<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1996
REGISTRATION NO. 333-12427
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
UNIVERSAL OUTDOOR, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ILLINOIS 7312 36-2827496
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
</TABLE>
----------------
321 NORTH CLARK STREET, SUITE 1010
CHICAGO, ILLINOIS 60610
(312) 644-8673
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive office)
----------------
PAUL G. SIMON
GENERAL COUNSEL
UNIVERSAL OUTDOOR HOLDINGS, INC.
321 NORTH CLARK STREET, SUITE 1010
CHICAGO, ILLINOIS 60610
(312) 644-8673
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
WITH COPIES TO:
<TABLE>
<S> <C>
LELAND E. HUTCHINSON STACY J. KANTER
WINSTON & STRAWN SKADDEN, ARPS, SLATE, MEAGHER & FLOM
35 WEST WACKER DRIVE 919 THIRD AVENUE
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10022
(312) 558-5600 (212) 735-3000
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Section 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UNIVERSAL OUTDOOR, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING PROSPECTUS CAPTION OR PAGE
- ------------------------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front Registration Statement Cover; Outside Front Cover
Cover Page of Prospectus................................ Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Available Information;
Prospectus.............................................. Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of Earnings Prospectus Summary; Risk Factors; Business
to Fixed Charges........................................
4. Use of Proceeds......................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price......................... Underwriting
6. Dilution................................................ Not Applicable
7. Selling Security Holders................................ Not Applicable
8. Plan of Distribution.................................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to Be Registered.............. Description of the Notes
10. Interest of Named Experts and Counsel................... Not Applicable
11. Information with Respect to the Registrant.............. Prospectus Summary; Risk Factors; The Transactions;
Use of Proceeds; Capitalization; Selected
Consolidated Financial and Operating Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Transactions; Principal
Stockholders; Description of Notes; Description of
Indebtedness and Other Commitments; Validity of
Notes; Experts; Available Information; Consolidated
Financial Statements
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities.............................. Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 1996
$200,000,000
[LOGO]
UNIVERSAL OUTDOOR, INC.
% SENIOR SUBORDINATED NOTES DUE 2006
----------
Interest on the % Senior Subordinated Notes due 2006 (the "Notes") of
Universal Outdoor, Inc. (the "Company") is payable semi-annually on
and of each year, commencing , 1997. The
Notes are redeemable at the option of the Company, in whole or in part, on or
after , 2001 at the redemption prices set forth herein. Until
, 1999, up to $70 million aggregate principal amount of the Notes
will be redeemable, at the option of the Company, from the net proceeds of a
public equity offering or equity private placement of Universal Outdoor
Holdings, Inc., the parent of the Company ("Parent"), in each case resulting in
net proceeds of $100 million or more.
The Notes represent senior subordinated unsecured obligations of the Company
and will rank PARI PASSU in right of payment with all other senior subordinated
unsecured indebtedness of the Company. The Notes will be subordinated to all
existing and future Senior Debt (as defined) of the Company, including senior
indebtedness under a $300 million bank credit facility. The amount of Senior
Debt outstanding at June 30, 1996, after giving effect to the Transactions (as
defined), the Offerings (as defined) and the application of the proceeds
therefrom, would have been approximately $123.3 million.
Prior to the offering of the Notes (the "Offering"), there has been no
public market for the Notes. The Notes are not expected to be listed on any
securities exchange or to be quoted through any automatic quotation system.
Prior to or concurrently with the Offering, Parent will offer 5,750,000
shares of its Common Stock by a separate prospectus (the "Common Stock
Offering", and together with the Offering, the "Offerings").
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
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.
<TABLE>
<CAPTION>
PRICE PROCEEDS
TO UNDERWRITING TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
<S> <C> <C> <C>
Per Note................................................ $ $ $
Total................................................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $750,000.
----------------
The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject any order in whole or in part. It is expected that delivery of the Notes
will be made in New York, New York, on or about October , 1996.
----------------
BEAR, STEARNS & CO. INC. BT SECURITIES CORPORATION
The date of this Prospectus is , 1996.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED HEREIN, THE "COMPANY" MEANS
UNIVERSAL OUTDOOR, INC., TOGETHER WITH ITS CONSOLIDATED SUBSIDIARIES, UNLESS THE
CONTEXT OTHERWISE REQUIRES. "PARENT" REFERS TO UNIVERSAL OUTDOOR HOLDINGS, INC.
AND ITS CONSOLIDATED SUBSIDIARIES, WHICH CONSTITUTE THE OPERATING SUBSIDIARIES
OF PARENT. THE COMPANY IS A WHOLLY-OWNED SUBSIDIARY OF PARENT. UNLESS OTHERWISE
SPECIFIED, THE PROSPECTUS ASSUMES (I) THE COMPLETION OF THE TRANSACTIONS (AS
DEFINED) SCHEDULED OR ANTICIPATED TO OCCUR, (II) THE COMPLETION OF THE COMMON
STOCK OFFERING AT A PRICE OF $32.00 PER SHARE, AND (III) NO EXERCISE OF THE
UNDERWRITER'S OVER-ALLOTMENT OPTION IN THE COMMON STOCK OFFERING. THE
"TRANSACTIONS" CONSIST OF THE ACQUISITION OF OUTDOOR ADVERTISING HOLDINGS, INC.
BY A SUBSIDIARY OF THE COMPANY PURSUANT TO A MERGER OF SUCH SUBSIDIARY WITH AND
INTO OUTDOOR ADVERTISING HOLDINGS, INC. (THE "POA ACQUISITION"), THE DEBT TENDER
OFFERS (AS DEFINED), THE EXECUTION OF THE NEW CREDIT FACILITY (AS DEFINED), THE
MEMPHIS/TUNICA ACQUISITION (AS DEFINED), AND THE ADDITIONAL ACQUISITIONS (AS
DEFINED). SEE "TRANSACTIONS." "ACQUISITIONS" MEANS, COLLECTIVELY, THE POA
ACQUISITION, THE MEMPHIS/TUNICA ACQUISITION AND THE ADDITIONAL ACQUISITIONS.
"OPERATING CASH FLOW" HAS THE MEANING SET FORTH IN FOOTNOTE 2 ON PAGE 8 HEREOF
AND "OPERATING CASH FLOW MARGIN" HAS THE MEANING SET FORTH IN FOOTNOTE 3 ON PAGE
8 HEREOF. THE TERM "MARKET" REFERS TO THE GEOGRAPHIC AREA CONSTITUTING A
DESIGNATED MARKET AREA AS DEFINED BY THE A.C. NIELSON COMPANY.
THE COMPANY
The Company is a leading outdoor advertising company operating approximately
21,114 advertising display faces in two distinct regions: the Midwest (Chicago,
Minneapolis/St. Paul, Indianapolis, Milwaukee, Des Moines, Evansville (IN) and
Dallas) and the Southeast (Orlando, Jacksonville, Palm Beach, Ocala and the East
Coast and Gulf Coast areas of Florida, Memphis/Tunica and Chattanooga (TN), and
Myrtle Beach (SC)). After giving effect to the Acquisitions, the Company will be
the third largest pure-play outdoor advertising company in the United States on
the basis of net revenues. For the six months ended June 30, 1996, on a pro
forma basis the Company had net revenues and Operating Cash Flow of $65.1
million and $32.0 million, respectively, which compare favorably to the pro
forma results for the same period in 1995 of $56.7 million and $26.5 million,
respectively. For the fiscal year ended December 31, 1995, on a pro forma basis
the Company had net revenues and Operating Cash Flow of $121.0 million and $58.5
million, respectively. The Company believes that its 1995 Operating Cash Flow
Margin of 49.9%, or 48.3% on a pro forma basis after giving effect to the
Acquisitions, is among the highest in the industry.
3
<PAGE>
The Acquisitions will significantly expand and diversify the Company's
presence into new major metropolitan markets. The following table sets forth, as
of August 31, 1996, certain information with respect to the Company's outdoor
markets after giving effect to the Acquisitions:
<TABLE>
<CAPTION>
% OF 1995
PRO FORMA 30-SHEET 8-SHEET
MARKET NET REVENUES BULLETINS POSTERS POSTERS
- ------------------------------------------- 1995 --------------- ----------- ----------- -----------
PRO FORMA
NET REVENUES
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MIDWEST:
Chicago.................................. $ 16,579 13.7% 653 -- 3,646
Minneapolis/St. Paul..................... 16,320 13.5 447 1,365 --
Indianapolis............................. 9,897 8.2 257 1,385 142
Milwaukee................................ 4,686 3.9 260 -- 321
Des Moines*.............................. 3,141 2.6 84 590 9
Evansville............................... 3,028 2.5 142 687 --
Dallas*.................................. 1,738 1.5 245 -- 1,201
SOUTHEAST:
Orlando**................................ 22,253 18.4 842 1,080 --
Jacksonville............................. 8,528 7.0 383 942 --
Palm Beach**............................. 290 0.2 99 21 --
Ocala**.................................. 5,011 4.1 879 199 --
Memphis/Tunica**......................... 13,104 10.8 706 1,179 133
Chattanooga**............................ 4,582 3.8 359 663 --
Myrtle Beach**........................... 7,931 6.6 729 455 --
East Coast area (FL)**................... 2,784 2.3 567 -- --
Gulf Coast area (FL)**................... 1,095 0.9 444 -- --
-------- ----- ----- ----- -----
Total.................................. $ 120,967 100.0% 7,096 8,566 5,452
-------- ----- ----- ----- -----
-------- ----- ----- ----- -----
<CAPTION>
TOTAL
DISPLAY
MARKET FACES
- ------------------------------------------- ---------
<S> <C>
MIDWEST:
Chicago.................................. 4,299
Minneapolis/St. Paul..................... 1,812
Indianapolis............................. 1,927
Milwaukee................................ 581
Des Moines*.............................. 683
Evansville............................... 829
Dallas*.................................. 1,446
SOUTHEAST:
Orlando**................................ 1,922
Jacksonville............................. 1,325
Palm Beach**............................. 120
Ocala**.................................. 1,078
Memphis/Tunica**......................... 2,018
Chattanooga**............................ 1,022
Myrtle Beach**........................... 1,184
East Coast area (FL)**................... 567
Gulf Coast area (FL)**................... 444
---------
Total.................................. 21,114***
---------
---------
</TABLE>
- ------------------------
* Includes existing operations and additional operations to be acquired in
connection with the Acquisitions.
** To be acquired in connection with the Acquisitions.
*** Excludes 143 transit display faces located in Indianapolis.
OPERATING STRATEGY
The Company's objective is to be the leading provider of outdoor advertising
services in each of its two regional operating areas and to expand its presence
in attractive new markets. The Company believes that regional clusters provide
it with significant opportunities to increase revenue and achieve cost savings
by delivering to local and national advertisers efficient access to multiple
markets or highly targeted areas. Management intends to implement the following
operating strategy:
- MAXIMIZE RATES AND OCCUPANCY. Through continued emphasis on customer
sales and service, quality displays and inventory management, the Company seeks
to maximize advertising rates and occupancy levels in each of its markets. The
Company has recruited and trained a strong local sales staff supported by local
managers operating under specific, sales-based compensation targets designed to
obtain the maximum potential from the Company's display inventory.
- INCREASE MARKET PENETRATION. The Company seeks to expand operations
within its existing markets through new construction, with an emphasis on
painted bulletins, which generally command higher rates and longer term
contracts from advertisers than other types of display faces. In addition, the
Company historically has acquired, and intends to continue to acquire,
additional advertising display faces in its existing markets as opportunities
become available.
- PURSUE STRATEGIC ACQUISITIONS. In addition to improved penetration of
its existing markets, the Company also seeks to grow by acquiring additional
advertising display faces in new, closely proximate
4
<PAGE>
markets. Such new markets allow the Company to capitalize on the operating
efficiencies and cross-market sales opportunities associated with operating in
multiple markets within distinct regions. The Company intends to develop new
regional operating areas in regions where attractive growth and consolidation
opportunities exist.
- CAPITALIZE ON 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 Company's continued investment
in equipment and technology provides for greater ongoing benefits in the areas
of sales, production and operation.
- MAINTAIN LOW COST STRUCTURE. Through continued adherence to strict cost
controls, centralization of administrative functions and maintenance of low
corporate overhead, the Company seeks to maximize its Operating Cash Flow
Margin, which it believes to be among the highest in the industry. The Company
believes that its centralized administration provides opportunities for
significant operating leverage from further expansion in existing markets and
from future acquisitions.
- DEVELOP OTHER OUT-OF-HOME MEDIA. The Company seeks to develop other
forms of out-of-home media such as bus shelter or transit advertising in order
to enhance revenues in existing markets or provide access to new markets.
The Company believes that its experienced senior management team is an
important asset in the successful implementation of its operating strategy.
Daniel L. Simon, President and Chief Executive Officer and the founder of the
Company, has spent his entire professional career of 23 years in the outdoor
advertising business. Brian T. Clingen, Vice President and Chief Financial
Officer, and Paul G. Simon, Vice President and General Counsel, together possess
over 24 years of experience in the industry. As of June 30, 1996, this
management team has successfully completed and integrated 16 acquisitions since
1989.
RECENT ACQUISITIONS
Consistent with its operating strategy, the Company has recently entered
into agreements to acquire the assets or capital stock of four outdoor
advertising companies. The Company believes that these acquisitions will
significantly strengthen its market presence in the midwest and southeast United
States and will allow the Company to capitalize on the operating efficiencies
and cross-market sales opportunities associated with operating in closely
proximate markets.
THE POA ACQUISITION. The Company has agreed to acquire the outstanding
capital stock of Outdoor Advertising Holdings, Inc. ("OAH"), pursuant to a
merger of OAH with and into a subsidiary of the Company for approximately $240
million in cash. As a result of the POA Acquisition, the Company will acquire a
total of approximately 6,337 advertising display faces located in five markets
in the southeast United States.
The Company believes that the POA Acquisition will substantially strengthen
the Company's operations in the southeast United States, particularly in
Florida, where the Company believes it will have the largest number of outdoor
advertising display faces and have the largest market share in each of its
markets, except Palm Beach. The Company believes that the southeast United
States is a particularly attractive region due to its (i) high concentration of
destination cities and resorts; (ii) above average population growth; (iii)
extensive highway/roadway systems; and (iv) temperate climate that promotes
outdoor lifestyles.
THE MEMPHIS/TUNICA ACQUISITION. The Company, through a newly-formed
subsidiary, has acquired the option (the "Memphis/Tunica Option") to purchase
during the period from December 1, 1996 to December 31, 1996 certain assets
located in and around Memphis, Tennessee and Tunica County, Mississippi (the
"Memphis/Tunica Acquisition"). The purchase price of the Memphis/Tunica Option
was $5 million. The purchase price of the Memphis/Tunica Acquisition is
approximately $71 million (inclusive of the price of the Memphis/Tunica Option)
plus 100,000 shares of Common Stock of Parent. Upon consummation of the
Memphis/Tunica Acquisition, the Company will acquire a total of approximately
5
<PAGE>
2,018 advertising display faces located in and around Memphis, Tennessee. A
significant number of these display faces were previously owned by Naegele (as
defined).
The Company believes that the Memphis/Tunica Acquisition will complement the
Chattanooga operations which are being acquired by the Company in the POA
Acquisition. This will give the Company a leading presence in two of the largest
markets in Tennessee and strengthen its presence in the southeast United States.
THE ADDITIONAL ACQUISITIONS. The Company has acquired certain assets of (i)
Iowa Outdoor Displays for approximately $1.8 million in cash (the "Iowa
Acquisition") and (ii) The Chase Company for approximately $5.8 million in cash
(the "Dallas Acquisition," and together with the Iowa Acquisition, the
"Additional Acquisitions"). As a result of the Additional Acquisitions, the
Company will acquire approximately 160 advertising display faces consisting
primarily of posters in and around Des Moines and approximately 245 advertising
display faces consisting primarily of bulletins in and around Dallas.
The Company believes that the Additional Acquisitions will further enhance
the Company's current presence in each of its Des Moines and Dallas markets and
provide increased revenue opportunities in its Midwest market cluster. As of the
date of this Prospectus, certain of the Acquisitions have not been consummated.
See "Transactions."
THE OFFERING
<TABLE>
<S> <C>
Issue........................... $200,000,000 principal amount of % Senior Subordinated
Notes due 2006 offered by the Company.
Maturity Date................... , 2006.
Interest Payment Dates.......... and of each year, commencing ,
1997.
Ranking......................... The Notes will be general unsecured obligations of the
Company and will be subordinated to all existing and
future Senior Debt, including indebtedness under the New
Credit Facility. The Company will have the ability,
subject to meeting certain financial ratios, to incur
additional Indebtedness (as defined), including Senior
Debt.
Mandatory Redemption............ The Company is not required to make mandatory redemption
or sinking fund payments prior to the maturity of the
Notes.
Optional Redemption............. The Notes will be redeemable at the option of the Company
in whole or in part at any time on or after ,
2001 at the redemption prices set forth herein plus
accrued and unpaid interest, if any, thereon to the date
of redemption. Until , 1999, up to $70 million
aggregate principal amount of the Notes will be redeemable
at the option of the Company from the net proceeds of a
public equity offering or equity private placement by
Parent, in each case resulting in net cash proceeds of
$100 million or more, at % of the principal amount plus
accrued and unpaid interest, if any, thereon to the date
of redemption. See "Description of Notes--Optional
Redemption."
Change of Control............... Upon a Change of Control (as defined), holders of the
Notes will have the right to require the Company to
purchase any or all of the Notes at a purchase price equal
to 101% of the aggregate principal amount of the Notes
plus accrued and unpaid interest thereon, if any, to the
date of purchase. See "Description of Notes--Certain
Covenants--Repurchase of Notes at the Option of the Holder
upon a Change of Control."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Certain Covenants............... The indenture governing the Notes (the "Indenture") will
contain covenants restricting or limiting the ability of
the Company and its Subsidiaries (which term, as defined
in the Indenture, does not include any Unrestricted
Subsidiaries) to, among other things, (i) pay dividends or
make other restricted payments, (ii) incur additional
indebtedness or issue certain redeemable stock, (iii)
create liens, (iv) create dividend or other payment
restrictions affecting Subsidiaries, (v) enter into
mergers or consolidations or make sales of all or
substantially all assets of the Company, and (vi) enter
into transactions with affiliates. In addition, in the
event of certain Asset Sales (as defined), the Company
will be required to use the proceeds to reinvest in the
Company's business, to repay Senior Debt or to offer to
purchase Notes at 100% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of
purchase. See "Description of Notes--Certain Covenants."
Use of Proceeds................. To repay existing bank indebtedness, repurchase certain
outstanding notes of the Company and finance a portion of
the purchase price payable in connection with certain of
the Acquisitions. See "Use of Proceeds."
</TABLE>
RISK FACTORS
For a discussion of certain factors that should be considered in connection
with an investment in the Notes. See "Risk Factors."
7
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following sets forth summary unaudited consolidated pro forma financial
information derived from the information contained under the caption "Pro Forma
Financial Information" elsewhere in this Prospectus. The summary unaudited pro
forma consolidated statement of operations for the year ended December 31, 1995
and for the latest twelve month period ended June 30, 1996 give effect to (i)
the Transactions, (ii) the Offerings and the application of the estimated net
proceeds therefrom (assuming a Common Stock Offering price of $32.00 per share),
(iii) the acquisitions of NOA Holding Company ("Naegele"), Ad-Sign, Inc., Image
Media, Inc. and consummation of the IPO (as hereafter defined) and the
application of the estimated net proceeds therefrom, and (iv) the net reduction
in operating expenses of the businesses acquired as if each had occurred at the
beginning of the respective periods. The summary unaudited pro forma balance
sheet as of June 30, 1996 has been prepared as if the Transactions, the
Offerings and the IPO had occurred on June 30, 1996.
The summary unaudited consolidated pro forma financial information does not
purport to present the actual financial position or results of operations of the
Company had the transactions and events assumed therein in fact occurred on the
dates specified, nor are they necessarily indicative of the results of
operations that may be achieved in the future. The summary unaudited pro forma
consolidated financial information is based on certain assumptions and
adjustments described in the notes contained in "Pro Forma Financial
Information" and should be read in conjunction therewith. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition," the
Consolidated Financial Statements and the Notes thereto of the Company, the
Consolidated Financial Statements and the Notes thereto of NOA Holding Company,
the Statement of Revenues and Direct Expenses and the Notes thereto of Ad-Sign,
the Financial Statements and Notes thereto of POA Acquisition Corporation and
the Combined Financial Statements and Notes thereto of Tanner-Peck, L.L.C.
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA LATEST
PRO FORMA TWELVE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net revenues(1)........................................................... $ 120,967 $ 129,381
Direct cost of revenues................................................... 45,309 46,938
General and administrative expenses....................................... 17,189 18,476
Depreciation and amortization............................................. 36,271 35,786
Operating income.......................................................... 22,198 28,181
Interest expense.......................................................... 31,656 31,656
Other expense (income).................................................... (154) 1,552
Net loss.................................................................. (9,304) (5,027)
OTHER DATA:
Operating Cash Flow(2).................................................... $ 58,469 $ 63,967
Operating Cash Flow Margin(3)............................................. 48.3% 49.4%
Ratio of total indebtedness to Operating Cash Flow (4).................... 5.5x 5.1x
Ratio of Operating Cash Flow to total interest (5)........................ 1.8x 2.0x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------------------
ACTUAL AS ADJUSTED
----------------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................... $ 8,122 $ 21,400
Total assets.............................................................. 177,372 519,355
Total long-term debt...................................................... 150,207 323,303
Common stockholders' equity............................................... 20,773 185,900
</TABLE>
- ------------------------------
(1) Net revenues are gross revenues less agency commissions.
(2) "Operating Cash Flow" is operating income before depreciation and
amortization and other noncash charges. Operating Cash Flow is not intended
to represent net cash flow provided by operating activities as defined by
generally accepted accounting principles and should not be considered as an
alternative to net income (loss) as an indicator of the Company's operating
performance or to net cash provided by operating activities as a measure of
liquidity. The Company believes Operating Cash Flow is a measure commonly
reported and widely used by analysts, investors and other interested
parties in the media industry. Accordingly, this information has been
disclosed herein to permit a more complete comparative analysis of the
Company's operating performance relative to other companies in the media
industry.
(3) "Operating Cash Flow Margin" is Operating Cash Flow stated as a percentage
of net revenues.
(4) Amounts represent (i) total long-term debt divided by (ii) Operating Cash
Flow.
(5) Amounts represent the ratio of (i) the sum of income before income taxes and
minority interest plus interest expense on funded debt to (ii) interest
expense on funded debt.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ---------
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenues............................................. $ 21,435 $ 27,896 $ 28,710 $ 33,180 $ 38,101 $ 18,292
Net revenues(1)............................................ 18,835 24,681 25,847 29,766 34,148 16,411
Direct advertising expenses................................ 7,638 10,383 10,901 11,806 12,864 6,266
General and administrative expenses........................ 3,515 3,530 3,357 3,873 4,244 2,150
Depreciation and amortization.............................. 5,530 7,817 8,000 7,310 7,402 3,538
Operating income........................................... 2,152 2,951 3,589 6,777 9,638 4,457
Interest expense........................................... 6,599 9,591 8,965 8,314 8,627 4,280
Income (loss) before extraordinary item(2)................. (4,500) (6,349) (5,727) (1,671) 969 156
Net income (loss).......................................... (4,500) (6,349) (8,987) (1,671) 969 156
OTHER DATA:
Operating Cash Flow(3)..................................... $ 7,682 $ 10,768 $ 11,589 $ 14,087 $ 17,040 $ 7,995
Operating Cash Flow Margin(4).............................. 40.8% 43.6% 44.8% 47.3% 49.9% 48.7%
Capital expenditures....................................... 2,047 2,352 2,004 4,668 5,620 2,521
Deficiency in coverage of earnings......................... 4,500 6,349 8,987 1,671 -- --
FINANCIAL RATIOS:
Ratio of earnings to fixed charges(5)...................... -- -- -- -- 1.1x 1.0x
Percentage of indebtedness to total capitalization(6)...... 102.2% 104.8% 116.1% 118.1% 115.8% 117.3%
Ratio of total indebtedness to Operating Cash Flow(7)...... 16.1x 5.5x 5.9x 5.2x 4.6x --
Ratio of Operating Cash Flow to total interest(8).......... 1.2x 1.1x 1.3x 1.7x 2.0x 1.9x
<CAPTION>
1996
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenues............................................. $ 29,366
Net revenues(1)............................................ 26,239
Direct advertising expenses................................ 9,520
General and administrative expenses........................ 3,076
Depreciation and amortization.............................. 4,674
Operating income........................................... 8,969
Interest expense........................................... 6,086
Income (loss) before extraordinary item(2)................. 1,209
Net income (loss).......................................... 1,209
OTHER DATA:
Operating Cash Flow(3)..................................... $ 13,643
Operating Cash Flow Margin(4).............................. 52.0%
Capital expenditures....................................... 2,943
Deficiency in coverage of earnings......................... --
FINANCIAL RATIOS:
Ratio of earnings to fixed charges(5)...................... 1.2x
Percentage of indebtedness to total capitalization(6)...... 87.9%
Ratio of total indebtedness to Operating Cash Flow(7)...... --
Ratio of Operating Cash Flow to total interest(8).......... 2.2x
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------------
ACTUAL PRO FORMA(10) AS ADJUSTED(11)
--------- -------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................ $ 8,122 $ 21,400 $ 21,400
Total assets........................................................... 177,372 512,605 519,355
Total long-term debt(9)................................................ 150,207 425,188 323,303
Common stockholders' equity (deficit).................................. 20,773 77,265 185,900
</TABLE>
- ------------------------------
(1) Net revenues are gross revenues less agency commissions.
(2) Extraordinary loss represents loss on early extinguishment of debt.
(3) "Operating Cash Flow" is operating income before depreciation and
amortization and other non cash charges. Operating Cash Flow is not intended
to represent net cash provided by operating activities as defined by
generally accepted accounting principles and should not be considered as an
alternative to net income (loss) as an indicator of the Company's operating
performance or to net cash provided by operating activities as a measure of
liquidity. The Company believes Operation Cash Flow is a measure commonly
reported and widely used by analysts, investors and other interested parties
in the media industry. Accordingly, this information has been disclosed
herein to permit a more complete comparative analysis of the Company's
operating performance relative to other companies in the media industry.
(4) "Operating Cash Flow Margin" is Operating Cash Flow stated as a percentage
of net revenues.
(5) Amounts represent the ratio of (i) the sum of income before income taxes
and minority interest plus interest expense less minority interest to (ii)
interest expense on funded debt.
(6) Amounts represent (i) total long-term debt divided by (ii) total long-term
debt plus common stockholders' equity (deficit).
(7) Amounts represent (i) total long-term debt divided by (ii) Operating Cash
Flow.
(8) Amounts represent the ratio of (i) the sum of income before income taxes
and minority interest plus interest expense on funded debt to (ii) interest
expense on funded debt.
(9) Long-term debt does not include current maturities.
(10) Represents actual amounts adjusted to give effect to the Transactions, and
the application of the net proceeds from the IPO of $62.4 million.
(11) Represents pro forma amounts adjusted to give effect to the Offerings.
9
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE NOTES
OFFERED BY THIS PROSPECTUS.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS. The Company has
substantial indebtedness. On a pro forma basis after giving effect to the
Acquisitions and indebtedness incurred as a result of the Acquisitions and the
Offering and the application of the net proceeds of the Offerings, as of June
30, 1996, the Company's total long-term debt was approximately $323.3 million,
and on a pro forma basis for the latest twelve months ended June 30, 1996
interest expense was approximately $31.7 million, or 24.5% of net revenues. The
Company's level of consolidated indebtedness could have important consequences
to the holders of the Notes, including the following: (i) a substantial portion
of the Company's cash flow from operations must be dedicated to the payment of
the principal of and interest on its indebtedness and will not be available for
other purposes; (ii) the ability of the Company to obtain financing in the
future for working capital needs, capital expenditures, acquisitions,
investments, general corporate purposes or other purposes may be materially
limited or impaired; and (iii) the Company's level of indebtedness may reduce
the Company's flexibility to respond to changing business and economic
conditions. Subject to certain limitations contained in its outstanding debt
instruments and the Notes, the Company or its subsidiaries may incur additional
indebtedness to finance working capital or capital expenditures, investments or
acquisitions or for other purposes. See "Description of Indebtedness and Other
Commitments" and "Description of the Notes." Although historically the Company's
Operating Cash Flow has been sufficient to service its fixed charges, there can
be no assurance that the Company's Operating Cash Flow will continue to exceed
its fixed charges. A decline in Operating Cash Flow could impair the Company's
ability to meet its obligations, including for debt service, and to make
scheduled principal repayments. See "Selected Consolidated Financial and
Operating Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
ACQUISITION STRATEGY. The Company's growth has been facilitated by
strategic acquisitions that have substantially increased the Company's inventory
of advertising display faces. One element of the Company's operating strategy is
to make acquisitions in new and existing markets. While the Company believes
that the outdoor advertising industry is highly fragmented and that significant
acquisition opportunities are available, there can be no assurance that suitable
acquisition candidates can be found. The Company is likely to face competition
from other outdoor advertising and media companies for acquisition opportunities
that are available. In addition, if the prices sought by sellers of outdoor
advertising display faces and companies continue to rise, 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 that
acquisitions can be completed on terms acceptable to the Company. Also, in the
Minneapolis/St. Paul market, the Company is subject to a consent judgment that
restricts the Company's ability to purchase outdoor advertising display faces
until February 1, 2001. See "Business -- Government Regulation." As part of its
regular on-going evaluation of strategic acquisition opportunities, the Company
may from time to time engage in discussions concerning possible acquisitions,
some of which may be material in size. The purchase price of such acquisitions
may require additional debt or equity financing on the part of the Company.
THE ACQUISITIONS; CHALLENGES OF INTEGRATION. With respect to the
Acquisitions (other than the Additional Acquisitions), there can be no assurance
that any or all of the Acquisitions (other than the Additional Acquisitions)
will be consummated. See "Transactions." In the event the Memphis/Tunica
Acquisition is not consummated, the Company will not be refunded the purchase
price of the Memphis/ Tunica Option. In addition, the Company will face
significant challenges in integrating the operations acquired in connection with
the Acquisitions with those of the Company. In particular, the Company has never
integrated an acquisition the size of the POA Acquisition. Integration of such
operations will require substantial attention from the Company's management.
Diversion of management attention from the Company's existing business could
have an adverse impact on the revenues and operating results of the Company.
There can be no assurance the Company will be able to integrate such operations
successfully.
10
<PAGE>
TOBACCO INDUSTRY REGULATION. On a pro forma basis taking into account the
Acquisitions, approximately 9.9% of the Company's net revenues in 1995 were
derived from tobacco advertising. In August 1996, the U.S. Food and Drug
Administration issued final regulations governing certain marketing practices in
the tobacco industry. Among other things, the regulations prohibit tobacco
product billboard advertisements within 1,000 feet of schools and playgrounds
and require that tobacco product advertisements on billboards be in black and
white and contain only text. In addition, one major tobacco manufacturer
recently proposed federal legislation banning 8-sheet billboard advertising and
transit advertising of tobacco products. There can be no assurance as to the
effect of these regulations or this legislation on the Company's business and on
its net revenues, Operating Cash Flow and financial position. A reduction in
billboard advertising by the tobacco industry could cause an immediate reduction
in the Company's direct revenue from such advertisers and would simultaneously
increase the available space on the existing inventory of billboards in the
outdoor advertising industry. This could in turn result in a lowering of rates
throughout the industry or limit the ability of industry participants to
increase rates for some period of time. Any such consequence could have the
effect of reducing the Company's Operating Cash Flow, which could in turn reduce
the Company's ability to meet its financial obligations under the Indenture and
the New Credit Facility (as defined in "Transactions"). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Customers" and "-- Government Regulation."
PRIOR PERIOD LOSSES. The Company has historically had net losses which have
resulted in significant part from substantial depreciation and amortization
expenses relating to assets purchased in the Company's acquisitions, interest
expense associated with related indebtedness and deferred financing costs
charged to extraordinary losses. Moreover, additional acquisitions will result
in increased depreciation, amortization and interest expenses. There can be no
assurance that the Company will generate net income in the future.
RESTRICTIONS IMPOSED BY THE COMPANY'S INDEBTEDNESS. The banks under the New
Credit Facility will have, and under the Existing Credit Facilities have, a lien
on substantially all of the assets of the Company, including the capital stock
of its subsidiaries, to secure the indebtedness of the Company under such credit
facilities. In the event the Company's subsidiaries merge with and into the
Company, the banks will have a lien on substantially all of the assets of the
Company previously held by such subsidiaries. The Company's debt instruments
contain restrictions on the Company's ability to incur additional indebtedness,
create liens, pay dividends, sell assets and make acquisitions. Furthermore, the
New Credit Facility will contain, and the Existing Credit Facilities contain,
certain maintenance tests. There can be no assurance that the Company and its
subsidiaries will be able to comply with the provisions of their respective debt
instruments, including compliance by the Company with the financial ratios and
tests contained in the New Credit Facility (or the Existing Credit Facilities if
in effect). Breach of any of these covenants or the failure to fulfill the
obligations thereunder and the lapse of any applicable grace periods would
result in an event of default under the applicable debt instruments, and the
holders of such indebtedness could declare all amounts outstanding under the
applicable instruments to be due and payable immediately. There can be no
assurance that the assets or cash flow of the Company or the Company's
subsidiaries, as the case may be, would be sufficient to repay in full
borrowings under their outstanding debt instruments whether upon maturity or
earlier or if such indebtedness were to be accelerated upon an event of default
or certain repurchase events or that the Company would be able to refinance or
restructure its payments on such indebtedness or repurchase the Notes (or the
Existing Notes if not repurchased). If such indebtedness were not so repaid,
refinanced or restructured, the lenders could proceed to realize on their
collateral. In addition, any event of default or declaration of acceleration
under one debt instrument could also result in an event of default under one or
more of the Company's other debt instruments. See "-- Substantial Leverage;
Ability to Service Indebtedness" and "Description of Indebtedness and Other
Commitments."
SUBORDINATION OF NOTES. The Notes will be unsecured and subordinated to the
prior right of payment of all existing and future Senior Debt of the Company,
including obligations under the New Credit Facility. Subject to certain
limitations, the Indenture will permit the Company to incur additional
indebtedness, including Senior Debt. See "Description of Notes -- Certain
Covenants -- Limitation on Incurrence of
11
<PAGE>
Additional Indebtedness and Disqualified Capital Stock." In addition, the
indebtedness under the New Credit Facility will become due prior to the maturity
of the Notes. As a result of the subordination provisions contained in the
Indenture, in the event of a liquidation or insolvency, the assets of the
Company will be available to pay obligations on the Notes only after all Senior
Debt has been paid in full, and there may not be sufficient assets remaining to
pay amounts due on any or all of the Notes then outstanding. See "Description of
Indebtedness and Other Commitments" and "Description of Notes."
REGULATION OF OUTDOOR ADVERTISING. Outdoor advertising displays are subject
to governmental regulation at the federal, state and local levels. These
regulations, in some cases, limit the height, size, location and operation of
billboards and, in limited circumstances, regulate the content of the
advertising copy displayed on the billboards. Some governmental regulations
prohibit the construction of new billboards or the replacement, relocation,
enlargement or upgrading of existing structures. Some cities have adopted
amortization ordinances under which, after the expiration of a specified period
of time, billboards must be removed at the owner's expense and without the
payment of compensation. Ordinances requiring the removal of a billboard without
compensation, whether through amortization or otherwise, are being challenged in
various state and federal courts with conflicting results. Other than in the
Company's newly acquired Jacksonville market, amortization ordinances have not
materially affected operations in the Company's markets. As a result of a
settlement of litigation related to certain assets in the Jacksonville market
prior to their acquisition, the Company has removed 165 outdoor advertising
structures in 1995 and is required to remove an additional 546 (of its total of
1,493) outdoor advertising structures over the next 19 years with 317 of such
structures to be removed between 1995 and 1998. There can be no assurance that
these removals will not adversely affect the Company's results of operations. In
addition, no assurance can be given as to the effect on the Company of existing
laws and regulations or of new laws and regulations that may be adopted in the
future. See "-- Tobacco Industry Regulation" and "Business -- Customers" and
"Business -- Government Regulation."
ECONOMIC CONDITIONS; ADVERTISING TRENDS. The Company relies on sales of
advertising space for its revenues and its operating results therefore are
affected by general economic conditions as well as trends in the advertising
industry. A reduction in advertising expenditures available for the Company's
displays could result from a general decline in economic conditions, a decline
in economic conditions in particular markets where the Company conducts business
or a reallocation of advertising expenditures to other available media by
significant users of the Company's displays.
COMPETITION. The Company faces competition for advertising revenues from
other outdoor advertising companies, as well as from other media such as radio,
television, print media and direct mail marketing. The Company also competes
with a wide variety of other out-of-home advertising media, the range and
diversity of which has increased substantially over the past several years,
including advertising displays in shopping centers and malls, airports,
stadiums, movie theaters and supermarkets, and on taxis, trains, buses and
subways. Some of the Company's competitors are substantially larger, better
capitalized and have access to greater resources than the Company. There can be
no assurance that outdoor advertising media will be able to compete with other
types of media, or that the Company will be able to compete either within the
outdoor advertising industry or with other media. See "Business -- Competition."
RELIANCE ON KEY EXECUTIVES. The Company's success depends to a significant
extent upon the continued services of its executive officers and other key
management and sales personnel, in particular its President and Chief Executive
Officer, Daniel L. Simon. Although the Company believes it has incentive and
compensation programs designed to retain key employees, the Company has few
employment contracts with its employees, and very few of its employees are bound
by non-competition agreements. The Company maintains key man insurance on Daniel
L. Simon. The unavailability of the continuing services of its executive
officers and other key management and sales personnel could have a material
adverse effect on the Company's business. See "Management."
ABSENCE OF PUBLIC MARKET. There is currently no established trading market
for the Notes and the Company does not intend to list the Notes on any
securities exchange or to arrange for their quotation on
12
<PAGE>
the Nasdaq National Market. The Company has been advised by the Underwriters
that the Underwriters presently intend to make a market in the Notes, although
the Underwriters are under no obligation to make such market and any such market
making may be discontinued at any time at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the prices or the
liquidity of the trading market for the Notes or that an active public market
for the Notes will develop. If an active public market does not develop, the
market prices and liquidity of the Notes may be adversely affected.
NON-CONSUMMATION OF DEBT TENDER OFFERS. Although the Company expects the
Debt Tender Offers to be consummated, the Offerings are not conditioned upon
consummation of the Debt Tender Offers (or the obtaining of the requisite
consents required pursuant to the consent solicitations occurring in connection
therewith). In the event the Debt Tender Offers are not consummated, the
principal amounts outstanding under the Existing Notes (as defined herein) will
remain outstanding, the amount of the New Credit Facility will be reduced by a
corresponding amount (plus the premiums and costs in connection with the Debt
Tender Offers), and the Company and Parent will remain subject to the
restrictive covenants contained in the indentures relating to the Existing
Notes, including without limitation, the reduction under the debt incurrence
covenant of the Cash Flow Leverage Ratio (as defined in the indentures relating
to the Existing Notes) from 6.0:1 to 5.5:1 effective November 15, 1996.
Historically, the Company has financed its acquisitions primarily through the
incurrence of debt based upon a Cash Flow Leverage Ratio equal to 6.0:1.
Although there can be no assurances, the Company believes that the continued
application of the restrictive covenants under the Existing Notes will not
materially impair its ability to consummate future acquisitions. See "The
Transactions -- The Debt Tender Offers."
13
<PAGE>
THE TRANSACTIONS
THE ACQUISITIONS
THE POA ACQUISITION. On August 27, 1996, the Company entered into the
Agreement and Plan of Merger pursuant to which it agreed to acquire the
outstanding capital stock of OAH for approximately $240 million in cash. The POA
Acquisition is to be effectuated pursuant to a merger of a subsidiary of the
Company with and into OAH with OAH continuing as the surviving corporation
following the merger. As a result of the POA Acquisition, the Company will
acquire a total of approximately 6,337 advertising display faces consisting of
bulletins and posters in five markets located in the southeast United States,
including Orlando, Ocala, Palm Beach, Myrtle Beach and Chattanooga, as well as
the East Coast and Gulf Coast areas of Florida.
