<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1997
REGISTRATION NO. 33-93852
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST-EFFECTIVE AMENDMENT NO. 6
TO
FORM S-1*
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
UNIVERSAL OUTDOOR HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7312 36-3766705
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification
No.)
</TABLE>
311 S. WACKER DRIVE, SUITE 6400
CHICAGO, ILLINOIS 60606
(312) 431-0822
(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.
311 S. WACKER DRIVE, SUITE 6400
CHICAGO, ILLINOIS 60606
(312) 344-4140
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
COPY TO:
Leland E. Hutchinson
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
(312) 558-5600
----------------
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. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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* THIS POST-EFFECTIVE AMENDMENT NO. 6 COMPLIES WITH THE REQUIREMENTS OF FORM
S-3.
<PAGE>
PROSPECTUS SUPPLEMENT DATED JULY , 1997
24,200 Warrants to Purchase Common Stock
387,200 Shares of Common Stock
UNIVERSAL OUTDOOR HOLDINGS, INC.
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
Each capitalized term used in this Prospectus Supplement has the respective
meaning ascribed to such term in the Prospectus dated July , 1997 attached
hereto.
SELLING SECURITYHOLDERS
As of the date hereof, the Noteholder Warrants are held in the form of the
Global Warrant registered in the name of Cede & Co., the nominee for the
Depository. The following is a list of the Selling Securityholders and number of
Securities each such Selling Securityholder owns as of the date of this
Prospectus Supplement:
<TABLE>
<CAPTION>
NUMBER OF SHARES
SELLING SECURITYHOLDERS OF COMMON STOCK(1)
- ------------------------------------------------------------------------------------------- ---------------------
<S> <C>
State Street............................................................................... 171,200
</TABLE>
- ------------------------
(1) The shares of Common Stock were issued upon exercise of the Noteholder
Warrants owned by each Selling Securityholder.
METHOD OF SALE
The Selling Securityholders may sell any or all the Securities through
underwriters or dealers, through brokers or other agents, or directly to one or
more purchasers in one or more transactions in the over-the-counter market, if
such a market develops, or in privately negotiated transactions, or in a
combination of such transactions. Such transactions may be effected by the
Selling Securityholders at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices, or at
fixed prices, which may be changed. Such underwriters, dealers, brokers or other
agents may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders and may receive commissions from
the purchasers of the Securities for whom they act as agent.
Any Selling Securityholder and any dealer, broker or other agent selling
Securities for the Selling Securityholders or purchasing any Securities from a
Selling Securityholder for purposes of resale may be deemed to be an underwriter
under the Securities Act and any profit from the sale of the Securities or any
compensation received by such Selling Securityholder, dealer, broker or other
agent may be deemed underwriting compensation. Neither the Company nor the
Selling Securityholders can presently estimate the amount of such compensation.
The Company knows of no existing arrangements between any Selling Securityholder
and any other Selling Securityholder, underwriter, dealer, or broker or other
agent.
The Company will issue and sell the shares of Common Stock issuable upon
exercise of the Noteholder Warrants, from time to time, to registered holders of
the Noteholder Warrants upon the exercise thereof.
To comply with certain states' securities laws, if applicable, the
Securities may be sold in such states only through registered or licensed
brokers or dealers. In addition, in certain states the Securities may not be
sold 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.
<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 REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
PROSPECTUS
24,200 WARRANTS TO PURCHASE COMMON STOCK
387,200 SHARES OF COMMON STOCK
UNIVERSAL OUTDOOR HOLDINGS, INC.
---------
This prospectus relates to the offer and sale by the Selling Securityholders
(as defined below) of (i) 24,200 outstanding warrants (the "Noteholder
Warrants"), each of which entitles the holder thereof to purchase sixteen shares
of common stock, par value $.01 per share ("Common Stock"), of Universal Outdoor
Holdings, Inc., a Delaware corporation (the "Company"), and (ii) 387,200 shares
of Common Stock issuable by the Company upon exercise of the Noteholder Warrants
(together with the Noteholder Warrants, the "Securities"). See "Selling
Securityholders and Plan of Distribution." Of the 62,500 Noteholder Warrants
originally offered for sale, 38,300 Noteholder Warrants were exercised in
exchange for Common Stock pursuant to and the Common Stock was sold pursuant to
a Prospectus Supplement dated July 25, 1996. This Prospectus also relates to the
offer and sale by the Company of 387,200 shares of Common Stock issuable upon
exercise of the Noteholder Warrants.
The Noteholder Warrants have been issued pursuant to a Warrant Agreement
(the "Warrant Agreement"), dated as of June 30, 1994, between the Company and
the Warrant Agent (as defined herein). The Noteholder Warrants entitle the
holders thereof to purchase, at an exercise price of $.000625 per share, an
aggregate of 1,000,000 shares of Common Stock. Prior to July 1, 1999, the
Noteholder Warrants are exercisable only upon certain Trigger Events (as defined
herein under "Description of Noteholder Warrants"), including an Initial Public
Offering, a Disposition, a Non-Surviving Combination and a Change of Control (in
each case, as defined herein under "Description of Noteholder Warrants"). The
Company completed an Initial Public Offering on July 26, 1996 of 4,630,000
shares of its Common Stock (the "Offering"). See "Description of Noteholder
Warrants -- Exercise of Noteholder Warrants". The Noteholder Warrants will
expire on July 1, 2004. See "Description of Noteholder Warrants."
The Noteholder Warrants and the shares of Common Stock issuable upon
exercise of the Noteholder Warrants to which this Prospectus relates may be sold
by the holders thereof (the "Selling Securityholders") from time to time through
underwriters or dealers, through brokers or other agents, or directly to one or
more purchasers, at market prices prevailing at the time of sale or at prices
otherwise negotiated. See "Selling Securityholders and Plan of Distribution."
The Company will receive no proceeds from the sale by any Selling Securityholder
of the Noteholder Warrants or the shares of Common Stock issuable upon exercise
of the Noteholder Warrants, but will receive the exercise price from Noteholder
Warrants that are exercised for shares of Common Stock, if any. If all
Noteholder Warrants are exercised, the aggregate exercise price payable to the
Company will be $625. The Company will pay all expenses incident to the
registration of the Securities to which this Prospectus relates, except for
commissions of brokers or dealers. The Selling Securityholders and any
broker-dealer, agent or underwriter that participates with any Selling
Securityholder in the distribution of the Noteholder Warrants or the shares of
Common Stock issuable upon exercise of the Noteholder Warrants may be deemed to
be an "underwriter" within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"), and any commissions received by them and any profit on
the resale of such Securities purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Selling Securityholders
and Plan of Distribution" for indemnification arrangements between the Company
and the Selling Securityholders.
There is currently no public market for the Noteholder Warrants and there
can be no assurance that an active public market for the Noteholder Warrants
will develop. The Common Stock is quoted on the Nasdaq National Market under the
symbol "UOUT."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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 JULY , 1997.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED HEREIN, THE "COMPANY" MEANS
UNIVERSAL OUTDOOR HOLDINGS, INC., TOGETHER WITH ITS CONSOLIDATED SUBSIDIARIES,
UNLESS THE CONTEXT OTHERWISE REQUIRES. "UOI" REFERS TO UNIVERSAL OUTDOOR, INC.
AND ITS CONSOLIDATED SUBSIDIARIES, WHICH CONSTITUTE THE OPERATING SUBSIDIARIES
OF THE COMPANY. THE TERM "OCTOBER OFFERINGS" REFERS TO THE OFFERING BY UOI OF
$225 MILLION OF ITS 9 3/4% SENIOR SUBORDINATED NOTES DUE 2006 (THE "OCTOBER
NOTES") AND THE OFFERING BY THE COMPANY OF 6.5 MILLION SHARES OF ITS 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
ACQUISITION (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. THE TERM
"DECEMBER OFFERING" REFERS TO THE OFFERING BY UOI OF $100 MILLION OF ITS 9 3/4%
SENIOR SUBORDINATED NOTES DUE 2006 (THE "DECEMBER NOTES") WHICH NOTES WERE
SUBSEQUENTLY EXCHANGED IN MAY, 1997 FOR $100,000,000 9 3/4% SERIES B SENIOR
SUBORDINATED EXCHANGE NOTES DUE 2006 WITH IDENTICAL TERMS TO THE DECEMBER NOTES
IN A TRANSACTION REGISTERED UNDER THE SECURITIES ACT. THE TERM "MARKET" REFERS
TO THE GEOGRAPHIC AREA CONSTITUTING A METROPOLITAN STATISTICAL AREA DELINEATED
BY THE U.S. CENSUS BUREAU. "EBITDA" HAS THE MEANING SET FORTH IN FOOTNOTE (5) ON
PAGE 9 HEREOF AND "EBITDA MARGIN" HAS THE MEANING SET FORTH IN FOOTNOTE (6) ON
PAGE 9 HEREOF.
THE COMPANY
The Company is a leading outdoor advertising company operating approximately
32,929 advertising display faces in three distinct regions, including 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 EBITDA 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 $75.7 million, respectively. The
Company believes that its 1996 EBITDA 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. There can be no assurance that the Company's future net revenues and
EBITDA Margins will equal or exceed that which have been achieved to date. In
addition, the Company has historically had net losses and has substantial
indebtedness. See "Risk Factors -- Substantial Indebtedness of the Company;
Potential Inability to Service Indebtedness" and
"--Prior Period Losses."
3
<PAGE>
The Acquisitions have significantly expanded and diversified the Company's
presence into new major metropolitan markets. The following table sets forth, as
of April 30, 1997, 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% 655 -- 3,609 4,264
Minneapolis/St. Paul... 17,320 9.8 455 1,339 -- 1,794
Indianapolis........... 10,533 6.0 257 1,106 101 1,994
Milwaukee.............. 4,818 2.7 261 -- 338 599
Des Moines............. 3,539 2.0 86 578 9 673
Evansville............. 3,435 1.9 278 699 -- 977
Dallas................. 1,261 0.8 254 -- 1,210 1,464
SOUTHEAST:
Orlando................ 25,145 14.2 808 1,082 -- 1,890
Jacksonville........... 8,528 4.9 448 788 -- 1,236
Ocala.................. 5,240 3.0 859 204 -- 1,063
Memphis/Tunica......... 14,705 8.3 653 1,185 99 2,457
Chattanooga............ 5,470 3.1 333 648 -- 981
Myrtle Beach........... 9,495 5.4 711 472 -- 1,183
Atlantic Coast area
(FL).................. 5,132 2.9 664 -- 664
Gulf Coast area (FL)... 1,712 1.0 457 -- -- 457
EAST COAST:
Philadelphia........... 13,939 7.9 357 2,085 -- 2,634
Washington, D.C........ 6,289 3.6 86 586 -- 672
Salisbury.............. 3,435 1.9 394 479 -- 873
Wilmington............. 4,576 2.6 159 917 45 1,121
Baltimore.............. 2,295 1.3 209 1,234 -- 3,360
Mall Media............. 2,636 1.5 -- -- -- 1,582
Northern NJ............ 4,256 2.4 162 5 6 173
Metro New York......... 3,375 1.9 42 364 -- 406
Hudson Valley.......... 1,312 0.7 125 260 27 412
---------- ----- --------- -------- ------- -------
Total................ $176,611 100.0% 8,713 14,031 5,444 32,929(1)
---------- ----- --------- -------- ------- -------
---------- ----- --------- -------- ------- -------
</TABLE>
- ------------------------
(1) Includes 530 transit display faces located in Indianapolis, 192 bus shelters
in Philadelphia, 1,917 transit display faces in Baltimore, 520 transit
display faces in Memphis and 1,582 kiosk displays in malls throughout the
United States.
4
<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.
- INCREASE MARKET PENETRATION. The Company seeks to expand operations
within its existing markets through new construction and acquisitions of
additional advertising display faces in its existing markets.
- PURSUE STRATEGIC ACQUISITIONS. The Company seeks to grow by acquiring
additional advertising display faces in new, closely proximate markets which
allow the Company to capitalize on the operating efficiencies and cross-market
sales opportunities associated with operating in multiple markets within
distinct regions.
- 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.
- 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 EBITDA Margin, which it
believes to be among the highest in the industry.
- 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.
The Company was incorporated in Delaware in 1991 and its principal executive
office is located at 311 S. Wacker Drive, Chicago, Illinois 60606, and its
telephone number is (312) 431-0822.
RECENT ACQUISITIONS
Consistent with its operating strategy, the Company has 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, create 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.
THE POA ACQUISITION. In October 1996, the Company acquired the outstanding
capital stock of Outdoor Advertising Holdings, Inc. ("OAH") for approximately
$240 million in cash, pursuant to a merger of a subsidiary of the Company with
and into OAH (the "POA Acquisition"). 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.
5
<PAGE>
THE REVERE ACQUISITION. In December 1996, the Company 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. In September 1996, the Company, through a
newly-formed subsidiary, agreed to acquire a total of approximately 2,018
advertising display faces consisting of bulletins and posters located in and
around Memphis, Tennessee and Tunica County, Mississippi (the "Memphis/Tunica
Acquisition"). The Memphis/Tunica Acquisition was subsequently consummated in
January 1997 for a purchase price of approximately $71 million plus 100,000
shares of the Company's Common Stock.
THE MATTHEW ACQUISITION. In December 1996, the Company agreed to acquire
certain of the assets of Matthew Outdoor Advertising Acquisition Co. L.P.
("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, consummated in January 1997, the Company acquired a
total of approximately 1,035 advertising display faces located in three markets,
including metro New York, northern New Jersey and Hudson Valley.
THE ADDITIONAL ACQUISITIONS. In September 1996, the Company purchased
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.
For more information on these acquisitions, see "The Transactions."
DESCRIPTION OF SECURITIES
On June 30, 1994, the Company issued and sold to Bear, Stearns & Co. Inc. as
the Initial Purchaser (the "Initial Purchaser") 50,000 Units (the "Units")
consisting of $50,000,000 principal amount at maturity of 14% Series A Senior
Secured Discount Notes due 2004 (the "Old Notes") and 50,000 Noteholder Warrants
for an aggregate offering price of approximately $25.4 million (the "Warrant
Offering"). In connection with the Warrant Offering, Bear, Stearns & Co. Inc.,
in its individual capacity and not as Initial Purchaser, received compensation
in the form of 12,500 Noteholder Warrants. Each Unit consisted of $1,000
principal amount at maturity of the Old Notes and one Noteholder Warrant, and
the Old Notes and Noteholder Warrants were immediately detachable and separately
transferable, subject to compliance with applicable federal and state securities
laws. The sale to the Initial Purchaser was exempt from registration under the
Securities Act of 1933 (the "Securities Act"). On December 9, 1994, in a
transaction registered under the Securities Act, the Company issued $50,000,000
principal amount at maturity of its 14% Senior Secured Discount Notes due 2004
(the "Existing Company Notes") in exchange for all of the issued and outstanding
Old Notes. The 24,200 Noteholder Warrants to which this Prospectus relates are
the Noteholder Warrants issued in the Warrant Offering and the Noteholder
Warrants issued to Bear, Stearns & Co. Inc. in its individual capacity.
<TABLE>
<S> <C>
Securities.................................. 24,200 Noteholder Warrants to purchase Common
Stock, each of which entitles the holder
thereof to purchase sixteen shares of Common
Stock for a purchase price of $.000625 per
share, and 387,200 shares of Common Stock
issuable upon exercise of the Noteholder
Warrants. See "Description of Noteholder
Warrants -- General."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Exercise of Noteholder Warrants............. Prior to July 1, 1999, the Noteholder Warrants
are exercisable only upon certain Trigger
Events (as defined herein under "Description
of Noteholder Warrants"), including an Initial
Public Offering, a Disposition, a
Non-Surviving Combination and a Change of
Control (in each case, as defined herein under
"Description of Noteholder Warrants"). The
Company completed an Initial Public Offering
of 4,630,000 shares of its Common Stock
(including 930,000 shares sold pursuant to
exercise of underwriters' over-allotment
options) on July 26, 1996 and therefore, the
Noteholder Warrants are currently exercisable.
Of the 62,500 Noteholder Warrants originally
offered for sale, 38,300 Noteholders Warrants
were exercised in exchange for Common Stock
pursuant to and the Common Stock was sold
pursuant to a Prospectus Supplement dated July
25, 1996. The Noteholder Warrants will expire
on July 1, 2004. See "Description of
Noteholder Warrants -- Exercise of Noteholder
Warrants."
Anti-Dilution............................... The number of shares of Common Stock issuable
upon exercise of the Noteholder Warrants is
subject to certain anti-dilution adjustments.
See "Description of Noteholder Warrants --
Anti-Dilution Adjustments."
</TABLE>
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
The Securities may be sold from time to time by the Selling Securityholders
through underwriters or dealers, through brokers or other agents, or directly to
one or more purchasers at market prices then prevailing at the time of sale or
at prices otherwise negotiated. The Company has agreed to bear the expenses
incurred in connection with the registration of the Securities, except for
commissions of brokers or dealers, and to indemnify the Selling Securityholders
against certain liabilities, including liabilities under the Securities Act. See
"Selling Securityholders and Plan of Distribution."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors to be considered by
prospective investors, including the Company's substantial leverage and possible
inability to service its debt, the potential difficulties the Company may face
in integrating acquisitions and the recent trends in the advertising business
and tobacco regulation that could adversely affect the Company's business.
RECENT DEVELOPMENTS
In February 1997, the Company agreed to acquire the stock of Penn-Baltimore,
Inc. ("Penn") from Lamar Advertising Company ("Lamar") for $46.5 million in cash
(the "Penn Acquisition"). The Penn Acquisition was consummated on June 3, 1997
and the Company acquired approximately 1,450 advertising display faces in the
Baltimore metropolitan area.
In April 1997, the Company agreed to acquire certain assets of Allied
Outdoor Advertising, Inc. ("Allied") for $51.2 million in cash (the "Allied
Acquisition"). Upon consummation of the Allied Acquisition, the Company will
acquire 90 advertising display faces in New York City and New Jersey.
7
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following sets forth summary unaudited consolidated pro forma financial
information derived from the information contained under the caption "Pro Forma
Financial Information" elsewhere in this Prospectus. The summary unaudited pro
forma combined statement of operations for the year ended December 31, 1996
gives effect to (i) the Transactions, (ii) the December Offering and the October
Offerings and the application of the estimated net proceeds therefrom, (iii) the
acquisitions of NOA Holding Company ("Naegele")(1), Ad-Sign, Inc.(2), Image
Media, Inc.(3) and consummation of the Offering 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.
Pro forma financial information has not been updated through March 31, 1997 due
to significant acquisitions occurring in early January 1997. As such, pro forma
statement of operations information would not be significantly different from
actual. The balance sheet at March 31, 1997, included herein, includes the
significant acquisitions occurring in early January 1997.
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(4)......................................................................... $ 176,611
Direct cost of revenues................................................................. 69,988
General and administrative expenses..................................................... 20,848
Depreciation and amortization........................................................... 50,818
Non cash compensation for common stock warrants......................................... 9,000
Operating income........................................................................ 25,957
Interest expense........................................................................ 44,235
Other expense........................................................................... 1,811
Income (loss) before income taxes and extraordinary items............................... (20,089)
OTHER DATA:
EBITDA(5)............................................................................... $ 85,775
EBITDA Margin(6)........................................................................ 48.6%
Deficiency in earnings to cover fixed charges........................................... (20,089)
Ratio of total indebtedness to EBITDA(7)................................................ 5.40
Ratio of EBITDA to total interest(8).................................................... 1.9x
</TABLE>
8
<PAGE>
- ------------------------------
(1) Naegele was purchased in April 1996. In the stock transaction, the Company
acquired approximately 2,550 poster faces and 840 bulletin faces in the
Minneapolis/St. Paul, Minnesota and Jacksonville, Florida markets.
(2) Ad-Sign, Inc. was purchased in January 1996 in an asset transaction. The
Company acquired approximately 160 painted bulletin faces in the Chicago
market.
(3) Image Media, Inc. was purchased in March 1996 in an asset transaction. The
Company acquired approximately 18 painted bulletin and painted wall faces in
the Chicago market.
(4) Net revenues are gross revenues less agency commissions.
(5) "EBITDA" is operating income before depreciation and amortization and other
non cash charges. Management believes that EBITDA, as presented, represents
a useful measure of assessing the performance of the Company's ongoing
operating activities as it reflects the earnings trends of the Company and
is a measure of net cash generated by the normal operating activity of the
business. EBITDA 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 EBITDA 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.
(6) "EBITDA Margin" is EBITDA stated as a percentage of net revenues. Management
believes EBITDA margin, as presented, represents a useful measure of the
percent of net revenues reflected in EBITDA, thereby addressing the cash
used in operations.
(7) Amounts represent (i) total long-term debt divided by (ii) EBITDA.
(8) Amounts represent the ratio of (I) EBITDA to (II) interest expense on total
long-term debt. Management believes this ratio, as presented, represents a
useful measure of funds available to finance cash interest due.
