<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1997
REGISTRATION NO. 333-21717
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 2
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 (I.R.S. Employer
of incorporation) Industrial Classification Identification No.)
Code Number)
</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 LLP
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. /X/
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. / /
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE (1) REGISTRATION FEE
<S> <C> <C>
9 3/4% Series B Senior Subordinated Exchange Notes due 2006..... $100,000,000 $30,304
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
------------------
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>
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 MARCH 19, 1997
OFFER FOR ALL OUTSTANDING
[LOGO]
9 3/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
IN EXCHANGE FOR
9 3/4% SERIES B SENIOR SUBORDINATED EXCHANGE NOTES DUE 2006
OF
UNIVERSAL OUTDOOR, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON APRIL , 1997, UNLESS EXTENDED
--------------
Universal Outdoor, Inc., an Illinois corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange an aggregate principal amount of up to
$100,000,000 of 9 3/4% Series B Senior Subordinated Exchange Notes Due 2006 (the
"New Notes") of the Company, which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), for a like principal amount of the
issued and outstanding 9 3/4% Series B Senior Subordinated Notes Due 2006 (the
"Old Notes" and, with the New Notes, the "Notes") of the Company from the
holders thereof. The terms of the New Notes are substantially identical
(including principal amount, interest rate, maturity, security and ranking) to
the terms of the Old Notes for which they may be exchanged pursuant to the
Exchange Offer, except that such New Notes will not contain terms with respect
to certain transfer restrictions and registration rights relating to the Old
Notes. The Old Notes were issued on December 16, 1996 pursuant to the Indenture
(as defined) and sold in an offering (the "Offering") exempt from registration
under the Securities Act.
The Notes will be redeemable for cash at the option of the Company, in whole
or in part, on or after October 15, 2001 at the redemption prices set forth
herein. Until October 15, 1999, up to $35 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. In the event that a Change of
Control (as defined) occurs, each holder of the Notes will have the right, at
such holder's option, to require the Company to repurchase all or any part of
such holder's Notes. However, there can be no assurance that the Company will
have or will have access to sufficient funds to repurchase the Notes properly
tendered in connection with the Change of Control event.
The Old Notes are, and the New Notes will be, unsecured senior subordinated
obligations of the Company and will rank PARI PASSU in right of payment with all
other unsecured senior subordinated indebtedness of the Company. The Notes will
rank PARI PASSU with the $225 million of 9 3/4% Senior Subordinated Notes due
2006 issued by the Company in October 1996 (the "October Notes"). The Notes will
be subordinated to all existing and future Senior Debt (as defined) of the
Company, including senior indebtedness under a $225 million bank credit
facility. The amount of Senior Debt outstanding at December 31, 1996, after
giving effect to the Transactions (as defined), the Offering, and the October
Offerings (as defined), would have been approximately $136.5 million.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest at the rate of 9 3/4% per annum,
payable semi-annually on April 15 and October 15 of each year, commencing April
15, 1997. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from December 16, 1996. Accordingly, if the relevant record date for
interest payment occurs after the consummation of the Exchange Offer registered
holders of New Notes on such record date will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from December 16, 1996. If, however, the relevant record date for interest
payment occurs prior to the consummation of the Exchange Offer, registered
holders of Old Notes on such record date will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from December 16, 1996. Old Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Exchange Offer,
except as set forth in the immediately preceding sentence. Holders of Old Notes
whose Old Notes are accepted for exchange will not receive any payment in
respect of interest on such Old Notes otherwise payable on any interest payment
date the record date for which occurs on or after consummation of the Exchange
Offer.
(CONTINUED ON FOLLOWING PAGE)
HOLDERS OF OLD NOTES SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH IN
"RISK FACTORS" COMMENCING ON PAGE 14 OF THIS PROSPECTUS PRIOR TO MAKING A
DECISION WITH RESPECT TO THE EXCHANGE OFFER.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------
The date of this Prospectus is March 19, 1997
<PAGE>
(COVER PAGE CONTINUED)
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
December 16, 1996 by and among the Company and the other signatories thereto
(the "Registration Rights Agreement"). See "The Exchange Offer -- Consequences
of Exchanging Old Notes" for a discussion of the Company's belief, based on
interpretations by the staff of the Securities and Exchange Commission (the
"SEC") as set forth in no action letters issued to third parties, as to the
transferability of the New Notes upon satisfaction of certain conditions.
However, there can be no assurance that the SEC would make a similar
determination with respect to the Exchange Offer as it has in such other
circumstances, and the Company does not intend to request the SEC to consider,
and the SEC has not considered, the Exchange Offer in the context of a no-action
letter. Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event the Company terminates the Exchange Offer and does
not accept for exchange any Old Notes, the Company will promptly return the Old
Notes to the holders thereof. See "The Exchange Offer -- Terms of the Exchange
Offer; Period for Tendering Old Notes."
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes, or the
ability of holders of the New Notes to sell their New Notes or the price at
which such holders may be able to sell their New Notes. Bear, Stearns & Co. Inc.
and BT Securities Corporation (the "Initial Purchasers") have advised the
Company that they currently intend to make a market in the New Notes. The
Initial Purchasers are not obligated to do so, however, and any market-making
with respect to the New Notes may be discontinued at any time without notices.
The Company does not intend to apply for listing or quotation of the New Notes
on any securities exchange or stock market.
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and, in accordance therewith, files
periodic reports and other information with the SEC. The Company has filed with
the SEC a Registration Statement (which term shall include all amendments
thereto) on Form S-1 under the Securities Act, with respect to the New Notes.
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 SEC. 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 SEC 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.
Reference is hereby made to such reports, the Registration Statement and
other information which can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1025, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies may also be obtained
at prescribed rates from the Public Reference Section of the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549. The SEC maintains a World Wide
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http:// www.sec.gov.
3
<PAGE>
PROPECTUS 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 THE COMPLETION OF THE TRANSACTIONS (AS
DEFINED) SCHEDULED OR ANTICIPATED TO OCCUR. THE TERM "OCTOBER OFFERINGS" REFERS
TO THE OFFERING BY THE COMPANY OF THE OCTOBER NOTES AND THE OFFERING BY THE
PARENT OF 6.5 MILLION SHARES OF PARENT COMMON STOCK. THE "TRANSACTIONS" CONSIST
OF THE POA ACQUISITION (AS DEFINED), THE DEBT TENDER OFFERS (AS DEFINED), THE
EXECUTION OF THE NEW CREDIT FACILITY (AS DEFINED), THE MEMPHIS/TUNICA
ACQUISITION (AS DEFINED), THE REVERE ACQUISITION (AS DEFINED), THE MATTHEW
ACQUISITION (AS DEFINED) AND THE ADDITIONAL ACQUISITIONS (AS DEFINED). SEE "THE
TRANSACTIONS." "ACQUISITIONS" MEANS, COLLECTIVELY, THE POA ACQUISITION, THE
MEMPHIS/TUNICA ACQUISITION, THE REVERE ACQUISITION, THE MATTHEW ACQUISITION AND
THE ADDITIONAL ACQUISITIONS. "OPERATING CASH FLOW" HAS THE MEANING SET FORTH IN
FOOTNOTE 2 ON PAGE 11 HEREOF AND "OPERATING CASH FLOW MARGIN" HAS THE MEANING
SET FORTH IN FOOTNOTE 3 ON PAGE 11 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
31,049 advertising display faces in three distinct regions: the Midwest
(Chicago, Minneapolis/St. Paul, Indianapolis, Milwaukee, Des Moines, Evansville
(IN) and Dallas), the Southeast (Orlando, Jacksonville, Palm Beach, Ocala and
the Atlantic Coast and Gulf Coast areas of Florida, Memphis/Tunica and
Chattanooga (TN), and Myrtle Beach (SC)) and the East Coast (New York,
Washington, D.C., Philadelphia, Northern New Jersey, Wilmington (DE), Salisbury
(MD) and Hudson Valley (NY)). After giving effect to the Acquisitions, the
Company is the third largest pure-play outdoor advertising company in the United
States on the basis of net revenues. For the year ended December 31, 1996, on a
pro forma basis the Company had net revenues and Operating Cash Flow of $176.6
million and $85.8 million, respectively, which compare favorably to the pro
forma results for the same period in 1995 of $162.8 million and $76.1 million,
respectively. The Company believes that its 1996 Operating Cash Flow Margin of
51.3%, or 48.6% on a pro forma basis after giving effect to the Acquisitions, is
among the highest in the industry.
4
<PAGE>
The Acquisitions have significantly expanded and diversified the Company's
presence into new major metropolitan markets. The following table sets forth, as
of December 31, 1996, certain information with respect to the Company's outdoor
markets after giving effect to the Acquisitions:
<TABLE>
<CAPTION>
1996 % OF 1996 TOTAL
PRO FORMA PRO FORMA 30-SHEET 8-SHEET DISPLAY
MARKET NET REVENUES NET REVENUES BULLETINS POSTERS POSTERS FACES
- ------------------------- ---------------------- ------------ --------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MIDWEST:
Chicago................ $ 17,990 10.2% 660 -- 3,606 4,266
Minneapolis/St. Paul... 17,320 9.8 453 1,356 -- 1,809
Indianapolis........... 10,533 6.0 262 1,194 102 1,995
Milwaukee.............. 4,818 2.7 261 -- 325 586
Des Moines............. 3,539 2.0 85 585 9 679
Evansville............. 3,435 1.9 281 694 -- 975
Dallas................. 1,261 0.8 245 -- 1,201 1,446
SOUTHEAST:
Orlando................ 25,145 14.2 771 1,145 -- 1,916
Jacksonville........... 8,528 4.9 349 784 -- 1,133
Ocala.................. 5,240 3.0 856 198 -- 1,054
Memphis/Tunica......... 14,705 8.3 706 1,155 130 1,991
Chattanooga............ 5,470 3.1 356 649 -- 1,005
Myrtle Beach........... 9,495 5.4 729 469 -- 1,198
Atlantic Coast area
(FL)................. 5,132 2.9 707 21 -- 728
Gulf Coast area (FL)... 1,712 1.0 475 -- -- 475
EAST COAST:
Philadelphia........... 13,939 7.9 359 2,074 -- 2,579
Washington, D.C........ 6,289 3.6 87 589 -- 676
Salisbury.............. 3,435 1.9 401 473 -- 874
Wilmington............. 4,576 2.6 162 917 43 1,122
Baltimore.............. 2,295 1.3 -- -- -- 1,917
Mall Media............. 2,636 1.5 -- -- -- 1,539
Northern NJ............ 4,256 2.4 216 5 6 227
Metro New York......... 3,375 1.9 50 380 -- 430
Hudson Valley.......... 1,312 0.7 145 257 27 429
-------- ----- --------- -------- ------- -------
Total................ $176,611 100.0% 8,616 12,945 5,449 31,049(1)
-------- ----- --------- -------- ------- -------
-------- ----- --------- -------- ------- -------
</TABLE>
- ------------------------
(1) Includes 437 transit display faces located in Indianapolis, 1,917 transit
display faces located in Baltimore, 146 bus shelters in Philadelphia and
1,539 kiosk displays in malls throughout the United States.
5
<PAGE>
OPERATING STRATEGY
The Company's objective is to be the leading provider of outdoor advertising
services in each of its three 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 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 December 31, 1996, this
management team has successfully completed and integrated 17 acquisitions since
1989.
RECENT ACQUISITIONS
Consistent with its operating strategy, the Company has recently acquired
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 regions of the United States, give the
Company a substantial presence in the east coast region and allow the Company to
capitalize on the operating efficiencies and cross-market sales opportunities
associated with operating in closely proximate markets.
6
<PAGE>
THE POA ACQUISITION. The Company has acquired the outstanding capital stock
of Outdoor Advertising Holdings, Inc. ("OAH"), pursuant to a merger of a
subsidiary of the Company with and into OAH for approximately $240 million in
cash (the "POA Acquisition"). As a result of the POA Acquisition, the Company
acquired 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 has the largest number of outdoor
advertising display faces and 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 REVERE ACQUISITION. The Company recently acquired the outstanding
capital stock of Revere Holding Corp. ("Revere") for approximately $125 million
in cash (the "Revere Acquisition"). As a result of the Revere Acquisition, the
Company acquired a total of approximately 8,853 advertising display faces
located in markets in the east coast of the United States, including
Philadelphia, Washington D.C., Wilmington and Salisbury, as well as 1,917
transit display faces located in Baltimore and 1,582 kiosk displays located in
malls throughout the United States.
THE MEMPHIS/TUNICA ACQUISITION. The Company, through a newly-formed
subsidiary, acquired certain assets located in and around Memphis, Tennessee and
Tunica County, Mississippi (the "Memphis/ Tunica Acquisition"). The purchase
price of the Memphis/Tunica Acquisition was approximately $71 million plus
100,000 shares of Common Stock of Parent. As a result of the Memphis/Tunica
Acquisition, the Company acquired a total of approximately 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 were acquired by the Company in the POA
Acquisition. This gives the Company a leading presence in two of the largest
markets in Tennessee and strengthens its presence in the southeast United
States.
THE MATTHEW ACQUISITION. Pursuant to the Asset Purchase Agreement between
Matthew Outdoor Advertising Acquisition Co. L.P. ("Matthew") and Matthew
Acquisition Corporation, a wholly-owned subsidiary of the Company ("Matthew
Acquisition Corp."), the Company recently acquired certain assets of Matthew for
approximately $40 million in cash and assumption by the Company of certain
liabilities of Matthew (the "Matthew Acquisition"). As a result of the Matthew
Acquisition the Company acquired a total of approximately 1,035 advertising
display faces located in three markets in the east coast of the United States,
including Metro New York, Northern New Jersey and Hudson Valley.
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 acquired 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. See "The
Transactions" and "Description of Indebtedness and Other Commitments -- New
Credit Facility."
7
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered.............. Up to $100,000,000 aggregate principal amount of 9 3/4%
Series B Senior Subordinated Exchange Notes due 2006 which
have been registered under the Securities Act. The form
and terms of the New Notes are substantially identical
(including principal amount, interest rate, maturity,
security and ranking) to the Old Notes for which they may
be exchanged pursuant to the Exchange Offer, except that
the New Notes will not contain terms with respect to
certain transfer restrictions and registration rights
relating to the Old Notes. See The "Exchange Offer --
Consequences of Exchanging Old Notes."
The Exchange Offer.............. The New Notes are being offered in exchange for up to
$100,000,000 aggregate principal amount of the Company's
outstanding 9 3/4% Series B Senior Subordinated Notes due
2006 that were issued and sold in a transaction exempt
from registration under the Securities Act. The Old Notes
were sold by the Company on December 16, 1996 to Bear
Stearns & Co. Inc. and BT Securities Corporation as
initial purchasers (the "Initial Purchasers") pursuant to
a purchase agreement dated December 11, 1996 between the
Company and the Initial Purchasers (the "Purchase
Agreement"). The Initial Purchasers subsequently placed
the Old Notes with certain institutional and accredited
investors at a price of 101.5% of the principal amount
thereof. Pursuant to the Purchase Agreement, the Company
and the Initial Purchasers entered into a Registration
Rights Agreement dated December 16, 1996 (the
"Registration Rights Agreement") which grants the holders
of Old Notes certain exchange and registration rights. See
"Description of Notes -- Exchange Offer; Registration
Rights; Liquidated Damages." This Exchange Offer is
intended to satisfy obligations of the Company contained
in the Registration Rights Agreement.
Minimum Condition............... The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered or
accepted for exchange.
Expiration Date................. The Exchange Offer will expire at 5:00 p.m., New York City
time, on April , 1997, or such later date and time to
which it is extended by the Company in its sole
discretion.
Conditions to the Exchange
Offer......................... The obligation of the Company to consummate the Exchange
Offer is subject to certain conditions. See "The Exchange
Offer -- Certain Conditions to the Exchange Offer." The
Company reserves the right to terminate or amend the
Exchange Offer at any time prior to the Expiration Date
upon the occurrence of any such condition.
Procedures for Tendering Old
Notes......................... See "The Exchange Offer -- Procedures for Tendering Old
Notes."
Withdrawal Rights............... Tenders of Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date. Any
Old Notes not accepted for any reason will be returned
without expense to the tendering holders thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Federal Income Tax
Consequences.................. The exchange of Old Notes for New Notes by tendering
holders will not be a taxable exchange for federal income
tax purposes, and such holders should not recognize any
taxable gain or loss or any interest income as a result of
such exchange. See "Certain United States Federal Income
Tax Consequences."
Use of Proceeds................. There will be no proceeds to the Company from the exchange
pursuant to the Exchange Offer.
</TABLE>
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "Description of Notes
- -- Exchange Offer; Registration Rights; Liquidated Damages." Based on
interpretations by the staff of the SEC, as set forth in no-action letters
issued to third parties, the Company believes that New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
or otherwise transferred by holders thereof (other than any holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with any
person to participate in the distribution of such New Notes. However, the
Company does not intend to request the SEC to consider, and the SEC has not
considered, the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the SEC would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Each holder,
other than a broker-dealer, must acknowledge that it is not engaged in, and does
not intend to engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes must
acknowledge that such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities and that it will deliver
a prospectus in connection with any resale of such New Notes. See "Plan of
Distribution." In addition, to comply with state securities laws, the New Notes
may not be offered or sold in any state unless they have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with. The offer and sale of the New
Notes to "qualified institutional buyers" (as such term is defined under Rule
144A of the Securities Act) is generally exempt from registration or
qualification under state securities laws. The Company currently does not intend
to register or qualify the sale of the New Notes in any state where an exemption
from registration or qualification is required and not available. See "The
Exchange Offer -- Consequences of Exchanging Old Notes" and "Description of
Notes -- Exchange Offer; Registration Rights; Liquidated Damages."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are substantially identical in
all material respects, except for certain transfer restrictions and registration
rights relating to the Old Notes. The New Notes will bear interest from the most
recent date to which interest has been paid on the Old Notes or, if no interest
has been paid on the Old Notes, from December 16, 1996. Accordingly, if the
relevant record date for interest payment occurs after the consummation of the
Exchange Offer registered holders of New Notes on such record date will receive
interest accruing from the most recent date to which interest has been paid or,
if no interest has been paid, from December 16, 1996. If, however, the relevant
record date for interest payment occurs prior to the consummation of the
Exchange Offer registered holders of Old Notes on such
9
<PAGE>
record date will receive interest accruing from the most recent date to which
interest has been paid or, if no interest has been paid, from December 16, 1996.
Old Notes accepted for exchange will cease to accrue interest from and after the
date of consummation of the Exchange Offer, except as set forth in the
immediately preceding sentence. Holders of Old Notes whose Old Notes are
accepted for exchange will not receive any payment in respect of interest on
such Old Notes otherwise payable on any interest payment date the record date
for which occurs on or after consummation of the Exchange Offer.
<TABLE>
<S> <C>
Securities Offered.............. Up to $100,000,000 aggregate principal amount of 9 3/4%
Series B Senior Subordinated Exchange Notes due 2006 that
have been registered under the Securities Act.
Maturity Date................... October 15, 2006.
Interest Payment Dates.......... April 15 and October 15 of each year, commencing April 15,
1997.
Ranking......................... The Notes will be unsecured senior subordinated
obligations of the Company and will rank PARI PASSU in
right of payment with all other unsecured senior
subordinated indebtedness of the Company. The Notes will
rank PARI PASSU with the October Notes. The Notes will be
subordinated to all existing and future Senior Debt (as
defined) of the Company, including senior 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 October 15,
2001 at the redemption prices set forth herein plus
accrued and unpaid interest, if any, thereon to the date
of redemption. Until October 15, 1999, up to $35 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 110% 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."
Certain Covenants............... The indenture governing the Notes (the "Indenture")
contains 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
</TABLE>
10
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<TABLE>
<S> <C>
of certain Asset Sales (as defined), the Company will be
required to use the proceeds to reinvest in the Company's
business, to repay certain 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................. The Company will not receive any proceeds from the
Exchange Offer. The net proceeds to the Company of the
Offering were approximately $98,000,000 after deducting
estimated discounts to the Initial Purchasers and
commissions and expenses. The Company used the net
proceeds of the Offering to finance a portion of the
purchase price payable in connection with certain of the
Acquisitions.
</TABLE>
RISK FACTORS
Prospective holders of New Notes should consider carefully all of the
information set forth in this Prospectus and, in particular, should evaluate the
specific factors set forth under "Risk Factors" before making a decision to
tender their Old Notes in the Exchange Offer.
RECENT DEVELOPMENTS
In February 1997, the Company agreed to acquire the stock of Penn-Baltimore,
Inc. ("Penn") in Baltimore (MD) from Lamar Advertising Company ("Lamar") for
$46.5 million in cash (the "Penn Acquisition"). The Penn Acquisition will be
consummated upon the consummation of Lamar's acquisition of Penn Advertising,
Inc., the parent of Penn, and in connection therewith, the Company will acquire
approximately 1,450 advertising display faces in the Baltimore metropolitan area
for $46.5 million in cash.
11
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following sets forth summary unaudited combined 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 combined statement of operations for the year ended December 31, 1996 give
effect to (i) the Transactions, (ii) the Offering and the October Offerings and
the application of the estimated net proceeds therefrom, (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 January 1, 1996.
The summary unaudited pro forma combined balance sheet as of December 31, 1996
has been prepared as if the Memphis/Tunica Acquisition and Matthew Acquisition
had occurred on December 31, 1996.
The summary unaudited combined 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
combined 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
Consolidated Financial Statements and Notes thereto of Revere Holding Corp.
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER 31, 1996
---------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1)........................................................................... $ 176,611
Direct cost of revenues................................................................... 69,988
General and administrative expenses....................................................... 20,796
Depreciation and amortization............................................................. 50,818
Operating income.......................................................................... 35,009
Interest expense.......................................................................... 44,235
Other expense (income).................................................................... 1,811
Income (loss) before income taxes and extraordinary items................................. (11,037)
OTHER DATA:
Operating Cash Flow(2).................................................................... $ 85,827
Operating Cash Flow Margin(3)............................................................. 48.6%
Deficiency in earnings to cover fixed charges............................................. 11,037
Ratio of total indebtedness to Operating Cash Flow(4)..................................... 5.38
Ratio of Operating Cash Flow to total interest(5)......................................... 1.9
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................... $ 24,432 $ 28,671
Total assets............................................................. 681,027 797,308
Total long-term debt..................................................... 347,941 461,641
Common stockholders' equity.............................................. 230,984 233,484
</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) Operating Cash Flow (ii) interest expense
on funded debt.