The Company believes that the POA Acquisition will substantially strengthen
its operations in the southeast United States, particularly in Florida, where
the Company believes it will have the largest number of outdoor advertising
display faces and have the largest market share in each of its markets, except
Palm Beach. The Company believes that the southeast United States is a
particularly attractive region due to its (i) high concentration of destination
cities and resorts; (ii) above average population growth; (iii) extensive
highway/roadway systems; and (iv) temperate climate that promotes outdoor
lifestyles.
The consummation of the POA Acquisition is subject to certain conditions,
including without limitation, the expiration or early termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act").
THE MEMPHIS/TUNICA ACQUISITION. On September 12, 1996, the Company entered
into the Option and Asset Purchase Agreement with Tanner-Peck, L.L.C., TOA
Enterprises, L.P., William B. Tanner, WBT Outdoor, Inc. and The Weatherley
Tanner Trust (collectively, the "Memphis/Tunica Sellers") pursuant to which a
newly-formed subsidiary of the Company acquired the Memphis/Tunica Option which
gives it the option to purchase certain assets of the Memphis/Tunica Sellers
during the period from December 1, 1996 to December 31, 1996. The purchase price
of the Memphis/Tunica Option was $5 million in cash (which is to be credited
against the purchase price of the assets) and is nonrefundable irrespective of
whether the Company shall exercise the Memphis/Tunica Option, subject to certain
limited exceptions. The Company intends to exercise the Memphis/Tunica Option.
The purchase price in connection with the purchase of the assets upon exercise
of the Memphis/Tunica Option is approximately $71 million plus 100,000 shares of
Common Stock of Parent.
As a result of the Memphis/Tunica Acquisition, the Company will acquire a
total of approximately 2,018 advertising display faces consisting of bulletins
and posters in and around Memphis, Tennessee and Tunica County, Mississippi. A
significant portion of these display faces were purchased by the Memphis/ Tunica
Sellers from Naegele in November, 1995. The Company believes that the
Memphis/Tunica Acquisition will complement the Chattanooga operations which are
being acquired by the Company in the POA Acquisition. This will give the Company
a leading presence in two of the largest markets in Tennessee and strengthen its
presence in the southeast United States.
In connection with the Memphis/Tunica Acquisition, the Company has entered
into a Joint Management Agreement with Tanner-Peck, L.L.C. pursuant to which the
Company shall provide management services to Tanner-Peck, L.L.C. during the
period beginning September 13, 1996 and ending concurrently with the closing of
the Memphis/Tunica Acquisition or the expiration of the Memphis/Tunica Option.
In exchange for such management services, the Company shall be paid a monthly
fee equal to $82,000.
The consummation of the Memphis/Tunica Acquisition will be subject to
certain conditions, including without limitation, the expiration or early
termination of the waiting period under the HSR Act and delivery of certain
consents.
THE ADDITIONAL ACQUISITIONS. On September 12, 1996, the Company entered
into the Asset Purchase Agreement with Iowa Outdoor Displays pursuant to which
the Company agreed to purchase certain assets
14
<PAGE>
of Iowa Outdoor Displays for approximately $1.8 million in cash. The Iowa
Acquisition was consummated on September 16, 1996. On September 11, 1996, the
Company entered into the Asset Purchase Agreement with The Chase Company
pursuant to which the Company agreed to purchase certain assets of The Chase
Company for approximately $5.8 million in cash. The Dallas Acquisition was
consummated on September 19, 1996.
As a result of the Additional Acquisitions, the Company will acquire
approximately 160 advertising display faces consisting primarily of posters in
and around Des Moines and approximately 245 advertising display faces consisting
primarily of bulletins in and around Dallas. The Company believes that the
Additional Acquisitions will further enhance its current presence in each of the
Des Moines and Dallas markets and provide increased revenue opportunities in the
midwest United States.
Following completion of the Acquisitions, the Company intends to merge each
of its subsidiaries with and into the Company.
THE NEW CREDIT FACILITY
The Company will finance the purchase price of certain of the Acquisitions
and the related refinancing of certain existing bank indebtedness of the Company
and will pay the fees and expenses associated with the Acquisitions in part
through a total commitment of $300 million under a new credit facility (the "New
Credit Facility").
THE DEBT TENDER OFFERS
THE COMPANY DEBT TENDER OFFER. In connection with the Acquisitions, the
Company intends to commence a tender offer and consent solicitation (the
"Company Debt Tender Offer") to purchase all of its outstanding 11% Senior Notes
due 2003 (the "Existing Company Notes") and obtain the consent of the holders of
the Existing Company Notes to modify or eliminate certain provisions of the
indenture governing the Existing Company Notes to permit, among other things,
the consummation of the Offerings, the Acquisitions and the execution of the New
Credit Facility. The Company Debt Tender Offer will expire on October 18, 1996,
unless extended, at which time the Company expects to purchase all the Existing
Company Notes tendered with consents. Upon receipt of consents from holders
representing not less than a majority of the Existing Company Notes, the Company
will execute a supplemental indenture reflecting the amendments. See "Use of
Proceeds." Based upon discussions with the holders of the Existing Company
Notes, the Company believes that holders representing more than 50% of the
aggregate outstanding principal amount of such notes will tender their notes and
consent to the proposed amendments.
THE PARENT DEBT TENDER OFFER. In connection with the Acquisitions, Parent
intends to commence a tender offer and consent solicitation (the "Parent Debt
Tender Offer," and together with the Company Debt Tender Offer, the "Debt Tender
Offers") to purchase all of its outstanding 14% Senior Secured Discount Notes
due 2004 (the "Existing Parent Notes," and together with the Existing Company
Notes, the "Existing Notes") and obtain the consent of the holders of the
Existing Parent Notes to modify or eliminate certain provisions of the indenture
governing the Existing Parent Notes to permit, among other things, the
consummation of the Offerings, the Acquisitions and the execution of the New
Credit Facility. The Parent Debt Tender Offer will expire on October 18, 1996,
unless extended, at which time Parent expects to purchase all the Existing
Parent Notes tendered with consents. Upon receipt of consents from holders
representing not less than a majority of the Existing Parent Notes, Parent will
execute a supplemental indenture reflecting the amendments. See "Use of
Proceeds." Based upon discussions with the holders of the Existing Parent Notes,
the Company believes that the holders representing more than 50% of the
aggregate outstanding principal amount of such notes will tender their notes and
consent to the proposed amendments.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering and to Parent from the
Common Stock Offering, are estimated to be approximately $193.3 million and
$151.7 million (or approximately $178.0 million if the Underwriters'
over-allotment option is exercised in full), respectively, after deducting
estimated underwriting discounts and commissions and offering expenses.
The Company and Parent intend to use the net proceeds of the Offering and
the Common Stock Offering, together with borrowings under the New Credit
Facility, to refinance indebtedness outstanding under the Existing Credit
Facilities, to repurchase in full the Existing Notes, and to pay the purchase
price of certain of the Acquisitions. Specifically, the Company and Parent
intend to (i) repurchase all of the outstanding Existing Company Notes and pay
all fees and expenses incurred in connection with such repurchase; (ii)
repurchase all of the outstanding Existing Parent Notes and pay all fees and
expenses incurred in connection with such repurchase; (iii) repay approximately
$168 million (a portion of which will have been incurred to finance the POA
Acquisition) outstanding at the time of the consummation of the Offerings under
the New Credit Facility which initially bears interest at a rate of LIBOR plus
2.50% and terminates in full on September 30, 2004; and (iv) pay the purchase
price of the Memphis/Tunica Acquisition (excluding the option price) of
approximately $66 million. The indebtedness under the New Credit Facility was
incurred, in part, to refinance the Existing Credit Facilities and to finance
the POA Acquisition.
The estimated sources and uses of funds in connection with the Transactions
and the IPO, which took place subsequent to June 30, 1996, are set forth below:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Sources of Funds:
Gross proceeds of the Common Stock Offering........................... $ 160,000
Gross proceeds of the Offering........................................ 200,000
New Credit Facility................................................... 123,303
Net proceeds to Parent of the IPO (July 23, 1996)..................... 62,436
--------
Total sources....................................................... $ 545,739
--------
--------
Uses of Funds:
Repay Existing Credit Facilities(1)................................... $ 87,210
Repurchase 11% Senior Notes due 2003(2)............................... 64,197
Repurchase 14% Senior Secured Discount Notes due 2004 of
Parent(2)(3)........................................................ 31,266
Purchase price of the Acquisitions.................................... 328,400
Fees and expenses of the Offerings.................................... 26,716
Capitalized financing fees............................................ 6,750
Other costs related to the IPO........................................ 1,200
--------
Total uses.......................................................... $ 545,739
--------
--------
</TABLE>
- ------------------------
(1) Balance as of June 30, 1996, including $1,199 of other obligations of
Parent.
(2) Excludes fees and expenses related to prepayment.
(3) Includes repurchase of $7,816 with IPO proceeds and $23,450 with proceeds of
the Offerings.
The Existing Company Notes mature on July 1, 2004 and were issued in March,
1994 in an aggregate principal amount of $65 million. The Existing Company Notes
accrue interest at the rate of 11% per annum and mature on November 15, 2003.
The Existing Parent Notes were issued in June 1994 in an aggregate principal
amount of $50 million. The Existing Parent Notes accrete at the rate of 14% per
annum. No cash interest will accrue until July 1, 1999. See "Description of
Indebtedness and Other Commitments."
16
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at June 30, 1996 and as adjusted to give effect to the Acquisitions, the Debt
Tender Offers, the New Credit Facility, the IPO and the Offerings. The table
should be read in conjunction with the Consolidated Financial Statements and
related notes included elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------
AS
ADJUSTED
ACTUAL PRO FORMA (1) (2)
---------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Existing Credit Facilities:
Revolving Credit Loan................................................ $ -- $ -- $ --
Acquisition Credit Loan.............................................. 9,700 284,681 --
Acquisition Term Loan................................................ 75,000 75,000 --
New Credit Facility:
Revolving Credit Loan................................................ -- -- --
Acquisition Credit Loan.............................................. -- -- 123,303
11% Senior Notes due 2003.............................................. 64,197 64,197 --
New Notes.............................................................. -- -- 200,000
Other obligations...................................................... 1,310 1,310 --
---------- ------------- -----------
Total long-term debt and other obligations......................... 150,207 425,188 323,303
Common stockholders' equity.............................................. 20,773 77,265 185,900
---------- ------------- -----------
Total capitalization............................................... $ 170,980 $ 502,453 $ 509,203
---------- ------------- -----------
---------- ------------- -----------
</TABLE>
- ------------------------
(1) Represents actual amounts adjusted to give effect to the Transactions and
the application of the net proceeds from the IPO of $62.4 million.
(2) Represents pro forma amounts adjusted to give effect to the Offerings.
17
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following sets forth unaudited consolidated pro forma financial
information for the Company. The unaudited pro forma consolidated statement of
operations for the year ended December 31, 1995, the six month period ended June
30, 1996 and for the latest twelve month period ended June 30, 1996 give effect
to (i) the Transactions, (ii) the Offerings and the application of the estimated
net proceeds therefrom, (iii) the acquisitions of Naegele, Ad-Sign, Inc., Image
Media, Inc. and consummation of the IPO and the application of the estimated net
proceeds therefrom, and (iv) the net reduction in operating expenses of the
businesses acquired as if each had occurred at the beginning of the respective
periods. The unaudited pro forma balance sheet as of June 30, 1996 has been
prepared as if the Transactions, the Offerings and the IPO had occurred on June
30, 1996.
The unaudited consolidated pro forma financial information does not purport
to present the actual financial position or results of operations of the Company
had the transactions and events assumed therein in fact occurred on the dates
specified, nor are they necessarily indicative of the results of operations that
may be achieved in the future. The unaudited pro forma consolidated financial
information is based on certain assumptions and adjustments described in the
notes thereto and should be read in conjunction therewith. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition," the
Consolidated Financial Statements and the Notes thereto of the Company, the
Consolidated Financial Statements and the Notes thereto of NOA Holding Company,
the Statement of Revenues and Direct Expenses and the Notes thereto of Ad-Sign,
the Financial Statements and Notes thereto of POA Acquisition Corporation and
the Combined Financial Statements and Notes thereto of Tanner-Peck, L.L.C.
included elsewhere in this Prospectus.
18
<PAGE>
UNIVERSAL OUTDOOR INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
UNIVERSAL AD-SIGN, INC NOA JULY
OUTDOOR, AND IMAGE HOLDING ACQUISITION OFFERING
INC. MEDIA COMPANY ADJUSTMENTS ADJUSTMENTS
----------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues....................................... $ 34,148 $ 3,367 $ 24,848 $ -- $ --
----------- ------------- ----------- ------------- -------------
Operating expenses:
Direct cost of revenues.......................... 12,864 1,286 10,285 -- --
General and administrative expenses.............. 4,244 402 5,378 (2,500)(1) --
Depreciation and amortization.................... 7,402 640 4,341 3,260(2) --
----------- ------------- ----------- ------------- -------------
24,510 2,328 20,004 760 --
----------- ------------- ----------- ------------- -------------
Operating income (loss)............................ 9,638 1,039 4,844 (760) --
Interest expense................................... 8,627 -- 2,503 3,569(3) (5,442)(4)
Other expense (income)............................. 42 -- -- -- --
----------- ------------- ----------- ------------- -------------
Net income (loss).................................. $ 969 $ 1,039 $ 2,341 $ (4,329) $ 5,442
----------- ------------- ----------- ------------- -------------
----------- ------------- ----------- ------------- -------------
Operating cash flow................................ $ 17,040 $ 1,679 $ 9,185 $ 2,500 $ --
----------- ------------- ----------- ------------- -------------
----------- ------------- ----------- ------------- -------------
<CAPTION>
MEMPHIS/ PRO FORMA
PRO FORMA POA TUNICA ADDITIONAL ACQUISITION
UNIVERSAL ACQUISITION ACQUISITION ACQUISITIONS ADJUSTMENTS
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C>
Net revenues....................................... $ 62,363 $ 43,946 $ 13,104 $ 1,554 $ --
----------- ----------- ----------- ------------- -------------
Operating expenses:
Direct cost of revenues.......................... 24,435 13,770 6,352 752 --
General and administrative expenses.............. 7,524 11,087 2,313 405 (4,140)(1)
Depreciation and amortization.................... 15,643 7,650 1,800 51 11,127(2)
----------- ----------- ----------- ------------- -------------
47,602 32,507 10,465 1,208 6,987
----------- ----------- ----------- ------------- -------------
Operating income (loss)............................ 14,761 11,439 2,639 346 (6,987)
Interest expense................................... 9,257 7,370 1,575 69 18,900(5 )
Other expense (income)............................. 42 (84) -- (112) --
----------- ----------- ----------- ------------- -------------
Net income (loss).................................. $ 5,462 $ 4,153 $ 1,064 $ 389 $ (25,887)
----------- ----------- ----------- ------------- -------------
----------- ----------- ----------- ------------- -------------
Operating cash flow................................ $ 30,404 $ 19,089 $ 4,439 $ 397 $ 4,140
----------- ----------- ----------- ------------- -------------
----------- ----------- ----------- ------------- -------------
<CAPTION>
PRO FORMA
PRO FORMA OFFERINGS AS
AS ADJUSTED ADJUSTMENTS ADJUSTED
------------ ------------- -----------
Net revenues....................................... $ 120,967 $ -- $ 120,967
------------ -----------
Operating expenses:
Direct cost of revenues.......................... 45,309 -- 45,309
General and administrative expenses.............. 17,189 -- 17,189
Depreciation and amortization.................... 36,271 -- 36,271
------------ ------------- -----------
98,769 -- 98,769
------------ ------------- -----------
Operating income (loss)............................ 22,198 -- 22,198
Interest expense................................... 37,171 (5,515)(6) 31,656
Other expense (income)............................. (154) -- (154)
------------ ------------- -----------
Net income (loss).................................. $ (14,819) $ 5,515 $ (9,304)
------------ ------------- -----------
------------ ------------- -----------
Operating cash flow................................ $ 58,469 $ -- $ 58,469
------------ ------------- -----------
------------ ------------- -----------
</TABLE>
See accompanying notes to pro forma combined statements of operations.
19
<PAGE>
UNIVERSAL OUTDOOR INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
UNIVERSAL AD-SIGN, INC NOA JULY
OUTDOOR, AND IMAGE HOLDING ACQUISITION OFFERING
INC. MEDIA COMPANY ADJUSTMENTS ADJUSTMENTS
------------------- --------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.............................. $ 26,239 $ 842 $ 5,832 $ -- $ --
-------- ----- ----------- ------------- -------------
Operating expenses:
Direct cost of revenues................. 9,520 322 2,616 -- --
General and administrative expenses..... 3,076 100 1,459 (676)(1) --
Depreciation and amortization........... 4,674 160 1,053 815(2) --
-------- ----- ----------- ------------- -------------
17,270 582 5,128 139 --
-------- ----- ----------- ------------- -------------
Operating income.......................... 8,969 260 704 (139) --
Interest expense.......................... 6,086 -- 468 863(3) (2,721)(4)
Other expense............................. 1,674 -- -- -- --
-------- ----- ----------- ------------- -------------
Net income (loss)......................... $ 1,209 $ 260 $ 236 $ (1,002) $ 2,721
-------- ----- ----------- ------------- -------------
-------- ----- ----------- ------------- -------------
Operating cash flow....................... $ 13,643 $ 420 $ 1,757 $ 676 $ --
-------- ----- ----------- ------------- -------------
-------- ----- ----------- ------------- -------------
<CAPTION>
MEMPHIS/ PRO FORMA
PRO FORMA POA TUNICA ADDITIONAL ACQUISITION PRO FORMA
UNIVERSAL ACQUISITION ACQUISITION ACQUISITIONS ADJUSTMENTS AS ADJUSTED
----------- ----------- ------------- --------------- ------------- ------------
<S> <C> <C>
Net revenues.............................. $ 32,913 $ 23,565 $ 7,717 $ 929 $ -- $ 65,124
----------- ----------- ------------- ----- ------------- ------------
Operating expenses:
Direct cost of revenues................. 12,458 7,241 3,956 343 -- 23,998
General and administrative expenses..... 3,959 6,305 599 313 (2,020)(1) 9,156
Depreciation and amortization........... 6,702 4,022 762 58 5,506(2) 17,050
----------- ----------- ------------- ----- ------------- ------------
23,119 17,568 5,317 714 3,486 50,204
----------- ----------- ------------- ----- ------------- ------------
Operating income.......................... 9,794 5,997 2,400 215 (3,486) 14,920
Interest expense.......................... 4,696 3,702 47 -- 10,208(5) 18,653
Other expense............................. 1,674 2 5 -- -- 1,681
----------- ----------- ------------- ----- ------------- ------------
Net income (loss)......................... $ 3,424 $ 2,293 $ 2,348 $ 215 $ (13,694) $ (5,414)
----------- ----------- ------------- ----- ------------- ------------
----------- ----------- ------------- ----- ------------- ------------
Operating cash flow....................... $ 16,496 $ 10,019 $ 3,162 $ 273 $ 2,020 $ 31,970
----------- ----------- ------------- ----- ------------- ------------
----------- ----------- ------------- ----- ------------- ------------
<CAPTION>
PRO FORMA
OFFERINGS AS
ADJUSTMENTS ADJUSTED
------------- -----------
Net revenues.............................. $ -- $ 65,124
------------- -----------
Operating expenses:
Direct cost of revenues................. -- 23,998
General and administrative expenses..... -- 9,156
Depreciation and amortization........... -- 17,050
------------- -----------
-- 50,204
------------- -----------
Operating income.......................... -- 14,920
Interest expense.......................... (2,824)(6) 15,829
Other expense............................. -- 1,681
------------- -----------
Net income (loss)......................... $ 2,824 $ (2,590)
------------- -----------
------------- -----------
Operating cash flow....................... $ -- $ 31,970
------------- -----------
------------- -----------
</TABLE>
See accompanying notes to pro forma combined statements of operations.
20
<PAGE>
UNIVERSAL OUTDOOR INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
UNIVERSAL AD-SIGN, INC NOA JULY
OUTDOOR AND IMAGE HOLDING ACQUISITION OFFERING
INC. MEDIA COMPANY ADJUSTMENTS ADJUSTMENTS
----------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues....................................... $ 43,976 $ 2,525 $ 19,953 $ -- $ --
----------- ------------- ----------- ------------- -------------
Operating expenses:
Direct cost of revenues.......................... 16,118 965 8,108 -- --
General and administrative expenses.............. 5,170 302 4,116 (1,875)(1) --
Depreciation and amortization.................... 8,538 480 3,695 2,445(2) --
----------- ------------- ----------- ------------- -------------
29,826 1,747 15,919 570 --
----------- ------------- ----------- ------------- -------------
Operating income................................... 14,150 778 4,034 (570) --
Interest expense................................... 10,433 -- 1,345 2,677(3) (5,442)(4)
Other expense...................................... 1,695 -- -- -- --
----------- ------------- ----------- ------------- -------------
Net income (loss).................................. $ 2,022 $ 778 $ 2,689 $ (3,247) $ 5,442
----------- ------------- ----------- ------------- -------------
----------- ------------- ----------- ------------- -------------
Operating cash flow................................ $ 22,688 $ 1,258 $ 7,729 $ 1,875 $
----------- ------------- ----------- ------------- -------------
----------- ------------- ----------- ------------- -------------
<CAPTION>
MEMPHIS/ PRO FORMA
PRO FORMA POA TUNICA ADDITIONAL ACQUISITION
UNIVERSAL ACQUISITION ACQUISITION ACQUISITIONS ADJUSTMENTS
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C>
Net revenues....................................... $ 66,454 $ 47,166 $ 14,207 $ 1,554 $ --
----------- ----------- ----------- ------------- -------------
Operating expenses:
Direct cost of revenues.......................... 25,191 14,477 6,518 752 --
General and administrative expenses.............. 7,713 12,279 2,219 405 (4,140)(1)
Depreciation and amortization.................... 15,158 7,967 1,732 51 10,878(2)
----------- ----------- ----------- ------------- -------------
48,062 34,723 10,469 1,208 6,738
----------- ----------- ----------- ------------- -------------
Operating income................................... 18,392 12,443 3,738 346 (6,738)
Interest expense................................... 9,013 7,519 350 69 19,976(5 )
Other expense...................................... 1,695 (143) -- -- --
----------- ----------- ----------- ------------- -------------
Net income (loss).................................. $ 7,684 $ 5,067 $ 3,388 $ 277 $ (26,714)
----------- ----------- ----------- ------------- -------------
----------- ----------- ----------- ------------- -------------
Operating cash flow................................ $ 33,550 $ 20,410 $ 5,470 $ 397 $ 4,140
----------- ----------- ----------- ------------- -------------
----------- ----------- ----------- ------------- -------------
<CAPTION>
PRO FORMA
PRO FORMA OFFERINGS AS
AS ADJUSTED ADJUSTMENTS ADJUSTED
------------ ------------- -----------
Net revenues....................................... $ 129,381 $ -- $ 129,381
------------ ------------- -----------
Operating expenses:
Direct cost of revenues.......................... 46,938 -- 46,938
General and administrative expenses.............. 18,476 -- 18,476
Depreciation and amortization.................... 35,786 -- 35,786
------------ ------------- -----------
101,200 -- 101,200
------------ ------------- -----------
Operating income................................... 28,181 -- 28,181
Interest expense................................... 36,927 (5,271)(6) 31,656
Other expense...................................... 1,552 -- 1,552
------------ ------------- -----------
Net income (loss).................................. $ (10,298) $ 5,271 $ (5,027)
------------ ------------- -----------
------------ ------------- -----------
Operating cash flow................................ $ 63,967 $ -- $ 63,967
------------ ------------- -----------
------------ ------------- -----------
</TABLE>
See accompanying notes to pro forma combined statements of operations.
21
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995, FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND FOR THE TWELVE MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
The following explanations describe the assumptions used in determining the
pro forma adjustments necessary to present the pro forma results of operations
of the Company giving effect to the Transactions, the Offerings and the
application of the estimated net proceeds therefrom, the acquisitions of
Naegele, Ad-Sign, Image Media, Inc. and consummation of the IPO and the
application of the estimated net proceeds therefrom and the net reduction in
operating expenses of the businesses acquired as if each had occurred at the
beginning of the respective periods.
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996 JUNE 30, 1996
------------------- -------------- ---------------
<S> <C> <C> <C>
<CAPTION>
1. Entry records reduction in general and administrative
expenses relating to elimination of certain duplicate
corporate expenses, principally relating to employee costs
and costs relating to other corporate activities. Amounts
have been determined based upon specific employees
identified for termination plus actual benefits costs
incurred, and expenses associated with leased facilities
which will not be assumed or will be canceled upon
consummation of the acquisition.
<S> <C> <C> <C>
NOA Holding Company, Ad-Sign and Image Media.............. $ 2,500 $ 676 $ 1,875
-------- -------------- ---------------
-------- -------------- ---------------
POA Acquisition........................................... $ 2,800 $ 1,400 $ 2,800
Memphis/Tunica Acquisition................................ 1,000 500 1,000
Additional Acquisitions................................... 340 120 340
-------- -------------- ---------------
$ 4,140 $ 2,020 $ 4,140
-------- -------------- ---------------
-------- -------------- ---------------
2. Entry records the increase in depreciation and amortization
expense arising from purchase accounting adjustments to
advertising structures and goodwill amortized over a period
of 15 years:
NOA Holding Company, Ad-Sign and Image Media.............. $ 3,260 $ 815 $ 2,445
-------- -------------- ---------------
-------- -------------- ---------------
POA Acquisition........................................... $ 7,799 $ 3,703 $ 7,482
Memphis/Tunica Acquisition................................ 2,933 1,605 3,001
Additional Acquisitions................................... 395 198 395
-------- -------------- ---------------
$ 11,127 $ 5,506 $ 10,878
-------- -------------- ---------------
-------- -------------- ---------------
3. Entry records additional interest expense assumed to be
incurred in connection with the acquisition of NOA Holding
Company, Ad-Sign and Image Media............................ $ 3,569 $ 863 $ 2,677
4. Entry to record the reduction in interest expense from the
application of the net proceeds of the IPO to the repayment
of long-term debt........................................... $ 5,442 $ 2,721 $ 5,442
5. Entry to record additional interest expense at an assumed
rate of 8.5% per annum in connection with the Transactions:
POA Acquisition........................................... $ 21,250 $ 10,625 $ 21,250
Memphis/Tunica Acquisition................................ 6,018 3,009 6,018
Additional Acquisitions................................... 646 323 646
-------- -------------- ---------------
27,914 13,957 27,914
Actual interest expense for POA Acquisition,
Memphis/Tunica Acquisition and Additional
Acquisitions............................................ (9,014) (3,749) (7,938)
-------- -------------- ---------------
$ 18,900 $ 10,208 $ 19,976
-------- -------------- ---------------
-------- -------------- ---------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996 JUNE 30, 1996
------------------- -------------- ---------------
<S> <C> <C> <C>
6. Entry to record the changes in interest expense to reflect
the Offerings and the application of the net proceeds
therefrom:
Interest expense:
New Notes at an assumed rate of 10.25%.................. $ 20,500 $ 10,250 $ 20,500
New Credit Facility at an assumed rate of 8.5%.......... 10,481 5,241 10,481
Less pro forma, as adjusted interest expense............ (37,171) (18,653) (36,927)
Amortization of deferred financing costs.................. 675 338 675
-------- -------------- ---------------
$ (5,515) $ (2,824) $ (5,271)
-------- -------------- ---------------
-------- -------------- ---------------
</TABLE>
23
<PAGE>
UNIVERSAL OUTDOOR, INC.
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNIVERSAL MEMPHIS/
OUTDOOR JULY OFFERING POA TUNICA ADDITIONAL
INC. ADJUSTMENTS ACQUISITION ACQUISITION ACQUISITIONS
----------- --------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Current assets.............................. $ 14,514 $ -- $ 14,767 $ 4,294 $ 100
Property and equipment...................... 152,279 -- 23,433 20,727 50
Deferred taxes.............................. -- -- 11,835 -- --
Other assets................................ 10,579 -- 49,338 -- --
---------- --------------- ----------- ----------- -------
Total assets................................ $ 177,372 $ -- $ 99,373 $ 25,021 $ 150
---------- --------------- ----------- ----------- -------
---------- --------------- ----------- ----------- -------
Current liabilities, excluding current
maturities................................. $ 6,392 $ -- $ 3,419 $ 311 $ 30
Current maturities of long-term debt........ -- -- 9,110 52 --
Long-term debt.............................. 150,207 (53,419 )(1) 73,948 1,108 --
---------- --------------- ----------- ----------- -------
Total liabilities........................... 156,599 (53,419 ) 86,477 1,471 30
---------- --------------- ----------- ----------- -------
Stockholders' equity (deficit).............. 20,773 53,419 12,896 23,550 120
---------- --------------- ----------- ----------- -------
Total liabilities and stockholders'
equity..................................... $ 177,372 $ -- $ 99,373 $ 25,021 $ 150
---------- --------------- ----------- ----------- -------
---------- --------------- ----------- ----------- -------
<CAPTION>
PRO FORMA PRO FORMA
ACQUISITION PRO FORMA OFFERINGS AS
ADJUSTMENTS AS ADJUSTED ADJUSTMENTS ADJUSTED
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Current assets.............................. $ (2,123 (2) $ 31,552 $ -- $ 31,552
Property and equipment...................... 262,150 (2) 458,639 -- 458,639
Deferred taxes.............................. -- 11,835 -- 11,835
Other assets................................ (49,338 (2) 10,579 6,750 (4) 17,329
-------------- ------------- -------------- -------------
Total assets................................ $ 210,689 $ 512,605 $ 6,750 $ 519,355
-------------- ------------- -------------- -------------
-------------- ------------- -------------- -------------
Current liabilities, excluding current
maturities................................. $ -- $ 10,152 $ -- $ 10,152
Current maturities of long-term debt........ (9,162 (2) -- --
Long-term debt.............................. 253,344 (2) 425,188 (101,885 5) 323,303
--
-------------- ------------- -------------- -------------
Total liabilities........................... 244,182 435,340 (101,885 ) 333,455
-------------- ------------- -------------- -------------
Stockholders' equity (deficit).............. (33,493 )(3) 77,265 108,635 (6) 185,900
--
-------------- ------------- -------------- -------------
Total liabilities and stockholders'
equity..................................... $ 210,689 $ 512,605 $ 6,750 $ 519,355
-------------- ------------- -------------- -------------
-------------- ------------- -------------- -------------
</TABLE>
24
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AT JUNE 30, 1996
(DOLLARS IN THOUSANDS)
The following explanations describe the assumptions used in determining the
pro forma adjustments necessary to present the pro forma financial position of
the Company after giving effect to the Transactions, the Offerings and the
consummation of the IPO.
1. Entry records the proceeds of the IPO and the application of the net
proceeds therefrom:
<TABLE>
<S> <C>
Net proceeds of IPO........................................................ $ 62,436
Proceeds used to retire Holding Company long-term debt..................... (9,017)
---------
$ 53,419
---------
---------
</TABLE>
2. Entry records the effects of the Acquisitions.
<TABLE>
<CAPTION>
POA MEMPHIS/TUNICA ADDITIONAL
ACQUISITION ACQUISITION ACQUISITIONS TOTAL
----------- ---------------- ------------ ----------
<S> <C> <C> <C> <C>
Increase in long-term debt............................. $ 166,942 $ 69,640 $ 7,600 $ 244,182
Changes in assets and liabilities resulting from
allocation of purchase price:
Current assets....................................... (2,123) (2,123)
Property and equipment............................... 205,507 49,163 7,480 262,150
Other assets......................................... (49,338) (49,338)
Stockholders' equity................................. (12,896) (23,677) (120) (36,693)
----------- ------- ------------ ----------
$ 308,092 $ 95,126 $ 14,960 $ 418,178
----------- ------- ------------ ----------
----------- ------- ------------ ----------
</TABLE>
3. Entry to record 100,000 shares of common stock to be issued in connection
with the Memphis/Tunica acquisition at an assumed price of $32:
<TABLE>
<S> <C>
Stockholders' equity...................................................... $ 3,200
---------
---------
</TABLE>
4.
<TABLE>
<S> <C>
Entry to record capitalized financing fees................................ $ 6,750
---------
---------
</TABLE>
5. Entry to record net reduction in long-term debt.
<TABLE>
<S> <C>
Proceeds of the Common Stock Offering..................................... $ 160,000
Costs, expenses and other charges of the Offerings........................ (26,716)
Proceeds used to repay long-term debt of Parent........................... (24,649)
Capitalized financing fees................................................ (6,750)
---------
Net reduction in long-term debt........................................... $ 101,885
---------
---------
</TABLE>
6. Entry to record net increase in stockholders' equity from proceeds of the
Offerings.
<TABLE>
<S> <C>
Proceeds of the Common Stock Offering..................................... $ 160,000
Costs, expenses and other charges of the Offerings........................ (26,716)
Proceeds used to repay long-term debt of Parent........................... (24,649)
---------
Net increase in stockholders' equity...................................... $ 108,635
---------
---------
</TABLE>
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected financial data presented below as of and for the year ended
December 31, 1995 and the six months ended June 30, 1996 and 1995 are derived
from the Consolidated Financial Statements of the Company. The selected
financial data as of and for the years ended December 31, 1992, 1993, 1994 and
1995 are derived from the financial statements of the Company. Certain of such
financial statements were unaudited. The financial statements of the Company for
the three years in the period ended December 31, 1995 were audited by Price
Waterhouse LLP, independent accountants, as indicated in their report included
elsewhere in this Prospectus. The selected financial data as of and for the six
months ended June 30, 1995 and 1996 are derived from the combined financial
statements included herein and include all normal and recurring adjustments
necessary for a fair presentation of such data. The data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus. Due to the
significant development and acquisition of additional structures, the data set
forth below is not necessarily comparable on a year-to-year basis and data set
forth for certain periods is not indicative of results for the full year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenue..................... $21,435 $27,896 $28,710 $33,180 $38,101
Net revenues (1).................. 18,835 24,681 25,847 29,766 34,148
Direct advertising expenses....... 7,638 10,383 10,901 11,806 12,864
General and administrative
expenses......................... 3,515 3,530 3,357 3,873 4,244
Depreciation and amortization..... 5,530 7,817 8,000 7,310 7,402
Operating income.................. 2,152 2,951 3,589 6,777 9,638
Interest expense.................. 6,599 9,591 8,965 8,314 8,627
Other (expense) income, net....... (53) 291 (351) (134) (42)
Income (loss) before extraordinary
item (2)......................... (4,500) (6,349) (5,727) (1,671) 969
Net income (loss)................. (4,500) (6,349) (8,987) (1,671) 969
Operating Cash Flow (3)........... $ 7,682 $10,768 $11,589 $14,087 $17,040
Operating Cash Flow Margin (4).... 40.8% 43.6% 44.8% 47.3% 50.0%
Capital expenditures.............. 2,047 2,352 2,004 4,668 5,620
Deficiency in coverage of
earnings......................... 4,500 6,349 8,987 1,671 --
FINANCIAL RATIOS:
Ratio of earnings to fixed
charges(5)....................... -- -- -- -- 1.1x
Percentage of indebtedness to
total capitalization(6).......... 102.2% 104.8% 116.1% 118.1% 115.8%
Ratio of total indebtedness to
Operating Cash Flow(7)........... 16.1x 5.5x 5.9x 5.2x 4.6x
Ratio of Operating Cash Flow to
total interest(8)................ 1.2x 1.1x 1.3x 1.7x 2.0x
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
---------------
1995 1996
------- ------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenue..................... $18,292 $29,366
Net revenues (1).................. 16,411 26,239
Direct advertising expenses....... 6,266 9,520
General and administrative
expenses......................... 2,150 3,076
Depreciation and amortization..... 3,538 4,674
Operating income.................. 4,457 8,969
Interest expense.................. 4,280 6,086
Other (expense) income, net....... (21) (1,674)
Income (loss) before extraordinary
item (2)......................... 156 1,209
Net income (loss)................. 156 1,209
Operating Cash Flow (3)........... $ 7,995 $13,643
Operating Cash Flow Margin (4).... 48.7% 52.0%
Capital expenditures.............. 2,521 2,943
Deficiency in coverage of
earnings......................... -- --
FINANCIAL RATIOS:
Ratio of earnings to fixed
charges(5)....................... 1.0x 1.2x
Percentage of indebtedness to
total capitalization(6).......... 117.3% 87.9%
Ratio of total indebtedness to
Operating Cash Flow(7)........... -- --
Ratio of Operating Cash Flow to
total interest(8)................ 1.9x 2.2x
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
YEAR ENDED DECEMBER 31, ------------------------
----------------------------------------------------- PRO FORMA AS ADJUSTED
1991 1992 1993 1994 1995 (10) (11)
--------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (9)................................ $ 2,365 $ 1,326 $ 1,730 $ 2,119 $ 3,961 $ 21,400 $ 21,400
Total assets....................................... 71,682 65,754 61,816 69,190 69,133 512,605 519,355
Total long-term debt and other obligations......... 65,076 59,363 68,054 73,304 76,079 425,188 323,303
Redeemable preferred stock......................... 13,442 15,055 -- -- -- -- --
Common stockholders' equity (deficit).............. (11,450) (17,799) (9,452) (11,243) (10,394) 77,265 185,900
</TABLE>
26
<PAGE>
- ------------------------------
(1) Net revenues are gross revenues less agency commissions.
(2) Extraordinary loss represents loss on early extinguishment of debt.
(3) "Operating Cash Flow" is operating income before depreciation and
amortization and other non-cash charges. Operating Cash Flow is not
intended to represent net cash flow provided by operating activities as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income (loss) as an indicator of the
Company's operating performance or to net cash provided by operating
activities as a measure of liquidity. The Company believes Operating Cash
Flow is a measure commonly reported and widely used by analysts, investors
and other interested parties in the media industry. Accordingly this
information has been disclosed herein to permit a more complete comparative
analysis of the Company's operating performance relative to other companies
in the media industry.
(4) "Operating Cash Flow Margin" is Operating Cash Flow stated as a percentage
of net revenues.
(5) Amounts represent the ratio of (i) the sum of income before income taxes
and minority interest plus interest expense less minority interest to (ii)
interest expense.
(6) Amounts represent (i) total long-term debt divided by (ii) total long-term
debt plus common stockholders' equity (deficit).
(7) Amounts represent (i) total long-term debt divided by (ii) Operating Cash
Flow.
(8) Amounts represent the ratio of (i) the sum of income before income taxes
and minority interest plus interest expense on funded debt to (ii) interest
expense on funded debt.
(9) Working capital is current assets less current liabilities (excluding
current maturities of long-term debt and other obligations). Other
obligations totalled $2,850 at December 31, 1992.
(10) Represents actual amounts adjusted to give effect to the Transactions and
the application of the net proceeds from the IPO of $62.4 million.
(11) Represents pro forma amounts adjusted to give effect to the Offerings.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the consolidated results of operations of the
Company for the three years ended December 31, 1995 and financial condition at
December 31, 1995 should be read in conjunction with the Consolidated Financial
Statements of the Company and the related notes included elsewhere in this
Prospectus.
Except as otherwise indicated, the following discussion relates to the
Company on an historical basis, without giving effect to the Acquisitions or the
Offerings.