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenues......................... $ 21,435 $ 27,896 $ 28,710 $ 33,180 $ 38,101 $ 84,939 $ 9,332 $ 47,575
Net revenues(1)........................ 18,835 24,681 25,847 29,766 34,148 76,138 8,427 44,008
Direct advertising expenses............ 7,638 10,383 10,901 11,806 12,864 26,468 3,571 18,445
General and administrative expenses.... 3,515 3,530 3,357 3,873 4,645 10,648 1,227 4,401
Depreciation and amortization.......... 5,530 7,817 8,000 7,310 7,402 18,286 2,032 12,859
Non cash compensation for common stock
warrants............................. 9,000
Operating income....................... 2,152 2,951 3,589 6,777 9,237 11,736 1,597 8,303
Interest expense....................... 6,599 9,591 9,299 11,809 12,894 19,567 3,594 10,735
Other (expense) income, net............ (53) 291 (351) (134) (46) (1,398) 11 (182)
Income (loss) before extraordinary
item(2).............................. (4,500) (6,349) (6,061) (5,166) (3,703) (9,229) (2,008) (2,250)
Income (loss) before income tax........ (4,500) (6,349) (9,321) (5,166) (3,703) (35,803) (2,008) (2,250)
Net loss per share..................... (0.59) (0.83) (1.22) (0.67) (0.48) (2.27) (.26) (.09)
Weighted average common and equivalent
shares outstanding................... 7,654 7,654 7,654 7,654 7,654 15,787 7,654 24,096
OTHER DATA:
EBITDA(3).............................. $ 7,682 $ 10,768 $ 11,589 $ 14,087 $ 16,639 $ 39,022 $ 3,629 $ 21,162
EBITDA Margin(4)....................... 40.8% 43.1% 44.8% 47.3% 48.7% 51.3% 43.1% 48.1%
Capital expenditures................... 2,047 2,352 2,004 4,668 5,620 7,178 1,966 3,584
Deficiency in coverage of earnings..... 4,500 6,349 9,321 5,166 3,703 35,803 2,008 2,250
FINANCIAL RATIOS:
Percentage of indebtedness to total
capitalization(5).................... 121.4% 142.8% 186.7% 153.7% 156.8% 60.6% 150.8% 66.5%
Ratio of EBITDA to total interest(6)... 1.2x 1.1x 1.2x 1.2x 1.3x 2.0x 1.0x 2.0x
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................................... $ 2,534 $ (2,358)
Total assets............................................................................. 84,747 790,867
Total long-term debt..................................................................... 120,248 451,220
Common stockholders' equity (deficit).................................................... (40,533) 227,678
</TABLE>
- ----------------------------------
(1) Net revenues are gross revenues less agency commissions.
(2) Extraordinary item represents loss on early extinguishment of debt.
(3) "EBITDA" is operating income before depreciation and amortization and other
non cash charges. Management believes that EBITDA, as presented, represents
a useful measure of assessing the performance of the Company's ongoing
operating activities as it reflects the earnings trends of the Company and
is a measure of net cash generated by the normal operating activity of the
business. EBITDA 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 EBITDA 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) "EBITDA Margin" is EBITDA stated as a percentage of net revenues. Management
believes EBITDA margin, as presented, represents a useful measure of the
percent of net revenues reflected in EBITDA, thereby addressing the cash
used in operations.
(5) Amounts represent (i) total long-term debt divided by (ii) total long-term
debt plus common stockholders' equity (deficit).
(6) Amounts represent the ratio of (I) EBITDA to (II) interest expense on total
long-term debt. Management believes this ratio, as presented, represents a
useful measure of funds available to finance cash interest due.
10
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE
SECURITIES OFFERED BY THIS PROSPECTUS.
SUBSTANTIAL INDEBTEDNESS OF THE COMPANY; POTENTIAL INABILITY TO SERVICE
INDEBTEDNESS. The Company has substantial indebtedness. On a pro forma basis
after giving effect to the Acquisitions and indebtedness incurred as a result of
the Acquisitions and borrowings under the Company's credit facility, the
issuance of the October Notes and the December Notes (collectively, the "Notes")
as of December 31, 1996, the Company's total long-term debt was approximately
$462.8 million, and 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 Common Stock, including the following:
(i) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of the principal of and interest on its indebtedness
and will not be available for other purposes; (ii) the ability of the Company to
obtain financing in the future for working capital needs, capital expenditures,
acquisitions, investments, general corporate purposes or other purposes may be
materially limited or impaired; and (iii) the Company's level of indebtedness
may reduce the Company's flexibility to respond to changing business and
economic conditions. Subject to certain limitations contained in its outstanding
debt instruments, credit agreement 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." There can be no assurance
that the Company's EBITDA will continue to exceed its fixed charges. A decline
in EBITDA 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."
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 (as defined in "Description of Indebtedness and Other
Commitments") have a lien on substantially all of the assets of UOI, including
the capital stock of its subsidiaries, to secure the indebtedness of UOI under
such credit facility. The New Credit Facility and the Notes contain restrictions
on UOI'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 UOI and its
subsidiaries will be able to comply with the provisions of their respective debt
instruments, including compliance by UOI 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 UOI would be able to refinance or
restructure its payments on such indebtedness or repurchase the Notes. If such
indebtedness were not so repaid, refinanced or restructured, the lenders or
noteholders, as applicable, 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 UOI's
other debt instruments. See "-- Substantial Indebtedness of the Company;
Potential Inability to Service Indebtedness" and "Description of Indebtedness
and Other Commitments."
11
<PAGE>
COMPANY'S DEPENDENCY ON UOI; HOLDING COMPANY STRUCTURE. The Company is a
holding company with no business operations of its own. The Company's only
material asset is all of the outstanding capital stock of UOI, through which the
Company conducts its business operations. Accordingly, the Company will be
dependent on the earnings and cash flow, and dividends and distributions from
UOI to pay its expenses and to pay any cash dividends or distributions on the
Common Stock that may be authorized by the Board of Directors of the Company.
UOI has substantial cash interest expense due on the Notes. There can be no
assurance that UOI will generate sufficient cash flow to pay dividends or
distribute funds to the Company or that applicable state law and contractual
restrictions, including negative covenants contained in the debt instruments of
UOI, will permit such dividends or distributions. The terms of the New Credit
Facility and the Notes currently restrict UOI from paying dividends or making
distributions except in very limited circumstances, including paying certain
expenses of the Company. See "-- Substantial Indebtedness of the Company;
Potential Inability to Service Indebtedness" and "Description of Indebtedness
and Other Commitments."
POTENTIAL INABILITY TO MAKE OR FINANCE ACQUISITIONS. 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. 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.
NEGATIVE IMPLICATIONS OF TOBACCO INDUSTRY REGULATION ON OUTDOOR
ADVERTISING. 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, EBITDA and financial position. A reduction in billboard advertising by
the tobacco industry could cause an immediate reduction in the Company's direct
revenue from such advertisers and would simultaneously increase the available
space on the existing inventory of billboards in the outdoor advertising
industry. This could in turn result in a lowering of rates throughout the
industry or limit the ability of industry participants to increase rates for
some period of time. Any such consequence could
12
<PAGE>
have the effect of reducing the Company's EBITDA, which could in turn reduce the
Company's ability to meet its financial obligations under the indentures
governing the Notes and the New Credit Facility (as defined in "The
Transactions"). The tobacco industry has recently engaged in negotiations to
settle litigation against such industry. The tobacco companies have reached a
proposed settlement that, upon the approval of Congress, will become final and
binding. Such proposed settlement would require a total ban of tobacco
advertising on outdoor billboards and signs. Any such ban may have a material
adverse effect on the Company's revenues at least in the immediate period
following the imposition of such ban while alternate sources of advertising are
secured. The competition in the outdoor advertising business for any such
alternate sources of advertising following the imposition of a total ban on
tobacco advertising on outdoor billboards and signs is expected to be intense.
There can be no assurance that the Company will immediately replace such
advertising revenue currently attributed to the tobacco industry in the event of
a total ban of tobacco advertising on outdoor billboards and signs. Furthermore,
state and local governments have recently proposed and some have enacted
regulations restricting or banning outdoor advertising of tobacco in certain
jurisdictions. Continued passage of restrictions or bans on outdoor advertising
in the Company's markets may adversely affect the Company's revenues at least in
the immediate period following such regulation. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business --
Customers" and "Business -- Government Regulation."
REGULATION OF OUTDOOR ADVERTISING. Outdoor advertising displays are subject
to governmental regulation at the federal, state and local levels. These
regulations, in some cases, limit the height, size, location and operation of
billboards and, in limited circumstances, regulate the content of the
advertising copy displayed on the billboards. Some governmental regulations
prohibit the construction of new billboards or the replacement, relocation,
enlargement or upgrading of existing structures. Some cities have adopted
amortization ordinances under which, after the expiration of a specified period
of time, billboards must be removed at the owner's expense and without the
payment of compensation. Ordinances requiring the removal of a billboard without
compensation, whether through amortization or otherwise, are being challenged in
various state and federal courts with conflicting results. Other than in the
Company's newly acquired Jacksonville market, amortization ordinances have not
materially affected operations in the Company's markets. As a result of a
settlement of litigation related to certain assets in the Jacksonville market
prior to their acquisition, the Company has removed 165 outdoor advertising
structures in 1995 and is required to remove an additional 546 (of its total of
1,493) outdoor advertising structures over the next 19 years with 317 of such
structures to be removed between 1995 and 1998. There can be no assurance that
these removals will not adversely affect the Company's results of operations. In
addition, no assurance can be given as to the effect on the Company of existing
laws and regulations or of new laws and regulations that may be adopted in the
future. Certain state and local governments have recently proposed and some have
enacted regulations restricting or banning outdoor advertising of tobacco and
liquor in certain jurisdictions. Continued restrictions and bans on outdoor
advertising in the Company's markets may adversely affect the Company's revenues
at least in the immediate period following such regulations. See "-- Negative
Implications of Tobacco Industry Regulation on Outdoor Advertising" and
"Business -- Customers" and "Business -- Government Regulation."
NEGATIVE EFFECTS OF A DECLINE IN GENERAL ECONOMIC CONDITIONS ON 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
13
<PAGE>
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."
POTENTIAL LITIGATION AGAINST THE COMPANY. From time to time, the Company is
involved in litigation in the ordinary course of business, including disputes
involving advertising contracts, site leases, employment claims and construction
matters. The Company is also involved in routine administrative and judicial
proceedings regarding permits and fees relating to outdoor advertising
structures and compensation for condemnations. None of those proceedings, in the
opinion of management, is likely to have a material adverse effect on the
Company.
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. 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."
CONTROL BY EXECUTIVE OFFICERS AND DIRECTORS. Upon consummation of the
Offering, the Company's officers and directors became beneficial owners of
(including for this purpose options exercisable within 60 days, the Warrant
Shares issued upon exercise of the Noteholder Warrants (as defined in
"Description of Capital -- The Noteholder Warrants"), the Common Stock issuable
upon exercise of the Warrants exercisable upon consummation of the Offering
pursuant to the 1996 Warrant Plan (as defined in "Description of Capital Stock
- -- The 1996 Warrant Plan") and shares over which such persons have voting
control) approximately 46.61% of the outstanding shares of the Company's Common
Stock. See "Principal Stockholders." Such persons, if acting together, would
have sufficient voting power to control the outcome of corporate actions
submitted to the stockholders for approval and to control the management and
affairs of the Company, including the election of the Board of Directors of the
Company. As a result of such control, certain transactions may not be possible
without the approval of such stockholders, including proxy contests, mergers
involving the Company and tender offers or other purchases of Common Stock that
could give stockholders of the Company the opportunity to realize a premium over
the then-prevailing market price for their shares of Common Stock. See
"Principal Stockholders" and "Description of Capital Stock -- Special Provisions
of the Certificate of Incorporation, Bylaws and Delaware Law."
DIFFICULTY IN ESTABLISHING A CHANGE OF CONTROL OR MANAGEMENT; ANTI-TAKEOVER
PROVISIONS. The level of stock ownership of the management of the Company and
KIA V and KEP V (each as hereinafter defined), as well as the provisions of
Delaware corporation law and the Certificate of Incorporation and Bylaws (each
as defined in "Description of Capital Stock"), may have the effect of deterring
hostile takeovers, delaying or preventing changes in control or changes in
management, or limiting the ability of stockholders to approve transactions that
they may deem to be in their best interests. In addition, under the Company's
Certificate of Incorporation, the Board of Directors has the authority to issue
shares of Preferred Stock and establish the rights and preferences thereof
without obtaining stockholder approval. The Company has no present plans to
issue any shares of Preferred Stock. See "Description of Capital Stock."
ABSENCE OF PUBLIC MARKET. There is currently no public market for the
Noteholder Warrants offered hereby and there can be no assurance that an active
public market for the Noteholder Warrants will develop. The Common Stock is
quoted on the Nasdaq National Market under the symbol "UOUT."
REJECTION OF WARRANTS IN BANKRUPTCY PROCEEDINGS. If a bankruptcy or
reorganization case were commenced by or against the Company, a bankruptcy court
might hold that unexercised Noteholder
14
<PAGE>
Warrants are executory contracts that may be subject to rejection by the Company
(with the approval of the bankruptcy court), in which event, even if sufficient
funds were available, holders of the Noteholder Warrants might receive nothing
or a lesser amount than they would be entitled to receive if they had exercised
their Noteholder Warrants prior to the commencement of such case.
SUBSTANTIAL PREVIOUSLY RESTRICTED COMMON STOCK ELIGIBLE FOR FUTURE
SALE. 180 days after the date of the Offering (upon expiration of certain
lockup agreements with the underwriters for the Offering), 10,432,400 shares of
Common Stock outstanding as of the date of this Prospectus, became eligible for
sale immediately in reliance on Rule 144A and at prescribed times, subject to
volume and manner of sale restrictions, in reliance on Rule 144, each
promulgated under the Securities Act. Sales of substantial amounts of Common
Stock (including shares issued upon exercise of stock options), or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock. An additional 2,470,608 shares have been issued
under the 1996 Warrant Plan and upon issuance will be eligible for sale under
Rule 144. Moreover, KIA V (as defined) and KEP V and their respective partners
and certain officers of the Company, who in the aggregate beneficially own
10,432,400 shares of Common Stock have certain registration rights with respect
thereto. See "Management -- The 1996 Warrant Plan" and "Description of
Noteholder Warrants."
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. In December 1996, 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, 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. On September 12, 1996, the Company entered
into an Option and Asset Purchase Agreement with Tanner-Peck, L.L.C., TOA
Enterprises, L.P., William B. Tanner, WBT
15
<PAGE>
Outdoor, Inc. and The Weatherley Tanner Trust (collectively, the "Memphis/Tunica
Sellers") pursuant to which a newly-formed subsidiary of the Company acquired
the option to purchase certain assets of the Memphis/Tunica Sellers (the
"Memphis/Tunica Option"). The Company exercised the Memphis/Tunica Option and
consummated the acquisition on January 2, 1997 for a purchase price of
approximately $71 million, including $5 million previously paid in connection
with the Memphis/Tunica Option, plus 100,000 shares of Common Stock of the
Company.
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.
THE MATTHEW ACQUISITION. In December 1996, the Company agreed to acquire
certain of the assets of Matthew. In mid-January, 1997, the Matthew Acquisition
was consummated and 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, including Metro New
York, Northern New Jersey and Hudson Valley.
THE ADDITIONAL ACQUISITIONS. On September 12, 1996, the Company entered
into an 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 an 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. In May 1997,
the Company amended the New Credit Facility (the "Amended Credit Facility") to
provide for a $75 million term loan increasing the total commitment under the
Amended Credit Facility back up to $300 million. As of May 31, 1997, the
Company's borrowings under the Amended Credit Facility totaled approximately
$138 million.
THE DEBT TENDERS OFFERS
THE COMPANY DEBT TENDER OFFER. In June 1994 the Company completed an
offering of $50 million of its 14% Senior Secured Discount Notes due 2004 (the
"Existing Company Notes"), the proceeds from which were used to redeem all of
the Company's outstanding preferred stock and a portion of the Company's
outstanding Common Stock and for working capital purposes. In connection with
the Acquisitions, the Company completed a tender offer and consent solicitation
(the "Company Debt
16
<PAGE>
Tender Offer") to purchase all of the outstanding Existing Company Notes. The
Company Debt Tender Offer expired on October 18, 1996, at which time the Company
purchased all the Existing Company Notes.
THE UOI DEBT TENDER OFFER. In connection with the Acquisitions, UOI
commenced a tender offer (the "UOI Debt Tender Offer," and together with the
Company Debt Tender Offer, the "Debt Tender Offers") to purchase all of its
outstanding 11% Senior Notes due 2003 (the "Existing UOI Notes" and together
with the Existing Company Notes, the "Existing Notes"). The UOI Debt Tender
Offer expired on October 18, 1996, at which time UOI purchased all the Existing
UOI Notes.
USE OF PROCEEDS
The Company will receive no proceeds from the sale by the Selling
Securityholders of the Noteholder Warrants or the shares of Common Stock
issuable upon exercise of the Noteholder Warrants, but will receive the exercise
price from Noteholder Warrantholders with respect to Noteholder Warrants that
are exercised for shares of Common Stock, if any. If all Noteholder Warrants are
exercised, the aggregate exercise price payable to the Company will be $625. The
proceeds from the exercise of the Noteholder Warrants, if any, will be used by
the Company for general corporate purposes. All of the expenses incurred in
connection with the registration of the Noteholder Warrants and the shares of
Common Stock issuable upon exercise of the Noteholder Warrants to which this
Prospectus relates will be paid by the Company, except for commissions of
brokers or dealers and any transfer fees incurred in connection with sales of
the Noteholder Warrants and the shares of Common Stock issuable upon the
exercise of the Noteholder Warrants by the Selling Securityholders, which will
be paid by the Selling Securityholders.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The Company intends to
retain any future earnings for reinvestment in the Company. Any future
determination as to the payment of dividends will be at the discretion of the
Company's Board of Directors and will depend on the Company's results of
operations, financial condition, capital requirements and other factors deemed
relevant by the Board of Directors.
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"UOUT." The following table sets forth, for the periods indicated, the high and
low closing sales prices for the Common Stock as reported by the Nasdaq National
Market. Prior to July 23, 1996, the day on which the Common Stock was first
publicly traded, there was no public market for the Common Stock.
<TABLE>
<CAPTION>
1996 HIGH LOW
- ---------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Third Quarter (beginning July 23, 1996)..................................... 36.25 16.50
Fourth Quarter (through December 31, 1996).................................. 37.75 23.12
1997
- ----------------------------------------------------------------------------
First Quarter (through March 31, 1997)...................................... 33.50 22.25
</TABLE>
On December 31, 1996, the last reported sale price per share for the Common
Stock on the Nasdaq National Market was $23.50 per share. As of July 22, 1997,
the last reported sale price per share for the Common Stock on the Nasdaq
National Market was $35.00 per share.
17
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at March 31, 1997 and as adjusted to give effect to the Amended Credit Facility.
The table should be read in conjunction with the Consolidated Financial
Statements and related notes included elsewhere herein.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------
AS ADJUSTED (1)
---------------
ACTUAL
------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Existing Credit Facilities:
Revolving Credit Loan.......................................................... $ 122,030 $ 47,030
Acquisition Term Loan.......................................................... -- 75,000
9 3/4% Senior Subordinated Notes due 2006........................................ 223,645 223,645
9 3/4% Series B Senior Subordinated Notes due 2006............................... 101,463 101,463
Other notes...................................................................... 4,082 4,082
Other obligations................................................................ -- --
------------ ---------------
Total long-term debt and other obligations................................... 451,220 451,220
Common stockholders' equity........................................................ 227,678 227,678
------------ ---------------
Total capitalization......................................................... $ 678,898 $ 678,898
------------ ---------------
------------ ---------------
</TABLE>
- ------------------------
(1) Represents actual amounts adjusted to give effect to the Amended Credit
Facility.
18
<PAGE>
PRO FORMA FINANCIAL INFORMATION
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 net proceeds therefrom, (iii)
the acquisitions of Naegele, Ad-Sign, Inc., Image Media, Inc. and consummation
of the Offering and the application of the 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 detail assumptions used to prepare the unaudited pro forma combined
statement of operations is contained in the notes to unaudited pro forma
combined statement of operations. The unaudited pro forma combined statement of
operations reflects the use of the purchase method of accounting for all
acquisitions during 1996.
Pro forma financial information has not been updated through March 31, 1997
due to significant acquisitions of 1997 occurring in early January 1997. As
such, pro forma information for the statement of operations would not be
significantly different from actual. The balance sheet at March 31, 1997,
included herein, includes the significant acquisitions occurring in early
January 1997.
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 pro forma combined statement of
operations 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 statement of operations is based on certain assumptions and
adjustments described in the notes thereto and should be read in conjunction
with the notes to unaudited pro forma combined statement of operations 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 pro forma combined statement of operations 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
$7.5 million and goodwill amortization increased by approximately $9.7 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.
