initial Offering, the Company amended certain financial
and other covenants in the Senior Credit Facility, including an increase in
permitted capital expenditures from 20% of the Company's EBITDA to 35% of the
Company's EBITDA and an increase in the size of permitted acquisitions from $50
million to $100 million.
The Company's net cash provided by operating activities was $15.9 million
for the six months ended June 30, 1997 due to the Company's net earnings of $2.9
million, non-cash items of $18.0 million (including depreciation and
amortization of $17.7 million), an increase in receivables of $3.7 million, a
decrease in trade accounts payable of $2.0 million, and an increase in accrued
expenses of $2.1 million. Net cash used in investing activities was $222.0
million for the six months ended June 30, 1997 due to an increase in notes
receivable of $1.3 million, acquisitions of new markets of $257.1 million
(offset by proceeds from dispositions
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<PAGE> 37
of assets of $52.2 million), capital expenditures of $15.0 million, and
purchases of intangible assets of $0.9 million. Net cash provided by financing
activities was $132.9 million for the six months ending June 30, 1997 due
primarily to proceeds from issuance of notes payable to banks of $186.0 million
offset by principal payments on long-term debt of $2.1 million and principal
payments on notes payable to banks of $51.0 million. The items described above
yield a net decrease in cash and cash equivalents of $73.3 million for the six
months ending June 30, 1997.
The Company's net cash provided by operating activities increased to $32.5
million in fiscal 1996 due primarily to an increase in non-cash items of $5.8
million, which includes an increase in deferred tax expense of $5.6 million due
to the extinguishment of the Company's net operating loss carryforward. There
was also an increase in deferred income of $1.7 million, and an increase in
accrued expenses of $1.2 million offset by an increase in receivables of $1.3
million. Net cash used in investing activities increased $30.3 million from
$17.8 million in fiscal 1995 to $48.1 million in fiscal 1996. This increase was
due to an $18.3 million increase in purchase of new markets and an $11.9 million
increase in capital expenditures primarily due to the build-out of the Company's
new logo sign franchises. Net cash provided by financing activities increased
$27.6 million in fiscal 1996 due to a $63.1 million increase in proceeds from
issuance of common stock, a $5 million increase in proceeds from issuance of
long-term debt, primarily used to finance the new logo sign franchise build-out,
offset by a $33.3 million increase in principal payments on long-term debt
consisting primarily of the payout of loan obligations under the Company's
previous bank credit facility, a $7.0 million increase in redemption of common
stock due to the March 1996 stock redemption and additional consideration paid
from the proceeds of the IPO to selling stockholders of the December 1995 and
March 1996 redemptions, and a $0.2 million increase in dividends.
The Company's net cash provided by operating activities increased to $25.1
million in fiscal 1995 due primarily to a $3.4 million increase in net earnings
and the addition of non-cash items, including a $2.7 million increase in
depreciation and amortization. Net cash used in investing activities decreased
from $53.6 million in fiscal 1994 to $17.8 million in fiscal 1995. This
reduction is due primarily to the $37.6 million attributable to the LHC
acquisition in fiscal 1994, offset by a $1.8 million increase in capital
expenditures and purchases of intangibles in 1995. Net cash used in financing
activities decreased $46.5 million in fiscal 1995 due to a $44.5 million
decrease in proceeds from issuance of long term debt compared to fiscal 1994.
The Company believes that internally generated funds and funds remaining
available for borrowing under the Senior Credit Facility will be sufficient for
the foreseeable future to satisfy all debt service obligations and to finance
its current operations.
INFLATION
In the last three years, inflation has not had a significant impact on the
Company.
SEASONALITY
The Company's revenues and operating results have exhibited some degree of
seasonality in past periods. Typically, the Company experiences its strongest
financial performance in the summer and its lowest revenues in the winter. The
Company expects this trend to continue in the future. Because a significant
portion of the Company's expenses are fixed, a reduction in revenues in any
quarter is likely to result in a period to period decline in operating
performance and net earnings.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 128 "Earnings
Per Share," which established a new accounting principle for the accounting of
earnings per share. This SFAS is effective for accounting periods ending after
December 15, 1997. Management does not believe that SFAS No. 128 will have a
material impact on earnings per share for the periods presented.
The Financial Accounting Standards Board also issued SFAS No. 130
"Reporting Comprehensive Income," which will require the Company to disclose, in
financial statement format, all non-owner changes in
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<PAGE> 38
equity. SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. Adoption of this standard is not expected to have a material impact on
disclosures in the Company's financial statements.
The Financial Accounting Standards Board also issued SFAS No. 131
"Disclosures About Segments of an Enterprise and Related Information," which
established a new accounting principle for reporting information about operating
segments in annual financial statements and interim financial reports. It also
established standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. The Company is currently evaluating the
applicability of this standard, but the Company does not expect it to have a
material impact on disclosures in its financial statements.
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<PAGE> 39
BUSINESS
GENERAL
Lamar Advertising Company is one of the largest and most experienced owners
and operators of outdoor advertising structures in the United States. It
conducts a business that has operated under the Lamar name since 1902. As of
September 30, 1997, the Company operated approximately 43,000 outdoor
advertising displays in 23 states. The Company provides a full array of poster
and bulletin displays in 51 of its 64 markets. In its remaining 13 markets, the
Company operates high-profile bulletin displays along interstate and other major
highways. The Company also operates the largest logo sign business in the United
States. Logo signs are erected pursuant to state-awarded franchises on public
rights-of-way near highway exits and deliver brand name information on available
gas, food, lodging and camping services. The Company currently operates logo
sign franchises in 18 of the 22 states that have a privatized logo sign program.
As of September 30, 1997, the Company maintained over 21,900 logo sign
structures containing over 68,800 logo advertising displays. In addition, the
Company operates the tourism signage franchises in four states and the province
of Ontario, Canada. The Company has also expanded into the transit advertising
business through the operation of displays on bus shelters, bus benches and
buses in ten of its primary markets and three other markets in the state of
South Carolina. For the fiscal year ended October 31, 1996, the Company reported
net revenues and EBITDA of $120.6 million and $50.0 million, respectively.
Assuming all of the Recent Acquisitions were consummated as of October 1, 1996,
the Company's net revenues and EBITDA for the twelve months ended September 30,
1997 would have been approximately $216.4 million and $98.5 million,
respectively.
The Company's strategy is to be the leading provider of outdoor advertising
in each of the markets it serves, with a historical emphasis on providing a full
range of outdoor advertising services in middle markets. Important elements of
the Company's strategy are its decentralized management structure and its focus
on providing high quality local sales and service. In order to be more
responsive to local market demands, the Company offers a full complement of
outdoor advertising services coupled with local production facilities,
management and account executives through its local offices. Local advertising
constituted approximately 81% of the Company's outdoor advertising net revenues
in fiscal 1996, which management believes is higher than the industry average.
While maintaining its local focus, the Company seeks to expand its operations
within existing and contiguous markets. The Company also pursues expansion
opportunities, including acquisitions, in additional markets. In this regard and
as described more fully below, the Company has increased the number of outdoor
advertising displays it operates by 72% since October 31, 1996 by completing 15
acquisitions. In the logo sign business, the Company's strategy is to maintain
its position as the largest operator of logo signs in the U.S. by expanding
through the addition of state logo franchises as they are awarded and through
possible acquisitions. The Company may also pursue expansion opportunities in
transit and other out-of-home media which the Company believes will enable it to
leverage its management skills and market position.
The Company believes that the experience of its senior and local managers
has contributed greatly to its success. Its regional managers have been with the
Company, on average, for 23 years. The average tenure of the Company's 55 local
managers is eight years. In addition, each of the six regional managers and 45
of the 55 local managers began their careers with the Company as local sales
executives. The Company emphasizes decentralized local management of operations
with centralized support and financial and accounting controls. As a result of
this local focus, the Company maintains an extensive local operating presence
within its markets and employed a total of 212 local account executives at
September 30, 1997. Local account executives are typically supported by
additional local staff and have the ability to draw upon the resources of the
central office and offices in other markets in the event that business
opportunities or customers' needs support such allocation of resources.
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<PAGE> 40
INDUSTRY OVERVIEW
Outdoor Advertising
The outdoor advertising industry generated total revenues of approximately
$2.0 billion in 1996, or approximately 1.1% of the total advertising
expenditures in the United States, according to recent estimates by the OAAA.
This represents growth of approximately 11% over estimated total 1995 revenues.
Outdoor advertising offers repetitive impact and a relatively low
cost-per-thousand impressions compared to broadcast media, newspapers, magazines
and direct mail marketing, making it attractive to both local businesses
targeting a specific geographic area or set of demographic characteristics and
national advertisers seeking mass market support. The Company believes that this
revenue growth is primarily the result of long term contracts that are generally
renewable, a broadening client mix, the increased use of vinyl and computer
printing and acquisition opportunities. Outdoor advertising services have
recently expanded beyond billboards to include a wide variety of out-of-home
advertising media, including advertising displays in shopping centers, malls,
airports, stadiums, movie theaters and supermarkets, as well as on taxis,
trains, buses and subways. The OAAA estimates that total out-of-home advertising
revenues, including traditional billboard advertising, exceeded $3.8 billion in
1996.
Advertisers purchase outdoor advertising for a variety of reasons. Outdoor
advertising is a highly targeted medium that can be used to concentrate on a
particular geographic location or demographic group. In the case of local
businesses such as hotels, restaurants, service stations and other roadside
businesses, the use of outdoor advertising generates a message that reaches
potential customers close to the point of sale and provides ready directional
information. Similarly, national advertisers often use outdoor advertising when
test marketing a product because of the medium's ability to reach a broad
audience in a specific market. In addition, outdoor advertising is attractive
because of its constant repetition and comparatively low cost-per-thousand
impressions as compared to broadcast media, magazines, newspapers and direct
mail marketing. As a result, advertisers desiring to build brand awareness and
develop mass-market support often find outdoor advertising effective in
generating high visibility in a cost-effective manner. Outdoor advertising is
also often combined with other media to reinforce messages being provided to
consumers.
Outdoor advertising, which began in the late 19th century when advertising
"bills" were pasted or "posted" on rented wooden boards, has evolved over the
years to its present form with two types of standardized displays -- posters in
standard and junior sizes and more permanent fixed and rotary bulletins. The
outdoor advertising industry continues to evolve as a result of a number of
factors. The category of out-of-home advertising (advertising transmitted other
than through the print and broadcast media) now includes more than just
traditional billboard and roadside displays. The use of displays in shopping
centers, malls, airports, stadiums, movie theaters and supermarkets has
expanded, and the presence of advertising on subways, buses, taxicabs and
transit shelters is now commonplace. In addition, while tobacco product
companies, historically the largest users of outdoor advertising, have reduced
their reliance on the medium, the outdoor advertising industry has continued to
grow through increasing visibility and attractiveness to local advertisers and
national retail and consumer products companies. Also, advances in production
technology, such as computer printing, vinyl advertising copy and improved
lighting techniques, have facilitated a more creative and effective use of the
medium and a more durable product. These technological improvements also permit
outdoor advertising companies to respond more promptly to customer needs,
operate more efficiently and make greater use of advertising copy used in other
print media, thus providing advertisers the opportunity to present a unified
campaign. Finally, the outdoor advertising industry has benefitted from the
increase in automobile travel time for business and leisure due to increased
highway congestion and the movement of businesses and residences from cities to
outlying suburbs. A study published by the Office of Highway Information
Management of the Federal Highway Administration in 1995 indicated that, during
the period from 1983 to 1990, licensed drivers in the United States increased by
11%, vehicles owned increased by 15%, the number of vehicle trips increased by
25% and vehicle miles increased by 41%. The Company believes that these trends
demonstrate that consumer exposure to existing billboard structures also
increased during this period.
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<PAGE> 41
According to media publications, the top ten categories of business ranked
by outdoor advertising expenditures for 1996 were travel and entertainment,
business and consumer services, retail establishments, automotive, tobacco
products, beer and wine, publishing and media, financial services, hospitals and
drugs and restaurants. The Company's sales by category of business is described
under "Company Operations" below.
The outdoor advertising industry is comprised of several large outdoor
advertising and media companies with operations in multiple markets, as well as
many smaller and local companies operating a limited number of displays in a
single or a few local markets. The OAAA estimates that there are approximately
600 companies in the industry operating a total of approximately 396,000
displays. There has been a trend toward consolidation in the outdoor advertising
industry in recent years and the Company expects this trend to continue.
Logo Signs
Throughout the 1970's and 1980's many states developed logo sign programs
using state and federal highway matching dollars. Logo signs provide brand name
information on available gas, food, lodging and camping services near highway
exits. Brand name advertising display plates are posted on logo sign structures
to provide this information to highway travellers. In 1985, Minnesota became the
first state to privatize its logo sign program by contracting with a private
firm for the construction, marketing, administration and maintenance of logo
signs in lieu of using government resources. Since then 21 other states have
awarded contracts for privatized logo sign programs, and several others are
considering such privatization programs.
Conversion of state-run logo sign programs to privately owned and operated
programs is attractive to state governments, in part because of the efficiencies
offered by private contractors.
Transit
A relatively new opportunity within the out-of-home advertising industry is
transit advertising. Increasing numbers of local governments are providing
transit shelters and benches to enhance the service and image of local transit
systems. New government regulations pertaining to the Americans with
Disabilities Act, as well as demands by the public, are creating a need for bus
shelter locations which are practical and accessible by handicapped individuals.
These locations, as well as buses, are increasingly being used for out-of-home
advertising.
As with state-awarded logo sign franchises, municipalities have begun to
issue contracts for transit displays on bus shelters, benches and buses to
private enterprises. Under these contracts, the private party constructs the
shelters or benches, which it can use for advertising displays. In some cases,
the rights for bus displays are also included under the contract. The primary
benefits of privatizing transit advertising are the avoidance of capital
expenditures by the municipality, the prospect of additional revenue for the
municipality, the consistent quality that a coordinated transit program can
provide and the benefits of regular cleaning and maintenance undertaken by
private enterprises.
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<PAGE> 42
MARKETS
Outdoor Advertising Markets
The following table sets forth certain information regarding the Company's
existing primary outdoor advertising markets.
<TABLE>
<CAPTION>
NUMBER OF DISPLAYS(3) PRO FORMA
--------------------- NET
STATE/PRIMARY MARKET(1) MARKET RANK(2) BULLETINS POSTERS REVENUES(4)
----------------------- -------------- ---------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
PENNSYLVANIA
York................................ 103 305 1,028 $ 7,570
Allentown........................... 65 268 0 4,777
Reading............................. 130 125 542 4,108
Williamsport........................ 240 88 677 2,940
Erie................................ 152 132 570 2,553
Altoona............................. 234 57 428 1,294
------ ------ --------
Total....................... 975 3,245 23,242
LOUISIANA
Baton Rouge......................... 81 398 544 7,107
Shreveport.......................... 127 324 720 3,784
Lafayette........................... 98 295 358 2,699
Lake Charles........................ 203 249 274 2,380
Monroe.............................. 226 184 440 1,900
New Orleans......................... 39 117 2 1,033
Houma............................... -- 55 288 951
Alexandria.......................... 199 145 342 949
Hammond............................. -- 194 118 641
------ ------ --------
Total....................... 1,951 3,086 21,444
TENNESSEE
Nashville........................... 44 678 1,116 9,029
Knoxville........................... 68 645 882 7,679
Clarksville......................... -- 151 408 1,887
------ ------ --------
Total....................... 1,474 2,406 18,595
FLORIDA
Pensacola........................... 125 312 611 4,111
Lakeland............................ 104 527 391 3,461
Fort Myers.......................... 76 141 299 2,430
Panama City......................... 225 292 438 2,390
Tallahassee......................... 167 181 264 2,357
Fort Walton......................... 205 191 214 1,949
Daytona Beach....................... 93 58 307 1,637
------ ------ --------
Total....................... 1,702 2,524 18,335
GEORGIA
Atlanta............................. 12 300 1 5,611
Savannah............................ 154 340 574 4,095
Augusta............................. 107 276 474 3,243
Valdosta............................ -- 336 261 1,414
Albany.............................. 243 146 328 876
------ ------ --------
Total....................... 1,398 1,638 15,239
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
NUMBER OF DISPLAYS(3) PRO FORMA
--------------------- NET
STATE/PRIMARY MARKET(1) MARKET RANK(2) BULLETINS POSTERS REVENUES(4)
----------------------- -------------- ---------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NEW YORK
Buffalo............................. 40 133 1,295 5,551
Rochester........................... 46 116 594 3,056
Syracuse............................ 70 70 706 2,812
------ ------ --------
Total....................... 319 2,595 11,419
MISSISSIPPI
Jackson............................. 118 666 658 6,390
Gulfport............................ 134 326 389 3,977
Hattiesburg......................... -- 282 189 876
------ ------ --------
Total....................... 1,274 1,216 11,243
VIRGINIA
Richmond............................ 56 373 1,028 7,802
Roanoke............................. 102 266 678 3,418
------ ------ --------
Total....................... 639 1,706 11,220
TEXAS
Brownsville......................... 63 208 845 3,067
Houston............................. 9 258 1 2,436
Beaumont............................ 128 197 313 2,335
Corpus Christi...................... 126 187 532 1,465
Wichita Falls....................... 235 172 154 1,097
Laredo.............................. 210 77 361 696
------ ------ --------
Total....................... 1,099 2,206 11,096
ALABAMA
Mobile.............................. 84 852 635 6,594
Montgomery.......................... 140 450 522 4,371
------ ------ --------
Total....................... 1,302 1,157 10,965
MICHIGAN
Detroit............................. 6 471 2 6,975
Grand Rapids........................ 66 64 0 424
------ ------ --------
Total....................... 535 2 7,399
WEST VIRGINIA
Wheeling............................ 215 175 552 3,121
Huntington.......................... 139 95 492 1,620
Bridgeport.......................... -- 143 289 1,024
Bluefield........................... -- 343 239 770
------ ------ --------
Total....................... 756 1,572 6,535
OHIO
Youngstown.......................... 92 293 596 3,280
Dayton.............................. 54 0 518 1,978
------ ------ --------
Total....................... 293 1,114 5,258
COLORADO
Colorado Springs.................... 95 145 337 2,686
Denver.............................. 23 169 1 1,802
------ ------ --------
Total....................... 314 338 4,488
</TABLE>
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<PAGE> 44
<TABLE>
<CAPTION>
NUMBER OF DISPLAYS(3) PRO FORMA
--------------------- NET
STATE/PRIMARY MARKET(1) MARKET RANK(2) BULLETINS POSTERS REVENUES(4)
----------------------- -------------- ---------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SOUTH CAROLINA
Columbia............................ 88 340 593 4,460
MISSOURI
State Highways...................... N/A 1,127 2 4,182
KENTUCKY
Lexington........................... 105 111 521 3,335
Louisville.......................... 50 4 1 314
------ ------ --------
Total....................... 145 522 3,649
NORTH CAROLINA
Statewide Highways.................. N/A 897 121 2,977
KANSAS
Kansas City......................... 27 154 1 2,525
ARIZONA
Phoenix............................. 18 130 1 1,403
CALIFORNIA
Sacramento.......................... 28 58 1 871
Total....................... 16,882 26,046 $196,545
====== ====== ========
</TABLE>
Logo Sign Franchises
The following table sets forth certain information regarding the Company's
logo business operations. As of September 30, 1997, the Company operated
approximately 68,800 logo advertising displays.
<TABLE>
<CAPTION>
# OF LOGO
YEAR ADVERTISING
AWARDED FRANCHISE DISPLAYS
- ------- --------- -----------
<C> <S> <C>
1989 Nebraska(5)................ 845
1989 Oklahoma................... 1,492
1990 Utah....................... 1,769
1991 Missouri................... 8,093
1992 Ohio(5).................... 6,421
1993 Texas...................... 3,633
1993 Mississippi................ 3,077
1995 Georgia.................... 10,262
1995 Minnesota(7)............... 2,731
</TABLE>
<TABLE>
<CAPTION>
# OF LOGO
YEAR ADVERTISING
AWARDED FRANCHISE DISPLAYS
- ------- --------- -----------
<C> <S> <C>
1995 South Carolina............. 2,022
1996 Virginia................... 7,371
1996 Michigan(5)................ 1,505
1996 Tennessee.................. 4,157
1996 Kansas..................... 2,145
1996 New Jersey................. 1,007
1996 Florida.................... 3,859
1996 Kentucky................... 7,868
1996 Nevada..................... 541
Total...................... 68,798
======
</TABLE>
- ---------------
(1) Includes additional or outlying markets served by the office in the
applicable market.
(2) Indicates the Winter 1997 Arbitron Radio Metro Market ranking within which
the office is located, as determined by The Arbitron Company. The Company
believes that Metro Market ranking, which ranks, according to population of
persons 12 years or older, the largest 263 markets in the U.S., is a
standard measure of market size used by the media industry. Where no market
ranking is shown, such market is not ranked by Arbitron.
(3) The two standardized types of industry displays are bulletins and posters.
See "Business -- Company Operations." The display count is as of June 30,
1997, pro forma for all acquisitions completed as of September 30, 1997.
(4) Represents net revenues for fiscal year ended October 31, 1996 attributable
to each outdoor advertising market. These revenues, together with logo sign
and transit advertising revenues and production revenue, comprise outdoor
advertising net revenues shown in the Company's consolidated statements of
earnings
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<PAGE> 45
(loss). Also includes net revenues for the most recently completed
applicable fiscal year on a pro forma basis with respect to all acquisitions
completed by the Company since October 31, 1996. See "Summary -- Recent
Acquisitions."
(5) Includes tourist oriented directional logo signs operated by the Company
pursuant to its franchise with the state.
(6) Franchise operated by a 66.7% owned partnership.
(7) Franchise operated by a 95.0% owned partnership.
BUSINESS STRATEGY
Outdoor Advertising
The Company's overall business strategy is to be the leading provider of
outdoor advertising in the markets it serves, with a historical emphasis on
providing a full range of outdoor advertising services in middle markets. This
strategy includes the following elements:
Operating Strategy
High Quality Local Sales and Service. The Company identifies and closely
monitors the needs of its customers and seeks to provide them with quality
advertising products at a lower cost than competitive media. The Company
believes it has a reputation for providing excellent customer service and
quality outdoor advertising space and displays.