GENERAL
The Company has grown significantly since 1989 through the acquisition of
outdoor advertising businesses and individual display faces in specific markets,
improvements in occupancy and advertising rates, and the development of new
display faces in existing markets. Between January 1, 1989 and August 31, 1996,
the Company spent in excess of $160 million to acquire additional display faces,
increasing the number of its display faces from approximately 600 in 1989 to
approximately 12,500 at August 31, 1996. During this period, the Company's net
revenues increased from $18.8 million in 1989 to $34.1 million in 1995. The
following table lists the Company's acquisitions since January 1, 1989:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER AND TYPE
OF DISPLAY FACES ACQUIRED
------------------------------------------------
30-SHEET 8-SHEET
YEAR OF ACQUISITION MARKETS BULLETINS POSTERS POSTERS TOTAL
- --------------------------- --------------------------------------------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1989....................... Milwaukee, Chicago 270 -- -- 270
1990....................... Chicago 12 -- -- 12
1991....................... Indianapolis, Des Moines, Evansville, Chicago 421 2,480 140 3,041
1994....................... Chicago, Milwaukee 20 -- 4,151 4,171
1995....................... Chicago, Dallas 9 -- 1,127 1,136
1996....................... Chicago, Minneapolis/St. Paul, Jacksonville 1,022 2,550 -- 3,572
----- ----- ----- ---------
Total....................................................................... 1,754 5,030 5,418 12,202
----- ----- ----- ---------
----- ----- ----- ---------
</TABLE>
The Company's acquisitions have been financed through bank borrowings and
the issuance of long-term debt, as well as with internally-generated funds. The
Acquisitions will be financed, in part, from the proceeds of the Offerings and
the New Credit Facility. All acquisitions (including the 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. As a result of these acquisitions and the effects
of consolidation of operations following each acquisition, the operating
performance of certain markets and of the Company as a whole reflected in the
Company's Consolidated Financial Statements and other financial and operating
data included herein are not necessarily comparable on a year-to-year basis.
CERTAIN EFFECTS OF THE ACQUISITIONS
The Company currently owns approximately 12,500 advertising display faces in
eight metropolitan markets. Following consummation of the Acquisitions, the
Company will own approximately 21,114
28
<PAGE>
advertising display faces located in 14 metropolitan markets. The following
table sets forth the number of display faces to be acquired in connection with
the Acquisitions:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER AND TYPE OF DISPLAY FACES
ACQUIRED
--------------------------------------------------
30-SHEET 8-SHEET
MARKET BULLETINS POSTERS POSTERS TOTAL
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
MIDWEST:
Des Moines................................................................. -- 160 -- 160
Dallas..................................................................... 245 -- -- 245
SOUTHEAST:
Orlando.................................................................... 842 1,080 -- 1,922
Memphis/Tunica............................................................. 706 1,179 133 2,018
Chattanooga................................................................ 359 663 -- 1,022
Myrtle Beach............................................................... 729 455 -- 1,184
Palm Beach................................................................. 99 21 -- 120
Ocala...................................................................... 879 199 -- 1,078
East Coast area (FL)....................................................... 567 -- -- 567
Gulf Coast area (FL)....................................................... 444 -- -- 444
----- ----- ----- -----
Total.................................................................... 4,870 3,757 133 8,760
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Taking into effect the consummation of the Acquisitions, approximately 84%
of the Company's gross revenues are contracted for directly from local
advertisers. If the Acquisitions would have occurred on January 1, 1995, the
Company would have had net revenues of $121.0 million and Operating Cash Flow of
$58.5 million in 1995. The Company would have had net operating loss
carryforwards and other tax-deductible items arising from the Transactions
aggregating in excess of approximately $15 million.
HISTORICAL RESULTS OF OPERATIONS
The following table presents certain operating statement items in the
Consolidated Statements of Operations as a percentage of net revenues:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
YEAR ENDED DECEMBER 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Direct advertising expenses................................. 42.2 39.7 37.7 38.2 36.3
General and administrative expenses......................... 13.0 13.0 12.4 13.1 11.7
----- ----- ----- ----- -----
Operating Cash Flow(1)...................................... 44.8 47.3 49.9 48.7 52.0
Depreciation and amortization............................... 30.9 24.5 21.7 21.5 17.8
----- ----- ----- ----- -----
Operating income............................................ 13.9 22.8 28.2 27.2 34.2
Other expense, primarily interest........................... 36.1 28.4 25.4 26.2 29.6
----- ----- ----- ----- -----
Net loss before extraordinary item.......................... (22.2) (5.6) (2.8) 1.0 4.6
----- ----- ----- ----- -----
</TABLE>
- ------------------------
(1) As defined herein.
Revenues are a function of both the occupancy of the Company's display faces
and the rates that the Company charges for their use. The Company focuses its
sales effort on maximizing occupancy levels while maintaining rate integrity in
its markets. Additionally, the Company believes it is important to the overall
sales effort to continually attempt to develop new inventory in growth areas of
its existing markets in order to enhance overall revenues.
Net revenues represent gross revenues less commissions paid to advertising
agencies that contract for the use of advertising displays on behalf of
advertisers. Approximately 77% of the Company's gross revenues are contracted
for directly from local advertisers. Agency commissions on those revenues which
29
<PAGE>
are contracted through agencies are typically 15% of gross revenues on local
sales and 16 2/3% of gross revenues on national sales. The Company considers
agency commissions as a reduction in gross revenues, and measures its operating
performance based upon percentages of net revenues rather than gross revenues.
Direct advertising expenses consist of the following five categories: lease,
production, sales, maintenance and illumination. The lease expense consists
mainly of rental payments to owners of the land underlying the signs. The
production category consists of all of the costs to produce advertising copy and
install it on the display faces. Sales expense consists mainly of the cost of
staffing a sales force to sell within a specific market. The maintenance
category includes minor repair and miscellaneous maintenance of the sign
structures and the illumination category consists mainly of electricity costs to
light the display faces. The majority of these direct expenses are variable
costs (other than lease costs) that will fluctuate with the overall level of
revenues. In 1995, these expenses amounted to the following approximate
percentages of net revenues: lease 14.2%, production 11.3%, sales 6.8%,
maintenance 3.3% and illumination 2.1%.
General and administrative expenses occur at both the market and corporate
levels. At the market level these expenses contain various items of office
overhead pertaining to both the personnel and the facility required to
administer a given market. The corporate general and administrative costs
represent staff and facility expenses for the executive offices and the
centralized accounting function. Both types of general and administrative
expenses are primarily fixed expenses in the operation of the business.
The Company had federal income tax net operating losses ("NOLs") of
approximately $15.5 million as of December 31, 1995, which will expire over a
period of years beginning in 2005. Use of these NOLs is subject to an annual
limit of approximately $2.4 million under Section 382 of the Internal Revenue
Code of 1986, as amended, and may be subject to further restriction under the
rules applicable to corporations filing consolidated federal income tax returns.
Management believes that sufficient taxable income will be generated to use the
$15.5 million of NOLs prior to their expiration between 2005 and 2010. However,
there can be no assurance that sufficient taxable income will be generated in
the future.
COMPARISON OF SIX MONTH PERIODS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Net revenues increased 59.9% to $26.2 million during the first six months of
1996 from $16.4 million in the corresponding 1995 period, reflecting higher
advertising rates and occupancy levels experienced primarily in the
Indianapolis, Des Moines and Evansville markets and the inclusion of the 1996
partial period of revenues from the acquisition of Ad-Sign, Inc. and Naegele.
Direct advertising expenses increased to $9.5 million in the first six
months of 1996 from $6.3 million in the 1995 period as a result of the higher
net revenues. As a percentage of net revenues, direct advertising expenses
decreased slightly to 36.3% in the first six months of 1996 compared to 38.2% in
the 1995 period as a result of economies of scale associated with increased
revenues.
General and administrative expenses increased to $3.1 million in the first
six months of 1996 from $2.2 million in the 1995 period primarily as a result of
increased payroll costs. As a percentage of net revenues, general and
administrative expenses decreased to 11.7% in the first six months of 1996 from
13.1% in the 1995 period as a result of economies of scale associated with
increased revenues.
As a result of the above factors, Operating Cash Flow increased by 70.6% to
$13.6 million in 1996 from $8.0 million in 1995.
Depreciation and amortization expense for the first six months of 1996
increased to $4.7 million from $3.5 million in 1995 due to large increases in
the fixed assets offset by reduced depreciation of certain older fixed assets.
Total interest expense in the first six months of 1996 increased to $6.1
million from $4.3 million in the 1995 period primarily as a result of larger
borrowings under an acquisition credit facility following the acquisition of
Ad-Sign, Inc. and Naegele.
30
<PAGE>
The foregoing factors contributed to the Company's $1.2 million net income
in the first six months of 1996 from a $0.2 million net income in the 1995
period.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
Net revenues increased 14.7% to $34.1 million during 1995 from $29.8 million
in 1994, reflecting higher advertising rates and occupancy levels particularly
in the Chicago and Indianapolis markets.
Direct advertising expenses increased to $12.9 million in 1995 from $11.8
million in 1994 as a result of higher sales during the 1995 period. As a
percentage of net revenues, however, direct advertising expenses decreased to
37.7% in 1995 as a result of economies of scale associated with increased
revenues.
General and administrative expenses in 1995 increased to $4.2 million from
$3.9 million in 1994 due to the incremental payroll costs associated with
additional employees and expenses related to acquisitions. As a percentage of
net revenues, general and administrative expenses decreased to 12.4%.
As a result of the above factors, Operating Cash Flows increased by 20.9% to
$17.0 million in 1995 from $14.1 million in 1994.
Depreciation and amortization expenses increased slightly to $7.4 million in
1995 from $7.3 million in 1994 due to large increases in the fixed assets offset
by reduced depreciation of the older fixed assets.
Total interest expense increased to $8.6 million in 1995 from $8.3 million
in 1994 due to interest expense associated with additional borrowings and the
accretion of interest due to a larger amount of principal outstanding, partially
offset by the elimination of the accretion of dividends on redeemable preferred
stock.
The foregoing factors contributed to the Company's $969,000 net income in
1995 compared to a net loss of $1.7 million in 1994. Because the Company
incurred net losses in 1995, 1994 and 1993, it had no provision for income taxes
in those years.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993
Net revenues increased 15.2% to $29.8 million during 1994 from $25.8 million
in 1993, reflecting higher advertising rates and occupancy levels and increased
sales to local advertisers. Increases in revenue from the advertising structures
acquired in certain acquisitions, offset by declines in revenues from the
January 1994 sale of the Company's 97 bulletin display faces in Jacksonville,
accounted for approximately $700,000 of the increased revenues in 1994.
Direct advertising expenses increased to $11.8 million in 1994 from $10.9
million in 1993 as a result of higher sales during the 1994 period. As a
percentage of net revenues, however, direct advertising expenses decreased to
39.7% in 1994 as a result of economies of scale associated with increased
revenues.
General and administrative expenses in 1994 increased to $3.9 million from
$3.4 million in 1993 due to the incremental payroll costs associated with
additional employees. As a percentage of net revenues, however, general and
administrative expenses remained flat at 13.0%.
As a result of the above factors, Operating Cash Flow increased by 21.6% to
$14.1 million in 1994 from $11.6 million in 1993.
Depreciation and amortization expenses decreased to $7.3 million (24.5% of
net revenues) in 1994 from $8.0 million (30.9% of the net revenues) in 1993 due
to scheduled depreciation of the fixed assets.
Total interest expense decreased to $8.3 million in 1994 from $9.0 million
in 1993 due to the elimination of the accretion of dividends on redeemable
prefered stock (which was assumed by Parent), which was partially offset by
interest associated with additional borrowings.
The foregoing factors contributed to the Company's $1.7 million net loss in
1994 compared to a net loss of $9.0 million in 1993 (which included a $3.3
million extraordinary charge recorded in the fourth
31
<PAGE>
quarter of 1993). Because the Company incurred net losses in 1994 and 1993, it
had no provision for income taxes in those years.
QUARTERLY COMPARISONS
The following table sets forth certain quarterly financial information of
the Company for each quarter of 1994 and 1995 and for the first and second
quarter of 1996. The information has been derived from the quarterly financial
statements of the Company which are unaudited but which, in the opinion of
management, have been prepared on the same basis as the financial statements
included herein and include all adjustments (consisting only of normal recurring
items) necessary for a fair presentation of the financial result for such
periods. This information should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto and the other financial information
appearing elsewhere in this Prospectus. The operating results for any quarter
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1994 1994 1994 1995 1995 1995 1995
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Net revenues............... $ 6,102 $ 7,803 $ 7,973 $ 7,888 $ 7,236 $ 9,175 $ 8,940 $ 8,797
Operating income........... 924 2,333 2,002 1,518 1,348 3,109 2,674 2,507
Net income (loss).......... (1,276) 294 (141) (548) (747) 903 509 304
PERCENTAGE OF NET REVENUES:
Operating income........... 15.1% 29.9% 25.1% 19.2% 18.6% 33.9% 29.9% 28.5%
Net income (loss).......... (20.9) 3.8 (1.8) (6.9) (10.3) 9.8 5.7 3.5
OTHER DATA:
Operating Cash Flow(1)..... $ 2,709 $ 3,998 $ 3,885 $ 3,495 $ 3,085 $ 4,910 $ 4,524 $ 4,521
Operating Cash Flow
Margin(2)................ 44.4% 51.2% 48.7% 44.3% 42.6% 53.5% 50.6% 51.4%
<CAPTION>
MARCH 31, JUNE 30,
1996 1996
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............... $ 8,427 $ 17,812
Operating income........... 1,670 7,299
Net income (loss).......... (757) 1,966
PERCENTAGE OF NET REVENUES:
Operating income........... 19.8% 41.0%
Net income (loss).......... (9.0) 11.0
OTHER DATA:
Operating Cash Flow(1)..... $ 3,702 $ 9,941
Operating Cash Flow
Margin(2)................ 43.9% 55.8%
</TABLE>
- ------------------------------
(1) Operating Cash Flow is operating income before depreciation and
amortization.Operating Cash Flow is not intended to represent net cash
provided by operating activities as defined by generally accepted
accounting principles and should not be considered as an alternative to net
income (loss) as an indicator of the Company's operating performance or to
net cash provided by operating activities as a measure of liquidity.The
Company believes Operating Cash Flow is a measure commonly reported and
widely used by analysts, investors and other interested parties in the
media industry.Accordingly, this information has been disclosed herein to
permit a more complete comparative analysis of the Company's operating
performance relative to other companies in the media industry.
(2) Operating Cash Flow Margin is Operating Cash Flow stated as a percentage of
net revenues.
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 and, to a lesser extent, with preferred
stock.
Parent completed its initial public offering ("IPO") of 4,630,000 shares of
its Common Stock (including 930,000 shares sold pursuant to exercise of the
Underwriters' over-allotment option) on July 26, 1996, resulting in proceeds to
Parent of $62.4 million. Parent intends to utilize a portion of the net proceeds
to redeem $9.5 million of the Existing Parent Notes prior to September 23, 1996
and has repaid a portion of the amounts outstanding under the Existing
Acquisition Credit Facility (as hereafter defined).
In connection with an acquisition consummated in April 1996, the Company,
its current lender, LaSalle National Bank ("LaSalle"), and an additional bank,
Bankers Trust Company ("Bankers Trust"; together with LaSalle, the "Lenders"),
agreed to (i) refinance the Company's existing credit facility with a revolving
credit facility (the "Existing Revolving Credit Facility") and (ii) provide an
additional extension of credit for purposes of acquisition financing (the
"Existing Acquisition Credit Facility", and together with
32
<PAGE>
the Existing Revolving Credit Facility, the "Existing Credit Facilities") and,
specifically, the financing, in part, of the Naegele Acquisition (as hereafter
defined). The Lenders extended an acquisition term loan in the amount of $75
million and an acquisition revolving credit line in the amount of $12.5 million
for a total commitment of $87.5 million, of which $84.5 million was drawn at the
closing of the Naegele Acquisition. In addition, the Lenders extended a working
capital revolving credit line in the amount of $12.5 million, of which no amount
has been drawn. In addition to the amounts drawn under the Existing Acquisition
Credit Facility, Parent sold a minority portion of its capital stock for $30
million in cash proceeds which was used to finance the remaining amount of the
Naegele Acquisition and to refinance existing indebtedness.
Prior to or concurrently with the consummation of the Offering, the Company
intends to amend and restate the Existing Credit Facilities which will become
the New Credit Facility. The New Credit Facility provides for a total loan
commitment of $300 million. Approximately $212.5 million of the New Credit
Facility matures on September 30, 2003 with the remaining amount maturing on
September 30, 2004. Upon the occurrence of certain triggering events, a portion
of the New Credit Facility will convert to a term loan. Such amounts may not be
reborrowed. See "Description of Indebtedness and Other Commitments"
Net cash provided by operating activities increased to $6.2 million for the
six months ended June 30, 1996 from $2.6 million for the 1995 period. Net cash
provided by operating activities increased to $7.0 million in 1995 from $5.8
million in 1994. Net cash provided by operating activities reflects the
Company's net loss adjusted for non-cash items and the use or source of cash for
the net change in working capital.
The Company's net cash used in investing activities of $110.1 million for
the six months ended June 30, 1996 includes cash used for acquisitions of $107.1
million and other capital expenditures of $2.9 million. The Company's net cash
used in investing activities of $9.1 million for the year ended December 31,
1995 includes cash used for acquisitions of $1.9 million and other capital
expenditures of $5.6 million. Capital expenditures have been made primarily to
develop new structures in each of its markets. The Company intends to continue
to develop new structures in its markets and to consider other potential
acquisitions. Management established the Existing Acquisition Credit Facility
and the New Credity Facility for the purpose of financing acquisitions and
capital expenditures relating to the development and improvement of advertising
structures. The Company believes that its cash from operations, together with
available borrowings under the New Credit Facility, will be sufficient to
satisfy its cash requirements, including anticipated capital expenditures, for
the foreseeable future. However, in the event cash from operations, together
with available funds under the New Credit Facility are insufficient to satisfy
its cash requirements, the Company may incur additional indebtedness to finance
its operations including, without limitation, additional acquisitions.
For the six months ended June 30, 1996, $104.0 million was provided by
financing activities primarily due to increased borrowings under the Existing
Credit Facilities and the sale of capital stock. For the six months ended June
30, 1995, net cash of $2.1 million was provided by financing activities,
primarily due to borrowings under the prior credit facility. For the years ended
December 31, 1995 and 1994, $2.0 million and $2.4 million, respectively, was
provided by financing activities, primarily as a result of additional borrowings
under the prior credit facility.
In March 1994, the Company completed an offering of $65 million of the
Existing Company Notes. The Existing Company Notes accrue interest at a rate of
11% per annum.
The Company intends to use a portion of the proceeds from the Offering to
repurchase in full the Existing Company Notes. As of the date of this
Prospectus, the aggregate principal amount of the outstanding Existing Company
Notes was approximately $65 million.
The Company expects to fund its capital expenditures primarily with cash
from operations and expects its capital expenditures to be primarily for
development of additional structures. The Company intends to utilize its cash
from operations to continue to develop new advertising structures in each of its
markets, and, as appropriate opportunities arise, to acquire additional outdoor
advertising operations in its existing markets, in geographically proximate
markets and in contiguous markets. The Company is also exploring
33
<PAGE>
the development of other forms of out-of-home media, such as bus shelter
advertising and transit advertising that management believes would complement
the Company's existing outdoor operations. The restrictions imposed by the New
Credit Facility and the Indenture may limit the Company's use of cash from
operations for these purposes.
INFLATION
Inflation has not had a significant impact on the Company over the past
three years. The floating rate on the New Credit Facility could increase in an
inflationary environment, but management believes that because a significant
portion of the Company's costs are fixed, inflation will not have a material
adverse effect on its operations. However, there can be no assurance that a high
rate of inflation in the future will not have an adverse effect on the Company's
operations.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF, which established a new accounting principle for accounting for the
impairment of certain loans, certain investments in debt and equity securities,
long-lived assets that will be held and used including certain identifiable
intangibles and goodwill related to those assets, and long-lived assets and
certain identifiable intangibles to be disposed of. While the Company has not
completed its evaluation of the impact that will result from adopting this
statement, it does not believe that adoption of the statement will have a
significant impact on the Company's financial position and results of
operations.
34
<PAGE>
BUSINESS
GENERAL
The Company is a leading outdoor advertising company operating approximately
21,114 advertising display faces in two large, regional operating areas: the
Midwest (Chicago, Minneapolis/St. Paul, Indianapolis, Milwaukee, Des Moines,
Evansville and Dallas) and the Southeast (Orlando, Jacksonville, Palm Beach,
Ocala and the East Coast and Gulf Coast areas of Florida, Memphis/Tunica,
Chattanooga, and Myrtle Beach).
INDUSTRY OVERVIEW
The outdoor advertising industry has experienced increased advertiser
interest and revenue growth in recent years. Outdoor advertising generated total
revenues of approximately $1.8 billion in 1995, or approximately 1.1% of the
total advertising expenditures in the United States, and the out-of-home
advertising industry generated revenues in excess of $3.0 billion in 1995,
according to estimates by the Outdoor Advertising Association of America (the
"OAAA"), the trade association for the outdoor advertising industry. Outdoor
advertising's 1995 revenue represent growth of approximately 8.2% over estimated
total revenues for 1994, which compares favorably to the growth of total U.S.
advertising expenditures of approximately 7.7% during the same period.
Advertisers purchase outdoor advertising for a number of reasons. Outdoor
advertising offers repetitive impact and a relatively low cost
per-thousand-impressions, a commonly used media measurement, as compared to
television, radio, newspapers, magazines and direct mail marketing. Accordingly,
because of its cost-effective nature, outdoor advertising is a good vehicle to
build mass market support. In addition, outdoor advertising can be used to
target a defined audience in a specific location and, therefore, can be relied
upon by local businesses concentrating on a particular geographic area where
customers have specific demographic characteristics. For instance, restaurants,
motels, service stations and similar roadside businesses may use outdoor
advertising to reach potential customers close to the point of sale and provide
directional information. Other local businesses such as television and radio
stations and consumer products companies may wish to appeal more broadly to
customers and consumers in the local market. National brand name advertisers may
use the medium to attract customers generally and build brand awareness. In all
cases, outdoor advertising can be combined with other media such as radio and
television to reinforce messages being provided to consumers.
The outdoor advertising industry has experienced significant change in
recent periods due to a number of factors. First, the entire "out-of-home"
advertising category has expanded to include, in addition to traditional
billboards and roadside displays, displays in shopping centers and malls,
airports, stadiums, movie theaters and supermarkets, as well as on taxis,
trains, buses, blimps and subways. Second, while the outdoor advertising
industry has experienced a decline in the use of outdoor advertising by tobacco
companies, it has increased its visibility with and attractiveness to local
advertisers as well as national retail and consumer product-oriented companies.
Third, the industry has benefitted significantly from improvements in production
technology, including the use of computer printing, vinyl advertising copy and
improved lighting techniques, which have facilitated a more dynamic, colorful
and creative use of the medium. This technological advance has permitted the
outdoor advertising industry to respond more promptly and cost effectively to
the changing needs of its advertising customers and make greater use of
advertising copy used in other media. Lastly, the outdoor advertising industry
has benefitted from the growth in automobile travel time for business and
leisure due to increased highway congestion and continued demographic shifts of
residences and businesses from the cities to outlying suburbs.
The outdoor advertising industry is comprised of several large outdoor
advertising and media companies with operations in multiple markets, as well as
many smaller and local companies operating a limited number of structures in a
single or few local markets. While the industry has experienced some
consolidation within the past few years, the OAAA estimates that there are still
approximately 1,000 companies in the outdoor advertising industry operating
approximately 396,000 billboard displays. The Company expects the trend of
consolidation in the outdoor advertising industry to continue.
35
<PAGE>
OPERATING STRATEGY
The Company's objective is to be the leading provider of outdoor advertising
services in each of its two regional operating areas and to expand its presence
in attractive new markets. The Company believes that regional clusters provide
it with significant opportunities to increase revenue and achieve cost savings
by delivering to local and national advertisers efficient access to multiple
markets or highly targeted areas.
Management intends to implement the following operating strategy:
- MAXIMIZE RATES AND OCCUPANCY. Through continued emphasis on customer
sales and service, quality displays and inventory management, the Company seeks
to maximize advertising rates and occupancy levels in each of its markets. The
Company has recruited and trained a strong local sales staff supported by local
managers operating under specific, sales-based compensation targets designed to
obtain the maximum potential from the Company's display inventory.
- INCREASE MARKET PENETRATION. The Company seeks to expand operations
within its existing markets through new construction, with an emphasis on
painted bulletins, which generally command higher rates and longer term
contracts from advertisers than other types of display faces. In addition, the
Company historically has acquired, and intends to continue to acquire,
additional advertising display faces in its existing markets as opportunities
become available.
- PURSUE STRATEGIC ACQUISITIONS. In addition to improved penetration of
its existing markets, the Company also seeks to grow by acquiring additional
display faces in closely proximate new markets. Such new markets allow the
Company to capitalize on the operating efficiencies and cross-market sales
opportunities associated with operating in multiple markets within distinct
regions. The Company intends to develop new regional operating areas in regions
where attractive growth and consolidation opportunities exist.
- CAPITALIZE ON TECHNOLOGICAL ADVANCES. The Company seeks to capitalize on
technological advances that enhance its productivity and increase its ability to
effectively respond to its customer's needs. The Company's continued investment
in equipment and technology provides for greater ongoing benefits in the areas
of sales, production and operation.
- MAINTAIN LOW COST STRUCTURE. Through continued adherence to strict cost
controls, centralization of administrative functions and maintenance of low
corporate overhead, the Company seeks to maximize its Operating Cash Flow
Margin, which it believes to be among the highest in the industry. The Company
believes that its centralized administration provides opportunities for
significant operating leverage from further expansion in existing markets and
from future acquisitions.
- DEVELOP OTHER OUT-OF-HOME MEDIA. The Company seeks to develop other
forms of out-of-home media such as bus shelter or transit advertising in order
to enhance revenues in existing markets or provide access to new markets.
Through implementation of this business strategy, the Company has increased
its outdoor advertising presence from 500 display faces in a single market in
1988 to approximately 12,500 in its markets at August 31, 1996.
36
<PAGE>
ACQUISITIONS
Consistent with its operating strategy, the Company has recently entered
into agreements to acquire the assets or capital stock of four outdoor
advertising companies. The Company believes that these acquisitions will
significantly strengthen its market presence in the midwest and southeast United
States and will allow the Company to capitalize on the operating efficiencies
and cross-market sales opportunities associated with operating in closely
proximate markets.
THE POA ACQUISITION. In August 1996, the Company agreed to purchase OAH
pursuant to a merger of a subsidiary of the Company with and into OAH. As a
result of the POA Acquisition, the Company will acquire a total of approximately
6,337 advertising display faces consisting of bulletins and posters in five
markets located in the southeast United States, including Orlando, Ocala and
Palm Beach, as well as the East Coast and Gulf Coast areas of Florida, and
Myrtle Beach and Chattanooga.
THE MEMPHIS/TUNICA ACQUISITION. In September 1996, the Company acquired the
Memphis/Tunica Option. Upon consummation of the Memphis/Tunica Acquisition, the
Company will acquire a total of approximately 2,018 advertising display faces
consisting of bulletins and posters in and around Memphis, Tennessee and Tunica
County, Mississippi.
THE ADDITIONAL ACQUISITIONS. In September 1996, the Company purchased
certain assets of Iowa Outdoor Displays and The Chase Company. As a result of
the Additional Acquisitions, the Company will acquire approximately 160
advertising display faces consisting primarily of posters in and around Des
Moines and approximately 245 advertising display faces consisting primarily of
bulletins in and around Dallas.
THE NAEGELE ACQUISITION. In April 1996, the Company acquired operations in
the Minneapolis/St. Paul and Jacksonville markets. In a stock purchase
transaction with NOA Holding Company (the "Naegele Acquisition"), the Company
acquired approximately 2,550 poster faces (of which approximately 1,455 are
located in the Minneapolis/St. Paul market and approximately 1,095 are located
in the Jacksonville market) and approximately 840 painted bulletin faces (of
which approximately 440 are located in the Minneapolis/ St. Paul market and
approximately 400 are located in the Jacksonville market).
THE OTHER ACQUISITIONS. In April 1996, the Company acquired 4 painted
bulletin faces in the Chicago market from Paramount Outdoor, Inc. in an asset
purchase transaction. In March 1996, through an asset purchase transaction with
Image Media, Inc., the Company acquired 18 painted bulletin and painted wall
faces in the Chicago market. In a transaction with Ad-Sign, Inc. in January
1996, the Company acquired approximately 160 painted bulletin faces in the
Chicago market. In April 1995, the Company acquired approximately 6 painted
bulletin faces in the Chicago market pursuant to a stock purchase transaction
with O&B Outdoor, Inc. The Company has integrated the newly acquired faces from
these acquisitions into its existing Chicago operations.
In March 1995, the Company completed two acquisitions in the Dallas market.
In a stock purchase transaction with Harrington Associates, Inc., the Company
acquired approximately 740 junior (8-sheet) poster faces located in the Dallas
market. In a stock purchase transaction with Best Outdoor, the Company acquired
approximately 387 junior (8-sheet) poster faces in the Dallas market.
MARKETS
Each of the Company's markets generally possess demographic characteristics
that are attractive to national advertisers, allowing the Company to package its
displays in several of its markets in a single contract for advertisers in
national and regional campaigns. Each market also has unique local industries,
businesses, sports franchises and special events that are frequent users of
outdoor advertising. The
37
<PAGE>
following sets forth certain information for each of the Company's markets as of
August 31, 1996 after giving effect to the Acquisitions:
<TABLE>
<CAPTION>
% OF 1995 TOTAL
PRO FORMA 30-SHEET 8-SHEET DISPLAY
MARKET NET REVENUES BULLETINS POSTERS POSTERS FACES
- ------------------------------------ 1995 -------------- ----------- ----------- ----------- ------------
PRO FORMA
NET REVENUES
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MIDWEST:
Chicago........................... $ 16,579 13.7% 653 -- 3,646 4,299
Minneapolis/St. Paul.............. 16,320 13.5 447 1,365 -- 1,812
Indianapolis...................... 9,897 8.2 257 1,385 142 1,927
Milwaukee......................... 4,686 3.9 260 -- 321 581
Des Moines*....................... 3,141 2.6 84 590 9 683
Evansville........................ 3,028 2.5 142 687 -- 829
Dallas*........................... 1,738 1.5 245 -- 1,201 1,446
SOUTHEAST:
Orlando**......................... 22,253 18.4 842 1,080 -- 1,922
Jacksonville...................... 8,528 7.0 383 942 -- 1,325
Palm Beach**...................... 290 0.2 99 21 -- 120
Ocala**........................... 5,011 4.1 879 199 -- 1,078
Memphis/Tunica**.................. 13,104 10.8 706 1,179 133 2,018
Chattanooga**..................... 4,582 3.8 359 663 -- 1,022
Myrtle Beach**.................... 7,931 6.6 729 455 -- 1,184
East Coast area (FL)**............ 2,784 2.3 567 -- -- 567
Gulf Coast area (FL)**............ 1,095 0.9 444 -- -- 444
-------- ----- ----- ----- ----- ------
Total........................... $ 120,967 100.0% 7,096 8,566 5,452 21,114***
-------- ----- ----- ----- ----- ------
-------- ----- ----- ----- ----- ------
</TABLE>
- ------------------------
* Includes existing operations and additional operations to be acquired in
connection with the Acquisitions.
** To be acquired in connection with the Acquisitions.
*** Excludes 143 transit display faces located in Indianapolis.
INVENTORY
The Company operates three standard types of outdoor advertising display
faces and also has transit advertising as follows:
- 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 hand painted onto the panels at the facilities of the outdoor
advertising company in accordance with design specifications supplied by the
advertiser and attached to the outdoor advertising structure, or is printed with
the computer-generated graphics on a single sheet of vinyl that is wrapped
around the structure. On occasion, to attract more attention, some of the panels
may extend beyond the linear edges of the display face and may include
three-dimensional embellishments. Because of their greater impact and higher
cost, bulletins are usually located on major highways.
- 30-SHEET POSTERS generally are 12 feet high by 25 feet wide (300 square
feet) and are the most common type of billboard. Advertising copy for 30-sheet
posters consists of lithographed or silk-screened paper sheets supplied by the
advertiser that are pasted and applied like wallpaper to the face of the
display, or single sheets of vinyl with computer-generated advertising copy that
are wrapped around the structure. Thirty-sheet posters are concentrated on major
traffic arteries.
- JUNIOR (8-SHEET) POSTERS usually are 6 feet high by 12 feet wide (72
square feet). Displays are prepared and mounted in the same manner as 30-sheet
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.
38
<PAGE>
- TRANSIT ADVERTISING consists generally of posters and frames displayed on
the sides of public buses operating on city streets.
Billboards generally are mounted on structures owned by the outdoor
advertising company and located on sites that are either owned or leased by it
or on which it has acquired a permanent easement. Billboard structures are
durable, have long useful lives and do not require substantial maintenance. When
disassembled, they typically can be moved and relocated at new sites. The
Company's outdoor advertising structures are made of steel and other durable
materials built to withstand variable climates, including the rigors of the
midwestern climate. The Company expects its structures to last 15 years or more
without significant refurbishment.
LOCAL MARKET OPERATIONS
In each of its principal markets except Palm Beach, the Company maintains a
complete outdoor advertising operation including a sales office, a production,
construction and maintenance facility, a creative department equipped with
advanced technology, a real estate unit and support staff. The Company conducts
its outdoor advertising operations through these local offices, consistent with
senior management's belief that an organization with decentralized sales and
operations is more responsive to local market demand and provides greater
incentives to employees. At the same time, the Company maintains centralized
accounting and financial controls to allow it to closely monitor the operating
and financial performance of each market. Local general managers, who report
directly to the Company's President or a regional manager, are responsible for
the day-to-day operations of their respective markets and are compensated
according to the financial performance of such markets. In general, these local
managers oversee market development, production and local sales. The Company
intends to incorporate the operations acquired in the Acquisitions into this
operational structure with local offices handling the day-to-day operations and
centralized accounting and financial controls.
Although site leases (for land underlying an advertising structure) are
administered from the Company's headquarters in Chicago, each local office is
responsible for locating and ultimately procuring leases for appropriate sites
in its market. Site lease contracts vary in term but typically run from 10 to 20
years with various termination and renewal provisions. Each office maintains a
leasing department, with an extensive database containing information on local
property ownership, lease contract terms, zoning ordinances and permit
requirements. The Company has been very successful in developing new advertising
display face inventory in each of its markets based on utilizing these databases
and developing an experienced staff of lease teams. Each such team's sole
responsibility is the procurement of sites for new locations in each of the
Company's markets.
SALES AND SERVICE
The Company's sales strategy is to maximize revenues from local advertisers.
Accordingly, it maintains a team of sales representatives headed by a sales
manager in each of its markets. The Company devotes considerable time and
resources to recruiting, training and coordinating the activities of its sales
force. A sales representative's compensation is heavily weighted to individual
performance, and the local sales manager's compensation is tied to the
performance of his or her sales team. One sales representative, based in
Chicago, manages sales to national advertisers. In total, approximately 59 of
the Company's employees are significantly involved in sales and marketing
activities.
In addition to the sales staff, the Company has established fully staffed
and equipped creative departments in each of its principal markets except Palm
Beach. Utilizing technologically advanced computer hardware and software, the
staff is able to create original design copy for both local and national
accounts which has allowed the various creative departments to exchange work via
modem or over the Internet with each other or directly with clients or their
agencies. This ability has resulted in many fully staffed advertising agencies
turning to the Company for the creation of their outdoor campaigns. The Company
believes that its creative department's implementation of continuing
technological advances provides a significant competitive advantage in its sales
and service area.
39
<PAGE>
CUSTOMERS
Advertisers usually contract for outdoor displays through advertising
agencies, which are responsible for the artistic design and written content of
the advertising as well as the choice of media and the planning and
implementation of the overall campaign. The Company pays commissions to the
agencies for advertising contracts that are procured by or through those
agencies. Advertising rates are based on a particular display's exposure (or
number of "impressions" delivered) in relation to the demographics of the
particular market and its location within that market. The number of
"impressions" delivered by a display is measured by the number of vehicles
passing the site during a defined period and is weighted to give effect to such
factors as its proximity to other displays, the speed and viewing angle of
approaching traffic, the national average of adults riding in vehicles and
whether the display is illuminated. The number of impressions delivered by a
display is verified by independent auditing companies.
The size and geographic diversity of the Company's markets allow it to
attract national advertisers, often by packaging displays in several of its
markets in a single contract to allow a national advertiser to simplify its
purchasing process and present its message in several markets. National
advertisers generally seek wide exposure in major markets and therefore tend to
make larger purchases. The Company competes for national advertisers primarily
on the basis of price, location of displays, availability and service.
The Company also focuses efforts on local sales, and approximately 84% of
the Company's gross revenues in 1995, after giving effect to the Acquisitions,
were generated from local advertisers. Local advertisers tend to have smaller
advertising budgets and require greater assistance from the Company's production
and creative personnel to design and produce advertising copy. In local sales,
the Company often expends more sales efforts on educating customers regarding
the benefits of outdoor media and helping potential customers develop an
advertising strategy using outdoor advertising. While price and availability are
important competitive factors, service and customer relationships are also
critical components of local sales.
Tobacco revenues have historically accounted for a significant portion of
outdoor advertising revenues. Beginning in 1993, the leading tobacco companies
substantially reduced their expenditures for outdoor advertising due to a
declining population of smokers, societal pressures, consolidation in the
tobacco industry and price competition from generic brands. Since tobacco
advertisers often utilized some of the industry's prime inventory, the decline
in tobacco-related advertising expenditures made this space available for other
advertisers, including those that had not traditionally utilized outdoor
advertising. As a result of this decline in tobacco-related advertising revenues
and the increased use of outdoor advertising by other advertisers, the range of
the Company's advertisers has become quite diverse. The following table
illustrates the diversity of the Company's advertising base giving effect to the
Acquisitions:
1995 PRO FORMA NET REVENUES BY CATEGORY
<TABLE>
<CAPTION>
PERCENTAGE OF
NET REVENUES
--------------
<S> <C>
Travel/Entertainment............................................................ 14.4%
Restaurant...................................................................... 9.9
Tobacco......................................................................... 9.9
Retail/Consumer Products........................................................ 9.8
Automotive & Related............................................................ 8.0
Home Developer/Real Estate...................................................... 6.0
Advertising/Media............................................................... 4.0
Alcohol......................................................................... 3.6
Hotels/Motels................................................................... 3.0
Other........................................................................... 31.4
-----
Total....................................................................... 100.0%
-----
-----
</TABLE>
40
<PAGE>
PRODUCTION
The Company has internal production facilities and staff to perform the full
range of activities required to develop, create and install outdoor advertising
in all of its markets. Production work includes creating the advertising copy
design and layout, painting the design or coordinating its printing and
installing the designs on its displays. In addition, the Company's substantial
new development activity has allowed it to vertically integrate its own sign
fabrication ability so that new signs are fabricated and erected in-house. The
Company usually provides its full range of production services to local
advertisers and to advertisers that are not represented by advertising agencies,
since national advertisers and advertisers represented by advertising agencies
often use preprinted designs that require only installation. However, the
Company's creative and production personnel frequently are involved in
production activities even when advertisers are represented by agencies due to
the development of new designs or adaptation of copy from other media for use on
billboards. The Company's artists also assist in the development of marketing
presentations, demonstrations and strategies to attract new advertisers.
With the increased use of vinyl and pre-printed advertising copy furnished
to the outdoor advertising company by the advertiser or its agency, outdoor
advertising companies are becoming less responsible for labor-intensive
production work since vinyl and pre-printed copy can be installed quickly. The
vinyl sheets are reusable, thereby reducing the Company's production costs, and
are easily transportable. Due to the geographic proximity of the Company's
principal markets and the transportability of vinyl sheets, the Company can
shift materials among markets to promote efficiency. The Company believes that
this trend over time will reduce operating expenses associated with production
activities.