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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenues.............................................. $ 21,435 $ 27,896 $ 28,710 $ 33,180 $ 38,101 $ 84,939
Net revenues(1)............................................. 18,835 24,681 25,847 29,766 34,148 76,138
Direct advertising expenses................................. 7,638 10,383 10,901 11,806 12,864 26,468
General and administrative expenses......................... 3,515 3,530 3,357 3,873 4,244 10,596
Depreciation and amortization............................... 5,530 7,817 8,000 7,310 7,402 18,286
Operating income............................................ 2,152 2,951 3,589 6,777 9,638 20,788
Interest expense............................................ 6,599 9,591 8,965 8,314 8,627 15,730
Income (loss) before extraordinary items(2)................. (4,500) (6,349) (5,727) (1,671) 969 3,660
Income (loss) before income tax............................. (4,500) (6,349) (8,987) (1,671) 969 (10,788)
OTHER DATA:
Operating Cash Flow(3)...................................... $ 7,682 $ 10,768 $ 11,589 $ 14,087 $ 17,040 $ 39,074
Operating Cash Flow Margin(4)............................... 40.8% 43.6% 44.8% 47.3% 49.9% 51.3%
Capital expenditures........................................ 2,047 2,352 2,004 4,668 5,620 7,178
Deficiency in earnings to cover fixed charges............... 4,500 6,349 8,987 1,671 -- 10,788
FINANCIAL RATIOS:
Ratio of earnings to fixed charges(5)....................... -- -- -- -- 1.1x 1.2x
Percentage of indebtedness to total capitalization(6)....... 121.4% 142.8% 116.1% 118.1% 115.8% 60.1%
Ratio of total indebtedness to Operating Cash Flow(7)....... 8.5x 5.5x 5.9x 5.2x 4.5x NM(8)
Ratio of Operating Cash Flow to total interest(9)........... 1.2x 1.1x 1.3x 1.7x 2.0x 2.5x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(11)
--------- ---------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................. $ 24,432 $ 28,671
Total assets.................................................................... 681,027 797,308
Total long-term debt(10)........................................................ 347,941 461,641
Common stockholders' equity..................................................... 230,984 233,484
</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 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 extraordinary items plus interest expense to (ii) interest expense on
total long-term 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) Ratio of total indebtedness to Operating Cash Flow for the year ended
December 31, 1996 is not meaningful as a result of significant acquisitions
during 1996.
(9) Amounts represent the ratio of (i) Operating Cash Flow to (ii) interest
expense on total long-term debt.
(10) Long-term debt does not include current maturities.
(11) Represents actual amounts to give effect to the Memphis/Tunica and Matthew
Acquisitions.
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<PAGE>
RISK FACTORS
IN ADDITION TO OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, BEFORE TENDERING THEIR OLD NOTES FOR THE NEW NOTES OFFERED
HEREBY, HOLDERS OF OLD NOTES SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS,
WHICH MAY BE GENERALLY APPLICABLE TO THE OLD NOTES AS WELL AS THE NEW NOTES:
CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW
NOTES. Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. Based on interpretations by
the staff of the SEC, as set forth in no-action letters issued to third parties,
the Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with any
person to participate in the distribution of such New Notes. However, the
Company does not intend to request the SEC to consider, and the SEC has not
considered, the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the SEC would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Each holder,
other than a broker-dealer, must acknowledge that it is not engaged in, and does
not intend to engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If any holder is an
affiliate of the Company, is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on
the applicable interpretations of the staff of the SEC and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." However, to comply with state securities laws, the New
Notes may not be offered or sold in any state unless they have been registered
or qualified for sale in such state or an exemption from registration or
qualification is available and is met. The offer and sale of the New Notes to
"qualified institutional buyers" (as such term is defined under Rule 144A of the
Securities Act) is generally exempt from registration or qualification under
state securities laws. The Company currently does not intend to register or
qualify the sale of the New Notes in any state where an exemption from
registration or qualification is required and not available. See "The Exchange
Offer -- Consequences of Exchanging Old Notes."
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, the
October Offerings and the issuance of the Notes as of December 31, 1996, the
Company's total long-term debt was approximately $461.6 million, interest
expense was approximately $44.2 million, or 25.0% 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
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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 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. The Company will face
significant challenges in integrating the operations acquired in connection with
the Acquisitions with those of the Company, particularly in geographic regions
where the Company has not previously operated. The Company has never integrated
an acquisition the size of the POA Acquisition or the Revere 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. Furthermore, there can be no assurance
that the Penn Acquisition will be consummated.
TOBACCO INDUSTRY REGULATION. On a pro forma basis taking into account the
Acquisitions, approximately 10.8% of the Company's net revenues in 1996 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
15
<PAGE>
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, the indenture governing
the October Notes and the New Credit Facility (as defined in "The
Transactions"). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Customers" and "Business --
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 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 facility. 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 contains 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. 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
October Notes. 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. The Notes will rank PARI
PASSU with the October Notes. 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
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 and the October 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 and
the October 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
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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."
LITIGATION. The Company, as the successor to POA Acquisition Company
("POA"), is a defendant in a case entitled IMPACT COMMUNICATIONS OF CENTRAL
FLORIDA, INC., ET. AL. vs. NATIONAL OUTDOOR ADVERTISING, ET. AL. pending in the
United States District Court, Middle District of Florida. Impact Communications
has alleged that POA, among others, conspired to restrain trade and to
monopolize the market for leases for land on which outdoor advertising
structures can be erected. The case has been set for trial in February 1997. The
plaintiffs have alleged that the acts of the defendants resulted in harm to the
plaintiffs and damages of $4 to 12 million, which could be trebled under the
applicable laws. The Company intends to defend the case vigorously. There can be
no assurance, however, as to the ultimate outcome of this litigation.
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. The Old Notes are eligible for trading in the PORTAL market
of the National Association of Securities Dealers, Inc. The Company has been
advised that the Initial Purchasers currently intend to make a market in the
Notes (and, if issued, the New Notes (as defined) ), but they are not obligated
to do so and may discontinue any such market making
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at any time without notice. In addition, such market making activity in the
Notes may be limited during the pendency of the Exchange Offer. See "Description
of Notes -- Exchange Offer; Registration Rights; Liquidated Damages" and "Plan
of Distribution." There can be no assurance that an active trading market will
develop for, or as to the liquidity of, the Notes.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," and "expect" and similar expressions as
they relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors."
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 was 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 acquired 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
Atlantic 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 has the largest number of outdoor advertising display
faces and 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 REVERE ACQUISITION. The Company acquired the outstanding capital stock
of Revere for approximately $125 million in cash. As a result of the Revere
Acquisition, the Company acquired a total of approximately 8,853 advertising
display faces located in four markets in the northeast United States.
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
gave it the option to purchase certain assets of the Memphis/Tunica Sellers. The
Company exercised the Memphis/ Tunica Option and the acquisition closed on
January 2, 1997. The purchase price in connection with the purchase of the
assets was approximately $71 million, including $5 million previously paid in
connection with the Memphis/Tunica Option, plus 100,000 shares of Common Stock
of Parent.
As a result of the Memphis/Tunica Acquisition, the Company acquired 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.
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THE MATTHEW ACQUISITION. In mid-January, 1997, Matthew Acquisition Corp.
acquired certain assets of Matthew for approximately $40 million in cash and the
assumption by the Company of certain liabilities of Matthew. As a result of the
Matthew Acquisition, the Company acquired a total of approximately 1,035
advertising display faces located in three markets in the northeast United
States.
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 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 acquired
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.
THE NEW CREDIT FACILITY
The Company financed the purchase price of certain of the Acquisitions and
the related refinancing of certain existing bank indebtedness of the Company and
paid 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"). Following the completion of the October Offerings, the outstanding
amounts under the New Credit Facility were repaid in full, and the maximum
commitment of the New Credit Facility was reduced to $225 million. As of January
1997, the Company's borrowings under the New Credit Facility totalled
approximately $115 million.
THE DEBT TENDER OFFERS
In October 1996, the Company completed a tender offer (the "Company Tender
Offer") to purchase all of its then outstanding 11% Senior Notes due 2003 (the
"Existing Company Notes"). Simultaneously, Parent completed a tender offer (the
"Parent Tender Offer") to purchase all of its then outstanding 14% Senior
Secured Discount Notes due 2004 (the "Existing Parent Notes"). These tender
offers are sometimes referred to herein collectively as the "Debt Tender
Offers." The Existing Company Notes and the Existing Parent Notes are sometimes
referred to herein as the "Existing Notes."
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USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds to the Company of the Offering were approximately $98,000,000 after
deducting estimated discounts to the Initial Purchasers and commissions and
expenses. The Company used the net proceeds of the Offering to finance a portion
of the purchase price payable in connection with certain of the Acquisitions.
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on April , 1997; PROVIDED, HOWEVER, that if the Company, in
its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about March ___, 1997, to all holders of
Old Notes known to the Company. The Company's obligation to accept Old Notes for
exchange pursuant to the Exchange Offer is subject to certain conditions as set
forth below under "-- Certain Conditions to the Exchange Offer."
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the holders thereof as described below.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer and may be accepted for exchange by the Company. Any Old
Notes not accepted for exchange for any reason will be returned without expense
to the tendering holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the events specified below under "--
Certain Conditions to the Exchange Offer." The Company will give oral or written
notice of any extension, amendment, non-acceptance or termination to the holders
of the Old Notes as promptly as practicable, such notice in the case of any
extension to be issued by means of a press release or other public announcement
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to United States Trust Company of New
York, as Exchange Agent, at the address set forth below under "-- Exchange
Agent" on or prior to the Expiration Date. In addition, either (i) certificates
for such Old Notes must be received by the Exchange Agent along with the Letter
of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company (the
"Book-Entry Transfer Facility")
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pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the holder
must comply with the guaranteed delivery procedures described below. THE METHOD
OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO
THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of Old Notes who has
not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by, the registered holder of the Old Notes with
the signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holder of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the holder, and that neither the holder, nor such
other person, has any arrangement or understanding with any person to
participate in the distribution of the New Notes. In the case of a holder that
is not a broker-dealer, each such holder, by tendering, will also represent to
the Company that such holder is not engaged in, or intends to engage in, a
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distribution of the New Notes. If any holder or any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company, or
is engaged in or intends to engage in or has an arrangement or understanding
with any person to participate in a distribution of such New Notes to be
acquired pursuant to the Exchange Offer, such holder or any such other person
(i) could not rely on the applicable interpretations of the staff of the SEC and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution." The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "-- Certain Conditions to the Exchange Offer." For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent, with written confirmation of any
oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or , if no interest has been paid, from
December 16, 1996. Accordingly, if the relevant record date for interest payment
occurs after the consummation of the Exchange Offer, registered holders of New
Notes on such record date will receive interest accruing from the most recent
date to which interest has been paid or, if no interest has been paid, from
December 16, 1996. If, however, the relevant record date for interest payment
occurs prior to the consummation of the Exchange Offer, registered holders of
Old Notes on such record date will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from December 16, 1996. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer, except
as set forth in the immediately preceding sentence. Holders of Old Notes whose
Old Notes are accepted for exchange will not receive any payment in respect of
accrued interest on such Old Notes otherwise payable on any interest payment
date the record date for which occurs on or after consummation of the Exchange
Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desired to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry procedures described
below, such non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's
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systems may make book-entry delivery of Old Notes by causing the Book Entry
Transfer Facility to transfer such Old Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Old Notes may
be effected through book-entry transfer at the Book-Entry Transfer Facility, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at one of the addresses set forth below
under "-- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically tendered Old Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent, and (iii) the certificates
for all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within five NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under "--
Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility for the Old Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by
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following one of the procedures described under "-- Procedures for Tendering Old
Notes" above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order of decree shall have been issued
by, any court or governmental agency or other governmental regulatory or
administrative agency or commission, (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as a
result thereof, or (ii) resulting in a material delay in the ability of the
Company to accept for exchange or exchange some or all of the Old Notes
pursuant to the Exchange Offer; or any statute, rule, regulation, order or
injunction shall be sought, proposed, introduced, enacted, promulgated or
deemed applicable to the Exchange Offer or any of the Transactions
contemplated by the Exchange Offer by any government or governmental
authority, domestic or foreign, or any action shall have been taken,
proposed or threatened, by any government, governmental authority, agency or
court, domestic or foreign, that in the sole judgment of the Company might
directly or indirectly result in any of the consequences referred to in
clauses (i) or (ii) above or, in the sole judgment of the Company, might
result in the holders of New Notes having obligations with respect to
resales and transfers of New Notes which are greater than those described in
the interpretation of the SEC referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving the
United States, or, in the case of any of the foregoing existing at the time
of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company and its subsidiaries taken as a whole that, in the
sole judgment of the Company, is or may be adverse to the Company, or the
Company shall have become aware of facts that, in the sole judgment of the
Company, have or may have adverse significance with respect to the value of
the Old Notes or the New Notes;
which in the sole judgment of the Company in any case, and regardless of the
circumstances (including any action by the Company) giving rise to any event
described above, makes it inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
24
<PAGE>
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if, at such time, any stop order shall be threatened or in effect with respect
to the Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA").
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent at (800) 548-6565 or addressed as follows:
<TABLE>
<S> <C>
BY MAIL: BY OVERNIGHT COURIER:
United States Trust Company of New York United States Trust Company of New York
Post Office Box 844 770 Broadway Street, 7th Floor
Cooper Station New York, New York 10003
New York, New York 10276-0844 Attention:
Corporate Trust and Agency Services
BY HAND: BY FACSIMILE:
United States Trust Company of New York (212) 420-6152
111 Broadway Attention:
Lower Level Corporate Trust and Agency Services
Corporate Trust Window Confirm by Telephone:
New York, New York 10006 (800) 548-6565
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and expenses
of the Exchange Agent and printing, accounting, legal fees and miscellaneous
expenses will be paid by the Company and are estimated to be approximately
$250,304.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction. In any jurisdiction the securities laws or blue sky laws
of which require the Exchange Offer to be made by a
25
<PAGE>
licensed broker or dealer, the Exchange Offer is being made on behalf of the
Company by one or more registered brokers or dealers that are licensed under the
laws of such jurisdiction.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct the
Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "Description of Notes
- -- Exchange Offer; Registration Rights; Liquidated Damages." The Company may in
the future seek to acquire untendered Old Notes in open market or privately
negotiated transactions, through subsequent exchange offers or otherwise. The
Company has no present plan to acquire any Old Notes that are not tendered in
the Exchange Offer.
Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to third parties, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by holders thereof (other than any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement or understanding with any person to participate in
the distribution of such New Notes. However, the Company does not intend to
request the SEC to consider, and the SEC has not considered, the Exchange Offer
in the context of a no-action letter and there can be no assurance that the
staff of the SEC would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each holder, other than a broker-dealer,
must acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of New Notes and has no arrangement or understanding to participate
in a distribution of New Notes. If any holder is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder (i) could not rely on the applicable interpretations
of the staff of the SEC and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." In addition, to
comply with state securities laws, the New Notes may not be offered or sold in
any state unless they have been registered or qualified for sale in such state
or an exemption from registration or qualification is available and is complied
with. The offer and sale of the New Notes to "qualified institutional buyers"
(as such term is defined under Rule 144A of the Securities Act) is generally
exempt from registration or qualification under state securities laws. The
Company currently does not intend to register or qualify the sale of the New
Notes in any state where an exemption from registration or qualification is
required and not available.
26
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Notes for New Notes by tendering holders will not be a
taxable exchange for federal income tax purposes, and such holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange. See "Certain United States Federal Income Tax Consequences."
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at December 31, 1996 and as adjusted to give effect to the Memphis/Tunica and
Matthew Acquisitions, the Offering and the October Offerings. The table should
be read in conjunction with the Consolidated Financial Statements and related
notes included elsewhere herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Existing Credit Facilities:
Revolving Credit Loan............................................................. $ -- $ --
Acquisition Term Loan............................................................. 20,000 136,543
9 3/4% Senior Subordinated Notes due 2006........................................... 223,611 223,611
9 3/4% Senior Series B Subordinated Notes due 2006.................................. 101,487 101,487
Other notes......................................................................... 2,843 --
Other obligations................................................................... -- --
---------- --------------
Total long-term debt and other obligations...................................... 347,941 461,641
Common stockholders' equity........................................................... 230,984 233,484
---------- --------------
Total capitalization............................................................ $ 578,925 $ 695,125
---------- --------------
---------- --------------
</TABLE>
- ------------------------
(1) Represents actual amounts adjusted to give effect to the Memphis/Tunica and
Matthew Acquisitions.
27
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following sets forth unaudited combined pro forma financial information
for the Company. The unaudited pro forma combined statement of operations for
the year ended December 31, 1996 gives effect to (i) the Transactions, (ii) the
Offering and the October 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 period. The
unaudited pro forma combined balance sheet as of December 31, 1996 has been
prepared as if the Memphis/Tunica and Matthew Acquisitions had occurred on
December 31, 1996.
The detail assumptions used to prepare the unaudited combined pro forma
financial information are contained in the notes to unaudited combined pro forma
financial information. The unaudited combined pro forma financial information
reflects the use of the purchase method of accounting for all acquisitions
during 1996.
Pro forma adjustments for all acquisitions are based upon preliminary
estimates, available information and certain assumptions that management of the
Company deems appropriate. Final adjustments may differ from the pro forma
adjustments presented herein. The unaudited combined 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 combined financial information is based on certain assumptions and
adjustments described in the notes thereto and should be read in conjunction
with the notes to unaudited combined pro forma financial information and the
separate historical financial statements and notes which are contained elsewhere
herein. Income (loss) is shown before income taxes and extraordinary items
because the Company has sufficient net operating loss carryforwards to offset
taxable income for the periods presented. Therefore, the presentation of income
taxes is neither required nor meaningful. 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
Consolidated Financial Statements and Notes thereto of Revere Holding Corp.
included elsewhere in this Prospectus.
The unaudited combined pro forma information includes certain adjustments
relating to the acquisitions of the common stock of Naegele, OAH and Revere. The
unaudited pro forma adjustments reflect an allocation of a portion of the total
acquisition cost to goodwill and the establishment of acquisition liabilities
and deferred tax liabilities for the effects of the significant differences
between the tax basis of the assets acquired and the estimated fair value of the
assets, primarily property and equipment, recorded for financial statement
purposes. Since it is not deductible for tax purposes, no deferred taxes are
required to be recorded for amounts allocated to goodwill. The unaudited pro
forma adjustments in previous filings were prepared on the belief that the
recordable differences in book and tax bases of the assets acquired would not be
significant. As a result of the allocation of total acquisition cost in this
filing, depreciation expense has been decreased by approximately $9.1 million
and goodwill amortization increased by approximately $14.6 million. Pro forma
adjustments for all acquisitions are based upon preliminary estimates, available
information and certain assumptions that the management of the Company deems
appropriate. Final adjustments may differ from the pro forma adjustments
presented herein.
28
<PAGE>
UNIVERSAL OUTDOOR INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNIVERSAL AD-SIGN, INC MEMPHIS/
OUTDOOR, AND IMAGE POA TUNICA ADDITIONAL REVERE
INC. MEDIA NAEGELE ACQUISITION(1) ACQUISITION ACQUISITIONS ACQUISITION
--------- ------------ ------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............ 76,138 $ 842 $5,832 $35,815 14,705 $1,166 29,047
--------- ------ ------- ----------- ----------- ------ -----------
Operating expenses:
Direct cost of
revenues........... 26,468 322 2,616 10,788 6,315 564 17,333
General and
administrative
expenses........... 10,596 100 1,459 9,613 2,743 304 4,118
Depreciation and
amortization....... 18,286 160 1,053 6,004 1,546 38 5,542
--------- ------ ------- ----------- ----------- ------ -----------
55,350 582 5,128 26,405 10,604 906 26,993
--------- ------ ------- ----------- ----------- ------ -----------
Operating income....... 20,788 260 704 9,410 4,101 260 2,054
Interest expense....... 15,730 -- 468 5,558 89 52 3,392
Other expense.......... 1,398 -- -- (21) -- (84) (8,410)
--------- ------ ------- ----------- ----------- ------ -----------
Income (loss) before
income taxes and
extraordinary
items................ 3,660 $ 260 $ 236 $ 3,873 4,012 $ 292 7,072
--------- ------ ------- ----------- ----------- ------ -----------
--------- ------ ------- ----------- ----------- ------ -----------
Operating cash flow.... 39,074 $ 420 $1,757 $15,414 5,647 $ 298 7,596
--------- ------ ------- ----------- ----------- ------ -----------
--------- ------ ------- ----------- ----------- ------ -----------
<CAPTION>
JULY AND OCTOBER PRO FORMA
MATTHEW OFFERINGS PRO FORMA OFFERING AS
ACQUISITION ACQUISITION ADJUSTMENTS ADJUSTMENTS AS ADJUSTED ADJUSTMENTS ADJUSTED
----------- ------------ ------------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............ 8,943 $ 4,123(2)(3) $ -- 176,611 $ -- $176,611
----------- -------- -------- ------------ ----------- --------
Operating expenses:
Direct cost of
revenues........... 3,558 2,024(2)(3) -- 69,988 -- 69,988
General and
administrative
expenses........... 1,550 (9,687)(2)(3)(4) -- 20,796 -- 20,796
Depreciation and
amortization....... 993 17,196(2)(3)(5) -- 50,818 -- 50,818
----------- -------- -------- ------------ ----------- --------
6,101 9,533 -- 141,602 -- 141,602
----------- -------- -------- ------------ ----------- --------
Operating income....... 2,842 (5,410) -- 35,009 -- 35,009
Interest expense....... -- 37,869(2)(3)(6)(7) (20,101)(9)(10) 43,057 1,178(11) 44,235
Other expense.......... -- 8,928(2)(3)(8) -- 1,811 -- 1,811
----------- -------- -------- ------------ ----------- --------
Income (loss) before
income taxes and
extraordinary
items................ 2,842 $ (52,207) $ 20,101 $ (9,859) $ (1,178) $(11,037)
----------- -------- -------- ------------ ----------- --------
----------- -------- -------- ------------ ----------- --------
Operating cash flow.... 3,835 $ 11,786 $ -- 85,827 $ -- 85,827
----------- -------- -------- ------------ ----------- --------
----------- -------- -------- ------------ ----------- --------
</TABLE>
See accompanying notes to pro forma combined statements of operations.
29
<PAGE>
NOTES TO UNAUDITED COMBINED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 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 Offering, the October
Offerings and the application of the estimated net proceeds therefrom, the
related acquisitions and consummation of the IPO (as defined herein) 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 period.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<C> <S> <C>
1. POA Acquisition Corporation, a wholly-owned subsidiary of OAH, acquired certain assets and
liabilities in the outdoor advertising industry in Florida during May 1996. The historical
financial information includes revenues and expenses associated with the new market prior to
the acquisition:
$ 955
Net revenues..............................................................................
710
Direct cost of revenues...................................................................
2. Prior to acquisition by the Company, Revere disposed of certain assets and liabilities in the
outdoor advertising industry in Texas. The following entry eliminates revenues and expenses
associated with the Texas market prior to the acquisition:
$ (3,661)
Net revenue...............................................................................
(2,128)
Direct cost of revenues...................................................................
(568)
General and administrative expenses.......................................................
(765)
Depreciation and amortization.............................................................
(367)
Interest expense..........................................................................
(853)
Other.....................................................................................
3. Entry records statement of operations activity of Revere from September 30, 1996 through the
date of closing (December 10, 1996):
$ 7,784
Net revenue.................................................................................
4,152
Direct cost of revenues.....................................................................
1,081
General and administrative..................................................................
1,764
Depreciation and amortization...............................................................
770
Interest expense............................................................................
848
Other expense...............................................................................
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<C> <S> <C>
4. 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.
$ 1,875
Naegele, Ad-Sign and Image Media.........................................