The Company's 212-person sales force is supported by 53 full-service
offices. In markets with such offices, the Company has recruited and trained a
skilled sales force, placing an emphasis on market research and use of artistic
creativity. Each salesperson is compensated under a performance-based
compensation system and supervised by a sales manager executing a coordinated
marketing plan. Art departments assist local customers in the development and
production of creative, effective advertisements. The Company believes repeat
sales are evidence that the Company delivers quality products and services.
Centralized Control/Decentralized Management. Management believes that, in
51 of its 64 markets, the Company is the only outdoor advertising company
offering a full complement of outdoor advertising services coupled with local
production facilities, management and account executives. Local offices operate
in defined geographic areas and function essentially as independent business
units, consistent with senior management's philosophy that a decentralized
organization is more responsive to particular local market demands.
The Company maintains centralized accounting and financial control over its
local operations, but local managers are responsible for the day-to-day
operations in each local market and are compensated according to that market's
financial performance. Each local manager reports to one of six regional
managers who in turn report to the Company's Chief Executive Officer. Management
believes empowering local management and sales personnel to respond to market
conditions has been a major factor in the Company's success.
Effective Inventory Management. The Company believes that the local
presence of sales personnel contributes to the Company's ability to increase
occupancy rates by attracting and servicing local customers. Additionally, a
national sales office at corporate headquarters allows the Company to package
inventory effectively to take advantage of national advertising campaigns in the
Company's markets. The Company's inventory is managed by state-of-the-art
mapping, charting and accounting software.
Middle Market Focus. The Company's leading position in 54 of its 64
primary outdoor advertising markets is a result of a successful operating
strategy dedicated to growth and acquisitions primarily within the target range
of markets having a population ranking between 50 and 250. Management believes
that operating in these markets provides certain advantages, including the
benefits of a diverse and reliable mix of local advertisers, geographic
diversification and an ability to package inventory effectively.
Effective Use of Technological Advances. The Company seeks to capitalize
on technological advances that enhance its productivity and increase its ability
to effectively respond to its customers' needs. The
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<PAGE> 46
Company's continued investment in equipment and technology provides for greater
ongoing benefits in the areas of sales, production and operation.
Growth Strategy
Internal Growth. Within its existing markets, the Company enhances revenue
and cash flow growth by employing highly targeted local marketing efforts to
improve display occupancy rates and by selectively increasing advertising rates.
This strategy is facilitated through its local sales and service offices which
allow management to respond quickly to the demands of its local customer base.
In addition, the Company routinely invests in upgrading its existing structures
and constructing new display faces in order to provide quality service to its
current customers and to attract new advertisers.
Acquisitions. Aggressive internal growth is enhanced by focused strategic
acquisitions, resulting in increased operating efficiencies, greater geographic
diversification and increased market penetration. The Company has demonstrated
its ability to grow successfully through acquisitions, having completed over 90
acquisitions since 1983. In addition to acquiring positions in new markets, the
Company purchases smaller outdoor advertising properties within existing or
contiguous markets. Acquisitions offer opportunities for inter-market
cross-selling and the opportunity to centralize and combine accounting and
administrative functions, thereby achieving economies of scale. In addition, the
Company leverages its reputation for high quality local sales and service by
taking advantage of opportunities to acquire high-profile bulletin displays that
may become available in larger markets. The Company believes that there will be
future opportunities for implementing the Company's acquisition strategy given
the industry's fragmentation and current consolidation trends.
Logo Signs
The Company entered the business of logo sign advertising in 1988. The
Company is now the largest provider of logo sign services in the United States,
operating 18 of the 22 privatized state logo sign franchises. The Company's
strategy is to continue to be the leading logo sign provider in the country. The
Company also operates the tourism signing franchises in four states and the
province of Ontario, Canada.
Adopting many of the decentralized operational strategies of the outdoor
advertising division, the Company's logo sign division maintains contacts and
local sales offices in each of the states in which it operates. Relationships
with customers are developed and maintained at the state level; accounting, MIS
and certain administrative functions are centralized at the Company's
headquarters.
In competing for state-awarded logo sign franchises, the Company seeks to
form strategic alliances with premier signing contractors in order to present to
state highway departments the combined benefits of entities with substantial
local presence and national resources. As the industry leader, the Company has
gained significant operating experience and compiled a database of information
it believes is unequalled in this industry. The Company shares its knowledge and
database information with state highway departments initiating new logo sign
programs, and believes this interaction provides significant advantages when
seeking new logo sign franchises.
After securing a franchise, the Company generally contracts with an
independent construction firm for the erection and maintenance of the logo sign
structures in order to avoid the expense of staffing and maintaining a
construction presence. The Company then processes orders for logo sign services
through its corporate staff and a small sales force in the state.
The Company maximizes participation and customer satisfaction through the
use of market surveys, coupled with a customer focused sales program to
potential logo sign advertisers. Employing these methods, in Mississippi, for
example, the revenue from logo sign advertising displays increased from $263,100
for the twelve months prior to the Company receiving the state's logo sign
franchise to $621,000 for the twelve months following the Company being awarded
such franchise. This revenue increase was the result of a 57% increase in the
number of logo advertising displays and an increase in advertising rates during
the twelve months following receipt of the franchise.
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<PAGE> 47
The Company believes its market-leading position in the logo sign industry
will continue to increase as additional states privatize their logo sign
programs and recognize the track record and core competency of the Company in
building and servicing logo sign programs. The Company anticipates bidding on
the logo sign franchise in an additional state during 1997. The Company plans to
pursue additional logo sign franchises, through both new franchise awards and,
possibly, the acquisition of other logo sign franchise operators. Logo sign
opportunities arise periodically, both from states initiating new logo sign
programs and states converting from government owned and operated programs to
privately owned and operated programs. Furthermore, the Company plans to pursue
tourism signing programs in Canada and is seeking to expand into other state-
authorized signage programs, such as those involving directional signs providing
tourist information.
Transit and Other
The Company has recently expanded into the transit advertising business
through the operation of displays on bus shelters, benches and buses in ten of
its 64 markets and three other markets throughout the state of South Carolina.
The Company plans to continue pursuing transit advertising opportunities that
arise in its primary markets and to expand into other markets.
With the growth in wireless communication, particularly the buildout of
personal communications services systems following the recent FCC allocation of
radio spectrum, the Company is exploring ways to realize additional revenue by
contracting with communications providers for use of the Company's billboard
structures to attach transmission and reception devices. The Company has
agreements with two of the largest potential wireless communication service
providers regarding possible future use of its billboards.
COMPANY OPERATIONS
Outdoor Advertising
Sales and Service
The Company conducts its outdoor advertising operations through local
offices in each of its 64 markets. Local offices operate in defined geographic
areas and function essentially as independent business units, consistent with
senior management's philosophy that a decentralized organization is more
responsive to particular local market demands and provides greater incentives to
employees. The Company's management policy is one of centralized accounting and
financial control coupled with decentralized sales and production. Local
managers in 53 of the Company's primary markets are responsible for the
day-to-day operations of their outdoor office and are compensated according to
the Company's financial performance in that market. Each local manager reports
to one of six regional managers who in turn report to the Company's Chief
Executive Officer.
The following is a list of the Company's regional managers and their
experience with the Company and in the outdoor advertising industry as of
September 30, 1997:
<TABLE>
<CAPTION>
YEARS
YEARS WITH IN
NAME REGION COMPANY INDUSTRY
---- ------ ---------- --------
<S> <C> <C> <C>
Gerald H. Marchand....................... Baton Rouge Region 39 39
Robert E. Campbell....................... Central Region 25 25
Phillip C. Durant........................ Eastern Region 19 21
Thomas F. Sirmon......................... Mobile Region 18 18
Myron A. LaBorde......................... Florida Region 26 26
Paul Gartland............................ Northern Region 11 13
</TABLE>
The Company's regional managers have been with the Company, on average, for
23 years. The Company's local managers have been with the Company, on average,
for eight years and have worked in the industry, on average, for ten years.
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<PAGE> 48
Inventory
The Company operates the following types of outdoor advertising displays:
Bulletins generally are 14 feet high and 48 feet wide (672 square feet) and
consist of panels on which advertising copy is displayed. The advertising copy
is either handpainted onto the panels at the Company's facilities in accordance
with design specifications supplied by the advertiser and attached to the
outdoor advertising structure, or printed with computer-generated graphics on a
single sheet of vinyl that is "wrapped" around the structure. On occasion, to
attract more attention, some of the panels may extend beyond the linear edges of
the display face and may include three-dimensional embellishments. Because of
their greater impact and higher cost, bulletins are usually located on major
highways.
Standardized posters generally are 12 feet high by 25 feet wide (300 square
feet) and are the most common type of billboard. Advertising copy for these
posters consists of lithographed or silk-screened paper sheets supplied by the
advertiser that are pasted and applied like wallpaper to the face of the
display, or single sheets of vinyl with computer-generated advertising copy that
are wrapped around the structure. Standardized posters are concentrated on major
traffic arteries.
Junior posters usually are 6 feet high by 12 feet wide (72 square feet).
Displays are prepared and mounted in the same manner as standardized posters,
except that vinyl sheets are not typically used on junior posters. Most junior
posters, because of their smaller size, are concentrated on city streets and
target pedestrian traffic.
For the Company's fiscal year ended October 31, 1996, approximately 57% of
the Company's outdoor advertising net revenues were derived from bulletin sales
and 43% from poster sales. Over the same period, bulletin and poster occupancy
averaged approximately 82% and 76%, respectively. The Company regularly donates
unoccupied display space for use by charitable and civic organizations.
The physical structures are typically owned by the Company and are built on
locations the Company either owns or leases. In each local office one employee
typically performs site leasing activities for the markets served by that
office. See "-- Company Operations -- Facilities."
Bulletin space is generally sold as individually selected displays which
remain in one location, usually an interstate highway or other main road, for
the duration of the advertising contract. Bulletins may also be sold as part of
a rotary plan where advertising copy is periodically rotated from one location
to another within a particular market. Poster space is generally sold in
packages called "showings," which comprise a given number of displays in a
market area. Posters provide advertisers with access either to a specified
percentage of the general population or to a specific targeted audience.
Displays making up a showing are placed in well-traveled areas and are
distributed so as to reach a wide audience in a particular market.
Production
The Company's local production staffs in 53 of its 64 markets perform the
full range of activities required to create and install outdoor advertising.
Production work includes creating the advertising copy design and layout,
painting the design or coordinating its printing and installing the designs on
displays. The Company provides its production services to local advertisers and
to advertisers that are not represented by advertising agencies, since national
advertisers represented by advertising agencies often use preprinted designs
that require only installation. The Company's creative and production personnel
typically develop new designs or adopt copy from other media for use on
billboards. The Company's artists also often assist in the development of
marketing presentations, demonstrations and strategies to attract new
advertisers.
With the increased use of vinyl and pre-printed advertising copy furnished
to the outdoor advertising company by the advertiser or its agency, outdoor
advertising companies require less labor-intensive production work. In addition,
increased use of vinyl and preprinted copy is also attracting more customers to
the outdoor advertising medium. The Company believes that this trend over time
will reduce operating expenses associated with production activities.
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<PAGE> 49
Categories of Business
The following table sets forth the top ten categories of business from
which the Company derived its outdoor advertising revenues for fiscal 1996 and
the respective percentages of such revenue. These business categories accounted
for approximately 72% of the Company's total outdoor advertising net revenues in
the fiscal year ended October 31, 1996. No one advertiser accounted for more
than 3.0% of the Company's total outdoor advertising net revenues in that
period.
<TABLE>
<CAPTION>
PERCENTAGE
NET ADVERTISING
CATEGORY REVENUES
-------- ---------------
<S> <C>
Restaurants................................................. 13%
Retail establishments....................................... 11
Tobacco products............................................ 10
Hotels and motels........................................... 7
Automotive.................................................. 6
Hospitals and medical care.................................. 6
Gaming...................................................... 5
Entertainment and sports.................................... 5
Services.................................................... 5
Media....................................................... 4
--
Total............................................. 72%
==
</TABLE>
Beginning in 1992, the leading tobacco companies substantially reduced
their domestic advertising expenditures in response to societal and governmental
pressure and other factors. Because tobacco advertisers tend to occupy displays
in highly desirable locations, the Company historically has been able to attract
substitute advertising for space which has become unoccupied as a result of
reduced tobacco product advertisements, and management believes that the Company
will continue to be able to attract such substitute advertising should tobacco
advertisers further reduce their spending in the future. Recent developments in
litigation involving the tobacco industry may result in the elimination of
tobacco advertising altogether. See "Risk Factors -- Potential Elimination or
Reduction in Tobacco Advertising."
Logo Signs
The Company is the largest provider of logo sign services in the United
States and operates over 21,900 logo sign structures containing over 68,800 logo
advertising displays. The Company has been awarded exclusive franchises to erect
and operate logo signs in the states of Florida, Georgia, Michigan, Mississippi,
Nebraska, New Jersey, Ohio, Oklahoma, South Carolina, Texas, Utah, Virginia,
through a 66.7% owned partnership in the state of Missouri and through a 95.0%
owned partnership in the state of Minnesota. In addition, the Company acquired
the logo sign franchises in Kansas and Tennessee in August 1996 and in December
1996 the Company acquired the logo sign franchises in Kentucky and Nevada. The
Company also operates the tourism signing franchises for the states of Kentucky,
Michigan, Nebraska and Ohio as well as for the province of Ontario, Canada.
State logo sign franchises represent the exclusive contract right to erect
and operate logo signs within a state. The term of the contracts vary, but
generally range from ten to twenty years, including renewal terms. The logo sign
contracts generally provide for termination by the state prior to the end of the
term of the franchise, in most cases with compensation to be paid to the
Company. Typically, at the end of the term of the franchise, ownership of the
structures is transferred to the state without compensation to the Company. None
of the Company's logo sign franchises terminate in the next two years and three
are subject to renewal during that period. The Company expects to be able to
compete effectively for retention of franchises when their terms expire.
The Company also designs and produces logo sign plates for customers
throughout the country, including for use in states which have not yet
privatized their logo sign programs.
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<PAGE> 50
EMPLOYEES
The Company employed approximately 1200 persons at September 30, 1997. Of
these, 60 were engaged in overall management and general administration at the
Company's management headquarters and the remainder were employed in the
Company's operating offices. Of these, approximately 212 were direct sales and
marketing personnel.
The Company has five local offices covered by collective bargaining
agreements, consisting of painters, billposters and construction personnel. The
Company believes that its relations with its employees, including its 46
unionized employees, are good, and the Company has never experienced a strike or
other labor dispute.
The Company believes its employee retention record evidences its good
employee relations. The average tenure for the Company's employees is six years.
The Company offers most employees a range of benefits including a profit
sharing/401(k) plan and life, health and dental insurance.
FACILITIES
The Company's 53,500 square foot management headquarters is located in
suburban Baton Rouge, Louisiana. The Company occupies approximately 30% of the
space in this facility and leases the remaining space. The Company owns 42 local
operating facilities with front office administration and sales office space
connected to back-shop poster and bulletin production space, and leases an
additional 38 operating facilities at a projected lease expense for 1997 of
approximately $550,000.
The Company owns approximately 900 parcels of property beneath outdoor
structures. As of September 30, 1997, the Company had approximately 22,000
active outdoor site leases accounting for a total annual lease expense of
approximately $28.0 million. The Company's leases are for varying terms ranging
from month-to-month to in some cases a term of over ten years, and many provide
the Company with renewal options. There is no significant concentration of
displays under any one lease or subject to negotiation with any one landlord.
The Company believes that an important part of its management activity is to
manage its lease portfolio and negotiate suitable lease renewals and extensions.
COMPETITION
Outdoor Advertising
The Company competes in each of its markets with other outdoor advertisers
as well as other media, including broadcast and cable television, radio, print
media and direct mail marketers. In addition, the Company also competes with a
wide variety of out-of-home media, including advertising in shopping centers,
malls, airports, stadiums, movie theaters and supermarkets, as well as on taxis,
trains and buses. Advertisers compare relative costs of available media and
cost-per-thousand impressions, particularly when delivering a message to
customers with distinct demographic characteristics. In competing with other
media, outdoor advertising relies on its relative cost efficiency and its
ability to reach a broad segment of the population in a specific market or to
target a particular geographic area or population with a particular set of
demographic characteristics within that market.
The outdoor advertising industry is highly fragmented, consisting of
several large outdoor advertising and media companies with operations in
multiple markets as well as smaller and local companies operating a limited
number of structures in single or a few local markets. Although some
consolidation has occurred over the past few years, according to the OAAA there
are approximately 600 companies in the outdoor advertising industry operating
approximately 396,000 billboard displays. In several of its markets, the Company
encounters direct competition from other major outdoor media companies,
including OSI and Clear Channel Communications, Inc. (formerly Eller Media) both
of which have a larger national network and greater total resources than the
Company. The Company believes that its strong emphasis on sales and customer
service and its position as a major provider of advertising services in each of
its primary markets enables it to compete effectively with the other outdoor
advertising companies, as well as other media, within those markets. See "Risk
Factors -- Competition."
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<PAGE> 51
Logo Signs
The Company faces competition in obtaining new logo sign franchises and in
bidding for renewals of expiring franchises. The Company faces competition from
two other national providers of logo signs in seeking logo franchises. In
addition, local companies within each of the states which solicit bids will
compete against the Company in the open-bid process. Competition from these
sources is also encountered at the end of each contract period. The Company
believes its operations model, which includes local sales offices, comprehensive
databases of information and strategic alliances and its knowledge of the
industry, should provide a competitive advantage in pursuing future franchises.
In marketing logo signs to advertisers, the Company competes with other
forms of out-of-home advertising. The Company believes, however, that logo sign
advertising offers an effective, low-cost directional advertising service, which
makes it attractive to potential advertisers.
REGULATION
Outdoor advertising is subject to governmental regulation at the federal,
state and local levels. Federal law, principally the Highway Beautification Act
of 1965 (the "HBA") regulates outdoor advertising on federally aided primary and
interstate highways. The HBA requires, as a condition to federal highway
assistance, states to restrict billboards on such highways to commercial and
industrial areas, and requires certain additional size, spacing and other
limitations. All states have passed state billboard control statutes and
regulations at least as restrictive as the federal requirements, including
removal at the owner's expense and without compensation of any illegal signs on
such highways. The Company believes that the number of its billboards that may
be subject to removal as illegal is immaterial. No state in which the Company
operates has banned billboards, but some have adopted standards more restrictive
than the federal requirements. Municipal and county governments generally also
have sign controls as part of their zoning laws. Some local governments prohibit
construction of new billboards and some allow new construction only to replace
existing structures, although most allow construction of billboards subject to
restrictions on zones, size, spacing and height.
Federal law does not require removal of existing lawful billboards, but
does require payment of compensation if a state or political subdivision compels
the removal of a lawful billboard along a federally aided primary or interstate
highway. State governments have purchased and removed legal billboards for
beautification in the past, using federal funding for transportation enhancement
programs, and may do so in the future. Governmental authorities from time to
time use the power of eminent domain to remove billboards. Thus far, the Company
has been able to obtain satisfactory compensation for any of its billboards
purchased or removed as a result of governmental action, although there is no
assurance that this will continue to be the case in the future. Local
governments do not generally purchase billboards for beautification, but some
have attempted to force removal of legal but nonconforming billboards
(billboards which conformed with applicable zoning regulations when built but
which do not conform to current zoning regulations) after a period of years
under a concept called "amortization," by which the governmental body asserts
that just compensation is earned by continued operation over time. Although
there is some question as to the legality of amortization under federal and many
state laws, amortization has been upheld in some instances. The Company
generally has been successful in negotiating settlements with applicable
localities for billboards required to be removed. Restrictive regulations also
limit the Company's ability to rebuild or replace nonconforming billboards.
To date, however, regulations in the Company's markets have not materially
adversely affected its operations. However, the outdoor advertising industry is
heavily regulated and at various times and in various markets can be expected to
be subject to varying degrees of regulatory pressure affecting the operation of
advertising displays. Accordingly, although the Company's experience to date is
that the regulatory environment can be managed, no assurance can be given that
existing or future laws or regulations will not materially and adversely affect
the Company.
Approximately 10% of the Company's outdoor advertising net revenues and 8%
of consolidated net revenues in fiscal 1996 came from the tobacco products
industry, compared to 9% of outdoor advertising net revenues for fiscal 1995, 7%
for fiscal 1994 and 1993, 12% for fiscal 1992 and 17% for fiscal 1991. The
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<PAGE> 52
percentage for the nine months ended September 30, 1997 on a historical basis
was approximately 9%, and on a pro forma basis giving effect to the Recent
Acquisitions was approximately 9%. Manufacturers of tobacco products,
principally cigarettes, were historically major users of outdoor advertising
displays. Beginning in 1992, the leading tobacco companies substantially reduced
their domestic advertising expenditures in response to societal and governmental
pressures and other factors. There can be no assurance that the tobacco industry
will not further reduce advertising expenditures in the future either
voluntarily or as a result of governmental regulation or as to what affect any
such reduction may have on the Company. See "Business -- Company
Operations -- Categories of Business."
In June 1997 several of the major tobacco companies in the United States
and numerous state attorneys general reached agreement on a proposed settlement
of litigation between such parties. The terms of this proposed settlement
include a ban on all outdoor advertising of tobacco products commencing nine
months after finalization of the settlement. The settlement, however, is subject
to numerous conditions, the most notable of which is the enactment of
legislation by the federal government. At this time, it is uncertain when a
definitive settlement will be reached, if at all, or what the terms of any such
settlement will be. An elimination or reduction in billboard advertising by the
tobacco industry could cause an immediate reduction in the Company's outdoor
advertising revenues and may simultaneously increase the Company's available
inventory. An increase in available inventory could result in the Company
reducing its rates or limiting its ability to raise rates for some period of
time. If the tobacco litigation settlement were to be finalized in its current
form and if the Company were unable to replace revenues from tobacco advertising
with revenues from other sources, such settlement could have a material adverse
effect on the Company's results of operations. While the Company believes that
it would be able to replace a substantial portion of revenues from tobacco
advertising that would be eliminated due to such a settlement with revenues from
other sources, any replacement of tobacco advertising may take time and require
a reduction in advertising rates.