COMPETITION
The Company 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
and malls, airports, stadiums, movie theaters and supermarkets, as well as on
taxis, trains, buses and subways. Advertisers compare relative costs of
available media and cost-per-thousand impressions, particularly when delivering
a message to customers with distinct demographic characteristics. In competing
with other media, outdoor advertising relies on its low
cost-per-thousand-impressions and its ability to repetitively 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
1,000 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 Outdoor
Systems, Inc., Eller Media, Inc. (formerly Patrick Media Group) and 3M National
Advertising Co. (a division of Minnesota Mining and Manufacturing Company), each
of which has a larger national network and greater total resources than the
Company. The Company believes that its emphasis on local advertisers and its
position as a major provider of advertising services in each of its markets and
in the midwest enable it to compete effectively with the other outdoor media
operators, as well as other media, both within those markets and in the midwest
region. The Company also competes with other outdoor advertising companies for
sites on which to build new structures. See "Risk Factors -- Competition."
GOVERNMENT REGULATION
The outdoor advertising industry is subject to governmental regulation at
the federal, state and local level. Federal law, principally the Highway
Beautification Act of 1965, encourages states, by the threat of withholding
federal appropriations for the construction and improvement of highways within
such states, to implement legislation to restrict billboards located within 660
feet of, or visible from, interstate and primary highways except in commercial
or industrial areas. All of the states have implemented regulations
41
<PAGE>
at least as restrictive as the Highway Beautification Act, including the
prohibition on the construction of new billboards adjacent to federally-aided
highways and the removal at the owner's expense and without any compensation of
any illegal signs on such highways. The Highway Beautification Act, and the
various state statutes implementing it, require the payment of just compensation
whenever governmental authorities require legally erected and maintained
billboards to be removed from federally-aided highways.
The states and local jurisdictions have, in some cases, passed additional
and more restrictive regulations on the construction, repair, upgrading, height,
size and location of, and, in some instances, content of advertising copy being
displayed on outdoor advertising structures adjacent to federally-aided highways
and other thoroughfares. Such regulations, often in the form of municipal
building, sign or zoning ordinances, specify minimum standards for the height,
size and location of billboards. In some cases, the construction of new
billboards or relocation of existing billboards is prohibited. Some
jurisdictions also have restricted the ability to enlarge or upgrade existing
billboards, such as converting from wood to steel or from non-illuminated to
illuminated structures. From time to time governmental authorities order the
removal of billboards by the exercise of eminent domain. Thus far, the Company
has been able to obtain satisfactory compensation for any of its structures
removed at the direction of governmental authorities, although there is no
assurance that it will be able to continue to do so in the future.
In recent years, there have been movements to restrict billboard advertising
of certain products, including tobacco and alcohol. No bills have become law at
the federal level except those requiring health hazard warnings similar to those
on cigarette packages and print advertisements. It is uncertain whether
additional legislation of this type will be enacted on the national level or in
any of the Company's markets.
In August 1996, the U.S. Food and Drug Administration issued final
regulations governing certain marketing practices in the tobacco industry. Among
other things, the regulations prohibit tobacco product billboard advertisements
within 1,000 feet of schools and playgrounds and require that tobacco product
advertisements on billboards be in black and white and contain only text. In
addition, one major tobacco manufacturer recently proposed federal legislation
banning 8-sheet billboard advertising and transit advertising of tobacco
products. A reduction in billboard advertising by the tobacco industry could
cause an immediate reduction in the Company's direct revenue from such
advertisers and would simultaneously increase the available space on the
existing inventory of billboards in the outdoor advertising industry. See
"Business--Customers" and "Risk Factors--Tobacco Industry Regulations."
Amortization of billboards has also been adopted in varying forms in certain
jurisdictions. Amortization permits the billboard owner to operate its billboard
as a non-conforming use for a specified period of time until it has recouped its
investment, after which it must remove or otherwise conform its billboard to the
applicable regulations at its own cost without any compensation. Amortization
and other regulations requiring the removal of billboards without compensation
have been subject to vigorous litigation in state and federal courts and cases
have reached differing conclusions as to the constitutionality of these
regulations. To date, regulations in the Company's markets have not materially
adversely affected its operations, except in the Jacksonville market, where the
Company has been subject to regulatory efforts and recently agreed to city
ordinances to remove a number of faces. On March 22, 1995, following litigation
over an ordinance and a municipal charter amendment, Naegele entered into an
agreement with the City of Jacksonville to remove 711 billboard faces over a
twenty year period starting January 1, 1995 and ending December 31, 2014. The
resolution specifies the following removal schedule:
<TABLE>
<CAPTION>
30-SHEET 8-SHEET
CALENDAR YEARS BULLETINS POSTERS POSTERS TOTAL
- --------------------------------------------------------- ------------- ----------- ----------- -----
<S> <C> <C> <C> <C>
1995-1998................................................ 73 242 167 482
1999-2004................................................ 23 87 -- 110
2005-2014................................................ 23 96 -- 119
--- --- --- ---
119 425 167 711
--- --- --- ---
--- --- --- ---
</TABLE>
Under the agreement, Naegele and the City of Jacksonville have agreed on the
removal of 445 pre-selected faces, including 167 (100%) of its 8-sheet faces.
Management of the Company has control over the
42
<PAGE>
selection and removal of an additional 155 faces. The remaining 111 faces to be
removed will be selected by the Company from a pool of faces identified by the
City. While the number of signs being taken down represents a large percentage
of Naegele's plant in the Jacksonville market, the Company believes that
Jacksonville has been overbuilt for a number of years, leading to low occupancy
levels and low advertising rates. The removal of a number of marginally
profitable boards is expected to put upward pressure on rates. Additionally, the
removals are staggered over 20 years, with management having substantial input
on which signs are removed and some rights of substitution and rebuilding of
outdoor advertising structures in the Jacksonville market.
On February 1, 1991, Naegele entered into a consent judgment to settle a
complaint brought by the Minnesota Attorney General under Minnesota anti-trust
laws pursuant to which Naegele and its successors are prohibited from purchasing
outdoor advertising displays in the Minneapolis/St. Paul market from other
operators of outdoor advertising displays until February 1, 2001. The consent
judgment also prohibits the Company from enforcing certain covenants not to
compete and from entering into property leases in excess of 15 years. The
consent judgment does not affect the Company's ability to continue to develop
and build new advertising displays in the Minneapolis/St. Paul market.
Additionally, the Company can purchase displays from brokers or other
non-operators.
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 has not adversely impacted the Company's business, other than in the
newly acquired Jacksonville market, no assurance can be given that existing or
future laws or regulations will not materially adversely affect the Company at
some time in the future.
OUTDOOR ADVERTISING PROPERTIES; OFFICE AND PRODUCTION FACILITIES
OUTDOOR ADVERTISING SITES. Giving effect to the Acquisitions, the Company
owns or has permanent easements on approximately 337 parcels of real property
that serve as the sites for its outdoor displays. The Company's remaining
approximately 12,376 advertising display sites are leased or licensed.
The Company's leases are for varying terms ranging from month-to-month or
year-to-year to terms of ten years or longer, and many provide for renewal
options. 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.
OFFICE AND PRODUCTION FACILITIES. The Company's principal executive and
administration offices are located in Chicago, Illinois in a 6,956-square foot
space leased by the Company. In addition, after giving effect to the
Acquisitions, the Company has an office and complete production and maintenance
facility in each of Addison, Illinois (40,000 square feet); Orlando (20,500
square feet); Memphis (24,844 square feet); Chattanooga (14,580 square feet);
Ocala (11,700 square feet); Myrtle Beach (14,792 square feet); Milwaukee (18,367
square feet); Indianapolis (23,648 square feet); Des Moines (15,320 square
feet); Minneapolis/ St. Paul (82,547 square feet); Jacksonville (16,000 square
feet); and Evansville (16,000 square feet) and a sales, real estate and
administration office in Dallas (2,000 square feet). The Indianapolis, Addison,
Orlando, Milwaukee, Jacksonville, Myrtle Beach, Chattanooga, Ocala and
Evansville facilities are owned and all other facilities are leased. The Company
considers its facilities to be well maintained and adequate for its current and
reasonably anticipated future needs.
EMPLOYEES
At June 30, 1996, the Company employed approximately 330 people, of whom
approximately 59 were primarily engaged in sales and marketing, 209 were engaged
in painting, bill posting and construction and maintenance of displays and the
balance were employed in financial, administrative and similar capacities. The
Milwaukee market has 15 employees who belong to a union and the Minneapolis/St.
Paul market has 29 employees who belong to unions. The Company considers its
relations with the unions and with its employees to be good.
43
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth certain information with respect to the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
YEARS WITH THE
NAME AGE POSITION COMPANY
- ------------------------------- --- ------------------------------------------------------------- -----------------
<S> <C> <C> <C>
Daniel L. Simon*............... 45 Chief Executive Officer, President and Director 23
Brian T. Clingen............... 36 Vice President, Chief Financial Officer and Director 8
Paul G. Simon*................. 43 Vice President, Secretary and General Counsel 6
Michael J. Roche............... 45 Director 2
Michael B. Goldberg............ 49 Director **
Frank K. Bynum, Jr............. 33 Director **
</TABLE>
- ------------------------
* Daniel L. and Paul G. Simon are brothers.
** Became a director in 1996.
Mr. Daniel Simon, a founder and a principal beneficial stockholder of the
Company, has been the President of the Company since 1989 and a director since
its formation. Mr. Simon has 23 years of experience in the outdoor advertising
industry and serves on the executive and legislative committees of the Outdoor
Advertising Association of America. Mr. Simon is a director of Parent.
Mr. Clingen has served as Vice President and Chief Financial Officer of the
Company since December 1987 and as a director since 1990. From 1983 to 1987, Mr.
Clingen worked for Elmore Group ("Elmore"), a diversified property and service
company, and served as Chief Financial Officer of an Elmore subsidiary. Mr.
Clingen is a certified public accountant. Mr. Clingen is a director of Parent.
Mr. Paul Simon has been Vice President and General Counsel of the Company
since 1989 and has served as Secretary of the Company since July 1991. Mr. Simon
was in the private practice of law in Illinois from 1978 to 1989, specializing
in commercial litigation, general corporate matters, real estate and mergers and
acquisitions. Mr. Simon represented the Company as outside counsel from 1981 to
1989.
Mr. Roche has been National Marketing Manager (Licensed Businesses) for
Sears, Roebuck and Co. since 1985. Prior thereto, he was an Assistant Marketing
Manager from 1984 to 1985 and a National Sales Promotion Manager from 1980 to
1984 for Sears, Roebuck and Co. Mr. Roche has been a director of the Company
since November 1993. Mr. Roche is a director of Parent.
Mr. Goldberg has been a director of the Company since April 5, 1996. Mr.
Goldberg has been a Managing Director of Kelso & Company, L.P. since October
1991. Mr. Goldberg served as a Managing Director and jointly managed the merger
and acquisitions department at The First Boston Corporation from 1989 to May
1991. Mr. Goldberg was a partner at the law firm of Skadden, Arps, Slate,
Meagher & Flom from 1980 to 1989. Mr. Goldberg is a director of General Medical
Corporation, Hosiery Corporation of America, Inc., United Refrigerated Services,
Inc. and Parent.
Mr. Bynum has been a director of the Company since July, 1996. Mr. Bynum has
been a Vice President of Kelso & Company, L.P. since July 1991, and was an
Associate of Kelso & Company, L.P. from October 1987 to July 1991. He is a
director of Hosiery Corporation of America, Inc., IXL Holdings, Inc., United
Refrigerated Services, Inc. and Parent.
For their services as directors, the members of the Board of Directors who
are not employees of the Company or affiliates of Kelso & Company, L.P. are paid
an aggregate of $10,000 annually. All directors are reimbursed for reasonable
expenses associated with their attendance at meetings of the respective Boards
of Directors.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve at the discretion of the Board of Directors.
44
<PAGE>
On December 23, 1992, Kelso & Companies, Inc., the general partner of Kelso
& Company, L.P., and its chief executive officer, without admitting or denying
the findings contained therein, consented to an administrative order in respect
of an inquiry by the Securities and Exchange Commission (the "Commission")
relating to the 1990 acquisition of a portfolio company by an affiliate of Kelso
& Companies, Inc. The order found that the tender offer filing by Kelso &
Companies, Inc. in connection with the acquisition did not comply fully with the
Commission's tender offer reporting requirements, and required Kelso &
Companies, Inc. and its chief executive officer to comply with these
requirements in the future.
Pursuant to the Articles of Incorporation of the Company, the Board of
Directors of the Company shall have the same members as the Board of Directors
of Parent. Parent has an agreement with Kelso & Company, L.P. that permits Kelso
& Company, L.P. to nominate two persons for the Board of Directors to be voted
upon by the shareholders. Messrs. Goldberg and Bynum have been retained as
directors of Parent as a result of such agreement. The agreement also provides
that at least one of such nominees, if elected to the Board of Directors, will
also serve on Parent's compensation committee. See "Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation paid during 1993, 1994 and 1995 to the Company's Chief Executive
Officer and each other executive officer whose total annual salary and bonus
that year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1)
- ------------------------------------------------------------------- --------- ---------- ----------- -----------------
<S> <C> <C> <C> <C>
Daniel L. Simon ................................................... 1995 $ 224,379 $ 0 $ 1,000
President and Chief Executive Officer 1994 249,250 0 500
1993 187,439 0 0
Brian T. Clingen .................................................. 1995 $ 145,128 $ 0 $ 1,000
Chief Financial Officer and Vice President 1994 145,852 0 500
1993 122,742 0 0
Paul G. Simon ..................................................... 1995 $ 158,176 $ 0 $ 1,000
Vice President, Secretary and General Counsel 1994 158,968 0 500
1993 167,125 0 0
</TABLE>
- ------------------------
(1) Represents contributions made by the Company on behalf of the named
executive officers to a 401(k) plan.
The Company currently maintains two life insurance policies covering Daniel
L. Simon, each in the amount of $2.5 million. The Company is the sole
beneficiary under each policy. Pursuant to a buy-sell agreement between the
Company and Mr. Simon, the Company has agreed to use up to $3.5 million of the
proceeds from these policies to purchase a portion of Mr. Simon's shares of
Common Stock of the Company from his estate.
AUDIT COMMITTEE; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of Parent formed an Audit Committee in July 1996
which is responsible for reviewing Parent's accounting controls and recommending
to the Board of Directors the engagement of Parent's outside auditors. The
members of Parent's Audit Committee are Daniel L. Simon, Michael J. Roche and
Frank K. Bynum. The Company has no Audit Committee.
The Board of Directors of Parent formed a Compensation Committee in July
1996 which is responsible for reviewing and approving the amount and type of
consideration to be paid to senior management. The members of Parent's
Compensation Committee are Daniel L. Simon, Brian T. Clingen and Michael B.
Goldberg. Parent has agreed that a KIA V (as defined below) designee will be on
the Compensation Committee so long as there is such a designee on the Board of
Directors. The Company has no Compensation Committee.
45
<PAGE>
CERTAIN TRANSACTIONS
On April 5, 1996, Parent issued to Kelso Investment Associates V, L.P. ("KIA
V") and Kelso Equity Partners V, L.P. ("KEP V") and certain individuals
designated by Kelso & Company, L.P. (the "Kelso Designees") 186,500 shares of
Class B Common Stock and 188,500 shares of Class C Common Stock (prior to a
subsequent 16 for 1 stock split) in exchange for $30,000,000. At such time,
Parent also agreed to pay a one-time fee of $1,250,000 in cash and an annual fee
of $150,000 to Kelso & Company, L.P., an affiliate of KIA V and KEP V, for
consulting and advisory services to Parent. Messrs. Goldberg and Bynum,
directors of the Company, are Managing Director and Vice President,
respectively, of Kelso & Company, L.P., limited partners of the general partner
of KIA V and limited partners of KEP V.
In July 1996, Parent entered into agreements with KIA V, KEP V and certain
individual shareholders relating to certain rights of KIA V, KEP V and such
individual shareholders as holders of Class B Common Stock and Class C Common
Stock of Parent. Pursuant to such agreements, Parent agreed to reclassify the
shares of Class B Common Stock and Class C Common Stock into a total of
6,000,000 shares of Common Stock, of which 2,500,000 were sold in the IPO. See
"Principal Shareholders." Pursuant to such agreements, the annual consulting and
advisory fee of $150,000 payable to Kelso & Company, L.P. was terminated but
Kelso & Company, L.P.'s reimbursement of expenses and indemnification rights in
connection therewith remained in effect. In connection with the IPO, Kelso &
Company, L.P. received a one-time fee of $650,000. In addition, as a result of
the reclassification, KIA V, KEP V and such individual shareholders have the
same rights as holders of Parent's Common Stock. In connection with the
reclassification, KIA V was granted the right to nominate two persons for seats
on the Board of Directors of Parent and of the Company to be voted upon by the
stockholders, with one of such directors, if elected, to be a member of the
Compensation Committee. The Company's Articles of Incorporation provide that the
members of its Board of Directors shall be identical to those of Parent's Board
of Directors.
As a component of its growth strategy, in July 1995, the Company entered
into a consulting agreement with Urban Development, L.L.C. ("Urban") whereby
Urban shall consult with, and develop new sign locations in the Milwaukee and
Chicago markets for, the Company. Urban agreed to provide consulting services to
the Company over a period of 10 years in consideration of $1,400,000 which was
paid on such date. The managing member of Urban is Lawrence J. Simon, a former
officer and director of the Company and the brother of Daniel L. Simon and Paul
G. Simon. Lawrence J. Simon resigned as a director and an executive vice
president of the Company on October 4, 1995.
In April 1996, the Company acquired four painted bulletin faces in Chicago
from Paramount Outdoor, Inc. ("Paramount") in an asset purchase transaction.
Messrs. Quas and Sauber are the owners of Paramount. In exchange for the four
painted bulletin faces, the Company agreed to pay $500,000 in cash at the time
of purchase, $1,400 monthly for the next 24 months and an additional $168,000
payable two years after such purchase date, provided, the gross revenues
received by the Company from the purchased assets equal or exceed $333,600. In
1993, Paramount had purchased the Chicago sites (including the lease rights,
permits and structures) from a joint venture between the Company and HMS, Inc.,
an unaffiliated entity, for $100,000, which the Company believes represented
market price.
All of the transactions described above were approved by the Company's
independent outside director. The Company will not engage in transactions with
its affiliates in the future unless the terms of such transactions are approved
by a majority of its independent outside directors. In addition, the Existing
Company Indenture and Existing Parent Indenture impose limitations on the
Company's ability to engage in such transactions. See "Description of
Indebtedness and Other Commitments."
46
<PAGE>
PRINCIPAL STOCKHOLDERS
Parent owns 100% of the issued and outstanding capital stock of the Company.
The table below sets forth the number and percentage of outstanding shares of
Parent's Common Stock that will be beneficially owned by (i) each director of
the Company, (ii) each executive officer identified under "Management --
Executive Compensation," (iii) all directors and executive officers of the
Company as a group and (iv) each person known by the Company to own beneficially
more than 5% of Parent's Common Stock. The Company believes that each individual
or entity named has sole investment and voting power with respect to shares of
Common Stock indicated as beneficially owned by them, except as otherwise noted.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
BENEFICIAL OWNERSHIP OF
COMMON STOCK PRIOR TO THE COMMON STOCK AFTER THE
COMMON STOCK OFFERING COMMON STOCK OFFERING
---------------------------- SHARES ----------------------------
NUMBER OF PERCENT OF BEING NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS OFFERED SHARES CLASS
- --------------------------------------------------- -------------- ------------ --------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Daniel L. Simon.................................... 9,334,008(1) 45.1% 500,000 8,584,008(2) 33.4%
321 North Clark Street
Chicago, Illinois 60610
Brian T. Clingen................................... --(3) -- 250,000 --(4) --
321 North Clark Street
Chicago, Illinois 60610
Paul G. Simon...................................... --(5) -- -- --(5) --
321 North Clark Street
Chicago, Illinois 60610
Michael J. Roche................................... 2,000 --(6) -- 2,000 --(6)
333 Beverly Road, E5-312A
Hoffman Estates, Illinois 60179
Michael B. Goldberg(7)............................. 55,460 --(6) -- 55,460 --(6)
Director
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Frank K. Bynum, Jr.(7)............................. 30,688 --(6) -- 30,688 --(6)
Director
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Kelso Investment Associates V, L.P.(8)(9).......... 2,847,871 15.6 -- 2,847,871 12.3
Kelso Equity Partners V, L.P.(8)(9)................ 151,779 --(6) -- 151,779 --(6)
Joseph N. Schuchert(8)(10)......................... 2,999,650 16.4 -- 2,999,650 12.9
Frank T. Nickell(8)(10)............................ 3,134,879 17.2 -- 3,134,879 13.5
George E. Matelich(8)(10).......................... 3,063,293 16.8 -- 3,063,293 13.2
Thomas R. Wall, IV(8)(10).......................... 3,080,072 16.9 -- 3,080,072 13.3
All directors and executive officers as a group (6
persons)......................................... 9,422,156 45.5 750,000 8,672,156 33.7
</TABLE>
- ------------------------
(1) Daniel L. Simon's beneficial ownership includes 5,596,540 shares that he
owns directly, 88,000 shares held by The Simon Family Limited Partnership,
of which he is a general partner, 1,995,000 shares issuable to him upon
exercise of the Management Warrants, 1,178,860 shares over which he has
voting control pursuant to certain voting trust agreements with Brian T.
Clingen and Paul G. Simon, and
47
<PAGE>
475,608 shares issuable to Brian T. Clingen and Paul G. Simon upon exercise
of the Management Warrants over which Daniel L. Simon has voting control
pursuant to certain voting trust agreements.
(2) Daniel L. Simon's beneficial ownership includes 5,096,540 shares that he
owns directly, 88,000 shares held by The Simon Family Limited Partnership of
which he is a general partner, 1,995,000 shares issuable to him upon
exercise of the Management Warrant, 928,860 shares over which he has voting
control pursuant to certain voting trust agreement with Brian T. Clingen and
Paul G. Simon, and 475,608 shares issuable to Brian T. Clingen and Paul G.
Simon upon exercise of the Management Warrants over which Daniel L. Simon
has voting control pursuant to certain voting trust agreement.
(3) Brian T. Clingen owns 1,052,852 shares directly, 352,078 shares issuable to
him upon exercise of the Management Warrants, and 125,008 shares held by The
Clingen Family Limited Partnership of which he is a general partner, which
represent 8.2% of the Common Stock. The voting rights for such shares have
been granted to Daniel L. Simon pursuant to a voting trust agreement.
(4) Brian T. Clingen owns 802,852 shares directly, 352,078 shares issuable to
him upon exercise of the Management Warrants, and 125,008 shares held by The
Clingen Family Limited Partnership of which he is a general partner, which
represent 5.4% of the Common Stock. The voting rights for such shares have
been granted to Daniel L. Simon pursuant to a voting trust agreement.
(5) Paul G. Simon owns 1,000 shares directly and 123,530 shares issuable to him
upon exercise of the Management Warrants which represent less than 1% of the
Common Stock, the voting rights of which have been granted to Daniel L.
Simon pursuant to a voting trust agreement.
(6) Represents less than 1% of the Common Stock.
(7) Messrs. Goldberg and Bynum may be deemed to share beneficial ownership of
shares of Common Stock owned of record by KIA V by virtue of their status as
limited partners of the general partner of KIA V and as limited partners of
KEP V. Messrs. Goldberg and Bynum disclaim beneficial ownership of such
securities. Mr. Goldberg has been a director of Parent since April 1996 and
Mr. Bynum became a director of Parent following consummation of the IPO.
(8) The business address for such person(s) is c/o Kelso & Company, 320 Park
Avenue, 24th Floor, New York, New York 10022.
(9) KIA V and KEP V due to their common control, could be deemed to
beneficially own each others shares, but each disclaims such beneficial
ownership.
(10) Messrs. Schuchert, Nickell, Matelich and Wall may be deemed to share
beneficial ownership of shares of Common Stock owned of record by KIA V and
KEP V, by virtue of their status as general partners of the general partner
of KIA V and as general partners of KEP V. Mssrs. Schuchert, Nickell,
Matelich and Wall share investment and voting power with respect to
securities owned by KIA V and KEP V, but disclaim beneficial ownership of
such securities.
48
<PAGE>
DESCRIPTION OF NOTES
Set forth below is a summary of certain provisions of the Notes. The Notes
will be issued pursuant to an indenture (the "Indenture") to be dated as of
, by and among the Company and , as trustee (the
"Trustee"). The following summaries of certain provisions of the Indenture are
summaries only, do not purport to be complete and are qualified in their
entirety by reference to all of the provisions of the Indenture. Capitalized
terms used herein and not otherwise defined shall have the meanings assigned to
them in the Indenture. Wherever particular provisions of the Indenture are
referred to in this summary, such provisions are incorporated by reference as a
part of the statements made and such statements are qualified in their entirety
by such reference.
GENERAL
The Notes will be senior subordinated, unsecured, general obligations of the
Company, limited in aggregate principal amount to $200 million. The Notes will
be subordinate in right of payment to certain other debt obligations of the
Company. The Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and integral multiples thereof.
The Notes will mature on , 2006. The Notes will bear interest
at the rate per annum stated on the cover page hereof from the date of issuance
or from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually on and of each year,
commencing , 1997, to the persons in whose names such Notes are
registered at the close of business on the or immediately
preceding such Interest Payment Date. Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be presented for registration of transfer or exchange, at the
office or agency of the Company maintained for such purpose, which office or
agency shall be maintained in the Borough of Manhattan, The City of New York. At
the option of the Company, payment of interest may be made by check mailed to
the Holders of the Notes at the addresses set forth upon the registry books of
the Company. No service charge will be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Until otherwise designated by the Company, the Company's office or agency will
be the corporate trust office of the Trustee presently located at the office of
the Trustee in the Borough of Manhattan, The City of New York.
SUBORDINATION
The Notes will be general, unsecured obligations of the Company,
subordinated in right of payment to all Senior Debt of the Company. On a pro
forma basis, as of June 30, 1996, after giving effect to the Transactions, the
Offerings and the application of the proceeds therefrom, the Company would have
had outstanding an aggregate of approximately $123.3 million of Senior Debt.
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 (including any repurchases of 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 Debt 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 Debt are first paid in full
in cash or Cash Equivalents (or such payment is duly provided for) or otherwise
to the extent holders accept satisfaction of amounts due by settlement in other
than cash or Cash Equivalents, or (ii) in the event of default in the payment of
any principal of, premium, if any, or interest on Senior Debt 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.
49
<PAGE>
Upon (i) the happening of an event of default (other than a Payment Default)
that permits the holders of Senior Debt to declare such Senior Debt to be due
and payable and (ii) written notice of such event of default given to the
Company and the Trustee by the Representative under the Credit Agreement or the
holders of an aggregate of at least $10 million principal amount outstanding of
any other Senior Debt or their representative (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 be made by or on behalf of
the Company which is an obligor under such Senior Debt on account of the
principal of, premium, if any, or interest on the Notes (including any
repurchases of any of 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 Senior Debt 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 or the commencement of
such Payment Blockage Period (whether or not such event of default is on the
same issue of Senior Debt) shall be made the basis for the commencement of any
other Payment Blockage Period.
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 Debt of the Company will
first be entitled to receive payment in full in cash or Cash Equivalents (or
have such payment duly provided for) before the Holders 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 or
the Trustee on behalf of the Holders 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 Debt or their
representative to the extent necessary to make payment in full (or have such
payment duly provided for) on all such Senior Debt remaining unpaid, after
giving effect to any concurrent payment or distribution to the holders of such
Senior Debt.
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 Debt, and shall be
paid or delivered by the Trustee to the holders of such Senior Debt 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 Debt may have been issued, ratably according to
the aggregate principal amounts remaining unpaid on account of such Senior Debt
held or represented by each, for application to the payment of all such Senior
Debt remaining unpaid, to the extent necessary to pay or to provide for the
payment of all such Senior Debt in full in cash or Cash Equivalents after giving
effect to any concurrent payment or distribution to the holders of such Senior
Debt.
No provision contained in the Indenture or the Notes will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest on the Notes. The subordination
provisions of the Indenture and the Notes will not prevent the occurrence of any
Default or Event of Default under the Indenture or limit the rights of the
Trustee or any Holder to pursue any other rights or remedies with respect to the
Notes.
50
<PAGE>
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors or the Company or a
marshalling of assets or liabilities of the Company, holders of the Notes may
receive ratably less than other creditors.
OPTIONAL REDEMPTION
The Company will not have the right to redeem any Notes prior to
, 2001 (other than out of the Net Cash Proceeds of a Public
Equity Offering or an Equity Private Placement, as described in the next
following paragraph). The Notes will be redeemable for cash at the option of the
Company, in whole or in part, at any time on or after , 2001,
upon not less than 30 days nor more than 60 days notice to each holder of Notes,
at the following redemption prices (expressed as percentages of the principal
amount) if redeemed during the 12-month period commencing of the years
indicated below, in each case (subject to the right of Holders of record on a
Record Date to receive interest due on an Interest Payment Date that is on or
prior to such Redemption Date) together with accrued and unpaid interest thereon
to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2001............................................................................. %
2002............................................................................. %
2003............................................................................. %
2004 and thereafter.............................................................. 100.000%
</TABLE>
Until , 1999, upon any Public Equity Offering or Equity
Private Placement, in each case resulting in Net Cash Proceeds of $100 million
or more which are then contributed in full to the Company, up to $70 million
aggregate principal amount of the Notes may be redeemed at the option of the
Company within 120 days of such Public Equity Offering or Equity Private
Placement, on not less than 30 days, but not more than 60 days, notice to each
holder of the Notes to be redeemed, with cash from the Net Cash Proceeds of such
Public Equity Offering or Equity Private Placement, at % of principal,
(subject to the right of Holders of record on a Record Date to receive interest
due on an Interest Payment Date that is on or prior to such Redemption Date)
together with accrued and unpaid interest to the date of redemption; PROVIDED,
HOWEVER, that immediately following such redemption not less than $130 million
aggregate principal amount of the Notes are outstanding.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a PRO RATA basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
The Notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption to the Holder
of each Note to be redeemed to such Holder's last address as then shown upon the
registry books of the Registrar. Any notice which relates to a Note to be
redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after the
date of redemption, interest will cease to accrue on the Notes or portions
thereof called for redemption, unless the Company defaults in the payment
thereof.
CERTAIN COVENANTS
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
The Indenture will provide that in the event that a Change of Control has
occurred, each holder of Notes will have the right, at such holder's option,
pursuant to an offer by the Company (the "Change of Control Offer"), to require
the Company to repurchase all or any part of such holder's Notes (PROVIDED, that
the principal amount of such Notes must be $1,000 or an integral multiple
thereof) on a date (the
51
<PAGE>
"Change of Control Purchase Date") that is no later than 35 Business Days after
the occurrence of such Change of Control, at a cash price (the "Change of
Control Purchase Price") equal to 101% of the principal amount thereof, together
with accrued interest to the Change of Control Purchase Date. The Change of
Control Offer shall be made within 10 Business Days following a Change of
Control and shall remain open for 20 Business Days following its commencement
(the "Change of Control Offer Period"). Upon expiration of the Change of Control
Offer Period, the Company promptly shall purchase all Notes properly tendered in
response to the Change of Control Offer.
If the terms of any outstanding Senior Debt prohibit the Company from
repurchasing Notes in accordance with the terms of this covenant, then prior to
the making of the offer, but in any event within 10 Business Days following any
Change of Control, the Company covenants to (i) repay in full such Senior Debt
or offer to repay in full such Senior Debt and repay such Senior Debt of each
holder thereof who has accepted such offer or (ii) obtain the requisite consent
under such Senior Debt to permit the repurchase of Notes in accordance with the
terms of this covenant. The Company shall first comply with the preceding
sentence before it shall be required to repurchase Notes pursuant to this
covenant.
As used herein, a "Change of Control" means (i) any merger or consolidation
of the Company or the Parent with or into any person or any sale, transfer or
other conveyance, whether direct or indirect, of all or substantially all of the
assets of the Company or the Parent, on a consolidated basis, in one transaction
or a series of related transactions, if, immediately after giving effect to such
transaction(s), any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other
than the Parent in the case of the Company or a Permitted Holder or Holders, is
or becomes the "beneficial owner," directly or indirectly, of more than 50% of
the total voting power in the aggregate normally entitled to vote in the
election of directors, managers, or trustees, as applicable, of the
transferee(s) or surviving entity or entities, (ii) any "person" or "group" (as
such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act, whether or not applicable), other than the Parent in the case of the
Company or a Permitted Holder or Holders, is or becomes the "beneficial owner,"
directly or indirectly, of more than 50% of the total voting power in the
aggregate of all classes of Capital Stock of the Company or the Parent, as the
case may be, then outstanding normally entitled to vote in elections of
directors, or (iii) during any period of 12 consecutive months after the Issue
Date, individuals who at the beginning of any such 12-month period constituted
the Board of Directors of the Company or the Parent (together with any new
directors whose election by such Board or whose nomination for election by the
shareholders of the Company or the Parent, as the case may be, was approved by a
vote of a majority 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 or the Parent, as the case may
be, then in office.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest) of all Notes so tendered and (iii) deliver to the Trustee Notes so
accepted together with an Officers' Certificate listing the Notes or portions
thereof being purchased by the Company. The Paying Agent promptly will pay the
Holders of Notes so accepted an amount equal to the Change of Control Purchase
Price (together with accrued and unpaid interest), and the Trustee promptly will
authenticate and deliver to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered. Any Notes not so accepted will
be delivered promptly by the Company to the Holder thereof. The Company publicly
will announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company and the Parent, and, thus, the removal
of incumbent management.
The phrase "all or substantially all" of the assets of the Company or the
Parent will likely be interpreted under applicable state law and will be
dependent upon particular facts and circumstances. As a
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result, there may be a degree of uncertainty in ascertaining whether a sale or
transfer of "all or substantially all" of the assets of the Company or the
Parent has occurred. In addition, no assurances can be given that the Company
will be able to acquire Notes tendered upon the occurrence of a Change of
Control.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws.
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND DISQUALIFIED CAPITAL
STOCK
The Indenture will provide that, except as set forth below in this covenant,
the Company will not, and will not permit any of its Subsidiaries to, directly
or indirectly, issue, assume, guaranty, incur, become directly or indirectly
liable with respect to (including as a result of an Acquisition), or otherwise
become responsible for, contingently or otherwise (individually and
collectively, to "incur" or, as appropriate, an "incurrence"), any Indebtedness
or any Disqualified Capital Stock (including Acquired Indebtedness).
Notwithstanding the foregoing:
(a) if (i) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a PRO FORMA
basis to, such incurrence of Indebtedness or Disqualified Capital Stock and
(ii) on the date of such incurrence (the "Incurrence Date"), the
Consolidated Leverage Ratio of the Company as of the end of the Reference
Period immediately preceding the Incurrence Date, after giving effect on a
PRO FORMA basis to such incurrence of such Indebtedness or Disqualified
Capital Stock and, to the extent set forth in the definition of Consolidated
Leverage Ratio, the use of proceeds thereof, would not exceed 6.5 to 1 from
the Issue Date to and including the third anniversary of the Issue Date,
6.25 to 1 from the third anniversary of the Issue Date to and including the
fifth anniversary thereof, and 6.0 to 1 thereafter (each a "Debt Incurrence
Ratio"), then the Company may incur such Indebtedness or Disqualified
Capital Stock;
(b) the Company and the Subsidiaries may incur Indebtedness evidenced by
the Notes and represented by the Indenture up to the amounts specified
therein as of the date thereof;
(c) the Company and the Subsidiaries may incur Purchase Money
Indebtedness (including any Indebtedness issued to refinance, replace or
refund such Indebtedness) on or after the Issue Date, PROVIDED, that (i) the
aggregate amount of such Indebtedness incurred on or after the Issue Date
and outstanding at any time pursuant to this paragraph (c) shall not exceed
$10 million, and (ii) in each case, such Indebtedness shall not constitute
more than 100% of the cost (determined in accordance with GAAP) to the
Company or such Subsidiary, as applicable, of the property so purchased or
leased;
(d) the Company and the Subsidiaries, as applicable, may incur
Refinancing Indebtedness with respect to any Indebtedness or Disqualified
Capital Stock, as applicable, described in clauses (a), (b) and (c) of this
covenant or which is outstanding on the Issue Date so long as, in the case
of Refinancing Indebtedness which is not Senior Debt, such Refinancing
Indebtedness is secured only by the assets that secured the Indebtedness so
refinanced;
(e) the Company and the Subsidiaries may incur Permitted Indebtedness;
(f) Indebtedness incurred pursuant to the Credit Agreement up to an
aggregate amount outstanding (including any Indebtedness issued to
refinance, refund or replace such Indebtedness) at any time not to exceed
$300 million minus the amount of any such Indebtedness retired with Net Cash
Proceeds from any Asset Sale and plus any such Indebtedness constituting
Interest Swap and Hedging Obligations;
(g) other Indebtedness of the Company or its Subsidiaries not to exceed
$25 million at any time outstanding, of which only $10 million may be
incurred by the Subsidiaries.
Indebtedness or Disqualified Capital Stock of any Person which is
outstanding at the time such Person becomes a Subsidiary of the Company
(including upon designation of any subsidiary or other person as a
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Subsidiary) or is merged with or into or consolidated with the Company or a
Subsidiary of the Company shall be deemed to have been Incurred at the time such
Person becomes such a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company, as applicable. For
purposes of determining amounts of Indebtedness under this covenant, (i)
Indebtedness resulting from security interests granted with respect to
Indebtedness otherwise included in the determination of Indebtedness, and
guarantees (and security interests with respect thereof) of, or obligations with
respect to letters of credit supporting, Indebtedness otherwise included in the
determination of Indebtedness shall not be included in the determination of
Indebtedness, (ii) any Liens permitted hereunder supporting Indebtedness
otherwise included in the determination of Indebtedness shall not be included in
the determination of Indebtedness and (iii) Indebtedness permitted under this
covenant need not be permitted solely by reference to one provision permitting
such Indebtedness but may be permitted in part by reference to one such
provision and in part by reference to one or more other provisions of this
covenant. For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described above, the Company in its sole discretion shall
classify such item of Indebtedness and shall only be required to include the
amount and type of Indebtedness in one of such categories.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, make any Restricted Payment
if, after giving effect to such Restricted Payment on a PRO FORMA basis, (1) a
Default or an Event of Default shall have occurred and be continuing, (2) the
Company is not permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio in paragraph (a) of the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock," or (3) the aggregate amount of all Restricted Payments made by the
Company and its Subsidiaries, including after giving effect to such proposed
Restricted Payment, from and after the Issue Date, would exceed the sum of (a)
Consolidated EBITDA of the Company and its Consolidated Subsidiaries for the
period (taken as one accounting period), commencing on the first day of the
first full fiscal quarter commencing after the Issue Date, to and including the
last day of the fiscal quarter ended immediately prior to the date of each such
calculation (or, in the event Consolidated EBITDA for such period is a deficit,
then minus 100% of such deficit), minus (b) 1.5 times the Consolidated Fixed
Charges over such period, plus (c) the aggregate Net Cash Proceeds received by
the Company from the sale of its Qualified Capital Stock or Indebtedness to the
extent subsequently converted into Qualified Capital Stock (other than (i) to a
Subsidiary of the Company and (ii) to the extent applied in connection with a
Qualified Exchange) or the fair market value (as determined by the Board of
Directors reasonably and in good faith) of securities of the Parent issued in
connection with an acquisition by the Company or any of its Subsidiaries, in
each case after the Issue Date, plus (d) 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 or from
designations of Unrestricted Subsidiaries as Subsidiaries, valued in each case
as provided in the definition of "Investment", not to exceed the amount of
Investments previously made by the Company and its Subsidiaries in such Person,
plus (e) $15 million.