-----------
-----------
$ 2,100
POA Acquisition..........................................................
1,000
Memphis/Tunica Acquisition...............................................
255
Additional Acquisitions..................................................
-----------
$ 3,355
-----------
-----------
$ 3,770
Revere Acquisition.......................................................
1,200
Matthew Acquisition......................................................
-----------
$ 4,970
-----------
-----------
5. 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:
$ 460
Naegele, Ad-Sign and Image Media (acquired in March 1996)................
-----------
-----------
$ 8,480
POA Acquisition (acquired in October 1996)...............................
3,101
Memphis/Tunica Acquisition (acquired in January 1997)....................
236
Additional Acquisitions (acquired in September 1996).....................
-----------
$ 11,817
-----------
-----------
$ 2,210
Revere Acquisition (acquired in December 1996)...........................
1,710
Matthew Acquisition (acquired in January 1997)...........................
-----------
$ 3,920
-----------
-----------
6. Entry records additional interest expense at an assumed rate of 8.25% per $ 5,604
annum to be incurred in connection with the acquisition of Naegele, Ad-Sign
and Image Media which occurred in March of 1996 (debt incurred of $60.0
million less $1.4 million of interest expense for debt not assumed)........
-----------
-----------
7. Entry to record additional interest expense at an assumed rate of 8.5% per
annum in connection with the Transactions:
$ 20,400
POA Acquisition (debt incurred of $240.0 million)........................
6,018
Memphis/Tunica Acquisition (debt incurred of $70.8 million)..............
646
Additional Acquisitions..................................................
-----------
27,064
(5,699)
Actual interest expense for POA Acquisition, Memphis/Tunica Acquisition
and Additional Acquisitions............................................
-----------
$ 21,365
-----------
-----------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER
31, 1996
-----------
<C> <S> <C> <S> <C>
$ 10,489
Revere Acquisition (debt incurred of $123.4 million)........................................
3,400
Matthew Acquisition (debt incurred of $40.0 million)........................................
------------
13,889
(3,392)
Actual interest expense for Revere Acquisition and Matthew Acquisition......................
------------
$ 10,497
------------
------------
8. Entry to reduce other income from Revere for the gain recognized on the sale of the Texas $ 8,933
markets.......................................................................................
------------
------------
9. Entry to record the changes in interest expense to reflect the October Offerings and the
application of the net proceeds:
$ 21,938
October Notes at 9.75%......................................................................
3,840
New Credit Facility at an assumed rate of 8.5%..............................................
599
Amortization of deferred financing costs....................................................
(43,757)
Less pro-formas as adjusted interest expense................................................
------------
$ (17,380)
------------
------------
10. Entry to record the reduction in interest expense from the application of the net proceeds of $ (2,721)
the IPO to the repayment of long-term debt....................................................
------------
------------
11. Entry to record the changes in interest expense to reflect the Offering and the application of
the net proceeds therefrom:
$ 9,750
Notes at 9.75%..............................................................................
21,938
October Notes at 9.75%......................................................................
11,606
New Credit Facility at an assumed rate of 8.5%..............................................
941
Amortization of deferred financing costs....................................................
(43,057)
Less pro-forma as adjusted interest expense.................................................
------------
$ 1,178
------------
------------
</TABLE>
12. The above pro-forma statement of
operations do not reflect the following
extraordinary losses on the early
retirement of debt:
14% Series A Senior Secured Discount
Notes due 2004:
September 1996...................... $ 1,400
October 1996........................ 10,725
11% Series A Senior Secured Discount
Notes due 2003:
October 1996........................ 14,448
--------
$26,573
--------
--------
32
<PAGE>
UNIVERSAL OUTDOOR, INC.
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNIVERSAL MEMPHIS/
OUTDOOR TUNICA ACQUISITION PRO FORMA
INC. ACQUISITION ADJUSTMENTS AS ADJUSTED
---------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Current assets........... $ 54,349 $ 9,320 $ (5,000)(3) $ 58,669
Property and equipment... 382,555 20,389 91,572(1) 494,516
Goodwill................. 217,831 -- -- 217,831
Other assets............. 26,292 -- -- 26,292
---------- ----------- --------------- -----------
Total assets............. $681,027 $29,709 $ 86,572 $797,308
---------- ----------- --------------- -----------
---------- ----------- --------------- -----------
Current liabilities,
excluding current
maturities............. $ 29,917 $ 5,081 $ (5,000)(3) $ 29,998
Current maturities of
long-term debt......... -- -- -- --
Long-term debt........... 347,941 1,121 112,579(1) 461,641
Deferred income taxes
liabilities............ 71,700 -- -- 71,700
Other long-term
liabilities............ 485 -- -- 485
---------- ----------- --------------- -----------
Total liabilities........ 450,043 6,202 107,579 563,824
---------- ----------- --------------- -----------
Stockholders' equity..... 230,984 23,507 (21,007) (1)(2) 233,484
---------- ----------- --------------- -----------
Total liabilities and
stockholders' equity... $681,027 $29,709 $ 86,572 $797,308
---------- ----------- --------------- -----------
---------- ----------- --------------- -----------
</TABLE>
See accompanying notes to pro forma combined balance sheet.
33
<PAGE>
NOTES TO UNAUDITED COMBINED PRO FORMA BALANCE SHEET
AT DECEMBER 31, 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 Memphis/ Tunica and Matthew Acquisitions.
1. Entry records the effects of the Memphis/Tunica and Matthew acquisitions.
<TABLE>
<CAPTION>
MEMPHIS/TUNICA MATTHEW
ACQUISITION ACQUISITION TOTAL
--------------- ----------- ----------
<S> <C> <C> <C>
Purchase price...................................................... $ 73,700 $ 40,000 $ 113,700
Debt assumed........................................................ (1,121) (1,121)
--------------- ----------- ----------
Increase in long-term debt.......................................... $ 72,579 $ 40,000 $ 112,579
Changes in assets and liabilities resulting from allocation of
purchase price:
Property and equipment.............................................. 51,572 40,000 91,572
Stockholders' equity................................................ (23,507) (23,507)
</TABLE>
<TABLE>
<C> <S> <C>
2. Entry to record 100,000 shares of common stock to be issued in connection with the Memphis/Tunica
Acquisition at an assumed price of $25:
$ 2,500
Stockholders' equity...............................................................................
--------
--------
</TABLE>
<TABLE>
<C> <S> <C>
3. Entry to record the reduction of the deposit paid by the Company ($ 5,000)
in connection with the Memphis/Tunica Acquisition..................................................
--------
--------
</TABLE>
34
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected financial data presented below as of and for the year ended
December 31, 1996 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,
1996 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 year ended December 31, 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 1996
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenue........................... $ 21,435 $ 27,896 $ 28,710 $ 33,180 $ 38,101 $ 84,939
Net revenues(1)......................... 18,835 24,681 25,847 29,766 34,148 76,138
Direct advertising expenses............. 7,638 10,383 10,901 11,806 12,864 26,468
General and administrative expenses..... 3,515 3,530 3,357 3,873 4,244 10,596
Depreciation and amortization........... 5,530 7,817 8,000 7,310 7,402 18,286
Operating income........................ 2,152 2,951 3,589 6,777 9,638 20,788
Interest expense........................ 6,599 9,591 8,965 8,314 8,627 15,730
Other (expense) income, net............. (53) 291 (351) (134) (42) 1,398
Income (loss) before income taxes and
extraordinary item(2)................. (4,500) (6,349) (5,727) (1,671) 969 3,660
Net income (loss)....................... (4,500) (6,349) (8,987) (1,671) 969 (10,788)
Operating Cash Flow(3).................. $ 7,682 $ 10,768 $ 11,589 $ 14,087 $ 17,040 $ 39,074
Operating Cash Flow Margin(4)........... 40.8% 43.6% 44.8% 47.3% 49.9% 51.3%
Capital expenditures.................... 2,047 2,352 2,004 4,668 5,620 7,178
Deficiency in coverage of earnings...... 4,500 6,349 8,987 1,671 -- 10,788
FINANCIAL RATIOS:
Ratio of earnings to fixed charges(5)... -- -- -- -- 1.1x 1.2x
Percentage of indebtedness to total
capitalization(6)..................... 121.4% 142.8% 116.1% 118.1% 115.8% 60.1%
Ratio of total indebtedness to Operating
Cash Flow(7).......................... 8.5x 5.5x 5.9x 5.2x 4.5x NM(8)
Ratio of Operating Cash Flow to total
interest(9)........................... 1.2x 1.1x 1.3x 1.7x 2.0x 2.5x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
DECEMBER 31, -------------------------
----------------------------------------------------- PRO FORMA(11)
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED
--------- --------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(10).......................... $ 2,365 $ 1,326 $ 1,730 $ 2,119 $ 3,961 $ 24,432 $ 28,671
Total assets................................. 71,682 65,754 61,816 66,190 69,133 681,027 797,308
Total long-term debt and other obligations... 65,076 59,363 68,054 73,304 76,079 347,941 461,641
Redeemable preferred stock................... 13,442 15,055 -- -- --
Common stockholders' equity (deficit)........ (11,450) (17,799) (9,452) (11,243) (10,394) 230,984 233,484
</TABLE>
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
35
<PAGE>
(FOOTNOTES FOR PREVIOUS 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 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 extraordinary items plus interest expense 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) Ratio of total indebtedness to Operating Cash Flow for the year ended
December 31, 1996 is not meaningful as a result of significant acquisitions
during 1996.
(9) Amounts represent the ratio of (i) Operating Cash Flow to (ii) interest
expense on total long-term debt.
(10) 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.
(11) Represents actual amounts adjusted to give effect to the Memphis/Tunica and
Matthew Acquisitions.
36
<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, 1996 and financial condition at
December 31, 1996 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
completed after December 31, 1996.
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 December 31,
1996, the Company spent in excess of $450 million to acquire additional display
faces, increasing the number of its display faces from approximately 600 in 1989
to approximately 31,049 at December 31, 1996. During this period, the Company's
net revenues increased from $10.3 million in 1989 to $76.1 million in 1996. The
following table lists the Company's acquisitions between January 1, 1989 and
December 31, 1996:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER AND TYPE
OF DISPLAY FACES ACQUIRED
------------------------------------------------
YEAR OF 30-SHEET 8-SHEET
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, Dallas,
Iowa, Southeast United States, Atlantic Coast of
Florida, Gulf Coast of Florida, Northeast United States 6,195 9,181 43 15,419
----- ----------- ----- ---------
Total................................................................. 6,927 11,661 5,461 24,049
----- ----------- ----- ---------
----- ----------- ----- ---------
</TABLE>
In addition, in 1996 the Company acquired 1,539 kiosk displays in malls
throughout the United States, 1,917 transit display faces in Baltimore and 146
bus shelters in Philadelphia.
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 were financed, in part, from the proceeds of the IPO, Offering, the
October 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.
37
<PAGE>
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>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues........................................................... 100.0% 100.0% 100.0% 100.0%
Direct advertising expenses............................................ 42.2 39.7 37.7 34.8
General and administrative expenses.................................... 13.0 13.0 12.4 13.9
----- ----- ----- -----
Operating Cash Flow(1)................................................. 44.8 47.3 49.9 51.3
Depreciation and amortization.......................................... 30.9 24.5 21.7 24.0
----- ----- ----- -----
Operating income....................................................... 13.9 22.8 28.2 27.3
Other expense, primarily interest...................................... 36.1 28.4 25.4 22.5
----- ----- ----- -----
Income (loss) before income taxes and extraordinary items.............. (22.2) (5.6) 2.8 4.8
----- ----- ----- -----
</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 76% of the Company's gross revenues are contracted
for directly from local advertisers. Agency commissions on those revenues which
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 1996, these expenses amounted to the following approximate
percentages of net revenues: lease 15.6%, production 10.5%, sales 4.9%,
maintenance 1.9% and illumination 1.9%.
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 $65.0 million as of December 31, 1996, 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 recent actions taken, including the consummation of the
Transactions, will enhance its ability to generate sufficient taxable income to
use
38
<PAGE>
the $65.0 million of NOLs prior to their expiration between 2005 and 2010.
However, at this time there can be no assurance that sufficient taxable income
will be generated in the future.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Net revenues increased 123.2% to $76.1 million during 1996 compared to $34.1
million in the corresponding 1995 period. This increase was a result of
inclusion of approximately $20.2 million of revenues from the Minneapolis and
Jacksonville markets (the "Naegele Markets") which were acquired in the Naegele
Acquisition (as defined) and approximately $13.0 million of revenues from the
markets acquired in the POA Acquisition. The remaining $8.8 million or 25.8%
increase in net revenues was a result of higher advertising rates and occupancy
levels on the Company's signboards and inclusion of three quarters of signboard
revenues from the acquisitions of Image Media, Inc. and Ad-Sign, Inc. and a full
quarter of signboard revenues from the Additional Acquisitions. Overall net
revenues from tobacco advertising increased to $10.0 million in 1996 compared to
$4.5 million in the 1995 period. This increase was due mainly to the inclusion
of tobacco revenues from the Acquisitions. However, as a percentage of net
revenues, tobacco advertising sales remained constant at 13.2% in 1996 and 1995.
Direct cost of revenues increased to $26.5 million in 1996 compared to $12.9
million in the 1995 period. The Naegele Markets and the POA Acquisition,
accounted for $7.3 million and $3.0 million, respectively, of the increase. As a
percentage of net revenues, however, direct cost of revenues decreased to 34.8%
in 1996 compared to 37.8% in the 1995 period as a result of economies of scale
associated with the increased revenues.
General and administrative expenses increased to $10.6 million in 1996 from
$4.2 million in the 1995 period. As a percentage of net revenues, general and
administrative expenses increased to 13.9% in 1996 compared to 12.3% in the 1995
period. This percentage increase was due to an increase in staffing required in
conjunction with the significant increase in the size of the Company's
operations.
Depreciation and amortization expense increased to $18.3 million in 1996
compared to $7.4 million in the 1995 period. This increase was due to
significant increases in the fixed assets as a result of the acquisitions
consummated in such period.
Total interest expense increased to $15.7 million in 1996 compared to $8.6
million in the 1995 period. The increase resulted from increased debt
outstanding under the Existing Credit Facility (as defined below) which was
incurred to finance the Naegele Acquisition and from the issuance of the October
Notes and the Old Notes.
Other expenses increased to $1.4 million in 1996, consisting of $1.7 million
one-time charge for expenses arising out of the Naegele Acquisition.
An extraordinary charge of $14.4 million arose out of the early retirement
of the Existing Company Notes.
The foregoing factors contributed to the Company's $10.8 million net loss in
1996 compared to $969,000 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%.
39
<PAGE>
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
preferred 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 quarter of 1993). Because
the Company incurred net losses in 1994 and 1993, it had no provision for income
taxes in those years.
40
<PAGE>
QUARTERLY COMPARISONS
The following table sets forth certain quarterly financial information of
the Company for each quarter of 1994, 1995 and 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,
1994 1994 1994 1994 1995 1995 1995
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................ $ 6,102 $ 7,803 $ 7,973 $ 7,888 $ 7,236 $ 9,175 $ 8,940
Operating income.................... 924 2,333 2,002 1,518 1,348 3,109 2,674
Net income (loss)................... (1,276) 294 (141) (548) (747) 903 509
PERCENTAGE OF NET REVENUES:
Operating income.................... 15.1% 29.9% 25.1% 19.2% 18.6% 33.9% 29.9%
Net income (loss)................... (20.9) 3.8 (1.8) (6.9) (10.3) 9.8 5.7
OTHER DATA:
Operating Cash Flow(1).............. $ 2,709 $ 3,998 $ 3,885 $ 3,495 $ 3,085 $ 4,910 $ 4,524
Operating Cash Flow Margin(2)....... 44.4% 51.2% 48.7% 44.3% 42.6% 53.5% 50.6%
<CAPTION>
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1996 1996 1996 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................ $ 8,797 $ 8,427 $ 17,812 $ 18,643 $ 31,256
Operating income.................... 2,507 1,670 7,299 5,890 5,929
Net income (loss)................... 304 (757) 1,966 3,077 (15,074)
PERCENTAGE OF NET REVENUES:
Operating income.................... 28.5% 19.8% 41.0% 31.6% 19.0%
Net income (loss)................... 3.5 (9.0) 11.0 16.5 (48.2)
OTHER DATA:
Operating Cash Flow(1).............. $ 4,521 $ 3,702 $ 9,941 $ 10,422 $ 15,009
Operating Cash Flow Margin(2)....... 51.4% 43.9% 55.8% 55.9% 48.0%
</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 the
issuance of stock.
In connection with an acquisition consummated in April 1996, the Company,
its then 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 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 was
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.
41
<PAGE>
Parent completed its initial public offering ("IPO") of 4,630,000 shares of
its Common Stock (including 930,000 shares sold pursuant to the exercise of the
Underwriters' over-allotment option) on July 26, 1996, resulting in proceeds to
Parent of $60.4 million. Parent used a portion of the net proceeds to redeem
$9.5 million of the Existing Parent Notes and repaid a portion of the amounts
then outstanding under the Existing Acquisition Credit Facility (as hereafter
defined).
In October 1996, the Parent and the Company completed the October Offerings
with net proceeds of $425.7 million. The net proceeds of the October Offerings
were used to complete the Transactions.
In October 1996, the Company amended and restated the Existing Credit
Facilities which became the New Credit Facility. The New Credit Facility
provided for a total loan commitment of $300 million, $75 million of which could
only be borrowed once in connection with financing the Acquisitions and is no
longer available. The New Credit Facility was drawn upon in order to finance, in
part, the Acquisitions and was repaid with the proceeds of the October
Offerings. In October 1996, the maximum commitment under the New Credit Facility
was reduced to $225 million. See "Description of Indebtedness and Other
Commitments." As of December 31, 1996, the Company had outstanding borrowings of
$20 million under such credit facility.
Net cash provided by operating activities increased to $15.1 million in 1996
from $7.0 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 $498.0 million in
1996 includes cash used for acquisitions of $490.8 million and other capital
expenditures of $7.2 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 Credit Facilities and New Credit 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 year ended December 31, 1996, $494.5 million was provided by
financing activities primarily due to the issuance of senior subordinated debt,
increased borrowings under the Existing Credit Facilities and the sale of
capital stock. In 1995, net cash of $2.0 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 accrued interest at a rate of
11% per annum. The Company completed a tender offer for 100% of the outstanding
Existing Company Notes in October 1996.
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 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
42
<PAGE>
restrictions imposed by the New Credit Facility, the indenture governing the
October Notes 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.
43
<PAGE>
BUSINESS
GENERAL
The Company, which was incorporated in 1975, is a leading outdoor
advertising company operating approximately 31,049 advertising display faces in
3 large, regional operating areas: the Midwest (Chicago, Minneapolis/St. Paul,
Indianapolis, Milwaukee, Des Moines, Evansville and Dallas), the Southeast
(Orlando, Jacksonville, Palm Beach, Ocala and the Atlantic Coast and Gulf Coast
areas of Florida, Memphis/Tunica, Chattanooga, and Myrtle Beach) and the East
Coast (New York, Washington, D.C., Philadelphia, Northern New Jersey, Wilmington
(DE), Salisbury (MD) and Hudson Valley (NY)).
INDUSTRY OVERVIEW
The outdoor advertising industry has experienced increased advertiser
interest and revenue growth in recent years. Outdoor advertising generated total
revenues of approximately $2.0 billion in 1996, or approximately 1.5% of the
total advertising expenditures in the United States, and the out-of-home
advertising industry generated revenues in excess of $3.8 billion in 1996,
according to estimates by the Outdoor Advertising Association of America (the
"OAAA"), the trade association for the outdoor advertising industry. Outdoor
advertising's 1996 revenue represents growth of approximately 7.3% over
estimated total revenues for 1995, which is slightly lower than the growth of
total U.S. advertising expenditures during the same period of approximately
8.2%, which takes into account an 11.8% increase in television advertising
expenditures attributable in part to the 1996 Olympic games.
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. These technological advances have permitted the
outdoor advertising industry to respond more promptly and cost effectively to
the changing needs of its advertising customers and make greater use of
advertising copy used in other media. 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 600
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companies in the outdoor advertising industry operating approximately 396,000
billboard displays. The Company expects the trend of consolidation in the
outdoor advertising industry to continue.
OPERATING STRATEGY
The Company's objective is to be the leading provider of outdoor advertising
services in each of its three 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 customers' needs. The Company's continued investment
in equipment and technology provides for greater ongoing benefits in the areas
of sales, production and operations.
- 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 for further expansion in existing markets and for
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 31,049 in its markets at December 31, 1996.
ACQUISITIONS
As of December 31, 1996, the Company had acquired the assets or capital
stock of five outdoor advertising companies and entered into agreements to
purchase the assets or capital stock of two additional outdoor advertising
companies. The Company believes that these acquisitions will significantly
strengthen its market presence in the midwest and southeast regions of the
United States, give the Company a substantial presence in the east coast region
and allow the Company to capitalize on the
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<PAGE>
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 acquired 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 REVERE ACQUISITION. The Company recently acquired a total of
approximately 8,853 advertising display faces located in the east coast of the
United States, including Philadelphia, Washington, D.C., Salisbury and
Wilmington, as well as 1,917 transit display faces located in Baltimore and
1,582 kiosk displays located in malls throughout the United States.
THE MEMPHIS/TUNICA ACQUISITION. In early January 1997, the Company acquired
a total of approximately 2,018 advertising display faces consisting of bulletins
and posters in and around Memphis, Tennessee and Tunica County, Mississippi.
THE MATTHEW ACQUISITION. In mid-January 1997, the Company purchased certain
of the assets of Matthew Outdoor Advertising Acquisition Co., L.P. As a result
of the Matthew Acquisition, the Company acquired 1,035 advertising display faces
consisting of posters and bulletins in three east coast markets.
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 acquired 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.
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<PAGE>
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 following sets forth certain information for each of
the Company's markets as of December 31, 1996 after giving effect to the
Acquisitions:
<TABLE>
<CAPTION>
1996 % OF 1996 TOTAL
PRO FORMA PRO FORMA 30-SHEET 8-SHEET DISPLAY
MARKET NET REVENUES NET REVENUES BULLETINS POSTERS POSTERS FACES
- ------------------------- ---------------------- ------------ --------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MIDWEST:
Chicago................ $ 17,990 10.2% 660 -- 3,606 4,266
Minneapolis/St. Paul... 17,320 9.8 453 1,356 -- 1,809
Indianapolis........... 10,533 6.0 262 1,194 102 1,995
Milwaukee.............. 4,818 2.7 261 -- 325 586
Des Moines............. 3,539 2.0 85 585 9 679
Evansville............. 3,435 1.9 281 694 -- 975
Dallas................. 1,261 0.8 245 -- 1,201 1,446
SOUTHEAST:
Orlando................ 25,145 14.2 771 1,145 -- 1,916
Jacksonville........... 8,528 4.9 349 784 -- 1,133
Ocala.................. 5,240 3.0 856 198 -- 1,054
Memphis/Tunica......... 14,705 8.3 706 1,155 130 1,991
Chattanooga............ 5,470 3.1 356 649 -- 1,005
Myrtle Beach........... 9,495 5.4 729 469 -- 1,198
Atlantic Coast area
(FL)................. 5,132 2.9 707 21 -- 728
Gulf Coast area (FL)... 1,712 1.0 475 -- -- 475
EAST COAST:
Philadelphia........... 13,939 7.9 359 2,074 -- 2,579
Washington, D.C........ 6,289 3.6 87 589 -- 676
Salisbury.............. 3,435 1.9 401 473 -- 874
Wilmington............. 4,576 2.6 162 917 43 1,122
Baltimore.............. 2,295 1.3 -- -- -- 1,917
Mall Media............. 2,636 1.5 -- -- -- 1,539
Northern NJ............ 4,256 2.4 216 5 6 227
Metro New York......... 3,375 1.9 50 380 -- 430
Hudson Valley.......... 1,312 0.7 145 257 27 429
-------- ----- --------- -------- ------- -------
Total................ $176,611 100.0% 8,616 12,945 5,449 31,049(1)
-------- ----- --------- -------- ------- -------
-------- ----- --------- -------- ------- -------
</TABLE>
- ------------------------
(1) Includes 437 transit display faces located in Indianapolis, 1,917 transit
display faces located in Baltimore, 146 bus shelters in Philadelphia and
1,539 kiosk displays in malls throughout the United States.