In addition, the states of Florida and Mississippi have entered into
separate settlements of litigation with the tobacco industry. These settlements
are not conditioned on federal government approval and provide for the
elimination of all outdoor advertising of tobacco products by February 1998 in
such states. The Company operates approximately 4,200 outdoor advertising
displays in seven markets in Florida and approximately $1.4 million of its
approximately $17.0 million in net revenues in Florida for the fiscal year ended
October 31, 1996 were attributable to tobacco advertising. In addition, the
Company operates approximately 2,600 outdoor advertising displays in three
markets in Mississippi and approximately $0.6 million of its approximately $7.8
million in net revenues in Mississippi for the fiscal year ended October 31,
1996 were attributable to tobacco advertising. Further, the settlement of
tobacco-related claims and litigation in other jurisdictions may also adversely
affect outdoor advertising revenues.
LITIGATION
The Company from time to time is involved in litigation in the ordinary
course of business, including disputes involving advertising contracts, site
leases, employment claims and construction matters. The Company is also involved
in routine administrative and judicial proceedings regarding billboard permits,
fees and compensation for condemnations. The Company is not a party to any
lawsuit or proceeding which, in the opinion of management, is likely to have a
material adverse effect on the Company.
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<PAGE> 53
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Existing Notes were originally issued and sold on September 25, 1997
(the "Issue Date"). Such sales were not registered under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act and
Rule 144A under the Securities Act. The Company, the Guarantors and the Initial
Purchasers entered into the Exchange and Registration Rights Agreement on the
Issue Date, pursuant to which the Company and the Guarantors agreed to (i) file
with the Commission on or prior to 60 days after the Issue Date a registration
statement on Form S-3 or Form S-4, if the use of such form is then available
(the "Exchange Offer Registration Statement") relating to a registered exchange
offer for the Existing Notes under the Securities Act and (ii) use their
reasonable best efforts to cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act within 120 days after the Issue
Date. Upon the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the holders of Existing Notes who are not prohibited by
any law or policy of the Commission from participating in the Exchange Offer the
opportunity to exchange their Existing Notes for Exchange Notes. The Company and
the Guarantors will keep the Exchange Offer open for not less than 30 days (or
longer, if required by applicable law) after the date notice of the Exchange
Offer is mailed to the holders of the Existing Notes. For each Existing Note
surrendered to the Company for exchange pursuant to the Exchange Offer, the
holder of such Note will receive an Exchange Note having a principal amount at
maturity equal to that of the surrendered Existing Note. Interest on each
Exchange Note will accrue from the last interest payment date on which interest
was paid on the Existing Note surrendered in exchange therefor or, if no
interest has been paid on such Existing Note, from the date of original
issuance.
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company under the Exchange and Registration Rights Agreement.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal, $1,000 principal
amount of Exchange Notes for each $1,000 principal amount of Existing Notes. The
terms of the Exchange Notes are identical in all respects to the terms of the
Existing Notes for which they may be exchanged pursuant to this Exchange Offer,
except that (i) the Exchange Notes will generally be freely transferable by
holders thereof and (ii) the holders of the Exchange Notes will not be entitled
to registration rights under the Exchange and Registration Rights Agreement
except under certain limited circumstances. See "Existing Notes Registration
Rights." The Exchange Notes will evidence the same debt as the Existing Notes
and will be entitled to the benefits of the Indenture. See "Description of
Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Existing Notes being tendered or accepted for exchange.
Based on interpretations set forth in no-action letters issued by the Staff
of the Commission to third parties, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for the Existing Notes may be
offered for resale, resold or otherwise transferred by holders thereof (other
than any holder which is (i) an Affiliate, (ii) a broker-dealer who acquired
Existing Notes directly from the Company or (iii) a broker-dealer who acquired
Existing Notes as a result of market-making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, and such holders have no arrangement with any
person to participate in a distribution of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Existing Notes, where such Existing Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution." Any holder that cannot rely
upon such interpretations must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction.
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<PAGE> 54
Tendering holders of Existing Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Existing Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on December 15, 1997 unless the
Company in its sole discretion extends the period during which the Exchange
Offer is open, in which even the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Company, expires.
The Company reserves the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to State
Street Bank and Trust Company (the "Exchange Agent") and by timely public
announcement communicated by no later than 5:00 p.m. on the next business day
following the Expiration Date, unless otherwise required by applicable law or
regulation, by making a release to the Dow Jones News Service. During any
extension of the Exchange Offer, all Existing Notes previously tendered pursuant
to the Exchange Offer will remain subject to the Exchange Offer.
The Exchange Date will be the first business day following the Expiration
Date. The Company expressly reserves the right to (i) terminate the Exchange
Offer and not accept for exchange any Existing Notes for any reason, including
if any of the events set forth below under "Conditions to the Exchange Offer"
shall have occurred and shall not have been waived by the Company and (ii) amend
the terms of the Exchange Offer in any manner, whether before or after any
tender of the Existing Notes. If any such termination or amendment occurs, the
Company will notify the Exchange Agent in writing and will either issue a press
release or give written notice to the holders of the Existing Notes as promptly
as practicable. Unless the Company terminates the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date, the Company will exchange the
Exchange Notes for the Existing Notes on the Exchange Date.
If the Company waives any material condition to the Exchange Offer, or
amends the Exchange Offer in any other material respect, and if at the time that
notice of such waiver or amendment is first published, sent or given to holders
of Existing Notes in the manner specified above, the Exchange Offer is scheduled
to expire at any time earlier than the expiration of a period ending on the
fifth business day from, and including, the date that such notice is first so
published, sent or given, then the Exchange Offer will be extended until the
expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Existing Notes and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Existing Notes.
INTEREST ON THE EXCHANGE NOTES
Interest on each Exchange Note issued pursuant to the Exchange Offer will
accrue from the last interest payment date to which interest was paid on the
Existing Notes surrendered in exchange therefor or, if no interest has been paid
on the Existing Notes, from the date of original issue of the Existing Notes.
HOW TO TENDER
The tender to the Company of Existing Notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
GENERAL PROCEDURES. A holder of an Existing Note may tender the same by
(i) properly completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall be
deemed to include a facsimile thereof) and delivering the same, together with
the certificate or certificates representing the Existing Notes being tendered
and any required signature guarantees (or a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") pursuant to the procedure
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<PAGE> 55
described below), to the Exchange Agent at its address set forth below on or
prior to the Expiration Date or (ii) complying with the guaranteed delivery
procedures described below. Each broker-dealer that receives Exchange Notes for
its own account in exchange for Existing Notes, where such Existing Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
If tendered Existing Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Existing Notes are to be reissued) in the
name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Existing Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Company and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
(each an "Eligible Institution") that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Notes and/or Existing Notes not exchanged are to
be delivered to an address other than that of the registered holder appearing on
the note register for the Existing Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Existing Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Existing Notes should contact such holder promptly and instruct such
holder to tender Existing Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Existing Notes himself or herself, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering such Existing Notes, either make appropriate
arrangements to register ownership of the Existing Notes in such beneficial
owner's name or follow the procedures described in the immediately preceding
paragraph. The transfer of record ownership may take considerable time.
BOOK ENTRY TRANSFER. The Exchange Agent will make a request to establish
an account with respect to the Existing Notes at The Depository Trust Company
(the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within
two business days after receipt of this Prospectus, and any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Existing Notes by causing the Book-Entry
Transfer Facility to transfer such Existing Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of
Existing Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address specified below on or prior
to the Expiration Date or the guaranteed delivery procedures described below
must be complied with.
The Exchange Agent and the Book-Entry Transfer Facility have confirmed that
any financial institution that is a participant in the Book-Entry Transfer
facility may utilize the Book-Entry Transfer Facility Automated Tender Offer
Program ("ATOP") procedures to tender Existing Notes.
Any participant in the Book-Entry Transfer Facility may make book-entry
delivery of Existing Notes by causing the Book Entry Transfer Facility to
transfer such Existing Notes into the Exchange Agent's account in accordance
with the Book Entry Transfer Facility's ATOP procedures for transfer. However,
the exchange for the Existing Notes so tendered will only be made after a
Book-Entry Confirmation of such book-entry transfer of Existing Notes into the
Exchange Agent's account, and timely receipt by the Exchange Agent of an Agent's
Message (as such term is defined in the next sentence) and any other documents
required by the Letter of Transmittal. The term "Agent's Message" means a
message, transmitted by the Book Entry Transfer Facility and received by the
Exchange Agent and forming part of a Book-Entry Confirmation, which states that
the Book Entry Transfer Facility has received an express acknowledgment from a
participant tendering Existing Notes that are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.
51
<PAGE> 56
THE METHOD OF DELIVERY OF EXISTING NOTES AND ALL OTHER DOCUMENTS, INCLUDING
DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY AND ANY ACCEPTANCE OF AN
AGENT'S MESSAGE THROUGH ATOP, IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT
BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE
USED, PROPER INSURANCE BE OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN
ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR
BEFORE THE EXPIRATION DATE.
GUARANTEED DELIVERY PROCEDURES. If a holder desires to accept the Exchange
Offer, and time will not permit a Letter of Transmittal or Existing Notes to
reach the Exchange Agent before the Expiration Date, a tender may be effected if
the Exchange Agent has received at its office listed on the back cover hereof on
or prior to the Expiration Date a letter, telegram or facsimile transmission
from an Eligible Institution setting forth the name and address of the tendering
holder, the principal amount of the Existing Notes being tendered, the names in
which the Existing Notes are registered and, if possible, the certificate
numbers of the Existing Notes to be tendered, and stating that the tender is
being made thereby and guaranteeing that within three New York Stock Exchange
trading days after the date of execution of such letter, telegram or facsimile
transmission by the Eligible Institution, the Existing Notes, in proper form for
transfer, will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Existing Notes being tendered by the above-described
method (or a timely Book-Entry Confirmation) are deposited with the Exchange
Agent within the time period set forth above (accompanied or preceded by a
properly completed Letter of Transmittal and any other required documents), the
Company may, at its option, reject the tender. Copies of a Notice of Guaranteed
Delivery which may be used by Eligible Institutions for the purposes described
in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal or
Agent's Message accompanied by the Existing Notes (or a timely Book-Entry
Confirmation) is received by the Exchange Agent. Issuances of Exchange Notes in
exchange for Existing Notes tendered pursuant to a Notice of Guaranteed Delivery
or letter, telegram or facsimile transmission to similar effect (as provided
above) by an Eligible Institution will be made only against deposit of the
Letter of Transmittal (and any other required documents) and the tendered
Existing Notes (or a timely Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Existing Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any and all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Company, be unlawful. The Company also reserves the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. Neither the Company, the
Exchange Agent nor any other person will be under any duty to give notification
of any defects or irregularities in tenders or shall incur any liability for
failure to give any such notification. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Existing Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Existing Notes to the Company and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Existing Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Existing
Notes and to acquire Exchange Notes issuable upon the exchange of such tendered
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<PAGE> 57
Existing Notes, and that, when the same are accepted for exchange, the Company
will acquire good and unencumbered title to the tendered Existing Notes, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Company to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Existing Notes by the Company, and the issuance of Exchange Notes in
exchange therefor shall constitute performance in full by the Company of its
obligations under the Exchange and Registration Rights Agreement and that the
Company shall have no further obligations or liabilities thereunder (except in
certain limited circumstances). All authority conferred by the Transferor will
survive the death or incapacity of the Transferor, and every obligation of the
Transferor shall be binding upon the heirs, legal representatives, successors,
assigns, executors and administrators of such Transferor.
By tendering Existing Notes and executing the Letter of Transmittal, or
transmitting an Agent's Message, as the case may be, the Transferor certifies
that (a) it is not an Affiliate, that it is not a broker-dealer that owns
Existing Notes acquired directly from the Company or an Affiliate of the
Company, that it is acquiring the Exchange Notes offered hereby in the ordinary
course of such Transferor's business and that such Transferor has no arrangement
with any person to participate in the distribution of such Exchange Notes or (b)
that it is an Affiliate of the Company or of any of the Initial Purchasers and
that it will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable to it.
WITHDRAWAL RIGHTS
Existing Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth on the back cover of this Prospectus prior to the Expiration
Date. Any such notice of withdrawal must specify the person named in the Letter
of Transmittal as having tendered Existing Notes to be withdrawn, the
certificate numbers of Existing Notes to be withdrawn, the principal amount of
Existing Notes to be withdrawn, a statement that such holder is withdrawing his
or her election to have such Existing Notes exchanged, and the name of the
registered holder of such Existing Notes, and must be signed by the holder in
the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the beneficial ownership of the Existing Notes being withdrawn. The Exchange
Agent will return the properly withdrawn Existing Notes promptly following
receipt of notice of withdrawal. All questions as to the validity of notices of
withdrawal, including time of receipt, will be determined by the Company, and
such determination will be final and binding on all parties.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Existing Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Company shall be deemed to have accepted for
exchange validly tendered Existing Notes when the Company has given written
notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Existing
Notes for the purposes of receiving Exchange Notes from the Company and causing
the Existing Notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the Exchange Offer, delivery of the Exchange Notes
to be issued in exchange for accepted Existing Notes will be made by the
Exchange Agent promptly after acceptance of the tendered Existing Notes.
Existing Notes not accepted for exchange by the Company will be returned without
expense to the tendering holders (or in the case of Existing Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the procedures described above, such non-exchanged Existing
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility) promptly following the Expiration Date, or, if the Company
53
<PAGE> 58
terminates the Exchange Offer prior to the Expiration Date, promptly after the
Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange Notes
in respect of any properly tendered Existing Notes not previously accepted and
may terminate the Exchange Offer (by oral or written notice to the Exchange
Agent and by timely public announcement, unless otherwise required by applicable
law or regulation) or, at its option, modify or otherwise amend the Exchange
Offer, if (a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been issued by,
any court or governmental agency or other governmental regulatory or
administrative agency or commission, (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, (ii) assessing or seeking any damages as a
result thereof or (iii) resulting in a material delay in the ability of the
Company to accept for exchange or exchange some or all of the Existing Notes
pursuant to the Exchange Offer; (b) any statute, rule, regulation, order or
injunction shall be sought, proposed, introduced, enacted, promulgated or deemed
applicable to the Exchange Offer or any of the transactions contemplated by the
Exchange Offer by any government or governmental authority, domestic or foreign,
or any action shall have been taken, proposed or threatened, by any government,
governmental authority, agency or court, domestic or foreign, that in the sole
judgment of the Company might directly or indirectly result in any of the
consequences referred to in clauses (a)(i) or (ii) above or, in the sole
judgment of the Company, might result in the holders of Exchange Notes having
obligations with respect to resales and transfers of Exchange Noes which are
greater than those described in the interpretations of the Commission referred
to on the cover page of this Prospectus, or would otherwise make it inadvisable
to proceed with the Exchange Offer or (c) a material adverse change shall have
occurred in the business, condition (financial or otherwise), operations, or
prospects of the Company.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in whole
or in part at any time or from time to time in its sole discretion. The failure
by the Company at any time to exercise any of the foregoing rights will not be
deemed a waiver of any such right, and each right will be deemed an ongoing
right which may be asserted at any time or from time to time. In addition, the
Company has reserved the right, notwithstanding the satisfaction of each of the
foregoing conditions, to terminate or amend the Exchange Offer.
Any determination by the Company concerning the fulfillment or
non-fulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no Exchange Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or qualification of the Indenture under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act").
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange
Agent for the Exchange Offer. Questions and requests for assistance and requests
for additional copies of this Prospectus or of the Letter of Transmittal should
be directed to the Exchange Agent as follows:
<TABLE>
<C> <C> <C>
By Mail: Telephone: By Hand:
Two International Place (617) 664-5314 Two International Place
Boston, Massachusetts 02110 Facsimile: Boston, Massachusetts 02110
Attn: Corporate Trust Department (617) 664-5232 Attn: Corporate Trust Department
</TABLE>
54
<PAGE> 59
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Existing Notes in any jurisdiction in
which the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Existing
Notes in such jurisdiction. In any jurisdiction the securities laws or blue sky
laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF EXISTING NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL
RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain material federal income
tax consequences of an exchange of Existing Notes for Exchange Notes and of the
purchase, ownership and disposition of the Exchange Notes. This summary does not
purport to deal with all aspects of federal income taxation that may be relevant
to a particular investor, nor any tax consequences arising under the laws of any
state, locality, or foreign jurisdiction, and it is not intended to be
applicable to all categories of investors, some of which, such as dealers in
securities, banks, insurance companies, tax-exempt organizations, foreign
persons, persons that hold Exchange Notes as part of a straddle or conversion
transaction or holders subject to the alternative minimum tax, may be subject to
special rules. In addition, this summary is limited to persons that will hold
the Exchange Notes as "capital assets" (generally, property held for investment)
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended. All investors are advised to consult their own tax advisors regarding
the federal, state, local and foreign tax consequences of an exchange of
Existing Notes for Exchange Notes and the ownership and disposition of Exchange
Notes.
THE EXCHANGE. The exchange of the Existing Notes for the Exchange Notes in
the Exchange Offer should not be a taxable event for federal income tax
purposes, either because the exchange does not constitute an exchange for
federal income tax purposes or because the exchange constitutes a tax-free
recapitalization. Accordingly, (i) holders should not recognize any taxable gain
or loss as a result of the exchange; (ii) the adjusted tax basis of an Exchange
Note immediately after the exchange should be the same as the adjusted tax basis
of the Existing Note exchanged therefore immediately before the exchange; (iii)
the holding period of the Exchange Note should include the holding period of the
Existing Note; and (iv) the Exchange Note should have the same issue price as
the Existing Note.
55
<PAGE> 60
MARKET DISCOUNT. If a holder acquired an Existing Note other than at
original issue for an amount that is less than its principal amount, the amount
of the difference will be treated as "market discount" (unless such difference
is less than a statutorily defined de minimis amount), and the Existing Note
will be subject to the market discount rules. If a holder exchanges an Existing
Note that is subject to the market discount rules for an Exchange Note, the
Exchange Note will also be subject to the market discount rules. In addition,
Exchange Notes purchased by a subsequent purchaser will be subject to the market
discount rules if the Exchange Notes are purchased with more than the statutory
de minimis amount of market discount.
The holder of an Exchange Note that is subject to the market discount rules
will be required to treat any full or partial principal payment or any gain
recognized on the maturity, sale or other disposition of the Note as ordinary
income, to the extent that such gain does not exceed the accrued market discount
on the Note. The amount of market discount treated as having accrued will be
determined either (i) on a straight-line basis by multiplying the market
discount times a fraction, the numerator of which is the number of days the
Exchange Note was held by the holder and the denominator of which is the total
number of days after the date such holder acquired the Exchange Note up to and
including the date of its maturity, or (ii) if the holder so elects, on a
constant interest rate method.
The holder of an Exchange Note subject to the market discount rules may
elect to include market discount in income currently, through the use of either
the straight-line inclusion method or the elective constant interest method, in
lieu of recharacterizing gain upon disposition as ordinary income to the extent
of accrued market discount at the time of disposition. Once made, this election
will apply to all debt instruments with market discount acquired by the electing
holder during the taxable year for which the election is made, and all
subsequent taxable years, unless the Internal Revenue Service (the "IRS")
consents to a revocation of the election. If an election is made to include
market discount on a debt instrument in income currently, the basis of the debt
instrument in the hands of the holder will be increased by the market discount
thereon as it is included in income.
A holder who does not elect to include the market discount on an Exchange
Note in income currently may be required to defer interest expense deductions
for a portion of the interest paid on indebtedness allocable to such Note, until
the maturity of the Note or its earlier disposition in a taxable transaction.
AMORTIZABLE BOND PREMIUM. A holder that purchased an Existing Note for an
amount in excess of its principal amount may elect to treat such excess as
"amortizable bond premium," in which case the amount required to be included in
the holder's income each year with respect to interest on the Existing Note will
be reduced by the amount of amortizable bond premium allocable (based on the
yield to maturity of the Existing Note) to such year. If a holder made an
election to amortize bond premium with respect to an Existing Note and exchanges
the Existing Note for an Exchange Note pursuant to the Exchange Offer, the
election will apply to the Exchange Note. A holder who exchanges an Existing
Note for which an election has not been made for an Exchange Note, and a
subsequent purchaser of an Exchange Note, may also elect to amortize bond
premium, if any, on the Note. Any election to amortize bond premium will apply
to all debt instruments (other than debt instruments the interest on which is
excludable from gross income) held by the holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the holder,
and the election is irrevocable without the consent of the IRS.
DISPOSITION OF THE EXCHANGE NOTES. Subject to the market discount rules
discussed above, a holder of an Exchange Note will generally recognize gain or
loss upon the sale, redemption, retirement or other disposition of the Note
equal to the difference between (i) the amount of cash and the fair market value
of any property received (except to the extent attributable to the payment of
accrued interest) and (ii) the holder's adjusted tax basis in the Note. Gain or
loss recognized will be capital gain or loss if the Notes are held as capital
assets by the holder and will be longterm capital gain or loss if the holder's
holding period is more than eighteen months and midterm capital gain or loss if
the holder's holding period is more than one year but not more than eighteen
months. Holders who are individuals will generally be taxed on long-term capital
gains at a maximum marginal rate of 20% and on midterm capital gains at a
maximum marginal rate of 28%, and corporate holders will be taxed on long-term
and midterm capital gains at a maximum marginal rate of 35%.
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<PAGE> 61
BACKUP WITHHOLDING AND INFORMATION REPORTING. The holder of an Exchange
Note may be subject to backup withholding at a rate of 31% with respect to
interest, principal and premium, if any, paid on the Note, unless such holder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (b) provides a correct taxpayer
identification number, certifies that the holder is not subject to backup
withholding and otherwise complies with the requirements of the backup
withholding rules.
The Company will report to the holders of the Exchange Notes and the IRS
the amount of any "reportable payment" for each calendar year and the amount of
tax withheld, if any, with respect to payments on the Exchange Notes. The amount
of any backup withholding from a payment to a holder will be allowed as a credit
against the holder's federal income tax liability and may entitle the holder to
a refund, provided that the required information is furnished to the IRS.