19
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNIVERSAL
OUTDOOR AD-SIGN, INC MEMPHIS/
HOLDINGS, 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............ 10,648 100 1,459 9,613 2,743 304 4,118
Depreciation and
amortization........ 18,286 160 1,053 6,004 1,546 38 5,542
Non cash compensation
for common stock
warrants............ 9,000
--------- ------------ ------- ----------- ----------- ------------ -----------
64,402 582 5,128 26,405 10,604 906 26,993
--------- ------------ ------- ----------- ----------- ------------ -----------
Operating income....... 11,736 260 704 9,410 4,101 260 2,054
Interest expense....... 19,567 -- 468 5,558 89 52 3,392
Other expense.......... 1,398 -- -- (21) -- (84) (8,410)
--------- ------------ ------- ----------- ----------- ------------ -----------
Income (loss) before
income taxes and
extraordinary
items............... (9,229) $ 260 $ 236 $ 3,873 4,012 $ 292 7,072
--------- ------------ ------- ----------- ----------- ------------ -----------
--------- ------------ ------- ----------- ----------- ------------ -----------
<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) -- 20,848 -- 20,848
Depreciation and
amortization........ 993 17,196(2)(3)(5) -- 50,818 -- 50,818
Non cash compensation
for common stock
warrants............ 9,000 9,000
----------- ---------- ---------- ------------ ----------- --------
6,101 9,533 -- 150,654 -- 150,654
----------- ---------- ---------- ------------ ----------- --------
Operating income....... 2,842 (5,410) -- 25,957 -- 25,957
Interest expense....... -- 37,869(2)(3)(6)(7) (23,938)(9) 43,057 1,178(10) 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) $ 23,938 $(18,911) $ (1,178) $(20,089)
----------- ---------- ---------- ------------ ----------- --------
----------- ---------- ---------- ------------ ----------- --------
</TABLE>
See accompanying notes to pro forma combined statements of operations.
20
<PAGE>
NOTES TO UNAUDITED COMBINED PRO FORMA STATEMENT 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, the December Offering 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>
21
<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>
22
<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 changes in interest expense:
$ (5,304)
Proceeds of $62.4 million from the offering of Class A Common Stock in July at an assumed
rate of 8.5%............................................................................
(2,550)
KEA V and KEP V and Kelso Designees (as hereafter defined) Investment of $30.0 million at
an assumed rate of 8.5%.................................................................
(17,175)
October Equity Offering proceeds of $202.0 million at an assumed rate of 8.5%.............
2,813
October Notes of $225 million at 9.75% versus assumed rate of 8.5%........................
(1,771)
Refinanced 14% Series A Senior Secured Discount Notes due 2004 of
$50 million at an assumed rate of 9.75% for 10 of 12 months.............................
(677)
Refinanced 11% Series A Senior Secured Discount Notes due 2003 of
$65 million at an assumed rate of 9.75% for 10 of 12 months.............................
726
Amortization of financing costs...........................................................
--------------
$ (23,938)
--------------
--------------
10. Entry to record the changes in interest expense:
$ 1,250
December Notes of $100 million at 9.75% versus an assumed rate of 8.5%....................
(72)
Amortization of deferred financing costs..................................................
--------------
$ 1,178
--------------
--------------
</TABLE>
11. 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
--------
--------
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The selected financial data presented below as of and for the year ended
December 31, 1996 and three months ended March 31, 1997 and 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
three months ended March 31, 1996 and 1995 are derived from the consolidated
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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenue........................... $ 21,435 $ 27,896 $ 28,710 $ 33,180 $ 38,101 $ 84,939 $ 9,332 $ 47,575
Net revenues(1)......................... 18,835 24,681 25,847 29,766 34,148 76,138 8,427 44,008
Direct advertising expenses............. 7,638 10,383 10,901 11,806 12,864 26,468 3,571 18,445
General and administrative expenses..... 3,515 3,530 3,357 3,873 4,645 10,648 1,227 4,401
Depreciation and amortization........... 5,530 7,817 8,000 7,310 7,402 18,286 2,032 12,859
Non cash compensation for common stock
warrants.............................. -- -- -- -- -- 9,000 -- --
Operating income........................ 2,152 2,951 3,589 6,777 9,237 11,736 1,597 8,303
Interest expense........................ 6,599 9,591 9,299 11,809 12,894 19,567 3,594 10,735
Other (expense) income, net............. (53) 291 (351) (134) (46) (1,398) (11) 182
Income (loss) before extraordinary
item(2)............................... (4,500) (6,349) (6,061) (5,166) (3,703) (9,299) (2,008) (2,250)
Net income (loss)....................... (4,500) (6,349) (9,321) (5,166) (3,703) (35,803) (2,008) (2,250)
Capital expenditures.................... 2,047 2,352 2,004 4,668 5,620 7,178 1,966 3,584
Deficiency in coverage of earnings...... 4,500 6,349 9,321 5,166 3,703 35,803 2,008 2,250
FINANCIAL RATIOS:
Percentage of indebtedness to total
capitalization(3)..................... 121.4% 142.8% 186.6% 153.7% 156.8% 60.6% 150.8% 66.5%
Ratio of EBITDA to total interest(4).... 1.2x 1.1x 1.2x 1.2x 1.3x 2.0x 1.0x 2.0x
OTHER DATA:
EBITDA(5)............................... $ 7,682 $ 10,768 $ 11,589 $ 14,087 $ 16,639 $ 39,022 $ 3,629 $ 21,162
EBITDA Margin(6)........................ 40.8% 43.6% 44.8% 47.3% 48.7% 51.3% 43.1% 48.1%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(7)................................... $ (361) $ (5,332) $ 1,481 $ 2,787 $ 4,137 $ 2,534 $ (2,358)
Total assets......................................... 71,682 65,754 61,816 68,253 71,050 84,747 790,867
Total long-term debt and other obligations........... 65,076 59,363 69,254 99,669 106,362 120,248 451,220
Redeemable preferred stock........................... 13,442 15,055 21,505 -- -- -- --
Common stockholders' equity (deficit)................ (11,450) (17,799) (32,157) (34,823) (38,526) (40,533) 227,678
</TABLE>
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
24
<PAGE>
(FOOTNOTES FOR PREVIOUS TABLE)
- ------------------------------
(1) Net revenues are gross revenues less agency commissions.
(2) Extraordinary item represents loss on early extinguishment of debt.
(3) Amounts represent (i) total long-term debt divided by (ii) total long-term
debt plus common stockholders' equity (deficit).
(4) Amounts represent the ratio of (I) EBITDA to (II) interest expense on total
long-term debt. Management believes this ratio, as presented, represents a
useful measure of funds available to finance cash interest due.
(5) "EBITDA" is operating income before depreciation and amortization and other
non cash charges. Management believes that EBITDA, as presented, represents
a useful measure of assessing the performance of the Company's ongoing
operating activities as it reflects the earnings trends of the Company and
is a measure of net cash generated by the normal operating activity of the
business. EBITDA 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 EBITDA 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.
(6) "EBITDA Margin" is EBITDA stated as a percentage of net revenues. Management
believes EBITDA margin, as presented, represents a useful measure of the
percent of net revenues reflected in EBITDA, thereby addressing the cash
used in operations.
(7) 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.
25
<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 a historical basis without 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 April 30, 1997,
the Company spent in excess of $515 million to acquire additional display faces,
increasing the number of its display faces from approximately 600 in 1989 to
approximately 32,929 at April 30, 1997. 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
April 30, 1997:
<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, 6,195 9,181 43 15,419
Iowa, Southeast United States, Atlantic Coast of
Florida, Gulf Coast of Florida, Northeast United
States, Philadelphia, Washington D.C., Wilmington,
Salisbury, Memphis, Chattanooga, Metro New York,
Northern New Jersey, Hudson Valley
1997........ Baltimore, Evansville, New Jersey 218 1,364 -- 1,582
----------- ----------- --------- ---------
Total............................................................. 7,145 13,025 5,461 25,631
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
In addition, in 1996 the Company acquired 437 transit display faces in
Indianapolis, 1,539 kiosk displays in malls throughout the United States, 1,917
transit display faces in Baltimore and 146 bus shelters in Philadelphia. In 1997
the Company acquired 520 transit display faces in Memphis, Tennessee.
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 October Offerings,
the December Offering 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.
The Company recognized a one-time non-cash compensation charge of
approximately $9 million in the quarter to be ended June 30, 1996 relating to
the issuance of the Warrants under the 1996 Warrant Plan. See "Management -- The
1996 Warrant Plan."
26
<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>
THREE MONTHS
ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
--------------------------------- ---------------
1993 1994 1995 1996 1997 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct advertising expenses................ 42.2 39.7 37.7 34.8 41.9 42.4
General and administrative expenses........ 13.0 13.0 13.6 14.0 10.0 14.5
------ ------ ------ ------ ------ ------
EBITDA (1)................................... 44.8 47.3 48.7 51.2 48.1 43.1
Depreciation and amortization................ 30.9 24.5 21.6 24.0 29.2 24.1
Non cash compensation expense................ -- -- -- 11.8 -- --
------ ------ ------ ------ ------ ------
Operating income............................. 13.9 22.8 27.1 15.4 18.9 19.0
Other expense, primarily interest............ 37.3 40.2 37.9 27.5 24.0 42.8
------ ------ ------ ------ ------ ------
Net loss before extraordinary item........... (23.4) (17.4) (10.8) (12.1) (5.1) (23.8)
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
- ------------------------
(1) "EBITDA" is operating income before depreciation and amortization and other
non cash charges. Management believes that EBITDA, as presented, represents
a useful measure of assessing the performance of the Company's ongoing
operating activities as it reflects the earnings trends of the Company and
is a measure of net cash generated by the normal operating activity of the
business. EBITDA 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 EBITDA
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.
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 catagories: 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
27
<PAGE>
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.
At December 31, 1996, the Company and its subsidiaries had net operating
loss and credit carryforwards for federal income tax purposes of approximately
$86 million. Included in total net operating loss carryforwards is approximately
$45 million of operating loss and credit carryforwards generated by certain
acquired companies prior to their acquisition by the Company. Total
carryforwards expire between 2005 and 2011. The Company experienced an ownership
change within the meaning of Section 382 of the Internal Revenue Code. As such,
the utilization of net operating loss carryforwards are subject to an annual
limitation based upon the value of the Company on the change date. The
acquisition of OAH and Revere resulted in an "ownership change" and a limitation
is imposed on the acquired net operating loss carryforwards in these companies.
Furthermore, the Company's use of net operating loss carryforwards are subject
to limitations applicable to corporations filing consolidated federal income tax
returns. During the current fiscal year, the Company did not use any net
operating loss or credit carryforwards.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
Net revenues increased 423.8% to $44.0 million during the first three months
of 1997 compared to $8.4 million in the corresponding 1996 period. This increase
was a result of inclusion of approximately $6.9 million of revenues from the
Minneapolis and Jacksonville markets (the "Naegele Markets") which were acquired
from Naegele in April 1996 (the "Naegele Acquisition"). Additionally, $11.9
million of revenues is attributable to markets acquired from OAH in October 1996
and $10.2 million is attributable to markets acquired from Revere in December
1996 and Matthew in January 1997. Revenues from markets located in and around
Memphis (TN) and Tunica County (MS) which were acquired by the Company in
January 1997 in the Memphis/Tunica Acquisition contributed $4.3 million. The
remaining $2.3 million or 27.4% increase in net revenues resulted from higher
advertising rates and occupancy levels on the Company's signboards and inclusion
for the full quarter of signboard revenues from advertising display faces in the
Des Moines and Dallas markets which were acquired in 1996. Overall net revenues
from tobacco advertising increased to $4.4 million in the first three months of
1997 compared to $1.2 million for the first three months of 1996. This increase
was due mainly to the inclusion of tobacco revenues from the acquired markets.
As a percentage of net revenues, tobacco advertising sales decreased to 10.0% in
the first three months of 1997 compared to 14.3% for the first three months of
1996.
Direct cost of revenues increased to $18.4 million in the first three months
of 1997 compared to $3.6 million for the first three months in 1996. The Naegele
Markets and the POA Acquisition accounted for $2.9 million and $4.1 of the
increase, respectively. The Revere Acquisition, the Matthew Acquisition and the
Memphis/Tunica Acquisition accounted for $7.0 million. As a percentage of net
revenues, however, direct cost of revenues decreased to 41.8% in the first three
months of 1997 compared to 42.9% in the corresponding 1996 period as a result of
economies of scale associated with the increased revenues.
General and administrative expenses increased to $4.4 million in the first
three months of 1997 from $1.2 million in the corresponding 1996 period. As a
percentage of net revenues, general and administrative expenses decreased to
10.0% in the first three months of 1997 compared to 14.3% in the corresponding
1996 period. This percentage decrease was due to the addition of the new
markets' revenues without a significant increase in staffing or other corporate
overhead expenses.
Depreciation and amortization expense increased to $12.9 million in the
first three months of 1997 compared to $2.0 million in the corresponding 1996
period. This increase was due to significant increases in the fixed assets and
goodwill as a result of the acquisitions.
Total interest expense increased to $10.7 million in the first three months
of 1997 compared to $3.6 million in the 1996 period. The increase resulted from
increased debt outstanding under the Company's
28
<PAGE>
credit facility which was incurred to finance the Revere, Matthew and
Memphis/Tunica Acquisitions and from the issuance by UOI of $225 million 9 3/4%
Senior Subordinated Notes due 2006 in October 1996 and $100 million 9 3/4%
Series B Senior Subordinated Notes due 2006 in December 1996.
The foregoing factors contributed to the Company's $2.3 million net loss in
the first three months of 1997 compared to $2.0 million net loss in the 1996
period.
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 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 for the three quarters of signboard
revenues from the acquisitions of Image Media, Inc. and AdSign, 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
$4.6 million in the 1995 period. As a percentage of net revenues, general and
administrative expenses increased to 13.9% in 1996 compared to 13.5% 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.
Non cash compensation for common stock warrants consisted of a $9.0 million
non-recurring charge arising from the issuance of common stock warrants in the
Naegele Acquisition. This non cash charge represents the fair market value of
the common stock warrants on the date of the grant.
Total interest expense increased to $19.6 million in 1996 compared to $12.2
million in the 1995 period. The increase resulted from increased debt
outstanding under the Existing Credit Facility which was incurred to finance the
Naegele Acquisition and from the issuance of the October Notes and December
Notes.
Other expenses increased to $1.4 million in 1996, consisting of a $1.7
million one-time charge for expenses arising out of the Naegele Acquisition
offset by miscellaneous other income relating to condemnation proceeds of $.3
million.
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 and increased
sales to local and regional advertisers. Net revenues from tobacco advertising
increased between 1994 and 1995 from $3.8 million to $4.5 million. As a
percentage of net revenues, tobacco advertising sales increased slightly to
13.3% in 1995 from 13.1% in 1994.
Direct cost of revenues 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 cost of revenues decreased to 37.7%
in 1995 as a result of economies of scale associated with increased revenues.
29
<PAGE>
General and administrative expenses in 1995 increased to $4.6 million from
$3.9 million in 1994 due to the incremental payroll costs associated with
additional employees. As a percentage of net revenues, general and
administrative expenses increased to 13.6% from 13.0% in the prior year. This
increase was primarily due to the expenses related to acquisitions.
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 $12.9 million in 1995 from $11.8 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 $3.7 million net loss in
1995 compared to a net loss of $5.2 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. Net
revenues from tobacco advertising remained constant between 1994 and 1993 at
approximately $3.8 million. However, as a percentage of net revenues, tobacco
advertising sales decreased to 13.1% in 1994 from 14.8% in the prior year. The
Company offset the decline in tobacco revenues with increased sales to local
advertisers, particularly gaming companies, and to regional and other national
advertisers. There can be no assurance that the Company will be able to replace
lost tobacco revenues in the future.
Direct cost of revenues 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 cost of revenues 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, EBITDA 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 (31.0% of the net revenues) in 1993 due
to scheduled depreciation of the fixed assets.
Total interest expense increased to $11.8 million in 1994 from $9.3 million
in 1993 as a result of incremental interest associated with the offering of the
Existing Company Notes and the additional borrowings in 1994, which were
partially offset by the elimination of the accretion of dividends on the
redeemable preferred stock (such stock was redeemed in June 1994).
The foregoing factors contributed to the Company's $5.2 million net loss in
1994 compared to a net loss of $9.3 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.
30
<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, DEC. 31,
1994 1994 1994 1994 1995 1995 1995 1995
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <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 $ 8,797
Operating income....... 924 2,333 2,002 1,518 1,319 3,055 2,458 2,405
Net income (loss)...... (2,053) (498) (1,099) (1,516) (1,778) (215) (811) (899)
PERCENTAGE OF NET
REVENUES:
Operating income....... 15.1% 29.9% 25.1% 19.2% 18.2% 33.3% 27.5% 27.3%
Net income (loss)...... (33.6) (6.4) (13.8) (19.2) (24.6) (2.3) (9.1) (10.2)
OTHER DATA:
EBITDA (1)............. $ 2,709 $ 3,998 $ 3,885 $ 3,495 $ 3,056 $ 4,856 $ 4,308 $ 4,419
EBITDA Margin (2)...... 44.4% 51.2 % 48.7 % 44.3 % 42.2 % 52.9 % 48.2 % 50.2%
<CAPTION>
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $ 8,427 $ 17,812 $ 18,643 $ 31,256
Operating income....... 1,597 (1,638) 5,874 5,903
Net income (loss)...... (2,008) (8,148) 591 (26,238)
PERCENTAGE OF NET
REVENUES:
Operating income....... 19.0% (9.2)% 31.5% 18.9%
Net income (loss)...... (23.8) 45.7 3.2 (83.9)
OTHER DATA:
EBITDA (1)............. $ 3,629 $ 10,004 $ 10,406 14,983
EBITDA Margin (2)...... 43.1 % 56.2 % 55.8 % 47.9 %
</TABLE>
- ------------------------------
(1) "EBITDA" is operating income before depreciation and amortization and other
non cash charges. Management believes that EBITDA, as presented, represents
a useful measure of assessing the performance of the Company's ongoing
operating activities as it reflects the earnings trends of the Company and
is a measure of net cash generated by the normal operating activity of the
business. EBITDA 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 EBITDA 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) "EBITDA Margin" is EBITDA stated as a percentage of net revenues. Management
believes EBITDA margin, as presented, represents a useful measure of the
percent of net revenues reflected in EBITDA, thereby addressing the cash
used in operations.
31
<PAGE>
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 stock.
In April 1996, UOI, its current lender, LaSalle National Bank ("LaSalle"),
and an additional bank, Bankers Trust Company ("Bankers Trust"; together with
LaSalle, the "Lenders"), agreed to (i) refinance the Company's existing credit
facility with a revolving credit facility (the "Existing Revolving Credit
Facility") and (ii) provide an additional extension of credit for purposes of
acquisition financing (the "Existing Acquisition Credit Facility," and together
with the Existing Revolving Credit Facility, the "Existing Credit Facilities")
and, specifically, the financing, in part, of the Naegele Acquisition. The
Lenders extended an acquisition term loan in the amount of $75 million and an
acquisition revolving credit line in the amount of $12.5 million for a total
commitment of $87.5 million, of which $84.5 million was drawn at the closing of
the Naegele Acquisition. In addition, the Lenders extended a working capital
revolving credit line in the amount of $12.5 million, of which no amount has
been drawn. In addition to the amounts drawn under the Existing Acquisition
Credit Facility, the Company 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. In October 1996,
UOI and the Lenders 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 consisted of a term loan
drawn by the Company to finance, in part, the Acquisitions. In October 1996, the
maximum commitment under the New Credit Facility was reduced to $225 million.
The New Credit Facility has been drawn upon from time to time in order to
finance acquisitions and as of April 1997, $123 was outstanding. In May 1997,
under the Amended Credit Facility the Company increased the total commitment
back to $300 million by adding a $75 million term loan which was drawn by the
Company in order to pay down outstanding amounts owed by the Company under the
New Credit Facility. See "Description of Indebtedness and Other Commitments".
The Company completed its initial public offering of 4,630,000 shares of its
Common Stock (including 930,000 shares sold pursuant to exercise of
underwriters' over-allotment options) on July 26, 1996, resulting in net
proceeds to the Company of $60.4 million. The Company used a portion of the net
proceeds to redeem $9.5 million of the Existing Company Notes and repaid a
portion of the amounts outstanding under the Existing Acquisition Credit
Facility.
In October 1996, 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 including, but not limited to the Debt Tender
Offers. In December 1996, UOI completed the December Offering with net proceeds
of $98.0 million. The net proceeds of the December Offering were used to pay
outstanding amounts under the New Credit Facility.
Net cash provided by operating activities increased to $14.0 million in 1996
from $7.0 million in the 1995 period. Net cash provided by operating activities
increased to $7.0 million in 1995 from $4.9 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, the New Credit Facility
and the Amended Credit Facility for the purpose of financing acquisitions and
capital expenditures relating to the development and improvement of advertising
structures and for working capital purposes. 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
32
<PAGE>
the event cash from operations, together with available funds under the Amended
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, $495.6 million was provided by
financing activities primarily due to the issuance of senior subordinated debt,
increased borrowings under the Existing Credit Facilities and New Credit
Facility 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 $3.3 million, respectively, was provided by financing activities, primarily
as a result of additional borrowings under the prior credit facility.
Net cash provided by operating activities increased to $11.8 million for the
three months ended March 31, 1997 from $2.9 million for the corresponding 1996
period. 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 $131.7 million for
the three months ended March 31, 1997 includes cash used for acquisitions of
$128.1 million and other capital expenditures of $3.6 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 potential acquisitions in the Midwestern, Southeastern
and Eastern regions and contiguous markets. Management believes that its
internally generated funds, together with available borrowings under its 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 Company's
credit facility are insufficient to satisfy its cash requirements, the Company
may obtain funds from additional sources of indebtedness and/or equity offerings
to finance its operations, including without limitation, additional
acquisitions.
For the three months ended March 31, 1997, $100.9 million was provided by
financing activities due to increased borrowings under the Company's credit
facility. For the three months ended March 31, 1996, $12.8 million was used in
financing activities primarily due to acquisitions.