The preceding paragraph, however, will not prohibit (w) payments made in
accordance with the "Use of Proceeds", (x) repurchases of Capital Stock out of
the proceeds of any "key man" life insurance policies on Daniel L. Simon
existing on the Issue Date and described in this Prospectus and additional
repurchases of Capital Stock from employees of the Company or its Subsidiaries
upon the death, disability or termination of employment in an aggregate amount
to all employees not to exceed $1 million per year or $2 million in the
aggregate on and after the Issue Date, (y) a Qualified Exchange, or (z) the
payment of any dividend on Qualified Capital Stock within 60 days after the date
of its declaration if such dividend could have been made on the date of such
declaration in compliance with the foregoing provisions. The full amount of any
Restricted Payment made pursuant to the foregoing clauses (x) and (z) of the
immediately preceding sentence, however, will be deducted in the calculation of
the aggregate amount of
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Restricted Payments available to be made referred to in clause (3) of the
immediately preceding paragraph.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, assume or suffer to
exist any consensual restriction on the ability of any Subsidiary of the Company
to pay dividends or make other distributions to or on behalf of, or to pay any
obligation to or on behalf of, or otherwise to transfer assets or property to or
on behalf of, or make or pay loans or advances to or on behalf of, the Company
or any Subsidiary of the Company, except (a) restrictions imposed by the Notes
or the Indenture, (b) restrictions imposed by applicable law, (c) restrictions
under any Acquired Indebtedness not incurred in violation of the Indenture or
any agreement relating to any property, asset, or business acquired by the
Company or any of its Subsidiaries, which restrictions in each case existed at
the time of acquisition, were not put in place in connection with or in
anticipation of such acquisition and are not applicable to any person, other
than the person acquired, or to any property, asset or business, other than the
property, assets and business so acquired, (d) any such restriction or
requirement imposed by Indebtedness incurred under paragraph (f) of the covenant
"Limitation of Incurrence of Additional Indebtedness and Disqualified Capital
Stock," (e) restrictions with respect solely to a Subsidiary of the Company
imposed pursuant to a binding agreement which has been entered into for the sale
or disposition of all or substantially all of the Equity Interests or of any
assets of such Subsidiary, provided such restrictions apply solely to the Equity
Interests or assets of such Subsidiary, (f) restrictions on transfer contained
in Purchase Money Indebtedness incurred pursuant to paragraph (c) of the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock," provided such restrictions relate only to the transfer of the
property acquired with the proceeds of such Purchase Money Indebtedness, and (g)
in connection with and pursuant to permitted Refinancing Indebtedness,
replacements of restrictions imposed pursuant to clause (a) or (f) of this
paragraph that are not more restrictive than those being replaced and do not
apply to any other person or assets than those that would have been covered by
the restrictions in the Indebtedness so refinanced. Notwithstanding the
foregoing, neither (a) customary provisions restricting subletting or assignment
of any lease entered into in the ordinary course of business, consistent with
industry practice, nor (b) Liens permitted under the terms of the Indenture
shall in and of themselves be considered a restriction on the ability of the
applicable Subsidiary to transfer such agreement or assets, as the case may be.
LIMITATIONS ON LAYERING INDEBTEDNESS
The Indenture will provide that the Company will not, directly or
indirectly, incur, or suffer to exist any Indebtedness that is expressly
subordinate in right of payment to any other Indebtedness of the Company unless,
by its terms, such Indebtedness is subordinate in right of payment to, or ranks
PARI PASSU with, the Notes.
LIMITATION ON LIENS SECURING INDEBTEDNESS
The Company will not, and will not permit any Subsidiary to, create, incur,
assume or suffer to exist any Lien of any kind, other than Permitted Liens, upon
any of their respective assets now owned or acquired on or after the date of the
Indenture or upon any income or profits therefrom securing any Indebtedness of
the Company other than Senior Debt of the Company, unless the Company provides,
and causes its Subsidiaries to provide, concurrently or immediately thereafter,
that the Notes are equally and ratably so secured so long as such Lien exists,
PROVIDED that, if such Indebtedness is Subordinated Indebtedness, the Lien
securing such Subordinated Indebtedness shall be subordinate and junior to the
Lien securing the Notes with the same relative priority as such Subordinated
Indebtedness shall have with respect to the Notes.
LIMITATION ON SALE OF ASSETS AND SUBSIDIARY STOCK
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, in one or a series of related transactions, convey,
sell, transfer, assign or otherwise dispose of, directly or
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indirectly, any of its property, business or assets, including by merger or
consolidation (other than a merger or consolidation of the Company), and
including any sale or other transfer or issuance of any Equity Interests of any
Subsidiary of the Company, whether by the Company or a Subsidiary of either or
through the issuance, sale or transfer of Equity Interests by a Subsidiary of
the Company (an "Asset Sale"), unless (l)(a) within 210 days after the date of
such Asset Sale, the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount")
are applied to the optional redemption of the Notes in accordance with the terms
of the Indenture or to the repurchase of Notes pursuant to a cash offer (the
"Asset Sale Offer") to repurchase Notes at a purchase price (the "Asset Sale
Offer Price") of 100% of principal amount, plus accrued interest to the date of
payment, made within 180 days of such Asset Sale or (b) within 180 days
following such Asset Sale, the Asset Sale Offer Amount is (i) invested (or
committed to be invested, and in fact is so invested, within an additional 90
days) in assets and property other than notes, bonds, obligation and securities
(except in connection with the acquisition of a wholly owned Subsidiary) which
in the good faith reasonable judgment of the Board will immediately constitute
or be a part of a Related Business of the Company or such Subsidiary immediately
following such transaction or (ii) used to permanently reduce Senior Debt
(PROVIDED that in the case of a revolver or similar arrangement that makes
credit available, such commitment is also permanently reduced by such amount),
(2) at least 75% of the consideration for such Asset Sale or series of related
Asset Sales consists of Cash, Cash Equivalents or Permitted Investments, (3) no
Default or Event of Default shall have occurred and be continuing at the time
of, or would occur after giving effect, on a PRO FORMA basis, to, such Asset
Sale, and (4) the Board of Directors of the Company determines in good faith
that the Company or such Subsidiary, as applicable, receives fair market value
for such Asset Sale.
The Indenture will provide that an acquisition of Notes pursuant to an Asset
Sale Offer may be deferred until the accumulated Net Cash Proceeds from Asset
Sales not applied to the uses set forth in (l) in the preceding paragraph (the
"Excess Proceeds") exceeds $15 million and that each Asset Sale Offer shall
remain open for 20 Business Days following its commencement (the "Asset Sale
Offer Period"). Upon expiration of the Asset Sale Offer Period, the Company
shall apply the Asset Sale Offer Amount plus an amount equal to accrued interest
to the purchase of all Notes properly tendered (on a PRO RATA basis if the Asset
Sale Offer Amount is insufficient to purchase all Notes so tendered) at the
Asset Sale Offer Price (together with accrued interest). To the extent that the
aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than
the Asset Sale Offer Amount, the Company may use any remaining Net Cash Proceeds
for general corporate purposes as otherwise permitted by the Indenture and
following each Asset Sale Offer the Excess Proceeds amount shall be reset to
zero. For purposes of (2) in the preceding paragraph, total consideration
received means the total consideration received for such Asset Sales minus the
amount of (a) Senior Debt assumed by a transferee and (b) property that within
30 days of such Asset Sale is converted into Cash or Cash Equivalents.
Notwithstanding the foregoing provisions of the prior paragraph:
(i) the Company and its Subsidiaries may, in the ordinary course of
business, convey, sell, transfer, assign or otherwise dispose of inventory
acquired and held for resale in the ordinary course of business;
(ii) the Company and its Subsidiaries may convey, sell, transfer, assign
or otherwise dispose of assets pursuant to and in accordance with the
limitation on mergers, sales or consolidations provisions in the Indenture;
(iii) the Company and its Subsidiaries may sell or dispose of damaged,
worn out or other obsolete property in the ordinary course of business so
long as such property is no longer necessary for the proper conduct of the
business of the Company or such Subsidiary, as applicable;
(iv) the Subsidiaries may convey, sell, transfer, assign or otherwise
dispose of assets to the Company or any of its wholly owned Subsidiaries;
and
(v) the Company and its Subsidiaries may convey, sell, transfer, assign
or otherwise dispose of assets (in addition to those transactions described
in clauses (i) through (iv) above) with an aggregate fair market value of $5
million in any fiscal year.
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All Net Cash Proceeds from an Event of Loss shall be invested, used for
prepayment of Senior Debt, or used to repurchase Notes, all within the period
and as otherwise provided above in clause 1(a) or 1(b) of the first paragraph of
this covenant.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the Exchange
Act and the rules and regulations thereunder and all other applicable Federal
and state securities laws.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture will provide that neither the Company nor any of its
Subsidiaries will be permitted after the Issue Date to enter into or suffer to
exist any contract, agreement, arrangement or transaction (other than guarantees
of the Credit Agreement by the Company's Subsidiaries) with any Affiliate (an
"Affiliate Transaction"), or any series of related Affiliate Transactions, (i)
unless it is determined that the terms of such Affiliate Transaction are fair
and reasonable to the Company, and no less favorable to the Company than could
have been obtained in an arm's length transaction with a non-Affiliate and, (ii)
if involving consideration to either party in excess of $1 million, unless such
Affiliate Transaction(s) is evidenced by an Officers' Certificate addressed and
delivered to the Trustee certifying that such Affiliate Transaction (or
Transactions) has been approved by a majority of the members of the Board of
Directors that are disinterested in such transaction and (iii) if involving
consideration to either party in excess of $10 million, unless in addition the
Company, prior to the consummation thereof, obtains a written favorable opinion
as to the fairness of such transaction to the Company from a financial point of
view from an independent investment banking firm of national reputation.
The foregoing limitation shall not apply to (i) any transaction between the
Company and any of its Subsidiaries or between Subsidiaries, (ii) the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company and any employment agreement entered into by the
Company or any Subsidiary in the ordinary course of business and (iii) any tax
sharing arrangement between the Company and Parent.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture will provide that the Company will not, directly or
indirectly, consolidate with or merge with or into another person or sell,
lease, convey or transfer all or substantially all of its assets (computed on a
consolidated basis), whether in a single transaction or a series of related
transactions, to another Person or group of affiliated Persons, unless (i)
either (a) the Company is the continuing entity or (b) the resulting, surviving
or transferee entity is a corporation organized under the laws of the United
States, any state thereof or the District of Columbia and expressly assumes by
supplemental indenture all of the obligations of the Company in connection with
the Notes and the Indenture; (ii) no Default or Event of Default shall exist or
shall occur immediately after giving effect on a PRO FORMA basis to such
transaction; (iii) immediately after giving effect to such transaction on a PRO
FORMA basis, the Consolidated Net Worth of the consolidated surviving or
transferee entity is at least equal to the Consolidated Net Worth of the Company
immediately prior to such transaction; and (iv) immediately after giving effect
to such transaction on a PRO FORMA basis, the consolidated resulting, surviving
or transferee entity would immediately thereafter be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio set forth
in paragraph (a) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock."
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture with the same
effect as if such successor corporation had been named therein as the Company,
and the Company shall be released from the obligations under the Notes and the
Indenture except with respect to any obligations that arise from, or are related
to, such transaction.
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For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Company's interest in which constitutes all or
substantially all of the properties and assets of the Company shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Company.
LIMITATION ON STATUS AS INVESTMENT COMPANY
The Indenture will prohibit the Company and its Subsidiaries from being
required to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or from otherwise becoming subject
to regulation under the Investment Company Act.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries or Unrestricted 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 solicitation documents relating
to such consent, waiver or agreement.
REPORTS
The Indenture will provide that whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the Commission, and deliver to the Trustee and to each Holder
within 15 days after it has filed such with the Commission (if the Commission
will accept such filing), annual, quarterly and other reports required by
Section 13 or 15(d) of the Exchange Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will define an Event of Default as (i) the failure by the
Company to pay any installment of interest on the Notes as and when the same
becomes due and payable and the continuance of any such failure for 30 days,
(ii) the failure by the Company to pay all or any part of the principal, or
premium, if any, on the Notes when and as the same becomes due and payable at
maturity, redemption, by acceleration or otherwise, including, without
limitation, payment of the Change of Control Purchase Price or the Asset Sale
Offer Price, or otherwise, (iii) the failure by the Company or any Subsidiary to
observe or perform any other covenant or agreement contained in the Notes or the
Indenture and, subject to certain exceptions, the continuance of such failure
for a period of 30 days after written notice is given to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Notes outstanding (PROVIDED, HOWEVER, that the
grace period after notice for an Event of Default arising as a result of the
Company's inability to repay Senior Debt in full, or to obtain requisite
consents from holders of Senior Debt to repurchase Notes, following a Change of
Control, as described in " -- Repurchase of Notes at the Option of Holders Upon
a Change of Control", shall be five days), (iv) certain events of bankruptcy,
insolvency or reorganization in respect of the Company or any of its Significant
Subsidiaries, (v) a default in the payment of principal on any issue of
Indebtedness of the Company or any of its Subsidiaries at final stated maturity
or any acceleration for any other reason of the stated maturity of any
Indebtedness of the Company or any of its Subsidiaries in each case with an
aggregate principal amount in excess of $10 million and (vi) final unsatisfied
judgments not covered by insurance aggregating in excess of $10 million, at any
one time rendered against the Company or any of its Subsidiaries and either (a)
the commencement by any creditor of any enforcement proceeding upon any such
judgment or order or (b) such judgment or order is not stayed, bonded or
discharged within 60 days. The Indenture provides that if a Default occurs and
is continuing, the Trustee must, within 90 days after the occurrence of such
default, give to the Holders notice of such default.
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If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv), above, relating to the Company only) then in
every such case, unless the principal of all of the Notes shall have already
become due and payable, either the Trustee or the Holders of 25% in aggregate
principal amount of the Notes then outstanding, by notice in writing to the
Company (and to the Trustee if given by Holders) (an "Acceleration Notice"), may
declare all principal, determined as set forth below, and accrued interest
thereon to be due and payable immediately; PROVIDED, HOWEVER, that if any Senior
Debt is outstanding pursuant to the Credit Agreement, upon a declaration of such
acceleration, such principal and interest shall be due and payable upon the
earlier of (x) the third Business Day after the sending to the Company and the
Representative of such written notice, unless such Event of Default is cured or
waived prior to such date and (y) the date of acceleration of any Senior Debt
under the Credit Agreement. If an Event of Default specified in clause (iv),
above, relating to the Company only occurs, all principal and accrued interest
thereon will be immediately due and payable on all outstanding Notes without any
declaration or other act on the part of Trustee or the Holders. The Holders of a
majority in aggregate principal amount of Notes generally are authorized to
rescind such acceleration if all existing Events of Default, other than the
non-payment of the principal of, premium, if any, and interest on the Notes
which have become due solely by such acceleration, have been cured or waived.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any default, except a default
in the payment of principal of or interest on any Note not yet cured or a
default with respect to any covenant or provision which cannot be modified or
amended without the consent of the Holder of each outstanding Note affected.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, the Trustee will be under no obligation to exercise any of its rights
or powers under the Indenture at the request, order or direction of any of the
Holders, unless such Holders have offered to the Trustee reasonable security or
indemnity. Subject to all provisions of the Indenture and applicable law, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture will provide that the Company may, at its option and at any
time within one year of the Stated Maturity of the Notes, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented, and the Indenture
shall cease to be of further effect as to all outstanding Notes, except as to
(i) rights of Holders to receive payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due from the
trust funds; (ii) the Company's obligations with respect to such Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes, and the maintenance of an office or agency for payment and
money for security payments held in trust; (iii) the rights, powers, trust,
duties, and immunities of the Trustee, and the Company's obligations in
connection therewith; and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, U.S. legal tender, U.S. Government Obligations or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such Notes on the stated date for
payment thereof or on the redemption date of such principal or installment of
principal of, premium, if any, or interest on such Notes, and the
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holders of Notes must have a valid, perfected, exclusive security interest in
such trust; (ii) in the case of the Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to Trustee confirming that (A) the Company has received from, or
there has been published by the Internal Revenue Service, a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the holders of such Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to such Trustee confirming
that the holders of such Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a default
under the Indenture or any other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee
an Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the holders of such Notes over any other creditors
of the Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others; and (vii) the Company
shall have delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that the conditions precedent provided for in, in the case
of the officers' certificate, (i) through (vi) and, in the case of the opinion
of counsel, clauses (i) (with respect to the validity and perfection of the
security interest), (ii), (iii) and (v) of this paragraph have been complied
with.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of premium, if any,
and interest on the Notes when due, then the obligations of the Company under
the Indenture will be revived and no such defeasance will be deemed to have
occurred.
AMENDMENTS AND SUPPLEMENTS
The Indenture will contain provisions permitting the Company and the Trustee
to enter into a supplemental indenture for certain limited purposes without the
consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding, the
Company and the Trustee are permitted to amend or supplement the Indenture or
any supplemental indenture or modify the rights of the Holders; provided that no
such modification may, without the consent of each Holder affected thereby: (i)
change the Stated Maturity on any Note, or reduce the principal amount thereof
or the rate (or extend the time for payment) of interest thereon or any premium
payable upon the redemption thereof, or change the place of payment where, or
the coin or currency in which, any Note or any premium or the interest thereon
is payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or reduce the Change of Control
Purchase Price or the Asset Sale Offer Price or alter the provisions (including
the defined terms used therein) regarding the right of the Company to redeem the
Notes in a manner adverse to the Holders, or (ii) reduce the percentage in
principal amount of the outstanding Notes, the consent of whose Holders is
required for any such amendment, supplemental indenture or waiver provided for
in the Indenture, or (iii) modify any of the waiver provisions, except to
increase any required percentage or to provide that certain other provisions of
the Indenture cannot be modified or waived without the consent of the Holder of
each outstanding Note affected thereby.
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NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture will provide that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company or any
successor entity shall have any personal liability in respect of the obligations
of the Company under the Indenture or the Notes by reason of his or its status
as such stockholder, employee, officer or director, except to the extent such
person is an Issuer.
CERTAIN DEFINITIONS
"ACQUIRED INDEBTEDNESS" means Indebtedness or Disqualified Capital Stock of
any person existing at the time such person becomes a Subsidiary of the Company,
including by designation, or is merged or consolidated into or with the Company
or one of its Subsidiaries.
"ACQUISITION" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"AFFILIATE" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, PROVIDED, THAT, with respect to ownership interest in the Company
and its Subsidiaries a Beneficial Owner of 10 % or more of the total voting
power normally entitled to vote in the election of directors, managers or
trustees, as applicable, shall for such purposes be deemed to constitute
control.
"AVERAGE LIFE" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of (a) the
product of the number of years from the date of determination to the date or
dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"BENEFICIAL OWNER" or "BENEFICIAL OWNER" for purposes of the definition of
Change of Control has the meaning attributed to it in Rules 13d-3 and 13d-5
under the Exchange Act (as in effect on the Issue Date), whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"CAPITAL STOCK" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"CAPITALIZED LEASE OBLIGATION" means, as applied to any Person, any lease of
any property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person, as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person.
"CASH EQUIVALENT" means (a)(i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit issued by any domestic commercial bank of recognized
standing having capital and surplus in excess of $500 million or (iii)
commercial paper issued by others rated at least A-1 or the equivalent thereof
by Standard & Poor's Corporation or at least P-1 or the equivalent thereof by
Moody's Investors Service, Inc. and in each case maturing within one year after
the date of acquisition or (b) shares of money market mutual funds or similar
funds having assets in excess of $500,000,000.
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"CONSOLIDATED EBITDA" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining Consolidated Net
Income), without duplication, the sum of (i) consolidated income tax expense,
(ii) consolidated depreciation and amortization expense, PROVIDED that
consolidated depreciation and amortization of a Subsidiary that is a less than
wholly owned Subsidiary shall only be added to the extent of the equity interest
of the Company in such Subsidiary and only to the extent that dividends in
excess of such Person's PRO RATA share of net income are paid, and (iii)
Consolidated Fixed Charges, less the amount of all cash payments made by such
person or any of its Subsidiaries during such period to the extent such payments
relate to non-cash charges that were added back in determining Consolidated
EBITDA for such period or any prior period.
"CONSOLIDATED FIXED CHARGES" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, including (i) original issue
discount and non-cash interest payments or accruals on any Indebtedness, (ii)
the interest portion of all deferred payment obligations, and (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptances and letters of credit financings and currency and Interest Swap and
Hedging Obligations, in each case to the extent attributable to such period, and
(b) the amount of dividends accrued or payable (or guaranteed) by such person or
any of its Consolidated Subsidiaries in respect of preferred stock (other than
by Subsidiaries of such person to such person or such person's wholly owned
Subsidiaries). For purposes of this definition, (x) interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP and (y) interest expense
attributable to any Indebtedness represented by the guaranty by such person or a
Subsidiary of such person of an obligation of another person shall be deemed to
be the interest expense attributable to the Indebtedness guaranteed.
"CONSOLIDATED LEVERAGE RATIO" of any person on any date of determination
(the "Transaction Date") means the ratio, on a PRO FORMA basis after giving
effect to the application of any proceeds of Indebtedness, of (a) Indebtedness
as of the end of the Reference Period to (b) the aggregate amount of
Consolidated EBITDA of such person attributable to continuing operations and
businesses (exclusive of amounts attributable to operations and businesses
permanently discontinued or disposed of) for the Reference Period; PROVIDED,
that for purposes of such calculation, (i) Acquisitions which occurred during
the Reference Period or subsequent to the Reference Period and on or prior to
the Transaction Date shall be assumed to have occurred on the first day of the
Reference Period and (ii) the incurrence of any Indebtedness or issuance of any
Disqualified Capital Stock subsequent to the Reference Period and on or prior to
the Transaction Date shall be assumed to have occurred on the last day of the
Reference Period.
"CONSOLIDATED NET INCOME" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains or losses which are either
extraordinary, unusual (as determined in accordance with GAAP) or are
nonrecurring (including any gain from the sale or other disposition of assets
outside the ordinary course of business or from the issuance or sale of any
capital stock or losses in connection with the Transactions), (b) the net
income, if positive, of any person, other than a wholly owned Consolidated
Subsidiary, in which such person or any of its Consolidated Subsidiaries has an
interest, except to the extent of the amount of any dividends or distributions
actually paid in cash to such person or a wholly owned Consolidated Subsidiary
of such person during such period, but in any case not in excess of such
person's PRO RATA share of such person's net income for such period and (c) the
net income, if positive, of any of such person's Consolidated Subsidiaries to
the extent that the declaration or payment of dividends or similar distributions
is not at the time permitted by operation of the terms of its charter or bylaws
or any other agreement, instrument, judgment, decree, order, or governmental
regulation applicable to such Consolidated Subsidiary.
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"CONSOLIDATED NET WORTH" of any person at any date means the aggregate
consolidated stockholders' equity of such person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would be
shown on the consolidated balance sheet of such person prepared in accordance
with GAAP, adjusted to exclude (to the extent included in calculating such
equity), (a) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock or treasury stock of such person and its Consolidated
Subsidiaries, (b) all upward revaluations and other write-ups in the book value
of any asset of such person or a Consolidated Subsidiary of such person
subsequent to the Issue Date, and (c) all investments in Subsidiaries that are
not Consolidated Subsidiaries and in persons that are not Subsidiaries.
"CONSOLIDATED SUBSIDIARY" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
"CREDIT AGREEMENT" means the credit agreement dated by and
among the Company, certain of its subsidiaries, certain financial institutions
and Bankers Trust Company, as agent, providing for (A) an aggregate $75 million
term loan facility, and (B) an aggregate $225 million revolving credit facility,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, as such credit agreement and/or
related documents may be amended, restated, supplemented, renewed, replaced or
otherwise modified from time to time whether or not with the same agent,
trustee, representative lenders or holders, and, subject to the proviso to the
next succeeding sentence, irrespective of any changes in the terms and
conditions thereof. Without limiting the generality of the foregoing, the term
"Credit Agreement" shall include agreements in respect of Interest Swap and
Hedging Obligations with lenders party to the Credit Agreement and shall also
include any amendment, amendment and restatement, renewal, extension,
restructuring, supplement or modification to any Credit Agreement and all
refundings, refinancings and replacements of any Credit Agreement, including any
agreement (i) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder, so long as borrowers and issuers include one or more of the Company
and its Subsidiaries and their respective successors and assigns, (iii)
increasing the amount of Indebtedness incurred thereunder or available to be
borrowed thereunder, PROVIDED that on the date such Indebtedness is incurred it
would not be prohibited by clause (f) of the covenant "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock," or (iv) otherwise
altering the terms and conditions thereof in a manner not expressly prohibited
by the terms hereof.
"DISQUALIFIED CAPITAL STOCK" means (a) except as set forth in (b), with
respect to any person, an Equity Interest of such person that, by its terms or
by the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time would
be, required to be redeemed or repurchased (including at the option of the
holder thereof) by such person or any of its Subsidiaries, in whole or in part,
on or prior to the Stated Maturity of the Notes and (b) with respect to any
Subsidiary of such person (including with respect to any Subsidiary of the
Company), any Equity Interest other than any common equity with no preference,
privileges, or redemption or repayment provisions.
"EQUITY INTEREST" of any Person means any shares, interests, participations
or other equivalents (however designated) in such Person's equity, and shall in
any event include any Capital Stock issued by, or partnership interests in, such
Person. Convertible or exchangeable Indebtedness shall not be deemed to be an
Equity Interest for purposes of clause (b) of the definition of Restricted
Payments to the extent acquired at any time the conversion or exchange feature
is not "in-the-money".
"EQUITY PRIVATE PLACEMENT" means any sale by the Parent of its Capital Stock
(other than Disqualified Capital Stock) not requiring registration under the
Securities Act.
"EVENT OF LOSS" means, with respect to any property or asset, any (i) loss,
destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
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"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession as in effect on the Issue Date.
"INDEBTEDNESS" of any person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of such any person, (i) in respect of
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), (ii) evidenced by bonds,
notes, debentures or similar instruments, (iii) representing the balance
deferred and unpaid of the purchase price of any property or services, (except
for balances incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors and except for balances
due and actually paid within six months of the date property is delivered or
services are rendered or, if not actually paid within six months, being
contested in good faith), (iv) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks, (v) under any Capitalized Lease
Obligation, or (vi) evidenced by a letter of credit or a reimbursement
obligation of such person with respect to any letter of credit; (b) all net
obligations of such person under Interest Swap and Hedging Obligations; (c) all
liabilities and obligations of others of the kind described in the preceding
clause (a) or (b) that such person has guaranteed or that is otherwise its legal
liability or which are secured by any assets or property of such person; (d) any
and all deferrals, renewals, extensions, refinancing and refundings (whether
direct or indirect) of, or amendments, modifications or supplements to, any
liability of the kind described in any of the preceding clauses (a), (b) or (c),
or this clause (d), whether or not between or among the same parties, and (e)
all Disqualified Capital Stock of such Person (measured at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends). For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital Stock, such Fair Market Value to be determined in good faith by the
board of directors of the issuer (or managing general partner of the issuer) of
such Disqualified Capital Stock. For purposes hereof, the amount of any
Indebtedness issued with original issue discount shall be the original purchase
price plus accreted interest, PROVIDED, HOWEVER, that such accretion shall not
be deemed an incurrence of Indebtedness.
"INTEREST SWAP AND HEDGING OBLIGATION" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"INVESTMENT" by any person in any other person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person or any agreement obligating a person to make any such acquisition; (b)
the making by such person of any deposit (in excess of $5 million in any one
transaction) with, or advance, loan or other extension of credit to, such other
person (including the purchase of property from another person subject to an
understanding or agreement, contingent or otherwise, obligating such Person to
resell such property to such other person) or any commitment to make any such
advance, loan or extension (but excluding accounts receivable or deposits
arising in the ordinary course of business); (c) other than guarantees of
Indebtedness of the Company or
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any Subsidiary to the extent permitted by the covenant "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock," the entering into by
such person of any guarantee of, or other credit support or contingent
obligation with respect to, Indebtedness or other liability of such other
person; (d) the making of any capital contribution by such person to such other
person, other than to the Company or a Subsidiary of the Company; and (e) the
designation by the Board of Directors of the Company of any person to be an
Unrestricted Subsidiary. The Company shall be deemed to make an Investment in an
amount equal to the fair market value of the net assets of any subsidiary (or,
if neither the Company nor any of its Subsidiaries has theretofore made an
Investment in such subsidiary, in an amount equal to the Investments being
made), at the time that such subsidiary is designated an Unrestricted
Subsidiary, and any property transferred to an Unrestricted Subsidiary from the
Company or a Subsidiary shall be deemed an Investment valued at its fair market
value at the time of such transfer.
"ISSUE DATE" means the date of first issuance of the Notes under the
Indenture.
"JUNIOR SECURITY" means any Qualified Capital Stock and any Indebtedness of
the Company that is subordinated in right of payment to Senior Debt at least to
the same extent as the Notes, and has no scheduled installment of principal due,
by redemption, sinking fund payment or otherwise, on or prior to the Stated
Maturity of the Notes.
"LIEN" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"NET CASH PROCEEDS" means the aggregate amount of Cash or Cash Equivalents
received by the Company in the case of a sale of Qualified Capital Stock and by
the Parent in the case of a Public Equity Offering or an Equity Private
Placement and by the Company and its Subsidiaries in respect of an Asset Sale
plus, in the case of an issuance of Qualified Capital Stock upon any exercise,
exchange or conversion of securities (including options, warrants, rights and
convertible or exchangeable debt) of the Company that were issued for cash on or
after the Issue Date, the amount of cash originally received by the Company (to
the extent not previously included in the calculation of Net Cash Proceeds) upon
the issuance of such securities (including options, warrants, rights and
convertible or exchangeable debt) less, in each case, the sum of all payments,
fees, commissions and expenses (including, without limitation, the fees and
expenses of legal counsel and investment banking fees and expenses) incurred in
connection with such Asset Sale or sale of Qualified Capital Stock or Public
Equity Offering or Equity Private Placement, and, in the case of an Asset Sale
only, less (i) the amount (estimated in good faith by the Company) of income,
franchise, sales and other applicable taxes required to be paid by the Company
or any of its respective Subsidiaries in connection with such Asset Sale, (ii)
payments made to repay Indebtedness or any other obligation outstanding at the
time of such Asset Sale that either (A) is secured by a Lien on the property or
assets sold or (B) is required to be paid as a result of such sale, and (iii)
appropriate amounts to be provided by the Company or any Subsidiary of the
Company as a reserve against any liabilities associated with such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP.
"OBLIGATION" means any principal, premium or interest payment, or monetary
penalty, or damages, due by the Company under the terms of the Notes or the
Indenture.
"PERMITTED HOLDER" means Daniel L. Simon, Brian T. Clingen or Kelso &
Company, L.P. or any of their respective affiliates (as such term is defined in
Rule 12b-2 under the Securities Exchange Act of 1934).
"PERMITTED INDEBTEDNESS" means the Indebtedness of the Company to any wholly
owned Subsidiary, and Indebtedness of any wholly owned Subsidiary to any other
wholly owned Subsidiary or to the Company; PROVIDED, that, in the case of
Indebtedness of the Company, such obligations shall be unsecured and
subordinated in all respects to the Company's obligations pursuant to the Notes
and the date of any event that causes such Subsidiary to no longer be a wholly
owned Subsidiary shall be an Incurrence Date.
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"PERMITTED INVESTMENT" means (a) Investments in any of the Notes; (b) Cash
Equivalents; (c) Permitted Indebtedness; (d) Investments in Persons who, after
such Investments, will become Subsidiaries of the Company; (e) other Investments
not to exceed $25 million in aggregate at any time outstanding; and (f)
Investments in any property or assets to be used in a business in which the
Company was engaged on the date of the Indenture.
"PERMITTED LIEN" means (a) Liens existing on the Issue Date; (b) Liens
imposed by governmental authorities for taxes, assessments or other charges not
yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the company in accordance with GAAP; (c) statutory
liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen or
other like Liens arising by operation of law in the ordinary course of business
provided that (i) the underlying obligations are not overdue for a period of
more than 30 days, or (ii) such Liens are being contested in good faith and by
appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (d) Liens
securing the performance of bids, trade contracts (other than borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property, subject thereto (as such
property is used by the Company or any of its Subsidiaries) or interfere with
the ordinary conduct of the business of the Company or any of its Subsidiaries;
(f) Liens arising by operation of law in connection with judgments, only to the
extent, for an amount and for a period not resulting in an Event of Default with
respect thereto; (g) pledges or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security legislation; (h) Liens securing the Notes; (i) Liens securing
Indebtedness of a Person existing at the time such Person becomes a Subsidiary
or is merged with or into the Company or a Subsidiary or Liens securing
Indebtedness incurred in connection with an Acquisition, PROVIDED that such
Liens were in existence prior to the date of such acquisition, merger or
consolidation, were not incurred in anticipation thereof, and do not extend to
any other assets; (j) Liens arising from Purchase Money Indebtedness permitted
to be incurred under clause (c) of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock" provided such Liens
relate to the property which is subject to such Purchase Money Indebtedness; (k)
leases or subleases granted to other persons in the ordinary course of business
not materially interfering with the conduct of the business of the Company or
any of its Subsidiaries or materially detracting from the value of the relative
assets of the Company or any Subsidiary; (l) Liens arising from precautionary
Uniform Commercial Code financing statement filings regarding operating leases
entered into by the Company or any of its Subsidiaries in the ordinary course of
business; and (m) Liens securing Refinancing Indebtedness incurred to refinance
any Indebtedness that was previously so secured in a manner no more adverse to
the Holders of the Notes than the terms of the Liens securing such refinanced
Indebtedness provided that the Indebtedness secured is not increased and the
lien is not extended to any additional assets or property.
"PUBLIC EQUITY OFFERING" means an underwritten offering of Common Stock of
the Parent pursuant to an effective registration statement under the Securities
Act.
"PURCHASE MONEY INDEBTEDNESS" means any Indebtedness of such person to any
seller or other person incurred to finance the acquisition (including in the
case of a Capitalized Lease Obligation, the lease) of any real or personal
tangible property which, in the reasonable good faith judgment of the Board of
Directors of the Company, is directly related to a Related Business of the
Company and which is incurred substantially concurrently with such acquisition
and is secured only by the assets so financed.
"QUALIFIED CAPITAL STOCK" means any Capital Stock of the Company that is not
Disqualified Capital Stock.
"QUALIFIED EXCHANGE" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
issued on or after the Issue Date with the Net Cash Proceeds received by the
Company from the substantially concurrent sale of Qualified Capital Stock
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or any exchange of Qualified Capital Stock for any Capital Stock or Indebtedness
issued on or after the Issue Date.
"REFERENCE PERIOD" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
for which financial statements are available ended immediately preceding any
date upon which any determination is to be made pursuant to the terms of the
Notes or the Indenture.
"REFINANCING INDEBTEDNESS" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of reasonable and customary fees and expenses incurred in connection
with the Refinancing) the lesser of (i) the principal amount or, in the case of
Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so Refinanced and (ii) if such Indebtedness being
Refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such Refinancing,
plus, in each case, premium and fees and expenses; PROVIDED, that (A) such
Refinancing Indebtedness of any Subsidiary of the Company shall only be used to
Refinance outstanding Indebtedness or Disqualified Capital Stock of such
Subsidiary, (B) such Refinancing Indebtedness shall (x) not have an Average Life
shorter than the Indebtedness or Disqualified Capital Stock to be so refinanced
at the time of such Refinancing and (y) in all respects, be no less subordinated
or junior, if applicable, to the rights of Holders of the Notes than was the
Indebtedness or Disqualified Capital Stock to be refinanced and (C) such
Refinancing Indebtedness shall have a final stated maturity or redemption date,
as applicable, no earlier than the final stated maturity or redemption date, as
applicable, of the Indebtedness or Disqualified Capital Stock to be so
refinanced.
"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, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Equity Interests
of such person or any parent of such person, (b) any payment on account of the
purchase, redemption or other acquisition or retirement for value of Equity
Interests of such person or parent of such person, (c) other than with the
proceeds from the substantially concurrent sale of, or in exchange for,
Refinancing Indebtedness any purchase, redemption, or other acquisition or
retirement for value of, any payment in respect of any amendment of the terms of
or any defeasance of, any Subordinated Indebtedness, directly or indirectly, by
such person or Subsidiary of such person prior to the scheduled maturity, any
scheduled or required repayment of principal, or scheduled sinking fund payment,
as the case may be, of such Indebtedness and (d) any Investment by such person,
other than a Permitted Investment; PROVIDED, HOWEVER, that the term "Restricted
Payment" does not include (i) any dividend, distribution or other payment on or
with respect to Capital Stock of an issuer to the extent payable solely in
shares of Qualified Capital Stock of such issuer; or (ii) any dividend,
distribution or other payment to the Company, or to any of its wholly owned
Subsidiaries, by the Company or any of its Subsidiaries.
"SENIOR DEBT" of the Company means Indebtedness (including any monetary
obligation in respect of the Credit Agreement, and interest, whether or not
allowable, accruing on Indebtedness incurred pursuant to the Credit Agreement
after the filing of a petition initiating any proceeding under any bankruptcy,
insolvency or similar law) of the Company arising under the Credit Agreement or
that, by the terms of the instrument creating or evidencing such Indebtedness,
is expressly designated Senior Debt or made senior in right of payment to the
Notes; provided, that in no event shall Senior Debt include (a) Indebtedness to
any Subsidiary of the Company or any officer, director or employee of the
Company or any Subsidiary of the Company, (b) Indebtedness incurred in violation
of the terms of the Indenture, (c) Indebtedness consisting of trade payables,
(d) Disqualified Capital Stock and (e) Capitalized Lease Obligations.
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"SIGNIFICANT SUBSIDIARY" means, at any date of determination, any Subsidiary
of the Company that, together with its Subsidiaries, (i) for the most recent
fiscal year of the Company, accounted for more than 10% of the consolidated
revenues of the Company and its Subsidiaries or (ii) as of the end of such
fiscal year, was the owner of more than 10% of the consolidated assets of the
Company and its Subsidiaries, all as set forth on the most recently available
consolidated financial statements of the Company for such fiscal year.
"STATED MATURITY," when used with respect to any Note, means ,
2006.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes in any respect or, for
purposes of the definition of Restricted Payments only, has a stated maturity on
or after the Stated Maturity.
"SUBSIDIARY," with respect to any person, means (i) a corporation a majority
of whose Capital Stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such person, by such
person and one or more Subsidiaries of such person or by one or more
Subsidiaries of such person, (ii) any other person (other than a corporation or
partnership) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest,
or (iii) a partnership in which such person or a Subsidiary of such person is,
at the time, a general partner. Notwithstanding the foregoing, an Unrestricted
Subsidiary shall not be a Subsidiary of the Company or of any Subsidiary of the
Company. Unless the context requires otherwise, Subsidiary means each direct and
indirect Subsidiary of the Company.
"UNRESTRICTED SUBSIDIARY" means any subsidiary of the Company that does not
own any Capital Stock of, or own or hold any Lien on any property of, the
Company or any other Subsidiary of the Company and that shall be designated an
Unrestricted Subsidiary by the Board of Directors of the Company; PROVIDED, that
(i) such subsidiary shall not engage, to any substantial extent, in any line or
lines of business activity other than a Related Business and (ii) neither
immediately prior thereto nor after giving pro forma effect to such designation
would there exist a Default or Event of Default. The Board of Directors of the
Company may designate any Unrestricted Subsidiary to be a Subsidiary, PROVIDED,
that (i) no Default or Event of Default is existing or will occur as a
consequence thereof and (ii) immediately after giving effect to such
designation, on a PRO FORMA basis, the Company could incur at least $1.00 of
Indebtedness pursuant to the Debt Incurrence Ratio in paragraph (a) of the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock." Each such designation shall be evidenced by filing with the
Trustee a certified copy of the resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"WHOLLY OWNED SUBSIDIARY" means a Subsidiary all the Equity Interests of
which are owned by the Company or one or more wholly owned Subsidiaries of the
Company.
DESCRIPTION OF INDEBTEDNESS AND OTHER COMMITMENTS
The following is a description of the principal agreements which will govern
the Company following the consummation of the Transactions. The following
summaries are qualified in their entirety by reference to the agreement to which
such summary relates. See "Available Information." Defined terms used below and
not defined have the meanings set forth in the respective agreements.