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<PAGE>
INVENTORY
The Company operates three standard types of outdoor advertising display
faces and also has transit and mall 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.
- TRANSIT ADVERTISING consists generally of posters and frames displayed on
the sides of public buses operating on city streets.
- MALL ADVERTISING generally consists of kiosks located in shopping malls.
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, 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
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<PAGE>
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, as of December 31,
1996, approximately 192 of the Company's employees were 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. 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.
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 76% of
the Company's gross revenues in 1996, 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
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<PAGE>
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:
1996 PRO FORMA NET REVENUES BY CATEGORY
<TABLE>
<CAPTION>
PERCENTAGE
OF
NET REVENUES
------------
<S> <C>
Retail/Consumer Products........................................................ 15.4%
Travel/Entertainment............................................................ 15.3
Automotive & Related............................................................ 11.0
Tobacco......................................................................... 10.8
Restaurant...................................................................... 8.6
Professional Services........................................................... 5.8
Home Developer/Real Estate...................................................... 5.6
Alcohol......................................................................... 4.4
Hotels/Motels................................................................... 3.5
Other........................................................................... 19.6
------------
Total....................................................................... 100.0%
------------
------------
</TABLE>
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,
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<PAGE>
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
600 companies in the outdoor advertising industry operating approximately
396,000 billboard displays. In several of its markets, the Company encounters
direct competition from other major outdoor media companies, including 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 enable it to compete
effectively with the other outdoor media operators, as well as other media. The
Company also competes with other outdoor advertising companies for sites on
which to build new structures. See "Risk Factors -- Competition."
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 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
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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 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 364 parcels of real property
that serve as the sites for its outdoor displays. The Company's remaining
approximately 17,174 advertising display sites are leased or licensed.
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<PAGE>
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); Evansville (16,000 square feet); Philadelphia (32,000 square feet);
Washington, D.C. (15,668 square feet); Salisbury (12,000 square feet);
Wilmington (5,700 square feet); Baltimore (8,000 square feet); Yonkers, NY
(4,900 square feet); and Kingston, NY (3,000 square feet) and a sales, real
estate and administration office in Dallas (2,000 square feet); New York (6,000
square feet); and Orange County, CA (4,000 square feet). The Indianapolis,
Addison, Orlando, Milwaukee, Jacksonville, Myrtle Beach, Chattanooga, Ocala,
Evansville, Philadelphia, Washington, D.C., Salisbury, Wilmington, Yonkers and
Kingston 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 December 31, 1996, the Company employed approximately 786 people, of whom
approximately 192 were primarily engaged in sales and marketing, 372 were
engaged in painting, bill posting and construction and maintenance of displays
and the balance were employed in financial, administrative and similar
capacities. Of those employees, the following number belong to unions: Milwaukee
(16 employees), Minneapolis/St. Paul (22 employees), Philadelphia (45
employees), Washington D.C. (12 employees) and Wilmington (14 employees). The
Company considers its relations with the unions and with its employees to be
good.
LITIGATION
The Company, as the successor to POA Acquisition Company, is a defendant in
a case entitled IMPACT COMMUNICATIONS OF CENTRAL FLORIDA, INC., ET AL. vs.
NATIONAL OUTDOOR ADVERTISING, ET AL., filed on February 13, 1995, pending in the
United States District Court, Middle District of Florida. Impact Communications
has alleged that POA, among others, conspired to restrain trade and to
monopolize the market for leases for land on which outdoor advertising
structures can be erected. The case was set for trial in January 1997 and has
been continued pending court availability. The plaintiffs have alleged that the
acts of the defendants resulted in harm to the plaintiffs and damages of $4 to
12 million, which could be trebled under the applicable laws. The Company
intends to defend the case vigorously. There can be no assurance, however, as to
the ultimate outcome of this litigation.
53
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth certain information with respect to the directors
and executive officers of the Company. All directors serve terms of one year or
until the election of their respective successors.
<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.............. 37 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.
54
<PAGE>
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.
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 SEC 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 SEC'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 1994, 1995 and 1996 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.................................................... 1996 $ 224,379 $ 0 $ 1,000
President and Chief Executive Officer 1995 224,379 0 1,000
1994 249,250 0 500
Brian T. Clingen................................................... 1996 $ 145,128 $ 0 $ 1,000
Chief Financial Officer and Vice President 1995 145,128 0 1,000
1994 145,852 0 500
Paul G. Simon...................................................... 1996 $ 158,176 $ 0 $ 1,000
Vice President, Secretary and General Counsel 1995 158,176 0 1,000
1994 158,968 0 500
</TABLE>
- ------------------------
(1) Represents contributions made by the Company on behalf of the named
executive officers to a 401(k) plan.
Parent currently maintains two life insurance policies covering Daniel L.
Simon, each in the amount of $2.5 million. Parent is the sole beneficiary under
each policy. Pursuant to a buy-sell agreement between Parent and Mr. Simon,
Parent 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 Parent 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.
55
<PAGE>
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.
56
<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 Stockholders." 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 consequently 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 of Parent. 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.
David L. Quas and Jay Sauber who are the General Managers and Sales Managers of
the Company 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 New Credit
Facility, the indenture governing the October Notes and the Indenture impose
limitations on the Company's ability to engage in such transactions. See
"Description of Notes--Certain Covenants" and "Description of Indebtedness and
Other Commitments."
57
<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
COMMON STOCK
-----------------------------
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS
- -------------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Daniel L. Simon....................................................................... 8,584,008(1) 32.4%
321 North Clark Street
Chicago, Illinois 60610
Brian T. Clingen...................................................................... -- (2) --
321 North Clark Street
Chicago, Illinois 60610
Paul G. Simon......................................................................... -- (3) --
321 North Clark Street
Chicago, Illinois 60610
Michael J. Roche...................................................................... 2,000 -- (4)
333 Beverly Road, E5-312A
Hoffman Estates, Illinois 60179
Michael B. Goldberg(8)................................................................ 55,460 -- (4)
Director
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Frank K. Bynum, Jr.(5)................................................................ 30,688 -- (4)
Director
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Kelso Investment Associates V, L.P.(6)(7)............................................. 2,847,871 11.9
Kelso Equity Partners V, L.P.(6)(7)................................................... 151,779 -- (4)
Joseph N. Schuchert(6)(8)............................................................. 2,999,650 12.5
Frank T. Nickell(6)(8)................................................................ 3,134,879 13.1
George E. Matelich(6)(8).............................................................. 3,063,293 12.8
Thomas R. Wall, IV(6)(8).............................................................. 3,080,072 12.8
All directors and executive officers as a group (6 persons)........................... 8,672,156 32.8
</TABLE>
- ------------------------
(1) 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 warrants issued pursuant to the Amended and Restated 1996
Warrant Plan (the "Management Warrants"), 928,860 shares over which he has
voting control pursuant to certain voting trust agreements 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 agreements.
58
<PAGE>
(2) 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 5.3% of the Common Stock. The voting rights for such shares have
been granted to Daniel L. Simon pursuant to a voting trust agreement.
(3) 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.
(4) Represents less than 1% of the Common Stock.
(5) Mr. Bynum may be deemed to share beneficial ownership of shares of Common
Stock owned of record by KIA V by virtue of his status as a limited partner
of the general partner of KIA V and as a limited partner of KEP V. Mr. Bynum
disclaims beneficial ownership of such securities. Mr. Bynum became a
director of Parent following consummation of the IPO.
(6) The business address for such person(s) is c/o Kelso & Company, 320 Park
Avenue, 24th Floor, New York, New York 10022.
(7) KIA V and KEP V due to their common control, could be deemed to beneficially
own each other's shares, but each disclaims such beneficial ownership.
(8) Messrs. Schuchert, Nickell, Matelich, Goldberg 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. Messrs. Schuchert,
Nickell, Matelich, Goldberg 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. Mr. Goldberg has been a director of Parent
since April 1996.
59
<PAGE>
DESCRIPTION OF NOTES
The New Notes offered hereby will be issued under the Indenture between the
Company and United States Trust Company of New York, as Trustee, a copy of which
is filed as an exhibit to the Registration Statement of which this Prospectus
constitutes a part. The following summary, which describes certain provisions of
the Indenture and the Notes, does not purport to be complete and is subject to,
and is qualified in its entirety, by reference to the TIA and all of the
provisions of the Indenture and the Notes, including the definitions therein of
terms not defined in this Prospectus. Certain terms used in this section are
defined below for purposes of this section under "-- Certain Definitions." The
terms of the New Notes are substantially identical in all material respects to
the Old Notes except that the New Notes will not contain terms with respect to
certain transfer restrictions and registration rights relating to the Old Notes.
GENERAL
The Notes will be senior subordinated, unsecured, general obligations of the
Company, limited in aggregate principal amount to $100 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 October 15, 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 April 15 and October 15 of each year,
commencing April 15, 1997, to the persons in whose names such Notes are
registered at the close of business on the April 1 or October 1 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, PROVIDED, that all payments with respect to the Global Note, and
certificated Notes the Holders of which have given wire transfer instructions to
the Company, will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. 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.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note.
All Old Notes and New Notes will be treated as a single class of securities
under the Indenture.
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 December 31, 1996, after giving effect to the Transactions,
the Offering and the October Offerings and the application of the proceeds
therefrom, the Company would have had outstanding an aggregate of approximately
$136.5 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
60
<PAGE>
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.
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 agent under the Credit Agreement or the
representative of the holders of an aggregate of at least $10 million principal
amount outstanding of any other Senior Debt (each, a "Senior Debt
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.
61
<PAGE>
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.
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 October 15,
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 October 15, 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 October 15 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.................................... 104.875%
2002.................................... 103.250%
2003.................................... 101.625%
2004 and thereafter..................... 100.000%
</TABLE>
Until October 15, 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 $35 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 110% 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 $65 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.
62
<PAGE>
CERTAIN COVENANTS
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
The Indenture provides 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 "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.
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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 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 provides 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
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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 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 provides 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
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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
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 provides 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 (y) customary provisions restricting subletting or assignment
of any lease entered into in the ordinary course of business, consistent with
industry practice, nor (z) 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 provides 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
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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 provides 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 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
(subject to the right under the October Note indenture to accumulate $15 million
in proceeds), 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) or redeem or
purchase the October Notes, (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 provides 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;
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(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.
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 provides 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 provides 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 resulting, 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
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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.
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 prohibits 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.
LIMITATION ON LINES OF BUSINESS
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, engage to any substantial extent in
any line or lines of business activity other than that which, in the reasonable
good faith judgment of the Board of Directors of the Company, is a Related
Business.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries 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 provides 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 SEC, and deliver to the Trustee and to each Holder within 15
days after it has filed such with the SEC (if the SEC 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 defines 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
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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, or to make a Change of
Control Offer, 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.
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
Senior Debt Representatives 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 provides that the Company may, at its option and at any time,
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
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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 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 or 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 contains 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
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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.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides 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.
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"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.
"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
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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.
"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 consolidated credit agreement dated October 31,
1996, by and among the Company, certain financial institutions and Bankers Trust
Company, as agent, providing for (A) an aggregate $75 million term loan facility
(subject to an amendment subsequent to the date hereof), 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.
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"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.
"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
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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 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,
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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.
"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.
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"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 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
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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.
"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 October 15,
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.
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BOOK-ENTRY, DELIVERY AND FORM
The New Notes will be issued in the form of one Global Note. The Global Note
will be deposited with, or on behalf of, the Depository and registered in the
name of the Depository or its nominee. Except as set forth below, the Global
Note may be transferred, in whole and not in part, only to the Depository or
another nominee of the Depository. Investors may hold their beneficial interests
in the Global Note directly through the Depository if they have an account with
the Depository or indirectly through organizations which have accounts with the
Depository. Notes that are issued as described below under "-- Certificated
Notes" will be issued in definitive form.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in the accounts of the participants,
thereby eliminating the need for physical movement of securities certificates.
The Depository's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depository's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry and transfer system, the principal amount of the Notes represented by
the Global Note to the accounts of participants. The accounts to be credited
will be designated by the Initial Purchasers of such Notes. Ownership of
beneficial interests in the Global Note will be shown on, and the transfer of
those ownership interests will be effected only through, records maintained by
the Depository (with respect to participants' interests) and such participants
(with respect to the owners of beneficial interests in the Global Note other
than participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Note.
So long as the Depository, or its nominee, is the registered Holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and Holder of the related Notes for all
purposes of such Notes and the Indenture. Except as set forth below, owners of
beneficial interests in the Global Note will not be entitled to have the Notes
represented by the Global Note registered in their names, will not receive or be
entitled to receive physical delivery of certificated Notes in definitive form
and will not be considered to be the owners or holders of any Notes under the
Global Note. Accordingly, each Person owning a beneficial interest in the Global
Note must rely on the procedures of the Depository and, if such Person is not a
participant, on the procedures of the participant through which such person owns
its interests, to exercise any right of a holder of Notes under the Global Note.
The Company understands that under existing industry practice, in the event an
owner of a beneficial interest in the Global Note desires to take any action
that the Depository, as the Holder of the Global Note, is entitled to take, the
Depositary would authorize the participants to take such action, and that the
participants would authorize beneficial owners owning through such participants
to take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
Payment of principal of and interest on Notes represented by the Global Note
registered in the name of and held by the Depository or its nominee will be made
to the Depository or its nominee, as the case may be, as the registered owner
and Holder of the Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payment in amounts proportionate to their respective
beneficial interests in the principal amount of the Global Note as shown on the
records of the Depository or its nominee. The Company also expects that payments
by participants to owners of
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beneficial interests in the Global Note held through such participants will be
governed by standing instructions and customary practices and will be the
responsibility of such participants. The Company will not have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the Global Note
for any Note or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests or for other aspects of the relationship
between the Depository and its participants or the relationship between such
participants and the owners of beneficial interests in the Global Note owning
through such participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the Global Note may not be transferred except as a whole by
the Depository, to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligation under the rules and procedures governing their operations.
CERTIFICATED NOTES
The New Notes represented by the Global Note are exchangeable for
certificated Notes in definitive form of like tenor as such Notes in
denominations of U.S. $1,000 and integral multiples thereof if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for the Global Note or if at any time the Depository ceases to be a
clearing agency registered under the Exchange Act or (ii) the Company in its
discretion at any time determines not to have any of the Notes represented by
the Global Note. Any New Note that is exchangeable pursuant to the preceding
sentence is exchangeable for certificated Notes issuable in authorized
denominations and registered in such names as the Depository will direct.
Subject to the foregoing, the Global Note is not exchangeable, except for a
Global Note of the same aggregate denomination to be registered in the name of
the Depository or its nominee.
SAME-DAY FUNDS SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes represented
by the Global Note (including principal, premium, if any, and interest) be made
by wire transfer of immediately available funds to the accounts specified by the
Global Note holder. With respect to certificated New Notes, the Company will
make all payments of principal, premium, if any, and interest by wire transfer
of immediately available funds to the accounts specified by the Holders thereof
or, if no such account is specified, by mailing a check to each such Holder's
registered address. Secondary trading in long-term notes and debentures of
corporate issuers is generally settled in clearinghouse or next-day funds. In
contrast, the Notes represented by the Global Note are expected to be eligible
to trade in the PORTAL market and to trade in the Depository's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
Notes will, therefore, be required by the Depository to be settled in
immediately available funds.
EXCHANGE OFFER; REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. Pursuant to the Registration Rights Agreement, Holders
of Old Notes are entitled to certain registration rights. Under the Registration
Rights Agreement, the Company has agreed, for the benefit of the Holders of the
Old Notes, that it will, at its cost, (i) within 45 days after the Closing Date
file a registration statement under the Securities Act (an "Exchange Offer
Registration Statement") with the SEC with respect to a registered offer to
exchange the New Notes for the Old Notes and (ii) use its best efforts to cause
such Exchange Offer Registration Statement to be declared effective under the
Securities Act within 105 days after the Closing Date. Upon such Exchange Offer
Registration Statement being declared effective, the Company will offer New
Notes in exchange for properly tendered Old Notes. The Company
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will keep the Exchange Offer open for not less than 20 business days (or longer
if required by applicable law) after the date notice of such Exchange Offer is
mailed to the holders of Old Notes. For each Old Note surrendered pursuant to
such Exchange Offer, the Holder of such Old Note will receive New Notes having a
principal amount equal to that of the surrendered Old Note. Under existing SEC
interpretations, the New Notes would in general be freely transferable after the
Exchange Offer without further registration under the Securities Act; PROVIDED,
that in the case of broker-dealers, a prospectus meeting the requirements of the
Securities Act must be delivered as required. The Company has agreed for a
period of at least 180 days after consummation of the Exchange Offer to make
available a prospectus meeting the requirements of the Securities Act to any
broker-dealer for use in connection with any resale of any such New Notes so
acquired. A broker-dealer that delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil liability
provisions under the Securities Act and will be bound by the provisions of the
Registration Rights Agreement (including, without limitation, certain
indemnification and contribution rights and obligations).
Each Holder of Old Notes who wishes to exchange such Notes for New Notes in
the Exchange Offer will be required to make certain representations including
representations that (i) any New Notes to be received by it will be acquired in
the ordinary course of its business, (ii) it has no arrangement with any person
to participate in the distribution of the New Notes and (iii) it is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Company, or if
it is an affiliate of the Company, it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
In addition, if the Holder is not a broker-dealer, it will be required to
represent that it is not engaged in, and does not intend to engage in, the
distribution of the New Notes. If the Holder is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities, it
will be required to acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes.
In the event that applicable interpretations of the staff of the SEC do not
permit the Company to effect such an Exchange Offer, or if for any other reason
the Exchange Offer is not consummated within 150 days of the Closing Date, the
Company will, at its own expense, (a) as promptly as practicable, file a shelf
registration statement covering resales of Old Notes (a "Shelf Registration
Statement"), (b) use its best efforts to cause such Shelf Registration Statement
to be declared effective under the Securities Act as promptly as practicable
after the filing of such Registration Statement and (c) use its best efforts to
keep effective such Shelf Registration Statement until the earlier of 36 months
following the Closing Date and such time as all Old Notes have been sold
thereunder, or otherwise cease to be a Transfer Restricted Security (as defined
in the Registration Rights Agreement). The Company will, in the event a Shelf
Registration Statement is required to be filed, provide to each holder of Old
Notes copies of the prospectus which is a part of such Shelf Registration
Statement, notify each such Holder when such Shelf Registration Statement for
Old has become effective and take certain other actions as are required to
permit unrestricted resales of Old Notes. A Holder of Old Notes who sells such
Notes pursuant to the Shelf Registration Statement generally would be required
to be named as a selling security holder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which is
applicable to such a Holder (including certain indemnification and contribution
rights and obligations).
Pursuant to the Registration Rights Agreement, if (a) neither of the
registration statements described above has been filed with the SEC on or prior
to the 45th day after the Closing Date; or (b) neither of such registration
statements is declared effective by the SEC on or prior to the 105th day after
the Closing Date (the "Effectiveness Target Date"); or (c) if an Exchange Offer
Registration Statement is declared effective by the SEC, and on or prior to 45
days following the earlier of (i) the effectiveness thereof or (ii) the
Effectiveness Target Date, the Company has not exchanged New Notes for all Old
Notes validly tendered in accordance with the terms of the Exchange Offer; or
(d) the Shelf Registration has been declared effective by the SEC and such Shelf
Registration ceases to be effective or usable at any time during the
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Effectiveness Period, without being succeeded on the same day immediately by a
post-effective amendment to such Shelf Registration that cures such failure and
that is itself immediately declared effective on the same day (each such event
referred to in clauses (a) through (d) above a "Registration Default"), then the
Company will pay liquidated damages ("Liquidated Damages") to each Holder of the
Old Notes, with respect to the first 90-day period immediately following the
occurrence of such Registration Default in an amount equal to $.05 per week per
$1,000 principal amount of the Old Notes held by such Holder. Upon a
Registration Default, liquidated damages will accrue at the rate specified above
until such Registration Default is cured and the amount of liquidated damages
will increase by an additional $.05 per week per $1,000 principal amount of Old
Notes with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of liquidated damages of $.50
per week per $1,000 principal amount of Old Notes (regardless of whether one or
more than one Registration Default is outstanding). All accrued liquidated
damages will be paid by the Company on April 15 and October 15 of each year to
the holders of Notes.
The Summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an Exhibit to the Registration
Statement.
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 OCTOBER NOTES
In October 1996, the Company issued $225 million of 9 3/4% Senior
Subordinated Notes due 2006 with terms and conditions substantially identical to
the Notes.
NEW CREDIT FACILITY
In October 1996, the Company entered into the New Credit Facility, the terms
and conditions of which are as 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, 2004, unless extended, or upon the occurrence of a
"change of control" (as defined in the New Credit Facility). 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, the Company has
pledged all the stock of its subsidiaries and Parent has pledged all of the
stock of the Company as security for the Company's obligations.
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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 Facility, entering into
transactions with affiliates. With respect to additional acquisitions, such
additional acquisitions require the consent of the lenders unless such
acquisitions do not exceed $50,000,000 in the aggregate or the Holdings Leverage
Ratio (as defined in the New Credit Facility) is less than 5.50 to 1.0. 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.
CHANGE OF CONTROL. A change of control (as defined in the New Credit
Facility) 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 as originally
configured consisted of an acquisition credit line in the amount of $287.5
million pursuant to which $75 million was available under a term loan facility
available on the closing date for the Acquisition Credit Facility in order to
finance, in part, the Acquisitions and $212.5 million which was and continues to
be available under a revolving/term loan facility. The Company drew an amount
equal to approximately $285 million to finance the POA Acquisition and for fees
and expenses in connection therewith. The $212.5 million revolving/term loan
facility may be reborrowed from time to time; the $75 million term loan was
repaid from the proceeds of the October Offerings and may not be reborrowed.