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 restrictions imposed by the Amended Credit Facility, and
the indentures governing the Notes may limit the Company's use of cash from
operations for these purposes.
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the Notes) depends on
its future performance and financial results, which to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors beyond its control. Based upon the current level of operations and
anticipated growth, management of the Company believes that available cash flow,
together with available borrowings under the Amended Credit Facility and other
sources of liquidity, will be adequate to meet the Company's anticipated future
requirements for working capital, capital expenditures and scheduled payments of
principal of, and interest on the Notes. However, there can be no assurance that
the Company's business will generate sufficient cash flow from operations or
that future borrowings will be available in an amount sufficient to enable the
Company to service its indebtedness, including the Notes, or to make necessary
capital expenditures, or that any refinancing would be available on commercially
reasonable terms or at all.
33
<PAGE>
IMPACT OF RETIREMENT OF DEBT ON NET INCOME
The Company used a portion of the proceeds from the Offering and the October
Offerings to complete the Debt Tender Offers. In connection with the early
retirement of the Existing Notes, the Company incurred an extraordinary loss
approximating $26.6 million representing the difference between the redemption
amount and the accreted value of the Existing Notes.
INFLATION
Inflation has not had a significant impact on the Company over the past
three years. The floating rate on the Amended 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 Statement of Financial
Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
which established a new accounting principle for stock-based compensation. In
accordance with the provisions of SFAS No. 123, the Company applies fair value
accounting for its stock-based compensation.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE, which established a new
accounting principle for the calculation of earnings per share. This SFAS is
effective for accounting periods ending after December 15, 1997. The Company has
reviewed the effects of the provision and additional shares of Common Stock
would be considered antidilutive under the provision.
34
<PAGE>
BUSINESS
GENERAL
The Company is a leading outdoor advertising company operating approximately
31,049 advertising display faces in three large regional operating areas: the
Midwest (Chicago (IL), Minneapolis/St. Paul (MN), Indianapolis (IN), Milwaukee
(WI), Des Moines (IA), Evansville (IN) and Dallas (TX)), the Southeast (Orlando
(FL), Jacksonville (FL), Palm Beach (FL), Ocala and the Atlantic Coast and Gulf
Coast areas of Florida, Memphis (TN), Tunica (MS), Chattanooga (TN) and Myrtle
Beach (SC)) and the East Coast (New York (NY), Washington D.C., Philadelphia
(PA), Northern New Jersey, Wilmington (DE), Salisbury (MD) and Hudson Valley
(NY)).
Since beginning operations with a single outdoor advertising structure in
Chicago in 1973, the Company has achieved its leading position in the outdoor
advertising industry through its aggressive acquisition and development efforts.
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.
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<PAGE>
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 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 strategy 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.
The following are the primary components of the Company's 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 its 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. In addition, the Company historically has acquired, and
intends to continue to acquire, additional advertising display faces in its
existing markets as opportunities become available.
-PURSUE STRATEGIC ACQUISITIONS. In addition to improved penetration of its
existing markets, the Company also seeks to grow by acquiring additional
display faces in closely proximate new markets. Such new markets allow the
Company to capitalize on the operating efficiencies and cross-market sales
opportunities associated with operating in multiple markets within distinct
regions. The Company intends to develop new regional operating areas in
regions where attractive growth and consolidation opportunities exist.
-CAPITALIZE ON TECHNOLOGICAL ADVANCES. The Company seeks to capitalize on
technological advances that enhance its productivity and increase its
ability to effectively respond to its customer's needs. The Company's
continued investment in equipment and technology provide 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 EBITDA Margin, which
it believes to be among the highest in the industry. The Company believes
its centralized administration provides opportunities for significant
operating leverage from further expansion in existing markets and from
future acquisitions.
-DEVELOP OTHER OUT-OF-HOME MEDIA. The Company seeks to develop other forms
of out-of-home media such as bus shelter or transit advertising in order to
enhance revenues in existing markets or provide access to new markets.
Through implementation of this business strategy, the Company has increased
its outdoor advertising presence from 500 display faces in a single market in
1988 to approximately 32,929 in its markets at April 30, 1997.
ACQUISITIONS
As of December 31, 1996 consistent with its operating strategy, the Company
has recently acquired the assets or capital stock of five outdoor advertising
companies and entered into agreements to
36
<PAGE>
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 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.
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,
37
<PAGE>
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 April 30, 1997 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% 655 -- 3,609 4,264
Minneapolis/St. Paul... 17,320 9.8 455 1,339 -- 1,794
Indianapolis........... 10,533 6.0 257 1,106 101 1,994
Milwaukee.............. 4,818 2.7 261 -- 338 599
Des Moines............. 3,539 2.0 86 578 9 673
Evansville............. 3,435 1.9 278 699 -- 977
Dallas................. 1,261 0.8 254 -- 1,210 1,464
SOUTHEAST:
Orlando................ 25,145 14.2 808 1,082 -- 1,890
Jacksonville........... 8,528 4.9 448 788 -- 1,236
Ocala.................. 5,240 3.0 859 204 -- 1,063
Memphis/Tunica......... 14,705 8.3 653 1,185 99 2,457
Chattanooga............ 5,470 3.1 333 648 -- 981
Myrtle Beach........... 9,495 5.4 711 472 -- 1,183
Atlantic Coast area
(FL).................. 5,132 2.9 664 -- 664
Gulf Coast area (FL)... 1,712 1.0 457 -- -- 457
EAST COAST:
Philadelphia........... 13,939 7.9 357 2,085 -- 2,634
Washington, D.C........ 6,289 3.6 86 586 -- 672
Salisbury.............. 3,435 1.9 394 479 -- 873
Wilmington............. 4,576 2.6 159 917 45 1,121
Baltimore.............. 2,295 1.3 209 1,234 -- 3,360
Mall Media............. 2,636 1.5 -- -- -- 1,582
Northern NJ............ 4,256 2.4 162 5 6 173
Metro New York......... 3,375 1.9 42 364 -- 406
Hudson Valley.......... 1,312 0.7 125 260 27 412
---------- ----- --------- -------- ------- -------
Total................ $176,611 100.0% 8,713 14,031 5,444 32,929(1)
---------- ----- --------- -------- ------- -------
---------- ----- --------- -------- ------- -------
</TABLE>
- ------------------------
(1) Includes 530 transit display faces located in Indianapolis, 192 bus shelters
in Philadelphia, 1,917 transit display faces in Baltimore, 520 transit
display faces in Memphis and 1,539 kiosk displays in malls throughout the
United States.
38
<PAGE>
INVENTORY
The Company operates three standard types of outdoor advertising display
faces and also has transit advertising as follows:
-BULLETINS generally are 14 feet high and 48 feet wide (672 square feet) and
consist of panels on which advertising copy is displayed. The advertising
copy is either hand painted onto the panels at the facilities of the
outdoor advertising company in accordance with design specifications
supplied by the advertiser and attached to the outdoor advertising
structure, or is printed with the computer-generated graphics on a single
sheet of vinyl that is wrapped around the structure. On occasion, to
attract more attention, some of the panels may extend beyond the linear
edges of the display face and may include three-dimensional embellishments.
Because of their greater impact and higher cost, bulletins are usually
located on major highways.
-30-SHEET POSTERS generally are 12 feet high by 25 feet wide (300 square
feet) and are the most common type of billboard. Advertising copy for
30-sheet posters consists of lithographed or silk-screened paper sheets
supplied by the advertiser that are pasted and applied like wallpaper to
the face of the display, or single sheets of vinyl with computer-generated
advertising copy that are wrapped around the structure. Thirty-sheet
posters are concentrated on major traffic arteries.
-JUNIOR (8-SHEET) POSTERS usually are 6 feet high by 12 feet wide (72 square
feet). Displays are prepared and mounted in the same manner as 30-sheet
posters, except that vinyl sheets are not typically used on junior posters.
Most junior posters, because of their smaller size, are concentrated on
city streets and target pedestrian traffic.
-TRANSIT ADVERTISING consists generally of posters and frames displayed on
the sides of public buses operating on city streets.
-MALL ADVERTISING consists generally 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 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
39
<PAGE>
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, 192 of the Company's employees are significantly involved in sales and
marketing activities.
In addition to the sales staff, the Company has established fully staffed
and equipped creative departments in each of its 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 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
40
<PAGE>
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, after 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>
The tobacco industry has recently engaged in negotiations to settle
litigation against such industry. The tobacco companies have reached a proposed
settlement that, upon the approval of Congress, will become final and binding.
Such proposed settlement would require a total ban of advertising on outdoor
billboards and signs. Any such ban may have a material adverse effect on the
Company's revenues at least in the immediate period following the imposition of
such ban while alternate sources of advertising are secured. The competition in
the outdoor advertising business for any such alternate sources of advertising
following the imposition of a total ban on tobacco advertising on outdoor
billboards and signs is expected to be intense. There can be no assurance that
the Company will immediately replace such advertising revenue currently
attributed to the tobacco industry in the event of a total ban of tobacco
advertising on outdoor billboards and signs. Furthermore, state and local
governments have recently proposed and some have enacted regulations restricting
or banning outdoor advertising of tobacco in certain jurisdictions. Continued
passage of restrictions or bans on outdoor advertising in the Company's markets
may adversely affect the Company's revenues at least in the immediate period
following such regulations.
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
41
<PAGE>
to the geographic proximity of the Company's principal markets and the
transportability of vinyl sheets, the Company can shift materials among markets
to promote efficiency. The Company believes that this trend over time will
reduce operating expenses associated with production activities.
COMPETITION
The Company competes in each of its markets with other outdoor advertisers
as well as other media, including broadcast and cable television, radio, print
media and direct mail marketers. In addition, the Company also competes with a
wide variety of "out-of-home" media, including advertising in shopping centers
and malls, airports, stadiums, movie theaters and supermarkets, as well as on
taxis, trains, buses and subways. Advertisers compare relative costs of
available media and cost-per-thousand impressions, particularly when delivering
a message to customers with distinct demographic characteristics. In competing
with other media, outdoor advertising relies on its low
cost-per-thousand-impressions and its ability to repetitively reach a broad
segment of the population in a specific market or to target a particular
geographic area or population with a particular set of demographic
characteristics within that market.
The outdoor advertising industry is highly fragmented, consisting of several
large outdoor advertising and media companies with operations in multiple
markets as well as smaller and local companies operating a limited number of
structures in single or a few local markets. Although some consolidation has
occurred over the past few years, according to the OAAA there are approximately
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. (formerly Gannett Co. Inc.), Eller Media, Inc. (formerly Patrick
Media Group) and 3M National Advertising Co. (a division of Minnesota Mining and
Manufacturing Company), each of which has a larger national network and greater
total resources than the Company. The Company believes that its emphasis on
local advertisers and its position as a major provider of advertising services
in each of its markets 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.
42
<PAGE>
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. Its is uncertain whether
additional legislation of this type will be enacted on the national level or in
any of the Company's markets. Certain state and local governments have recently
proposed and some have enacted regulations restricting or banning outdoor
advertising of tobacco and liquor in certain jurisdictions. Continued passage of
restrictions or bans on outdoor advertising in the Company's markets may
adversely affect the Company's revenues at least in the immediate period
following such regulations.
In August 1996, the U.S. Food and Drug Administration issued final
regulations governing certain marketing practices in the tobacco industry. Among
other things, the regulations prohibit tobacco product billboard advertisements
within 1,000 feet of schools and playgrounds and require that tobacco product
advertisements on billboards be in black and white and contain only text. In
addition, one major tobacco manufacturer recently proposed federal legislation
banning 8-sheet billboard advertising and transit advertising of tobacco
products. A reduction in billboard advertising by the tobacco industry could
cause an immediate reduction in the Company's direct revenue from such
advertisers and would simultaneously increase the available space on the
existing inventory of billboards in the outdoor advertising industry. See
"Business -- Customers" and "Risk Factors -- Negative Implications of Tobacco
Industry Regulation on Outdoor Advertising."
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
43
<PAGE>
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. After 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.
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 each of 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 below 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 is involved in litigation in the ordinary course of business,
including disputes involving advertising contracts, site leases, employment
claims and construction matters. The Company is also involved in routine
administrative and judicial proceedings regarding permits and fees relating to
outdoor advertising structures and compensation for condemnations. None of these
proceedings, in the opinion of management, is likely to have a material adverse
effect on the Company.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth certain information with respect to the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
YEARS WITH
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 46 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.
DANIEL L. 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.
BRIAN T. 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.
PAUL G. 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.
MICHAEL J. 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. In 1997, Mr. Roche became the Director
of Marketing for Sears Home Services. Mr. Roche has been a director of the
Company since November 1993.
MICHAEL B. 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 Hosiery
Corporation of America, Inc. and United Refrigerated Services, Inc.
FRANK K. BYNUM, JR. 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. and
United Refrigerated Services, Inc.
For their services as directors, the members of the Board of Directors who
are not employees of the Company, UOI, 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 Board of
Directors.
45
<PAGE>
The Company instituted a classified Board of Directors immediately upon
consummation of the Offering. Upon the completion of their initial terms, which
vary from one to three years, all directors of the Company will hold office for
three-year terms until the next annual meeting of stockholders of the Company or
until their successors are duly elected and qualified. See "Description of
Capital Stock -- Special Provisions of Certificate of Incorporation, Bylaws and
Delaware Law." 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 Securities and Exchange Commission (the "Commission")
relating to the 1990 acquisition of a portfolio company by an affiliate of Kelso
& Companies, Inc. The order found that the tender offer filing by Kelso &
Companies, Inc. in connection with the acquisition did not comply fully with the
Commission's tender offer reporting requirements, and required Kelso &
Companies, Inc. and its chief executive officer to comply with these
requirements in the future.
The Company 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 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 the Board's compensation committee. See "Certain Transactions."
46
<PAGE>
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 (2)
- ----------------------------------------------------------- --------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Daniel L. Simon (1)........................................ 1996 $ 222,918 0 $ 1,000
President and 1995 244,379 0 1,000
Chief Executive Officer 1994 249,250 0 500
Brian T. Clingen (1)....................................... 1996 $ 144,867 0 $ 1,000
Chief Financial 1995 145,128 0 1,000
Officer and Vice 1994 145,852 0 500
President
Paul G. Simon (1).......................................... 1996 $ 168,507 $ 125,000 $ 1,000
Vice President, Secretary and 1995 158,176 0 1,000
General Counsel 1994 158,968 0 500
</TABLE>
- ------------------------
(1) Does not include value of warrants granted in April 1996 pursuant to the
1996 Warrant Plan to Daniel L. Simon, Brian T. Clingen and Paul G. Simon.
(2) Represents contributions made by the Company on behalf of the named
executive officers to a 401(k) plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
- ------------------------------------------------------------------------------------------ ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED (#) FISCAL YEAR (1) ($/SH) DATE (2) 5% 10%
- --------------------------------- ------------ --------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. Simon
Series I Warrants.............. 595,000 24.00% $ 5.00 4/5/2006 1,870,961 4,741,383
Series II Warrants............. 700,000 28.33% $ 5.00 4/5/2006 2,201,131 5,578,098
Series III Warrants............ 700,000 28.33% $ 5.00 4/5/2006 2,201,131 5,578,098
Brian T. Clingen
Series I Warrants.............. 105,006 4.25% $ 5.00 4/5/2006 330,188 836,762
Series II Warrants............. 123,536 5.00% $ 5.00 4/5/2006 388,455 984,422
Series III Warrants............ 123,536 5.00% $ 5.00 4/5/2006 388,455 984,422
Paul G. Simon
Series I Warrants.............. 123,530 5.00% $ 5.00 4/5/2006 388,436 984,375
</TABLE>
- ------------------------
(1) Warrants to purchase an aggregate of 2,470,608 shares of Common Stock
pursuant to the 1996 Warrant Plan were granted to the named executive
officers during 1996.
(2) The Expiration Date is the earlier of either (i) April 5, 2006 or (ii) the
date of resignation or termination of employment of the named executive
officer.
47
<PAGE>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE FISCAL YEAR-END, AT FISCAL YEAR-END,
ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME (#) ($) (#)(1) ($)(2)
- --------------------------------- ----------------- ------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Daniel L. Simon.................. -- -- 1,995,000/0 $ 36,907,500/0
Brian T. Clingen................. -- -- 352,078/0 $ 6,513,443/0
Paul G. Simon.................... -- -- 123,530/0 $ 2,285,305/0
</TABLE>
- ------------------------
(1) The number of securities underlying exercisable and unexercisable options
are expressed in shares of Common Stock.
(2) Valuation of these options is based on the closing price of $23.50 for
Common Stock, as quoted on the Nasdaq National Market on December 31, 1996.
The Company currently maintains two life insurance policies covering Daniel
L. Simon, each in the amount of $2.5 million. The Company is the sole
beneficiary under each policy. Pursuant to a buy-sell agreement between the
Company and Mr. Simon, the Company has agreed to use up to $3.5 million of the
proceeds from these policies to purchase a portion of Mr. Simon's shares of
Common Stock of the Company from his estate.
THE 1996 WARRANT PLAN
The 1996 Warrant Plan (the "1996 Warrant Plan") was adopted by the Board of
Directors of the Company in April 1996 in order to advance the interests of the
Company by affording certain key executives and employees an opportunity to
acquire a proprietary interest in the Company and thus to stimulate increased
personal interest in such persons in the success and future growth of the
Company. The 1996 Warrant Plan is administered by the Compensation Committee of
the Company. Pursuant to the 1996 Warrant Plan, Daniel L. Simon and Brian T.
Clingen were awarded warrants in April 1996 which have been divided into three
series (the "Series I Warrants," the "Series II Warrants" and the "Series III
Warrants," and collectively, the "Management Warrants"). In July 1996, the 1996
Warrant Plan was amended to, among other things (i) adjust the warrant exercise
price for the Series II Warrants and the Series III Warrants from $5.00 per
share (as adjusted to reflect the 16 for 1 stock split) to (X) in the case of
the Series II Warrants, the closing sale price of a share of Common Stock as
reported on the Nasdaq (the "Closing Price") for the day immediately preceding
any such exercise minus $.01, PROVIDED, HOWEVER, that if at any time the average
of the Closing Prices for any 30 consecutive trading days is equal to or greater
than $16.25 AND the Closing Price for the last day of such thirty day trading
period is equal to or greater than $16.25, then the warrant exercise price shall
thereafter be $5.00, and (Y) in the case of the Series III Warrants, the Closing
Price for the day immediately preceding any such exercise minus $.01, PROVIDED,
HOWEVER, that if at any time the average of the Closing Price for any 30
consecutive trading days is equal to or greater than $20.00 AND the Closing
Prices for the last day of such thirty day trading period is equal to or greater
than $20.00, then the warrant exercise price shall thereafter be $5.00; and (ii)
make each class of Warrants fully exercisable. The Series I Warrants Series II
Warrants and Series III Warrants are fully exercisable at a warrant exercise
price of $5.00 per share. The Warrants may not be sold, assigned, transferred,
exchanged or otherwise disposed of except under certain limited circumstances
including by will or the laws of descent and distribution. The Company consented
to an assignment by Daniel L. Simon and Brian T. Clingen to Paul G. Simon of
123,530 Series I Warrants. A total of 2,470,608 shares of Common Stock have been
reserved for issuance pursuant to the Warrants issued under the 1996 Warrant
Plan. As of the date of this Prospectus, Daniel L. Simon holds 595,000 Series I
Warrants, 700,000 Series II Warrants and 700,000 Series III Warrants; Brian T.
Clingen holds 105,006 Series I Warrants, 123,536
48
<PAGE>
Series II Warrants and 123,536 Series III Warrants; and Paul G. Simon holds
123,530 Series I Warrants. The Company recognized a one-time non-cash
compensation charge of approximately $9 million in the quarter to be ended June
30, 1996 relating to the issuance of the Warrants under the 1996 Warrant Plan.
AUDIT COMMITTEE; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In July 1996, the Board of Directors formed an Audit Committee which is
responsible for reviewing the Company's accounting controls and recommending to
the Board of Directors the engagement of the Company's outside auditors. The
members of the Company's Audit Committee are Daniel L. Simon, Michael J. Roche
and Frank K. Bynum.
The Company did not have a compensation committee in 1995. Instead,
compensation decisions were made by the Board of Directors of the Company.
Daniel L. Simon, Lawrence J. Simon, (brother of Daniel L. Simon and Paul G.
Simon) and Brian T. Clingen served as a members of the Board of Directors of the
Company and as executive officers of the Company during 1995. Lawrence J. Simon
resigned as an officer and director of the Company in October 1995. No other
individual who was a director of the Company during 1995 was also an officer or
employee of the Company during 1995. In July 1996, the Board of Directors formed
a Compensation Committee which is responsible for reviewing and approving the
amount and type of consideration to be paid to senior management and for
administering the 1996 Warrant Plan. See "Management -- The 1996 Warrant Plan."
The members of the Company's Compensation Committee are Daniel L. Simon, Brian
T. Clingen and Michael B. Goldberg. The Company 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.
49
<PAGE>
CERTAIN TRANSACTIONS
On April 5, 1996, the Company 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, the
Company 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 the Company. 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, the Company entered into agreements with KIA V, KEP V and
certain individual shareholders relating to certain rights of KIA V, KEP V and
certain individual shareholders as holders of Class B Common Stock and Class C
Common Stock of the Company. Pursuant to such agreements, the Company 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 shares were sold
in the Offering. 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 Offering, 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 certain
individual shareholders have the same rights as holders of Common Stock. In
connection with the reclassification, KIA V, KEP V and certain individual
shareholders were granted four demand registration rights, were granted
"piggy-back" registration rights, and KIA V was granted the right to nominate
two persons for seats on the Board of Directors to be voted upon by the
stockholders, with one of such directors, if elected, to be a member of the
Compensation Committee. Pursuant to such agreements, Daniel L. Simon, Brian T.