OTHER
Participation in the Exchange Offer is voluntary, and holders should
carefully consider whether to accept the Exchange Offer and tender their
Existing Notes. Holders of the Existing Notes are urged to consult their
financial and tax advisors in making their own decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Existing Notes pursuant to the terms of, this Exchange Offer,
the Company will have fulfilled covenants contained in the terms of the Existing
Notes and the Exchange and Registration Rights Agreement. Holders of the
Existing Notes who do not tender their certificates in the Exchange Offer will
continue to hold such certificates and will be entitled to all the rights, and
subject to all the limitations applicable thereto, under the Indenture, except
for any such rights under the Exchange and Registration Rights Agreement which
by their terms terminate or cease to have further effect as a result of the
making of this Exchange Offer. See "Description of Notes." All untendered
Existing Notes will continue to be subject to the restrictions on transfer set
forth in the legend thereon as a consequence of the issuance of the Existing
Notes pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. To the extent that Existing Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the Existing Notes could be
adversely affected. See "Risk Factors -- Absence of Public Market for the
Exchange Notes; Restrictions on Transfer."
The Company may in the future seek to acquire untendered Existing Notes in
the open market or privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company has no present plan to acquire any
Existing Notes that are not tendered in the Exchange Offer.
57
<PAGE> 62
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of September 30,
1997 were as follows:
<TABLE>
<CAPTION>
YEARS WITH
NAME AGE TITLE THE COMPANY
---- --- ----- -----------
<S> <C> <C> <C>
Kevin P. Reilly, Jr....................... 43 Chairman, President, Chief Executive
Officer and Director 19
Keith A. Istre............................ 45 Chief Financial Officer, Treasurer and
Director 19
Charles W. Lamar, III..................... 49 General Counsel, Secretary and Director 15
Gerald H. Marchand........................ 66 Vice President, Regional Manager of
Baton Rouge Region, and Director 39
T. Everett Stewart, Jr.................... 43 President of Interstate Logos, Inc., a
subsidiary of the Company, and Director 17
Dudley W. Coates.......................... 66 Director --
Jack S. Rome, Jr.......................... 49 Director --
William R. Schmidt........................ 46 Director --
</TABLE>
Kevin P. Reilly, Jr. has served as the Company's President and Chief
Executive Officer since February 1989 and as a director of the Company since
February 1984. Mr. Reilly served as President of the Company's Outdoor Division
from 1984 to 1989. Mr. Reilly, an employee of the Company since 1978, has also
served as Assistant and General Manager of the Company's Baton Rouge Region and
Vice President and General Manager of the Louisiana Region. Mr. Reilly received
a B.A. from Harvard University in 1977.
Keith A. Istre has been Chief Financial Officer of the Company since
February 1989 and a director of the Company since February 1991. Mr. Istre
joined the Company as Controller in 1978 and became Treasurer in 1985. Prior to
joining the Company, Mr. Istre was employed by a public accounting firm in Baton
Rouge from 1975 to 1978. Mr. Istre graduated from the University of Southwestern
Louisiana in 1974 with a degree in accounting.
Charles W. Lamar, III joined the Company in 1982 as General Counsel and has
been a director of the Company since June 1973. Prior to joining the Company,
Mr. Lamar maintained his own law practice and was employed by a law firm in
Baton Rouge. Mr. Lamar received a B.A. in Philosophy from Harvard University in
1971, a M.A. in Economics from Tufts University in 1972 and a J.D. from Boston
University in 1975.
Gerald H. Marchand has been Regional Manager of the Baton Rouge Region,
which encompasses operations in Louisiana, Mississippi and Texas, since 1988 and
a director of the Company since 1978. He began his career with the Company in
leasing and went on to become President of the Outdoor Division. He has served
as General Manager of the Lake Charles and Mobile operations. Mr. Marchand
received a Masters in Education from Louisiana State University in 1955.
T. Everett Stewart, Jr. has been President of Interstate Logos, Inc. since
1988, and has recently been named a director. He served as Regional Manager of
the Company's Baton Rouge Region from 1984 to 1988. Previously, he served the
Company as Sales Manager in Montgomery and General Manager of the Monroe and
Alexandria operations. Before joining the Company in 1979, Mr. Stewart was
employed by the Lieutenant Governor of the State of Alabama and by a United
States Senator from the State of Alabama. Mr. Stewart received a B.S. in Finance
from Auburn University in 1976.
Dudley W. Coates has been a director of the Company since 1973. Mr. Coates
received a Liberal Arts degree from Yale University in 1953, and, since that
time, has been an investment broker with the firm of Legg Mason, Inc.
Jack S. Rome, Jr. has been a director of the Company since 1974. Since
1988, Mr. Rome has been President of No Fault Industries, Inc., a construction
company specializing in outdoor recreational facilities.
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<PAGE> 63
Mr. Rome has also served as President of Jack Rome, Jr. & Associates, Inc., a
management consulting company, since October 1987. Mr. Rome served the Company
in various capacities from 1975 to 1986. Mr. Rome received his B.S. in
accounting from Southeastern Louisiana University in 1971.
William R. Schmidt became a director of the Company in 1994. He is an
Assistant Vice President for Pacific Mutual Life Insurance Company in its
Securities Department, where he has been employed since 1990. He has a B.S. in
Finance from Pennsylvania State University and an MBA from the Amos Tuck School
of Business at Dartmouth College.
Kevin P. Reilly, Jr. and Charles W. Lamar, III are cousins.
59
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EXECUTIVE COMPENSATION
The following tables set forth certain compensation information for the
Chief Executive Officer of the Company and each of the four most highly
compensated executive officers of the Company other than the Chief Executive
Officer whose fiscal year 1996 salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------
--------------------------------------------- SHARES OF CLASS A
NAME AND OTHER ANNUAL COMMON STOCK
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) UNDERLYING OPTIONS(#)
- ------------------ ---- --------- -------- ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
Kevin P. Reilly, Jr. ............. 1996 180,000 250,000 6,500 --
President and 1995 120,000 200,000 5,500 --
Chief Executive Officer 1994 120,000 150,000 5,000 --
Gerald H. Marchand(2)............. 1996 106,000 143,515 50,000 --
Vice President, Regional Manager 1995 106,000 156,543 50,000 --
of Baton Rouge Region 1994 106,000 197,443 50,000 --
T. Everett Stewart, Jr.(2)........ 1996 90,000 130,000 5,500 98,000
President of Interstate Logos, 1995 80,000 116,500 4,500 --
Inc.
1994 80,000 65,000 4,000 --
Keith A. Istre.................... 1996 90,000 125,000 6,500 100,000
Vice President and 1995 80,000 75,000 6,000 --
Chief Financial Officer 1994 80,000 65,000 5,500 --
Robert E. Campbell(2)............. 1996 90,000 105,870 7,500 100,000
Vice President, Regional Manager 1995 90,000 96,984 7,500 --
of Central Region 1994 90,000 73,208 7,500 --
</TABLE>
- ---------------
(1) The reported amounts consist of employer contributions under the Company's
deferred compensation plan.
(2) Such person is no longer deemed to be an executive officer of the Company.
The following table provides required information concerning the grant of
stock options, under the 1996 Plan maintained by the Company, to Messrs. Reilly,
Marchand, Stewart, Istre and Campbell during the last fiscal year. In addition,
the table shows hypothetical gains that could be achieved for the respective
options if exercised at the end of the option term. These gains are based on
assumed rates of stock price appreciation of 5% and 10%, compounded annually,
from the date the options were granted to their expiration date. This table does
not take into account any change in the price of the Company's Class A Common
Stock, $0.001 par value per share ("Class A Stock"), to date, nor does the
Company make any representation regarding the rate of its appreciation.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE VALUE AT
SHARES OF PERCENT OF ASSUMED ANNUAL RATES OF
CLASS A STOCK TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------------
NAME GRANTED(#) FISCAL YEAR (PER SHARE) DATE 5% 10%
- ---- ------------- ------------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kevin P. Reilly,
Jr. ................. -- -- -- -- -- --
Gerald H. Marchand..... -- -- -- -- -- --
T. Everett Stewart,
Jr. ................. 98,000(2) 8.3 $16.00 8/02/06 $ 971,488 $2,485,984
Keith A. Istre......... 100,000(2) 8.5 $16.00 8/02/06 $1,008,000 $2,544,000
Robert E. Campbell..... 100,000(2) 8.5 $16.00 8/02/06 $1,008,000 $2,544,000
</TABLE>
- ---------------
(1) The dollar amounts under these columns are the results of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, in the price of the underlying Class A Stock. No gain to the optionees
is possible
60
<PAGE> 65
without an increase in price of the Class A Stock, which will benefit all
stockholders proportionately. In order to realize the potential values set
forth in the 5% and 10% columns of this table, the trading price of the
Class A Stock would have to be approximately 63% and 159% above the market
value of the underlying shares on the date the options were granted, or
approximately $26.08 and $41.44, respectively.
(2) These options, which were granted on August 2, 1996, have a term of ten
years, have an exercise price equal to the initial public offering price of
the Class A Stock, became exercisable with respect to 20% of such shares on
the date of grant and become exercisable as to an additional 20% of such
shares on each of the next four anniversaries of the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE YEAR-END(#) AT FISCAL YEAR-END($)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ----------- ----------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Kevin P. Reilly, Jr......... 0 -- 0/0 0/0
Gerald H. Marchand.......... 0 -- 0/0 0/0
T. Everett Stewart, Jr...... 0 -- 19,600/78,400 225,400/901,600
Keith A. Istre.............. 0 -- 20,000/80,000 230,000/920,000
Robert E. Campbell.......... 0 -- 20,000/80,000 230,000/920,000
</TABLE>
- ---------------
(1) Based on the difference between the option exercise price and the closing
price of the underlying Class A Stock on October 31, 1996, which closing
price was $27.50.
DIRECTOR COMPENSATION
Directors who are not employed by the Company receive a fee of $2,500 for
each meeting of the Board of Directors attended and are reimbursed for travel
expenses incurred to attend such meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended October 31, 1996, the Company's Compensation
Committee consisted of Messrs. Coates, Rome and Schmidt. Mr. Rome was employed
by the Company from 1975 to 1986 and has taken out personal loans from the
Company. See "Certain Relationships and Related Transactions" below.
Mary Lee Lamar Dixon, a member of the Company's Compensation Committee
until August 1996, has received payments from the Company in connection with
certain stock repurchases and has made an investment in one of the Company's
suppliers. See "Certain Relationships and Related Transactions" below.
61
<PAGE> 66
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has from time to time made various personal loans to the
persons listed below. The loans bear interest at a rate equal to 100 basis
points above the rate applicable to United State Treasury six-month bills.
<TABLE>
<CAPTION>
LARGEST OUTSTANDING
BALANCE SINCE
BEGINNING OF LAST BALANCE OUTSTANDING AS
NAME FISCAL YEAR OF SEPTEMBER 30, 1997
- ---- ------------------- -------------------------
<S> <C> <C>
Jack S. Rome(1)...................................... $147,230 $75,542
T. Everett Stewart, Jr.(1)........................... 71,862 71,862
Wendell S. Reilly(2)................................. 500,000 50,000
Kevin P. Reilly, Sr.(2)(3)........................... 132,403 38,152
Anna Reilly Cullinan(2).............................. 55,000 0
Kevin P. Reilly, Jr.(1)(3)(4)........................ 125,000 0
Sean E. Reilly(2).................................... 58,532 0
</TABLE>
- ---------------
(1) The named individual is a director of the Company.
(2) Member of the Reilly family.
(3) Kevin P. Reilly, Sr. was President and Chairman of the Board of Company
until January 1992.
(4) The named individual is an executive officer of the Company.
In October 1995 and in March 1996, the Company repurchased 3.6% and 12.9%,
respectively, of its then outstanding common stock (1,220,500 and 3,617,884
shares, respectively, after giving effect to the 778.9 for 1 split of the
Company's then-existing common stock in July 1996) from certain of its existing
stockholders for an aggregate purchase price of approximately $4.0 million. The
terms of the March 1996 repurchase entitled the selling stockholders to receive
additional consideration from the Company in the event that the Company
consummated a public offering of its common stock at a higher price within 24
months of the repurchase. In satisfaction of that obligation, upon completion of
the IPO in August 1996, the Company paid the selling stockholders an aggregate
of $5.0 million in cash from the proceeds of the IPO and issued to them $20.0
million aggregate principal amount of ten-year subordinated notes. Of the $25.0
million paid on account of the common stock repurchased, an aggregate of $6.3
million was paid to Charles W. Lamar, III, Mary Lee Lamar Dixon and Gerald H.
Marchand.
On December 31, 1995, the Company issued 5,719.49 shares of its Class A
Preferred Stock with an aggregate liquidation preference of $3.6 million to
certain of its stockholders in exchange for an equal number of shares of its
then outstanding common stock. Of the Class A Preferred Stock so issued,
3,134.80 shares were issued to the Reilly Family Limited Partnership, 1,500
shares to Charles W. Lamar, III and 1,084.69 shares to Mary Lee Lamar Dixon and
trusts for her children.
The Company has made investments totalling $1.25 million in Wireless One,
Inc., a publicly-held company in the wireless cable business, of which Sean E.
Reilly, a former director of the Company and the brother of the Company's Chief
Executive Officer, had been the Chief Executive Officer. At September 30, 1997,
the market value of these investments was below the Company's cost.
In October 1996, certain directors, officers and 5% stockholders of the
Company and members of their immediate families invested in Interstate Highway
Signs, Inc. ("IHS"), a privately-held company that manufactures the signs on
which many of the Company's logo sign plates are affixed. Prior to such
investment, the Board of Directors of the Company determined that it was not an
investment of interest to the Company because the business of IHS was not
consistent with the Company's overall business strategy and because IHS did not
provide margins at the level historically produced by the Company. The Company
has in the past purchased logo signs from IHS as one of its suppliers on
competitive terms and expects to continue to do so. The Company made
approximately $3,000,000 in payments to IHS during 1996, which represents
approximately 13% of IHS's revenues during such period. Kevin P. Reilly, Jr.,
Charles W. Lamar, III, Mary Lee Lamar Dixon, Gerald H. Marchand, Dudley W.
Coates and Jack S. Rome, Jr. and members of their
62
<PAGE> 67
immediate families have invested an aggregate of approximately $1.7 million in
IHS, and own approximately 25.7%, 5.2%, 5.2%, 3.9%, 1.6% and 1.5%, respectively,
of the outstanding capital stock of IHS (on an as-converted basis). Mr. Reilly
is Chairman of the Board of IHS.
63
<PAGE> 68
PRINCIPAL STOCKHOLDERS
The following table and footnotes set forth certain information regarding
the beneficial ownership of the Company's common stock as of September 30, 1997
by (i) persons known by the Company to be beneficial owners of more than 5% of
either class of Common Stock, (ii) the Chief Executive Officer and each of the
Company's executive officers other than the Chief Executive Officer, (iii) each
director of the Company and (iv) all current executive officers and directors of
the Company as a group:
<TABLE>
<CAPTION>
DIRECTORS, OFFICERS TITLE OF NUMBER OF PERCENT
AND 5% STOCKHOLDERS CLASS SHARES(1) OF CLASS
------------------- -------- ---------- --------
<S> <C> <C> <C>
Reilly Family Limited Partnership(3).................... Class B(2) 12,758,402(3) 100.0%(4)
c/o The Lamar Corporation
5551 Corporate Blvd.
Baton Rouge, LA 70808
Charles W. Lamar, III................................... Class A 4,236,657(5) 24.0%
c/o The Lamar Corporation
5551 Corporate Blvd.
Baton Rouge, LA 70808
Putnam Investment Management, Inc....................... Class A 3,405,852(6) 19.3%
One Post Office Square
Boston, MA 02109
Mary Lee Lamar Dixon.................................... Class A 1,971,819(7) 11.2%
c/o The Lamar Corporation
5551 Corporate Blvd.
Baton Rouge, LA 70808
Dudley W. Coates........................................ Class A 163,654(8) *
Keith A. Istre.......................................... Class A 40,875(9) *
Gerald H. Marchand...................................... Class A 161,149(10) *
Jack S. Rome, Jr........................................ Class A 2,500(11) *
William R. Schmidt...................................... Class A 500 *
T. Everett Stewart...................................... Class A 45,450(12) *
All Directors and Executive Officers as a Group (8
Persons).............................................. Class A 18,372,172(13) 58.6%(14)
</TABLE>
- ---------------
* Less than 1%
(1) The persons and entities named in the table have sole voting and investment
power with respect to all shares beneficially owned by them, except as
noted below.
(2) Upon the sale of any shares of Class B Common Stock, $0.001 par value per
share ("Class B Stock"), to a person other than to a Permitted Transferee,
such shares will automatically convert into shares of Class A Stock.
Permitted Transferees include (i) Kevin P. Reilly, Sr.; (ii) a descendant
of Kevin P. Reilly, Sr.; (iii) a spouse or surviving spouse (even if
remarried) of any individual named or described in (i) or (ii) above; (iv)
any estate, trust, guardianship, custodianship, curatorship or other
fiduciary arrangement for the primary benefit of any one or more of the
individuals named or described in (i), (ii) and (iii) above; and (v) any
corporation, partnership, limited liability company or other business
organization controlled by and substantially all of the interests in which
are owned, directly or indirectly, by any one or more of the individuals
and entities named or described in (i), (ii), (iii) and (iv) above. Except
for voting rights, the Class A and Class B Stock are substantially
identical. The holders of Class A Stock and Class B Stock vote together as
a single class (except as may otherwise be required by Delaware law), with
the holders of Class A Stock entitled to one vote per share and the holders
of Class B Stock entitled to ten votes per share, on all matters on which
the holders of Common Stock are entitled to vote.
(3) Kevin P. Reilly, Jr., the Chief Executive Officer of the Company, is the
managing general partner of the Reilly Family Limited Partnership (the
"RFLP") and Wendell S. Reilly, Sean E. Reilly and Anna Reilly Cullinan are
each general partners. Kevin P. Reilly, Jr. also owns 5,000 shares of Class
A Stock individually.
64
<PAGE> 69
(4) Represents 40.7% of the Class A Stock if all shares of Class B Stock are
converted into Class A Stock.
(5) Includes 1,323,275 shares of Class A Stock held in trust for Mr. Lamar's
three children, as to which Mr. Lamar disclaims beneficial ownership.
(6) Putnam Investment Management, Inc., together with its affiliates, share
voting and dispositive power over the shares. Based on the Form 13F for the
quarter ended June 30, 1997.
(7) Includes 545,214 shares of Class A Stock held in a trust, of which LaBanc &
Co. is the nominee of the trustee, for the benefit of Mrs. Dixon, as to
which Mrs. Dixon disclaims beneficial ownership, and 1,100,000 shares of
Class A Stock held by Mary Lee Lamar Dixon Family LLC, as to which Mrs.
Dixon is deemed the beneficial owner.
(8) Consists of shares of Class A Stock which are held in trust for Mr. Coates'
three children, as to which he disclaims beneficial ownership.
(9) Includes 40,000 shares of Class A Stock subject to stock options
exercisable within 60 days of July 31, 1997.
(10) Includes 625 shares of Class A Stock held by Mr. Marchand's son, as to
which Mr. Marchand is deemed to be the beneficial owner.
(11) Consists of 2,000 shares of Class A Stock held in trust for Mr. Rome's two
children and 500 shares of Class A Stock owned jointly with J. King Woolf,
III, as to which Mr. Rome is considered the beneficial owner.
(12) Includes 39,200 shares of Class A Stock subject to stock options
exercisable within 60 days of July 31, 1997.
(13) See Notes 3, 5 and 8-12.
(14) Assumes the conversion of all shares of Class B Stock into shares of Class
A Stock.
65
<PAGE> 70
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Class A Stock, 25,000,000 shares of Class B Stock (the Class A Stock and the
Class B Stock are referred to together herein as the "Common Stock"), 10,000
shares of Class A Preferred Stock, $638 par value per share, and 1,000,000
additional shares of Preferred Stock, the terms and provisions of which may be
designated by the Board of Directors in the future. The following summary of the
Company's capital stock is qualified in its entirety by reference to the
Company's Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and By-Laws (the "By-Laws"), each of which is available upon
request to the Company.
COMMON STOCK
As of September 30, 1997, 18,629,551 shares of Class A Common Stock were
issued and outstanding and 12,758,402 shares of Class B Common Stock were issued
and outstanding. See "Capitalization."
Except for voting rights, the rights of the holders of the Class A Common
Stock and the Class B Common Stock are substantially identical. The holders of
the Class A Common Stock and the holders of the Class B Common Stock vote
together as a single class (except as may otherwise be required by Delaware
law), with the holders of the Class A Common Stock entitled to one vote per
share and the holders of Class B Common Stock entitled to ten votes per share,
on all matters on which the holders of Common Stock are entitled to vote. Each
share of Class B Common Stock is convertible at the option of its holder into
one share of Class A Common Stock at any time. In addition, each share of Class
B Common Stock converts automatically into one share of Class A Common Stock
upon the sale or other transfer of such share of Class B Common Stock to a
person who, or entity which, is not a Permitted Transferee. Permitted
Transferees include (i) Kevin P. Reilly, Sr.; (ii) a descendant of Kevin P.
Reilly, Sr.; (iii) a spouse or surviving spouse (even if remarried) of any
individual named or described in (i) or (ii) above; (iv) any estate, trust,
guardianship, custodianship, curatorship or other fiduciary arrangement for the
primary benefit of any one or more of the individuals named or described in (i),
(ii) and (iii) above; and (v) any corporation, partnership, limited liability
company or other business organization controlled by and substantially all of
the interests in which are owned, directly or indirectly, by any one or more of
the individuals and entities named or described in (i), (ii), (iii) and (iv)
above.
All of the outstanding shares of Common Stock are fully paid and
nonassessable. In the event of the liquidation or dissolution of the Company,
following any required distribution to the holders of outstanding shares of
Preferred Stock, the holders of Common Stock are entitled to share pro rata in
any balance of the corporate assets available for distribution to them. The
Company may pay dividends if, when and as declared by the Board of Directors
from funds legally available therefor, subject to the restrictions set forth in
the Company's existing and future debt instruments. Subject to the preferential
rights of the holders of any class of preferred stock, holders of shares of
Common Stock are entitled to receive such dividends as may be declared by the
Company's Board of Directors out of funds legally available for such purpose. No
dividend may be declared or paid in cash or property on any share of either
class of Common Stock unless simultaneously the same dividend is declared or
paid on each share of the other class of Common Stock, provided that, in the
event of stock dividends, holders of a specific class of Common Stock shall be
entitled to receive only additional shares of such class.
Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of any class of common stock is required to approve any
amendment to the Certificate of Incorporation that would increase or decrease
the par value of such class, or modify or change the powers, preferences or
special rights of the shares of any class so as to affect such class adversely.
The Certificate of Incorporation provides that no such separate class vote shall
be available for increases or decreases in the number of authorized shares of
Class A Common Stock.
The Common Stock is redeemable in the manner and on the conditions
permitted under Delaware law and as may be authorized by the Board of Directors.
Holders of Common Stock have no preemptive rights.
66
<PAGE> 71
CLASS A PREFERRED STOCK
All outstanding shares of the Company's Class A Preferred Stock are fully
paid and nonassessable. For information regarding ownership of the issued and
outstanding shares of Class A Preferred Stock, see "Principal Stockholders."
Rank. The Class A Preferred Stock, with respect to dividends and upon
liquidation, ranks senior to Class A and Class B Common Stock.
Dividends. Holders of shares of Class A Preferred Stock are entitled to
receive, when and if declared by the Board of Directors out of funds legally
available therefor, cash dividends at a rate of $15.95 per share per quarter.
Dividends accrue and are cumulative from the date of the issuance of shares. As
of the date of this Offering Memorandum, all accrued dividends have been paid.
The Company intends to continue paying dividends on the Class A Preferred Stock.
Dissolution or Liquidation. In the case of voluntary or involuntary
dissolution or liquidation of the Company, subject to the rights of holders of
any additional Preferred Stock issued in the future, the holders of the Class A
Preferred Stock are entitled to receive out of the assets of the Company the sum
of the par value of the Class A Preferred Stock ($638 per share) and any accrued
and unpaid dividends thereon before any payment may be made or any assets
distributed to the holders of Common Stock. Upon any distribution or
liquidation, whether voluntary or involuntary, if the assets distributed among
the holders of the Class A Preferred Stock are insufficient to permit the
payment to a stockholder of the full preferential amounts, subject to the rights
of holders of any additional Preferred Stock issued in the future, the entire
assets of the Company to be distributed will be distributed ratably among the
holders of the Class A Preferred Stock and, after payment of such preferential
amounts and any preferential amounts due holders of additional Preferred Stock,
if any, the holders of Common Stock will be entitled to receive ratably all the
remaining assets. A merger or consolidation of the Company with or into any
other corporation or corporations, will not, however, be deemed to be a
dissolution or liquidation.
Voting Rights. Holders of Class A Preferred Stock have no voting rights
with respect to general corporate matters except as provided by law. Under
Delaware law, holders of the Class A Preferred Stock are entitled to vote as a
class upon any proposed amendment, whether or not entitled to vote thereon by
the Certificate of Incorporation, if such amendment would increase or decrease
the par value of the shares of such class, or alter or change the powers,
preferences, or special rights of the shares of such class so as to affect them
adversely.
ADDITIONAL PREFERRED STOCK
Additional Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Certificate of Incorporation, including those regarding the
rights of the holders of Class A Preferred Stock, and limitations prescribed by
law, the Board of Directors is expressly authorized to adopt resolutions to
issue the shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences, and relative participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights, sinking fund provisions, redemption prices conversion rights and
liquidation preferences of the shares constituting any class or series of this
additional Preferred Stock, in each case without any further action or vote by
the stockholders. The Company has no current plans to issue any shares of
additional Preferred Stock of any class or series.
One of the effects of undesignated additional Preferred Stock may be to
enable the Board of Directors to render more difficult or to discourage an
attempt to obtain control of the Company by means of a tender offer, proxy
contest, merger or otherwise, and thereby to protect the continuity of the
Company's management. The issuance of shares of additional Preferred Stock
pursuant to the Board of Directors' authority described above may adversely
affect the rights of the holders of Common Stock. For example, additional
Preferred Stock issued by the Company may rank prior to the Common Stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of Common Stock.
67
<PAGE> 72
DESCRIPTION OF OTHER INDEBTEDNESS
The following is a description of the principal agreements governing the
indebtedness of the Company. The following summaries are qualified in their
entirety by reference to the credit and security agreements and indenture to
which each summary relates, copies of which are available on request to the
Company. Defined terms used below and not defined in the applicable subsection
have meanings set forth in the respective agreements.
SENIOR CREDIT FACILITY
Revolving Facility and Incremental Facility. The Senior Credit Facility,
which is agented by The Chase Manhattan Bank, consists of (i) a revolving credit
facility (the "Revolving Facility") providing for a reducing revolving credit
facility with a maximum borrowing availability of $225 million and (ii) a term
credit facility (the "Incremental Facility") with a maximum borrowing
availability of $75 million funded at the discretion of the lenders.
Interest. Borrowings under the Senior Credit Facility bear interest
computed as a margin over either Chase's "Base Rate" or the London Interbank
Offered Rate (the "LIBOR Rate"). The margins range from 0 to 75 basis points and
from 100 to 200 basis points over the Base Rate and LIBOR Rate, respectively,
depending on the Company's current leverage ratio, as such ratio is defined
under the subheading "Covenants."
Reductions in Commitments; Amortization. The Revolving Facility matures
December 31, 2003 and the Incremental Facility matures December 31, 2004. The
Senior Credit Facility provides for reductions in revolving credit commitments
as follows:
<TABLE>
<CAPTION>
REVOLVING FACILITY CREDIT REVOLVING FACILITY CREDIT
COMMITMENTS REDUCED COMMITMENTS REDUCED
DATE TO THE FOLLOWING AMOUNTS DATE TO THE FOLLOWING AMOUNTS
---- ------------------------- ---- -------------------------
<S> <C> <C> <C>
March 31, 1999.......... $216,562,500 September 30, 2001...... $123,750,000
June 30, 1999........... 208,125,000 December 31, 2001....... 112,500,000
September 30, 1999...... 199,687,500 March 31, 2002.......... 98,437,500
December 31, 1999....... 191,250,000 June 30, 2002........... 84,375,000
March 31, 2000.......... 182,812,500 September 30, 2002...... 70,312,500
June 30, 2000........... 174,375,000 December 31, 2002....... 56,250,000
September 30, 2000...... 165,937,500 March 31, 2003.......... 42,187,500
December 31, 2000....... 157,500,000 June 30, 2003........... 28,125,000
March 31, 2001.......... 146,250,000 September 30, 2003...... 14,062,500
June 30, 2001........... 135,000,000 December 31, 2003....... 0
</TABLE>
Guarantees; Security. The obligations of the Company under the Senior
Credit Facility are guaranteed by all of the Company's consolidated subsidiaries
with the exception of Missouri Logos, a partnership. The obligations under the
Senior Credit Facility and the guarantees in respect thereto are secured by a
pledge of the capital stock of all of the Company's consolidated subsidiaries
with the exception of Missouri Logos, a partnership. The guarantees under the
Senior Credit Facility are senior in right of payment to the Guarantees of the
Notes.
Covenants. The Senior Credit Facility places certain restrictions upon the
ability of the Company and its Restricted Subsidiaries that are parties thereto
to, among other things, (i) incur indebtedness, (ii) incur liens or guarantee
obligations, (iii) declare dividends and make other distributions, (iv) make
investments and enter into joint ventures, (v) make capital expenditures, (vi)
dispose of assets and (vii) engage in transactions with affiliates except on an
arms-length basis. In addition, the Senior Credit Facility requires the Company
and its Restricted Subsidiaries which are parties thereto to maintain (a) a
total debt ratio, defined as Total Debt to Operating Cash Flow, of between 5.5
to 1 and 4.0 to 1; (b) a senior debt ratio, defined as Senior Debt to Operating
Cash Flow, of between 4.0 to 1 and 2.5 to 1; (c) an interest coverage ratio,
defined as pro forma Operating Cash Flow for the period of 12 months most
recently ended to total accrued interest expense for
68
<PAGE> 73
such period, of at least 2.0 to 1 and (d) a fixed charge coverage ratio, defined
as pro forma Operating Cash Flow for the period of 12 months most recently ended
to total projected payments of principal and interest on debt to be made in the
succeeding four fiscal quarters plus (i) capital expenditures and (ii) income
and franchise tax payments of at least 1.05 to 1.
Change of Control. A change of control of the Company constitutes an event
of default, permitting the lenders to accelerate the indebtedness and terminate
the Senior Credit Facility. Such a change in control would occur if Kevin P.
Reilly, Sr. and his immediate family (including grandchildren) and certain
entities under their control cease to own at least 20% of the total amount of
voting stock of the Company.
1996 NOTES
General. On November 27, 1996, the Company issued $255 million aggregate
principal amount of 9 5/8% Senior Subordinated Notes due 2006 pursuant to an
indenture between the Company, as issuer, its Restricted Subsidiaries, as
"Subsidiary Guarantors," and State Street Bank and Trust Company, as Trustee.
The 1996 Notes are senior subordinated obligations of the Company and Restricted
Subsidiaries ranking pari passu with all present and future senior subordinated
indebtedness of the Company and the Subsidiary Guarantors, including the Notes.
Interest. The 1996 Notes bear interest at 9 5/8% per annum. Interest is
payable semi-annually on each June 1 and December 1.
Redemption. The 1996 Notes may be redeemed at the election of the Company,
as a whole or from time-to-time in part, at any time after December 1, 2001 at
redemption prices declining from 104.813% of the principal amount for the twelve
months after December 1, 2001 to 101.604% of such amount for the twelve months
after December 1, 2003, and thereafter at a redemption price equal to 100.0% of
such principal amount, plus in each case accrued and unpaid interest to the
applicable redemption date.
Covenants; Change of Control. The 1996 Note Indenture contains covenants
covering matters identical to those that will be covered by the Indenture and
contains a change of control repurchase option identical to that which will
exist under the Indenture.
SENIOR SECURED NOTES
On November 27, 1996, the Company completed a cash tender offer (the
"Tender Offer") for all of the $100 million aggregate principal amount of 11%
Senior Secured Notes due May 15, 2003 (the "Senior Secured Notes"). The
$1,173,000 of Senior Secured Notes not validly tendered and accepted for payment
pursuant to the Tender Offer remain outstanding. The terms and conditions of the
Senior Secured Notes are set forth below.
General. On May 15, 1993, the Company issued the Senior Secured Notes
pursuant to an indenture between the Company, as issuer, its Restricted
Subsidiaries, as "Subsidiary Guarantors," and State Street Bank and Trust
Company, as Trustee. The Senior Secured Notes had been senior secured
obligations of the Company and Restricted Subsidiaries ranking pari passu with
all present and future indebtedness of the Company and the Subsidiary Guarantors
that by its terms is not subordinated to the obligations represented by the
Senior Secured Notes. Following completion of the Tender Offer, the Subsidiary
Guarantors were released from their obligations as guarantors.
Interest. The Senior Secured Notes bear interest at 11% per annum.
Interest is payable semi-annually on each May 15 and November 15.
Security. Following completion of the Tender Offer, the Senior Secured
Notes became unsecured obligations of the Company.
Redemption. The Senior Secured Notes may be redeemed at the election of
the Company, as a whole or from time-to-time in part, at any time after May 15,
1998 at redemption prices declining from 105.5% of the principal amount for the
twelve months after May 15, 1998 to 102.75% of such amount for the twelve
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months after May 15, 1999, and thereafter at a redemption price equal to 100.0%
of such principal amount, plus in each case accrued in unpaid interest to the
applicable redemption date.
Covenants. The indenture governing the Senior Secured Notes restricts the
Company from incurring any indebtedness unless the ratio of the Company's
consolidated indebtedness to consolidated operating cash flow is less than 7.5
to 1. All other covenants were eliminated upon completion of the Tender Offer.
SUBORDINATED NOTES
The Company will have outstanding two classes of subordinated notes: (i) 8%
Series A Unsecured Subordinated Discount Debentures due 2001 ($1.9 million
outstanding at September 30, 1997) and (ii) ten-year subordinated notes ($17.8
million outstanding at September 30, 1997). The Series A debentures referred to
in clause (i) of the preceding sentence were issued in consideration of stock
redemptions occurring in 1986. The ten-year subordinated notes referred to in
clause (ii) were issued as a portion of the consideration paid on account of
stock redemptions occurring in October 1995 and March 1996, bear interest at an
annual rate of 8% and amortize monthly until their maturity in 2006.
DESCRIPTION OF NOTES
The Existing Notes were issued, and the Exchange Notes offered hereby will
be issued, under an Indenture dated as of September 25, 1997 (the "Indenture")
among the Company, the Guarantors, and State Street Bank and Trust Company as
trustee (the "Trustee"). The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), as in effect on
the date of the Indenture. The Notes are subject to all such terms, and holders
of the Notes are referred to the Indenture and the Trust Indenture Act for a
statement of the terms therein. The following is a summary of the material terms
and provisions of the Notes. This summary does not purport to be a complete
description of the Notes and is subject to the detailed provisions of, and
qualified in its entirety by reference to, the Notes and the Indenture
(including the definitions contained therein). A copy of the form of Indenture
is available upon request to the Company. The definitions of certain capitalized
terms are set forth under "-- Certain Definitions" or as otherwise defined
throughout this description. For purposes of this description, references to the
"Company" include only the Company and not its subsidiaries.
GENERAL
The Notes will be limited in aggregate principal amount to $200 million.
The Existing Notes are, and the Exchange Notes will be, general unsecured
obligations of the Company, subordinated in right of payment to Senior
Indebtedness of the Company, pari passu in right of payment with the 1996 Notes
and any additional future senior subordinated indebtedness of the Company, and
senior in right of payment to any existing or future subordinated indebtedness
of the Company.
The Notes will be unconditionally guaranteed, on a senior subordinated
basis, as to payment of principal, premium, if any, and interest, jointly and
severally, by the Guarantors.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on September 15, 2007. The Notes will bear interest
at a rate of 8 5/8% per annum from the date of original issuance until maturity.
Interest is payable semi-annually in arrears on March 15 and September 15
commencing March 15, 1998, to holders of record of the Notes at the close of
business on the immediately preceding March 1 and September 1.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
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OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after September 15, 2002 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
twelve-month period beginning on September 15, of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................................. 104.313%
2003.............................................. 102.875%
2004.............................................. 101.438%
2005 and thereafter............................... 100.000%
</TABLE>
Notwithstanding the foregoing, the Company may redeem in the aggregate up
to $60 million aggregate principal amount of Notes at any time and from time to
time prior to September 15, 2000 at a redemption price equal to 108.625% of the
aggregate principal amount so redeemed, plus accrued interest to the redemption
date out of the Net Proceeds of one or more Public Equity Offerings; provided
that at least $140 million aggregate principal amount of Notes originally issued
remain outstanding immediately after the occurrence of any such redemption and
that any such redemption occurs within 120 days following the closing of any
such Public Equity Offering.
In the event of redemption of fewer than all of the Notes, the Trustee
shall select by lot or in such other manner as it shall deem fair and equitable
the Notes to be redeemed; provided, however, that if a partial redemption is
made with the proceeds of a Public Equity Offering, selection of the Notes for
redemption shall be made by the Trustee only on a pro rata basis, unless such
method is otherwise prohibited. The Notes will be redeemable in whole or in part
upon not less than 30 nor more than 60 days' prior written notice, mailed by
first class mail to a holder's last address as it shall appear on the register
maintained by the Registrar of the Notes. On and after any redemption date,
interest will cease to accrue on the Notes or portions thereof called for
redemption unless the Company shall fail to redeem any such Note.
SUBORDINATION
The indebtedness represented by the Notes, including principal, premium, if
any, and interest, will be, to the extent and in the manner provided in the
Indenture, subordinated in right of payment to the prior payment and
satisfaction in full in cash of all existing and future Senior Indebtedness of
the Company. As of September 30, 1997, the principal amount of outstanding
Senior Indebtedness of the Company, on a consolidated basis, was approximately
$55.9 million. The Company has the ability to incur additional Senior
Indebtedness under the Senior Credit Facility and will be permitted to incur
additional Senior Indebtedness under the Indenture.
The Indenture provides that no payment (by set-off or otherwise) may be
made by or on behalf of the Company on account of the principal of, premium, if
any, or interest on the Notes, or on account of the redemption provisions of the
Notes, for cash or property (other than Junior Securities), (i) upon the
maturity of any Senior Indebtedness of the Company by lapse of time,
acceleration (unless waived) or otherwise, unless and until all principal of,
premium, if any, and the interest on such Senior Indebtedness are first paid in
full in cash or (ii) in the event of default in the payment of any Senior
Indebtedness of the Company when it becomes due and payable, whether at maturity
or at a date fixed for prepayment or by declaration or otherwise (a "Payment
Default"), unless and until such Payment Default has been cured or waived or
otherwise has ceased to exist.
Upon (i) the happening of an event of default (other than a Payment
Default) that permits the holders of Designated Senior Indebtedness to declare
such Designated Senior Indebtedness to be due and payable and (ii) written
notice of such event of default given to the Company and the Trustee by the
representative of the holders of such Designated Senior Indebtedness (a "Payment
Notice"), then, unless and until such event of default has been cured or waived
or otherwise has ceased to exist, no payment (by set-off or otherwise) may
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be made by or on behalf of the Company on account of the principal of, premium,
if any, or interest on the Notes, or on account of the redemption provisions of
the Notes, in any such case, other than payments made with Junior Securities.
Notwithstanding the foregoing, unless the Designated Senior Indebtedness in
respect of which such event of default exists has been declared due and payable
in its entirety within 179 days after the Payment Notice is delivered as set
forth above (the "Payment Blockage Period") (and such declaration has not been
rescinded or waived), at the end of the Payment Blockage Period, the Company
shall, unless a Payment Default exists, be required to pay all sums not paid to
the Holders of the Notes during the Payment Blockage Period due to the foregoing
prohibitions and to resume all other payments as and when due on the Notes. Any
number of Payment Notices may be given; provided, however, that (i) not more
than one Payment Notice shall be given within a period of any 360 consecutive
days, and (ii) no default that existed upon the date of such Payment Notice, if
the representative of the holders of Designated Senior Indebtedness that gave
such Payment Notice knew of such default on such date (whether or not such event
of default is on the same issue of Designated Senior Indebtedness), shall be
made the basis for the commencement of any other Payment Blockage Period unless
such default has been cured or waived for a period of at least 90 consecutive
days.
Upon any distribution of assets of the Company upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency, receivership or a
similar proceeding or upon assignment for the benefit of creditors or any
marshalling of assets or liabilities, (i) the holders of all Senior Indebtedness
of the Company will first be entitled to receive payment in full in cash before
the holders of Notes are entitled to receive any payment on account of principal
of, premium, if any, and interest on the Notes (other than Junior Securities)
and (ii) any payment or distribution of assets of the Company of any kind or
character from any source, whether in cash, property or securities (other than
Junior Securities) to which the holders of Notes or the Trustee on behalf of the
holders of Notes would be entitled (by set-off or otherwise), except for the
subordination provisions contained in the Indenture, will be paid by the
liquidating trustee or agent or other person making such a payment or
distribution directly to the holders of such Senior Indebtedness or their
representative to the extent necessary to make payment in full in cash on all
such Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company (other than Junior Securities) shall be
received by the Trustee at a time when such payment or distribution is
prohibited by the foregoing provisions, such payment or distribution shall be
held in trust for the benefit of the holders of such Senior Indebtedness, and
shall be paid or delivered by the Trustee to the holders of such Senior
Indebtedness remaining unpaid or unprovided for or to their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness may have been
issued, ratably according to the aggregate principal amounts remaining unpaid on
account of such Senior Indebtedness held or represented by each, for application
to the payment of all such Senior Indebtedness remaining unpaid, to the extent
necessary to pay or to provide for the payment of all such Senior Indebtedness
in full in cash after giving effect to any concurrent payment or distribution to
the holders of such Senior Indebtedness.
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes, funds which would be otherwise
payable to the holders of the Notes will be paid to the holders of the Senior
Indebtedness to the extent necessary to pay the Senior Indebtedness in full, and
the Company may be unable to meet its obligations fully with respect to the
Notes.
Each Guarantee will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness of the respective Guarantor, including obligations of such
Guarantor with respect to the Senior Credit Facility (including any guarantee
thereof), and will be subject to the rights of holders of Designated Senior
Indebtedness of such Guarantor to initiate blockage periods, upon terms
substantially comparable to the subordination of the Notes to all Senior
Indebtedness of the Company.
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If the Company or any Guarantor fails to make any payment on the Notes or
any Guarantee, as the case may be, when due or within any applicable grace
period, whether or not on account of payment blockage provisions, such failure
would constitute an Event of Default under the Indenture and would enable the
holders of the Notes to accelerate the maturity thereof. See "-- Events of
Default."
A holder of Notes by his acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on his behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee his
attorney-in-fact for such purpose.
GUARANTEES
The Notes are guaranteed on a senior subordinated basis by the Guarantors.
All payments pursuant to the Guarantees by the Guarantors are subordinated in
right of payment to the prior payment in full of all Senior Indebtedness of the
Guarantors, including guarantees of indebtedness outstanding under the Senior
Credit Facility, to the same extent and in the same manner that all payments
pursuant to the Notes are subordinated in right of payment to the prior payment
in full of all Senior Indebtedness of the Company, pari passu in right of
payment with the guarantees of the 1996 Notes and any future senior subordinated
indebtedness of the Guarantors, and senior in right to payment to any future
subordinated indentures of the Guarantors.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees of Senior Indebtedness)
and after giving effect to any collections from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor
under its Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. In making any calculation relevant to determining such maximum
amount, all Senior Indebtedness shall be deemed to have been incurred prior to
the Issue Date. Each Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Guarantor in a pro
rata amount based on the Adjusted Net Assets of each Guarantor. See "Risk
Factors -- Dependence on Cash Flow from Subsidiaries; Fraudulent Conveyance
Concerns."