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. Upon the failure of certain events to occur
prior to October 1997, a total of $100 million under the $212.5 million
revolving/term loan may be converted to a term facility which may not be
reborrowed. The $212.5 million revolving/term loan matures on September 30,
2003, or upon the occurrence of a "change of control" (as defined in the New
Credit Facility). The availability under the $212.5 million revolving/term loan
terminates in September, 1999.
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, the Company has
pledged all of the stock of its subsidiaries and Parent has pledged all of the
stock of the Company as security for the Company's obligations.
COVENANTS. 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
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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
Facility, entering into transactions with affiliates. With respect to additional
acquisitions, such additional acquisitions require the consent of the lenders
unless such acquisitions do not exceed $50,000,000 in the aggregate or the
Holdings Leverage Ratio (as defined in the New Credit Facility) is less than
5.50 to 1.0. 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 New Credit
Facility) of the Company constitutes an event of default permitting the lenders
to accelerate indebtedness under and terminate the Acquisition Credit Facility.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF NEW NOTES
The following summary is based on current law and certain proposed
regulations and is for general information only. Forthcoming legislative,
regulatory, judicial or administrative changes or interpretations could affect
the federal income tax consequences to holders of New Notes. The tax treatment
of a holder may vary depending upon whether the holder is a cash-method or
accrual-method taxpayer and upon the holder's particular status. For example,
certain holders, including insurance companies, tax-exempt organizations,
financial institutions, broker-dealers and foreign persons may be subject to
special rules not discussed below.
EXCHANGE OFFER
The exchange of New Notes for Old Notes pursuant to the Exchange Offer will
not be treated as an "exchange" for federal income tax purposes because the New
Notes will not be considered to differ materially in kind or extent from the Old
Notes. Rather, the New Notes received by a holder will be treated as a
continuation of the Old Notes in the hands of such holder. As a result, there
will be no federal income tax consequences to holders exchanging Old Notes for
New Notes pursuant to the Exchange Offer. The holder must continue to include
stated interest in income as if the exchange had not occurred (including
interest on Old Notes that ceased to accrue from the most recent date that
interest has been paid on the Old Notes, or if no interest has been paid, from
December 16, 1996 to the date of issuance of the New Notes). If, however, the
exchange of Old Notes for New Notes were treated as an "exchange" for federal
income tax purposes, such exchange would constitute a recapitalization for
federal income tax purposes. Holders exchanging Old Notes pursuant to such a
recapitalization would not recognize any gain or loss upon the exchange.
STATED INTEREST/ORIGINAL ISSUE DISCOUNT
The Company intends to take the position (which generally will be binding on
holders) that the Old Notes were not issued with original issue discount.
Accordingly, holders of Old Notes and New Notes should include stated interest
(subject to the amortization of any amortizable bond premium, as discussed
below) in gross income in accordance with their methods of accounting for
federal income tax purposes. The Company's position is based on the assumptions
made by the Company that neither an optional redemption nor optional repurchase
of the Old Notes or New Notes will occur and that no Liquidated Damages will be
paid pursuant to the Registration Rights. The Internal Revenue Service may take
a different position, which could affect the timing and character of income by
holders. Holders should consult their tax advisors as to the possible treatment
of Liquidated Damages.
85
<PAGE>
AMORTIZABLE BOND PREMIUM
If a holder's purchase price for an Old Note (excluding amounts paid that
are attributable to accrued interest) was greater than the Old Note's face
amount, such holder will be considered to have purchased the New Note exchanged
for such Old Note with "amortizable bond premium" equal in amount to such
excess. A holder of an Old Note that has elected to amortize such amortizable
bond premium (to reduce the amount of stated interest income on the Old Note)
will continue to amortize such premium on the New Note (to reduce the amount of
stated interest income on the New Note) using the same constant yield method and
term as that determined for the Old Note. A holder of a New Note with
amortizable bond premium that did not elect to amortize such premium on the Old
Note may elect to amortize such premium (to reduce the amount of stated interest
income on the New Note), using a constant yield method, over the remaining term
of the New Note (beginning from the first taxable year of the holder for which
the holder makes such election, as described below) with reference to either the
amount payable on maturity or, if it results in a smaller premium attributable
to the period through an earlier call date, with reference to the amount payable
on such earlier call date. An election to amortize bond premium on the New Note
will apply to the New Note, as well as all taxable debt obligations owned by
such holder at the beginning of the holder's taxable year for which the holder
makes the election and thereafter acquired by the holder and may be revoked only
with the consent of the Internal Revenue Service.
The Internal Revenue Service has published proposed regulations concerning
amortizable bond premium, which if made final in their present form could affect
the accrual of amortizable bond premium by holders of Old Notes and New Notes.
Although such proposed regulations, by their terms, will not be effective until
at least 60 days after they are made final, in their present form, if a holder
of an Old Note or New Note elects to amortize bond premium for the taxable year
containing such effective date, the proposed regulations would apply to all the
holder's debt instruments held on or after the first day of that taxable year.
It cannot be predicted at this time whether the proposed regulations will become
effective or what, if any, modifications will be made to them prior to their
becoming effective. Holders of Old Notes and New Notes should consult their tax
advisors concerning the making of an election to amortize bond premium.
SALE OR OTHER DISPOSITION OF NEW NOTES
A holder of a New Note will have a tax basis in the New Note equal to the
holder's purchase price for the Old Note, increased by the amount of interest,
determined in accordance with the rules concerning amortizable bond premium
described above, and market discount that is included in the holder's gross
income and decreased by payments of such interest and market discount received
(in cash) by the holder.
A holder of a New Note will generally recognize gain or loss on the sale,
exchange, redemption or retirement of the New Note equal to the difference (if
any) between the amount realized from such sale, exchange, redemption or
retirement and the holder's basis in the New Note. Such gain or loss will
generally be long-term capital gain (except to the extent attributable to market
discount) or loss if the New Note has been held more than one year (including
the period that such holder held the Old Note prior to exchange).
BACKUP WITHHOLDING
A noncorporate holder of New Notes that either (a) is (i) a citizen or
resident of the United States, (ii) a partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate, the income of which is subject to United
States federal income taxation regardless of its source, or (iv) a trust if (x)
a court within the United States is able to exercise primary supervision over
the administration of the trust and (y) one or more fiduciaries, which are
United States persons, have the authority to control all substantial decisions
of the trust or (b) is not described in the preceding clause (a), but whose
income from interest (including amortizable bond premium) with respect to the
New Notes or proceeds from the disposition of the New Notes is effectively
connected with such holder's conduct of the United States trade or business, and
that receives interest with respect to the
86
<PAGE>
New Notes or proceeds from the disposition of the New Notes will generally not
be subject to backup withholding on such payments or distributions if it
certifies, under penalty of perjury, that it has furnished a correct Taxpayer
Identification Number ("TIN") and it is not subject to backup withholding either
because it has not been notified by the Internal Revenue Service that it is
subject to backup withholding or because the Internal Revenue Service has
notified it that it is no longer subject to backup withholding. Such
certification may be made on an Internal Revenue Service Form W-9 or
substantially similar form. However, backup withholding will apply to such a
holder if the holder (i) fails to furnish its TIN, (ii) furnishes an incorrect
TIN, (iii) is notified by the Internal Revenue Service that it has failed to
properly report such payments of interest or dividends or (iv) under certain
circumstances, fails to make such certification.
The Company will withhold (at a rate of 31%) all amounts required by law to
be withheld from reportable payments made with respect to the New Notes. Any
amounts withheld from a payment to a holder under the backup withholding rules
will be allowed as a credit against such holder's United States federal income
tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
Holders of the New Notes should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF NEW
NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES OF
HOLDING, EXCHANGING OR SELLING THE NEW NOTES INCLUDING THE APPLICATION AND
EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY CHANGES IN
APPLICABLE TAX LAWS.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third parties, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an affiliate of the Company, (ii) a broker-dealer who
acquired Old Notes directly from the Company or (iii) a broker-dealer who
acquired Old Notes as a result of market-making or other trading activities)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such New Notes are acquired in the ordinary
course of such holders' business, and such holders are not engaged in, and do
not intend to engage in, and have no arrangement or understanding with any
person to participate in, a distribution of such New Notes; PROVIDED, that
broker-dealers ("Participating Broker-Dealers") receiving New Notes in the
Exchange Offer will be subject to a prospectus delivery requirement with respect
to resales of such New Notes. To date, the SEC has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to transactions involving an exchange of securities such as the
exchange pursuant to the Exchange Offer (other than a resale of an unsold
allotment from the sale of Old Notes to the Initial Purchasers) with the
prospectus contained in the registration statement. Pursuant to the Registration
Rights Agreement, the Company has agreed to permit Participating Broker-Dealers
and other persons, if any, subject to similar prospectus delivery requirements
to use this Prospectus in connection with the resale of such New Notes. The
Company has agreed that, for a period of 180 days after the Exchange Date, it
will make this Prospectus, and any amendment or supplement to this Prospectus,
available to any broker-dealer that requests such documents in the Letter of
Transmittal.
Each holder of Old Notes who wishes to exchange its Old Notes for New Notes
in the Exchange Offer will be required to make certain representations to the
Company as set forth in "The Exchange Offer -- Terms and Conditions of the
Letter of Transmittal." In addition, each Holder who is a broker-dealer and who
receives New Notes for its own account in exchange for Old Notes that were
acquired by it as a result
87
<PAGE>
of market-making activities or other trading activities, will be required to
acknowledge that it will deliver a prospectus in connection with any resale by
it of such New Notes.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealers and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concession of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by Winston
& Strawn, Chicago, Illinois.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1994, 1995 and 1996 and for each of the three years in the period ended December
31, 1996 and the Statement of Revenues and Direct Expenses of Ad-Sign for the
year ended December 31, 1995 included 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 ending 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 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.
The consolidated financial statements of Revere Holding Corp. and
Subsidiaries as of December 31, 1995 and for the year then ended included in
this prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
88
<PAGE>
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' Equity
(Deficit)............................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
NOA HOLDING COMPANY
Report of Independent Auditors of Ernst & Young LLP....................... F-18
Consolidated Balance Sheets............................................... F-19
Consolidated Statements of Operations..................................... F-20
Consolidated Statements of Stockholders' Equity........................... F-21
Consolidated Statements of Cash Flows..................................... F-22
Notes to Consolidated Financial Statements................................ F-23
AD-SIGN
Report of Independent Accountants of Price Waterhouse LLP................. F-29
Statement of Revenues and Direct Expenses................................. F-30
Notes to the Statement of Revenues and Direct Expenses.................... F-31
POA ACQUISITION CORPORATION
Report of Independent Auditors of Ernst & Young LLP....................... F-32
Balance Sheets............................................................ F-33
Statements of Operations.................................................. F-34
Statements of Shareholders' Equity........................................ F-35
Statements of Cash Flows.................................................. F-36
Notes to Financial Statements............................................. F-37
REVERE HOLDING CORP.
Report of Independent Public Accountants of Arthur Andersen LLP........... F-44
Consolidated Balance Sheets............................................... F-45
Consolidated Statements of Operations..................................... F-46
Consolidated Statements of Stockholders' Equity........................... F-47
Consolidated Statements of Cash Flows..................................... F-48
Notes to Consolidated Financial Statements................................ F-49
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Universal Outdoor, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in common stockholder's equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Universal Outdoor, Inc. and its subsidiaries (collectively
"the Company") at December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
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 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 28, 1997
F-2
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and equivalents................................................ $ 19 $ 11,631
Cash held in escrow................................................. -- 9,455
Accounts receivable, less allowance for doubtful accounts of $106
and $2,849........................................................ 5,059 20,927
Accounts receivable -- Parent....................................... -- 2,708
Other receivables................................................... 201 1,445
Prepaid land leases................................................. 1,043 4,010
Prepaid insurance and other......................................... 1,029 4,173
------------- -------------
Total current assets............................................ 7,351 54,349
------------- -------------
Property and equipment, net (Note 5).................................. 55,346 382,555
Goodwill and intangible assets, net (Note 6).......................... 2,695 219,009
Other assets, net (Note 7)............................................ 3,741 25,114
------------- -------------
Total assets.................................................... $ 69,133 $ 681,027
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt................................ $ 58 $ --
Accounts payable.................................................... 1,225 3,373
Accounts payable -- Parent.......................................... 234 --
Accrued expenses (Note 8)........................................... 1,931 26,544
------------- -------------
Total current liabilities....................................... 3,448 29,917
------------- -------------
Long-term debt and other obligations (Note 9)......................... 76,079 347,941
Other long-term liabilities........................................... -- 485
Long-term deferred income tax liabilities (Note 11)................... -- 71,700
Commitments and contingencies (Notes 10 and 12)
Stockholder's equity (deficit):
Common stock, $.01 par value, 1,000,000 shares authorized; 10,000
shares issued and outstanding................................... -- --
Additional paid in capital........................................ 22,535 274,821
Accumulated deficit............................................... (32,929) (43,837)
------------- -------------
Total stockholder's equity (deficit)............................ (10,394) 230,984
------------- -------------
Total liabilities and stockholder's equity (deficit)............ $ 69,133 $ 681,027
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statement.
F-3
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Revenues........................................................................ $ 33,180 $ 38,101 $ 84,939
Less agency commissions......................................................... 3,414 3,953 8,801
--------- --------- ----------
Net revenues.................................................................. 29,766 34,148 76,138
--------- --------- ----------
Operating expenses:
Direct advertising expenses................................................... 11,806 12,864 26,468
General and administrative expenses........................................... 3,873 4,244 10,596
Depreciation and amortization................................................. 7,310 7,402 18,286
--------- --------- ----------
22,989 24,510 55,350
--------- --------- ----------
Operating income................................................................ 6,777 9,638 20,788
--------- --------- ----------
Other expense:
Interest expense, including amortization of bond discount of $61, $63 and
$731........................................................................ 8,314 8,627 15,730
Other expenses................................................................ 134 42 1,398
--------- --------- ----------
Total other expense....................................................... 8,448 8,669 17,128
--------- --------- ----------
Income (loss) before extraordinary item......................................... (1,671) 969 3,660
Extraordinary loss on early extinguishment of debt.............................. -- -- (14,448)
--------- --------- ----------
Net income (loss)............................................................... ($ 1,671) $ 969 ($ 10,788)
--------- --------- ----------
--------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................. $ (1,671) $ 969 $ (10,788)
Depreciation.................................................................. 5,600 6,207 13,309
Amortization.................................................................. 2,126 1,690 4,977
Extraordinary loss............................................................ -- -- 14,448
Loss on sale of property and equipment........................................ 90 -- --
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable and other receivables................................... (1,278) (762) (1,200)
Accounts receivable -- Parent............................................... -- -- (2,708)
Prepaid land leases, insurance and other.................................... (223) (391) 435
Accounts payable and accrued expenses....................................... 384 (187) (3,124)
Accounts payable -- Parent.................................................. 722 (488) (234)
--------- --------- -----------
Net cash from in operating activities................................... 5,750 7,038 15,115
--------- --------- -----------
Cash flows used in investing activities:
Capital expenditures.......................................................... (5,671) (5,620) (7,178)
Payments for acquisitions, net of cash acquired............................... (3,355) (1,925) (490,813)
Proceeds from sale of property and equipment.................................. 1,003 -- --
Payment for consulting agreement.............................................. -- (1,400) --
Other payments................................................................ (160) (124) 13
--------- --------- -----------
Net cash used in investing activities..................................... (8,183) (9,069) (497,978)
--------- --------- -----------
Cash flows from (used in) financing activities:
Proceeds from long-term debt offerings........................................ -- -- 325,255
Long-term debt repayments..................................................... (272) (262) (74,987)
Deferred financing costs...................................................... (221) (250) (18,298)
Net borrowings under credit facilities........................................ 3,040 2,671 486,052
Repayment of credit facilities................................................ -- -- (475,713)
Capital contributions from Parent............................................. -- -- 252,286
Dividends paid to Parent...................................................... (120) (120) (120)
--------- --------- -----------
Net cash from financing activities........................................ 2,427 2,039 494,475
--------- --------- -----------
Net increase (decrease) in cash and equivalents................................. (6) 8 11,612
Cash and equivalents, at beginning of period.................................... 17 11 19
--------- --------- -----------
Cash and equivalents, at end of period.......................................... $ 11 $ 19 $ 11,631
--------- --------- -----------
--------- --------- -----------
Supplemental cash flow information:
Interest paid during the period............................................. $ 7,765 $ 8,076 $ 10,910
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNIVERSAL
OUTDOOR, INC. ADDITIONAL STOCKHOLDER'S
COMMON STOCK PAID IN ACCUMULATED EQUITY
SHARES CAPITAL DEFICIT (DEFICIT)
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993............................. 10,000 $ 22,135 $ (31,987) $ (9,852)
Reclassification of redeemable common stock.............. 400 400
Dividends declared and paid to Parent.................... (120) (120)
Net loss................................................. (1,671) (1,671)
------- ---------- ------------ ------------
Balance at December 31, 1994............................. 10,000 22,535 (33,778) (11,243)
Dividends declared and paid to Parent.................... (120) (120)
Net income............................................... 969 969
------- ---------- ------------ ------------
Balance at December 31, 1995............................. 10,000 22,535 (32,929) (10,394)
Capital contributions from Parent........................ 252,286 252,286
Dividends declared and paid to Parent.................... (120) (120)
Net loss................................................. (10,788) (10,788)
------- ---------- ------------ ------------
Balance at December 31, 1996............................. 10,000 $ 274,821 ($ 43,837) $ 230,984
------- ---------- ------------ ------------
------- ---------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS:
Universal Outdoor, Inc. ("Universal"), a wholly-owned subsidiary of
Universal Outdoor Holdings, Inc. (the "Parent Company"), was incorporated on
June 12, 1975, and is engaged principally in the rental of advertising space on
outdoor advertising structures. Universal operates in three distinct regions:
the Midwest (Chicago, Minneapolis/St. Paul), Indianapolis, Milwaukee, Des
Moines, Evansville, IN and Dallas), the Southeast (Orlando, Jacksonville, Palm
Beach, Ocala and the Atlantic Coast, including Myrtle Beach and the Gulf Coast
areas of Florida, Memphis/Tunica and Chattanooga), and the East Coast (New York,
Washington D.C., Philadelphia, Northern New Jersey, Wilmington, Salisbury and
Hudson Valley, NY).
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. The following industries generated significant
revenues as a percentage of Universal's net revenues in 1996: tobacco (13.2%);
automotive (10.9%); retail (14.6%); and entertainment (11.2%).
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.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Universal and
its subsidiaries. All material intercompany balances, transactions and profits
have been eliminated.
REVENUE RECOGNITION
Universal's revenues are generated from contracts with advertisers generally
covering periods of one to twelve months. Universal recognizes revenues 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.
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.
Payments received in advance of billings are recorded as deferred revenues.
CASH AND EQUIVALENTS
Universal considers all highly-liquid investments with original maturities
of three months or less to be cash equivalents.
Cash held in escrow represents a deposit made by Revere Holding Corp. under
an agreement relating to a contemplated acquisition of property. The property
was subsequently not acquired and therefore the funds were returned to cash and
equivalents in 1997.
F-7
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PREPAID LAND LEASES
Most of Universal's advertising structures are located on leased land. Land
rents are typically paid in advance for periods ranging from one to twelve
months. Prepaid land leases are expensed ratably over the related rental term.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Normal maintenance and repair
costs are expensed. Depreciation is computed principally using a straight line
method over the estimated useful lives of the assets:
<TABLE>
<S> <C>
Buildings......................................................... 39 years
Advertising structures............................................ 15 years
Vehicles and equipment............................................ 5-7 years
</TABLE>
GOODWILL AND INTANGIBLE ASSETS
Non-compete agreements, deferred financing and acquisition costs are
amortized over their estimated economic lives, ranging from three to ten years.
Goodwill is amortized over fifteen 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 the use of the asset to
the recorded value of the asset.
OTHER ASSETS
Loan costs incurred in connection with obtaining financing have been
deferred and are being amortized on a straight line basis over the life of the
loans. Acquisition costs are amortized over their estimated economic life,
principally five years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash and equivalents, accounts receivable and accounts
payable approximates the carrying value of the immediate or short-term maturity
of these financial instruments. The fair value of Universal's other financial
instruments approximates the carrying value.
EARNINGS PER SHARE
An earnings per share calculation has not been presented because Universal
is a wholly-owned subsidiary of the Parent Company and, accordingly, earnings
per share is not required or meaningful.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the current year presentation. These
reclassifications had no effect on previously reported net earnings.
NOTE 3 -- EQUITY OFFERINGS AND DEBT REFINANCINGS:
<TABLE>
<S> <C>
Capital contributions from Parent............................... $ 252,286
Proceeds from long-term debt offerings:
9 3/4% Senior Subordinated Debt............................... 223,587
9 3/4% Series B Senior Subordinated Debt...................... 101,500
Paramount note................................................ 168
---------
325,255
---------
Proceeds from credit facilities................................. 486,052
---------
Total proceeds from financings................................ 1,063,593
---------
Proceeds from financings used for:
Repay 11% Senior Notes repayment.............................. 65,000
Penalty on early retirement of 11% Senior Notes............... 8,314
Mortgage and other repayment.................................. 1,673
---------
74,987
Credit facility repayment..................................... 475,713
Dividend to Parent............................................ 120
Financing costs............................................... 18,298
---------
569,118
---------
Net financing proceeds........................................ $ 494,475
---------
---------
</TABLE>
During 1996, the Parent Company contributed capital to Universal in the
amount of $252,286. The funds were generated from proceeds from the equity
offerings and private investor netted against repayments of the 14% Senior
Secured Discount Notes.
At December 31, 1996 Universal's credit facility provides for a total loan
commitment of $230 million with (i) a revolving line of credit facility
providing for borrowings of up to $12.5 million, (ii) an acquisition credit line
in the amount of $212.5 million which is available under a revolving/term loan
facility and (iii) a swing line of credit in the amount of $5 million. In 1996,
proceeds from credit facilities totaled $486,052, while repayments totaled
$475,713.
Universal completed a public offering of $225 million 9 3/4% Senior
Subordinated Notes due 2006 for net proceeds of $223,587 in October 1996 and a
private offering of $100 million 9 3/4% Series B Senior Subordinated Notes due
2006 for net proceeds of $101,500 in December 1996 (collectively, "the Notes
Offerings").
The net proceeds of the capital contributions and Notes Offerings together
with the proceeds under the available credit facilities were used to redeem all
of the outstanding 11% Senior Notes due 2003 at
F-9
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3 -- EQUITY OFFERINGS AND DEBT REFINANCINGS: (CONTINUED)
$65,000, pay the $8,314 related penalty, repay approximately $285 million of the
then outstanding credit facilities and pay the purchase price of $25 million
relating to certain acquisitions which occurred in 1996. The redemptions during
the year resulted in an extraordinary loss of $14,448.
NOTE 4 -- ACQUISITIONS:
Universal completed the following significant acquisitions for cash during
1996:
<TABLE>
<CAPTION>
PURCHASE PRICE
------------------------
STOCK ASSET
ACQUIRED ACQUISITION ACQUISITION
------------------- ----------- -----------
<S> <C> <C> <C>
Ad-Sign, Inc........................................................ January, 1996 $ 12,500
NOA Holding Corp.................................................... April, 1996 $ 83,295
Iowa Outdoor Displays............................................... September, 1996 1,794
The Chase Company................................................... September, 1996 5,800
Outdoor Advertising Holdings, Inc................................... October, 1996 239,064
Revere Holding Corp................................................. December, 1996 123,794
</TABLE>
The purchase price for accounting purposes was allocated as follows to the
assets purchased and the liabilities assumed based upon the estimated fair
values on the dates of acquisition. It is expected that revisions to the assets
purchased and liabilities assumed will be made during 1997, however, it is not
expected that such revisions will have any material effect.