Clingen and Paul G. Simon were provided with four demand registration rights and
"piggy-back" registration rights.
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 UOI
Indentures and Amended Credit Facility impose limitations on the Company's
ability to engage in such transactions. See "Description of Indebtedness and
Other Commitments."
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth the number and percentage of outstanding shares
of 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 the 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 ....................................................................... 8,453,208(1) 32.3%
311 S. Wacker Drive, Suite 6400
Chicago, Illinois 60606
Brian T. Clingen ...................................................................... 1,279,938(2) 5.2
311 S. Wacker Drive, Suite 6400
Chicago, Illinois 60606
Paul G. Simon ......................................................................... 124,530(3) (4)
311 S. Wacker Drive, Suite 6400
Chicago, Illinois 60606
Michael J. Roche ...................................................................... 2,000 --(4)
333 Beverly Road, E5-312A
Hoffman Estates, Illinois 60179
Michael B. Goldberg (6)(8) ............................................................ 3,055,110 12.7
Director
Frank K. Bynum, Jr. (5)(6) ............................................................ 30,688 --(4)
Director
Kelso Investment Associates V, L.P. (6)(7)............................................. 2,847,871 11.8
Kelso Equity Partners V, L.P. (6)(7)................................................... 151,779 --(4)
Joseph S. Schuchert (6)(8)............................................................. 2,999,650 12.4
Frank T. Nickell (6)(8)................................................................ 3,134,879 13.0
George E. Matelich (6)(8).............................................................. 3,063,293 12.9
Thomas R. Wall, IV (6)(8).............................................................. 3,080,072 12.8
All directors and executive officers as a group (6 persons)(9) ........................ 8,672,156(9) 32.6
</TABLE>
- ------------------------
(1) Daniel L. Simon's beneficial ownership includes 4,933,220 shares that he
owns directly, 32,520 shares held by the Simon Family Foundation of which he
is a director, 88,000 shares held by The Simon Family Limited Partnership of
which he is a general partner, 1,995,000 shares issuable to him upon
exercise of the Management Warrants, 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.
(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 5.2% 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.
51
<PAGE>
(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 the Company following consummation of the Offering.
(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 the
Company since April 1996.
(9) Excludes KIA V and KEP V shares as well as shares that may be deemed to be
beneficially owned by Messrs. Schuchert, Nickell, Matelich, Goldberg and
Wall.
52
<PAGE>
DESCRIPTION OF NOTEHOLDER WARRANTS
GENERAL
The Noteholder Warrants were issued pursuant to a Warrant Agreement (the
"Warrant Agreement"), dated as of June 30, 1994, between the Company and United
States Trust Company of New York, as warrant agent (the "Warrant Agent"). The
Noteholder Warrants will expire on July 1, 2004. The Noteholder Warrants entitle
the holders thereof to purchase, at a price of $.000625 per share, an aggregate
of 1,000,000 shares of Common Stock of which 612,800 shares of Common Stock
received upon exercise of such Noteholder Warrants have been sold pursuant to a
Prospectus Supplement dated July 25, 1996. See "Selling Securityholders and Plan
of Distribution." Of the 62,500 Noteholder Warrants originally offered for sale,
38,300 Noteholder Warrants were exercised in exchange for Common Stock pursuant
to and such Common Stock was sold pursuant to a Prospectus Supplement dated July
25, 1996. This summary does not purport to be a complete description of the
Noteholder Warrants or the Warrant Agreement and is subject to the detailed
provisions of, and qualified in its entirety by reference to, the Noteholder
Warrants and the Warrant Agreement (including the definitions contained
therein).
EXERCISE OF NOTEHOLDER WARRANTS
Prior to July 1, 1999, the Noteholder Warrants were not exercisable except
in connection with an Initial Public Offering, a Disposition, a Non-Surviving
Combination or a Change of Control (each, as defined, and each, a "Trigger
Event"). The Company completed an Initial Public Offering on July 26, 1996 and
accordingly, the holders of the Noteholder Warrants (the "Noteholder
Warrantholders") are entitled to exercise all or a portion of their Noteholder
Warrants at any time on or prior to July 1, 2004, at which time all unexercised
Noteholder Warrants will expire, subject to earlier expiration where the
Noteholder Warrantholders have Bring Along Rights (as defined below). The
Company shall obtain, prior to the consummation of a Disposition where the
Noteholder Warrantholders do not have Bring Along Rights (as hereafter defined),
a written opinion of an independent nationally recognized investment banking
firm with assets in excess of $1.0 billion to the effect that such Disposition
is fair to the Noteholder Warrantholders from a financial point of view.
There is currently no public market for the Noteholder Warrants offered
hereby and there can be no assurance that an active public market for the
Noteholder Warrants will develop. The Noteholder Warrants were sold as part of
the Units in the offering consummated by the Company in June 1994. Because the
Noteholder Warrants were part of the Units, the exercise price of the Noteholder
Warrants was determined as a component of the overall offering price of the
Units, which was determined by negotiations among the Company and the Initial
Purchaser. Among the factors considered in making such determination were
prevailing market conditions, certain financial information of the Company, the
current state of the economy as a whole and other factors deemed relevant.
BRING ALONG RIGHTS
If the Company or the stockholders of the Company enter into a binding
agreement to effect (i) a Non-Surviving Combination, (ii) a Change of Control
involving a sale of 100% of the Common Stock of the Company or (iii) a
Disposition involving the sale of all of the Company's assets, the Company shall
deliver notice (the "Bring Along Notice") to the Warrant Agent and each
Noteholder Warrantholder, at least 35 days prior to the closing of that
transaction, setting forth the relevant terms of that transaction and each
Noteholder Warrantholder's right (the "Bring Along Right") to exercise the
Noteholder Warrants within a 30-day period commencing on the date of such notice
(the "Bring Along Period"). Exercise of the Noteholder Warrants following the
delivery of a Bring Along Notice will constitute agreement by the Noteholder
Warrantholder to the Disposition, Non-Surviving Combination or sale of 100% of
the Company's Common Stock, including such Noteholder Warrantholder's agreement
to sell the Common Stock (the "Warrant Shares") received upon exercise of
Noteholder Warrants, for the sale price and on the same terms as the other
stockholders of the Company. Any Noteholder Warrant that is not exercised during
the Bring Along Period will expire at the end of the Bring Along Period.
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REGISTRATION
Pursuant to Registration Rights Agreement, the Company agreed to file the
Registration Statement, of which this Prospectus forms a part, covering the
issuance by the Company of the Warrant Shares to the Noteholder Warrantholders
upon exercise of the Noteholder Warrants and resales by the Noteholder
Warrantholders of the Noteholder Warrants and the Warrant Shares, and to use its
best efforts to cause such Registration Statement to remain effective for a
period of not less than 3 years after the last exercise of a Noteholder Warrant
not covered by such Registration Statement. Holders of Noteholder Warrants and
Warrant Shares may be required to deliver certain information to be used in
connection with the continuing effectiveness of the Registration Statement. If
this Registration Statement is declared effective but thereafter shall cease to
be effective for any period in excess of five business days (each, a "Shelf
Registration Default"), the Company is obligated to pay to the Noteholder
Warrantholders and to holders of the Warrant Shares (other than a holder of
Noteholder Warrants or Warrant Shares that were acquired through a disposition
pursuant to an effective registration statement) liquidated damages in the
amount of $1.00 per Noteholder Warrant or Warrant Share for each 90-day period
(or portion thereof) immediately following such Shelf Registration Default until
the Registration Statement is declared effective or again becomes effective, as
the case may be, up to a maximum of $2.00 per Noteholder Warrant or Warrant
Share. All accrued liquidated damages shall be paid to holders of record of the
Noteholder Warrants or Warrant Shares on the last day of each calendar quarter
during which any such payment shall have become due.
LIQUIDATION OF THE COMPANY
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, each Noteholder Warrantholder shall be entitled to
share, with respect to the Warrant Shares issuable upon exercise of his
Noteholder Warrants, equally and ratably in any cash or non-cash distributions
payable to holders of any class of Common Stock of the Company payable upon the
exercise of such Noteholder Warrant. Noteholder Warrantholders will not be
entitled to receive payment of any such distribution until the surrender to the
Warrant Agent of their Noteholder Warrants in accordance with the terms and
provisions of the Warrant Agreement.
CASH DIVIDENDS
If the Company pays any cash dividend on, or any other cash distribution in
respect of its Common Stock, it shall pay each Noteholder Warrantholder an
amount in cash equal to the amount such Noteholder Warrantholder would have
received if such Noteholder Warrantholder had been the record holder of the
Warrant Shares issuable upon exercise of his Noteholder Warrants immediately
prior to the record date for such dividend or distribution.
ANTI-DILUTION ADJUSTMENTS
The number of Warrant Shares issuable upon exercise of a Noteholder Warrant
will be adjusted upon the occurrence of certain events, including, without
limitation (i) the payment of a dividend on, or the making of any distribution
in respect of, Common Stock of the Company in (a) shares of the Company's
capital stock (including Common Stock), (b) options, warrants or rights to
purchase, or securities convertible into or exchangeable or exercisable for,
shares of Common Stock or other securities of the Company or any other person,
or (c) certain evidences of indebtedness of the Company or any assets of the
Company or (ii) the issuance of Common Stock or securities convertible into or
exercisable or exchangeable for shares of Common Stock at a price below fair
market value. An adjustment will also be made in the event of a combination,
subdivision or reclassification of the Common Stock. Adjustments will be made
whenever and as often as any specified event requires an adjustment to occur.
AMENDMENT
From time to time, the Company and the Warrant Agent, without the consent of
the Noteholder Warrantholders, may amend or supplement the Warrant Agreement for
certain purposes, including curing defects or inconsistencies or making any
change that does not materially adversely affect the rights of any Noteholder
Warrantholder. Any other amendment or supplement to the Warrant Agreement shall
require the written consent of the holders of a majority of the then outstanding
Noteholder Warrants. The
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consent of each Noteholder Warrantholder affected shall be required for any
amendment pursuant to which the exercise price would be increased or the number
of shares of Common Stock purchasable upon exercise of Noteholder Warrants would
be decreased (other than pursuant to adjustments provided in the Warrant
Agreement) or for any change in the Trigger Events (or rights or obligations
upon the occurrence of any such Trigger Event) in a manner adverse to any
Noteholder Warrantholder.
REPORTS
The Company will file with the Warrant Agent, to be provided to the
Noteholder Warrantholders within 15 days after it files them with the
Commission, copies of its annual and quarterly reports and the information,
documents and reports that the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the
Company may not be required to remain subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall continue to file with
the Commission and provide the Warrant Agent and the holders of Noteholder
Warrants with such annual reports and such information, documents and other
reports (or copies of such portion of any of the foregoing as the Commission may
by rules or regulations prescribe) which are specified in Sections 13 or 15(d)
of the Exchange Act.
FORM OF NOTEHOLDER WARRANTS
The Noteholder Warrants were initially issued in the form of a single, fully
registered global warrant (the "Global Warrant") with certain restricted
securities legends affixed thereto, and were available initially only in
book-entry form. The Global Warrant was deposited with the Warrant Agent as
custodian for The Depository Trust Company (the "Depository") and registered in
the name of Cede & Co., the Depository's nominee. Beneficial interests are
currently shown on, and transfers thereof are currently effected only through,
the records maintained by the Depository and its participants. All requirements
with respect to the Global Warrants and legends on Noteholder Warrants have
ceased to apply, and certificated Warrants without legends are available to the
Noteholder Warrantholders and transferees thereof.
MISCELLANEOUS
The Noteholder Warrant will not entitle the holder thereof to any of the
rights of a holder of capital stock of the Company, including, without
limitation, the right to vote at or receive notice of meetings of the
stockholders or the Company, except as specifically set forth in the Warrant
Agreement.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Warrant Agreement.
Reference is made to the Warrant Agreement for a complete description of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events: (a) the Permitted Holders shall cease to beneficially own (within the
meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, Voting
Stock representing at least 40% of the total voting power of all Voting Stock of
the Company; (b) any Person or group (as such term is used in Section 13(d)(3)
of the Exchange Act), other than the Permitted Holders, shall beneficially own
(within the meaning of Rule 13d-3 under the Exchange Act), directly or
indirectly, Voting Stock representing more than 30% of the total voting power of
all Voting Stock of the Company; (c) the individuals who on the date of initial
issuance of the Secured Notes constitute the Board of Directors of the Company
(together with any new or replacement directors whose election was approved by a
vote of at least two-thirds of the directors of the Company then still in
office, other than new directors elected pursuant to the exercise of a class
voting right granted to the holders of any class or series of Capital Stock of
the Company) shall cease for any reason to constitute a majority of the Board of
Directors of the Company or a majority of the Board of Directors of UOI; (d) the
merger or consolidation of the Company with, or the sale, lease or transfer of
all or substantially all the Company's assets to, any Person or group (as such
term is used in Section 13(d)(3) under the Exchange Act); or (e) the
stockholders of the Company shall approve any plan or proposal for the
liquidation or dissolution of the Company.
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"INITIAL PUBLIC OFFERING" means an underwritten primary public offering of
the Common Stock of the Company pursuant to an effective registration statement
under the Securities Act which is the initial public offering of such Common
Stock.
"NON-SURVIVING COMBINATION" means the merger, consolidation or other
business combination with one or more other entities in a transaction in which
the Company is not the surviving entity.
"DISPOSITION" means a (a) merger, consolidation or other business
combination in which the Company is the surviving entity and the Company's
stockholders receive cash or non-cash consideration in exchange for or in
respect of their shares of capital stock or (b) the sale, lease, conveyance,
transfer or other disposition (other than to the Company or any of its
wholly-owned subsidiaries) in any single transaction or series of related
transactions (including a sale and leaseback transaction) of all or
substantially all the assets of the Company.
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the Company's authorized capital stock
consisted of 75,000,000 shares of Common Stock, $.01 par value per share, and
10,000,000 shares of preferred stock, $.01 par value per share (the "Preferred
Stock"). The following summary of the Company's capital stock is qualified in
its entirety by reference to the Company's Third Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") and Second
Amended and Restated Bylaws (the "Bylaws"), each of which is filed as an exhibit
to the registration statement of which this Prospectus is a part.
COMMON STOCK
The Company was authorized to issue 75,000,000 shares of Common Stock, $.01
par value per share. As of the date of this Prospectus, 24,112,800 shares of
Common Stock are issued and outstanding (excluding 2,857,808 shares of Common
Stock issuable upon the exercise of all outstanding warrants including
Noteholder Warrants that have not been exercised.) See "Capitalization."
Holders of Common Stock are entitled to one vote per share on all matters on
which the holders of Common Stock are entitled to vote. Because holders of
Common Stock do not have cumulative voting rights and the Company has a
classified Board of Directors, the holders of a majority of the shares of Common
Stock voting for the election of directors can elect all of the members of the
Board of Directors standing for election at any particular meeting. The Common
Stock is not redeemable and has no conversion or preemptive rights. All of the
outstanding shares of Common Stock are, and all of the shares of Common Stock
issuable upon the exercise of the Noteholder Warrants offered hereby will be,
when issued and paid for, fully paid and nonassessable. In the event of the
liquidation or dissolution of the Company, the holders of Common Stock are
entitled to share pro rata in any of the corporate assets available for
distribution to them. The Company may pay dividends if, when and as declared by
the Board of Directors from funds legally available therefor, subject to the
restrictions set forth in the New Credit Facility and the indentures governing
the Notes. See "Dividend Policy."
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Certificate of Incorporation and limitations prescribed by law, the Board
of Directors is expressly authorized to adopt resolutions to issue the shares,
to fix the number of shares and to change the number of shares constituting any
series, and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, including dividend rights
(including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, in each case without any further action or vote
by the stockholders. The Company has no current plans to issue any additional
shares of Preferred Stock of any class or series.
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One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
THE 1996 WARRANT PLAN
The 1996 Warrant Plan was adopted by the Board of Directors of the Company
in April 1996 in order to advance the interests of the Company by affording
certain key executives and employees an opportunity to acquire a proprietary
interest in the Company and thus to stimulate increased personal interest in
such persons in the success and future growth of the Company. The 1996 Warrant
Plan is administered by the Compensation Committee of the Company. For a
description of the 1996 Warrant Plan, see "Management -- The 1996 Warrant Plan."
CERTAIN OUTSTANDING RIGHTS
On November 18, 1993, the Company entered into the Capital Appreciation
Right Agreement with Connecticut General Life Insurance Company, Cigna Property
and Casualty Insurance Company, Life Insurance Company of North America and
Aetna Life Insurance Company, pursuant to which the Company granted such parties
limited capital appreciation rights in the capital stock of the Company in
exchange for a waiver of the prepayment penalty in connection with the 1993
refinancing. Such capital appreciation rights are triggered by the occurrence of
any of the following: (i) liquidation or dissolution of the Company or UOI, (ii)
sale of all or substantially all of the issued and outstanding shares of common
stock or assets of the Company, or (iii) the merger or consolidation of the
Company or UOI, subject to certain exceptions. The maximum amount payable
pursuant to the agreement is $3.8 million and is required to be paid no later
than one year following the triggering event. The agreement expires June 30,
1998.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
Certain provisions of the Certificate of Incorporation and Bylaws as well as
certain provisions of Delaware law may be deemed to have an anti-takeover effect
or may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in such stockholder's best interest, including those
attempts that might result in a premium over the market price for the shares
held by a stockholder.
The Certificate of Incorporation provides that no director of the Company
shall be personally liable to the Company or its stockholders for monetary
damages for breach of duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
Delaware General Corporation Law or (iv) for any transaction from which the
director derived an improper personal benefit. The effect of these provisions is
to eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of fiduciary duty as a director (including
breaches resulting from grossly negligent behavior), except in the situations
described above.
The Bylaws provide that the Company will indemnify its directors and
officers to the fullest extent permissible under Delaware General Corporation
Law. These indemnification provisions require the Company to indemnify such
persons against certain liabilities and expenses to which they may become
subject by reason of their service as a director or officer of the Company. The
provisions also set forth certain procedures, including the advancement of
expenses, that apply in the event of a claim for indemnification.
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DELAWARE ANTI-TAKEOVER LAW. Section 203 of the Delaware General Corporation
Law ("Section 203") generally provides that a person who, together with
affiliates and associates owns, or within three years did own, 15% or more of
the outstanding voting stock of a corporation (an "Interested Stockholder") but
less than 85% of such stock may not engage in certain business combinations with
the corporation for a period of three years after the date on which the person
became an Interested Stockholder unless (i) prior to such date, the
corporation's board of directors approved either the business combination or the
transaction in which the stockholder became an Interested Stockholder or (ii)
subsequent to such date, the business combination is approved by the
corporation's board of directors and authorized at a stockholders' meeting by a
vote of at least two-thirds of the corporation's outstanding voting stock not
owned by the Interested Stockholder. Section 203 defines the term "business
combination" to encompass a wide variety of transactions with or caused by an
Interested Stockholder, including mergers, asset sales, and other transactions
in which the Interested Stockholder receives or could receive a benefit on other
than a pro rata basis with other stockholders.
The provisions of Section 203, coupled with the Board's authority to issue
Preferred Stock without further stockholder action, could delay or frustrate the
removal of incumbent directors or a change in control of the Company. The
provisions also could discourage, impede or prevent a merger, tender offer or
proxy contest, even if such event would be favorable to the interests of
stockholders. The Company's stockholders, by adopting an amendment to the
Certificate of Incorporation, may elect not to be governed by Section 203 which
election would be effective 12 months after such adoption. Neither the
Certificate of Incorporation nor the Bylaws exclude the Company from the
restrictions imposed by Section 203.
CLASSIFIED BOARD OF DIRECTORS. The Certificate of Incorporation classifies
the Board of Directors into three classes. The first class consists of one
director whose initial term expires in 1997. The second class consists of two
directors whose initial term expires in 1998. The third class consists of two
directors whose initial term expires in 1999. At each annual meeting, the number
of directors equal to the number of directors in the class whose terms expire at
the time of such meeting shall be elected to hold office until the third
succeeding annual meeting. As a result of this classification of directors, no
shareholder or group of shareholders would be able to elect a majority of the
Board of Directors at any single meeting for the election of directors. In
addition, the Delaware General Corporation Law prohibits the removal of a
director of a classified board without cause. This could discourage a proxy
contest for control of the Board of Directors.
NOTICE PROVISIONS. The Bylaws provide that only business or proposals,
including director nominations, properly brought before an annual meeting of
shareholders may be conducted at such meeting. In order to bring business or a
proposal before an annual meeting, a shareholder is required to provide written
notice to the Company at least 45 days prior to the annual meeting which
describes the business or proposal to be brought before the annual meeting, the
name and address of the stockholder proposing the business, the class and number
of shares of stock held by such stockholder, and any material interest of the
stockholder in the business to be brought before the meeting. These procedures
may operate to limit the ability of stockholders to bring business before the
annual meeting, including with respect to the nominee of directors or
considering any transaction that could result in a change of control of the
Company.