Upon (i) the release or payment in full of any Indebtedness of such
Guarantor representing a guarantee of Indebtedness of the Company and the
release of all Liens on the property and assets of such Guarantor relating to
any such Indebtedness or (ii) the sale or disposition (whether by merger, sale
of stock or otherwise) of a Guarantor (or substantially all of its assets) to an
entity which is not a Subsidiary of the Company which is otherwise in compliance
with the Indenture (and providing that the guarantee and Liens referred to in
the foregoing clause (i) are also released at such time), such Guarantor shall
be deemed released from all its obligations under the Indenture and its
Guarantee.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants.
Limitation on Additional Indebtedness and Preferred Stock of Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, incur (as defined) any Indebtedness (including Acquired
Indebtedness) other than Permitted Indebtedness, and will not permit any
Restricted Subsidiary to issue any Preferred Stock, unless (a) after giving
effect to the incurrence of such Indebtedness and the issuance of any such
Preferred Stock and the receipt and application of the proceeds thereof, the
Company's Leverage Ratio is less than (i) 6.50 to 1 if such Indebtedness is
incurred or Preferred Stock is issued, as the case may be, on or prior to
December 1, 1999, (ii) 6.25 to 1 if such Indebtedness is incurred or Preferred
Stock is issued, as the case may be, after December 1, 1999 and on or prior to
December 1, 2001 and (iii) 6.00 to 1 if such Indebtedness is incurred or
Preferred Stock is issued, as the case may be, thereafter, and (b) no Default or
Event of Default shall have occurred and be continuing at the time or as a
consequence of the incurrence of such Indebtedness. Notwithstanding the
foregoing,
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Preferred Stock may only be issued by a Restricted Subsidiary of the Company
pursuant to the preceding sentence to the extent such Restricted Subsidiary is a
Guarantor.
Notwithstanding the foregoing, the Company and the Restricted Subsidiaries
may incur Permitted Indebtedness; provided that the Company will not incur any
Permitted Indebtedness that ranks junior in right of payment to the Notes that
has a maturity or mandatory sinking fund payment prior to the maturity of the
Notes.
Limitation on Restricted Payments
The Company will not make, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the covenant set forth under "Limitation
on Additional Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after November 27,
1996 does not exceed the sum of (1) 100% of the Company's Cumulative EBITDA
minus 1.4 times the Company's Cumulative Consolidated Interest Expense,
plus (2) 100% of the aggregate Net Proceeds and the fair market value of
securities or other property received by the Company from the issue or
sale, after November 27, 1996, of Capital Stock (other than Disqualified
Capital Stock or Capital Stock of the Company issued to any Subsidiary of
the Company) of the Company or any Indebtedness or other securities of the
Company convertible into or exercisable or exchangeable for Capital Stock
(other than Disqualified Capital Stock) of the Company which has been so
converted or exercised or exchanged, as the case may be, plus (3) $25
million plus (4) the net reductions in Investments (other than reductions
in Permitted Investments) in any Person resulting from payments of interest
on indebtedness, dividends, repayments of loans, partial or total releases
or discharges of Guaranteed Permitted Unrestricted Subsidiary Obligations,
or from designations of Unrestricted Subsidiaries as Restricted
Subsidiaries, valued in each case at the fair market value thereof, not to
exceed the amount of Investments previously made by the Company and its
Restricted Subsidiaries in such Person. For purposes of determining under
this clause (c) the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its fair market value as determined by the
Board of Directors reasonably and in good faith.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) the retirement of any shares of Capital Stock of the Company or
subordinated or pari passu Indebtedness by conversion into, or by or in exchange
for, shares of Capital Stock (other than Disqualified Capital Stock), or out of,
the Net Proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of other shares of Capital Stock of the Company
(other than Disqualified Capital Stock; provided, however, that the amount of
any such Net Proceeds that are utilized for any such retirement shall be
excluded from clause (c)(2) of the preceding paragraph, (iii) the redemption or
retirement of Indebtedness of the Company subordinated or pari passu in right of
payment to the Notes in exchange for, by conversion into, or out of the Net
Proceeds of, a substantially concurrent sale or incurrence of Indebtedness of
the Company (other than any Indebtedness owed to a Subsidiary of the Company)
that is, with respect to any such subordinated Indebtedness, contractually
subordinated in right of payment to the Notes to at least the same extent as the
subordinated Indebtedness being redeemed or retired, with respect to any such
pari passu Indebtedness, pari passu or subordinated in right of payment to the
Notes and, with respect to any such subordinated or pari passu Indebtedness, (x)
has no Stated Maturity earlier than the 91st day after the Final Maturity Date
or the final maturity date of the Indebtedness being redeemed or retired,
whichever is earlier and (y) has an Average Life to Stated Maturity equal to or
greater than the remaining Average Life to Stated
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Maturity of the Indebtedness being redeemed or retired; provided, however, that
the amount of any such Net Proceeds that are utilized for any such redemption or
retirement shall be excluded from clause (c)(2) of the preceding paragraph, (iv)
the funding of loans (but not including the forgiveness of any such loan) to
executive officers, directors and shareholders for relocation loans, bonus
advances and other purposes consistent with past practices or the purchase,
redemption or other acquisition for value of shares of Capital Stock of the
Company (other than Disqualified Capital Stock) or options on such shares held
by the Company's or the Restricted Subsidiaries' officers or employees or former
officers or employees (or their estates or trusts or beneficiaries under their
estates or trusts for the benefit of such beneficiaries) upon the death,
disability, retirement or termination of employment of such current or former
officers or employees pursuant to the terms of an employee benefit plan or any
other agreement pursuant to which such shares of Capital Stock or options were
issued or pursuant to a severance, buy-sell or right of first refusal agreement
with such current or former officer or employee; provided that the aggregate
amount of any such loans funded and cash consideration paid, or distributions
made, pursuant to this clause (iv) do not in any one fiscal year exceed $1
million, and (v) the making of Investments in Unrestricted Subsidiaries and
joint ventures in an aggregate amount not to exceed $20 million; provided,
however, that the Company or the Restricted Subsidiaries may make additional
Investments pursuant to this clause (v) up to an aggregate amount not to exceed
$10 million if the Company is able, at the time of any such Investment and
immediately after giving effect thereto, to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Additional Indebtedness" covenant; provided, further, that in
calculating the aggregate amount of Restricted Payments made subsequent to
November 27, 1996 for purposes of clause (c) of the immediately preceding
paragraph, amounts expended pursuant to clause (i) and (v) shall be included in
the calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Limitation on Restricted Payments" were computed,
which calculations may be based upon the Company's latest available financial
statements, and that no Default or Event of Default exists and is continuing and
no Default or Event of Default will occur immediately after giving effect to any
Restricted Payments.
Limitation on Other Senior Subordinated Debt
The Company will not, and will not permit any of the Restricted
Subsidiaries to directly or indirectly incur, contingently or otherwise, any
Indebtedness that is both (i) subordinate in right of payment to any Senior
Indebtedness of the Company or any of the Subsidiary Guarantors, as the case may
be, and (ii) senior in right of payment to the Notes or any of the Guarantees,
as the case may be.
Limitations on Liens
The Company will not, and will not permit any of the Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any Property,
assets, income or profit of the Company or any Restricted Subsidiary or any
shares of stock or debt of any Restricted Subsidiary (whether or not any of the
foregoing is now owned or hereafter acquired) unless (i) if such Lien secures
Indebtedness which is pari passu in right of payment with the Notes, then the
Notes are secured on an equal and ratable basis with the obligations so secured
until such time as such obligation is no longer secured by a Lien or (ii) if
such Lien secures Indebtedness which is subordinated in right of payment to the
Notes, any such Lien shall be subordinated to a Lien granted to the Holders of
the Notes in the same collateral as that securing such Lien to the same extent
as such subordinated Indebtedness is subordinated to the Notes.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate (including entities in which
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the Company or any of the Restricted Subsidiaries own a minority interest) or
holder of 5% or more of the Company's Common Stock (each of the foregoing, an
"Affiliate Transaction") or extend, renew, waive or otherwise modify the terms
of any Affiliate Transaction entered into prior to the Issue Date unless the
terms of such Affiliate Transaction are fair and reasonable to the Company or
such Restricted 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
the Company or such Restricted Subsidiary, as the case may be, in a comparable
transaction made on an arm's-length basis between unaffiliated parties. In any
Affiliate Transaction involving an amount or having a value in excess of $1
million the Company must obtain a resolution of the board of directors approved
by a majority of the members of the board of directors (and a majority of the
disinterested members of the board of directors) certifying that such Affiliate
Transaction complies with this "Limitation on Transactions with Affiliates"
covenant. In any Affiliate Transaction with a value in excess of $5 million the
Company must obtain a written opinion that such Affiliate Transaction complies
with this "Limitation on Transactions with Affiliates" from an independent
investment banking firm of nationally recognized standing.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "Limitations on Restricted
Payments", (ii) any transaction between the Company and any of its Restricted
Subsidiaries or between Restricted Subsidiaries or (iii) the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company and any employment and consulting arrangements entered
into by the Company or any Restricted Subsidiary with their executives or
consultants in the ordinary course of business.
Guarantees of Certain Indebtedness
The Company will not permit any of the Restricted Subsidiaries (other than
the Guarantors) to (a) incur, guarantee or secure through the granting of Liens
the payment of any Indebtedness of the Company or any other Restricted
Subsidiary or (b) pledge any intercompany notes representing obligations of any
of the Restricted Subsidiaries to secure the payment of any Indebtedness of the
Company, in each case unless such Restricted Subsidiary, the Company and the
Trustee execute and deliver a supplemental indenture evidencing such Restricted
Subsidiary's Guarantee under the Indenture. Thereafter, such Restricted
Subsidiary shall be a Guarantor for all purposes of the Indenture.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions to the Company or any Restricted Subsidiary on its Capital Stock,
(b) pay any Indebtedness owed to the Company or any Restricted Subsidiary, (c)
make loans or advances to the Company or any Restricted Subsidiary, (d) transfer
any of its properties or assets to the Company or any Restricted Subsidiary, (e)
grant liens or security interests on the assets of the Company or the Restricted
Subsidiaries in favor of the holders of the Notes, or (f) guarantee the Notes or
any renewals or refinancings thereof, except for Permitted Dividend
Encumbrances.
Limitation on Certain Asset Sales
The Company will not, and will not permit any of the Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such sale or other disposition at least equal to the fair market value thereof
(as determined in good faith by the Company's board of directors, and evidenced
by a board resolution); (ii) not less than 75% of the consideration received by
the Company or such Restricted Subsidiary, as the case may be, is in the form of
cash or cash equivalents (those equivalents allowed under "Temporary Cash
Investments"), provided, however, that the amount of (x) any liabilities of the
Company or any Restricted Subsidiaries that are assumed by the transferee of
such assets and for which the Company and its Restricted Subsidiaries are
released, including any such Indebtedness of a Restricted Subsidiary whose stock
is purchased by the transferee and (y) any notes or other securities received by
the Company or any such Restricted Subsidiary which are converted into cash
within 180 days of such Asset Sale (to the extent of cash received) shall be
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deemed to be cash for purposes of this provision; provided, further, that the
Company or such Restricted Subsidiary will not be required to comply with this
clause (ii) with respect to a Permitted Asset Swap; and (iii) the Asset Sale
Proceeds received by the Company or such Restricted Subsidiary are applied (a)
first, to the extent the Company elects, or is required, to permanently prepay,
repay or purchase existing Senior Indebtedness (or Purchase Money Indebtedness
that ranks pari passu in right of payment with the Notes solely to the extent
that such Asset Sale involves property or assets securing such Purchase Money
Indebtedness pursuant to a lien granted pursuant to clause (v) of the definition
of Permitted Liens) within 270 days following the receipt of the Asset Sale
Proceeds from any Asset Sale; provided that any such repayment shall result in a
permanent reduction of the commitments thereunder in an amount equal to the
principal amount so repaid; (b) second, to the extent of the balance of Asset
Sale Proceeds after application as described above, to the extent the Company
elects, to an investment in assets (including Capital Stock or other securities
purchased in connection with the acquisition of Capital Stock or property of
another Person) used or useful in businesses similar or ancillary to the
business of the Company and the Restricted Subsidiaries as conducted at the time
of such Asset Sale, provided that such investment occurs and such Asset Sale
Proceeds are so applied within 270 days following the receipt of such Asset Sale
Proceeds (the "Reinvestment Date"); and (c) third, if on the Reinvestment Date
with respect to any Asset Sale, the Available Asset Sale Proceeds exceed $10
million, the Company shall apply an amount equal to such Available Asset Sale
Proceeds to an offer to repurchase the Notes, at a purchase price in cash equal
to 100% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of repurchase (an "Excess Proceeds Offer"); provided, however,
that the Company may, at the time that it makes any such Excess Proceeds Offer,
also offer to purchase, at a price in cash equal to 100% of the outstanding
principal amount thereof plus accrued and unpaid interest, if any, to the
purchase date, any Indebtedness which ranks pari passu in right of payment to
the Notes (a "Pari Passu Excess Proceeds Offer") and to the extent the Company
so elects to make a Pari Passu Excess Proceeds Offer, Notes and such pari passu
Indebtedness shall be purchased pursuant to such Excess Proceeds Offer and Pari
Passu Excess Proceeds Offer, respectively, on a pro rata basis based on the
aggregate principal amount of such Notes and pari passu Indebtedness then
outstanding. To the extent that the aggregate principal amount of Notes tendered
pursuant to an Excess Proceeds Offer is less than the Available Asset Sale
Proceeds, the Company may use such deficiency for general corporate purposes. To
the extent that the aggregate principal amount of pari passu Indebtedness
tendered pursuant to a Pari Passu Excess Proceeds Offer is less than such pari
passu Indebtedness pro rata share of such Available Asset Sale Proceeds, the
Company shall use such remaining Available Asset Sale Proceeds to purchase any
Notes validly tendered and not withdrawn pursuant to such Excess Proceeds Offer.
If the aggregate principal amount of Notes validly tendered and not withdrawn by
holders thereof exceeds the Available Asset Sale Proceeds or to the extent the
Company elects to make a Pari Passu Excess Proceeds Offer, exceeds the Notes'
pro rata share of such Available Asset Sale Proceeds, then Notes to be purchased
will be selected on a pro rata basis. Upon completion of such Excess Proceeds
Offer, the amount of Available Asset Sale Proceeds shall be reset to zero.
If the Company is required to make an Excess Proceeds Offer, the Company
shall mail, within 30 days following the Reinvestment Date, a notice to the
Holders stating, among other things: (1) that such Holders have the right to
require the Company to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase; (2)
the purchase date, which shall be no earlier than 30 days and not later than 60
days from the date such notice is mailed; (3) the instructions, determined by
the Company, that each Holder must follow in order to have such Notes
repurchased; and (4) the calculations used in determining the amount of
Available Asset Sale Proceeds to be applied to the repurchase of such Notes.
Limitation on Issuances and Sales of Preferred Stock by Restricted
Subsidiaries
The Company (a) will not permit any of its Restricted Subsidiaries to issue
any Preferred Stock (other than to the Company or a Wholly-Owned Restricted
Subsidiary of the Company or as permitted by the first paragraph of "Limitation
on Additional Indebtedness and Preferred Stock of Restricted Subsidiaries") and
(b) will not permit any Person (other than the Company or a Wholly-Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company; provided, however, that
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this covenant shall not prohibit the issuance and sale of (x) all, but not less
than all, of the issued and outstanding Capital Stock of any Restricted
Subsidiary of the Company owned by the Company or any of its Restricted
Subsidiaries in compliance with the other provisions of the Indenture or (y) to
the extent mandated by applicable law, directors' qualifying shares or
investments by foreign nationals.
Line of Business
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, engage to any
substantial extent in any line or lines of business activity other than that
which, in the reasonable good faith judgment of the Board of Directors of the
Company, is a Related Business.
Payments for Consent
Neither the Company nor any of its Subsidiaries shall, 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.
Reports to Holders
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Commission and to the holders of the Notes. The Indenture provides that
even if the Company is entitled under the Exchange Act not to furnish such
information to the Commission or to the holders of the Notes, they will
nonetheless continue to furnish such information to the Commission, holders of
the Notes and prospective holders of the Notes.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company shall be obligated
to make an offer to purchase (a "Change of Control Offer"), and shall purchase,
on a business day (the "Change of Control Purchase Date") not more than 60 nor
less than 30 days following the occurrence of the Change of Control, all of the
then outstanding Notes at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the Change of Control Purchase Date. The Company shall be
required to purchase all Notes properly tendered into the Change of Control
Offer and not withdrawn. The Change of Control Offer is required to remain open
for at least 20 business days and until the close of business on the Change of
Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the occurrence of the Change of Control, mail to
each holder of Notes notice of the Change of Control Offer, which notice shall
govern the terms of the Change of Control Offer and shall state, among other
things, the procedures that holders of Notes must follow to accept the Change of
Control Offer.
The occurrence of the events constituting a Change of Control under the
Indenture will result in an event of default under the Senior Credit Facility
and, thereafter, the lenders will have the right to require repayment of the
borrowings thereunder in full. The Company's obligations under the Senior Credit
Facility will constitute Designated Senior Indebtedness and will represent
obligations senior in right of payment to the Notes. Consequently, the
subordination provisions of the Indenture will have the effect of precluding the
purchase of the Notes by the Company in the event of a Change of Control, absent
consent of the lenders under the Senior Credit Facility or repayment of all
amounts outstanding thereunder (although the failure by the Company to comply
with its obligations in the event of a Change of Control will constitute a
default under the Notes). There can be no assurance that the Company will have
adequate resources to repay or refinance all Indebtedness owing under the Senior
Credit Facility or to fund the purchase of any Notes upon a Change of Control.
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The Indenture will provide that, (A) if the Company or any Restricted
Subsidiary has issued any outstanding Indebtedness that is subordinated in right
of payment to the Notes or the Guarantee of such Restricted Subsidiary, as the
case may be, or the Company or any Restricted Subsidiary has issued any
Preferred Stock, and the Company or such Restricted Subsidiary is required to
make a change of control offer or to make a distribution with respect to such
subordinated Indebtedness or Preferred Stock in the event of a change of
control, the Company or such Restricted Subsidiary shall not consummate any such
offer or distribution with respect to such subordinated Indebtedness or
Preferred Stock until such time as the Company shall have paid the Change of
Control Purchase Price in full to the Holders of Notes that have accepted the
Company's Change of Control Offer and shall otherwise have consummated the
Change of Control Offer made to holders of the Notes and (B) the Company or any
Restricted Subsidiary will not issue Indebtedness that is subordinated in right
of payment to the Notes or the Guarantee of such Restricted Subsidiary and the
Company will not issue Preferred Stock with change of control provisions
requiring the payment of such Indebtedness or Preferred Stock prior to the
payment of the Notes in the event of a Change of Control under the Indenture.
In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Company to purchase Notes, if such purchase
constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act
at that time, the Company will comply with the requirements of Rule 14e-1 as
then in effect with respect to such repurchase.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company will not, in any transaction or series of transactions, merge
or consolidate with or into, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets as an
entirety to, any person or persons, and the Company will not permit any of its
Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in a sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company or the Company and its Restricted Subsidiaries, taken as a whole, to any
other person or persons, unless at the time of and after giving effect thereto
(a) either (i) if the transaction or series of transactions is a merger or
consolidation, the Company shall be the surviving person of such merger or
consolidation, or (ii) the person formed by such consolidation or into which the
Company or such Restricted Subsidiary is merged or to which the properties and
assets of the Company or such Restricted Subsidiary, as the case may be, are
transferred (any such surviving person or transferee person being the "Surviving
Entity") shall be a corporation organized and existing under the laws of the
United States of America, any state thereof or the District of Columbia and
shall expressly assume by a supplemental indenture executed and delivered to the
Trustee, in form reasonably satisfactory to the Trustee, all the obligations of
the Company under the Notes and the Indenture, and in each case, the Indenture
shall remain in full force and effect and (b) immediately before and immediately
after giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing and the Company or the Surviving Entity, as the case may be, after
giving effect to such transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions), could incur $1.00 of additional Indebtedness pursuant to the
first paragraph of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness" above (assuming a market rate of
interest with respect to such additional Indebtedness).
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
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EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(a) default in payment of any principal of, or premium, if any, on the
Notes;
(b) default for 30 days in payment of any interest on the Notes;
(c) default by the Company or any Guarantor in the observance or
performance of any other covenant in the Notes or the Indenture for 45 days
after written notice from the Trustee or the holders of not less than 25%
in aggregate principal amount of the Notes then outstanding;
(d) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under which
the Company or any Restricted Subsidiary of the Company then has
outstanding Indebtedness in excess of $10 million, individually or in the
aggregate, and either (a) such Indebtedness is already due and payable in
full or (b) such default or defaults have resulted in the acceleration of
the maturity of such Indebtedness;
(e) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $10 million (not covered by
insurance) shall be rendered against the Company or any Restricted
Subsidiary and shall not be discharged for any period of 60 consecutive
days during which a stay of enforcement shall not be in effect; and
(f) certain events involving bankruptcy, insolvency or reorganization
of the Company or any Restricted Subsidiary.
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) if the Trustee considers it to be in the best interest
of the holders of the Notes to do so.