THE EXISTING COMPANY NOTES
On March 2, 1994, the Company issued $65 million aggregate principal amount
of the Existing Company Notes pursuant to an indenture between the Company and
the United States Trust Company of New York, as trustee (the "Existing Company
Indenture"). The Existing Company Notes mature on November 15, 2003 and are
senior unsecured obligations of the Company ranking on a parity with all
existing and future indebtedness of the Company that is not expressly
subordinated to the Existing Company Notes.
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INTEREST. The Existing Company Notes bear interest at the rate of 11% per
annum.
SECURITY. The obligations under the Existing Company Notes are not secured.
REDEMPTION. The Existing Company Notes may be redeemed at the option of the
Company commencing November 15, 1998 in whole or in part, at any time and from
time to time, at the redemption prices (expressed as a percentage of principal
amount) set forth in the Existing Company Indenture.
COVENANTS. The Existing Company Indenture restricts the Company and its
subsidiaries from, among other things: (i) incurring indebtedness and allowing
subsidiaries to issue preferred stock; (ii) incurring liens or guaranteeing
obligations except for certain permitted liens with certain exceptions; (iii)
entering into mergers or consolidations; (iv) selling or otherwise disposing of
property, business or assets; (v) with certain exceptions, making loans or
investments; (vi) making optional payments or prepayments of indebtedness; (vii)
entering into transactions with affiliates; (viii) with certain exceptions,
entering into agreements prohibiting or limiting the ability of the Company or
its subsidiaries to create liens upon its property, assets or revenues in favor
of the holders of the Existing Company Notes or pay dividends or indebtedness to
the Company or its subsidiaries; and (ix) engaging in any businesses other than
the business of outdoor advertising.
THE COMPANY DEBT TENDER OFFER. Pursuant to the Company Debt Tender Offer,
the Company intends to solicit consents to modify or eliminate certain of the
above-described covenants.
CHANGE IN CONTROL. Upon a "change of control" (as defined in the Existing
Company Indenture), each holder of the Existing Company Notes may require the
Company to repurchase all or a portion of such holder's Existing Company Notes
at a purchase price equal to 101% of their accreted value on the date of
purchase.
THE EXISTING PARENT NOTES
On June 23, 1994, Parent issued $50 million aggregate principal amount of
the Existing Parent Notes and 50,000 Warrants to purchase 1,000,000 shares of
Common Stock pursuant to an indenture (the "Existing Parent Indenture") between
Parent and the United States Trust Company of New York, as trustee. The Existing
Parent Notes mature on July 1, 2004 and are senior secured obligations of Parent
secured by a pledge of all of the common stock of the Company issued to the
Parent. The Existing Parent Notes rank on a parity in right of payment with all
existing and future indebtedness of Parent that is not expressly subordinated to
the Existing Parent Notes.
INTEREST. The Existing Parent Notes were offered at a substantial discount
from their principal amount. From the date of issuance, the Existing Parent
Notes accrete at the rate of 14% per annum although no cash interest will accrue
until July 1, 1999. The first interest payment date will be January 1, 2000.
SECURITY. The obligations under the Existing Parent Notes are secured by a
pledge of all of the issued and outstanding shares of common stock of the
Company.
REDEMPTION. The Existing Parent Notes may be redeemed at the option of
Parent, in whole or in part, at any time and from time to time, at the
redemption prices (expressed as a percentage of principal amount) set forth in
the Existing Parent Indenture.
COVENANTS. The Existing Parent Indenture restricts Parent and its
subsidiaries from, among other things: (i) incurring indebtedness and allowing
subsidiaries to issue preferred stock; (ii) incurring liens or guaranteeing
obligations except for certain permitted liens with certain exceptions; (iii)
entering into mergers or consolidations; (iv) selling or otherwise disposing of
property, business or assets; (v) with certain exceptions, making loans or
investments; (vi) making optional payments or prepayments of indebtedness; (vii)
entering into transactions with affiliates; (viii) with certain exceptions,
entering into agreements prohibiting or limiting the ability of Parent to create
liens upon its property, assets or revenues in favor of the Existing Parent
Notes or pay dividends or indebtedness to Parent; and (ix) engaging in any
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businesses other than ownership of the capital stock of the Company and, with
respect to the Company and its subsidiaries, the business of outdoor
advertising.
THE PARENT DEBT TENDER OFFER. Pursuant to the Parent Debt Tender Offer,
Parent intends to solicit consents to modify or eliminate certain of the
above-described covenants.
CHANGE IN CONTROL. Upon a "change of control" (as defined in the Existing
Parent Indenture), each holder of the Existing Parent Notes may require Parent
to repurchase all or a portion of such holder's Existing Parent Notes at a
purchase price equal to 101% of their accreted value on the date of purchase.
NEW CREDIT FACILITY
Prior to or substantially concurrent with the Offering, the Company intends
on amending and restating the Existing Credit Facilities (which will become the
New Credit Facility). The terms and conditions of the Existing Credit Facilities
are substantially similar to those of the New Credit Facility set forth below:
REVOLVING CREDIT FACILITY
COMMITMENT; INTEREST. The Revolving Credit Facility is a revolving line of
credit facility providing for borrowings of up to $12.5 million that may be used
for general corporate purposes including working capital requirements.
Borrowings under the Revolving Credit Facility may be in the form of eurodollar
loans or announced base rate loans as determined by the Company. The Company may
prepay borrowings under the Revolving Credit Facility, and may reborrow (up to
the amount of the commitment then in effect) any amounts that are repaid or
prepaid.
TERMINATION OF COMMITMENT. The initial commitment of $12.5 million
terminates on September 30, 2003, unless extended, or upon the occurrence of a
"change of control" (as defined in the Credit Agreements). On each of these
dates, the Company is required to repay borrowings (together with fees and
interest accrued thereon and any additional amounts owing under the Revolving
Credit Facility) in excess of the commitment as reduced.
SECURITY. The Company's obligations under the Revolving Credit Facility are
secured by first priority liens (subject to certain permitted encumbrances) on
substantially all of the assets of the Company. In addition, management of
Parent will pledge its Common Stock to the banks as security for the Company's
obligations until such time as the banks receive a pledge of the stock of the
Company after the Existing Parent Notes are repurchased in full.
COVENANTS. The Revolving Credit Facility restricts the Company and its
subsidiaries from, among other things: (i) changes in business; (ii) with
certain exceptions, consolidation, mergers, sales or purchases of assets; (iii)
with certain exceptions, incurring, creating, assuming or suffering to exist any
liens or encumbrances upon property of the Company or assigning any right to
receive income; (iv) with certain exceptions, creating, incurring, assuming or
suffering to exist any indebtedness; (v) making investments or loans in any
other person or entity or acquiring or establishing any subsidiaries except for
investments and subsidiaries permitted under the Revolving Credit Facility; (vi)
selling, assigning or otherwise encumbering or disposing of the capital stock or
other securities of any subsidiary; (vii) making any optional or voluntary
prepayments on indebtedness; (viii) with certain exceptions, redeeming, retiring
or purchasing capital stock of the Company or declaring or paying dividends on
the capital stock of the Company; and (ix) except as to certain transactions
that comply with the terms of the Revolving Credit Agreement, entering into
transactions with affiliates. In addition, the Revolving Credit Facility also
requires the Company to maintain certain levels of Operating Cash Flow and
interest expense coverage, and limits the Company's capital expenditures to $10
million each fiscal year (in addition to additional permitted expenditures not
in excess of the "basket" amount set forth therein), which amount is increased
annually to 105% of the maximum amount for the immediately preceding
twelve-month period.
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CHANGE OF CONTROL. A change of control (as defined in the Credit
Agreements) of the Company constitutes an event of default permitting the
lenders to accelerate indebtedness under and terminate the Revolving Credit
Facility.
ACQUISITION CREDIT FACILITY
COMMITMENT; INTEREST. The Acquisition Credit Facility consists of an
acquisition credit line in the amount of $287.5 million pursuant to which $75
million constitutes a term loan facility available on the closing date and $12.5
million constitutes a revolving/term loan facility. The Company intends to draw
an amount equal to $240 million to finance the POA Acquisition which may be
reborrowed to finance acquisitions. Borrowings under the Acquisition Credit
Facility may be in the form of eurodollar loans or announced base rate loans as
determined by the Company. See "Use of Proceeds."
TERMINATION OF COMMITMENT. The commitment of $287.5 million under the
Acquisition Credit Facility is reduced on annual basis after a given date and
terminates in part on September 30, 2003 and in part on September 30, 2004, or
upon the occurrence of a "change of control" (as defined in the Credit
Agreements). On each of these dates, the Company is required to repay borrowings
(together with fees and interest accrued thereon and any additional amounts
owing under the Acquisition Credit Facility) in excess of the commitment as
reduced. Additionally, a portion of the Acquisition Credit Facility may convert
to a term facility which may not be reborrowed.
SECURITY. The Company's obligations under the Acquisition Credit Facility
are secured by first priority liens (subject to certain permitted encumbrances)
on substantially all of the assets of the Company. In addition, management of
Parent will pledge its Common Stock of Parent to the banks as security for the
Company's obligations until such time as the banks receive a pledge of the stock
of the Company after the Existing Parent Notes are repaid in full.
COVENANTS. Except to the extent any of such covenants conflict with the
terms of the Existing Company Notes or the Existing Parent Notes, the
Acquisition Credit Facility restricts the Company and its subsidiaries from,
among other things: (i) changes in business; (ii) with certain exceptions,
consolidation, mergers, sales or purchases of assets; (iii) with certain
exceptions, incurring, creating, assuming or suffering to exist any liens or
encumbrances upon property of the Company or assigning any right to receive
income; (iv) with certain exceptions, creating, incurring, assuming or suffering
to exist any indebtedness; (v) making investments or loans in any other person
or entity or acquiring or establishing any subsidiaries except for investments
and subsidiaries permitted under the Acquisition Credit Facility; (vi) selling,
assigning or otherwise encumbering or disposing of the capital stock or other
securities of any subsidiary; (vii) making any optional or voluntary prepayments
on indebtedness; (viii) with certain exceptions, redeeming, retiring or
purchasing capital stock of the Company or declaring or paying dividends on the
capital stock of the Company; and (ix) except as to certain transactions that
comply with the terms of the Acquisition Credit Agreement, entering into
transactions with affiliates. In addition, the Acquisition Credit Facility also
requires the Company to maintain certain levels of Operating Cash Flow and
interest expense coverage, and limits the Company's capital expenditures to $10
million in each fiscal year (in addition to additional permitted expenditures
not in excess of the "basket" amount set forth therein), which amount is
increased to 105% of the maximum amount for the immediately preceding
twelve-month period.
CHANGE OF CONTROL. A "change of control" (as defined in the Credit
Agreements) of the Company constitutes an event of default permitting the
lenders to accelerate indebtedness under and terminate the Acquisition Credit
Facility.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of the Underwriters has severally agreed to pruchase,
the principal amount of the Notes set forth opposite its name below. The
Underwriters have agreed to purchase all the Notes if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
--------------
<S> <C>
Bear, Stearns & Co. Inc........................................................................... $
BT Securities Corporation.........................................................................
--------------
Total........................................................................................... $ 200,000,000
--------------
--------------
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes directly to the public at the public offering price set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount of the Notes to certain other dealers. After the
initial public offering, the public offering price, concession and reallowance
may be changed by the Underwriters.
There is no public market for the Notes. The Company does not intend to list
the Notes on any securities exchange or to arrange for their quotation on the
Nasdaq National Market. The Company has been advised by the Underwriters that
they presently intend to make a market in the Notes after the consummation of
the Offering, although they are under no obligation to do so and any such market
making may be discontinued at any time at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the liquidity of the
trading market for the Notes or that an active public market for the Notes will
develop. If an active public market does not develop, the market prices and
liquidity of the Notes may be adversely affected.
Based on information provided by the Company, more than 10% of the net
proceeds of the Offering will be used to repay a loan to Bankers Trust Company,
an affiliate of BT Securities Corporation. The Offering therefore is being
conducted in accordance with the applicable provisions of Rule 2720 to the
Conduct Rules of the National Association of Securities Dealers, Inc. Rule 2720
requires that the price to public of the Notes not be higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
Accordingly, Bear, Stearns & Co. Inc. is assuming the responsibilities of acting
as the qualified independent underwriter in pricing the Offering and conducting
due diligence. In connection with the Offering, Bear, Stearns & Co. Inc. in its
role as qualified independent underwriter has performed due diligence
investigations and reviewed and participated in the preparation of this
Prospectus and the Registration Statement of which this Prospectus forms a part.
The price to public of the Notes set forth on the cover page of this Prospectus
is no higher than the price recommended by Bear, Stearns & Co. Inc.
Bear, Stearns & Co. Inc has in the past provided and may continue to provide
investment banking services to the Company and Kelso & Company, L.P. and its
affiliates. Bankers Trust Company, an affiliate of BT Securities Corporation, is
the administrative agent and a lender under the Company's New Credit Facility.
See "Description of Indebtedness and Other Commitments -- New Credit Facility."
BT Securities Corporation has, from time to time, provided investment banking
services to the Company and Kelso & Company, L.P. and its affiliates.
In connection with this Offering, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
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VALIDITY OF NOTES
The validity of the Notes will be passed upon for the Company by Winston &
Strawn, Chicago, Illinois. Skadden, Arps, Slate, Meagher & Flom, New York, New
York will pass on certain legal matters for the Underwriters in connection with
this Offering. Skadden, Arps, Slate, Meagher & Flom has from time to time
represented Kelso & Company, L.P. and KIA V and KEP V, including with respect to
the purchase by KIA V and KEP V from Parent of Class B Common Stock and Class C
Common Stock of the Parent in April 1996, and may continue to represent Kelso &
Company, L.P., KIA V and KEP V. Skadden, Arps, Slate, Meagher & Flom has been
engaged by the Company to represent it in connection with the Acquisitions.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31, 1994
and 1995 and for each of the three years in the period ended December 31, 1995
in this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The Consolidated Financial Statements of NOA Holding Company at May 31, 1995
and 1994, and for each of the three years in the period ended May 31, 1995,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The combined financial statements of Tanner-Peck, L.L.C. included in this
Propsectus and Registration Statement have been audited by BDO Seidman, LLP,
independent certified public accountants, to the extent and for the periods set
forth in their report appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of said firm as experts in auditing
and accounting.
The Financial Statements of POA Acquisition Corporation at December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith files reports and other information with the Commission.
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments thereto) on Form S-1 under the Securities Act,
with respect to the 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, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract, agreement or
other document referred to herein are not necessarily complete.
With respect to each report or other information filed with the Commission
pursuant to the Exchange Act, and such contract, agreement or document filed as
an exhibit to the Registration Statement, reference is made to such exhibit for
a more complete description, and each such statement is deemed to be qualified
in all respects by such reference. The Registration Statement and reports and
other information filed by the Company 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. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission and the address of such site is http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
UNIVERSAL OUTDOOR, INC.
<TABLE>
<S> <C>
Report of Independent Accountants of Price Waterhouse LLP............................ F-2
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Operations................................................ F-4
Consolidated Statements of Cash Flow................................................. F-5
Consolidated Statements of Changes in Common Stockholders' Deficit................... F-6
Notes to Consolidated Financial Statements........................................... F-7
NOA HOLDING COMPANY
Report of Independent Auditors of Ernst & Young LLP.................................. F-15
Consolidated Balance Sheets.......................................................... F-16
Consolidated Statements of Operations................................................ F-17
Consolidated Statements of Stockholders' Equity...................................... F-18
Consolidated Statements of Cash Flows................................................ F-19
Notes to Consolidated Financial Statements........................................... F-20
AD-SIGN
Report of Independent Accountants of Price Waterhouse LLP............................ F-26
Statement of Revenues and Direct Expenses............................................ F-27
Notes to the Statement of Revenues and Direct Expenses............................... F-28
POA ACQUISITION CORPORATION
Report of Independent Accountants of Ernst & Young LLP............................... F-29
Balance Sheets....................................................................... F-30
Statements of Operations............................................................. F-31
Statements of Shareholders Equity.................................................... F-32
Statements of Cash Flows............................................................. F-33
Notes to Financial Statements........................................................ F-34
TANNER-PECK, L.L.C.
Report of Independent Certified Public Accountants of BDO Seidman, LLP............... F-41
Combined Balance Sheets.............................................................. F-42
Combined Statements of Income........................................................ F-43
Combined Statements of Changes in Members' Equity.................................... F-44
Combined Statements of Cash Flows.................................................... F-45
Summary of Accounting Policies....................................................... F-46
Notes to Combined Financial Statements............................................... F-48
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Universal Outdoor, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in common stockholders'
deficit and of cash flows present fairly, in all material respects, the
financial position of Universal Outdoor Holdings, Inc. and its subsidiary at
December 31, 1994 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Universal's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 23, 1996
F-2
<PAGE>
UNIVERSAL OUTDOOR, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------ JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash.................................................................. $ 11 $ 19 $ 59
Accounts receivable, less allowance for doubtful accounts of $106 in
1994 and 1995....................................................... 4,313 5,059 9,654
Other receivables..................................................... 185 201 563
Prepaid land rents.................................................... 822 1,043 2,644
Prepaid insurance and other........................................... 859 1,029 1,594
------------ ------------ -----------
Total current assets.............................................. 6,190 7,351 14,514
------------ ------------ -----------
Property and equipment, net............................................. 53,651 55,346 152,279
------------ ------------ -----------
Other assets:
Noncompete agreements, net of accumulated amortization of $4,711 and
$4,505.............................................................. 1,615 1,995 1,426
Finance costs, net of accumulated amortization of $511 and $1,171..... 3,378 3,196 5,631
Excess of cost over fair value assets acquired, net of accumulated
amortization of $184 and $230....................................... 746 700 2,952
Other costs associated with acquisitions, net of accumulated
amortization of $569 and $686....................................... 584 525 548
Deposits.............................................................. 26 20 22
------------ ------------ -----------
Total other assets................................................ 6,349 6,436 10,579
------------ ------------ -----------
$ 66,190 $ 69,133 $ 177,372
------------ ------------ -----------
------------ ------------ -----------
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt.................................. $ 58 $ 58 $ --
Accounts payable...................................................... 1,469 1,225 1,285
Accounts payable -- parent............................................ 722 234 220
Accrued interest...................................................... 998 1,054 998
Deferred revenue...................................................... 400 468 487
Accrued expenses...................................................... 482 409 3,402
------------ ------------ -----------
Total current liabilities......................................... 4,129 3,448 6,392
------------ ------------ -----------
Long-term debt, less current maturities................................. 73,304 76,079 150,207
------------ ------------ -----------
Common stockholders' deficit:
Common stock, $.01 par value, 1,500,000 shares authorized; 7,000,000
shares issued and outstanding at December 31, 1994 and 1995,
13,000,000 shares issued and outstanding at June 30, 1996........... -- -- --
Additional paid in capital............................................ 22,535 22,535 52,524
Accumulated deficit................................................... (33,778) (32,929) (31,751)
------------ ------------ -----------
Total common stockholders' deficit................................ (11,243) (10,394) 20,773
------------ ------------ -----------
Commitment and contingencies (Notes 5 and 9)............................ -- -- --
------------ ------------ -----------
$ 66,190 $ 69,133 $ 177,372
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
UNIVERSAL OUTDOOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED
JUNE 30,
---------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues.................................. $ 28,710 $ 33,180 $ 38,101 $ 18,292 $ 29,366
Less agency commissions......................... 2,863 3,414 3,953 1,881 3,127
---------- ---------- ---------- ---------- ------------
Net revenues................................ 25,847 29,766 34,148 16,411 26,239
---------- ---------- ---------- ---------- ------------
Operating expenses:
Direct advertising expenses................... 10,901 11,806 12,864 6,266 9,520
General and administrative expenses........... 3,357 3,873 4,244 2,150 3,076
Depreciation and amortization................. 8,000 7,310 7,402 3,538 4,674
---------- ---------- ---------- ---------- ------------
22,258 22,989 24,510 11,954 17,270
---------- ---------- ---------- ---------- ------------
Operating income................................ 3,589 6,777 9,638 4,457 8,969
---------- ---------- ---------- ---------- ------------
Other (income) expense:
Interest expense, including amortization of
bond discount of $162, $61 and $63.......... 6,610 7,959 8,195 4,059 5,871
Interest expense -- amortization of deferred
financing costs............................. 511 355 432 221 215
Interest expense -- accretion of dividends on
redeemable preferred stock.................. 1,844 -- -- -- --
Miscellaneous Acquisition related
expenditures................................ -- -- -- -- 1,750
(Gain) loss on disposal of assets and other
expenses.................................... 351 134 42 21 (76)
---------- ---------- ---------- ---------- ------------
Total other expense......................... 9,316 8,448 8,669 4,301 7,760
---------- ---------- ---------- ---------- ------------
Net income (loss) before extraordinary item..... (5,727) (1,671) 969 156 1,209
Extraordinary loss on early extinguishment of
debt........................................... (3,260) -- -- -- --
---------- ---------- ---------- ---------- ------------
Net income (loss)............................... $ (8,987) $ (1,671) $ 969 $ 156 $ 1,209
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
UNIVERSAL OUTDOOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31,
ENDED JUNE 30,
--------------------------------- ---------------------
1993 1994 1995 1995 1996
---------- ---------- --------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ (8,987) $ (1,671) $ 969 $ 156 $ 1,209
Depreciation and amortization......................... 8,673 7,726 7,897 3,790 3,896
Costs related to acquisitions......................... -- -- -- -- 1,750
Extraordinary loss.................................... 3,260 -- -- -- --
(Gain) loss on sale of property and equipment......... 69 90 -- -- --
Accretion of preferred stock dividends................ 1,844 -- -- -- --
Changes in assets and liabilities:
Accounts receivable and other receivables........... (728) (1,278) (762) (672) (1,254)
Prepaid land rents, insurance and other............. (262) (223) (391) (73) (209)
Accounts payable and accrued expenses............... 741 (156) (317) (407) 866
Accounts payable -- parent.......................... -- 722 (488) (146) (10)
Accrued interest.................................... (253) 140 56 (44) (72)
Deferred revenue.................................... -- 400 68 -- --
Other............................................... (235) -- 6 15 --
---------- ---------- --------- --------- ----------
Net cash from operating activities................ 4,122 5,750 7,038 2,619 6,176
---------- ---------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Gross capital expenditures............................ (2,862) (5,671) (5,620) (2,521) (2,943)
Payments for acquisitions............................. -- (3,355) (1,925) (2,164) (107,106)
Proceeds from sale of property and equipment.......... 858 1,003 -- --
Payment for consulting agreement...................... -- -- (1,400) --
Other payments........................................ (32) (160) (124) -- (76)
---------- ---------- --------- --------- ----------
Net cash used in investing activities............. (2,036) (8,183) (9,069) (4,685) (110,125)
---------- ---------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.............. 64,037 -- -- -- 75,000
Principal payments of long-term debt.................. (64,505) (272) (262) (52) (1,173)
Deferred financing costs.............................. (3,560) (221) (250) --
Net borrowings under credit agreements................ 3,950 3,040 2,671 -- 222
Additional paid in capital............................ -- -- -- -- 30,000
Payment of prepayment fees............................ (1,272) -- -- -- --
Payment for redemption of preferred stock............. -- -- -- -- --
Payment for cancellation of outstanding warrants...... (750) -- -- -- --
Dividends paid to parent............................ -- (120) (120) (60) --
Other................................................. -- -- -- 2,183 (60)
---------- ---------- --------- --------- ----------
Net cash from (used in) financing activities.......... (2,100) 2,427 2,039 2,071 103,989
---------- ---------- --------- --------- ----------
NET INCREASE (DECREASE) IN CASH......................... (14) (6) 8 5 40
CASH, at beginning of period............................ 31 17 11 11 19
---------- ---------- --------- --------- ----------
CASH, at end of period.................................. $ 17 $ 11 $ 19 $ 16 $ 59
---------- ---------- --------- --------- ----------
---------- ---------- --------- --------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the period....................... $ 7,701 $ 7,765 $ 8,676 $ 4,035 $ 5,815
---------- ---------- --------- --------- ----------
---------- ---------- --------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNIVERSAL OUTDOOR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL COMMON
PAID IN ACCUMULATED STOCKHOLDERS'
CAPITAL DEFICIT DEFICIT
----------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1993............................................. $ 22,135 ($ 31,987) ($ 9,852)
Reclassification of redeemable common stock reflecting termination of
stockholder agreement which may have required Universal Outdoor II
Holding Company to purchase up to 20% of its outstanding Class A common
stock................................................................... 400 -- 400
Dividends declared to parent............................................. (120) (120)
Net loss................................................................. -- (1,671) (1,671)
----------- ------------ ------------
Balance at December 31, 1994............................................. 22,535 (33,778) (11,243)
Dividends declared to parent............................................. (120) (120)
Net income............................................................... -- 969 969
----------- ------------ ------------
Balance at December 31, 1995............................................. 22,535 (32,929) (10,394)
Capital contribution (unaudited)......................................... 29,989 -- 29,989
Other (unaudited)........................................................ -- (31) (31)
Net income (unaudited)................................................... -- 1,209 1,209
----------- ------------ ------------
Balance at June 30, 1996 (unaudited)..................................... $ 52,524 ($ 31,751) $ 20,773
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
UNIVERSAL OUTDOOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS:
Universal Outdoor, Inc., Universal Outdoor II Holding Company (the Holding
Company), Outdoor Properties, Inc., Midwest Outdoor Management, Inc. and CBT
Development, Inc. were entities under common ownership and control. In
connection with the Refinancing Plan (see below), (i) a wholly-owned subsidiary
of the Holding Company was merged with and into Universal Outdoor, Inc., which
thereupon became a wholly-owned subsidiary of the Holding Company and (ii)
Universal Outdoor, Inc. (Universal) acquired all of the assets, in consideration
for the assumption of all of the liabilities, of each of Outdoor Properties,
Inc., Midwest Outdoor Management, Inc. and CBT Development, Inc. In conjunction
with the Refinancing Plan, 2,649 shares of class A common stock of Universal
were exchanged for an equal number of common shares of the Holding Company, and
1,556 shares of class B common stock of Universal were exchanged for 48,000
shares of Series B voting preferred stock of the Holding Company.
Effective November 18, 1993, Universal executed a Refinancing Plan to extend
the average life of its obligations, thereby enhancing its operating and
financial flexibility. As part of the Refinancing Plan, Universal combined, in a
single operating entity (Universal Outdoor, Inc.) under the Holding Company,
business activities previously conducted by separate affiliated corporations,
repaid certain outstanding indebtedness, issued $65.0 million Senior Notes due
2003 of Universal and replaced its existing bank credit facility. In addition,
the Refinancing Plan provided for the amendment of the terms of the redeemable
preferred stock of the Holding Company to allow the provisions of the indenture
governing the Senior Notes due 2003 to restrict payments by the operating
company to the Holding Company until the $65.0 million Senior Notes due 2003
have been retired.
Pursuant to the Refinancing Plan, Universal entered a new credit facility
which permits borrowings of up to $12,500 on a revolving basis. Additionally,
Universal issued $65.0 million Senior Notes. With the funds obtained, Universal
(i) repaid all outstanding bank borrowings, (ii) retired approximately $25,000
of senior secured notes (including a prepayment penalty of $1,000), (iii)
retired approximately $6,500 of senior subordinated notes, (iv) repaid
approximately $3,400 of other indebtedness and (v) paid related transaction fees
and expenses, including prepayment penalties.
Upon consummation of the Refinancing Plan, Universal recognized an
extraordinary loss totaling $3,300 relating to the write-off of unamortized
deferred financing costs and prepayment fees associated with long term debt
instruments. Furthermore, the redeemable preferred stock ($16,900 at November
18, 1993, the refinancing date) and a $1,200 unsecured term loan became
obligations of and were recorded in the Holding Company with the operations of
Universal and all other assets and liabilities recorded in the operating
subsidiary, Universal. The Holding Company's sole source of funds will be the
operations of its wholly-owned subsidiary, Universal. However the terms of the
$65.0 million Senior Notes due 2003 effectively preclude the operating
subsidiary from distributing cash to satisfy obligations of the Holding Company.
Universal is a leading Midwestern outdoor advertising company. Universal
owns and operates outdoor advertising display faces principally in five
geographic markets: Chicago, Illinois; Milwaukee, Wisconsin; Indianapolis,
Indiana; Des Moines, Iowa; and Evansville, Indiana. Universal sells outdoor
advertising space to national, regional and local advertisers.
Historically, manufacturers of tobacco products, principally cigarettes,
have been major users of outdoor advertising displays, including displays
operated by Universal. In 1993, 1994 and 1995, tobacco industry advertising
accounted for approximately 14.8%, 13.1% and 13.3% of Universal's net revenues,
respectively.
F-7
<PAGE>
UNIVERSAL OUTDOOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:
The summary of significant accounting policies is presented to assist the
reader in understanding and evaluating Universal's consolidated financial
statements. These policies are in conformity with generally accepted accounting
principles consistently applied in all material respects.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Universal's revenues are generated from contracts with advertisers generally
covering periods of one to twelve months. Universal recognizes revenues ratably
over the contract term and defers customer prepayment of rental fees. Costs
incurred for the production of outdoor advertising displays are recognized in
the initial month of the contract or as incurred during the contract period.
PREPAID LAND RENTS
Most of Universal's outdoor advertising structures are located on leased
land. Land rents are typically paid in advance for periods ranging from one to
twelve months. Prepaid land rents are expensed ratably over the related rental
term.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
assets. Expenditures for maintenance and repairs are charged to operations as
incurred; major improvements are capitalized.
INTANGIBLE ASSETS
Non-compete agreements, deferred financing and acquisition costs are
amortized over their estimated economic lives, ranging from three to ten years.
The excess of cost over fair value of assets acquired is amortized over twenty
years on a straight-line basis. Universal reviews the carrying value of
intangibles and other long-lived assets for impairment when events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. This review is performed by comparing estimated undiscounted future
cash flows from use of the asset to the recorded value of the asset.
INCOME TAXES
Income tax expense is based on pre-tax income for financial reporting
purposes, adjusted for the effects of permanent differences between such income
and that reported for tax return purposes. Deferred tax assets and liabilities
are recognized for expected future tax consequences of temporary differences
between the carrying amounts and tax bases of the underlying assets and
liabilities (Note 6).
EARNINGS PER SHARE
An earnings per share calculation has not been presented because Universal
and its predecessor are closely held and owned by a private investor group and
accordingly, earnings per share is not required or meaningful.
RECLASSIFICATIONS
Certain financial information in the prior years have been reclassified to
conform to the current year presentation.
F-8
<PAGE>
UNIVERSAL OUTDOOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTERIM FINANCIAL INFORMATION
The interim financial information as of June 30, 1996 and 1995 and for the
six months then ended has been prepared from the unaudited financial records of
the Company and, in the opinion of management, reflects all adjustments
necessary for a fair presentation of the financial position and results of
operations and of cash flows for the respective interim periods. All adjustments
were of a normal and recurring nature.
NOTE 3 -- PROPERTY AND EQUIPMENT:
Major classes of property and equipment consist of the following at December
31, 1994 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Outdoor advertising structures.............................................................. $ 70,869 $ 76,340
Land and capitalized land lease costs....................................................... 2,167 2,232
Vehicles and equipment...................................................................... 3,751 4,712
Building and leasehold improvements......................................................... 3,019 3,150
Display faces under construction............................................................ 125 1,344
--------- ---------
79,931 87,778
Less accumulated depreciation............................................................... 26,280 32,432
--------- ---------
Net property and equipment.................................................................. $ 53,651 $ 55,346
--------- ---------
--------- ---------
</TABLE>
NOTE 4 -- LONG-TERM DEBT AND OTHER OBLIGATIONS:
Long-term debt consists of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
--------- ----------
<S> <C> <C>
11% Senior Notes due 2003, net of discount of $902 and $839 (a).................. $ 64,098 $ 64,161
Credit facility (b).............................................................. 6,990 3,286
Acquisition line (b)............................................................. -- 6,375
Other obligations (c)............................................................ 2,274 2,315
--------- ----------
73,362 76,137
Less current maturities of long-term debt and other obligations.................. 58 58
--------- ----------
$ 73,304 $ 76,079
--------- ----------
--------- ----------
</TABLE>
- ------------------------
(a) The $65.0 million Senior Notes due 2003 have interest payable semi-annually
and are subject to redemption at the option of Universal beginning in 1998.
The $65.0 million Senior Notes due 2003 also contain certain restrictive
covenants including, among others, limitations on additional debt incurrence
and restrictions on distributions to stockholders, except for limited
payments permitted under the Indenture.
(b) In July 1995, Universal's credit agreement was amended to increase the
available borrowings, to extend the term of the agreement, and to add an
acquisition line of credit.
Pursuant to the amended revolving credit agreement that extends through May
2001, Universal has borrowing available under a credit facility and an
acquisition line of credit. The credit facility permits borrowings up to
$12,500 until May 1, 2000 when available borrowings under the credit
facility are scheduled to reduce to $10,000. The acquisition line of credit
permits borrowings up to $22,500. Available borrowings under the acquisition
line are scheduled to reduce to $19,500 in 1996, $15,500 in 1997, $10,500 in
1998 and $4,500 in 1999 and $0 in 2000.
F-9
<PAGE>
UNIVERSAL OUTDOOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4 -- LONG-TERM DEBT AND OTHER OBLIGATIONS: (CONTINUED)
The loans under the credit facility and acquisition line bear interest at
the rate per annum equal to the following: (i) Prime rate plus 0.25% when
the aggregate principle amount outstanding under the credit facility and the
acquisition line is $20 million or less, and (ii) Prime rate plus 0.50% when
the aggregate principle amount outstanding is greater than $20 million.
Prior to the amendment, Universal paid interest on this facility at (i) the
Prime rate or (ii) LIBOR plus 225 basis points. The interest rate in effect
during 1995 ranged from 8.5% to 9.25% and was 6% to 8.5% during 1994.
Interest on the credit facility is payable monthly. The credit facility is
collateralized by a first security interest in all assets of Universal.
Borrowings under the credit agreement are subject to certain restrictive
covenants including, among others, a maximum ratio of total indebtedness to
earnings, a minimum ratio of earnings to total interest expense and
restrictions on additional debt incurrence as well as distributions to
stockholders. Commitment fees are 0.25% of the unused portion of the
committed facility and are paid quarterly.
(c) Other obligations include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
- - Secured term note due November 30, 1999 bearing interest at the prime
rate. Interest on this note is payable monthly. This note is secured by a
building in Addision, Illinois........................................... $ 1,200 $ 1,148
- - Promissory note due December 31, 2001. Interest on this note is
calculated annually and is equal to 14% of the cash flow (as defined) of
Universal's subsidiary................................................... 500 500
- - Promissory note with interest, compounded annually, at 10%, due May 4,
1999. For the first two years subsequent to May 4, 1994, interest is
added to the principal balance. Thereafter, interest is to be paid
monthly in arrears....................................................... 500 500
- - Other obligations........................................................ 74 167
--------- ---------
$ 2,274 $ 2,315
--------- ---------
--------- ---------
</TABLE>
On June 30, 1994, the Holding Company (Universal's parent) issued $50.0
million 14% Senior Secured Discount Notes due 2004 for an aggregate
consideration of approximately $25.4 million. The $50.0 million Senior Secured
Discount Notes due 2004 do not pay any interest prior to July 1, 1999.
Commencing on July 1, 1999, interest on the Notes will accrue and will be
payable in cash semi-annually on each January 1, and July 1 commencing on
January 1, 2000. The Holding Company will be dependant on the cash flow of
Universal and its subsidiary in order to meet its debt service obligations. The
Holding Company believes that it will receive distributions from Universal to
enable it to service the cash interest payments; however, there can be no
assurances that such distributions, if any, will be adequate to satisfy either
the cash interest on, or the payment such debt. Significant contractual and
other restrictions exist on the payment of dividends and the making of loans by
Universal to the Holding Company. Consequently, all or a portion of the $50.0
million Senior Secured Discount Notes due 2004 may require refinancing prior to
the maturity thereof. During the peirod prior to July 1, 2004, the Holding
Company does not expect to have significant short-term cash requirements except
for certain legal, accounting, printing and other similar costs.
Aggregate maturities of long-term debt obligations for each of the five
years subsequent to 1995 are $58, $54, $95, $1,512 and $4,500.
F-10
<PAGE>
UNIVERSAL OUTDOOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5 -- LEASE COMMITMENTS:
Rent expense totaled $4,100, $4,600 and $4,600 in 1993, 1994 and 1995,
respectively. Minimum annual rentals under the terms of noncancellable operating
leases in effect at December 31, 1995 are payable as follows:
<TABLE>
<CAPTION>
OFFICE
YEAR LEASES LAND TOTAL
- ------------------------------------------------------------------------- ----------- --------- ---------
<S> <C> <C> <C>
1996..................................................................... $ 191 $ 3,315 $ 3,506
1997..................................................................... 145 2,995 3,140
1998..................................................................... 63 2,615 2,678
1999..................................................................... 63 2,242 2,305
2000..................................................................... 53 1,925 1,978
Thereafter............................................................... -- 13,083 13,083
----- --------- ---------
$ 515 $ 26,175 $ 26,690
----- --------- ---------
----- --------- ---------
</TABLE>
NOTE 6 -- INCOME TAXES:
Universal and the Holding Company entered into a tax sharing agreement that
became effective upon completion of the Refinancing Plan. Under the tax sharing
agreement, the Holding Company filed a consolidated federal income tax return
with Universal for the taxable year of Universal ended on December 31, 1993 and
will continue to file consolidated returns for each taxable year thereafter for
which the Holding Company and Universal are eligible to file consolidated
federal income tax returns. Under the tax sharing agreement, for each taxable
year of Universal with respect to which Universal is included in a consolidated
federal income tax return with the Holding Company, Universal will pay to the
Holding Company an amount equal to the lesser of (i) the consolidated federal
income tax liability of the consolidated group of which the Holding Company is
the common parent or (ii) the federal income tax liability of Universal,
computed as if Universal had filed a separate federal income tax return.
Accordingly, Universal has included the tax benefits of the Holding Company's
net operating loss carryforwards generated prior to consummation of the
Refinancing Plan in its deferred tax computation. Tax benefits from losses
generated by the Holding Company subsequent to the consummation of the
Refinancing Plan are not available to Universal; however, such benefits may be
transferred through either an intercompany transfer or a capital transaction.
Since Universal utilized operating loss carryfowards to completely offset
income in 1995 and incurred a net operating loss in 1994, no provision for
income taxes was required. Deferred tax assets, determined in accordance with
FAS 109, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Bad debts............................................................................ $ 42 $ 42
Non-deductible accrued expenses...................................................... 81 53
Depreciation......................................................................... 136 523
Loss carryforwards................................................................... 6,483 5,841
--------- ---------
6,742 6,459
--------- ---------
Valuation reserve.................................................................... (6,742) (6,459)
--------- ---------
Net deferred tax asset............................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
UNIVERSAL OUTDOOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6 -- INCOME TAXES: (CONTINUED)
For tax return purposes, the following companies have net operating loss
carryforwards at December 31, 1994 which expire between 2005-2009:
<TABLE>
<S> <C> <C>
PRIOR TO REFINANCING PLAN:
Universal........................................................ $ 5,808
Holding Company.................................................. 7,172
---------
$ 12,980
---------
---------
SUBSEQUENT TO REFINANCING PLAN:
Universal........................................................ $ 1,622
---------
---------
</TABLE>
Certain restrictions on the Universal's utilization of the net operating
losses will apply if there has been an "ownership change" of either Universal,
the Holding Company, or both within the meaning of section 382 of the Internal
Revenue Code. Upon the Holding Company's completion of its debt offering and
stock purchases, a limitation was imposed on the net operating loss
carryforwards which arose prior to the Refinancing Plan of Universal. The
limitation, as specified in Section 382 of the Internal Revenue Code, is based
on a percentage of the value of the Company at the time of the ownership change.
Furthermore, the Holding Company's use of Universal's net operating losses are
subject to limitations applicable to corporations filing consolidated federal
income tax returns.