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Current assets, other than cash........................................ $ 22,567
Property and equipment................................................. 323,624
Goodwill............................................................... 219,406
Other assets........................................................... 4,847
Current liabilities.................................................... (32,497)
Deferred income tax liabilities........................................ (71,700)
-----------
Purchase price, net of cash received................................... $ 466,247
-----------
-----------
</TABLE>
All acquisitions have been accounted for under the purchase method of
accounting and, accordingly, the operating results of the acquired businesses
are included in the Universal's consolidated financial statements from the
respective dates of acquisition. Where required, net deferred taxes were
recorded representing the temporary difference between the tax attributes
assumed and the recorded fair values as of the date of acquisition. Since it is
not deductible for tax purposes, no deferred taxes are recorded for goodwill.
In conjunction with the acquisitions, Universal recorded reserves of $5.0
million to cover anticipated costs of combining its existing business with the
acquired outdoor advertising businesses. The reserves relate to liabilities
incurred for relocation ($1.6 million), severance ($1.4 million), facility
charges ($1.3 million) and other related expenditures ($0.7 million).
Approximately $1.3 million was charged against this reserve during 1996.
The following unaudited pro forma financial information combines the results
of operations of the 1996 acquisitions as if the transactions had been
consummated as of the beginning of the periods presented and included the impact
of certain adjustments such as depreciation of advertising structures,
amortization
F-10
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4 -- ACQUISITIONS: (CONTINUED)
of goodwill and other intangibles, reduction of corporate expenses and interest
expense on debt assumed to have been incurred to complete the transactions.
<TABLE>
<CAPTION>
1996
1995 -----------
----------- (UNAUDITED)
(UNAUDITED)
<S> <C> <C>
Net revenues........................................................ $ 162,758 $ 176,611
Depreciation and amortization....................................... 50,818 50,818
Operating income.................................................... 25,237 35,009
Interest............................................................ 40,670 44,235
Loss before income taxes and extraordinary loss..................... (15,557) (11,037)
Loss before income taxes............................................ $ (15,557) $ (25,485)
</TABLE>
These unaudited pro forma results are not necessarily indicative of what
actually would have occurred if the acquisitions had been in effect for the
entire periods presented and are not intended to project future results.
NOTE 5 -- PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Outdoor advertising structures..................................... $ 76,340 $ 390,963
Land and capitalized land lease costs.............................. 2,232 12,130
Vehicles and equipment............................................. 4,712 12,744
Building and leasehold improvements................................ 3,150 11,087
Display faces under construction................................... 1,344 748
----------- ------------
87,778 427,672
Less accumulated depreciation...................................... 32,432 45,117
----------- ------------
$ 55,346 $ 382,555
----------- ------------
----------- ------------
</TABLE>
NOTE 6 -- GOODWILL AND INTANGIBLE ASSETS:
Goodwill and intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Noncompete agreements............................................... $ 6,500 $ 6,642
Goodwill............................................................ 930 221,909
----------- -----------
7,430 228,551
Less accumulated amortization....................................... 4,735 9,542
----------- -----------
$ 2,695 $ 219,009
----------- -----------
----------- -----------
</TABLE>
F-11
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7 -- OTHER ASSETS:
Other assets consist of the following at December 31:
<TABLE>
<S> <C> <C>
Financing costs....................................... $ 4,031 $ 22,727
Deposits.............................................. 20 5,073
Other costs associated with acquisitions.............. 1,211 4,815
----------- -----------
5,262 32,615
Less accumulated amortization......................... 1,521 7,501
----------- -----------
$ 3,741 $ 25,114
----------- -----------
----------- -----------
</TABLE>
NOTE 8 -- ACCRUED EXPENSES:
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Interest............................................................ $ 1,054 $ 5,667
State and other taxes payable....................................... -- 4,070
Employee compensation and related taxes............................. 184 2,479
Deferred revenue.................................................... 468 2,114
Accrued lease....................................................... -- 1,599
Severance and relocation............................................ -- 2,121
Professional services............................................... -- 1,935
Lease and maintenance............................................... -- 2,392
Other............................................................... 225 4,167
----------- -----------
$ 1,931 $ 26,544
----------- -----------
----------- -----------
</TABLE>
NOTE 9 -- LONG-TERM DEBT AND OTHER OBLIGATIONS:
Long-term debt and other obligations consists of the following at December
31:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
9 3/4% Senior Subordinated Notes due 2006, net of discount of
$1,389............................................................. $ -- $ 223,611
9 3/4% Series B Senior Subordinated Notes due 2006, net of premium
of $1,487.......................................................... -- 101,487
Revolving Credit Loan............................................... 3,286 --
Acquisition Credit Loan............................................. 6,375 --
Acquisition Term Loan............................................... -- 20,000
11% Senior Notes due 2003, net of discount of $839.................. 64,161 --
Other obligations................................................... 2,315 2,843
----------- -----------
76,137 347,941
Less current maturities............................................. 58 --
----------- -----------
$ 76,079 $ 347,941
----------- -----------
----------- -----------
</TABLE>
F-12
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 9 -- LONG-TERM DEBT AND OTHER OBLIGATIONS: (CONTINUED)
9 3/4% SENIOR SUBORDINATED NOTES
The Senior Notes mature on October 15, 2006 and bear interest at 9 3/4%
payable semiannually on April 15 and October 15, beginning on April 15, 1997.
Universal is required to meet certain financial tests which include those
relating to the maintenance of a minimum fixed charge ratio, minimum adjusted
EBITDA (earnings before interest, taxes, depreciation and amortization) and a
senior leverage ratio.
The Senior Notes are general unsecured obligations of Universal and are
subordinated to all existing and future Senior Debt, including the indebtedness
under the credit facilities. The indenture governing the Senior Notes contains
certain restrictive covenants including, among others, limitations on additional
debt incurrence, restrictions on distributions to shareholders, the creation of
liens, the merger or sale of substantially all assets and engaging in
transactions with affiliates.
9 3/4% SERIES B SENIOR SUBORDINATED NOTES
The Series B Senior Notes mature on October 15, 2006 and bear interest at
9 3/4% payable semiannually on April 15 and October 15, beginning on April 15,
1997. Universal is required to meet certain financial tests which include those
relating to the maintenance of a minimum fixed charge ratio and minimum adjusted
EBITDA.
The Series B Senior Notes are general unsecured obligations of Universal and
are subordinated to all existing and future Senior Debt, including indebtedness
under the credit facilities. The indenture governing the Series B Senior Notes
contains certain restrictive covenants including, among others, limitations on
additional debt incurrence, restrictions on distributions to shareholders, the
creation of liens, the merger or sale of substantially all assets and engaging
in certain transactions with affiliates.
CREDIT FACILITIES
In October 1996, Universal amended and restated its existing credit
facilities to provide for a total loan commitment of $230 million with (i) a
revolving line of credit facility providing for borrowings of up to $12.5
million, (ii) an acquisition credit line in the amount of $212.5 million which
is available under a revolving/term loan facility and (iii) a swing line of
credit in the amount of $5 million. Upon the failure of certain events to occur
prior to October 1997, a total of $100 million under the $212.5 million
revolving/ term loan facility may be converted to a term facility which may not
be reborrowed. Approximately $212.5 million of the credit facility matures on
September 30, 2003 with the remaining amount maturing on September 30, 2004. As
of December 31, 1996, Universal had drawn down $20 million under the acquisition
credit facility and had no borrowings under the revolving credit facility or the
swing line of credit.
The loans under the revolving credit facility and acquisition term loan bear
interest at the rate per annum equal to the prime rate or the euro dollar rate,
plus an additional 0% to 2.75% depending on the leverage ratio of Universal as
defined in the credit facility agreement. The interest rate in effect during
1996 ranged from 7.875% to 10%. Interest on the credit facility is payable upon
the date of maturity.
Each of the revolving credit facility and the acquisition credit facility
are secured by a first priority lien on the assets of Universal and, upon the
existence of certain conditions, a pledge of the common stock of Universal held
by certain management shareholders, as well as the pledge of the Parent
Company's stock. Borrowings under the credit facilities are subject to certain
restrictive covenants including, among others, a
F-13
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 9 -- LONG-TERM DEBT AND OTHER OBLIGATIONS: (CONTINUED)
minimum fixed charge ratio minimum adjusted EBITDA and maximum senior leverage
ratio. The credit facilities contain certain restrictive covenants including,
among others, limitations on additional debt incurrence, restrictions on
distributions to shareholders, the creation of liens, the merger or sale of
substantially all assets and engaging in certain transactions with affiliates.
Commitment fees are 1/2 percent on the unused portion of the revolving line
of credit and the acquisition credit facility.
Net debt issuance costs of $14,100 were capitalized in 1996 and are being
amortized on a straight-line basis over the term of the debt.
Future maturities of long-term debt and other obligations as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997............................................................. $ --
1998............................................................. 20,352
1999............................................................. 1,991
2000............................................................. --
2001............................................................. 500
2002 and thereafter.............................................. 325,098
-----------
Total........................................................ $ 347,941
-----------
-----------
</TABLE>
NOTE 10 -- LEASE COMMITMENTS:
Rent expense totaled $4,600, $4,600 and $13,002 in 1994, 1995 and 1996,
respectively. Minimum annual rentals under the terms of capital and
noncancellable operating leases with terms in excess of one year in effect at
December 31, 1996 are payable as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
1997..................................................................... 275 $ 448
1998..................................................................... 233 277
1999..................................................................... 117 172
2000..................................................................... 26 126
2001 and after........................................................... -- 18
--------- -----------
Total minimum lease payments............................................. 651 $ 1,041
-----------
-----------
Less amount representing interest........................................ (71)
---------
Present value of minimum lease payments.................................. 580
Less current portion..................................................... 235
---------
Long-term capitalized lease obligations.................................. $ 345
---------
---------
</TABLE>
NOTE 11 -- INCOME TAXES:
In accordance with a tax sharing agreement between Universal and the Parent
Company, for each taxable year for which Universal is included in a consolidated
federal income tax return with the Parent Company, Universal will pay to the
Parent Company an amount equal to the lesser of (i) the consolidated
F-14
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11 -- INCOME TAXES: (CONTINUED)
federal income tax liability of the consolidated group of which the Parent
Company is the common parent or (ii) the federal income tax liability of the
Parent Company, computed as if Universal had filed a separate federal income tax
return. Furthermore, Universal may utilize the losses incurred by the Parent
Company prior to the Refinancing Plan. Accordingly, Universal has included the
tax benefits of the Parent 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 Parent Company subsequent to June 30,
1994 are not available to Universal however, such benefits may be transferred
through either an intercompany transfer or a capital transaction.
Universal incurred a net operating loss in 1994, 1995 and 1996; therefore,
no provision for income taxes was required.
Deferred tax assets (liabilities) consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment............................................ $ -- $ (99,212)
----------- -----------
Total deferred tax liabilities.................................. -- (99,212)
----------- -----------
Deferred tax assets:
Bad debts........................................................... 42 897
Non-deductible accrued expenses..................................... 53 2,140
Property and equipment.............................................. 523 --
Goodwill and intangibles............................................ -- 6,112
Operating loss and credit carryforwards............................. 5,841 26,251
----------- -----------
Total deferred tax assets......................................... 6,459 35,400
----------- -----------
Valuation allowance................................................. (6,459) (7,888)
----------- -----------
Net deferred tax liabilities...................................... $ -- $ (71,700)
----------- -----------
----------- -----------
</TABLE>
Universal has established a valuation allowance against a portion of its
deferred tax assets following an assessment of the likelihood of realizing such
amounts. In arriving at the determination as to the amount of the valuation
allowance required, Universal considered its past operating history as well as
significant acquisitions made in 1996, statutory restrictions on the use of
operating losses from acquisitions during the year, available tax planning
strategies and its expectation of the level and timing of future taxable income.
F-15
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11 -- INCOME TAXES: (CONTINUED)
At December 31, 1996, Universal had net operating loss and credit
carryforwards for federal income tax purposes of approximately $65 million.
Included in total net operating loss and credit carryforwards is approximately
$45 million of net operating loss and credit carryforwards generated by certain
acquired companies prior to their acquisition by Universal. Total carryforwards
expire between 2005 and 2011. During the current fiscal year, Universal did not
utilize any net operating loss and credit carryforwards.
Universal experinced an "ownership change" within the meaning of Section 382
of the Internal Revenue Code. Universal's acquisition of Outdoor Advertising
Holdings, Inc., and Revere Holdings Corporation also resulted in an "ownership
change" and a limitation is imposed on the acquired net operating loss
carryforwards.
NOTE 12 -- CONTINGENCIES:
Universal, as the successor to Outdoor Advertising Holdings, Inc. and POA
Acquisition Company ("POA"), is a defendant in a case pending in the United
States District Court, Middle District of Florida. The plaintiffs alleged that
POA, among others, conspired to restrain trade and to monopolize the market for
leases for land on which outdoor advertising structures can be erected. The case
was set for trial in January 1997 and has been continued pending court
availability. The plaintiffs have alleged that the acts of the defendants
resulted in harm to the plaintiffs and damages of $4 to $12 million, which could
be trebled under the applicable laws. Universal intends to defend the case
vigorously. There can be no assurance as to the ultimate outcome of this
litigation although management does not presently believe it will have a
material adverse effect on its results of operations or financial condition.
Universal is subject to various other claims and routine litigation arising
in the ordinary course of business. Based on the advice of counsel, management
does not believe that the result of such other claims and litigation,
individually or in the aggregate, will have a material effect on Universal's
business or its results of operations, cash flows or financial position.
NOTE 13 -- QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for 1996 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
1996
Net revenues...................................... $ 8,427 $ 17,812 $ 18,643 $ 31,256
Operating income.................................. 1,670 7,299 5,890 5,929
Income (loss) before extraordinary item........... (757) 1,966 3,077 (626)
Net income (loss)................................. (757) 1,966 3,077 (15,074)
</TABLE>
Summarized quarterly financial data for 1995 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
1995
Net revenues...................................... $ 7,236 $ 9,175 $ 8,940 $ 8,797
Operating income.................................. 1,348 3,109 2,674 2,507
Loss before extraordinary item.................... (747) 903 509 304
Net loss.......................................... (747) 903 509 304
</TABLE>
F-16
<PAGE>
UNIVERSAL OUTDOOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF UNIVERSAL OUTDOOR HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 13 -- QUARTERLY FINANCIAL DATA (UNAUDITED): (CONTINUED)
In the fourth quarter of 1996, Universal recorded an extraordinary loss of
$14,448 related to the early retirement of the 11% Senior Notes.
NOTE 14 -- RELATED-PARTY TRANSACTIONS:
During 1996 Universal paid management fees of approximately $1,250 to a
private investor, which is included in other expense on the Consolidated
Statement of Operations.
NOTE 15 -- SUBSEQUENT EVENTS:
In January 1997, Universal acquired a total of approximately 2,018
advertising display faces located in and around Memphis, Tennessee. The purchase
price was approximately $71 million plus 100,000 shares of common stock of the
Parent Company.
In January 1997, Universal acquired a total of approximately 1,035
advertising display faces located in three markets in the east coast of the
United States, including Metro New York, Northern New Jersey and Hudson Valley,
for approximately $40 million in cash.
In February 1997, Universal acquired a total of approximately 135
advertising display faces located in and around Evansville, Indiana for
approximately $5.5 million in cash. Universal also acquired 12 built advertising
display faces and 35 un-built display faces in New Jersey for approximately $5.3
million in cash.
In February 1997, Universal agreed to acquire existing 1,450 advertising
display faces in the Baltimore metropolitan area for $46.5 million in cash.
F-17
<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-18
<PAGE>
NOA HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MAY 31,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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-19
<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-20
<PAGE>
NOA HOLDING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED CLASS A COMMON CLASS B COMMON
STOCK 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-21
<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-22
<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.
F-23
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
1994 1995 USEFUL 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.
F-24
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
4. INTANGIBLES (CONTINUED)
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.
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.
F-25
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
5. DEBT (CONTINUED)
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.
Aggregate annual maturities of long-term debt during the five-year period
ending May 31, 2000 are (in thousands):
<TABLE>
<CAPTION>
Year ending May 31:
<S> <C>
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.
F-26
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 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. 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.
F-27
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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>
<CAPTION>
Year ending May 31:
<S> <C>
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-28
<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-29
<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-30
<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-31
<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 in
conformity with generally accepted accounting principles.
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-32
<PAGE>
POA ACQUISITION CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995
------------- SEPTEMBER 30
-------------
1994 1996
------------- -------------
(RESTATED) (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash.............................................................. $ 727,690 $ 811,352 $ 3,534,128
Accounts receivable............................................... 4,482,520 5,631,320 6,746,361
Prepaid expenses.................................................. 1,698,539 1,822,964 2,576,998
Prepaid income taxes.............................................. 51,629 43,875 43,875
Deferred income taxes............................................. 2,596,951 3,213,848 3,314,000
------------- ------------- -------------
Total current assets............................................ 9,557,329 11,523,359 16,215,362
Deferred income taxes............................................... 14,269,374 11,835,410 10,040,258
Property, plant and equipment, net.................................. 20,112,931 23,005,058 32,821,811
Other assets........................................................ 46,266,092 41,854,491 38,741,579
------------- ------------- -------------
$ 90,205,726 $ 88,218,318 $ 97,819,010
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses............................. $ 3,432,619 $ 2,992,112 $ 4,289,460
Current portion of long-term debt................................. 8,061,214 9,109,419 9,109,419
Notes payable..................................................... -- -- 416,000
------------- ------------- -------------
Total current liabilities....................................... 11,493,833 12,101,531 13,814,879
Long-term debt, less current portion................................ 70,210,555 65,603,203 71,682,647
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) (33,098,426)
------------- ------------- -------------
Total shareholder's equity...................................... 8,501,338 10,513,584 12,321,484
------------- ------------- -------------
$ 90,205,726 $ 88,218,318 $ 97,819,010
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-33
<PAGE>
POA ACQUISITION CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 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 $ 33,333,588 $ 38,380,932
Less commissions and discounts....... (3,362,525) (3,865,492) (4,393,319) (3,188,699) (3,520,734)
------------- ------------- ------------- ------------- -------------
34,093,939 37,871,774 41,437,040 30,144,889 34,860,198
------------- ------------- ------------- ------------- -------------
Expenses:
Operating.......................... 10,493,219 11,151,065 11,775,891 8,775,349 10,077,666
Selling, general and
administrative................... 9,413,920 10,283,413 10,698,212 7,551,805 9,307,799
Amortization....................... 4,853,633 5,208,589 5,061,849 3,811,034 3,811,034
Depreciation....................... 2,871,608 2,878,346 2,545,182 1,870,249 2,547,946
------------- ------------- ------------- ------------- -------------
27,632,380 29,521,413 30,081,134 22,008,437 25,744,445
------------- ------------- ------------- ------------- -------------
Income from operations............... 6,461,559 8,350,361 11,355,906 8,136,452 9,115,753
------------- ------------- ------------- ------------- -------------
Other income (expense):
Interest expense................... (5,866,923) (7,012,646) (7,346,241) (5,560,143) (5,548,379)
Loss on sale of a division......... -- (494,824) -- -- --
Gain (loss) on disposal of property
and equipment, net............... (446,151) (329,056) (64,332) (399,572) (346,974)
Interest and other income.......... 167,360 24,412 42,244 31,600 367,500
------------- ------------- ------------- ------------- -------------
(6,145,714) (7,812,114) (7,368,329) (5,928,115) (5,527,853)
------------- ------------- ------------- ------------- -------------
Income before income taxes and
extraordinary item.................. 315,845 538,247 3,987,577 2,208,337 3,587,900
Provision for income taxes:
Current............................ 100,158 37,572 158,264 92,000 150,000
Deferred........................... 478,263 1,256,910 1,817,067 1,002,000 1,630,000
------------- ------------- ------------- ------------- -------------
578,421 1,294,482 1,975,331 1,094,000 1,780,000
------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary
item................................ (262,576) (756,235) 2,012,246 1,114,337 1,807,900
Extraordinary item:
(Loss) gain on early extinguishment
of debt, net of income tax
expense (benefit) of ($147,350)
and $50,000...................... -- (244,552) -- -- --
------------- ------------- ------------- ------------- -------------
Net income (loss).................... $ (262,576) $ (1,000,787) $ 2,012,246 $ 1,114,337 $ 1,807,900
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes.
F-34
<PAGE>
POA ACQUISITION CORPORATION
STATEMENTS OF SHAREHOLDERS' 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 nine months ended
September 30, 1996 (unaudited).......... -- -- -- 1,807,900 1,807,900
--------- ----------- -------------- -------------- --------------
$ 1 $ -- $ 45,419,909 $ (33,098,426) $ 12,321,484
--------- ----------- -------------- -------------- --------------
--------- ----------- -------------- -------------- --------------
</TABLE>
See accompanying notes.
F-35
<PAGE>
POA ACQUISITION CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 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 $ 1,114,337 $ 1,807,900
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Amortization................................... 4,853,633 5,208,589 5,061,849 3,811,034 3,811,034
Depreciation................................... 2,871,608 2,878,346 2,545,182 1,870,249 2,547,946
Deferred income taxes.......................... 478,263 1,123,867 1,817,067 1,002,000 1,695,000
Loss on sale of division....................... 1,367,286 494,824 -- -- --
Loss on disposal of property and equipment,
net.......................................... 446,151 329,056 64,332 -- 346,977
Provision for bad debts........................ 122,694 375,190 64,285 -- 176,000
Changes in operating assets and liabilities:
Increase in accounts receivable.............. (677,585) (523,087) (1,213,085) (581,542) (957,596)
Increase in prepaid expenses................. (68,365) (253,802) (124,425) (62,829) (574,486)
Decrease (increase) in prepaid income taxes.. (78,843) (27,786) 7,754 -- --
Decrease (increase) in other assets.......... 862 (2,511,167) (500,248) -- (126,183)
(Increase) decrease in accounts payable and
accrued expenses........................... 867,753 772,507 (440,507) 871,538 1,253,284
----------- ------------ ----------- ----------- -----------
Net cash provided by operating activities........ 9,920,881 6,865,750 9,294,450 8,024,787 9,979,876
INVESTING ACTIVITIES
Proceeds from sale of division................... -- 2,000,000 -- -- --
Proceeds from disposal of property and
equipment....................................... 160,450 101,463 227,854 -- 367,500
Purchases of property, plant and equipment....... (2,586,418) (1,787,528) (5,729,495) (4,687,306) (3,805,706)
Purchaser of other assets........................ -- -- -- (135,250) --
Purchases of intangibles......................... -- -- (150,000) -- (9,898,338)
----------- ------------ ----------- ----------- -----------
Net cash (used in) provided by investing
activities...................................... (2,425,968) 313,935 (5,651,641) (4,822,556) (13,336,544)
FINANCING ACTIVITIES
Proceeds from long-term borrowings............... 133,500 83,023,442 4,500,000 3,000,000 13,147,633
Payments of long-term debt....................... (8,151,871) (70,696,101) (8,059,147) (6,044,831) (7,068,189)
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) provided by financing
activities...................................... (8,018,371) (7,302,053) (3,559,147) (3,044,831) 6,079,444
----------- ------------ ----------- ----------- -----------
Net increase (decrease) in cash.................. (523,458) (122,368) 83,662 157,400 2,722,776
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 $ 885,090 3,534,128
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-36
<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>
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.