The Indenture will provide that if an Event of Default (other than an Event
of Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare to be immediately due and payable the entire principal
amount of all the Notes then outstanding plus accrued interest to the date of
acceleration and such amounts shall become immediately due and payable;
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, provided, however, that so long as
the Senior Credit Facility shall be in full force and effect, if any Event of
Default shall have occurred and be continuing (other than as specified in clause
(f)), the Notes shall not become due and payable until the earlier to occur of
(x) five business days following the delivery of a written notice of such
acceleration of the Notes to the agent under the Senior Credit Facility and (y)
the acceleration of any Indebtedness under the Senior Credit Facility. In case
an Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization shall occur, the principal, premium and interest amount with
respect to all of the Notes shall be due and payable immediately without any
declaration or other act on the part of the Trustee or the holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes shall have made written request and offered reasonable
indemnity to the Trustee to institute such proceeding as a trustee, and unless
the Trustee shall not have received from the holders of a majority in
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aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted for payment on
such Note on or after the respective due dates expressed in such Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides the Company may elect either (a) 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 (b) to be released from their obligations with respect to the
Notes under certain covenants contained in the Indenture some of which are
described above under "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 (as defined in the Indenture) 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 Company has delivered to the
Trustee an opinion of counsel (as specified in the Indenture) (i) 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
(ii) 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 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 Company, the Guarantors and the Trustee may, without
the consent of holders of the Notes, amend the Indenture or the Notes or
supplement the Indenture for certain specified purposes, including providing for
uncertificated Notes in addition to certificated Notes, and curing any
ambiguity, defect or inconsistency, or making any other change that does not
adversely affect the rights of any holder. The Indenture contains provisions
permitting the Company, the Guarantors and the Trustee, with the consent of
holders of at least a majority in principal amount of the outstanding Notes, to
modify or supplement the Indenture or the Notes, except that no such
modification shall, without the consent of each holder affected thereby, (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture or the Notes, (ii) reduce the rate of or
change the time for payment of interest on any Note, (iii) reduce the principal
of or premium on or change the stated maturity of any Note, (iv) make any Note
payable in money other than that stated in the Note, (v) change the amount or
time of any payment required by the Notes or reduce the premium payable upon any
redemption of Notes, or change the time before which no such redemption may be
made, (vi) waive a default on the payment of the principal of, interest on, or
redemption payment with respect to any Note, (vii) amend, alter, change or
modify the obligation of the Company 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
(viii) take any other action otherwise prohibited by the Indenture to be taken
without the consent of each holder affected thereby.
COMPLIANCE CERTIFICATE
The Company will deliver to the Trustee on or before 90 days after the end
of the Company's fiscal year and on or before 45 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 such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or assumed in connection with the acquisition of assets from such
Person.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of
(x) the amount by which the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities),
but excluding liabilities under the Guarantee of such Guarantor at such date and
(y) the amount by which the present fair salable value of the assets of such
Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Guarantor on its debts (after giving effect to all
other fixed and contingent liabilities and after giving effect to any collection
from any Subsidiary of such Guarantor in respect of the obligations of such
Subsidiary under the Guarantee), excluding Indebtedness in respect of the
Guarantee, as they become absolute and matured.
"Advertising Displays" mean all posters, signs (including logo sign
structures), billboards and other outdoor advertising displays and related
contracts and sites therefor owned or leased (as lessee) by the Company and the
Restricted Subsidiaries.
"Affiliate" of any specified Person means any other Person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Asset Acquisition" means (i) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be consolidated or merged with the
Company or any Restricted Subsidiary or (ii) the acquisition by the Company or
any Restricted Subsidiary of assets of any Person.
"Asset Sale" means the sale, transfer or other disposition (other than to
the Company or any of its Restricted Subsidiaries) in any single transaction or
series of related transactions having a fair market value in excess of
$1,000,000 of (a) any Capital Stock of or other equity interest in any
Restricted Subsidiary, (b) all or substantially all of the assets of any
business owned by the Company or any Restricted Subsidiary or a division, line
of business or comparable business segment of the Company or any Restricted
Subsidiary thereof or (c) any other assets or property of the Company or of any
Restricted Subsidiary, (whether real or personal property). For purposes of this
definition, the term "Asset Sale" shall not include any sale, transfer or other
disposition that is governed by and made in accordance with the provisions
described under "Merger, Consolidation or Sale of Assets" or any sale, transfer
or other disposition to the Company or a Wholly-Owned Restricted Subsidiary that
is a Guarantor.
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"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any Restricted Subsidiary from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale, (b) payment of all brokerage commissions, underwriting and other fees and
expenses related to such Asset Sale, and (c) deduction of appropriate amounts to
be provided by the Company or such Restricted Subsidiary as a reserve, in
accordance with GAAP, against any liabilities associated with the assets sold or
disposed of in such Asset Sale and retained by the Company or such Restricted
Subsidiary after such Asset Sale, including, without limitation, pension and
other post employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and
other noncash consideration received by the Company or any Restricted Subsidiary
from such Asset Sale or other disposition upon the liquidation or conversion of
such notes or noncash consideration into cash.
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clauses (iii)(a) or (iii)(b), and which have not yet been the
basis for an Excess Proceeds Offer in accordance with clause (iii)(c) of the
first paragraph of "Certain Covenants -- Limitation on Certain Asset Sales."
"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years (or any fraction thereof) from such
date to the date or dates of each successive scheduled principal payment
(including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), excluding Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, upon the happening of an event or
otherwise), directly or indirectly, of more than 35% of the total voting power
with respect to the total Voting Stock of the Company; provided, however, that
the Permitted Holders (i) "beneficially own" (as so defined) a lower percentage
of such total voting power with respect to the Voting Stock than such other
person or "group" and (ii) do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the Board
of Directors of the Company; (b) the Company consolidates with, or merges with
or into, another person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any person, or
any person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other property,
other than any such transaction where (i) the outstanding Voting Stock of the
Company is converted into or exchanged for (1) Voting Stock (other than
Disqualified Capital Stock) of the surviving or transferee corporation or (2)
cash, securities and other property in an amount which could then be paid by the
Company as a Restricted Payment under the Indenture, or a combination thereof,
and (ii) immediately after such transaction no "person" or "group" (as such
terms are used in Section 13(d) and 14(d) of the Exchange Act), excluding
Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether
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such right is exercisable immediately or only after the passage of time, upon
the happening of an event or otherwise), directly or indirectly, of more than
50% of the total voting power with respect to the total Voting Stock of the
surviving or transferee corporation; (c) at any time during any consecutive
two-year period, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office; or (d) the Company is liquidated or dissolved or adopts a plan
of liquidation.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Interest Expense" means, 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 the
Company and its Restricted Subsidiaries on a consolidated basis (including, but
not limited to, imputed interest included in Capitalized Lease Obligations, all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, the net costs associated with
hedging obligations, the interest portion of any deferred payment obligation,
amortization of discount or premium, if any, and all other non-cash interest
expense (other than interest amortized to cost of sales)) plus, without
duplication, all net capitalized interest for such period and all interest
incurred or paid under any guarantee of Indebtedness (including a guarantee of
principal, interest or any combination thereof) of any Person, plus an amount
equal to the product of (a) the aggregate dividends paid on Disqualified Capital
Stock during such period and (b) a fraction, the numerator of which is one and
the denominator of which is one minus the Company's then effective combined tax
rate, to the extent paid; provided, however, that "Consolidated Interest
Expense" shall exclude the amortization of deferred financing fees.
"Consolidated Net Income" means, for any period, the aggregate of the Net
Income of the Company and its Restricted Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP; provided, however, that
(a) the Net Income of any Person (the "other Person") in which the Company or
any of its Restricted 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 Company in accordance with GAAP) shall be included only to the
extent of the amount of dividends or distributions paid to the Company or such
Restricted Subsidiary, (b) the Net Income of any Restricted Subsidiary 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 or the
Indenture) shall be excluded to the extent of such restriction or limitation,
except that to the extent that any such restriction or limitation results solely
from covenant limitations under any SBA Indebtedness, there shall not be
deducted that portion of such Restricted Subsidiary's Net Income which exceeds
the outstanding aggregate principal amount of such SBA Indebtedness, (c)(i) the
Net Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition and (ii) any net gain (but not
loss) resulting from an Asset Sale by the Company or any of its Restricted
Subsidiaries other than in the ordinary course of business shall be excluded,
and (d) extraordinary gains and losses shall be excluded.
"Consolidated Net Tangible Assets" means the book value of the assets of
the Company and its Restricted Subsidiaries (other than patents, patent rights,
trademarks, trade names, franchises, copyrights, licenses, permits, goodwill and
other intangible assets classified as such in accordance with GAAP) after all
applicable deductions in accordance with GAAP (including, without limitation,
reserves for doubtful receivables, obsolescence, depreciation and amortization)
less all liabilities of the Company and its Restricted Subsidiaries determined
in accordance with GAAP.
"Cumulative Consolidated Interest Expense" means, as of any date of
determination, Consolidated Interest Expense of the Company from November 27,
1996 to the end of the Company's most recently ended full fiscal quarter prior
to such date, taken as a single accounting period.
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"Cumulative EBITDA" means, as of any date of determination, EBITDA of the
Company from November 27, 1996 to the end of the Company's most recently ended
full fiscal quarter prior to such date, taken as a single accounting period.
"Default" means any event that is, or with the passing of time or giving of
notice or both would be, an Event of Default.
"Designated Senior Indebtedness," as to the Company or any Guarantor, as
the case may be, means any Senior Indebtedness (a) under or in respect of the
Senior Credit Facility, or (b) which at the time of determination exceeds $10
million in aggregate principal amount (or accreted value in the case of
Indebtedness issued at a discount) outstanding or available under a committed
facility, and (i) which is specifically designated in the instrument evidencing
such Senior Indebtedness as "Designated Senior Indebtedness" and (ii) as to
which the Trustee has been given written notice of such designation.
"Disqualified Capital Stock" means any Capital Stock of the Company or any
Restricted Subsidiary 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.
"EBITDA" means, for any Person, for any period, an amount equal to (a) the
sum of, without duplication, (i) Consolidated Net Income for such period, plus
(ii) the provision for taxes for such period based on income or profits to the
extent such income or profits were included in computing Consolidated Net Income
and any provision for taxes utilized in computing net loss under clause (i)
hereof, plus (iii) to the extent it reduces Consolidated Net Income during such
period, Consolidated Interest Expense for such period, plus (iv) depreciation
for such period on a consolidated basis, plus (v) amortization of intangibles
for such period on a consolidated basis, plus (vi) any other non-cash items
reducing Consolidated Net Income for such period, minus (b) all non-cash items
increasing Consolidated Net Income for such period, all for the Company and its
Restricted Subsidiaries determined in accordance with GAAP.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Final Maturity Date" shall be the date fixed in the Indenture for the
final payment of principal on the Notes.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"Guarantee" means each guarantee of the Notes by each Guarantor.
"Guaranteed Permitted Unrestricted Subsidiary Obligations" shall have the
meaning set forth in the definition of "Investments."
"Guarantor" means each Subsidiary of the Company in existence on the Issue
Date (other than Missouri Logos, a partnership) and each Restricted Subsidiary
which thereafter guarantees payment of the Notes pursuant to the covenant
described under "Guarantees of Certain Indebtedness".
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to directly or indirectly create, issue, incur (by conversion, exchange
or otherwise), assume, guarantee or otherwise become directly or indirectly
liable with respect to (including as a result of an Asset Acquisition), or
otherwise become responsible for, contingently or otherwise, any Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or other obligation on the balance sheet of such Person
(and "incurrence," "incurred," "incurable," and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, 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
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bonds, notes, debentures or similar instruments or representing the balance
deferred and unpaid of the purchase price of any property (excluding any
balances that constitute accounts payable or trade payables, and other accrued
liabilities arising in the ordinary course of business) if and to the extent any
of the foregoing indebtedness would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, and shall also include, to the
extent not otherwise included (i) any Capitalized Lease Obligations of such
Person, (ii) obligations secured by a lien to which the property or assets owned
or held by such Person is subject, whether or not the obligation or obligations
secured thereby shall have been assumed (the amount of such obligation being
deemed to be the lesser of the value of such property or asset or the amount of
the obligation so secured), (iii) guarantees of items of other Persons which
would be included within this definition for such other Persons (whether or not
such items would appear upon the balance sheet of the guarantor), (iv) all
obligations for the reimbursement of any obligor on any banker's acceptance or
for reimbursement of any obligor on any letter of credit with respect to
drawings made thereunder and not yet reimbursed, (v) in the case of the Company,
Disqualified Capital Stock of the Company or any Restricted Subsidiary, and (vi)
obligations of any such Person under any Interest Rate Agreement applicable to
any of the foregoing (if and to the extent such Interest Rate Agreement
obligations would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP) and (vii) the outstanding amount of any
Guaranteed Permitted Unrestricted Subsidiary Obligations; provided, however,
that, except for purposes of this clause (vii), obligations in respect of
performance and surety bonds and in respect of reimbursement obligations for
undrawn letters of credit (whether or not secured by a lien) supporting
insurance arrangements and performance and surety bonds, each incurred in the
ordinary course of business and not as a part of a financing transaction, for
the benefit of the Company or any Restricted Subsidiary, shall not be considered
Indebtedness for purposes of the Indenture. The amount of Indebtedness of any
Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above, provided (i) that the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the principal amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP and (ii) that Indebtedness shall not include
any liability for federal, state, local or other taxes.
"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, (x) directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business), 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), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person and (y) any Permitted
Unrestricted Subsidiary Obligation to the extent it is guaranteed by the Company
or a Restricted Subsidiary or otherwise is recourse to or obligates the Company
or any Restricted Subsidiary, directly or indirectly, contingently or otherwise,
to the satisfaction thereof ("Guaranteed Permitted Unrestricted Subsidiary
Obligations"). Investments shall exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
"Junior Security" means any securities of the Company or any other Person
that are (i) equity securities without special covenants or (ii) subordinated in
right of payment to all Senior Indebtedness of the Company or any Guarantor, as
the case may be, to substantially the same extent as, or to a greater extent
than, the Notes are subordinated as provided in the Indenture, in any event
issued pursuant to a court order so providing and as to which (a) the rate of
interest on such securities shall not exceed the effective rate of interest on
the Notes on the date of the Indenture, (b) such securities shall not be
entitled to the benefits of covenants or defaults materially more beneficial to
the holders of such securities than those in effect with respect to the Notes on
the date of the Indenture and (c) such securities shall not provide for
amortization (including sinking fund and mandatory prepayment provisions)
commencing prior to the date six months following the
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final scheduled maturity date of the Senior Indebtedness of the Company or
Guarantor, as the case may be (as modified by the plan of reorganization or
readjustment pursuant to which such securities are issued).
"Leverage Ratio" means the ratio of (i) the sum of the aggregate
outstanding amount of (x) Indebtedness of the Company and the Restricted
Subsidiaries and (y) except to the extent included in the previous clause (x),
Preferred Stock of the Company's Restricted Subsidiaries as of the date of
calculation on a consolidated basis in accordance with GAAP to (ii) the
Company's EBITDA for the four full fiscal quarters (the "Four Quarter Period")
ending on or prior to the date of determination for which financial statements
are available. For purposes of this definition, the Company's "EBITDA" shall be
calculated on a pro forma basis after giving effect to any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Company or one of the
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of such Asset Acquisition) incurring, assuming or
otherwise becoming liable for Indebtedness) at any time on or subsequent to the
first day of the Four Quarter Period and on or prior to the date of
determination, as if such Asset Sale or Asset Acquisition (including any EBITDA
associated with such Asset Acquisition and including any pro forma expense and
cost reductions determined in accordance with Article 11 of Regulation S-X
relating to such Asset Acquisition) occurred on the first day of the Four
Quarter Period.
"Lien" means with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock or
Indebtedness by the Company, the aggregate net cash proceeds received by the
Company, after payment of expenses, commissions and the like incurred in
connection therewith and (b) in the case of any exchange, exercise, conversion
or surrender of outstanding securities of any kind for or into shares of Capital
Stock of the Company which is not Disqualified Capital Stock, 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 the Company 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 the Company in connection therewith).
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture.
"Permitted Asset Swap" means the exchange, in the ordinary course of the
outdoor advertising business, of any interest of the Company or any of the
Restricted Subsidiaries in any Advertising Display or Displays for a similar
interest in an Advertising Display or Displays of a Person other than the
Company or such Restricted Subsidiary; provided that the aggregate fair market
value (as determined in good faith by the board of directors of the Company) of
the Advertising Display or Displays being transferred by the Company or such
Restricted Subsidiary is not greater than the aggregate fair market value (as
determined in good faith by the board of directors of the Company) of the
Advertising Display or Displays received by the Company or such Restricted
Subsidiary in such exchange.
"Permitted Dividend Encumbrances" means encumbrances or restrictions (a)
existing on the Issue Date, (b) arising by reason of Acquired Indebtedness of
any Restricted Subsidiary existing at the time such Person became a Restricted
Subsidiary; provided that such encumbrances or restrictions were not created in
anticipation of such Person becoming a Restricted Subsidiary and are not
applicable to the Company or any of the other Restricted Subsidiaries, (c)
arising under Indebtedness incurred pursuant to clause (i) of the definition of
Permitted Indebtedness, (d) arising under Refinancing Indebtedness; provided
that the terms and
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conditions of any such restrictions are no less favorable to the Holders of
Notes than those under the Indebtedness being refinanced, (e) customary
provisions restricting the assignment of any contract or interest of the Company
or any Restricted Subsidiary, (f) existing under an agreement relating to SBA
Indebtedness, (g) existing under an agreement relating to any Permitted Lien
referred to in clause (v) of the definition of Permitted Liens provided that
such encumbrance or restriction only relates to the assets or property subject
to such Permitted Lien and having an aggregate fair market value equal to the
Indebtedness secured thereby, (h) imposed by applicable law and (i) imposed
pursuant to a binding agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or of any assets of
such Restricted Subsidiary, provided such encumbrances and restrictions apply
solely to such Capital Stock or assets of such Restricted Subsidiary which are
the subject of such binding agreement.
"Permitted Holders" means (x) any of Charles Switzer, Charles W. Lamar,
III, Kevin P. Reilly, Sr., members of their immediate families or any lineal
descendant of any of the foregoing and the immediate families of any such lineal
descendant, (y) any trust, to the extent it is for the benefit of any of the
foregoing or (z) any Person, entity or group of Persons controlled by any of the
foregoing.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company and Restricted Subsidiaries which are
Guarantors pursuant to the Senior Credit Facility in an aggregate principal
amount not to exceed $400 million less the aggregate amount of all
permanent repayments thereunder made in accordance with "Limitation on
Certain Asset Sales" and guarantees of such Indebtedness by Restricted
Subsidiaries that are Guarantors;
(ii) Indebtedness under the Notes and the Guarantees;
(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of the Indenture;
(iv) Indebtedness of the Company to any Wholly-Owned Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary to the Company or
another Restricted Subsidiary;
(v) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred by the Company or any Restricted Subsidiary to acquire or lease
property in the ordinary course of business, provided that (a) the
aggregate amount of such Purchase Money Indebtedness and Capital Lease
Obligations outstanding at any time shall not exceed the greater of (x) 5%
of the Company's Consolidated Net Tangible Assets at the time of the
incurrence of any such Purchase Money Indebtedness or Capitalized Lease
Obligation or (x) $10 million, and (b) in each case, such Purchase Money
Indebtedness or Capitalized Lease Obligation, as the case may be, would not
constitute more than 100% of the cost (determined in accordance with GAAP)
of the property so purchased or leased plus reasonable fees and expenses
incurred in connection therewith;
(vi) Interest Rate Protection Agreements and any guarantees thereof;
(vii) additional Indebtedness of the Company or any Restricted
Subsidiary that is a Guarantor not to exceed $25 million in principal
amount outstanding at any time; and
(viii) Refinancing Indebtedness.
"Permitted Investments" means, for any Person, Investments made on or after
the date of the Indenture consisting of:
(a) Investments by the Company or by a Restricted Subsidiary in the
Company or a Restricted Subsidiary which is a Guarantor;
(b) Temporary Cash Investments;
(c) Investments by the Company or by a Restricted Subsidiary in a
Person, if as a result of such Investment (i) such Person becomes a
Restricted Subsidiary which is a Guarantor or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary which is a Guarantor; and
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(d) an Investment that is made by the Company or a Restricted
Subsidiary in the form of any stock, bonds, notes, debentures, partnership
or joint venture interests or other securities that are issued by a third
party to the Company or such Restricted Subsidiary solely as partial
consideration for the consummation of an Asset Sale that is otherwise
permitted under the covenant described under "Limitation on Certain Asset
Sales."
"Permitted Liens" means (i) Liens existing on the Issue Date, (ii) Liens on
property or assets of, or any shares of stock of or secured debt of, any
corporation existing at the time such corporation becomes a Restricted
Subsidiary or at the time such corporation is merged into the Company or any of
the Restricted Subsidiaries; provided that such Liens are not incurred in
connection with, or in contemplation of, such corporation becoming a Restricted
Subsidiary or merging into the Company or any of the Restricted Subsidiaries,
(iii) Liens securing Refinancing Indebtedness; provided that any such Lien does
not extend to or cover any Property, shares or debt other than the Property,
shares or debt securing the Indebtedness so refunded, refinanced or extended,
(iv) Liens in favor of the Company or any of the Restricted Subsidiaries, (v)
Liens to secure Purchase Money Indebtedness that is otherwise permitted under
the Indenture; provided that any such Lien is created solely for the purpose of
securing such Purchase Money Indebtedness and does not extend to or cover any
property other than such item of property and any improvements on such item,
(vi) statutory liens or landlords', carriers', warehouseman's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business which do not secure any Indebtedness and secure
obligations with respect to amounts not yet delinquent or being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor, (vii) Liens for taxes, assessments or governmental charges that
are being contested in good faith by appropriate proceedings, (viii) Liens
securing Capitalized Lease Obligations permitted to be incurred under clause (v)
of the definition of "Permitted Indebtedness," provided that any such Lien does
not extend to any property other than that subject to the underlying lease, (ix)
Liens securing Senior Indebtedness and Guarantor Senior Indebtedness, (x)
Permitted Dividend Encumbrances and (xi) Liens securing Indebtedness in an
aggregate principal amount not to exceed $1,000,000 outstanding at any time.
"Permitted Unrestricted Subsidiary Obligations" shall have the meaning
specified in the definition of "Unrestricted Subsidiary."
"Person" or "person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries
(Restricted Subsidiaries in the case of the Company) under GAAP.
"Public Equity Offerings" means a public offering by the Company of shares
of its common stock (however designated and whether voting or non-voting but
excluding Disqualified Capital Stock) and any and all rights, warrants or
options to acquire such common stock pursuant to a registration statement
registered pursuant to the Securities Act.