WARRANT AGENT
The Warrant Agent for the Noteholder Warrants is United States Trust Company
of New York.
TRANSFER AGENT
The Company's transfer agent and registrar for the Common Stock is LaSalle
National Trust, N.A.
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SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of shares of Common Stock for sale
will have on the market price prevailing from time to time. Nevertheless, sales
of substantial amounts of Common Stock of the Company in the public market after
the restrictions described below lapse could adversely affect the prevailing
market price of the Common Stock and the ability of the Company to raise equity
capital in the future.
As of the date of this Prospectus, the Company will have outstanding
24,112,800 shares of Common Stock (excluding 2,857,808 shares of Common Stock
issuable pursuant to the 1996 Warrant Plan and Noteholder Warrants). See
"Capitalization" and "Description of Capital Stock." Of these shares, the
13,630,000 shares of Common Stock are freely tradable without restriction under
the Securities Act except for any shares purchased by "affiliates," as that term
is defined in the Securities Act, of the Company. The remaining shares are
"restricted securities" within the meaning of Rule 144 adopted under the
Securities Act (the "Restricted Shares"). The Restricted Shares generally may
not be sold unless they are registered under the Securities Act or are sold
pursuant to an exemption from registration, such as the exemption provided by
Rule 144 or Rule 144A under the Securities Act.
Certain of the Company's security holders and all of its executive officers
and directors have the power to dispose of a total of 8,672,156 shares
(including 2,470,608 shares issuable upon exercise of the Management Warrants).
These shares will not be eligible for sale in the public market without
registration unless such sales meet the conditions and restrictions of Rule 144
as described below. KIA V and KEP V expect to distribute shares of Common Stock
to their respective partners, and may in the future sell or otherwise dispose of
Common Stock, including additional distribution to their respective partners.
KIA V and KEP V distributed approximately 406,350 shares of Common Stock to
certain of its partners in lieu of cash in conjunction with the Offering. The
recipients of such distributions agreed with KIA V, KEP V and the underwriters
for the Offering not to offer, sell, or otherwise dispose of such shares of
Common Stock prior to March 31, 1997 without the prior written consent of KIA V
and Alex. Brown & Sons Incorporated. KIA V, KEP V and their partners, Daniel L.
Simon, Brian T. Clingen and Paul G. Simon and certain other individual
shareholders are entitled to four demand and certain "piggyback" registration
rights.
In general, under Rule 144 as currently adopted and in effect in April 1997,
any person (or persons whose shares are aggregated), including an affiliate, who
has beneficially owned shares for a period of at least one year (as computed
under Rule 144) is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (i) 1% of the then-outstanding shares
of Common Stock (approximately 241,000 shares as of the date of this Prospectus
(including shares issuable pursuant to the 1996 Warrant Plan and Noteholder
Warrants)) and (ii) the average weekly trading volume in the Company's Common
Stock during the four calendar weeks immediately preceding the date on which the
notice of such sale on Form 144 is filed with the Commission. Sales under Rule
144 are also subject to certain provisions relating to notice and manner of sale
and the availability of current public information about the Company. In
addition, a person (or persons whose shares are aggregated) who has not been an
affiliate of the Company at any time during the 90 days immediately preceding a
sale, and who has beneficially owned the shares of at least two years (as
computed under Rule 144), would be entitled to sell such shares under Rule
144(k) without regard to the volume limitation and other conditions described
above. The foregoing summary of Rule 144 is not intended to be a complete
description thereof.
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DESCRIPTION OF INDEBTEDNESS AND OTHER COMMITMENTS
The following is a description of the principal agreements governing the
indebtedness of the Company and UOI as of May 31, 1996. The following summaries
of certain provisions of the Amended Credit Facility and the UOI Indentures (as
such terms are defined below) are qualified in their entirety by reference to
the agreement to which each summary relates, a copy of which is an exhibit to
the registration statement of which this Prospectus is a part. See "Available
Information." Defined terms used below and not defined have the meanings set
forth in the respective agreements.
THE DEBT TENDER OFFERS
On June 23, 1994, the Company issued $50 million aggregate principal amount
of the Existing Company Notes and 50,000 Warrants to purchase 1,000,000 shares
of Common Stock (after the consummation of the Offering and the stock split
contemplated immediately prior thereto) pursuant to an indenture (the "Secured
Note Indenture") between the Company and the United States Trust Company of New
York, as trustee. In October 1996, the Company completed the Company Debt Tender
Offer to purchase all of the outstanding Existing Company Notes. Simultaneously,
UOI completed the UOI Debt Tender Offer to purchase all of the then outstanding
Existing UOI Notes. These tender offers are sometimes referred to herein
collectively as the "Debt Tender Offers."
NEW CREDIT FACILITY AND AMENDED CREDIT FACILITY
In October 1996, UOI entered into the New Credit Facility and, as amended in
May 1997, the Amended 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 UOI. UOI 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 Amended Credit Facility). On each of these
dates, UOI 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. UOI'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 UOI. In addition, UOI has pledged all of the
stock of its subsidiaries and the Company has pledged all of the stock of UOI as
security for UOI's obligations.
COVENANTS. The Revolving Credit Facility restricts UOI 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 UOI 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 UOI or declaring or paying dividends on the capital
stock of UOI; 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
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or the Holdings Leverage Ratio (as defined in the Amended Credit Facility) is
less than 5.50 to 1.0. In addition, the Revolving Credit Facility also requires
UOI to maintain certain levels of EBITDA and interest expense coverage, and
limits UOI'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 annually to 105% of the
maximum amount for the immediately preceding twelve-month period.
CHANGE OF CONTROL. A Change of Control of UOI (as defined in the Amended
Credit Facility) 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 a total commitment in the amount of $287.5 million
pursuant to which $75 million was available under a term loan on the closing
date of 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. UOI drew an amount approximately equal to $285
million to finance the POA Acquisition and for fees and expenses in connection
therewith. The $212.5 million revolving 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 UOI. See "Use of Proceeds."
TERMINATION OF COMMITMENT. The $212.5 million revolving loan matures on
September 30, 2003, or upon the occurrence of a Change of Control (as defined in
the Amended Credit Facility). The availability under the $212.5 million
revolving loan terminates in September 1999.
SECURITY. UOI'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 UOI. In addition, UOI has pledged all of the
stock of its subsidiaries and the Company has pledged all of the stock of UOI as
security for UOI's obligations.
COVENANTS. The Acquisition Credit Facility restricts UOI 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 UOI or assigning any right to receive
income; (iv) with certain exceptions, creating, incurring, assuming or suffering
to exist any indebtedness; (v) making investments or loans in any other person
or entity or acquiring or establishing any subsidiaries except for investments
and subsidiaries permitted under the Acquisition Credit Facility; (vi) selling,
assigning or otherwise encumbering or disposing of the capital stock or other
securities of any subsidiary; (vii) making any optional or voluntary prepayments
on indebtedness; (viii) with certain exceptions, redeeming, retiring or
purchasing capital stock of UOI or declaring or paying dividends on the capital
stock of UOI; 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 Amended Credit Facility) is less than 5.50 to 1.0. In addition, the
Acquisition Credit Facility also requires UOI to maintain certain levels of
EBITDA and interest expense coverage, and limits UOI'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 of UOI (as defined in the Amended
Credit Facility) constitutes an event of default permitting the lenders to
accelerate indebtedness under and terminate the Acquisition Credit Facility.
61
<PAGE>
TERM LOAN FACILITY. The Term Loan Facility provides the Company with a $75
million term loan that was drawn upon by UOI in May 1997 in order to pay down
amounts owed under the Acquisition Credit Facility and has the same terms as the
Acquisition Credit Facility maturing on September 30, 2003.
THE UOI NOTES
THE OCTOBER NOTES. In October 1996, UOI issued $225 million of 9 3/4%
Senior Subordinated Notes due 2006 pursuant to an Indenture (the "Indenture")
entered into by UOI and the United States Trust Company of New York, as trustee.
The October Notes are general, unsecured obligations of UOI, subordinated in
right of payment to all Senior Debt (as defined in the Indenture pursuant to
which the October Notes were issued) of UOI.
The October Notes were issued only in fully registered form, without
coupons, in denominations of $1,000 and integral multiples thereof.
The October Notes mature on October 15, 2006. The October Notes bear
interest at the rate per annum of 9 1/2% 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 October 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.
UOI will not have the right to redeem any October Notes prior to October 15,
2001 (other than out of the net cash proceeds of a public offering or a private
placement of equity securities of the Company, as described in the next
following paragraph). The October Notes will be redeemable for cash at the
option of UOI, 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
October 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 offering or private placement of
equity securities of the Company, in each case resulting in net cash proceeds of
$100 million or more which are then contributed in full to UOI, up to $35
million aggregate principal amount of the October Notes may be redeemed at the
option of UOI within 120 days of such public offering or private placement, on
not less than 30 days, but not more than 60 days, notice to each holder of the
October Notes to be redeemed, with cash from the net cash proceeds of such
public offering or 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 October Notes are outstanding.
In the case of a partial redemption, the Trustee shall select the October
Notes or portions thereof for redemption on a PRO RATA basis, by lot or in such
other manner it deems appropriate and fair. The October Notes may be redeemed in
part in multiples of $1,000 only. The October 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 October Note to be redeemed to such holder's last address
as then shown upon the registry books of the registrar.
62
<PAGE>
The Indenture restricts UOI and its subsidiaries from, among other things:
(i) incurring indebtedness and allowing subsidiaries to issue preferred stock;
(ii) incurring liens or guaranteeing obligations except for certain permitted
liens with certain exceptions; (iii) entering into mergers or consolidations;
(iv) selling or otherwise disposing of property, business or assets; (v) with
certain exceptions, declaring dividends or making loans or investments; (vi)
making optional payments or prepayments of indebtedness; (vii) entering into
transactions with affiliates; (viii) with certain exceptions, entering into
agreements prohibiting or limiting the ability of UOI or its subsidiaries to
create liens upon its property, assets or revenues in favor of the holders of
October Notes or pay dividends or indebtedness to UOI or its subsidiaries; and
(ix) engaging in any businesses other than the business of outdoor advertising.
Upon a change of control, each holder of October Notes may require UOI to
repurchase all or a portion of such holder's October Notes at a purchase price
equal to 101% of their accreted value on the date of purchase. A "change in
control" occurs upon (i) any merger or consolidation of UOI or the Company or
any sale, transfer or conveyance of the assets of UOI or the Company which as a
result, causes more than 50% of the voting power of the equity securities of UOI
or the Company to a party other than the Company or a permitted holder, (ii)
acquisition by any Person or group other than the Company or a permitted holder
of in excess of 50% of the voting power of the equity securities of UOI or the
Company, or (iii) the members of the Board of Directors as of the date of the
Indenture or their duly elected replacements, fail to constitute a majority of
the Board of Directors.
THE DECEMBER NOTES. In December 1996, UOI issued $100 million of 9 3/4%
Series B Senior Subordinated Notes due 2006 and in May 1997, UOI exchanged such
notes for $100 million 9 3/4% Series B Senior Subordinated Exchange Notes due
2006 with terms substantially the same as the October Notes in a transaction
registered under the Securities Act. The December Notes have terms and
conditions substantially similar to the October Notes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of holding and disposing of the Noteholder Warrants. The summary is
based upon the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), existing and proposed Treasury regulations, administrative
pronouncements and judicial decisions now in effect, all of which are subject to
change (possibly on a retroactive basis). This summary does not discuss all
aspects of federal income taxation that might be relevant to investors in light
of their particular circumstances or to certain types of investors subject to
special treatment under the federal income tax laws (for example, dealers in
securities, tax-exempt organizations, insurance companies and foreign
taxpayers). Furthermore, this summary does not discuss the consequences to an
investor under state, local or foreign tax laws. Prospective investors are
advised to consult their own tax advisors regarding the federal, state, local
and other tax considerations of holding and disposing of the Noteholder
Warrants. This discussion is not binding on the Internal Revenue Service or the
courts. The Company has not sought and will not seek any rulings from the
Internal Revenue Service with respect to the positions of the Company discussed
herein. There can be no assurance that the Internal Revenue Service will not
take a different position concerning the tax consequences of holding and
disposing of the Noteholder Warrants. The discussion assumes that holders of the
Noteholder Warrants will hold them as "capital assets" within the meaning of
Section 1221 of the Code.
The filing and effectiveness of this Registration Statement should not cause
Noteholder Warrantholders to realize taxable gain or loss for federal income tax
purposes.
No gain or loss will be recognized by a Noteholder Warrantholder on the
purchase of Common Stock for cash on the exercise of the Noteholder Warrant. The
basis of Common Stock purchased upon exercise of a Noteholder Warrant for cash
will include such Noteholder Warrantholder's basis in the Noteholder Warrant
plus the amount of cash consideration paid upon exercise. Any gain or loss
recognized on the sale or other disposition of a Noteholder Warrant (other than
upon exercise of the Noteholder Warrant) will generally be capital gain or loss.
The gain or loss will be equal to the difference between the amount
63
<PAGE>
realized on such sale or other disposition and the Noteholder Warrantholder's
tax basis in such Noteholder Warrant. If a Noteholder Warrant lapses
unexercised, the Noteholder Warrantholder generally will recognize a capital
loss equal to the Noteholder Warrantholder's tax basis in the Noteholder Warrant
at the time the Noteholder Warrant lapses. The Company has determined that the
tax basis of a Noteholder Warrant held by a Noteholder Warrantholder that
acquired the Noteholder Warrant as part of the initial offering of Units is $40.
Under current Treasury regulations, this determination will generally be binding
on all such Noteholder Warrantholders, except a Noteholder Warrantholder who
discloses to the Internal Revenue Service that such Noteholder Warrantholder is
adopting a different determination and attaches a form containing this
disclosure to such Noteholder Warrantholder's income tax return for the tax year
that includes the acquisition date of the Unit.
Although the tax treatment of payments by the Company with respect to a
Noteholder Warrant upon a Shelf Registration Default, as described above under
"Description of Noteholder Warrants -- Registration," is unclear at this time,
under one interpretation the tax basis in a Noteholder Warrant may be reduced by
the amount of such payments. Alternatively, such payments could be taxable to
Noteholder Warrantholders as a distribution paid with respect to stock of the
Company. Another alternative is that such payments will be taxed as ordinary
income. The tax treatment of payments by the Company of dividend equivalent
amounts described above under "Description of Noteholder Warrants -- Cash
Dividends" is unclear at this time. Such payments may be taxable as a
distribution paid with respect to stock of the Company. Another alternative is
that such payments will be taxed as ordinary income.
Adjustments in the exercise price of the Noteholder Warrants made pursuant
to the anti-dilution provisions of the Noteholder Warrants to reflect certain
distributions to the holders of Common Stock may result in taxable distributions
to Noteholder Warrantholders pursuant to the deemed dividend rules of Section
305 of the Code and the Treasury regulations promulgated thereunder. The basis
of a Noteholder Warrant should be increased by the amount of any such dividend.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS NOT
TAX ADVICE. ACCORDINGLY, EACH PERSON CONSIDERING THE PURCHASE OF NOTEHOLDER
WARRANTS SHOULD CONSULT HIS, HER OR ITS OWN ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO HIM, HER OR IT OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
NOTEHOLDER WARRANTS, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS AND OF CHANGES IN THE APPLICABLE TAX LAWS.
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<PAGE>
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
SELLING SECURITYHOLDERS
As of the date hereof, the Noteholder Warrants are held in the form of the
Global Warrant registered in the name of Cede & Co., the nominee for the
Depository. With respect to the offer and sale by any Selling Securityholder of
Securities pursuant to this Prospectus, a Prospectus Supplement that sets forth
the name of the Selling Securityholder and the Securities being offered for sale
will accompany this Prospectus. Because the Selling Securityholders may sell all
or a portion of their Securities at any time and from time to time after the
date hereof, no estimate can be made of the amount of Securities that each
Selling Securityholder may retain upon completion of the offering to which this
Prospectus relates.
METHOD OF SALE
The Selling Securityholders may sell any or all the Securities through
underwriters or dealers, through brokers or other agents, or directly to one or
more purchasers in one or more transactions in the over-the-counter market, if
such a market develops, or in privately negotiated transactions, or in a
combination of such transactions. Such transactions may be effected by the
Selling Securityholders at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices, or at
fixed prices, which may be changed. Such underwriters, dealers, brokers or other
agents may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders and may receive commissions from
the purchasers of the Securities for whom they act as agent.
Any Selling Securityholder and any dealer, broker or other agent selling
Securities for the Selling Securityholders or purchasing any Securities from a
Selling Securityholder for purposes of resale may be deemed to be an underwriter
under the Securities Act and any profit from the sale of the Securities or any
compensation received by such Selling Securityholder, dealer, broker or other
agent may be deemed underwriting compensation. Neither the Company nor the
Selling Securityholders can presently estimate the amount of such compensation.
The Company knows of no existing arrangements between any Selling Securityholder
and any other Selling Securityholder, underwriter, dealer, or broker or other
agent.
In the event that any underwriters are used in the sale of any Securities, a
Prospectus Supplement or other appropriate document will be delivered with this
Prospectus which will describe any material arrangements for the distribution of
such Securities, including the name or names of any underwriters, the purchase
price of such Securities and the proceeds to the Selling Securityholders from
any such sale, any underwriting discounts and other items constituting
underwriters' compensation, any initial public offering price and any discounts
or concessions allowed or reallowed or paid to dealers, together with other
related information.
The Company will issue and sell the shares of Common Stock issuable upon
exercise of the Noteholder Warrants, from time to time, to registered holders of
the Noteholder Warrants upon the exercise thereof.
To comply with certain states' securities laws, if applicable, the
Securities may be sold in such states only through registered or licensed
brokers or dealers. In addition, in certain states the Securities may not be
sold 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.
There is currently no public market for the Noteholder Warrants. The Company
does not currently intend to apply for listing of the Noteholder Warrants on any
stock exchange. Therefore, there is no assurance that an active public market
for the Noteholder Warrants will develop or that if such a market develops, that
it will continue. The Common Stock is quoted on the Nasdaq National Market under
the symbol "UOUT."
65
<PAGE>
EXPENSES
The Company has agreed to pay the expenses incurred in connection with the
preparation and filing of this Prospectus and the related Registration
Statement, except for commissions of brokers or dealers and may transfer fees
incurred in connection with the sales of the Securities by any Selling
Securityholder, which will be paid by such Selling Securityholder. The Company
has also agreed to pay the fees and expenses incurred in connection with the
registration or qualification of the Securities for sale under state securities
laws.
REGISTRATION OBLIGATIONS OF THE COMPANY
Pursuant to the Warrant Agreement, the Company has agreed to use its best
efforts to maintain the effectiveness of the Registration Statement, of which
this Prospectus forms a part, at all times, for so long as any Noteholder
Warrants remain outstanding and for 3 years from the date on which the last
Noteholder Warrant is exercised or such shorter period that will terminate when
all Noteholder Warrants and all Warrant Shares covered by this Registration
Statement, of which this Prospectus is a part, have been sold pursuant to such
Registration Statement.
INDEMNIFICATION
Pursuant to the provisions contained in the Registration Rights Agreement,
the Company is obligated under certain circumstances to indemnify the Selling
Securityholders who sell Securities pursuant to this Prospectus, their
respective officers, directors and agents, and controlling persons, and each
underwriter in an offering or sale of such Securities, against certain
liabilities related to such sale or disposition, including liabilities arising
under the Securities Act, or to contribute to payments which such persons or
entities may be required to make in respect thereof. Pursuant to the provisions
of the Registration Rights Agreement, the Company may, in certain circumstances,
also be entitled to indemnification or contribution by the Selling
Securityholders or underwriters participating in an offering of the Securities.
LEGAL MATTERS
The validity of the Noteholder Warrants and the Warrant Shares has been
passed upon for the Company by Sidley & Austin, Chicago, Illinois.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31, 1995
and 1996 and for each of the three years in the period ended December 31, 1996,
the Statement of Revenues and Direct Expenses of Ad-Sign for the year ended
December 31, 1995 and the Financial Statements of POA Acquisition Corporation as
of September 30, 1996 and December 31, 1995 and 1994 and for the nine month
period ended September 30, 1996 and for each of the two years in the period
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 ended May 31, 1995,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The Consolidated Financial Statements of Revere Holding Corp. and its
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 stated in their report with respect thereto, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
66
<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 Commission. The Company has
filed with the Commission a Registration Statement (which term shall include all
amendments thereto) under the Securities Act, with respect to the Securities
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any contract, agreement or other document referred to herein are not
necessarily complete.
With respect to each report or other information filed with the Commission
pursuant to the Exchange Act, and such contract, agreement or document filed as
an exhibit to the Registration Statement, reference is made to such exhibit for
a more complete description, and each such statement is deemed to be qualified
in all respects by such reference. The Registration Statement and reports and
other information filed by the Company may be inspected, without charge, at the
offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and
at its regional offices at Seven World Trade Center, New York, New York 10048,
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained at prescribed rates from the Public Reference Section
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission and the address of such site is
http://www.sec.gov.
The Common Stock of the Company is quoted on the Nasdaq National Market.
Reports, proxy and other information concerning the Company can be inspected at
the Nasdaq National Market.