F-37
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 3 -- ACCOUNTING POLICIES (CONTINUED)
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 September 30, 1996 and 1995 and for
the nine 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-38
<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-39
<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-40
<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-41
<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 $150,000. The customer lists and advertising leases were
assigned useful lives of three and ten years, respectively.
F-42
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
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 October 8, 1996, the Company's parent, Holdings, sold the outstanding
capital stock of Holdings for approximately $240,000,000 in cash.
F-43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Revere Holding Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Revere
Holding Corp. (a Maryland corporation) and subsidiaries as of December 31, 1995,
and the related consolidated statements of operations, stockholders' 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 on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Revere Holding Corp. and
Subsidiaries, as of December 31, 1995, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Baltimore, Maryland,
March 8, 1996
F-44
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2)........................ $ 1,140,569 $ 511,605
Cash held in escrow (Note 17)............................. 400,000 20,447,420
Accounts receivable -- trade, net of allowance for
doubtful accounts of $316,000 and $445,000,
respectively............................................ 5,349,808 5,336,129
Accounts receivable -- barter, net of allowance for
doubtful accounts of $11,000 and $9,000, respectively
(Note 2)................................................ 207,728 318,577
Accounts receivable -- other.............................. 99,287 105,831
Inventories (Note 2)...................................... 259,522 318,193
Prepaid expenses --
Sign site leases (Note 12).............................. 1,958,745 1,622,871
Other................................................... 689,174 395,757
Deferred income taxes..................................... 687,000 627,000
------------ ---------------
Total current assets.................................. 10,791,833 29,683,383
PROPERTY AND EQUIPMENT, net (Notes 2 and 4)................. 38,899,139 28,046,022
GOODWILL, net of accumulated amortization of $570,000 and
$984,000, respectively (Note 3)........................... 22,668,371 21,809,424
OTHER ASSETS, net (Notes 2 and 5)........................... 16,383,846 13,829,535
------------ ---------------
Total assets.......................................... $ 88,743,189 $ 93,368,364
------------ ---------------
------------ ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade................................. $ 605,780 $ 319,133
Accounts payable -- barter (Note 2)....................... 258,698 371,589
Income taxes payable...................................... 21,000 2,738,000
Accrued interest expense.................................. 31,025 382,026
Deferred revenue.......................................... 611,134 717,095
Accrued bonuses........................................... 547,216 178,058
Accrued health benefits................................... 434,463 330,284
Accrued liabilities (Note 2).............................. 2,701,525 1,750,886
Current portion of long-term debt (Note 6)................ 2,851,765 3,305,379
Current portion of capital lease obligations (Note 12).... 234,016 220,392
------------ ---------------
Total current liabilities............................. 8,296,622 10,312,842
LONG-TERM DEBT, less current portion (Note 6)............... 38,094,955 38,280,668
CAPITAL LEASE OBLIGATIONS, less current portion (Note 12)... 470,637 382,286
DEFERRED TAX LIABILITY (Notes 2 and 7)...................... 5,520,000 5,502,202
------------ ---------------
Total liabilities..................................... 52,382,214 54,477,998
------------ ---------------
MINORITY INTEREST........................................... 140,000 140,000
------------ ---------------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01, 5,000,000 shares authorized;
3,823,458 shares issued and outstanding at December 31,
1995 and September 30, 1996 (unaudited)................. 38,235 38,235
Paid-in capital in excess of par.......................... 38,196,347 38,196,347
Retained earnings (accumulated deficit)................... (1,125,107) 3,053,521
Treasury stock, at cost, -0- shares at December 31, 1995
and 150,751 shares at September 30, 1996 (unaudited)
(Note 11)............................................... -- (1,653,737)
Notes receivable from management stockholders............... (888,500) (884,000)
------------ ---------------
Total stockholders' equity............................ 36,220,975 38,750,366
------------ ---------------
Total liabilities and stockholders' equity............ $ 88,743,189 $ 93,368,364
------------ ---------------
------------ ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-45
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------------
1995 1995 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Gross revenues.................................................... $ 44,075,763 $ 32,703,421 $ 32,529,347
Less: Agency commissions.......................................... (4,714,467) (3,522,060) (3,482,596)
------------- ------------- -------------
Net revenues.................................................. 39,361,296 29,181,361 29,046,751
------------- ------------- -------------
OPERATING EXPENSES:
Operations........................................................ 8,569,222 6,313,353 6,469,145
Real estate....................................................... 8,807,786 6,420,824 7,146,224
Sales............................................................. 4,924,970 3,518,556 3,718,209
General and administrative........................................ 5,611,970 4,240,221 4,117,587
Depreciation and amortization..................................... 6,898,155 5,164,942 5,541,859
------------- ------------- -------------
Total operating expenses...................................... 34,812,103 25,657,896 26,993,024
------------- ------------- -------------
Operating Income.............................................. 4,549,193 3,523,465 2,053,727
------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (Notes 5,6 and 12)............................... (4,584,699) (3,501,551) (3,391,499)
Gain on sale of assets............................................ -- -- 8,623,905
Other (expenses) income........................................... (333,834) 57,964 (214,151)
------------- ------------- -------------
Total other income (expenses)................................. (4,918,533) (3,443,587) 5,018,255
------------- ------------- -------------
Income (loss) before income taxes............................. (369,340) 79,878 7,071,982
(PROVISION) BENEFIT FOR INCOME TAXES
(Notes 2 and 7)................................................... (578,360) (271,719) (2,893,354)
------------- ------------- -------------
Net income (loss)............................................. $ (947,700) $ (191,841) $ 4,178,628
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-46
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
RETAINED RECEIVABLE
PAID-IN EARNINGS TREASURY FROM TOTAL
COMMON IN EXCESS (ACCUMULATED STOCK, MANAGEMENT STOCKHOLDERS'
STOCK OF PAR DEFICIT) AT COST STOCKHOLDERS EQUITY
------- ----------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1994........... $38,235 $38,196,347 $ (177,407) $ -- $(888,500) $37,168,675
Net loss.................... -- -- (947,700) -- -- (947,700)
------- ----------- ------------ ----------- ------------- -------------
BALANCE,
December 31, 1995........... 38,235 38,196,347 (1,125,107) -- (888,500) 36,220,975
Payment on note receivable
from management
stockholders
(unaudited)............... -- -- -- -- 4,500 4,500
Treasury stock acquired, at
cost (unaudited).......... -- -- -- (1,653,737) -- (1,653,737)
Net income (unaudited)...... -- -- 4,178,628 -- -- 4,178,628
------- ----------- ------------ ----------- ------------- -------------
BALANCE,
September 30, 1996
(Unaudited)............... $38,235 $38,196,347 $3,053,521 $(1,653,737) $(884,000) $38,750,366
------- ----------- ------------ ----------- ------------- -------------
------- ----------- ------------ ----------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-47
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE MONTHS
ENDED ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------------
1995 1995 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................. $ (947,700) $ (191,841) $ 4,178,628
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization................................... 7,552,486 5,655,691 6,034,913
(Gain) Loss on disposals of property and equipment.............. 418,222 114,319 (8,623,905)
Deferred income tax provision................................... 354,273 103,654 41,665
Changes in assets and liabilities --
Increase in accounts receivable, net.......................... (219,824) (187,242) (103,714)
Decrease (increase) in inventories............................ 32,807 (22,493) (58,671)
(Increase) decrease in prepaid expenses and other............. (204,546) (399,644) 629,291
(Decrease) increase in accounts payable and accrued
expenses.................................................... (1,795,535) (1,747,672) 1,976,230
------------- ------------- -------------
Net cash flows provided by operating activities............. 5,190,183 3,324,772 4,074,437
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............................... (3,583,772) (1,951,075) (1,588,848)
Proceeds from sale of property and equipment...................... 123,551 45,926 21,514,834
Funds transferred to escrow....................................... -- -- (20,447,420)
Increase in interest receivable................................... (53,330) (58,290) (51,035)
Increase in other assets.......................................... (1,974,930) (1,873,220) (952,589)
Cash paid for acquisitions........................................ (3,080,631) (3,080,631) (2,075,000)
(Increase) decrease in goodwill, net of noncash items............. (39,140) -- 13,042
Cash paid for treasury stock...................................... -- -- (8,237)
------------- ------------- -------------
Net cash flows used in investing activities................. (8,608,252) (6,917,290) (3,595,253)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt....................................... (3,501,044) (2,181,869) (2,435,099)
Payment of liability for Mall Media purchase...................... (4,000,000) (4,000,000) --
Proceeds from long-term debt...................................... 4,166,227 3,000,000 1,326,951
------------- ------------- -------------
Net cash used in financing activities....................... (3,334,817) (3,181,869) (1,108,148)
------------- ------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................... (6,752,886) (6,774,387) (628,964)
CASH AND CASH EQUIVALENTS, beginning of period...................... 7,893,455 7,893,455 1,140,569
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of period............................ $ 1,140,569 $ 1,119,068 $ 511,605
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-48
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
The financial statements of Revere Holding Corp. and Subsidiaries (the
Company) include the accounts of Revere Holding Corp. (Holding) and its
wholly-owned subsidiary, Revere Acquisition Corp. (Acquisition) and
Acquisition's wholly-owned subsidiaries, Revere National Corporation and
subsidiaries (National), Revere Billboard, Inc. (Billboard), Stait Outdoor
Advertising Co. (Stait) and Mall Media Acquisition Corp. (Mall Media). National
provides outdoor advertising services through its network of sign structures in
the Mid-Atlantic region and Texas (see Note 17). Mall Media owns and maintains a
network of kiosks located in shopping malls nationwide and sells advertising
space on the kiosks. Stait provides outdoor advertising services through its
sign structures primarily located in New Jersey and Pennsylvania. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
On December 20, 1994, Acquisition acquired the entities described below,
which were accounted for by the purchase method of accounting. The results of
operations of the acquired companies are included in Holding's statements of
operations for the period in which they were owned by Holding.
On December 20, 1994, Holding was capitalized with $35.0 million in cash
from Merrill Lynch Capital Partners and $375,000 in cash from certain members of
the Board of Directors. The cash was used to capitalize Acquisition, and through
a secured bank credit agreement, Acquisition received funding of an additional
$40.0 million.
Through a series of transactions, Acquisition acquired the assets of
Billboard and Mall Media for $26.5 million and the outstanding stock of National
and Stait for $26.6 million. Additional existing secured debt of National
totaling $20.3 million was repaid by Acquisition, and the remaining funds were
used for financing and acquisition costs.
Additionally, Holding issued and transferred shares of common stock to
certain members of management and the Board of Directors of the Company with a
value of $1,359,582. The consideration for the shares issued was notes
receivable of $888,500 and common stock of National with a value of $471,082.
As provided in the asset purchase agreement, Mall Media purchased certain
assets of the kiosk business, described above, on December 20, 1994. Of the $5.5
million purchase price, $4.0 million was not paid until January 1995. As part of
the purchase price, Holding issued $1.5 million in common stock to the former
owner.
On January 2, 1996, the Company effected a reorganization of its legal
entities. Revere National Corporation of San Antonio, Revere National
Corporation of Victoria, Revere National Corporation of Corpus Christi, Revere
National Corporation of Laredo ("Texas Subs") and Revere National Corporation of
Delmarva ("Delmarva") effected a statutory merger with and into Revere National
Corporation of Philadelphia ("D.C."), with D.C. being the surviving entity.
Further, through a series of transactions, Stait was merged into Revere National
Corporation of Pennsylvania ("PA") effective January 2, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
Advertising revenues from the sale of advertising space are recognized on a
straight-line basis over the terms of the individual contracts.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term highly liquid
investments with a maturity of three months or less.
F-49
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVENTORIES
Inventories, consisting primarily of sign structure parts, are stated at the
lower of cost (computed on a first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost with the exception of those
assets which have been recorded at estimated fair value in conjunction with the
purchase transactions discussed in Note 3. The cost of sign structures includes
materials and supplies, labor directly involved in construction of the sign
structures and an allocation of direct overhead expenses. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the related assets. The ranges of estimated useful lives are as
follows:
<TABLE>
<CAPTION>
USEFUL LIVES
-------------
<S> <C>
Sign structures and kiosks..................................................... 7-15 years
Buildings...................................................................... 31.5 years
Machinery and equipment........................................................ 5-7 years
Vehicles....................................................................... 5 years
Leasehold improvements......................................................... Lease Term
</TABLE>
Tear down expense or other disposals of sign structures are recorded net of
the estimated realizable value of salvaged materials. The estimated realizable
value of salvaged materials from torn down structures remains recorded as
property and equipment and is depreciated over its remaining useful life. These
materials are used in construction of new structures or refurbishment of
existing structures.
LEASE ACQUISITION COSTS
The direct costs of acquiring and renewing land leases for sites on which
sign structures are erected are capitalized in other assets and amortized using
the straight-line method over five years, which is the estimated average lives
of the leases.
BARTER ARRANGEMENTS
The Company enters into nonmonetary barter transactions with customers
wherein certain goods and services are used by the Company in exchange for
advertising services. Such transactions are recorded in the accompanying
consolidated financial statements at the estimated fair market value of the
goods and services received. Included in revenues and expenses are nonmonetary
transactions of approximately $631,000 and $601,000, respectively, for the year
ended December 31, 1995 and approximately $450,000 and $439,000, and $511,000
and $379,000, respectively, for the nine months ended Setember 30, 1995 and 1996
(unaudited). Included in property and equipment are nonmonetary transactions of
approximately $97,000 for the year ended December 31, 1995, and $18,000 and
$43,000, respectively, for the nine months ended September 30, 1995 and 1996
(unaudited).
The gross amount of barter receivables and barter payables is recorded at
the estimated fair value of services to be received and provided, respectively.
FINANCIAL INSTRUMENTS
The Company values its financial instruments as required by Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Values of
Financial Instruments." Management believes the
F-50
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and long-term debt approximate fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues,
expenses, gains and losses during the reporting periods. Actual results could
differ from these estimates.
INCOME TAXES
Provision has been made, using Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes", for deferred Federal and state income
taxes which arise from differences between the basis of certain assets and
liabilities, for income tax and financial statement reporting purposes, and
differences between reporting methods for income tax and financial statement
reporting purposes. The differences relate principally to property, deferred
costs and accruals. The Company and its subsidiaries file consolidated Federal
income tax returns.
RECLASSIFICATIONS.
Certain financial information in the prior years have been reclassified to
conform to the current year presentation.
ACCOUNTING STANDARD
In March 1995, the FASB issued Statement No. 121 (SFAS 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. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. As of September 30, 1996 (unaudited),
management believes there were no indications of impairment that would effect
the carrying values of assets.
NON-CASH TRANSACTIONS
In addition to the previously described barter transactions, the Company
entered into the following non-cash transactions for the year ended December 31,
1995, and the nine months ended September 30, 1995 and 1996:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE MONTHS
ENDED ENDED SEPTEMBER 30,
DECEMBER 31, -----------------------
1995 1995 1996
------------ --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Property and equipment under capital leases........... $ 336,277 $ 19,600 $ 273,063
------------ --------- ------------
------------ --------- ------------
Treasury stock purchased in exchange for note
payable............................................. $ -- $ -- $ 1,645,500
------------ --------- ------------
------------ --------- ------------
</TABLE>
F-51
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTERIM FINANCIAL INFORMATION
The interim financial information as of September 30, 1996 and for the nine
months ended September 30, 1995 and 1996 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.
3. GOODWILL:
The Company utilized the purchase method of accounting for the acquisitions
of the common stock of National and Stait and the purchase of the assets of
Billboard and Mall Media. The total purchase price of $73.5 million was
originally allocated approximately $37.7 million to property and equipment, $4.6
million to an acquired deferred tax liability and $18.3 million to other net
assets and liabilities, resulting in goodwill of approximately $22.1 million.
During 1995, the Company adjusted the purchase price allocation to reflect an
income tax liability of approximately $310,000 which existed at the acquisition
date, resulting in an increase to goodwill for the same amount. Goodwill is
being amortized over a period of 40 years.
During 1995, the Company executed several acquisitions which had an
aggregate purchase price of approximately $2.8 million. These acquisitions were
accounted for in accordance with the purchase method, whereby the purchase price
is allocated to assets acquired and liabilities assumed based upon estimated
fair value. As a result of these acquisitions, the Company recorded additional
goodwill of approximately $654,000. In addition, goodwill in the amount of
$140,000 has been recorded at December 31, 1995, relating to another acquisition
of the Company in 1995.
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following as of December 31, 1995
and September 30, 1996:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Sign structures and kiosks.................................. $ 32,770,314 $ 24,205,343
Land and buildings.......................................... 6,311,519 4,694,414
Machinery and equipment..................................... 1,638,450 1,846,847
Vehicles.................................................... 740,388 195,419
Leasehold improvements...................................... 196,519 224,865
-------------- --------------
41,657,190 31,166,888
Less -- Accumulated depreciation and amortization........... (2,758,051) (3,120,866)
-------------- --------------
Property and equipment, net................................. $ 38,899,139 $ 28,046,022
-------------- --------------
-------------- --------------
</TABLE>
Depreciation expense for the year ended December 31, 1995, and the nine
months ended September 30, 1995 and 1996 (unaudited) was $2,782,706, and
$2,111,160 and $2,222,964, respectively.
F-52
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OTHER ASSETS:
Other assets consisted of the following as of December 31, 1995 and
September 30, 1996:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
Intangible lease assets..................................... $ 9,352,833 $ 7,183,851
Financing and acquisition costs............................. 6,627,239 6,655,367
Lease acquisition costs..................................... 3,952,191 3,789,525
MTC contract for advertising privileges..................... -- 1,935,000
Covenants not to compete.................................... 570,000 350,000
Deposits.................................................... 82,450 76,025
Other....................................................... 151,092 108,697
-------------- ---------------
20,735,805 20,098,465
Less -- Accumulated amortization............................ (4,351,959) (6,268,930)
-------------- ---------------
Other assets, net........................................... $ 16,383,846 $ 13,829,535
-------------- ---------------
-------------- ---------------
</TABLE>
Amortization for the year ended December 31, 1995, and the nine months ended
September 30, 1995 and 1996 (unaudited) was $4,769,780, and $3,544,531 and
$3,811,949, respectively, including amortization of deferred financing costs of
$654,331, and $490,749 and $493,054, which was classified as interest expense.
Intangible lease assets represent site leases with rents below market rates
which were purchased with the acquisition of Billboard. The intangible lease
assets have been recorded at the present value of the excess of the fair market
rents of the lease over the actual rents. This amount is being amortized over
the life of the leases.
Financing and acquisition costs consisting of bank, legal and other
professional fees and other costs of approximately $6.0 million were incurred
and capitalized in connection with the acquisitions described in Note 1 and the
related financing described in Note 6. These costs are being amortized over the
period of the related debt agreements.
Covenants not to compete were entered into with the former owners of the
assets of certain purchase transactions at the time of the respective purchase
and are being amortized over terms ranging from five to ten years.
6. LONG-TERM DEBT:
In connection with the acquisitions described in Note 1, Acquisition and
Holding entered into a Credit Agreement consisting of a Revolving Credit Loan, a
Term A Loan and a Term B Loan.
The Revolving Credit Loan consists of a reducing revolving credit facility
with a principal amount not to exceed $17 million. As of December 31, 1995 and
September 30, 1996 (unaudited), outstanding borrowings against the facility were
$3,500,000 and $5,000,000, respectively. The commitment under the revolving
credit facility will decrease by $1.0 million annually on December 31, 1995
through 1998. The remaining available $13.0 million will expire on June 30,
2001.
The Term A Loan in the amount of $24.5 million is scheduled to be amortized
annually in three equal installments in June, September and December of each
year. The annual amortization amounts are $2,750,000 in 1996, $3,570,000 in 1997
and 1998; and $4,500,000, $6,125,000 and $3,735,000 in 1999, 2000 and 2001,
respectively.
F-53
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
The Term B Loan in the amount of $13.0 million is scheduled to be paid in a
single installment on June 30, 2002.
In addition to the debt repayments discussed above, the Company is required
to make prepayments of 50% of Excess Cash Flow as defined in the Credit
Agreement. No such prepayments were required for the periods ending December 31,
1995 and September 30, 1996 (unaudited).
Interest on borrowings under this agreement are at varying rates based, at
the Company's option, on the federal funds rate, the bank's prime rate, a three
month average certificate of deposit rate or the London Interbank Offering Rate
(LIBOR), plus a fixed percent and are adjusted based upon the ratio of total
debt to operating cash flow. Additionally, commitment fees of 1/2% on available
but undrawn revolving credit funds are payable quarterly in advance. The
weighted average interest rates for the year ended December 31, 1995 and for the
nine months ended September 30, 1995 and 1996 (unaudited) were 8.3%, and 8.8%
and 8.4%, respectively. Interest expense relating to the Credit Agreement for
the year ended December 31, 1995, and for the nine months ended September 30,
1995 and 1996 (unaudited), were approximately $3,852,000 and $2,951,555 and
$2,782,050, respectively.
Under the covenants of the Credit Agreement, the Company is required to
maintain certain financial ratios, including an interest coverage ratio, a
leverage ratio and a fixed charges ratio. Substantially all of the Companies'
assets have been pledged as security under the Credit Agreement.
Long-term debt at September 30, 1996 (unaudited), includes a subordinated
promissory note in the amount of $1,645,500 to a former stockholder and employee
of the Company as a result of the repurchase by the Company of all of his shares
of outstanding common stock (see Note 11). The note matures on March 27, 1999,
and interest is payable annually at the lowest rate of interest applicable to
borrowings under the Credit Agreement.
A summary of long-term debt as of December 31, 1995 and September 30, 1996
(unaudited), is as follows:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
Credit Agreement Term A Note................................ $ 24,250,000 $ 21,916,666
Credit Agreement Term B Note................................ 13,000,000 13,000,000
Revolving Credit Note....................................... 3,500,000 5,000,000
Other notes payable with varying maturity dates............. 196,720 1,669,381
-------------- ---------------
Total long-term debt...................................... 40,946,720 41,586,047
Less -- Current portion of long-term debt................... (2,851,765) (3,305,379)
-------------- ---------------
Long-term debt less current portion....................... $ 38,094,955 $ 38,280,668
-------------- ---------------
-------------- ---------------
</TABLE>
F-54
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
Future maturities of long-term debt as of December 31, 1995 and September
30, 1996, are as follows:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
1996........................................................ $ 2,851,765 $ 3,305,379
1997........................................................ 3,632,255 3,573,693
1998........................................................ 3,602,700 3,574,080
1999........................................................ 4,500,000 6,150,007
2000........................................................ 6,125,000 6,127,427
2001 and thereafter......................................... 20,235,000 18,855,461
-------------- ---------------
Total..................................................... $ 40,946,720 $ 41,586,047
-------------- ---------------
-------------- ---------------
</TABLE>
Interest payments for the year ended December 31, 1995 and for the nine
months ended September 30, 1995 and 1996 (unaudited), were approximately
$3,901,000, and $2,911,780 and $2,387,456, respectively.