NOTE 7 -- SUPPLEMENTAL CASH FLOW INFORMATION:
In March 1995, Universal entered into two stock purchase agreements to
purchase, for a net combined purchase price of $1,400, advertising structures
located in the Dallas market. Approximately $1,200 of the total purchase price
was paid in cash and $200 was paid in the form of promissory notes issued by
Universal or assumption of debt of the acquired Company. Additionally, during
1995 Universal acquired signboard crane equipment for $103 under a capital
lease. Accordingly, the Statement of Cash Flows does not reflect the debt
incurred in the acquisition of the stock or the equipment.
In May 1994, Universal entered into two asset purchase agreements to
purchase, for a net combined purchase price of $4,300, advertising structures
located in the Chicago and Milwaukee markets. Approximately, $3,300 of the total
purchase price was paid in cash and $1,000 was paid in the form of promissory
notes issued by Universal. Additionally, in October 1994, Universal acquired a
building in Addison, Illinois, for $1,500, $1,200 of which was funded with a
secured term note. Accordingly, the Statement of Cash Flows does not reflect
these notes issued to acquire the advertising structures or building.
NOTE 8 -- FINANCIAL INSTRUMENTS:
Universal values its financial instruments as required by FAS No. 107,
"Disclosures about Fair Values of Financial Instruments." The carrying amounts
of cash and cash equivalents, short term debt and long-term variable rate debt
approximate fair value. The fair value of long-term debt is based on market
prices. The estimated fair values of Universal financial instruments, for which
the carrying amount does not approximate fair value, as of December 31, 1995 is
as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Long-term debt.................................................................. $ 76,137 $ 77,112
</TABLE>
NOTE 9 -- CONTINGENCIES:
Universal is subject to various legal claims, suits and complaints in the
normal course of business. Such litigation includes claims by municipalities
that certain outdoor advertising structures must be removed. While the ultimate
outcome of current and future litigation cannot be predicted with certainty,
F-12
<PAGE>
UNIVERSAL OUTDOOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 9 -- CONTINGENCIES: (CONTINUED)
management believes, based on the advice of the Universal's counsel, the final
outcome of such litigation will not have a material adverse effect on the
Universal's financial position.
NOTE 10 -- RELATED-PARTY TRANSACTIONS
In June 1994, Universal's parent entity, Universal Outdoor Holding, Inc.,
advanced approximately $1,200 to Universal in the form of a intercompany loan,
which was a portion of the proceeds from the sale by the Holding Company of the
$50.0 million Senior Secured Discount Notes due 2004 (Note 4). Universal does
not pay interest on this loan, and as of December 31, 1995, approximately $234
was outstanding.
NOTE 11 -- SUBSEQUENT EVENTS:
In January 1996, the Company entered into an asset purchase agreement with
Ad-Sign, Inc. Under this agreement, Universal purchased approximately 160
display faces in the Chicago market in exchange for $12.5 million. The purchase
price was paid in cash and was financed with borrowings against the Acquisition
Line of Credit.
In February 1996, the Company entered into an agreement to purchase all
outstanding stock of NOA Holding Company for approximately $85 million ("Naegele
Acquisition"). The Company expects fees and expenses associated with the deal to
be $5 million. As a result of the proposed stock purchase, Universal will
acquire signboards in the Minneapolis/St. Paul, Minnesota and Jacksonville,
Florida markets. The Company expects to finance this acquisition with $60
million in bank borrowings and $30 million in cash proceeds from the purchase of
equity of the Holding Company by an investor group. The transaction is expected
to close in April 1996.
In addition, the Holding Company sold 186,500 shares of Class B common stock
and 188,500 shares of Class C common stock for approximately $30 million. The
proceeds were used to assist in the financing of the Naegele Acquisition.
In April 1996, the Company acquired four painted bulletin faces in the
Chicago market from Paramount Outdoor, Inc. in an asset purchase transaction for
approximately $600,000.
In July 1996, the Holding Company completed an initial public offering (IPO)
of its stock whereby the Company sold 4,630 shares of Common Stock at net
proceeds of $62,435,550. The proceeds were used to pay down on existing debt. In
conjunction with the IPO, the Company effected a 16-for-one stock split. The
accompanying financial statements and related notes thereto have been restated
to reflect the 16-for-one stock split for all periods presented.
In August 1996, the Company entered into an agreement to purchase all
outstanding stock of Outdoor Advertising Holdings, Inc., for approximately $240
million. The Company expects fees and expenses associated with the deal to be
$10 million. As a result of the proposed stock purchase, Universal will acquire
signboards in the Southeast markets including Orlando, Jacksonville, Palm Beach,
Ocala, and the East Coast and Gulf Coast areas of Florida. The Company expects
to finance this acquisition with bank borrowings. The transaction is expected to
close in October, 1996.
In September 1996, the Company acquired an option to purchase certain assets
of Tanner-Peck Outdoor for $5 million. The option is to purchase certain assets
located in and around Memphis, Tennessee and Tunica County, Mississippi during
the period from December 1, 1996 and December 31, 1996. The purchase price in
connection with purchase upon exercise of the option is approximately $66
million plus 100,000 shares of Common Stock of the Company.
In September 1996, the Company acquired certain assets of Iowa Outdoor
Displays for approximately $1.8 million. As a result of the agreement, the
Company will acquire signboards in the Des Moines market.
F-13
<PAGE>
UNIVERSAL OUTDOOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11 -- SUBSEQUENT EVENTS: (CONTINUED)
Also in September 1996, the Company acquired certain assets of The Chase
Company for approximately $5.8 million. As a result of the agreement, the
Company will acquire signboards in the Dallas market.
The Company will finance the purchase price of certain of the Acquisitions
and the related refinancing of certain existing bank indebtedness of the Company
through an amended and restated revolving credit facility loan and an amended
and restated acquisition term loan aggregating $300 million under the New Credit
Facility.
F-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
NOA Holding Company
We have audited the accompanying consolidated balance sheets of NOA Holding
Company as of May 31, 1994 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended May 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NOA Holding
Company as of May 31, 1994 and 1995 and the consolidated results of its
operations and cash flows for each of the three years in the period ended May
31, 1995 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
July 21, 1995
F-15
<PAGE>
NOA HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31,
--------------------
1994 1995
--------- --------- MARCH 31,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash......................................................................... $ 1,619 $ 1,630 $ 906
Accounts receivable, net of allowance for doubtful accounts of $346,000 in
1994 and $338,000 in 1995.................................................. 4,384 4,517 3,639
Other receivables............................................................ 256 262 126
Inventories.................................................................. 267 282 153
Current portion of prepaid leases............................................ 1,183 1,098 1,059
Prepaid expenses............................................................. 390 274 191
Other assets................................................................. 150 35 210
--------- --------- -----------
Total current assets..................................................... 8,249 8,098 6,284
--------- --------- -----------
Long-term portion of prepaid leases............................................ 312 509 545
Property and equipment, net (Note 3)........................................... 23,562 22,357 14,422
Intangibles, net (Note 4)...................................................... 17,505 12,374 5,715
--------- --------- -----------
Total assets............................................................. $ 49,628 $ 43,338 $ 26,966
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 605 $ 650 $ 460
Revolving credit............................................................. 200 -- --
Accrued interest............................................................. 598 191 393
Other accrued expenses....................................................... 1,626 1,800 1,705
Deferred revenue............................................................. 100 66 136
Current portion of long-term debt............................................ 6,000 608 91
--------- --------- -----------
Total current liabilities................................................ 9,129 3,315 2,785
--------- --------- -----------
Long-term debt (Note 5)........................................................ 29,657 30,324 5,072
Other long-term liabilities.................................................... 577 480 521
STOCKHOLDERS' EQUITY (NOTES 8 AND 9)
Preferred stock, par value $.10 per share:
Authorized shares -- 1,000
Issued shares -- 1,000....................................................... -- -- --
Class A common stock, par value $.01 per share:
Authorized shares -- 200,000
Issued shares -- 81,693.70 in 1994 and 72,919.94 in 1995..................... 1 1 1
Class B common stock, par value $.01 per share:
Authorized shares -- 25,000
Issued shares -- 13,199.82 in 1994 and 6,172.16 in 1995...................... -- -- --
Additional paid-in capital..................................................... 19,524 18,857 18,857
Retained deficit............................................................... (9,260) (9,639) (270)
--------- --------- -----------
Total stockholders' equity............................................... 10,265 9,219 18,588
--------- --------- -----------
Total liabilities and stockholders' equity............................... $ 49,628 $ 43,338 $ 26,966
--------- --------- -----------
--------- --------- -----------
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE>
NOA HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEAR ENDED MAY 31 MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................................... $ 33,503 $ 33,784 $ 37,054 $ 30,369 $ 28,964
Less agency commissions and discounts...................... 4,394 4,082 4,553 3,730 3,570
--------- --------- --------- --------- ---------
Net revenue................................................ 29,109 29,702 32,501 26,639 25,394
Operating expenses:
Production............................................... 6,876 6,466 6,472 5,416 4,697
Real estate rental....................................... 6,763 7,143 7,556 6,212 6,021
Selling.................................................. 2,364 2,773 2,545 2,108 1,803
General and administrative............................... 4,951 5,294 5,388 4,391 3,509
Depreciation and amortization............................ 6,726 6,816 7,201 6,589 5,073
--------- --------- --------- --------- ---------
27,680 28,492 29,162 24,716 21,103
--------- --------- --------- --------- ---------
Operating profit........................................... 1,429 1,210 3,339 1,923 4,291
Interest................................................... 3,613 3,479 3,062 2,601 1,769
Gain on sale of assets..................................... -- -- -- -- (9,983)
--------- --------- --------- --------- ---------
Net income (loss) before income taxes...................... (2,184) (2,269) 277 (678) 12,505
Income taxes............................................... -- -- -- -- 2,441
--------- --------- --------- --------- ---------
Net income (loss).......................................... (2,184) (2,269) 277 (678) 10,064
Dividends on preferred stock............................... (594) -- -- -- (695)
--------- --------- --------- --------- ---------
Net income (loss) applicable to common shares.............. $ (2,778) $ (2,269) $ 277 $ (678) $ 9,369
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE>
NOA HOLDING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK CLASS A COMMON CLASS B COMMON
STOCK STOCK ADDITIONAL
--------------- ---------------- ------------------ PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------ ------ --------- ----- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1992................. 1,000 $ -- 81,693.70 $ 1 13,199.82 $ -- $19,228 $ (3,612)
Dividends declared.................... -- -- -- -- -- -- -- (594)
Net loss.............................. -- -- -- -- -- -- -- (2,184)
------ ------ --------- ----- ---------- ------ --------- --------
Balance at May 31, 1993................. 1,000 -- 81,693.70 1 13,199.82 -- 19,228 (6,390)
Dividends declared.................... -- -- -- -- -- -- -- (305)
Dividends in-kind..................... -- -- -- -- -- -- 296 (296)
Net loss.............................. -- -- -- -- -- -- -- (2,269)
------ ------ --------- ----- ---------- ------ --------- --------
Balance at May 31, 1994................. 1,000 -- 81,693.70 1 13,199.82 -- 19,524 (9,260)
Dividends in-kind..................... -- -- -- -- -- -- 961 (656)
Proceeds from issuance of stock....... -- -- -- -- 3,852.63 -- -- --
Stock redemptions relative to the sale
of Pony Panels...................... -- -- (7,599.32) -- (9,754.26) -- (1,372) --
Repurchases of stock.................. -- -- (1,174.44) -- (1,126.03) -- (270) --
Compensation expense on stock
issuances........................... -- -- -- -- -- -- 14 --
Net income............................ -- -- -- -- -- -- -- 277
------ ------ --------- ----- ---------- ------ --------- --------
Balance at May 31, 1995................. 1,000 $ -- 72,919.94 $ 1 6,172.16 $ -- $18,857 $ (9,639)
Net income (unaudited)................ -- -- -- -- -- -- -- 9,369
------ ------ --------- ----- ---------- ------ --------- --------
Balance at March 31, 1996 (unaudited)... 1,000 $ 72,919.94 $ 1 6,172.16 $ -- $18,857 $ (270)
------ ------ --------- ----- ---------- ------ --------- --------
------ ------ --------- ----- ---------- ------ --------- --------
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE>
NOA HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEAR ENDED MAY 31 MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ (2,184) $ (2,269) $ 277 $ (678) $ 9,369
Adjustments to reconcile to net cash provided by operating
activities:
Depreciation and amortization............................. 6,726 6,816 7,201 6,589 5,073
Gain on sale of assets.................................... -- -- -- -- (9,983)
Deferred tax provision.................................... 550
Barter revenue resulting from purchases of equipment...... (108) -- -- -- --
Stock compensation expense................................ -- -- 14 -- --
Changes in operating assets and liabilities:
Accounts receivable..................................... (444) (57) (320) 118 (7)
Other current and noncurrent assets..................... (36) 628 98 66 (123)
Accounts payable........................................ 191 144 45 (108) --
Accrued expenses, deferred revenue and other............ 5 (477) (59) (231) (344)
--------- --------- --------- --------- ---------
Net cash provided by operating activities................... 4,150 4,785 7,256 5,756 4,535
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures for signs.............................. (928) (1,459) (1,636) (1,146) (1,164)
Proceeds from disposal of signs............................. 150 301 51 26 106
Other capital expenditures.................................. -- (242) (338) (293) (235)
Proceeds from the sale of assets............................ -- -- 542 542 21,784
--------- --------- --------- --------- ---------
Net cash used in investing activities....................... (778) (1,400) (1,381) (871) 20,491
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Net borrowings from bank.................................... -- 200 -- -- 1,500
Dividends paid.............................................. (594) (296) -- -- --
Increase in preferred stock................................. -- -- -- -- 540
Principal payments of bank debt............................. (3,100) (3,043) (5,157) (4,357) (27,700)
Payments to revise credit agreement......................... -- -- (669) (668) --
Principal payments on notes payable......................... -- -- (38) -- (90)
--------- --------- --------- --------- ---------
Net cash used in financing activities....................... (3,694) (3,139) (5,864) (5,025) (25,750)
--------- --------- --------- --------- ---------
Net cash provided........................................... (322) 246 11 (140) (724)
Cash at beginning at of period.............................. 1,695 1,373 1,619 1,619 1,630
--------- --------- --------- --------- ---------
Cash at end of period....................................... $ 1,373 $ 1,619 $ 1,630 $ 1,479 $ 906
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Supplemental schedule of noncash operating and investing activities:
The Company sold the net assets of Pony Panels on August 31, 1994 as part
of a stock redemption. The book value of the net assets sold totaled
approximately $1,900,000.
The Company incurred long-term obligations of $270,000 for stock
redemptions made during the year ended May 31, 1995.
Purchases of equipment resulting from barter agreements totaled $108,000
for the year ended May 31, 1993. There were no such purchases in 1994 and
1995.
See notes to consolidated financial statements.
F-19
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements consolidate the accounts of NOA
Holding Company (formerly McCarty Holding Company, Inc.) and its wholly-owned
subsidiary, Naegele Outdoor Advertising Company. All intercompany transactions
have been eliminated in consolidation.
REVENUE RECOGNITION
Advertising revenue is recognized monthly over the period in which
advertisement displays are posted on the advertising structures. A full month's
revenue is recognized in the first month of posting. The direct costs incurred
to produce the related advertisements are expensed as incurred. Payments
received in advance of billings are recorded as deferred revenue.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Maintenance, repairs and
renewals, which neither materially add to the value of the property, nor
appreciably prolong its life, are charged to expense as incurred.
Depreciation of property and equipment is provided on declining balance and
straight-line methods over useful lives of 3 to 25 years.
INTANGIBLE ASSETS
Intangibles assets are carried and are amortized on the straight-line method
over useful lives of 5 to 40 years. Goodwill represents the cost of acquired
businesses in excess of amounts assigned to tangible and intangible assets at
the date of acquisition.
INVENTORIES
Inventories consist principally of supplies and are stated at lower of cost
or market as determined on a first-in, first-out basis.
INCOME TAXES
Income taxes are computed in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
BARTER TRANSACTIONS
The Company occasionally enters into agreements to trade advertising space
for goods or services. Prior to December 8, 1992, the Company did not record
such arrangements as revenue unless the items bartered for were capital items.
The impact on revenues and expense of barter transactions not recorded in fiscal
1993 was $164,000.
RECLASSIFICATION
Certain amounts previously reported in 1993 and 1994 have been reclassified
to conform to the 1995 presentation.
INTERIM FINANCIAL INFORMATION
The interim financial information as of March 31, 1996 and 1995 and for the
ten months then ended has been prepared from the unaudited financial records of
the Company and, in the opinion of management, reflects all adjustments
necessary for a fair presentation of the financial position and results of
operations and of cash flows for the respective interim periods. All adjustments
were of a normal and recurring nature.
F-20
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
2. ACQUISITIONS
Effective January 19, 1994, the Company purchased Atlantic Outdoor
Advertising, Inc. for $1 million. The acquisition was recorded using the
purchase method of accounting for business combinations.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
1994 1995 USEFUL LIFE
--------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land............................................................... $ 1,235 $ 1,294 --
Advertising structures............................................. 24,825 25,256 20 years
Buildings.......................................................... 491 491 10-25 years
Machinery and equipment............................................ 1,180 1,201 6 years
Office furniture and equipment..................................... 1,896 1,865 5-10 years
Automobiles and trucks............................................. 1,045 1,124 5 years
Other.............................................................. 384 370 3-10 years
--------- ---------
31,056 31,601
Less accumulated depreciation...................................... 7,494 9,244
--------- ---------
$ 23,562 $ 22,357
--------- ---------
--------- ---------
</TABLE>
4. INTANGIBLES
The intangibles consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
1994 1995 LIFE
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Advertising site leases............................................... $ 22,760 $ 21,762 7 years
Covenant not to compete............................................... 3,118 3,129 5 years
Goodwill.............................................................. 2,159 2,030 40 years
Loan costs............................................................ 2,028 2,697 6 years
Organization costs.................................................... 506 503 5 years
--------- ---------
30,571 30,121
Less accumulated amortization......................................... 13,066 17,747
--------- ---------
$ 17,505 $ 12,374
--------- ---------
--------- ---------
</TABLE>
The advertising site leases and covenant not to compete were recorded as a
result of an acquisition in May 1991. Their cost represents management's best
estimate of the fair value at the date of acquisition. The loan costs represent
fees paid to obtain a bank term loan and line of credit in 1991 and to refinance
the term loan and line of credit in August 1994. In connection with the loan
refinancing, the Company wrote-off approximately $1 million of unamortized loan
costs. The organization costs are management's estimate of the portion of
various fees paid which are allocable to this asset.
F-21
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
5. DEBT
Long-term debt consists of the following at May 31:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Revolving Credit Commitment under the Amended and Restated Credit
Agreement dated August 31, 1994........................................ $ -- $ 30,700
Term loans under the Credit Agreement dated as of May 22, 1991.......... 35,657 --
Revolving Credit Loan under the Credit Agreement dated as of May 22,
1991................................................................... 200 --
Subordinated note payable, annual installments of $52 through July 1997,
plus quarterly interest payments at prime.............................. -- 157
Subordinated notes payable, annual installments of $38 through March
1997, plus quarterly interest payments at prime........................ -- 75
--------- ---------
35,857 30,932
Less current portion.................................................... 6,200 608
--------- ---------
$ 29,657 $ 30,324
--------- ---------
--------- ---------
</TABLE>
The Company amended and restated its bank Credit Agreement on August 31,
1994 and established a Revolving Credit Commitment of up to $38,000,000 and an
Acquisition Loan Commitment of up to $5,000,000. Both commitments decrease
quarterly each fiscal year and terminate on February 28, 2001. The available
Revolving Credit Commitment at May 31, 1995 was $32,800,000. At year end there
were no borrowings against the $5,000,000 Acquisition Loan Commitment. As part
of the Agreement, interest on the first $20,000,000 of debt is payable under an
Interest Rate Protect Plan ("IPP"). The IPP provides for a fixed rate of 6.28%
plus applicable margin (2.5% at May 31, 1995) for a period of three years and
began August 5, 1994. The Amended and Restated Credit Agreement also enables the
Company to borrow the remainder of the debt at a rate equal to either the Loan
Interbank Offered Rate (LIBOR) plus 3.0% or at the Lending Agent's base rate
plus 1.75%. In addition, the Company can realize lower borrowing rates if
certain financial results are achieved. At May 31, 1995, the interest rate in
effect was LIBOR plus 2.5%.
The Company is obligated to pay loan commitment fees to the banks equal to
one-half of 1% of the average daily unused portion of the commitments.
The bank has issued a letter of credit to the Company's insurance carrier
totaling $323,000 at the end of fiscal 1994 and 1995.
All common shares of the Company are pledged as collateral for the Credit
Agreement; accordingly, substantially all of the Company's assets are
effectively pledged as collateral.
The Credit Agreement contains certain restrictive covenants which the
Company must comply with on a continuing basis. The Company is restricted as to
borrowings, dividend payments, acquisitions, stock repurchases, sales of assets
and capital expenditures.
During fiscal 1995, the Company entered into certain stock redemption
agreements to repurchase 1,174.44 shares of Class A Common Stock and 1,126.03
shares of Class B Common Stock. As part of the agreements, the Company issued
subordinated promissory notes totaling approximately $270,000.
Total interest paid on all debt was $3,849,000, $3,528,000 and $3,468,000
for fiscal 1993, 1994 and 1995, respectively.
F-22
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
5. DEBT (CONTINUED)
Aggregate annual maturities of long-term debt during the five-year period
ending May 31, 2000 are (in thousands):
<TABLE>
<S> <C>
Year ending May 31:
1996.............................................................. $ 608
1997.............................................................. 4,365
1998.............................................................. 6,227
1999.............................................................. 7,600
2000.............................................................. 7,600
</TABLE>
6. INCOME TAXES
At May 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $8.0 million. These carryforwards
expire between May 31, 2006 and 2010. During the current fiscal year, the
Company utilized approximately $625,000 of net operating loss carryforwards to
offset current year taxable income.
Components of deferred tax assets and liabilities are (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Loss carryforward........................................................ $ 3,403 $ 3,145
Accrued expenses......................................................... 249 207
Loan cost amortization................................................... -- 343
--------- ---------
3,652 3,695
Deferred tax liabilities:
Depreciation............................................................. 857 1,090
Bad debt allowance....................................................... 33 36
--------- ---------
890 1,126
--------- ---------
Net deferred tax assets before valuation allowance......................... 2,762 2,569
Less valuation allowance................................................... 2,762 2,569
--------- ---------
Net deferred tax assets.................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
7. EMPLOYEE BENEFIT PLAN
The Company has a voluntary defined contribution 401(k) savings and
retirement plan for the benefit of its nonunion employees who may contribute
from 3% to 10% of their compensation. The Company has no obligation to
contribute to the plan and made no contribution for fiscal 1993, 1994 and 1995.
8. REDEEMABLE PREFERRED STOCK
The preferred stock is redeemable, subject to certain restrictions, by the
Company at a price equal to its value as carried on the financial statements.
The Company also has the right to convert the preferred stock to debt at a rate
of $1,000 principal of debt to $1,000 liquidation value of the preferred stock.
The liquidation value of each of share of preferred stock is $7,699 and $8,660
at May 31, 1994 and 1995, respectively. After May 22, 2001, the preferred
shareholders have the right to control the Board of Directors for the purpose of
selling the Company.
Subject to certain bank restrictions, dividends on the preferred shares are
payable semi-annually at the rate of 8% either in cash or in-kind payments which
increase the liquidation value of the preferred stock.
F-23
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
8. REDEEMABLE PREFERRED STOCK (CONTINUED)
Should operating profits exceed certain targets, the dividend rate increases to
12%. The minimum targets for fiscal 1996 are $9,259 for each six month period.
9. COMMON STOCK AND WARRANT
The Class B common stock is entirely owned by key employees and officers.
The ownership vests over a period of five years. In the event of a sale or
liquidation of the Company, the Class A common stock has a 10% return preference
over the Class B common stock.
During fiscal 1995, the Company implemented a stock purchase plan for its
key employees. Under the plan, 4,253 shares of Class B common stock will be
granted to the employees at a purchase price of $.10 per share. The shares will
vest over a five year period. Approximately 3,853 shares had been granted by May
31, 1995.
Additionally, a warrant to purchase 5,000 shares of Class A common stock at
$144.75 per share was outstanding at May 31, 1994 and 1995. The warrant expires
on May 22, 2006 and has no voting rights.
10. SALES OF PONY PANELS
Only July 22, 1994, the Company entered into an agreement with The McCarty
Company ("McCarty") under which McCarty acquired all of the assets of the Pony
Panels division (excluding cash) in exchange for McCarty's assumption of Pony
Panel's liabilities, delivery of 7,599.32 shares of Class A Common Stock and
9,754.26 shares of Class B Common Stock of NOA Holding Company, and cash in the
amount of $542.
11. COMMITMENTS AND CONTINGENCIES
The City of Jacksonville, Florida has enacted a number of ordinances which
would require the removal of outdoor advertising structures which are not
located on federal aid primary and/or interstate highways. Management has
vigorously contested the validity of these ordinances for the last four years.
In March 1995, the Company reached a settlement with the City of Jacksonville
and Capsigns, Inc. and has agreed to remove 711 billboards faces over a period
of 20 years.
The Company is also involved in litigation with various other municipalities
and regulatory agencies as the result of condemnation proceedings and licensing
and permit renewal disputes, which could result in the removal of advertising
structures.
Management believes, based upon the information currently available, that
the settlement with the City of Jacksonville and Capsigns, Inc., along with the
outcomes of the various actions described above, will not have a material
adverse effect on the consolidated financial condition or results of operations
of the Company.
During fiscal 1995, the Company became a party to certain material
litigation. The action alleges that a former billposting employee, while in the
process of posting a billboard, fell to the ground (because the platform on
which he was working gave way) and suffered significant injuries. It is alleged
that these injuries have precluded him from seeking any gainful employment. This
matter involves a significant level issue concerning the exclusive remedy
provision of workers' compensation law in Minnesota. Minnesota law provides that
an employer providing workers' compensation benefits is immune from tort
liability. It is the Company's contention that, because the Company provided
workers' compensation benefits to the former employee, the Company is entitled
to tort immunity.
The Plaintiff disputes the Company's interpretation of the law and argues
that the tort suit can go forward. This matter was argued before a trial judge
on February 28, 1995, who ruled in favor of the Plaintiff. An appeal to the
Minnesota Court of Appeals is currently pending.
F-24
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Plaintiff has also made a demand of approximately $4.9 million for lost
wages and pain and suffering. An attempt to amend this complaint and state a
claim for punitive damages has also been made. The Court has not yet acted on
the amendment.
At this time it is not possible to estimate the probable outcome of these
actions and, accordingly, the Company has not established a reserve for the
outcome of this litigation.
The Company leases the facility in Minneapolis from the Company's preferred
stockholder with annual rents of $480,000, exclusive of operating costs, which
commenced May of 1993 and continues through May of 2001.
The Company is required to make the following minimum operating lease
payments for equipment and facilities under noncancelable lease agreements (in
thousands):
<TABLE>
<S> <C>
Year ending May 31:
1996.............................................................. $ 552
1997.............................................................. 552
1998.............................................................. 552
1999.............................................................. 557
2000.............................................................. 557
Thereafter........................................................ 704
---------
$ 3,474
---------
---------
</TABLE>
Rent expense for operating leases for the years ended May 31, 1993, 1994 and
1995 totaled $6,950,000, $6,837,000 and $7,268,000, respectively.
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Universal Outdoor Holdings, Inc.
We have audited the accompanying statement of revenues and direct expenses
of Ad-Sign for the year ended December 31, 1995. This statement is the
responsibility of the company's management. Our responsibility is to express an
opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and direct expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of revenues and
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of revenues and direct expenses audited by us
presents fairly, in all material respects, the revenues and direct expenses of
Ad-Sign for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
PRICE WATERHOUSE LLP
June 14, 1996
Chicago, Illinois
F-26
<PAGE>
AD-SIGN
STATEMENT OF REVENUES AND DIRECT EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Gross revenues...................................................... $ 2,804
Less agency commissions............................................. 224
---------
Net revenues...................................................... 2,580
---------
Direct expenses:
Direct advertising expenses....................................... 338
General and administrative expenses............................... 402
Depreciation and amortization..................................... 454
---------
1,194
---------
Operating income.................................................... $ 1,386
---------
---------
</TABLE>
See accompanying notes to the statement of revenues and direct expenses.
F-27
<PAGE>
AD-SIGN
NOTES TO THE STATEMENT OF REVENUES AND DIRECT EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
NOTE 1 -- BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS:
The Statement of Revenues and Direct Expenses for the year ended December
31, 1995 presents revenues from contracts for the 160 advertising display faces
acquired from Ad-Sign, Inc. by Universal Outdoor Holdings, Inc. (Universal) in
the first quarter of 1996. This financial statement excludes operating expenses
which are not directly related to the assets acquired by Universal. Although
Universal only acquired certain assets of Ad-Sign, Inc., this acquisition meets
the criteria for a "business acquired" in
accordance with Regulation S-X, Rule 3-05 of the Securities Exchange Act of
1934.
Ad-Sign is an outdoor advertising company which owns and operates outdoor
advertising display faces principally in Chicago, Illinois. Ad-Sign sells
outdoor advertising space to national, regional and local advertisers.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:
The preparation of the statement of revenues and direct expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates. The significant accounting policies used in the preparation of these
financial statements are as follows.
REVENUES AND DIRECT EXPENSES
Advertising revenues are generated from contracts with advertisers generally
covering periods of one to twelve months. Ad-Sign recognizes revenues ratably
over the contract term and defers customer prepayment of advertising fees. Costs
incurred for the production of outdoor advertising displays are recognized in
the initial month of the contract or as incurred during the contract period.
PREPAID LAND RENTS
Most of Ad-Sign's outdoor advertising structures are located on leased land.
Land rents are typically paid in advance for periods ranging from one to twelve
months. Prepaid land rents are expenses ratably over the related rental term.
NOTE 3 -- SUBSEQUENT EVENT:
In the first quarter of 1996, Ad-Sign, Inc. entered into an asset purchase
agreement with Universal Outdoor Holdings, Inc. Under this agreement, Universal
purchased 160 advertising display faces in the Chicago market for $12.5 million.
F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
POA Acquisition Corporation
We have audited the accompanying balance sheets of POA Acquisition
Corporation as of December 31, 1995 and 1994, and the related statements of
operations, shareholder's equity, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of POA Acquisition Corporation
at December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995.
As discussed in Note 2 to the financial statements, the 1994 financial
statements have been restated to reflect the correction of an error in the
calculation of the provision for income taxes.
Ernst & Young LLP
Orlando, Florida
April 1, 1996, except for Note 16
as to which the date is August 27, 1996
F-29
<PAGE>
POA ACQUISITION CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- -------------
1995 1996
------------- -------------
1994 (UNAUDITED)
-------------
(RESTATED)
<S> <C> <C> <C>
Current assets:
Cash.............................................................. $ 727,690 $ 811,352 $ 2,873,233
Accounts receivable............................................... 4,482,520 5,631,320 6,207,868
Prepaid expenses.................................................. 1,698,539 1,822,964 2,471,868
Prepaid income taxes.............................................. 51,629 43,875 --
Deferred income taxes............................................. 2,596,951 3,213,848 3,213,848
------------- ------------- -------------
Total current assets............................................ 9,557,329 11,523,359 14,766,817
Deferred income taxes............................................... 14,269,374 11,835,410 10,730,410
Property, plant and equipment, net.................................. 20,112,931 23,005,058 23,433,086
Other assets........................................................ 46,266,092 41,854,491 49,337,612
------------- ------------- -------------
$ 90,205,726 $ 88,218,318 $ 98,267,925
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses............................. $ 3,432,619 $ 2,992,112 $ 3,419,277
Current portion of long-term debt................................. 8,061,214 9,109,419 9,109,419
------------- ------------- -------------
Total current liabilities....................................... 11,493,833 12,101,531 12,528,696
Long-term debt, less current portion................................ 70,210,555 65,603,203 73,947,859
Shareholder's equity
Common stock, $.01 par value:
Authorized shares -- 2,000,000
Issued and outstanding shares -- 100 in 1995 and 1994........... 1 1 1
Additional paid-in capital........................................ 45,419,909 45,419,909 45,419,909
Accumulated deficit............................................... (36,918,572) (34,906,326) (33,628,540)
------------- ------------- -------------
Total shareholder's equity...................................... 8,501,338 10,513,584 11,791,370
------------- ------------- -------------
$ 90,205,726 $ 88,218,318 $ 98,267,925
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-30
<PAGE>
POA ACQUISITION CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(RESTATED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Advertising revenues................. $ 37,456,464 $ 41,737,266 $ 45,830,359 $ 21,563,122 $ 24,860,268
Less commissions and discounts....... (3,362,525) (3,865,492) (4,393,319) (2,047,289) (2,249,876)
------------- ------------- ------------- ------------- -------------
34,093,939 37,871,774 41,437,040 19,515,833 22,610,392
------------- ------------- ------------- ------------- -------------
Expenses:
Operating.......................... 10,493,219 11,151,065 11,775,891 5,775,612 6,531,119
Selling, general and
administrative................... 9,413,920 10,283,413 10,698,212 5,028,685 5,999,987
Amortization....................... 4,853,633 5,208,589 5,061,849 2,540,689 2,540,689
Depreciation....................... 2,871,608 2,878,346 2,545,182 1,231,195 1,461,016
------------- ------------- ------------- ------------- -------------
27,632,380 29,521,413 30,081,134 14,576,181 16,532,811
------------- ------------- ------------- ------------- -------------
Income from operations............... 6,461,559 8,350,361 11,355,906 4,939,652 6,077,581
------------- ------------- ------------- ------------- -------------
Other income (expense):
Interest expense................... (5,866,923) (7,012,646) (7,346,241) (3,710,133) (3,691,754)
Loss on sale of a division......... -- (494,824) -- -- --
Gain (loss) on disposal of property
and equipment, net............... (446,151) (329,056) (64,332) (155,276) 46,959
Interest and other income.......... 167,360 24,412 42,244 -- --
------------- ------------- ------------- ------------- -------------
(6,145,714) (7,812,114) (7,368,329) (3,865,409) (3,644,795)
------------- ------------- ------------- ------------- -------------
Income before income taxes and
extraordinary item.................. 315,845 538,247 3,987,577 1,074,243 2,432,786
Provision for income taxes:
Current............................ 100,158 37,572 158,264 42,600 96,500
Deferred........................... 478,263 1,256,910 1,817,067 489,400 1,108,500
------------- ------------- ------------- ------------- -------------
578,421 1,294,482 1,975,331 532,000 1,205,000
------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary
item................................ (262,576) (756,235) 2,012,246 542,243 1,227,786
Extraordinary item:
(Loss) gain on early extinguishment
of debt, net of income tax
expense (benefit) of $(147,350)
and $50,000...................... -- (244,552) -- -- 50,000
------------- ------------- ------------- ------------- -------------
Net income (loss).................... $ (262,576) $ (1,000,787) $ 2,012,246 $ 542,243 $ 1,277,786
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes.
F-31
<PAGE>
POA ACQUISITION CORPORATION
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PREFERRED PAID-IN ACCUMULATED SHAREHOLDER'S
STOCK STOCK CAPITAL DEFICIT EQUITY
--------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993............... $ 1 $ 12,237 $ 57,644,726 $ (28,262,869) $ 29,394,095
Net loss for 1993...................... -- -- -- (262,576) 262,576
--------- ----------- -------------- -------------- --------------
Balances at December 31, 1993............ 1 12,237 57,644,726 (28,525,445) 29,131,519
Net loss for 1994 (restated)........... -- -- -- (1,000,787) (1,000,787)
Issuance of preferred stock............ -- 550,000 4,950,000 -- 5,500,000
Redemption of preferred stock.......... -- (562,237) (17,174,817) -- (17,737,054)
Cumulative preferred stock dividends... -- -- -- (7,392,340) (7,392,340)
--------- ----------- -------------- -------------- --------------
Balance at December 31, 1994
(restated).............................. 1 -- 45,419,909 (36,918,572) 8,501,338
Net income for 1995.................... -- -- -- 2,012,246 2,012,246
--------- ----------- -------------- -------------- --------------
Balance at December 31, 1995............. 1 -- 45,419,909 (34,906,326) 10,513,584
Net income for the six months ended June
30, 1996 (unaudited).................... -- -- -- 1,277,786 1,277,786
--------- ----------- -------------- -------------- --------------
$ 1 $ -- $ 45,419,909 $ (33,628,540) $ 11,791,370
--------- ----------- -------------- -------------- --------------
--------- ----------- -------------- -------------- --------------
</TABLE>
See accompanying notes.
F-32
<PAGE>
POA ACQUISITION CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30
-------------------------------------- ------------------------
1993 1995 1995 1996
----------- ----------- ----------- -----------
1994
------------
(RESTATED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................ $ (262,576) $ (1,000,787) $ 2,012,246 $ 542,243 $ 1,277,786
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Amortization................................... 4,853,633 5,208,589 5,061,849 2,540,689 2,540,689
Depreciation................................... 2,871,608 2,878,346 2,545,182 1,231,194 1,461,016
Deferred income taxes.......................... 478,263 1,123,867 1,817,067 489,400 1,108,500
Loss on sale of division....................... 1,367,286 494,824 -- -- --
Loss on disposal of property and equipment,
net.......................................... 446,151 329,056 64,332 3,100 (46,959)
Provision for bad debts........................ 122,694 375,190 64,285 -- --
Changes in operating assets and liabilities:
Increase in accounts receivable.............. (677,585) (523,087) (1,213,085) (418,229) (576,547)
Increase in prepaid expenses................. (68,365) (253,802) (124,425) (181,128) (652,406)
Decrease (increase) in prepaid income taxes.. (78,843) (27,786) 7,754 -- 43,875
Decrease (increase) in other assets.......... 862 (2,511,167) (500,248) -- --
(Increase) decrease in accounts payable and
accrued expenses........................... 867,753 772,507 (440,507) 15,570 427,165
----------- ------------ ----------- ----------- -----------
Net cash provided by operating activities........ 9,920,881 6,865,750 9,294,450 4,222,839 5,583,119
INVESTING ACTIVITIES
Proceeds from sale of division................... -- 2,000,000 -- -- --
Proceeds from disposal of property and
equipment....................................... 160,450 101,463 227,854 155,276 367,500
Purchases of property, plant and equipment....... (2,586,418) (1,787,528) (5,729,495) (777,279) (2,229,588)
Purchases of intangibles......................... -- -- (150,000) -- (10,023,806)
----------- ------------ ----------- ----------- -----------
Net cash (used in) provided by investing
activities...................................... (2,425,968) 313,935 (5,651,641) (622,003) (11,865,894)
FINANCING ACTIVITIES
Proceeds from long-term borrowings............... 133,500 83,023,442 4,500,000 1,000,000 13,147,633
Payments of long-term debt....................... (8,151,871) (70,696,101) (8,059,147) (4,029,691) (4,802,977)
Proceeds from issuance of preferred stock........ -- 5,500,000 -- -- --
Redemption of preferred stock.................... -- (17,737,054) -- -- --
Dividends paid................................... -- (7,392,340) -- -- --
----------- ------------ ----------- ----------- -----------
Net cash used in financing activities............ (8,018,371) (7,302,053) (3,559,147) (3,029,691) 8,344,656
----------- ------------ ----------- ----------- -----------
Net increase (decrease) in cash.................. (523,458) (122,368) 83,662 571,145 2,061,881
Cash at beginning of year........................ 1,373,516 850,058 727,690 727,690 811,352
----------- ------------ ----------- ----------- -----------
Cash at end of year.............................. $ 850,058 $ 727,690 $ 811,352 $ 1,298,835 $ 2,873,233
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-33
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 -- ORGANIZATION
On January 31, 1989, Outdoor Advertising Holdings, Inc. (Holdings)
contributed its shares of POA Acquisition Corporation (Company) common stock,
along with cash, to Peterson Acquisition, Inc. (Acquisition), a wholly-owned
subsidiary of Holdings. Acquisition immediately purchased the Company's
outstanding common shares under the terms of an Agreement and Plan of Merger
dated December 21,1988. Acquisition was subsequently merged into the Company and
its outstanding shares were converted into one hundred shares of the Company's
common stock.