The Company intends to distribute to the holders of its shares of Common
Stock annual reports containing consolidated financial statements audited by an
independent accountant and quarterly reports containing unaudited condensed
consolidated financial information for the first three quarters of each year.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents or information filed by the Company with the
Commission are incorporated in this Prospectus by reference and made a part
hereof: (i) Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (File No. 000-20823); (ii) Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997 (File No. 000-20823); (iii) Proxy Statement for the
1997 Annual Meeting of Stockholders (File No. 000-20823); (iv) Report on Form
8-K dated February 18, 1997 (File No. 000-20823); and (v) all other reports
filed pursuant to Section 13(a) or 15(d) if the Exchange Act since the end of
the fiscal year covered by the annual report referred to in (i) above.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) subsequent to the date hereof and prior to the
termination of the offering of the Securities shall hereby be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any and all of the documents incorporated herein by reference (other
than exhibits not specifically incorporated herein by reference). Requests for
such copies should be directed to the Paul Simon, Universal Outdoor Holdings,
Inc., 311 S. Wacker, Suite 6400, Chicago, Illinois 60606, telephone number (312)
431-0822.
67
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNIVERSAL OUTDOOR HOLDINGS, INC.
AND SUBSIDIARY
<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Cash Flows................................................. 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........................................................ F-20
Consolidated Balance Sheets........................................................... F-21
Consolidated Statements of Operations................................................. F-22
Consolidated Statements of Stockholders' Equity....................................... F-23
Consolidated Statements of Cash Flows................................................. F-24
Notes to Consolidated Financial Statements............................................ F-25
AD-SIGN
Report of Independent Accountants..................................................... F-31
Statement of Revenues and Direct Expenses............................................. F-32
Notes to the Statement of Revenues and Direct Expenses................................ F-33
POA ACQUISITION CORPORATION
Report of Independent Accountants..................................................... F-34
Balance Sheets........................................................................ F-35
Statements of Operations.............................................................. F-36
Statements of Shareholder's Equity.................................................... F-37
Statements of Cash Flows.............................................................. F-38
Notes to Financial Statements......................................................... F-39
REVERE HOLDING CORP.
Report of Independent Public Accountants.............................................. F-45
Consolidated Balance Sheets........................................................... F-46
Consolidated Statements of Operations................................................. F-47
Consolidated Statements of Stockholders' Equity....................................... F-48
Consolidated Statements of Cash Flows................................................. F-49
Notes to Consolidated Financial Statements............................................ F-50
</TABLE>
F-1
<PAGE>
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Universal Outdoor Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Universal Outdoor Holdings, Inc. and its subsidiary ("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 HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- -------------- MARCH 31,
1997
------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and equivalents............................................. $ 19 $ 11,631 $ 2,102
Cash held in escrow.............................................. -- 9,455
Accounts receivable, less allowance for doubtful accounts of
$106, $2,849, $106 and $2,123................................... 5,059 20,927 23,929
Other receivables................................................ 201 1,445 2,109
Prepaid land leases.............................................. 1,043 4,010 4,578
Prepaid insurance and other...................................... 1,029 4,173 4,722
-------------- -------------- ------------
Total current assets........................................... 7,351 51,641 37,440
-------------- -------------- ------------
Property and equipment, net (Note 5)............................... 55,346 382,555 513,475
Goodwill and intangible assets, net (Note 6)....................... 2,695 219,009 220,107
Other assets, net (Note 7)......................................... 5,658 25,114 19,845
-------------- -------------- ------------
Total assets....................................................... $ 71,050 $ 678,319 $ 790,867
-------------- -------------- ------------
-------------- -------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt............................. $ 58 $ -- $ --
Accounts payable................................................. 1,225 3,373 2,816
Accrued expenses (Note 8)........................................ 1,931 26,532 36,982
-------------- -------------- ------------
Total current liabilities...................................... 3,214 29,905 39,798
-------------- -------------- ------------
Long-term debt and other obligations (Note 9)...................... 106,362 349,141 451,220
Other long-term liabilities........................................ -- 485 471
Long-term deferred income tax liabilities (Note 11)................ -- 71,700 71,700
Commitments and contingencies (Notes 10 and 13).................... -- -- --
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 10,000,000 shares authorized;
and no shares issued and outstanding............................ -- -- --
Common stock, $.01 par value, 75,000,000 shares authorized;
7,000,000, 23,992,800 and 24,112,800 shares issued and
outstanding..................................................... -- 239 241
Warrants......................................................... 2,500 9,967 9,967
Additional paid in capital....................................... 1,451 295,162 298,000
Accumulated deficit.............................................. (42,477) (78,280) (80,530)
-------------- -------------- ------------
Total stockholders' equity (deficit)........................... (38,526) 227,088 227,678
-------------- -------------- ------------
Total liabilities and stockholders' equity (deficit)............... $ 71,050 $ 678,319 $ 790,867
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, FOR THE THREE MONTHS ENDED
--------------------------------- --------------------------------
1994 1995 1996 MARCH 31, 1996 MARCH 31, 1997
--------- --------- ----------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ 33,180 $ 38,101 $ 84,939 $ 9,332 $ 47,575
Less agency commissions..................... 3,414 3,953 8,801 905 3,567
--------- --------- ----------- ------- ---------------
Net revenues.............................. 29,766 34,148 76,138 8,427 44,008
--------- --------- ----------- ------- ---------------
Operating expenses:
Direct advertising expenses............... 11,806 12,864 26,468 3,571 18,445
General and administrative expenses....... 3,873 4,645 10,648 1,227 4,401
Depreciation and amortization............. 7,310 7,402 18,286 2,032 12,859
Non-cash compensation expense (Note 12)... -- -- 9,000 -- --
--------- --------- ----------- ------- ---------------
22,989 24,911 64,402 6,830 35,705
--------- --------- ----------- ------- ---------------
Operating income............................ 6,777 9,237 11,736 1,597 8,303
--------- --------- ----------- ------- ---------------
Other expense:
Interest expense, including net
amortization of bond discount (premium)
of $1,818, $3,982, $4,256, $1,109 and
$(2)..................................... 9,836 12,234 19,567 3,594 10,735
Other expenses............................ 2,107 706 1,398 11 (182)
--------- --------- ----------- ------- ---------------
Total other expense..................... 11,943 12,940 20,965 3,605 10,553
--------- --------- ----------- ------- ---------------
Loss before extraordinary item.............. (5,166) (3,703) (9,229) (2,008) (2,250)
Extraordinary loss on early extinguishment
of debt.................................... -- -- 26,574 -- --
--------- --------- ----------- ------- ---------------
Net loss.................................... $ (5,166) $ (3,703) $ (35,803) $ (2,008) $ (2,250)
--------- --------- ----------- ------- ---------------
--------- --------- ----------- ------- ---------------
Loss per common and common equivalent share:
Loss before extraordinary item.............. $ (0.67) $ (0.48) $ (0.58) $ (0.26) $ (0.09)
Extraordinary loss.......................... -- -- $ (1.68) -- --
Net loss.................................... $ (0.67) $ (0.48) $ (2.27) $ (0.26) $ (0.09)
Weighted average common and common
equivalent shares outstanding.............. 7,654 7,654 15,787 7,654 24,096
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, FOR THE THREE MONTHS ENDED
--------------------------------- --------------------------------
1994 1995 1996 MARCH 31, 1996 MARCH 31, 1997
--------- --------- ----------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $ (5,166) $ (3,703) $ (35,803) $ (2,008) $ (2,250)
Depreciation.............................. 7,466 10,354 13,309 $ 2,405 8,474
Amortization.............................. 2,126 1,690 4,977 900 4,630
Noncash compensation related to
warrants................................. -- -- 9,000 -- --
Extraordinary loss........................ -- -- 26,574 -- --
Loss on sale of property and equipment.... 90 -- -- -- --
Accretion of preferred stock dividends.... 1,509 -- -- -- --
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable and other
receivables............................ (1,278) (762) (1,200) 113 (3,664)
Prepaid land leases, insurance and
other.................................. (223) (391) 435 (539) (98)
Accounts payable and accrued expenses
....................................... 384 (188) (3,308) 2,018 4,685
--------- --------- ----------- --------------- ---------------
Net cash from operating activities.... 4,908 7,000 13,984 2,889 11,777
--------- --------- ----------- --------------- ---------------
Cash flows used in investing activities:
Capital expenditures...................... (5,671) (5,620) (7,178) (1,966) (3,584)
Payments for acquisitions, net of cash
acquired................................. (3,355) (1,925) (490,813) (13,621) (128,104)
Proceeds from sale of property and
equipment................................ 1,003 -- -- --
Payment for consulting agreement.......... -- (1,400) -- --
Other payments............................ (160) (124) 13 (86) --
--------- --------- ----------- --------------- ---------------
Net cash used in investing activities... (8,183) (9,069) (497,978) (15,673) (131,688)
--------- --------- ----------- --------------- ---------------
Cash flows from (used in) financing
activities:
Proceeds from long-term debt offerings.... 25,408 -- 325,255 --
Long-term debt repayments................. (272) (262) (117,815) (33) (497)
Deferred financing costs.................. (1,888) (336) (14,590) (606)
Net borrowings under credit agreements.... 3,040 2,671 486,052 12,809 102,030
Repayment of credit facilities............ -- -- (475,713) --
Proceeds from equity offerings............ -- -- 292,417 --
Payment for redemption of preferred
stock.................................... (23,015) -- -- --
--------- --------- ----------- --------------- ---------------
Net cash from financing activities...... 3,273 2,073 495,606 12,776 100,927
--------- --------- ----------- --------------- ---------------
Net increase (decrease) in cash and
equivalents................................ (2) 4 11,612 (8) (18,984)
Cash and equivalents, at beginning of
period..................................... 17 15 19 19 21,086
--------- --------- ----------- --------------- ---------------
Cash and equivalents, at end of period...... $ 15 $ 19 $ 11,631 $ 11 $ 2,102
--------- --------- ----------- --------------- ---------------
--------- --------- ----------- --------------- ---------------
Supplemental cash flow information:
Interest paid during the period........... $ 7,885 $ 8,196 $ 10,910 $ 401 $ 1,366
--------- --------- ----------- --------------- ---------------
--------- --------- ----------- --------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
SHARES OF STOCK AND TOTAL
SHARES OF COMMON ADDITIONAL STOCKHOLDERS'
COMMON STOCK B AND PAID-IN ACCUMULATED EQUITY
STOCK C CAPITAL WARRANTS DEFICIT (DEFICIT)
----------- ----------- ----------- --------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993...... 7,000 $ 1,051 $ (33,608) $ (32,557)
Debt proceeds attributable to
warrants issued.................. $2,500 2,500
Reclassification of redeemable
common stock..................... 400 400
Net loss.......................... (5,166) (5,166)
----------- ----------- ----------- --------- ------------- --------------
Balance at December 31, 1994...... 7,000 1,451 2,500 (38,774) (34,823)
Net loss.......................... (3,703) (3,703)
----------- ----------- ----------- --------- ------------- --------------
Balance at December 31, 1995...... 7,000 1,451 2,500 (42,477) (38,526)
Issuance of Class B and C common
shares........................... 6,000 30,000 30,000
Issuance of warrants.............. 9,000 9,000
Conversion of Class B and Class C
common stock shares to common
shares........................... 6,000 (6,000)
Initial stock offering proceeds,
net of costs associated with
issuance of $2,082............... 4,630 60,353 60,353
Exercise of warrants.............. 613 1,533 (1,533)
Secondary stock offering proceeds,
net of costs associated with
issuance of $796................. 5,750 202,064 202,064
Net loss.......................... (35,803) (35,803)
----------- ----------- ----------- --------- ------------- --------------
Balance at December 31, 1996...... 23,993 -- $ 295,401 $9,967 $ (78,280 ) $ 227,088
----------- ----------- ----------- --------- ------------- --------------
----------- ----------- ----------- --------- ------------- --------------
(UNAUDITED)
Issuance of common stock shares... 120 2,906 2,906
Costs associated with 1996
offerings........................ (66) (66 )
Net loss for the three months
ended March 31, 1997............. (2,250 ) (2,250 )
----------- ----------- ----------- --------- ------------- --------------
Balance at March 31, 1997......... 24,113 $ 298,241 $ 9,967 $ (80,530 ) $ 227,678
----------- ----------- ----------- --------- ------------- --------------
----------- ----------- ----------- --------- ------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS:
Universal Outdoor Holdings, Inc., was incorporated on May 23, 1991 and
through its principal operating subsidiary, Universal Outdoor, Inc.
(collectively, the "Company") is engaged principally in the rental of
advertising space on outdoor advertising structures. The Company 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).
Historically, manufacturers of tobacco products, principally cigarettes,
have been major users of outdoor advertising displays, including displays
operated by the Company. The following industries generated significant revenues
as a percentage of the Company'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 the Company'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 the Company
and its subsidiaries. All material intercompany balances, transactions and
profits have been eliminated.
REVENUE RECOGNITION
The Company's revenues are generated from contracts with advertisers
generally covering periods of one to twelve months. The Company 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
The Company 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.
PREPAID LAND LEASES
Most of the Company'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.
F-7
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 are amortized over their estimated economic lives,
ranging from three to ten years. Goodwill is amortized over fifteen years on a
straight-line basis. The Company 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 five years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and equivalents, accounts receivable and accounts
payable approximate the carrying value because of the immediate or short-term
maturity of these financial instruments. The fair value of the Company's other
financial instruments approximates the carrying value.
STOCK-BASED COMPENSATION
In 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation." In accordance with
provisions of SFAS No. 123, the Company applies fair value accounting for its
stock-based compensation.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during each
year (7,654,000 shares in 1994, 7,654,000 shares in 1995 and 15,787,000 shares
in 1996). All per share information in these financial statements have been
adjusted to give effect to a 16-for-one stock split in July 1996.
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 HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 losses.
INTERIM FINANCIAL INFORMATION
The unaudited interim financial information as of March 31, 1997 and 1996
and for the three months then ended has been prepared from the unaudited
financial records of the Company and, in the opinion of management, reflects all
adjustments necessary for a fair presentation of the financial position and
results of operations and of cash flows for the respective interim periods. All
adjustments were of a normal and recurring nature.
NOTE 3 -- EQUITY OFFERINGS AND DEBT REFINANCINGS:
<TABLE>
<S> <C>
Proceeds from equity offerings:
Private investors............................................ $ 30,000
Initial public offering...................................... 60,353
Secondary public offering.................................... 202,064
----------
292,417
----------
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............................. 1,103,724
----------
Proceeds from financings used for:
14% Senior Secured Discount Notes repayment.................. 32,718
11% Senior Notes repayment................................... 65,000
Penalty on the early retirement of 11% Senior Notes and 14%
Senior Secured Notes........................................ 18,424
Mortgage and other........................................... 1,673
----------
117,815
Repayment of credit facilities................................. 475,713
Financing costs................................................ 14,590
----------
680,118
----------
Net financing proceeds......................................... $ 495,606
----------
----------
</TABLE>
In April 1996, the Company sold to private investors 2,984,000 shares of
Class B common stock and 3,016,000 shares of Class C common stock for net
proceeds of approximately $30 million. The proceeds were used to assist in
financing the acquisition of NOA Holding Corp.
F-9
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 3 -- EQUITY OFFERINGS AND DEBT REFINANCINGS: (CONTINUED)
In July 1996, the Company completed an initial public offering (IPO) of
approximately 4,630,000 shares of its common stock, at a price of $14.50 per
share for net proceeds of $60,353. In conjunction with the IPO, the Company
effected a 16-for-one stock split. In October 1996, a secondary offering of
approximately 5,750,000 shares of the Company's common stock was issued at an
offering price of $37.50 per share for net proceeds of $202,064.
At December 31, 1996 the Company'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 in the amount of $5 million. In 1996, proceeds
from credit facilities totaled $486,052, while credit facility repayments
totaled $475,713.
The Company 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 Subordinated Notes due 2006 for
net proceeds of $101,500 in December 1996 (collectively, "the Notes Offerings").
The net proceeds of the equity offerings and the Notes Offerings together
with the proceeds under the available credit facilities were used to redeem all
of the outstanding 14% Senior Secured Discount Notes due 2003 at $32,718 and the
11% Senior Notes due 2003 at $65,000, pay the $18,424 related penalty, repay
approximately $285 million of the then outstanding credit facility 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
$26,574.
NOTE 4 -- ACQUISITIONS:
The Company's wholly owned subsidiary, Universal Outdoor, Inc. ("Universal")
completed the following 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>
F-10
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 4 -- ACQUISITIONS: (CONTINUED)
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)
Net deferred taxes............................................................... (71,700)
-----------
$ 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 Company'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 value as of the date of acquisition. Since it is
not deductible for tax purposes, no deferred taxes are required to be recorded
for amounts allocated to goodwill.
In conjunction with the acquisitions, the Company recorded reserves of
approximately $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 includes the results
of operations of the 1996 and significant 1997 acquisitions as if the
transactions had been consummated as of the beginning of the periods presented
after including the impact of certain adjustments such as depreciation of
advertising structures, amortization 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>
1995 1996 FOR THE THREE
------------ ------------ MONTHS ENDED
MARCH 31, 1996
(UNAUDITED) (UNAUDITED) ---------------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues.................................... $ 162,758 $ 176,611 $ 40,031
Depreciation and amortization................... 50,818 50,818 12,705
Operating income................................ 24,836 34,957 5,115
Interest expense................................ 40,670 44,235 11,089
Loss before income taxes and extraordinary
loss........................................... (15,962) (20,089) (5,974)
Loss before income taxes........................ $ (15,962) $ (37,663) $ (5,974)
Loss per share.................................. $ (1.01) $ (2.39) $ (0.25)
</TABLE>
F-11
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 4 -- ACQUISITIONS: (CONTINUED)
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>
Non-compete 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>
NOTE 7 -- OTHER ASSETS:
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Financing costs........................................................ $ 6,284 $ 24,980
Deposits............................................................... 20 5,073
Other.................................................................. 1,211 4,815
--------- -----------
7,515 34,868
Less accumulated amortization.......................................... 1,857 9,754
--------- -----------
$ 5,658 $ 25,114
--------- -----------
--------- -----------
</TABLE>
F-12
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 8 -- ACCRUED EXPENSES:
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Interest payable........................................................ $ 1,054 $ 5,667
Other taxes payable..................................................... -- 4,070
Employee compensation and related taxes................................. 184 2,479
Deferred revenue........................................................ 468 2,114
Accrued leases.......................................................... -- 1,599
Severance and relocation................................................ -- 2,121
Professional services................................................... -- 1,935
Lease and maintenance................................................... -- 2,392
Other................................................................... 225 4,155
--------- ---------
$ 1,931 $ 26,532
--------- ---------
--------- ---------
</TABLE>
NOTE 9 -- LONG-TERM DEBT AND OTHER OBLIGATIONS:
Long-term debt and other obligations consist 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
14% Senior Secured Discount Notes, due 2004, net of discount of
$20,918............................................................ 29,083 --
11% Senior Notes due 2003, net of discount of $839.................. 64,161 --
Other obligations................................................... 3,515 4,043
----------- -----------
106,420 349,141
Less current maturities of long-term debt and other obligations..... 58 --
----------- -----------
$ 106,362 $ 349,141
----------- -----------
----------- -----------
</TABLE>
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.
The Company 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 the Company 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
F-13
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 9 -- LONG-TERM DEBT AND OTHER OBLIGATIONS: (CONTINUED)
additional debt incurrence, restrictions on distributions to shareholders, the
creation of liens, the merger or sale of substantially all of the Company or its
operating subsidiaries assets and engaging in certain 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. The Company 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 the Company
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 of
the Company's assets and engaging in certain transactions with affiliates.
CREDIT FACILITIES
In October 1996, the Company 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 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, the Company 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 euro dollar rate, plus
an additional 0% to 2.75% depending on the leverage ratio of the Company 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 the Company
held by certain management shareholders, as well as the pledge of the Company's
stock. Borrowings under the new credit facility are subject to certain
restrictive covenants including, among others, a minimum fixed charge ratio, a
minimum adjusted EBITDA and maximum senior leverage ratio. The new credit
facility 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 of
the Company's assets and engaging in certain transactions with affiliates.
Commitment fees are 1/2 percent on the unused portion of the acquisition credit
line and the revolving 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.
F-14
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 9 -- LONG-TERM DEBT AND OTHER OBLIGATIONS: (CONTINUED)
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.............................................. 326,298
---------
Total............................................................ $ 349,141
---------
---------
</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 noncancelable operating
leases with terms in excess of one year in effect at December 31, 1996 are
payable as follows:
<TABLE>
<CAPTION>
YEAR CAPITAL OPERATING
- ------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
1997.................................................................... $ 275 $ 448
1998.................................................................... 233 277
1999.................................................................... 117 172
2000.................................................................... 26 126
2001.................................................................... -- 18
----- -----------
Total minimum lease payments.......................................... 651 $ 1,041
-----------
-----------
Less: amounts 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:
The Company incurred a net operating loss in 1994, 1995 and 1996; therefore,
no provision for income taxes was required.
F-15
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 11 -- INCOME TAXES: (CONTINUED)
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
Non-deductible interest............................................... 1,803 --
Warrants.............................................................. -- 3,600
Operating loss and credit carryforwards............................... 6,202 34,628
--------- ----------
Total deferred tax assets........................................... 8,623 47,377
--------- ----------
Valuation allowance................................................... (8,623) (19,865)
--------- ----------
Net deferred tax liabilities........................................ $ -- $ (71,700)
--------- ----------
--------- ----------
</TABLE>
The Company has established a valuation allowance against a portion of its
operating loss and credit carryforwards following an assessment of the
likelihood of realizing such amounts. In arriving at the determination as to the
amount of the valuation allowance required, the Company considered its past
operating history as well as significant acquisitions made in 1996, statutory
restrictions on the use of operating losses from acquisitions acquired during
the year, tax planning strategies and its expectation of the level and timing of
future taxable income.