7. INCOME TAXES:
The (provision) benefit for income taxes for the year ended December 31,
1995, and the nine months ended September 30, 1995 and 1996 (unaudited),
consists of the following:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------
1995 1995 1996
------------ ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current
Federal.......................................... $ (72,187) $ (54,140) $ (2,087,942)
State............................................ (151,900) (113,925) (763,747)
------------ ----------- -------------
(224,087) (168,065) (2,851,689)
------------ ----------- -------------
Deferred
Federal.......................................... (267,373) (38,479) (34,541)
State............................................ (86,900) (65,175) (7,124)
------------ ----------- -------------
(354,273) (103,654) (41,665)
------------ ----------- -------------
Total.......................................... $ (578,360) $ (271,719) $ (2,893,354)
------------ ----------- -------------
------------ ----------- -------------
</TABLE>
Income tax payments made for the year ended December 31, 1995, and for the
nine months ended September 30, 1995 and 1996 (unaudited), were $584,674 and
$237,650 and $50,100, respectively.
F-55
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES: (CONTINUED)
The following is a reconciliation of the statutory federal income tax
benefit to the recorded effective tax (provision) benefit for year ended
December 31, 1995, and the nine months ended September 30, 1995 and 1996
(unaudited):
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------
1995 1995 1996
------------ ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Statutory federal taxes, at 34% of pretax.......... $ 125,576 $ 94,182 $ (2,404,474)
State provision.................................... (238,800) (179,100) (504,073)
Non-deductible depreciation and amortization....... (549,748) (412,311) (203,097)
Other.............................................. 84,612 225,510 218,290
------------ ----------- -------------
Effective tax benefit (provision)................ $ (578,360) $ (271,719) $ (2,893,354)
------------ ----------- -------------
------------ ----------- -------------
</TABLE>
The Company has incurred net operating losses which are available as
carryforwards to offset future taxable income. At December 31, 1995 and
September 30, 1996 (unaudited) net operating losses for income tax reporting
purposes are approximately $5.2 million and $3.9 million, respectively, and
expire between 2008 and 2010. For losses incurred prior to December 20, 1994,
utilization is limited to taxable gains recognized through 1998 on the sale of
assets which had "built-in gains" in 1994. A full valuation allowance on all
losses has been reflected in the accompanying balance sheet due to uncertainties
relating to the utilization of these net operating losses.
Total deferred tax assets and liabilities and the sources of the differences
between financial accounting and tax bases of the Company's assets and
liabilities which give rise to the deferred tax assets and liabilities are as
follows as of December 31, 1995 and September 30, 1996 (unaudited):
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ 2,128,403 $ 1,612,389
Accrued liabilities....................................... 560,942 560,483
Accrued environmental remediation......................... 147,814 68,141
Bad debt reserves......................................... 134,517 187,101
Valuation allowance....................................... (2,128,403) (1,612,389)
-------------- ---------------
843,273 815,725
-------------- ---------------
Deferred tax liabilities:
Property and equipment.................................... 5,487,547 5,501,664
Prepaid expenses.......................................... 8,464 8,464
Officer bonuses........................................... -- --
Other..................................................... 180,262 180,799
-------------- ---------------
5,676,273 5,690,927
-------------- ---------------
Net deferred tax liability.............................. $ 4,833,000 $ 4,875,202
-------------- ---------------
-------------- ---------------
</TABLE>
F-56
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. MANAGEMENT STOCK OPTION PLAN:
On December 20, 1994, Holding instituted a Management Stock Option Plan
("the Stock Option Plan") under which nonqualified incentive and performance
stock options were granted to certain consultants, directors and employees of
the Company. Each option entitles the grantee to purchase one share of common
stock at a certain price per share, based on the estimated fair value of the
shares at the date of grant. The maximum authorized number of shares of common
stock which may be issued under the Stock Option Plan is 360,000. All options
expire ten years after the date of grant or at the time the grantee ceases to be
a full-time employee, director or consultant.
Options are only exercisable when vested. Incentive options vest 20% every
year. Performance options vest over a five year period based on the Company
achieving certain defined levels of earnings performance or upon approval of the
Board of Directors.
The following options were outstanding and exercisable:
<TABLE>
<CAPTION>
OPTION
PRICE/SHARE INCENTIVE PERFORMANCE TOTAL
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Total outstanding at December 31, 1994........................... $ 10.00 170,660 170,660 341,320
Granted in 1995.................................................. $ 10.00 6,840 6,840 13,680
--------- ----------- ---------
Total outstanding at December 31, 1995........................... 177,500 177,500 355,000
--------- ----------- ---------
--------- ----------- ---------
Exercisable at December 31, 1995................................. 35,500 35,500 71,000
--------- ----------- ---------
--------- ----------- ---------
Granted, January 1, 1996 to September 30, 1996 (unaudited)....... $ 12.50 25,000 25,000 50,000
--------- ----------- ---------
Exercised, March 27, 1996 (unaudited)............................ $ 10.00 (7,700) (7,700) (15,400)
--------- ----------- ---------
Expired, January 1, 1996 to September 30, 1996 (unaudited)....... $ 10.00 (32,266) (32,266) (64,532)
--------- ----------- ---------
Total outstanding at September 30, 1996 (unaudited).............. 162,534 162,534 325,068
--------- ----------- ---------
--------- ----------- ---------
Exercisable at September 30, 1996 (unaudited).................... 32,507 32,507 65,014
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
9. PROFIT SHARING PLAN:
The Revere National Corporation 401(k) profit sharing plan and trust (the
Plan) covers eligible employees of the Company. Contributions made to the Plan
include an employee elected salary deduction amount and Company matching
contributions. The Company's 401(k) expense for the periods ended December 31,
1995 and September 30, 1995 and 1996 (unaudited), was $133,176, and $100,201 and
$113,984, respectively.
10. NOTES RECEIVABLE:
Notes receivable from management stockholders represent notes due in
connection with the issuance of Holding stock as discussed in Note 1. The notes
bear interest at the same rate as the Term A Note discussed in Note 6 and are
due on December 20, 2004.
11. TREASURY STOCK (UNAUDITED):
In connection with the termination of two employees, one of which was an
officer and director of the Company, the Company purchased 150,751 shares of its
common stock at a cost of $1,653,737 during the
F-57
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. TREASURY STOCK (UNAUDITED): (CONTINUED)
nine months ended September 30, 1996 (unaudited). These transactions were
completed primarily in exchange for a note payable, as described in Note 6.
12. COMMITMENTS:
The Company leases office space and equipment under the terms of operating
leases agreements. Lease expense of approximately $236,300, $167,600 and
$230,900 was recorded for the periods ended December 31, 1995, and September 30,
1995 and 1996 (unaudited), respectively.
Future minimum lease payments under capital and operating leases and the
present value of the net minimum lease payments as of December 31, 1995 and
September 30, 1996 (unaudited), are as follows:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
AS OF DECEMBER 31, 1995 1996
----------------------- ----------------------
CAPITAL OPERATING CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES LEASES LEASES
- ------------------------------------------------------------- ----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
1996......................................................... $ 288,394 $ 227,776 $ 52,221 $ 71,177
1997......................................................... 235,066 222,770 269,064 246,528
1998......................................................... 186,610 219,778 227,160 210,930
1999......................................................... 98,724 128,224 111,323 124,575
2000......................................................... 9,274 88,164 21,484 86,164
2001 and thereafter.......................................... -- -- -- 18,420
----------- ---------- ---------- ----------
Minimum lease payments....................................... $ 818,068 $ 886,712 $ 681,252 $ 757,794
---------- ----------
---------- ----------
Less -- Amount representing interest and executory costs..... (113,415) (78,574)
----------- ----------
Present value of minimum lease payments...................... $ 704,653 $ 602,678
----------- ----------
----------- ----------
</TABLE>
Additionally, substantially all of the Company's sign structures are located
on land which is leased from unrelated parties for periods ranging from one to
ten years. Generally, these sign site lease agreements permit the Company to
cancel an agreement upon 30 days written notice.
13. MINORITY INTEREST:
In August 1995, Mall Media entered into a 15 year operating agreement with
Vision Digital Communications, LLC ("VDC"), a California limited liability
corporation in which Mall Media holds an 80% investment, to conduct an
interactive kiosk business. Pursuant to this agreement, the initial capital
contributions of two of the minority investors of VDC were $140,000, which
reflected the estimated fair value of assets and properties these two members
contributed to VDC. This amount has been reflected in the consolidated financial
statements as Minority Interest at December 31, 1995. In accordance with the
operating agreement, 100% of the loss during 1995 was allocated to Mall Media.
14. LITIGATION:
The Company is involved in various legal and administrative actions evolving
from its conduct of routine operations. These actions include resolutions of
disputes with land owners, regulatory compliance issues and personal property
tax assessment issues, the outcome of which cannot currently be determined.
Management does not believe that the outcome of these actions will have a
material adverse effect on the Company.
F-58
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. UNAUDITED PRO FORMA SUMMARY RESULTS OF OPERATIONS:
The unaudited pro forma summary consolidated results of operations for the
year ended December 31, 1995 and the nine months ended September 30, 1996
(unaudited), assuming the acquisitions executed during 1995 and 1996 (as
described in Notes 3 and 16) and the sale of the Company's operations in Texas
(as described in Note 17) had been consummated on January 1, 1995, are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Net revenues.................................................... $ 34,688 $ 25,400
------------ -------------
------------ -------------
Net loss........................................................ $ (287) $ (1,395)
------------ -------------
------------ -------------
</TABLE>
16. SUBSEQUENT EVENTS:
On February 2, 1996, the Company acquired certain assets of Mass Transit
Communications ("MTC") and Mass Transit Communications -- Wallscapes ("MTC-W")
for $2,075,000. This purchase, which is effective February 1, 1996, allows the
Company to exclusively sell and service advertising space in and on municipal
transit systems of the cities of Baltimore and Annapolis, Maryland.
In March 1996, the Board of Directors approved a restructuring of the
Company's operations at Mall Media. The ultimate impact of the restructuring has
not yet been determined; however, management does not believe the restructuring
will have a material impact on the Company's financial position or results of
operations in 1996.
17. EVENTS SUBSEQUENT TO THE DATE OF THE AUDITORS' REPORT (UNAUDITED):
On July 1, 1996, the Company sold substantially all of its assets associated
with the Company's operations in San Antonio, Texas, through a third-party
intermediary with the intention of completing a like-kind exchange of assets by
December 28, 1996. Associated with this sale was the establishment of an escrow
account whereby the proceeds of the sale ($11,000,000) were deposited and can
only be withdrawn for the purchase of like-kind property or to pay down existing
senior debt. If the purchase of like-kind property is successfully completed
within 180 days of the sale, the Company may defer the gain, for income tax
purposes, on the property sold. The gain is estimated to be approximately
$5,000,000.
On August 30, 1996, the Company sold substantially all of its assets
associated with operations in Corpus Christi and Laredo, Texas, in a like-kind
exchange transaction, similar to that discussed above, with the intentions of
completing a like-kind exchange of property by February 28, 1997. The proceeds
from the sale also were deposited with a third-party intermediary totaling
$9,300,000. The gain, for income tax purposes, if the purchase of like-kind
property is not successfully completed within 180 days of the sale, is estimated
to be approximately $4,000,000.
F-59
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE NEW NOTES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE NEW NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information.......................... 3
Prospectus Summary............................. 4
Risk Factors................................... 14
The Transactions............................... 18
Use of Proceeds................................ 20
The Exchange Offer............................. 20
Capitalization................................. 27
Pro Forma Financial Information................ 28
Selected Consolidated Financial and Operating
Data......................................... 35
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 37
Business....................................... 44
Management..................................... 54
Certain Transactions........................... 57
Principal Stockholders......................... 58
Description of Notes........................... 60
Description of Indebtedness and Other
Commitments.................................. 83
Certain United States Federal Income Tax
Consequences................................. 85
Plan of Distribution........................... 87
Legal Matters.................................. 88
Experts........................................ 88
Index to Financial Statements.................. F-1
</TABLE>
[LOGO]
UNIVERSAL OUTDOOR, INC.
OFFER TO EXCHANGE ITS
9 3/4% SERIES B SENIOR
SUBORDINATED
EXCHANGE NOTES
DUE 2006
FOR ANY AND ALL OF ITS
OUTSTANDING 9 3/4% SERIES B
SENIOR SUBORDINATED NOTES
DUE 2006
---------------------
PROSPECTUS
---------------------
March 19, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
offering described in this Registration Statement. All amounts shown are
estimates, except the SEC registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 30,304
Printing and Engraving Expenses.................................. 50,000
Legal Fees and Expenses.......................................... 75,000
Accounting Fees and Expenses..................................... 50,000
Blue Sky Fees and Expenses....................................... 5,000
Exchange Agent Fees and Expenses................................. 15,000
Miscellaneous.................................................... 25,000
---------
$ 250,304
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Certain provisions of the Illinois Business Corporation Act of 1983, as
amended, provide that Universal Outdoor, Inc. ("the Registrant") may, and in
some circumstances must, indemnify the directors and officers of the Registrant
and of each subsidiary company against liabilities and expenses incurred by such
person by reason of the fact that such person was serving in such capacity,
subject to certain limitations and conditions set forth in the statute.
The By-laws of the Registrant generally provide that the Registrant shall
indemnify its officers and directors if such person acted in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interests of
the Registrant, and, with respect to any criminal action or proceeding, if such
person had no reasonable cause to believe his or her conduct was unlawful.
Indemnification shall be provided only upon a determination that such
indemnification is proper in the circumstances because the person has met the
applicable standard of conduct. Such determination shall be made by the
Registrant as authorized by Section 8.75(d) of the Illinois Business Corporation
Act of 1983, as amended, or any successor provisions. Expenses may be advanced
to the indemnified party upon receipt of an undertaking by, or on behalf of,
such person to repay such amounts if it is ultimately determined that he or she
is not entitled to be indemnified by the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On December 16, 1996, the Registrant issued and sold to Bear, Stearns & Co.,
Inc. and BT Securities Corporation (the "Series B Initial Purchasers") $100
million principal amount of 9 3/4% Series B Senior Subordinated Notes due 2006
(sold with a 3% discount to the Series B Initial Purchasers). This sale to the
Series B Initial Purchasers was exempt from registration as an exempt private
placement under Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------
<C> <S>
2.1 Plan and Agreement of Merger, dated November 18, 1993, between the Company
and Universal Outdoor II, Inc. (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 Outdoor Advertising Holdings, Inc. dated August 27, 1996
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------
<C> <S>
2.3* Option and Asset Purchase Agreement between the Company and the
Memphis/Tunica Sellers dated September 12, 1996
2.4** Asset Purchase Agreement by and among Mountain Media, Inc., d/b/a Iowa
Outdoor Displays, Robert H. Lambert and the Company dated September 12,
1996
2.5* Asset Purchase Agreement between the Company and The Chase Company dated
September 11, 1996
2.6** Stock Purchase Agreement, dated as of November 22, 1996, among Revere, the
Company and the Stockholders of Revere
2.7** Asset Purchase Agreement, dated as of December 10, 1996, by and among
Matthew, Matthew Acquisition Corp. and the Company
3.1 Third Amended and Restated Articles of Incorporation (filed as Exhibit 3.1
to Amendment No. 2 to the Company's Registration Statement on Form S-1
(Commission File No. 333-12427) and incorporated herein by reference)
3.2 Second Amended and Restated Bylaws (filed as Exhibit 3.2 to Amendment No.
2 to the Company's Registration Statement on Form S-1 (Commission File
No. 333-12427) and incorporated herein by reference)
4.1** Indenture, dated as of December 16, 1996, between the Company and United
States Trust Company of New York, as Trustee
4.2** Purchase Agreement, dated as of December 11, 1996, among the Company and
the Initial Purchasers relating to the Old Notes
4.3** Form of New Notes
4.4** Registration Rights Agreement, dated as of December 16, 1996, by and among
the Company and the Initial Purchasers
5.1** Opinion of Winston & Strawn
10.1** Consolidated Credit Agreement dated October 31, 1996, among the Company,
certain financial institutions, Bankers Trust Company, as Agent and
LaSalle National Bank, as Co-Agent
10.2 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)
10.3** Indenture, dated as of October 16, 1996 between the Company and United
States Trust Company of New York as Trustee
12.1** Computation of Ratios
21.1** Subsidiaries of the Company
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 Arthur Andersen LLP
23.5 Consent of Winston & Strawn (contained in Exhibit 5.1)
24.1 Power of Attorney (included on Signature Page)
25.1** Statement of eligibility of Trustee on Form T-1
99.1** Form of Letter of Transmittal
99.2** Form of Notice of Guaranteed Delivery
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------
<C> <S>
99.3** Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees
99.4** Form of Letter from Registered Holders to Clients
</TABLE>
- ------------------------
* Filed with Amendment No. 2 to Parent's Registration Statement on Form S-1,
dated October 9, 1996 (Commission File No. 333-12457) and incorporated
herein by reference
** Previously Filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that:
Insofar as indemnification of liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on the 19th day of March, 1997.
UNIVERSAL OUTDOOR, INC.
By: /s/ PAUL G. SIMON *
-----------------------------------------
Daniel L. Simon
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
The undersigned directors and officers of Universal Outdoor, Inc. do hereby
constitute and appoint Brian T. Clingen and Paul G. Simon, and each of them,
with full power of substitution, our true and lawful attorneys-in-fact and
agents to do any and all acts and things in our name and behalf in our
capacities as directors and officers, and to execute any and all instruments for
us and in our names in the capacities indicated below which such person may deem
necessary or advisable to enable Universal Outdoor, Inc. to comply with the
Securities Act of 1933 (the "Act"), as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for us, or any of us, in the capacities indicated below and
any and all amendments (including pre-effective and post-effective amendments or
any other registration statement filed pursuant to the provisions of Rule 462(b)
under the Act) hereto; and we do hereby ratify and confirm all that such person
or persons shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President and Chief
/s/ PAUL G. SIMON * Executive Officer
- ------------------------------ (Principal Executive March 19, 1997
Daniel L. Simon Officer) and Director
Vice President and Chief
/s/ PAUL G. SIMON * Financial Officer
- ------------------------------ (Principal Financial and March 19, 1997
Brian T. Clingen Accounting Officer) and
Director
/s/ PAUL G. SIMON *
- ------------------------------ Director March 19, 1997
Michael J. Roche
/s/ PAUL G. SIMON *
- ------------------------------ Director March 19, 1997
Michael B. Goldberg
/s/ PAUL G. SIMON *
- ------------------------------ Director March 19, 1997
Frank K. Bynum, Jr.
* Paul G. Simon executed for such person pursuant to a Power of Attorney
appointing him attorney-in-fact for such person filed with the Commission
pursuant to Amendment No. 1 to this Registration Statement.
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------
<C> <S>
2.1 Plan and Agreement of Merger, dated November 18, 1993, between the Company
and Universal Outdoor II, Inc. (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 Outdoor Advertising Holdings, Inc. 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 by and among Mountain Media, Inc., d/b/a Iowa
Outdoor Displays, Robert H. Lambert and the Company dated September 12,
1996
2.5* Asset Purchase Agreement between the Company and The Chase Company dated
September 11, 1996
2.6** Stock Purchase Agreement, dated as of November 22, 1996, among Revere, the
Company and the Stockholders of Revere
2.7** Asset Purchase Agreement, dated as of December 10, 1996, by and among
Matthew, Matthew Acquisition Corp. and the Company
3.1 Third Amended and Restated Articles of Incorporation (filed as Exhibit 3.1
to Amendment No. 2 to the Company's Registration Statement on Form S-1
(Commission File No. 333-12427) and incorporated herein by reference)
3.2 Second Amended and Restated Bylaws (filed as Exhibit 3.2 to Amendment No.
2 to the Company's Registration Statement on Form S-1 (Commission File
No. 333-12427) and incorporated herein by reference)
4.1** Indenture, dated as of December 16, 1996, between the Company and United
States Trust Company of New York, as Trustee
4.2** Purchase Agreement, dated as of December 11, 1996, among the Company and
the Initial Purchasers relating to the Old Notes
4.3** Form of New Notes
4.4** Registration Rights Agreement, dated as of December 16, 1996, by and among
the Company and the Initial Purchasers
5.1** Opinion of Winston & Strawn
10.1** Consolidated Credit Agreement dated October 31, 1996, among the Company,
certain financial institutions, Bankers Trust Company, as Agent and
LaSalle National Bank, as Co-Agent
10.2 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)
10.3** Indenture, dated as of October 16, 1996 between the Company and United
States Trust Company of New York as Trustee
12.1** Computation of Ratios
21.1** Subsidiaries of the Company
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 Arthur Andersen LLP
23.5 Consent of Winston & Strawn (contained in Exhibit 5.1)
24.1 Power of Attorney (included on Signature Page)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------
<C> <S>
25.1** Form of Statement of eligibility of Trustee on Form T-1
99.1** Form of Letter of Transmittal
99.2** Form of Notice of Guaranteed Delivery
99.3** Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees
99.4** Form of Letter from Registered Holders to Clients
</TABLE>
- ------------------------
* Filed with Parent's Registration Statement on Form S-1, dated October 9,
1996 (Commission File No. 333-12457) and incorporated herein by reference
** Previously Filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 28, 1997
relating to the consolidated financial statements of Universal Outdoor, Inc. for
each of the three years in the period ended December 31, 1996 and our report
dated June 14, 1996 relating to the statement of revenue and expenses of Ad-Sign
for the year ended December 31, 1995, which appear in such Prospectus. We also
consent to the references to us under the headings "Experts" and "Selected
Consolidated Financial and Operating Data" in such Prospectus. However, it
should be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Consolidated Financial and Operating Data."
Price Waterhouse LLP
Chicago, Illinois
March 18, 1997
<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 consolidated financial
statements of NOA Holding Company included in this Registration Statement of
Universal Outdoor, Inc. for the exchange of $100,000,000 of 9 3/4% Series B
Senior Subordinated Notes due 2006 for $100,000,000 of 9 3/4% Series B Senior
Subordinated Exchange Notes due 2006, of our report dated July 21, 1995.
Ernst & Young LLP
Minneapolis, Minnesota
March 18, 1997
<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, except for Note 16 as to which the
date is August 27, 1996, with respect to the financial statements of POA
Acquisition Corporation included in Amendment No. 2 to the Registration
Statement (Form S-1 No. 333-21717) and the related Prospectus of Universal
Outdoor, Inc. for the registration of $100,000,000 of 9 3/4% Series B Senior
Subordinated Exchange Notes due 2006.
Ernst & Young LLP
March 18, 1997
Orlando, Florida
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registation statement.
Arthur Andersen LLP
Baltimore, Maryland,
March 17, 1997