"Purchase Money Indebtedness" means any Indebtedness incurred by a Person
to finance the cost (including the cost of construction or improvement and in
the case of any Capitalized Lease Obligation, the lease) of any real or personal
property, the principal amount of which Indebtedness does not exceed the sum of
(i) 100% of such cost and (ii) reasonable fees and expenses of such Person
incurred in connection therewith.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company or the Restricted Subsidiaries
outstanding on the Issue Date or other Indebtedness permitted to
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be incurred by the Company or the Restricted Subsidiaries pursuant to the terms
of the Indenture (other than pursuant to clauses (i), (iv), (v), (vi) and (vii)
of the definition of Permitted Indebtedness), but only to the extent that (i)
the Refinancing Indebtedness is subordinated to the Notes to at least the same
extent as the Indebtedness being refunded, refinanced or extended, (ii) the
Refinancing Indebtedness is scheduled to mature either (a) no earlier than the
Indebtedness being refunded, refinanced or extended, or (b) after the maturity
date of the Notes, (iii) the portion, if any, of the Refinancing Indebtedness
that is scheduled to mature on or prior to the maturity date of the Notes has a
weighted average life to maturity at the time such Refinancing Indebtedness is
incurred that is equal to or greater than the weighted average life to maturity
of the portion of the Indebtedness being refunded, refinanced or extended that
is scheduled to mature on or prior to the maturity date of the Notes, (iv) such
Refinancing Indebtedness is in an aggregate principal amount that is equal to or
less than the sum of (a) the aggregate principal amount then outstanding under
the Indebtedness being refunded, refinanced or extended, (b) the amount of any
premium required to be paid in connection with such refunding, refinancing or
extension pursuant to the terms of such Indebtedness or the amount of any
premium reasonably determined by the Board of Directors of the Company as
necessary to accomplish such refunding, refinancing or extension by means of a
tender offer or privately negotiated purchase and (c) the amount of customary
fees, expenses and costs related to the incurrence of such Refinancing
Indebtedness, and (v) such Refinancing Indebtedness is incurred by the same
Person that initially incurred the Indebtedness being refunded, refinanced or
extended, except that the Company may incur Refinancing Indebtedness to refund,
refinance or extend Indebtedness of any Wholly-Owned Restricted Subsidiary.
"Related Business" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the Issue Date and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are materially related businesses.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Restricted Subsidiary of the Company or any payment made to
the direct or indirect holders (in their capacities as such) of Capital Stock of
the Company or any Restricted Subsidiary (other than (x) dividends or
distributions payable solely in Capital Stock (other than Disqualified Stock) or
in options, warrants or other rights to purchase Capital Stock (other than
Disqualified Stock), and (y) in the case of Restricted Subsidiaries of the
Company, dividends or distributions payable to the Company or to a Wholly-Owned
Restricted Subsidiary), (ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of the Company or any of the
Restricted Subsidiaries (other than Capital Stock owned by the Company or a
Wholly-Owned Restricted Subsidiary), (iii) the making of any principal payment
on, or the purchase, defeasance, repurchase, redemption or other acquisition or
retirement for value, prior to any scheduled maturity, scheduled repayment or
scheduled sinking fund payment, of any Indebtedness which is subordinated or
pari passu in right of payment to the Notes, (iv) the making of any Investment
or guarantee of any Investment in any Person other than a Permitted Investment,
(v) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary to
the extent set forth in the definition of Unrestricted Subsidiary and (vi)
forgiveness of any Indebtedness of an Affiliate of the Company (other than a
Wholly-Owned Restricted Subsidiary) to the Company or a Restricted Subsidiary.
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.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date. The board of directors of the Company may
designate any Unrestricted Subsidiary or any Person that is to become a
Subsidiary of the Company as a Restricted Subsidiary if immediately after giving
effect to such action (and treating any Acquired Indebtedness as having been
incurred at the time of such action), the Company could have incurred at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the "Limitation on Additional Indebtedness" covenant and no Default or Event of
Default shall have occurred and be continuing.
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"SBA Indebtedness" means Indebtedness incurred pursuant to the United
States Small Business Administration Disaster Relief Loan program or any similar
loan program, provided that such Indebtedness shall at all times be prepayable
without penalty at the option of the obligor.
"Senior Credit Facility" means the Credit Agreement dated as of December
18, 1996, as amended to date, among the Company, the guarantor parties thereto,
the several lenders from time to time parties thereto and The Chase Manhattan
Bank, as administrative agent, together with the documents related thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including adding Subsidiaries of the
Company as additional guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders and whether
or not increasing the amount of Indebtedness that may be incurred thereunder.
"Senior Indebtedness" means the principal of and premium, if any, and
interest (including, without limitation, interest accruing or that would have
accrued but for the filing of a bankruptcy, reorganization or other insolvency
proceeding whether or not such interest constitutes an allowable claim in such
proceeding) on, and any and all other fees, charges, expense reimbursement
obligations and other amounts due pursuant to the terms of all agreements,
documents and instruments providing for, creating, securing or evidencing or
otherwise entered into in connection with (a) all obligations owed to lenders
under the Senior Credit Facility, (b) all obligations with respect to any
Interest Rate Agreement, (c) all obligations to reimburse any bank or other
person in respect of amounts paid under letters of credit, acceptances or other
similar instruments, (d) all other current or future Indebtedness which does not
provide that it is to rank pari passu with or subordinate to the Notes and the
Guarantees and (e) all deferrals, renewals, extensions and refundings of, and
amendments, modifications and supplements to, any of the Senior Indebtedness
described above. Notwithstanding anything to the contrary in the foregoing,
Senior Indebtedness will not include (i) Indebtedness of the Company to any of
its Subsidiaries or Indebtedness of any Subsidiary of the Company to the Company
or any other Subsidiary of the Company, (ii) Indebtedness represented by the
Notes and the Guarantees, (iii) any Indebtedness which by the express terms of
the agreement or instrument creating, evidencing or governing the same is junior
or subordinate in right of payment to any item of Senior Indebtedness, (iv) to
the extent it constitutes Indebtedness, any trade payable arising from the
purchase of goods or materials or for services obtained in the ordinary course
of business, (v) Indebtedness represented by Disqualified Capital Stock or (vi)
that portion of any Indebtedness which is incurred in violation of the
Indenture, provided, however, that in the case of any Indebtedness (regardless
of whether or not such Indebtedness is incurred pursuant to the first or second
paragraph of "Limitation on Additional Indebtedness and Preferred Stock of
Restricted Subsidiaries"), such Indebtedness shall not be deemed to have been
incurred in violation of the Indenture if the holder(s) of such Indebtedness or
their agent or representative shall have received a representation from the
Company to the effect that the incurrence of such Indebtedness does not violate
the provisions of the Indenture (but nothing in this clause (vi) shall preclude
the existence of any Default or Events of Default in the event that such
Indebtedness is in fact incurred in violation of the Indenture).
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held, directly or indirectly by such Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such Person or any
of its Subsidiaries has the power
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to direct or cause the direction of the management and policies of such entity
by contract or otherwise or if in accordance with GAAP such entity is
consolidated with such Person for financial statement purposes.
"Temporary Cash Investments" or "cash equivalents" mean (i) Investments in
marketable, direct obligations issued or guaranteed by the United States of
America, or of any governmental agency or political subdivision thereof,
maturing within 365 days of the date of purchase; (ii) Investments in
certificates of deposit issued by a bank organized under the laws of the United
States of America or any state thereof or the District of Columbia, in each case
having capital, surplus and undivided profits totaling more than $500,000,000
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; or (iii)
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 (i) and (ii).
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the board of
directors of the Company, but only so long as (i) no portion of the Indebtedness
or any other obligation (contingent or otherwise) of such Unrestricted
Subsidiary (other than obligations in respect of performance and surety bonds
and in respect of reimbursement obligations for undrawn letters of credit
supporting insurance arrangement and performance and surety bonds, each incurred
in the ordinary course of business and not as part of a financing transaction
(collectively, "Permitted Unrestricted Subsidiary Obligations")) (A) is
guaranteed by the Company or any Restricted Subsidiary, (B) is recourse to or
obligates the Company or any Restricted Subsidiary of the Company, directly or
indirectly, contingently or otherwise, to satisfaction thereof, (ii) such
Unrestricted Subsidiary has no Indebtedness or any other obligation (other than
Permitted Unrestricted Subsidiary Obligations) that, if in default in any
respect (including a payment default), would permit (upon notice, lapse of time
or both) any holder of any other Indebtedness of the Company or its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity and
(iii) no Default or Event of Default shall have occurred and be continuing. Any
designation of a Subsidiary as an Unrestricted Subsidiary shall be deemed a
Restricted Payment in an amount equal to the fair market value of such
Subsidiary (as determined in good faith by the board of directors of the
Company) and any such designation shall be permitted only if it complies with
the provisions of "Limitation on Restricted Payments." The Trustee shall be
given prompt notice by the Company of each resolution adopted by the board of
directors of the Company under this provision, together with a copy of each such
resolution adopted.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof to vote
under ordinary circumstances in the election of members of the board of
directors or other governing body of such Person.
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary, all
of the outstanding Voting Stock (other than directors' qualifying shares) of
which are owned, directly or indirectly, by the Company.
EXISTING NOTES REGISTRATION RIGHTS
The Company, the Guarantors and the Initial Purchasers entered into the
Exchange and Registration Rights Agreement on the Issue Date, pursuant to which
the Company and the Guarantors agreed to (i) file with the Commission on or
prior to 60 days after the Issue Date the Exchange Offer Registration Statement
and (ii) use their reasonable best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
120 days after the Issue Date. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will offer to the holders of Existing Notes
who are not prohibited by any law or policy of the Commission from participating
in the Exchange Offer the opportunity to exchange their Existing Notes for
Exchange Notes. The Company and the Guarantors will keep the Exchange Offer open
for not less than 30 days (or longer, if required by applicable law) after the
date notice of the Exchange Offer is mailed to the holders of the Existing
Notes. For each Existing Note surrendered to the Company for exchange pursuant
to the Exchange Offer, the holder of such Note will receive an Exchange Note
having a principal amount at maturity equal to that of the surrendered Existing
Note. Interest on each
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Exchange Note will accrue from the last interest payment date on which interest
was paid on the Existing Note surrendered in exchange therefor or, if no
interest has been paid on such Existing Note, from the date of original
issuance. See "The Exchange Offer."
If (i) because of any change in law or applicable interpretations thereof
by the staff of the Commission, the Company is not permitted to effect the
Exchange Offer as contemplated hereby, (ii) any Existing Notes validly tendered
pursuant to the Exchange Offer are not exchanged for Exchange Notes within 150
days after the Issue Date, (iii) any Initial Purchaser so requests with respect
to Existing Notes not eligible to be exchanged for Exchange Notes in the
Exchange Offer, (iv) any applicable law or interpretations do not permit any
holder of Existing Notes to participate in the Exchange Offer, (v) any holder of
Existing Notes that participates in the Exchange Offer does not receive freely
transferable Exchange Notes in exchange for tendered Existing Notes or (vi) the
Company so elects, then the Company will file with the Commission a shelf
registration statement (the "Shelf Registration Statement") to cover resales of
Transfer Restricted Securities (as defined) by such holders who satisfy certain
conditions relating to the provision of information in connection with the Shelf
Registration Statement. For purposes of the foregoing, "Transfer Restricted
Securities" means each Note until (i) the date on which such Note has been
exchanged for a freely transferable Exchange Note in the Exchange Offer, (ii)
the date on which such Note has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement, or
(iii) the date on which such Note is distributed to the public pursuant to Rule
144 under the Securities Act or is saleable pursuant to Rule 144(k) under the
Securities Act.
The Company and the Guarantors will use their reasonable best efforts to
have the Exchange Offer Registration Statement or, if applicable, the Shelf
Registration Statement (each, a "Registration Statement") declared effective by
the Commission as promptly as practicable after the filing thereof. Unless the
Exchange Offer would not be permitted by a policy of the Commission, the Company
and the Guarantors will commence the Exchange Offer and will use their
reasonable best efforts to consummate the Exchange Offer as promptly as
practicable, but in any event prior to 150 days after the Issue Date. If
applicable, the Company and the Guarantors will use their reasonable best
efforts to keep the Shelf Registration Statement effective for a period of two
years after the Issue Date. If (i) the applicable Registration Statement is not
filed with the Commission on or prior to 60 days after the Issue Date; (ii) the
Exchange Offer Registration Statement or, as the case may be, the Shelf
Registration Statement, is not declared effective within 120 days after the
Issue Date; (iii) the Exchange Offer is not consummated on or prior to 150 days
after the Issue Date; or (iv) the Shelf Registration Statement is filed and
declared effective after the Issue Date but shall thereafter cease to be
effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 30 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Company and the
Guarantors will pay liquidated damages to each holder of Transfer Restricted
Securities, during the period of Registration Default, in an amount equal to
$0.192 per week per $1,000 principal amount of the Notes constituting Transfer
Restricted Securities held by such holder until the applicable Registration
Statement is filed or declared effective, the Exchange Offer is consummated or
the Shelf Registration Statement again becomes effective, as the case may be.
All accrued liquidated damages shall be paid to holders in the same manner as
interest payments on the Notes on semi-annual payment dates which correspond to
interest payment dates for the Notes. Following the cure of all Registration
Defaults, the accrual of liquidated damages will cease.
The Exchange and Registration Rights Agreement also will provide that the
Company and the Guarantors (i) shall make available for a period of 90 days
after the consummation of the Exchange Offer a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any resale of any such Exchange Notes and (ii) shall pay all expenses
incident to the Exchange Offer (including the expenses of one counsel to the
holders of the Notes) and will indemnify certain holders of the Notes (including
any broker-dealer) against certain liabilities, including liabilities under the
Securities Act. A broker-dealer which delivers such a prospectus to purchasers
in connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act and will be bound by the
provisions of the Exchange and Registration Rights Agreement (including certain
indemnification rights and obligations).
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Each holder of Notes who wishes to exchange such Notes for Exchange Notes
in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange Notes to be received by it will
be acquired in the ordinary course of its business, (ii) it has no arrangement
with any person to participate in the distribution of the Exchange Notes, and
(iii) it is not an Affiliate of the Company or, if it is an Affiliate, that it
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If the holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Existing Notes that were acquired as a
result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes.
Holders of the Notes will be required to make certain representations to
the Company (as described above) in order to participate in the Exchange Offer
and will be required to deliver information to be used in connection with the
Shelf Registration Statement in order to have their Notes included in the Shelf
Registration Statement and benefit from the provisions regarding liquidated
damages set forth in the preceding paragraphs. A holder who sells 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 Exchange and Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
For so long as the Notes are outstanding, the Company will continue to
provide to holders of the Notes and to prospective purchasers of the Notes the
information required by Rule 144A(d)(4) under the Securities Act.
The foregoing summary of certain provisions of the Exchange and
Registration Rights Agreement does not purport to be complete and is qualified
in its entirety by reference to all provisions of the Exchange and Registration
Rights Agreement, a copy of which has been filed as an exhibit to the Company's
Current Report on Form 8-K filed with the Commission on September 30, 1997. See
"Incorporation of Certain Documents by Reference."
BOOK ENTRY; DELIVERY AND FORM
Except as set forth below, the Exchange Notes will initially be issued in
the form of one or more registered Notes in global form without coupons (each a
"Global Note"). Each Global Note will be deposited with, or on behalf of, DTC
and registered in the name of Cede & Co., as nominee of DTC, or will remain in
the custody of the Trustee pursuant to the FAST Balance Certificate Agreement
between DTC and the Trustee.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a member of the Federal
Reserve system, (iii) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (iv) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry charges to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers, banks and 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 (collectively, the "Indirect Participants") that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly. Holders who are not Participants may beneficially own securities
held by or on behalf of the Depository only through Participants or Indirect
Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Initial Purchasers with an interest in the
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Global Notes and (ii) ownership of the Notes will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by DTC
(with respect to the interest of Participants), the Participants and the
Indirect Participants. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own and that
security interests in negotiable instruments can only be perfected by delivery
of certificates representing the instruments. Consequently, the ability to
transfer Exchange Notes or to pledge the Exchange Notes as collateral will be
limited to such extent.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Exchange Notes represented by such Global Notes for all purposes under
the Indenture. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated securities (the "Certificated Securities"), and will
not be considered the owners or Holders thereof under the Indenture for any
purpose, including with respect to the giving of any direction, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Notes represented by a Global Note to pledge or
transfer such interest to persons or entities that do not participate in DTC's
system or to otherwise take action with respect to such interest, may be
effected by the lack of a physical certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of Exchange Notes
under the Indenture or such Global Note. The Company understands that under
existing industry practice, in the event the Company requests any action of
holders of Exchange Notes or a holder that is an owner of a beneficial interest
in a Global Note desires to take any action that DTC, as the holder of such
Global Note, is entitled to take, DTC would authorize the Participants to take
such action and the Participants would authorize holders owning through such
Participants to take such action or would otherwise act upon the instruction of
such holders. Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of Exchange Notes by DTC, or for maintaining, supervising or reviewing
any records of DTC relating to such Exchange Notes.
Payments with respect to the principal of, premium, if any, and interest
on, any Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note representing such notes under the Indenture. Under the terms of
the Indenture, the Company and the Trustee may treat the persons in whose names
the Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payment and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to the
beneficial owner of interest in a Global Note (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Note as shown
on the records of DTC. Payments by the Participants and the Indirect
Participants to the beneficial owners of interests in a Global Note will be
governed by standing instruction and customary practice and will be the
responsibility of the Participants or the Indirect Participants and DTC.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository or DTC ceases to be registrant as a
clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days (ii) the issuer, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Notes in definitive
form under the indenture or (iii) upon the occurrence of certain other events,
then, upon surrender by DTC of the Global Notes, Certificated Securities will be
issued to each person that DTC identifies as the beneficial owner of the Notes
represented by the Global
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Notes. Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of such person or persons (or the nominees
of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for Existing Notes may be offered for resale,
resold or otherwise transferred by holders thereof (other than any holder which
is (i) an "Affiliate," (ii) a broker-dealer who acquired Existing Notes directly
from the Company or (iii) broker-dealers who acquired Existing Notes as a result
of market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to participate in
a distribution of such Exchange Notes; provided that broker-dealers receiving
Exchange Notes in the Exchange Offer will be subject to a prospectus delivery
requirement with respect to resales of such Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where Existing Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until January 12, 1998, all
dealers affecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify such holders (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
The Initial Purchasers and their respective affiliates perform various
commercial banking and investment banking services for the Company on a regular
basis. Chase Securities Inc. is an affiliate of The Chase Manhattan Bank, which
is agent bank and a lender to the Company under the Senior Credit Facility. The
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Chase Manhattan Bank received its proportionate share of the repayment by the
Company of amounts outstanding under the Senior Credit Facility from the
proceeds of the Initial Offering of the Notes.
LEGAL MATTERS
Certain legal matters with respect to the legality of the Exchange Notes
will be passed upon for the Company by Palmer & Dodge LLP, Boston,
Massachusetts. In rendering their opinion, Palmer & Dodge LLP will rely on the
opinion of Chadbourne & Parke LLP with respect to matters of New York law and on
the opinion of Kean, Miller, Hawthorne, D'Armond, McCowan & Jarman, LLP, Baton
Rouge, Louisiana, with respect to certain matters relating to the Guarantors. In
rendering its opinion on the validity of the Notes and the Guarantees, counsel
for the Company will express no opinion as to federal or state laws relating to
fraudulent transfers.
EXPERTS
The consolidated financial statements of Lamar Advertising Company and
Subsidiaries as of October 31, 1995 and 1996, and for each of the years in the
three-year period ended October 31, 1996 have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein and upon the authority of said firm as experts in accounting
and auditing.
The consolidated financial statements of Outdoor East, L.P. as of December
31, 1994 and 1995 and for each of the years in the three-year period ended
December 31, 1995 have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of FKM Advertising Co., Inc., as of
December 31, 1994 and 1995 and for each of the years then ending have been
incorporated by reference herein and in the Registration Statement in reliance
upon the report of McGrail, Merkel, Quinn and Associates, independent certified
public accountants, incorporated by reference herein and upon the authority of
said firm as experts in accounting and auditing.
The consolidated balance sheets of Penn Advertising, Inc. and subsidiaries
as of December 31, 1996 and 1995 and the related consolidated statements of
income and accumulated deficit and cash flows for the years then ended have been
incorporated by reference herein and in the Registration Statement in reliance
upon the report of Philip R. Friedman and Associates, independent certified
public accountants, incorporated by reference herein and upon the authority of
said firm as experts in accounting and auditing.
The statement of assets acquired and liabilities assumed by Lamar
Advertising Company of National Advertising Company from Outdoor Systems, Inc.
as of August 14, 1997, and the related statement of revenues and expenses for
the years ended December 31, 1996 and 1995, have been incorporated herein by
reference in reliance upon the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
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AVAILABLE INFORMATION
The Company files reports and other information with the Commission
pursuant to the informational requirements of the Exchange Act.
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments thereto) on Form S-4 under the Securities Act
with respect to the Exchange Notes offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and reference is made to the
Registration Statement and the exhibits thereto for further information with
respect to the Company. Such reports, the Registration Statement and the
exhibits thereto may be inspected, without charge, at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional
offices at Seven World Trade Center, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained from the public reference section of the Commission at its
Washington address upon payment of the prescribed fee. Such reports and other
information can also be reviewed through the Commission's Web site
(http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference the
following documents heretofore filed with the Commission pursuant to the
Exchange Act: (i) the Company's Annual Report on Form 10-K for the year ended
October 31, 1996; (ii) the Company's Quarterly Report on Form 10-Q for the
transition period ended December 31, 1996; (iii) the Company's Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997; (iv) The
Company's Current Reports on Form 8-K filed with the Commission on November 15
and December 19, 1996 and February 10, April 14 (as amended on Form 8-K/A filed
with the Commission on June 13), August 27 (as amended on Form 8-K/A filed with
the Commission on October 27) and September 30, 1997; and (v) the financial
statements appearing at pages F-19 through F- 42 of the Company's Registration
Statement on Form S-3 (File No. 333-14789), which was declared effective on
November 21, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
termination of the Offering made hereby shall be deemed to be incorporated in
this Prospectus by reference and to be a part hereof from the respective dates
of the filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is,
or is deemed to be, incorporated by reference herein, modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this Prospectus.
This Prospectus incorporates certain documents filed by the Company with
the Commission by reference which are not presented herein or delivered
herewith. The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents which are not specifically incorporated by
reference into such documents. Requests for such copies should be directed to
the executive offices of the Company, 5551 Corporate Boulevard, Baton Rouge,
Louisiana 70808, Attention: Investor Relations, telephone (504) 926-1000. In
order to ensure timely delivery of these documents, any request should be made
by December 8, 1997.
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