The merger was accounted for as a purchase with a purchase price of
$33,279,550 (including acquisition costs of $4,448,023). Certain individuals,
who were former shareholders of the Company, own shares of Holdings and are
included in the management of Holdings and the Company. The Company allocated
the purchase price among the assets acquired and liabilities assumed, based upon
the respective fair values of the assets and liabilities, with the excess
purchase price recorded as goodwill.
The Company provides outdoor advertising services in the states of Florida,
South Carolina and Tennessee. Approximately 70% of the business is in the State
of Florida.
NOTE 2 -- RESTATEMENT OF PRIOR PERIOD FINANCIAL STATEMENTS
In October 1994, the Company sold certain assets, liabilities and the
business of its Orangeburg Division. In determining the gain or loss on the sale
for tax purposes, approximately $2,500,000 of goodwill was incorrectly included
in the calculation. The 1994 financial statements have been restated to reflect
the correction of this error resulting in a decrease in income before
extraordinary item and an increase in net loss of $956,000 from the amounts
previously reported.
NOTE 3 -- ACCOUNTING POLICIES
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation for financial
reporting purposes is computed by the straight-line method over the estimated
useful lives of the various classes of assets as follows:
<TABLE>
<S> <C>
28-30
Buildings....................................................... years
Advertising structures.......................................... 12 years
Equipment....................................................... 2-7 years
</TABLE>
The Company uses the accelerated Cost Recovery System and the Modified
Accelerated Cost Recovery System for income tax reporting purposes.
OTHER ASSETS
Loan costs incurred in connection with obtaining financing have been
deferred and are being amortized over the life of the loans. Goodwill represents
the excess of the cost of acquired businesses over the fair market value at
acquisition of the specifically identified assets.
Intangible assets are being amortized over the following periods:
<TABLE>
<S> <C>
8-10
Advertising structure leases..................................... years
Goodwill......................................................... 40 years
Deferred loan costs.............................................. 1-6 years
</TABLE>
F-34
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 3 -- ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Deferred income taxes relate to the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
ADVERTISING REVENUE
Advertising revenue is recognized ratably on a monthly basis over the period
in which advertisement displays are posted on the advertising structures.
ADVERTISING STRUCTURE RENTALS
Advertising structure lease rentals are generally paid in advance and
charged to expense over the life of the lease.
INTEREST RATE SWAP AND INTEREST CAP AGREEMENTS
The Company has entered into interest rate swap and interest rate cap
agreements to effectively convert a portion of its variable-rate borrowings into
fixed-rate obligations. The amount to be received or paid related to these
agreements is recognized over the lives of the agreements as an adjustment to
interest expense.
BARTER TRANSACTIONS
The Company enters into agreements to provide outdoor advertising services
in exchange for various goods and services of their customers. Revenue
recognized from these transactions approximated $1,497,000, $830,000 and $0 in
1995, 1994 and 1993, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable and
long-term debt at December 31, 1995 approximate fair value.
ACCOUNTING STANDARD
In March 1995, the FASB issued Statement No. 121 ("SFAS No. 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. As of December 31, 1995
there were no indications of impairment that would effect the carrying value of
assets.
INTERIM FINANCIAL INFORMATION
The interim financial information as of June 30, 1996 and 1995 and for the
six months then ended has been prepared from the unaudited financial records of
the Company and, in the opinion of management, reflects all adjustments
necessary for a fair presentation of the financial position and results of
operations and of cash flows for the respective interim periods. All adjustments
were of a normal and recurring nature.
F-35
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 4 -- ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Trade....................................................................... $ 5,701,472 $ 4,493,568
Employee notes and other.................................................... 463,300 458,119
------------ ------------
6,164,772 4,951,687
Less allowance for uncollectible accounts................................... (533,452) (469,167)
------------ ------------
$ 5,631,320 $ 4,482,520
------------ ------------
------------ ------------
</TABLE>
Included in employee notes and other are notes and accrued interest
aggregating $299,269 in 1995 and $279,473 in 1994 from common shareholders.
NOTE 5 -- PREPAID EXPENSES
Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Lease rental payments....................................................... $ 1,261,795 $ 1,065,874
Maintenance supplies........................................................ 94,581 133,268
Other....................................................................... 466,588 499,397
------------ ------------
$ 1,822,964 $ 1,698,539
------------ ------------
------------ ------------
</TABLE>
NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Land.................................................................... $ 2,466,681 $ 2,466,681
Buildings............................................................... 2,074,084 2,011,256
Advertising structures.................................................. 31,857,123 27,446,874
Equipment............................................................... 3,602,942 2,978,167
-------------- --------------
40,000,830 34,902,978
Less accumulated depreciation........................................... (16,995,772) (14,790,047)
-------------- --------------
$ 23,005,058 $ 20,112,931
-------------- --------------
-------------- --------------
</TABLE>
NOTE 7 -- OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Goodwill................................................................ $ 45,239,949 $ 45,239,949
Advertising structure leases, at cost................................... 26,096,863 26,021,863
Non-compete and other, at cost.......................................... 6,495,641 6,420,390
Deferred loan costs..................................................... 3,403,068 2,903,068
-------------- --------------
81,235,521 80,585,270
Less accumulated amortization........................................... (39,381,027) (34,319,178)
-------------- --------------
$ 41,854,494 $ 46,266,092
-------------- --------------
-------------- --------------
</TABLE>
F-36
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 8 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Trade accounts payable...................................................... $ 1,285,008 $ 1,794,814
Accrued compensation and other.............................................. 1,677,573 1,623,766
Accrued interest............................................................ 29,531 14,039
------------ ------------
$ 2,992,112 $ 3,432,619
------------ ------------
------------ ------------
</TABLE>
NOTE 9 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Notes payable to banks................................................... $ 74,500,000 $ 78,000,000
Other long-term debt..................................................... 212,622 271,769
------------- -------------
74,712,622 78,271,769
Less amounts due within one year......................................... (9,109,419) (8,061,214)
------------- -------------
$ 65,603,203 $ 70,210,555
------------- -------------
------------- -------------
</TABLE>
In January 1994, the Company refinanced its notes payable to banks, paid off
the unsecured subordinated notes payable to investment banking firms and
redeemed the 14% Series A senior redeemable cumulative preferred stock with term
notes and revolving credit notes totaling $83,000,000 and $7,000,000,
respectively. Notes payable to banks are term notes and revolving credit notes
are secured by all assets and common stock of the Company. Interest is charged
on borrowings under the term notes and revolving credit notes at the Company's
discretion at either a Eurodollar base rate or an ABR rate determined in
accordance with the terms of the Credit Agreement. Interest on the term notes is
currently charged at a Eurodollar base rate determined at each interest renewal
period. The December 31, 1995 term notes consist of a $54,500,000 borrowing at
8.19% and a $20,000,000 borrowing at 10.94%. On December 29, 1995, the Company
amended its Credit Agreement to allow for an additional $50,000,000 line of
credit available for acquisitions. No borrowings under this amendment have
occurred. Long-term debt maturities over the next five years are approximately
as follows: 1996 -- $9,107,000: 1997 -- $11,051,000: 1998 -- $13,048,000: 1999
- -- $21,505,000: 2000 -- $20,000,000 and $0 thereafter.
The refinancing of the notes payable in 1994 resulted in an extraordinary
loss of $391,902 as a result of writing-off the unamortized portion of deferred
loan costs related to those borrowings.
The Company entered into interest rate swap and interest rate cap agreements
that expire in 1997 with a notional amount of $40,000,000 at December 31, 1995
to reduce the impact of changes in interest rates on its variable rate long-term
debt.
The counterpart to the agreements is a major financial institution. In the
event a counterparty fails to meet the terms of an interest rate swap or
interest rate cap agreement, the Company's exposure is limited to the interest
rate differential. Credit loss from counterparty nonperformance is not
anticipated.
The Company paid approximately $7,331,000, $7,570,000 and $4,301,000 in cash
for interest in 1995, 1994 and 1993, respectively.
F-37
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 10 -- EMPLOYEE BENEFITS PLANS
The Company has a discretionary defined contribution plan which provides
retirement benefits to substantially all employees. The contributions made to
this plan were approximately $100,000 in 1995 and 1994, respectively and
$110,000 in 1993.
NOTE 11 -- INCOME TAXES
At December 31, 1995, the Company had federal and state net operating loss
carryforwards of approximately $43,600,000 for income tax purposes available to
offset future taxable income through 2006 to 2009. The Company was subject to
alternative minimum tax which is imposed at a 20% rate on the corporation's
alternative minimum taxable income in 1995. The alternative minimum tax expense
for 1995 was $132,800 and $100,158 for 1993. The tax paid will be allowed as a
credit carryover against regular tax in future periods. Net operating loss
carryforwards for alternative minimum tax purposes are approximately
$38,900,000. For financial reporting purposes, no valuation allowance has been
recognized to offset the deferred tax assets related to these carryforwards. The
tax benefit of any net operating losses which are not utilized will be
recognized as a current year expense in the year of expiration.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets as of December 31, 1995, are attributable to
the bad debt allowance, depreciation and amortization differences, alternative
minimum tax, and net operating loss carryforwards.
Components of the provision for income taxes for each year are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------
1995 1993
------------ 1994 ----------
------------
(RESTATED)
<S> <C> <C> <C>
Current
Federal....................................................... $ 132,754 $ 11,522 $ 100,158
State......................................................... 25,510 26,050 --
------------ ------------ ----------
Total current................................................... $ 158,264 $ 37,572 $ 100,158
------------ ------------ ----------
------------ ------------ ----------
Deferred:
Federal....................................................... $ 1,532,587 $ 1,073,054 $ 432,500
State......................................................... 284,480 183,856 45,763
------------ ------------ ----------
Total deferred.................................................. $ 1,817,067 $ 1,256,910 $ 478,263
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
The provision for income taxes included in the statements of operations
differs from the amounts computed by applying the statutory rate to income
before income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1993
------------ 1994 ----------
------------
(RESTATED)
<S> <C> <C> <C>
Income tax expense at the statutory rate........................ $ 1,355,776 $ 183,004 $ 107,387
Goodwill........................................................ 387,017 942,732 481,136
Meals and entertainment......................................... 17,432 21,214 7,959
State taxes, net of federal benefit............................. 204,593 138,538 30,204
Other........................................................... 10,513 8,994 (48,265)
------------ ------------ ----------
$ 1,975,331 $ 1,294,482 $ 578,421
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
F-38
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 11 -- INCOME TAXES (CONTINUED)
Components of deferred tax assets for each year are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995
------------- 1994
-------------
(RESTATED)
<S> <C> <C>
Current deferred tax assets:
Net operating loss carryforward........................................ $ 3,000,000 $ 2,444,000
Charitable contribution carryforward................................... 2,050 --
Prepaid expenses....................................................... (82,331) (114,184)
Bad debt allowance..................................................... 254,347 176,407
Accrued liabilities.................................................... 39,782 90,728
------------- -------------
Total current deferred tax assets........................................ $ 3,213,848 $ 2,596,951
------------- -------------
------------- -------------
Noncurrent deferred tax assets:
Property and equipment................................................. $ 141,450 $ 87,150
Intangible assets...................................................... (1,961,941) (2,224,357)
Alternative minimum tax credit......................................... 276,112 148,370
Net operating loss carryforward........................................ 13,391,143 16,269,565
State income taxes..................................................... (11,354) (11,354)
------------- -------------
$ 11,835,410 $ 14,269,374
------------- -------------
------------- -------------
</TABLE>
The Company paid income taxes of $149,000, $48,000 and $104,000 in 1995,
1994 and 1993, respectively.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space under various non-cancelable operating
leases. Minimum lease payments under these leases are approximately as follows:
1996 -- $151,000; 1997 -- $136,000 and $0 thereafter. The Company also leases
land for advertising structures under operating leases which are cancelable or
which have terms of less than one year.
Rent expense charged to operations amounted to approximately $7,461,000 in
1995, $6,947,000 in 1994 and $6,630,000 in 1993.
NOTE 13 -- PREFERRED STOCK
Holdings has issued various classes of preferred stock which provide for,
among other things, cumulative dividends which accrue quarterly whether or not
declared by the board of directors, and a liquidation value which includes
accrued dividends. This liquidation value amounted to approximately $70,711,000
at December 31, 1995 and $66,029,000 at December 31, 1994, of which
approximately $28,110,000 and $23,428,000, respectively, is accrued but unpaid
dividends. At December 31, 1995 Holdings had no assets, other than its
investment in the Company. The Holdings preferred stock does not contain
mandatory redemption features.
NOTE 14 -- ACQUISITIONS
During the year ended December 31, 1995, the Company acquired the assets of
three separate advertising entities. Under the terms of the transactions, the
Company acquired certain fixed assets, customer lists and advertising leases of
these entities for a combined total of $3,710,000. In connection with the
acquisition of the customer lists and advertising leases, intangible assets were
recorded at a total of
F-39
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 14 -- ACQUISITIONS (CONTINUED)
$150,000. The customer lists and advertising leases were assigned useful lives
of three and ten years, respectively.
NOTE 15 -- SUBSEQUENT EVENTS
ACQUISITION
On March 29, 1996, the Company purchased the stock of a company that
provides outdoor advertising services for $710,000. The Acquisition has been
accounted for by the purchase method.
COMMITMENT
The Company has entered into an agreement to purchase the capital stock of a
company that provides outdoor advertising services. The purchase price is
$10,000,000 which will be financed with the Company's Term C notes. The Company
anticipates accounting for this acquisition by the purchase method.
NOTE 16 -- SALE OF THE COMPANY
On August 27, 1996, the Company's parent, Holdings, entered into an
Agreement and Plan of Merger pursuant to which it agreed to sell the outstanding
capital stock of Holdings for approximately $240,000,000 in cash.
F-40
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Members
Tanner-Peck, L.L.C.
Memphis, Tennessee
We have audited the accompanying combined balance sheet of Tanner-Peck,
L.L.C. (the "Company") as of December 31, 1995, and the related combined
statements of income, changes in members' equity and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion of these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tanner-Peck, L.L.C. as of
December 31, 1995, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
February 23, 1996, except for Note 8 which is
as of September 12, 1996
BDO Seidman, LLP
Memphis, TN
F-41
<PAGE>
TANNER-PECK, L.L.C.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------- JUNE 30,
1996
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS (NOTE 7):
Current
Cash and cash equivalents (Note 3)............................................... $ 2,175,396 $ 1,712,501
Trade accounts receivable (Note 2), less allowance for doubtful accounts of
$57,934 and $177,765........................................................... 1,312,635 2,277,222
Other receivables................................................................ 9,496 33,955
Prepaid expenses................................................................. 320,663 270,324
------------- -------------
Total current assets............................................................... 3,818,190 4,294,002
Property and equipment, less accumulated depreciation (Note 4)..................... 21,197,368 20,726,722
------------- -------------
$ 25,015,558 $ 25,020,724
------------- -------------
------------- -------------
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Trade accounts payable........................................................... $ 412,834 $ 8,244
Accrued expenses................................................................. 213,181 262,886
Current maturities of long-term debt (Note 5).................................... 49,471 51,500
------------- -------------
Total current liabilities.......................................................... 675,486 322,630
Long-term debt, less current maturities (Note 5)................................... 1,134,849 1,108,420
Minority interest.................................................................. 34,671 39,858
------------- -------------
Total liabilities.................................................................. 1,845,006 1,470,908
Commitments and contingencies (Note 7).............................................
Members' equity (Note 1)........................................................... 23,170,552 23,549,816
------------- -------------
$ 25,015,558 $ 25,020,724
------------- -------------
------------- -------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-42
<PAGE>
TANNER-PECK, L.L.C.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE JUNE 30,
YEAR ENDED ----------------------------
DECEMBER 31, 1995 1995 1996
----------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Billboard revenue................................................ $ 8,099,188 $ 3,620,866 $ 7,717,336
Cost of sales.................................................... (3,679,087) (1,627,763) (3,955,512)
----------------- ------------- -------------
Gross profit..................................................... 4,420,101 1,993,103 3,761,824
Selling, general and administrative expenses..................... (1,746,678) (665,149) (1,361,049)
----------------- ------------- -------------
Operating income................................................. 2,673,423 1,327,954 2,400,775
Interest expense................................................. (582,705) (280,099) (47,091)
Minority interest................................................ (14,080) (7,862) (5,188)
----------------- ------------- -------------
Net income....................................................... $ 2,076,638 $ 1,039,993 $ 2,348,496
----------------- ------------- -------------
----------------- ------------- -------------
Pro forma:
Historical net income.......................................... $ 2,076,638 $ 1,039,993 $ 2,348,496
Pro forma income taxes (Note 6)................................ 801,000 401,000 901,000
----------------- ------------- -------------
Pro forma net income........................................... $ 1,275,638 $ 638,993 $ 1,447,496
----------------- ------------- -------------
----------------- ------------- -------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-43
<PAGE>
TANNER-PECK, L.L.C.
COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
<TABLE>
<CAPTION>
PAID-IN RETAINED
CAPITAL EARNINGS TOTAL EQUITY
------------- ------------ -------------
<S> <C> <C> <C>
Members' equity, December 31, 1994................................... $ 1,343,946 $ -- $ 1,343,946
Net income for 1995.................................................. -- 2,076,638 2,076,638
Capital contributions (Note 1)....................................... 20,393,521 -- 20,393,521
Distributions to members............................................. -- (643,553) (643,553)
------------- ------------ -------------
Members' equity, December 31, 1995................................... $ 21,737,467 $ 1,433,085 $ 23,170,552
------------- ------------ -------------
Unaudited:
Members equity, December 31, 1994.................................. $ 1,343,946 $ -- $ 1,343,946
Net income for the six months ended June 30, 1995.................. -- 1,039,993 1,039,993
Distributions for members.......................................... -- (390,000) (390,000)
------------- ------------ -------------
Members' equity June 30, 1995...................................... 1,343,946 649,993 1,993,939
------------- ------------ -------------
------------- ------------ -------------
Members' equity, December 31, 1995................................. $ 21,737,467 $ 1,433,085 $ 23,170,552
Net income for the six months ended June 30, 1996.................. -- 2,348,496 2,348,496
Distributions to members........................................... -- (1,969,232) (1,969,232)
------------- ------------ -------------
Members' equity, June 30, 1996..................................... $ 21,737,467 $ 1,812,349 $ 23,549,816
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-44
<PAGE>
TANNER-PECK, L.L.C.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE JUNE 30,
YEAR ENDED --------------------------
DECEMBER 31, 1995 1995 1996
----------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 2,076,638 $ 1,039,992 $ 2,348,496
Depreciation.................................................... 579,977 238,071 762,210
Provision for bad debts......................................... 190,577 49,000 125,000
Minority interest............................................... 14,080 7,862 5,188
Gain on disposal of assets...................................... (1,176) -- --
Changes in operating assets and liabilities:
Trade accounts receivable..................................... (549,837) (243,061) (1,089,587)
Prepaid expenses and other accounts receivables............... (149,182) (239,218) 25,880
Trade accounts payable........................................ 190,305 (200,061) (404,590)
Accrued expenses.............................................. 90,740 (99,557) 49,705
----------------- ------------ ------------
Net cash provided by operations............................. 2,442,122 553,028 1,822,302
----------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Memphis division of Naegele Outdoor Advertising
Company (Note 1).............................................. (14,020,096)
Capital expenditures............................................ (940,622) (559,382) (291,565)
Proceeds from sale of property and equipment.................... 16,977 --
----------------- ------------ ------------
Net cash used for investing activities........................ (14,943,741) (559,382) (291,565)
----------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash contributed by members (Note 1)............................ 20,393,521 -- --
Principal advances on long-term debt............................ 5,194,649 3,085,884 --
Principal payments on long-term debt............................ (10,318,097) (2,470,990) (24,400)
Distributions to members........................................ (643,553) (390,000) (1,969,232)
----------------- ------------ ------------
Net cash provided by (used for) financing activities.............. 14,626,520 224,894 (1,993,632)
----------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents.............. 2,124,901 218,540 (462,895)
Cash and cash equivalents, at beginning of period................. 50,495 50,495 2,175,396
----------------- ------------ ------------
Cash and cash equivalents, at end of period....................... $ 2,175,396 $ 269,035 $ 1,712,501
----------------- ------------ ------------
----------------- ------------ ------------
SUPPLEMENTAL DISCLOSURE:
Interest paid................................................... $ 97,029 $ 48,976 $ 47,088
----------------- ------------ ------------
----------------- ------------ ------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-45
<PAGE>
TANNER-PECK, L.L.C.
SUMMARY OF ACCOUNTING POLICIES
<TABLE>
<S> <C>
GENERAL Tanner-Peck, L.L.C. was organized on January 12, 1995. Prior
to its organization as a limited liability company, the
entity conducted business as Tanner-Peck Outdoor Sign (Note
3).
BASIS OF COMBINATION The combined financial statements include the outdoor
advertising business of Tanner-Peck, L.L.C. (the "Company")
and TOA Enterprises, L.P. The ownership of TOA Enterprise,
L.P. includes a 5% minority interest which has been provided
for in the combined financial statements. These combined
financial statements do not include other assets or
liabilities of the individual member owners.
ACQUISITION Effective November 29, 1995, the Company acquired the assets
and assumed certain liabilities of the Memphis division of
Naegele Outdoor Advertising Company ("Naegele") (Note 1).
The acquisition was accounted for using the purchase method
of accounting. Accordingly, the assets acquired and
liabilities assumed were recorded at their respective
estimated fair values, and the results of operations of
Naegele since the acquisition data have been included in the
combined financial statements of the Company.
USE OF ESTIMATES The preparation of the Company's financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The most
significant of these estimates is the allowance for doubtful
accounts (Note 2).
REVENUE RECOGNITION The Company enters into contracts with its customers to
provide billboard and poster advertising for terms ranging
from one month to five years. Revenue under these contracts
is recognized each month as customers are invoiced for
leased advertising space provided.
PROPERTY, EQUIPMENT AND
DEPRECIATION Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over the following
estimated useful lives:
Years
------------------------------------------------------------
Billboard structures 15
Machinery and equipment 7
Office furniture and equipment 7
Vehicles 7
------------------------------------------------------------
Leasehold improvements are amortized over the shorter of the
useful life of the improvement or the term of the lease.
</TABLE>
F-46
<PAGE>
TANNER-PECK, L.L.C.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<S> <C>
TAXES ON INCOME The combined companies are treated as a "pass through"
entity for income tax purposes. Accordingly, the companies
pay no taxes on income and each member, partner or
shareholder includes their portion of income in their
respective tax returns.
OPERATING LEASES The Company leases the sites upon which its billboards are
located under various operating lease agreements. In
general, these leases provide for monthly rental payments
and rental expense is recognized each month.
STATEMENTS OF CASH FLOWS For purposes of the statements of cash flows, the Company
classifies cash on hand and in checking and savings accounts
as cash equivalents.
</TABLE>
INTERIM FINANCIAL INFORMATION
The interim financial information as of June 30, 1996 and 1995 and for the
six months then ended has been prepared from the unaudited financial records of
the Company and, in the opinion of management, reflects all adjustments
necessary for a fair presentation of the financial position and results of
operations and of cash flows for the respective interim periods. All adjustments
were of a normal and recurring nature.
F-47
<PAGE>
TANNER-PECK, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- ACQUISITION AND RECAPITALIZATION
Effective November 29, 1995, the Company acquired most of the assets, and
assumed certain liabilities, of Naegele, an outdoor advertising business. The
acquisition was effectuated by the Company paying approximately $14 million cash
and assuming $133,000 in liabilities of Naegele as well as all of its operating
lease obligations. The purchase price has been allocated to the various assets
acquired based on their respective estimated fair values as follows:
<TABLE>
<S> <C>
Billboard structures........................................... $12,536,306
Land........................................................... 398,781
Office furniture and equipment................................. 369,673
Machinery and equipment........................................ 308,778
Leasehold improvement.......................................... 279,701
Vehicles....................................................... 153,435
Other assets................................................... 106,422
----------
$14,153,096
----------
----------
</TABLE>
Concurrent with the acquisition, the Company was recapitalized by admitting
a new member to the Company, The Weatherley Tanner Trust (the "Trust"), and
receiving a capital contribution of $20,393,521 cash as follows (Note 7):
Mr. William B. Tanner $5,835,116
The Weatherley Tanner Trust $14,558,405
As part of the recapitalization, notes payable aggregating $5,500,000 were
paid in full upon the closing of the acquisition.
Pro forma sales and net income as if the acquisition had occurred as of
January 1, 1995 would have been as follows (unaudited):
<TABLE>
<S> <C>
Sales.......................................................... $13,104,000
Net income..................................................... 98,000
</TABLE>
NOTE 2 -- TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable arise from the leasing of advertising space on
billboards and posters which are primarily located in the Memphis, Tennessee
area. Accordingly, the collectibility of such receivables is largely dependent
upon the strength of the local economy.
Activity in the allowance for doubtful accounts is summarized as follows:
<TABLE>
<S> <C>
Balance -- January 1, 1995..................................... $ 30,466
Charged to expense............................................. 190,577
Uncollected balances written off, net of recoveries............ (163,109)
----------
Balance -- December 31, 1995................................... $ 57,934
----------
----------
</TABLE>
Future revenues under noncancellable advertising billboard lease contracts
for the next five years and thereafter are as follows at December 31, 1995:
<TABLE>
<S> <C>
1996............................................................ $7,950,000
1997............................................................ 2,475,000
1998............................................................ 1,500,000
1999............................................................ 850,000
2000............................................................ --
</TABLE>
F-48
<PAGE>
TANNER-PECK, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- RELATED PARTY TRANSACTIONS
When Tanner-Peck, L.L.C. was organized on January 12, 1995, the owners of
the previous company, Tanner-Peck Outdoor Sign, elected not to include certain
land and the cost of a perpetual easement in the assets of Tanner-Peck, L.L.C.
The use of these assets (cost of $736,453) are necessary for the continued use
of the billboards located thereon. Rental expense for the use of these assets
was $36,283 for the year ended December 31, 1995.
The Company maintains certain bank accounts at United American Banks of
Memphis, a related entity through common ownership.
The Company also pays a member of the Company monthly rental payments of
$3,000 for office space used by the Company.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------- -------------
<S> <C> <C>
Billboard structures..................................................... $ 20,631,409 $ 20,698,818
Land..................................................................... 398,781 398,781
Buildings................................................................ 18,001 18,001
Office furniture and equipment........................................... 489,152 492,965
Machinery and equipment.................................................. 335,478 340,782
Leasehold improvements................................................... 279,701 335,194
Vehicles................................................................. 225,353 303,595
------------- -------------
22,377,875 22,588,137
Less accumulated depreciation............................................ (1,344,327) (2,101,238)
------------- -------------
21,033,548 20,486,899
Construction in progress................................................. 163,820 239,823
------------- -------------
Net property and equipment............................................... $ 21,197,368 $ 20,726,722
------------- -------------
------------- -------------
</TABLE>
Construction in progress consists of billboards and related structures which
are under construction. The total cost of construction is not expected to be
significant and will be funded through operations.
F-49
<PAGE>
TANNER-PECK, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ ------------
<S> <C> <C>
Unsecured note payable to a company, bearing interest at 8% per annum,
payable in monthly principal and interest payments of $10,861 through
October 2001 and a final payment of $755,178 due November 2001............ $1,092,795 $ 1,070,982
Other notes payable, bearing interest at 8% per annum, payable in monthly
principal and interest payments of approximately $1,054 through October
2001 and a final payment of $51,990 due November 2001..................... 91,525 88,938
------------ ------------
1,184,320 1,159,920
Less current maturities.................................................... (49,471) (51,500)
------------ ------------
Long-term debt............................................................. $1,134,849 $ 1,108,420
------------ ------------
------------ ------------
</TABLE>
NOTE 6 -- INCOME TAXES
The combined companies are treated as a "pass through" entity for income tax
purposes and pay no taxes on income. Instead, each individual member, partner or
shareholder includes their portion of income in their respective tax returns.
The pro forma income taxes shown on the accompanying combined statements of
income represent the income taxes that would have been reported had the Company
filed federal and state tax returns as a C Corporation.
The following summarizes pro forma income taxes:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE SIX MONTHS
ENDED ENDED JUNE 30,
DECEMBER 31, ----------------------
1995 1995 1996
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Federal.......................................................... $ 717,000 $ 359,000 $ 806,000
State............................................................ 84,000 42,000 95,000
------------ ---------- ----------
Total.......................................................... $ 801,000 $ 401,000 $ 901,000
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
The pro forma income taxes differ from the amounts computed by applying the
maximum federal statutory rates as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR
ENDED ENDED JUNE 30,
DECEMBER 31, --------------------
1995 1995 1996
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Provision for federal income taxes at statutory rates................. 34.0% 34.0% 34.0%
State taxes, net of federal benefit................................... 4.0 4.0 4.0
Other................................................................. 0.6 0.6 0.4
------ --------- ---------
Pro forma income taxes................................................ 38.6% 38.6% 38.4%
------ --------- ---------
------ --------- ---------
</TABLE>
F-50
<PAGE>
TANNER-PECK, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
The $20,393,521 cash capital contributions discussed in Note 1 were financed
by loans from a bank directly to the respective members or to intermediaries who
in turn loaned funds to the members. All of the Company's assets are pledged as
collateral for these loans.
The Company is subject to certain restrictive covenants under the loan
agreement which, among other things, limit future capital expenditures and
require the maintenance of certain minimum debt service coverage and leverage
ratios. One of the intermediaries, who controls a commercial bank by ownership
of a holding company, is subject to certain restrictive covenants as to the
commercial bank. The most significant of these covenants include the maintenance
of certain minimum capital ratios and a minimum allowance for loan and lease
losses. Moreover, the holding company and its commercial bank are precluded from
incurring additional indebtedness.
The approximates future minimum rental payments for noncancelable operating
leases having remaining terms in excess of one year as of December 31, 1995 are
as follows:
<TABLE>
<S> <C>
1996............................................................ $3,300,000
1997............................................................ 3,200,000
1998............................................................ 2,800,000
1999............................................................ 2,600,000
Thereafter...................................................... 12,700,000
</TABLE>
Rental expense under these operating leases was $1,581,467 for the year
ended December 31, 1995.
The Company is a defendant in a number of lawsuits arising in the normal
course of business. In addition, there are several actions by certain
governmental agencies regarding permits and related matters. Management believes
that the ultimate outcome of these matters will not have a material effect on
the financial position or results of operations of the Company.
NOTE 8 -- SUBSEQENT EVENT
On September 12, 1996 the Company entered into an agreement with Universal
Outdoor Holdings, Inc. ("Universal") whereby Universal has the option to
purchase substantially all of the assets of the Company during the period from
December 1, 1996 to December 31, 1996 for approximately $71 million plus 100,000
shares of the common stock of Universal.
F-51
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN. IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR SINCE
THE DATES AS OF WHICH INFORMATION IS SET FORTH HEREIN. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 10
The Transactions............................... 14
Use of Proceeds................................ 16
Capitalization................................. 17
Pro Forma Financial Information................ 18
Selected Consolidated Financial and Operating
Data......................................... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 28
Business....................................... 35
Management..................................... 44
Certain Transactions........................... 46
Principal Stockholders......................... 47
Description of Notes........................... 49
Description of Indebtedness and Other
Commitments.................................. 68
Underwriting................................... 72
Validity of Notes.............................. 73
Experts........................................ 73
Available Information.......................... 73
Index to Consolidated Financial Statements..... F-1
</TABLE>
$200,000,000
[LOGO]
UNIVERSAL OUTDOOR, INC.
% SENIOR SUBORDINATED
NOTES DUE 2006
--------------
PROSPECTUS
--------------
BEAR, STEARNS & CO. INC.
BT SECURITIES CORPORATION
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of estimated expenses incurred in connection
with the Notes being registered hereby, other than underwriting discounts and
commissions:
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 68,966
NASD Filing Fee.................................................... 20,500
Printing and Engraving Expenses.................................... *
Legal Fees and Expenses............................................ *
Accounting Fees and Expenses....................................... *
Blue Sky Fees and Expenses (including legal fees).................. 20,000
Miscellaneous...................................................... *
---------
Total.......................................................... *
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Delaware Law") and
Article XI of the Registrant's Bylaws provide for indemnification of the
Registrant's directors and officers to the maximum extent provided by Delaware
Law, which may include liabilities under the Securities Act.
Section 8 of the Underwriting Agreement provides for indemnification by the
Underwriters of directors, officers and controlling persons of the Company
against certain liabilities, including liabilities under the Securities Act,
under certain limited circumstances.
As permitted by Section 102(b) of the Delaware Law, the Certificate of
Incorporation provides that directors of the Company shall have no personal
liability to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except (i) for any breach of a director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or knowing violations of law,
(iii) under Section 174 of the Delaware Law, or (iv) for any transaction from
which a director derived an improper personal benefit.
The Company does not maintain directors' and officers' liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1993, the Company has issued the following securities which
were not registered under the Securities Act:
On November 18, 1993, pursuant to a Contribution Agreement between Parent
and all of the then shareholders of the Company, (i) the holders of all of the
common shares of the Company exchanged such shares on a one-for-one basis for
shares of Common Stock of Parent and (ii) the holders of all of the Class B
common shares of the Company exchanged such shares for an aggregate of 48,000
shares of Series B Preferred Stock, no par value, of Parent. These exchanges
were exempt from registration as either not involving any "sale" or as exempt
private placements under Section 4(2) of the Securities Act.
In each case, exemption from registration was claimed on the grounds that
the issuance of such securities did not involve any public offering within the
meaning of Section 4(2) of the Securities Act.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement
2.1 Plan and Agreement of Merger, dated November 18, 1993, between the Company and
Parent (filed as Exhibit 2 to the Company's Registration Statement on Form S-1
(Commission File No. 33-72710) and incorporated herein by reference)
2.2* Agreement and Plan of Merger between the Company, Universal Acquisition Corp.
and OAH dated August 27, 1996
2.3* Option and Asset Purchase Agreement between the Company and the Memphis/Tunica
Sellers dated September 12, 1996
2.4* Asset Purchase Agreement between the Company and Iowa Outdoor, Inc. dated
September 12, 1996
2.5* Asset Purchase Agreement between the Company and The Chase Company dated Sep-
tember 11, 1996
3.1* Second Amended and Restated Articles of Incorporation
3.2* Amended and Restated Bylaws
5.1* Opinion of Winston & Strawn
10.1* Amended and Restated Revolving Credit Agreement dated September , 1996
entered into among the Company, the various lending institutions from time to
time parties thereto, LaSalle National Bank, as Co-Agent and Bankers Trust
Company, as Agent
10.2* Amended and Restated Acquisition Credit Agreement dated September , 1996
entered into among the Company, the various lending institutions from time to
time parties thereto, LaSalle National Bank, as Co-Agent and Bankers Trust
Company, as Agent.
10.3 Agreement Regarding Tax Liabilities and Payments dated as of November 18, 1993
by and between Parent and the Company (filed as Exhibit 10(f) to the Company's
Form S-1 Registration Statement (File No. 33-72710) and incorporated herein by
reference)
10.4** Option Exchange Agreement among the Company, Parent and WHS dated November 18,
1993
10.5* Amendment to Option Exchange Agreement among the Company, Parent, Daniel L.
Simon, Brian T. Clingen and WHS
10.6* Fee Letter between the Company and Kelso & Company, L.P.
11.1* Computation of earnings per share
21.1* Subsidiaries of the Registrant
23.1*** Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Ernst & Young LLP
23.4*** Consent of BDO Seidman, LLP
23.5 Consent of Winston & Strawn (contained in Exhibit 5.1)
24 Powers of Attorney (included on Signature Page)
</TABLE>
- ------------------------
* To be filed by amendment.
** Filed with Parent's Registration Statement on Form S-1 dated July 23, 1996
(Commission File No. 333-5351) and incorporated herein by reference
*** Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that:
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to Item 14 above, or otherwise, the Company has been
advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on the 26th day of September, 1996.
UNIVERSAL OUTDOOR, INC.
By: *
-----------------------------------------
Daniel L. Simon
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Act, this Amendment No. 1 to
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
- ---------------------------- ------------------------------ ------------------
* President and Chief Executive
- ---------------------------- Officer (Principal Executive September 26, 1996
Daniel L. Simon Officer) and Director
Vice President and Chief
* Financial Officer (Principal
- ---------------------------- Financial and Accounting September 26, 1996
Brian T. Clingen Officer) and Director
*
- ---------------------------- Director September 26, 1996
Michael J. Roche
*
- ---------------------------- Director September 26, 1996
Michael B. Goldberg
*
- ---------------------------- Director September 26, 1996
Frank K. Bynum
*By: /s/ PAUL G. SIMON
-------------------------
Paul G. Simon
ATTORNEY-IN-FACT
II-4
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------------ ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
1.1* Form of Underwriting Agreement
2.1 Plan and Agreement of Merger, dated November 18, 1993, between Parent and UOI (filed as Exhibit
2 to the Company's Registration Statement on Form S-1 (Commission File No. 33-72710) and
incorporated herein by reference)
2.2* Agreement and Plan of Merger between the Company, Universal Acquisition Corp. and OAH dated
August 27, 1996
2.3* Option and Asset Purchase Agreement between the Company and the Memphis/Tunica Sellers dated
September , 1996
2.4* Asset Purchase Agreement between the Comapny and Iowa Outdoor, Inc. dated September 12, 1996
2.5* Asset Purchase Agreement between the Company and The Chase Company dated September 11, 1996
3.1* Second Amended and Restated Articles of Incorporation
3.2* Amended and Restated Bylaws
4.1** Specimen Common Stock Certificate of the Company
5.1* Opinion of Winston & Strawn
10.1* Amended and Restated Revolving Credit Agreement dated September , 1996 entered into among the
Company, the various lending institutions from time to time parties thereto, LaSalle National
Bank, as Co-Agent and Bankers Trust Company, as Agent
10.2* Amended and Restated Acquisition Credit Agreement dated September , 1996 entered into among
the Company, the various lending institutions from time to time parties thereto, LaSalle
National Bank, as Co-Agent and Bankers Trust Company, as Agent
10.3 Agreement Regarding Tax Liabilities and Payments dated as of November 18, 1993 by and between
Parent and the Company (filed as Exhibit 10(f) to the Company's Form S-1 Registration Statement
(File No. 33-72710) and incorporated herein by reference)
10.4** Option Exchange Agreement among the Company, Parent and WHS dated November 18, 1993
10.5* Amendment to Option Exchange Agreement among the Company, Parent, Daniel L. Simon, Brian T.
Clingen and WHS
10.6* Fee Letter between the Company and Kelso & Company, L.P.
11.1* Computation of earnings per share
21.1* Subsidiaries of the Registrant
23.1*** Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Ernst & Young LLP
23.4*** Consent of BDO Seidman LLP
23.5 Consent of Winston & Strawn (contained in Exhibit 5.1)
24 Powers of Attorney (included on Signature Page)
</TABLE>
- ------------------------
* To be filed by amendment.
** Filed with Parent's Registration Statement on Form S-1 dated July 23, 1996
(Commission File No. 333-5351) and incorporated herein by reference
*** Previously filed.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated July 21, 1995, with respect to the financial
statements of NOA Holding Company included in the Registration Statement (Form
S-1) and related Prospectus of Universal Outdoor, Inc. for the registration of
$200,000,000 of % Senior Subordinated Notes due 2006.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
September 17, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 1, 1996, with respect to the financial
statements of POA Acquisition Corporation included in the Registration Statement
on Form S-1 and related Prospectus of Universal Outdoor, Inc. for the
registration of $200,000,000 of % Senior Subordinated Notes due 2006.
/s/ Ernst & Young LLP
September 25, 1996
Orlando, Florida