At December 31, 1996, the Company had net operating loss and credit
carryforwards for federal income tax purposes of approximately $86 million.
Included in total net operating loss carryforwards is approximately $45 million
of operating loss and credit carryforwards generated by certain acquired
companies prior to their acquisition by the Company. Total carryforwards expire
between 2005 and 2011. During the current fiscal year, the Company did not
utilize any net operating loss or credit carryforwards.
The Company experienced an ownership change within the meaning of Section
382 of the Internal Revenue Code. As such, the utilization of net operating loss
carryforwards are subject to an annual limitation based upon the value of the
Company on the change date. The acquisition of Outdoor Advertising Holdings,
Inc. and Revere Holding Corp. resulted in an "ownership change" and a limitation
is imposed on the acquired net operating loss carryforwards in these
acquisitions. Furthermore, the Company's use of the net operating loss
carryforwards are subject to limitations applicable to corporations filing
consolidated federal income tax returns.
F-16
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 12 -- WARRANTS:
The following table summarizes the Company's warrant activity:
<TABLE>
<CAPTION>
EXERCISE
1995 1996 PRICE
----------- ----------- ------------
<S> <C> <C> <C>
Number of shares under warrants:
Beginning of year................................... 1,000,000 1,000,000 $ .000625
Granted............................................. -- 2,470,608 $ 5.00
Exercised........................................... -- (612,800)
Canceled/expired.................................... -- --
----------- -----------
Warrants outstanding at end of year................. 1,000,000 2,857,808
----------- -----------
----------- -----------
Warrants exercisable at end of year................. 1,000,000 2,857,808
----------- -----------
----------- -----------
</TABLE>
In 1994, the Company issued 1,000,000 warrants which expire on July 1, 2004.
The warrants were assigned, based on market conditions at the time of grant, a
value of $2,500. Each warrant entitles the holder to purchase one share of
common stock (the "warrant share"). In July 1996, a total of 612,800 warrants
were exercised into warrant shares. A total of 387,200 warrants remain
exercisable into warrant shares.
In April 1996, key executives and employees were granted 2,470,608 warrants
to purchase common shares (the "1996 Warrant Plan"). Each warrant is fully
exercisable into one share of common stock at a warrant exercise price of $5.00
per share. A total of 2,470,608 shares of common stock have been reserved for
issuance pursuant to the warrants issued in 1996. The fair value of each warrant
was estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants in 1996:
dividend yield of 0%, expected stock price volatility of 39.42%, risk-free
interest rate of 6.28% and expected lives of 7 years. The Company recognized a
one-time non-cash compensation charge of $9 million relating to the issuance of
the warrants under the 1996 Warrant Plan.
NOTE 13 -- CONTINGENCIES:
The Company, 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 on 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 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.
The case was settled in March 1997 with no material adverse effect on the
results of operations or financial condition of the Company (Unaudited).
The Company 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 the Company's
business or its results of operations, cash flows or financial position.
F-17
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 14 -- QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for 1996 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1996
Net revenues.................................. $ 8,427 $ 17,812 $ 18,643 $ 31,256
Operating income.............................. 1,597 (1,638) 5,874 5,903
Income (loss) before extraordinary item....... (2,008) (8,148) 1,991 (1,064)
Net income (loss)............................. (2,008) (8,148) 591 (26,238)
Per Share:
Income (loss) before extraordinary item..... $ (.26) $ (1.06) $ .10 $ (.04)
Net income (loss)............................. $ (.26) $ (1.06) $ .03 $ (1.08)
Weighted average shares outstanding........... 7,654 7,654 19,297 24,343
</TABLE>
In the third quarter of 1996, the Company recorded a non-cash compensation
charge in the amount of $9 million relating to management warrants.
In 1996, the Company recorded an extraordinary loss of $26,574 related to
the early retirement of the 11% Senior Notes and the 14% Senior Secured Notes.
Summarized quarterly financial data for 1995 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1995
Net revenues.................................. $ 7,236 $ 9,175 $ 8,940 $ 8,797
Operating income.............................. 1,319 3,055 2,458 2,405
Income (loss) before extraordinary item....... (1,778) (215) (811) (899)
Net loss...................................... (1,778) (215) (811) (899)
Per Share:
Loss before extraordinary item.............. $ (.23) $ (.03) $ (.11) $ (.12)
Net income (loss)........................... $ (.23) $ (.03) $ (.11) $ (.12)
Weighted average shares outstanding........... 7,654 7,654 7,654 7,654
</TABLE>
NOTE 15 -- RELATED-PARTY TRANSACTIONS:
During 1996 the Company paid management fees in the amount of $1,250 to a
private investor, which is included in other expenses on the Consolidated
Statement of Operations.
NOTE 16 -- SUBSEQUENT EVENTS:
In January 1997, the Company 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
Company issued on January 2, 1997 at market value.
In January 1997, 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,
for approximately $40 million in cash.
F-18
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 16 -- SUBSEQUENT EVENTS: (CONTINUED)
In February 1997, the Company acquired a total of approximately 135
advertising display faces located in and around Evansville, Indiana for
approximately $5.5 million in cash. The Company also acquired 12 existing
advertising display faces and 35 in process display faces in New Jersey for
approximately $5.3 million in cash.
In February 1997, the Company agreed to acquire approximately 1,450
advertising display faces in the Baltimore metropolitan area for $46.5 million
in cash.
(UNAUDITED)
In March 1997, the Company acquired a total of approximately 600 bus
shelters and panels in and around Memphis, Tennessee for approximately $8.5
million in cash.
In March 1997, the Company acquired $600,000 of outdoor advertising
properties in Florida in exchange for 20,000 shares of its common stock.
In April 1997, the Company entered into an agreement to purchase 91
advertising display faces in and around New York, New York for approximately
$51.0 million in cash.
In May 1997, the Company amended its existing credit facilities to provide
for an additional loan commitment of $75 million in the form of a term loan
which was drawn upon in May 1997.
F-19
<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-20
<PAGE>
NOA HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31,
--------------------
MARCH 31,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................................... $ 1,619 $ 1,630 $ 906
Accounts receivable, net of allowance for doubtful accounts
of $346,000 in 1994 and $338,000 in 1995.................. 4,384 4,517 3,639
Other receivables.......................................... 256 262 126
Inventories................................................ 267 282 153
Current portion of prepaid leases.......................... 1,183 1,098 1,059
Prepaid expenses........................................... 390 274 191
Other assets............................................... 150 35 210
--------- --------- -----------
Total current assets................................... 8,249 8,098 6,284
--------- --------- -----------
Long-term portion of prepaid leases.......................... 312 509 545
Property and equipment, net (Note 3)......................... 23,562 22,357 14,422
Intangibles, net (Note 4).................................... 17,505 12,374 5,714
--------- --------- -----------
Total assets........................................... $ 49,628 $ 43,338 $ 26,965
--------- --------- -----------
--------- --------- -----------
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 66 137
Current portion of long-term debt.......................... 6,000 608 90
--------- --------- -----------
Total current liabilities.............................. 9,129 3,315 2,785
--------- --------- -----------
Long-term debt (Note 5)...................................... 29,657 30,324 4,552
Other long-term liabilities.................................. 577 480 932
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) (162)
--------- --------- -----------
Total stockholders' equity............................. 10,265 9,219 18,696
--------- --------- -----------
Total liabilities and stockholders' equity............. $ 49,628 $ 43,338 $ 26,965
--------- --------- -----------
--------- --------- -----------
</TABLE>
See notes to consolidated financial statements.
F-21
<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) -- -- -- (587)
--------- --------- --------- --------- ---------
Net income (loss) applicable to common shares.......... $ (2,778) $ (2,269) $ 277 $ (678) $ 9,477
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
NOA HOLDING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK CLASS A COMMON CLASS B COMMON
STOCK STOCK ADDITIONAL
--------------- ---------------- ------------------ PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------ ------ --------- ----- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1992................. 1,000 $-- 81,693.70 $ 1 13,199.82 $-- $19,228 $ (3,612)
Dividends declared.................... -- -- -- -- -- -- -- (594)
Net loss.............................. -- -- -- -- -- -- -- (2,184)
------ ------ --------- ----- ---------- ------ --------- --------
Balance at May 31, 1993................. 1,000 -- 81,693.70 1 13,199.82 -- 19,228 (6,390)
Dividends declared.................... -- -- -- -- -- -- -- (305)
Dividends in-kind..................... -- -- -- -- -- -- 296 (296)
Net loss.............................. -- -- -- -- -- -- -- (2,269)
------ ------ --------- ----- ---------- ------ --------- --------
Balance at May 31, 1994................. 1,000 -- 81,693.70 1 13,199.82 -- 19,524 (9,260)
Dividends in-kind..................... -- -- -- -- -- -- 961 (656)
Proceeds from issuance of stock....... -- -- -- -- 3,852.63 -- -- --
Stock redemptions relative to the sale
of Pony Panels....................... -- -- (7,599.32) -- (9,754.26) -- (1,372) --
Repurchases of stock.................. -- -- (1,174.44) -- (1,126.03) -- (270) --
Compensation expense on stock
issuances............................ -- -- -- -- -- -- 14 --
Net income............................ -- -- -- -- -- -- -- 277
------ ------ --------- ----- ---------- ------ --------- --------
Balance at May 31, 1995................. 1,000 $-- 72,919.94 $ 1 6,172.16 $ -- $18,857 $ (9,639)
Net income (unaudited)................ -- -- -- -- -- -- -- 9,477
------ ------ --------- ----- ---------- ------ --------- --------
Balance at March 31, 1996 (unaudited)... 1,000 $ 72,919.94 $ 1 6,172.16 $-- $18,857 $ (162)
------ ------ --------- ----- ---------- ------ --------- --------
------ ------ --------- ----- ---------- ------ --------- --------
</TABLE>
See notes to consolidated financial statements.
F-23
<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) $ 9,477
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) (452)
--------- --------- --------- --------- ---------
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-24
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements consolidate the accounts of NOA
Holding Company (formerly McCarty Holding Company, Inc.) and its wholly-owned
subsidiary, Naegele Outdoor Advertising Company. All intercompany transactions
have been eliminated in consolidation.
REVENUE RECOGNITION
Advertising revenue is recognized monthly over the period in which
advertisement displays are posted on the advertising structures. A full month's
revenue is recognized in the first month of posting. The direct costs incurred
to produce the related advertisements are expensed as incurred. Payments
received in advance of billings are recorded as deferred revenue.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Maintenance, repairs and
renewals, which neither materially add to the value of the property, nor
appreciably prolong its life, are charged to expense as incurred.
Depreciation of property and equipment is provided on declining balance and
straight-line methods over useful lives of 3 to 25 years.
INTANGIBLE ASSETS
Intangibles assets are carried and are amortized on the straight-line method
over useful lives of 5 to 40 years. Goodwill represents the cost of acquired
businesses in excess of amounts assigned to tangible and intangible assets at
the date of acquisition.
INVENTORIES
Inventories consist principally of supplies and are stated at lower of cost
or market as determined on a first-in, first-out basis.
INCOME TAXES
Income taxes are computed in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
BARTER TRANSACTIONS
The Company occasionally enters into agreements to trade advertising space
for goods or services. Prior to December 8, 1992, the Company did not record
such arrangements as revenue unless the items bartered for were capital items.
The impact on revenues and expense of barter transactions not recorded in fiscal
1993 was $164,000.
RECLASSIFICATION
Certain amounts previously reported in 1993 and 1994 have been reclassified
to conform to the 1995 presentation.
INTERIM FINANCIAL INFORMATION
The interim financial information as of March 31, 1996 and 1995 and for the
ten months then ended has been prepared from the unaudited financial records of
the Company and, in the opinion of management, reflects all adjustments
necessary for a fair presentation of the financial position and results of
operations and of cash flows for the respective interim periods. All adjustments
were of a normal and recurring nature.
F-25
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
2. ACQUISITIONS
Effective January 19, 1994, the Company purchased Atlantic Outdoor
Advertising, Inc. for $1 million. The acquisition was recorded using the
purchase method of accounting for business combinations.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
1994 1995 USEFUL LIFE
--------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land............................................................. $ 1,235 $ 1,294 --
Advertising structures........................................... 24,825 25,256 20 years
Buildings........................................................ 491 491 10-25 years
Machinery and equipment.......................................... 1,180 1,201 6 years
Office furniture and equipment................................... 1,896 1,865 5-10 years
Automobiles and trucks........................................... 1,045 1,124 5 years
Other............................................................ 384 370 3-10 years
--------- ---------
31,056 31,601
Less accumulated depreciation.................................... 7,494 9,244
--------- ---------
$ 23,562 $ 22,357
--------- ---------
--------- ---------
</TABLE>
4. INTANGIBLES
The intangibles consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
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. The loan costs represent
fees paid to obtain a bank term loan and line of credit in 1991 and to refinance
the term loan and line of credit in August 1994. In connection with the loan
refinancing, the Company wrote-off approximately $1 million of unamortized loan
costs. The organization costs are management's estimate of the portion of
various fees paid which are allocable to this asset.
F-26
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
5. DEBT
Long-term debt consists of the following at May 31:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Revolving Credit Commitment under the Amended and Restated Credit
Agreement dated August 31, 1994....................................... $ -- $ 30,700
Term loans under the Credit Agreement dated as of May 22, 1991......... 35,657 --
Revolving Credit Loan under the Credit Agreement dated as of May 22,
1991.................................................................. 200 --
Subordinated note payable, annual installments of $52 through July
1997, plus quarterly interest payments at prime....................... -- 157
Subordinated notes payable, annual installments of $38 through March
1997, plus quarterly interest payments at prime....................... -- 75
--------- ---------
35,857 30,932
Less current portion................................................... 6,200 608
--------- ---------
$ 29,657 $ 30,324
--------- ---------
--------- ---------
</TABLE>
The Company amended and restated its bank Credit Agreement on August 31,
1994 and established a Revolving Credit Commitment of up to $38,000,000 and an
Acquisition Loan Commitment of up to $5,000,000. Both commitments decrease
quarterly each fiscal year and terminate on February 28, 2001. The available
Revolving Credit Commitment at May 31, 1995 was $32,800,000. At year end there
were no borrowings against the $5,000,000 Acquisition Loan Commitment. As part
of the Agreement, interest on the first $20,000,000 of debt is payable under an
Interest Rate Protect Plan ("IPP"). The IPP provides for a fixed rate of 6.28%
plus applicable margin (2.5% at May 31, 1995) for a period of three years and
began August 5, 1994. The Amended and Restated Credit Agreement also enables the
Company to borrow the remainder of the debt at a rate equal to either the Loan
Interbank Offered Rate (LIBOR) plus 3.0% or at the Lending Agent's base rate
plus 1.75%. In addition, the Company can realize lower borrowing rates if
certain financial results are achieved. At May 31, 1995, the interest rate in
effect was LIBOR plus 2.5%.
The Company is obligated to pay loan commitment fees to the banks equal to
one-half of 1% of the average daily unused portion of the commitments.
The bank has issued a letter of credit to the Company's insurance carrier
totaling $323,000 at the end of fiscal 1994 and 1995.
All common shares of the Company are pledged as collateral for the Credit
Agreement; accordingly, substantially all of the Company's assets are
effectively pledged as collateral.
The Credit Agreement contains certain restrictive covenants which the
Company must comply with on a continuing basis. The Company is restricted as to
borrowings, dividend payments, acquisitions, stock repurchases, sales of assets
and capital expenditures.
During fiscal 1995, the Company entered into certain stock redemption
agreements to repurchase 1,174.44 shares of Class A Common Stock and 1,126.03
shares of Class B Common Stock. As part of the agreements, the Company issued
subordinated promissory notes totaling approximately $270,000.
Total interest paid on all debt was $3,849,000, $3,528,000 and $3,468,000
for fiscal 1993, 1994 and 1995, respectively.
F-27
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
5. DEBT (CONTINUED)
Aggregate annual maturities of long-term debt during the five-year period
ending May 31, 2000 are (in thousands):
<TABLE>
<S> <C>
Year ending May 31:
1996............................................................. $ 608
1997............................................................. 4,365
1998............................................................. 6,227
1999............................................................. 7,600
2000............................................................. 7,600
</TABLE>
6. INCOME TAXES
At May 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $8.0 million. These carryforwards
expire between May 31, 2006 and 2010. During the current fiscal year, the
Company utilized approximately $625,000 of net operating loss carryforwards to
offset current year taxable income.
Components of deferred tax assets and liabilities are (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Loss carryforward...................................................... $ 3,403 $ 3,145
Accrued expenses....................................................... 249 207
Loan cost amortization................................................. -- 343
--------- ---------
3,652 3,695
Deferred tax liabilities:
Depreciation........................................................... 857 1,090
Bad debt allowance..................................................... 33 36
--------- ---------
890 1,126
--------- ---------
Net deferred tax assets before valuation allowance....................... 2,762 2,569
Less valuation allowance................................................. 2,762 2,569
--------- ---------
Net deferred tax assets.................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
7. EMPLOYEE BENEFIT PLAN
The Company has a voluntary defined contribution 401(k) savings and
retirement plan for the benefit of its nonunion employees who may contribute
from 3% to 10% of their compensation. The Company has no obligation to
contribute to the plan and made no contribution for fiscal 1993, 1994 and 1995.
8. REDEEMABLE PREFERRED STOCK
The preferred stock is redeemable, subject to certain restrictions, by the
Company at a price equal to its value as carried on the financial statements.
The Company also has the right to convert the preferred stock to debt at a rate
of $1,000 principal of debt to $1,000 liquidation value of the preferred stock.
The liquidation value of each of share of preferred stock is $7,699 and $8,660
at May 31, 1994 and 1995, respectively. After May 22, 2001, the preferred
shareholders have the right to control the Board of Directors for the purpose of
selling the Company.
F-28
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
8. REDEEMABLE PREFERRED STOCK (CONTINUED)
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.
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.
F-29
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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>
<S> <C>
Year ending May 31:
1996............................................................. $ 552
1997............................................................. 552
1998............................................................. 552
1999............................................................. 557
2000............................................................. 557
Thereafter....................................................... 704
---------
$ 3,474
---------
---------
</TABLE>
Rent expense for operating leases for the years ended May 31, 1993, 1994 and
1995 totaled $6,950,000, $6,837,000 and $7,268,000, respectively.
F-30
<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-31
<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-32
<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-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
POA Acquisition Corporation
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in shareholders' equity and of cash flows present
fairly, in all material respects, the financial position of POA Acquisition
Corporation at September 30, 1996 and December 31, 1995 and 1994, and the
results of their operations and their cash flows for the nine month period ended
September 30, 1996 and for each of the two years in the period ended December
31, 1995 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-34
<PAGE>
POA ACQUISITION CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- ------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Current assets:
Cash.......................................................... $ 3,534,128 $ 811,352 $ 727,690
Accounts receivable........................................... 6,746,361 5,631,320 4,482,520
Prepaid expenses.............................................. 2,576,998 1,822,964 1,698,539
Prepaid income taxes.......................................... 43,875 43,875 51,629
Deferred income taxes......................................... 3,314,000 3,213,848 2,596,951
-------------- -------------- --------------
Total current assets........................................ 16,215,362 11,523,359 9,557,329
Deferred income taxes........................................... 10,040,258 11,835,410 14,269,374
Property, plant and equipment, net.............................. 32,821,811 23,005,058 20,112,931
Other assets.................................................... 38,741,579 41,854,491 46,266,092
-------------- -------------- --------------
$ 97,819,010 $ 88,218,318 $ 90,205,726
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses......................... $ 4,289,460 $ 2,992,112 $ 3,432,619
Current portion of long-term debt............................. 9,109,419 9,109,419 8,061,214
Notes payable................................................. 416,000 -- --
-------------- -------------- --------------
Total current liabilities................................... 13,814,879 12,101,531 11,493,833
Long-term debt, less current portion............................ 71,682,647 65,603,203 70,210,555
Shareholder's equity
Common stock, $.01 par value:
Authorized shares -- 2,000,000
Issued and outstanding shares -- 100 for all periods
presented.................................................. 1 1 1
Additional paid-in capital.................................... 45,419,909 45,419,909 45,419,909
Accumulated deficit........................................... (33,098,426) (34,906,326) (36,918,572)
-------------- -------------- --------------
Total shareholder's equity.................................. 12,321,484 10,513,584 8,501,338
-------------- -------------- --------------
$ 97,819,010 $ 88,218,318 $ 90,205,726
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
POA ACQUISITION CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED DECEMBER
SEPTEMBER 30, 31,
-------------- ------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Advertising revenues............................................ $ 38,380,932 $ 45,830,359 $ 41,737,266
Less commissions and discounts.................................. (3,520,734) (4,393,319) (3,865,492)
-------------- -------------- --------------
34,860,198 41,437,040 37,871,774
-------------- -------------- --------------
Expenses:
Operating..................................................... 10,077,666 11,775,891 11,151,065
Selling, general and administrative........................... 9,307,799 10,698,212 10,283,413
Amortization.................................................. 3,811,034 5,061,849 5,208,589
Depreciation.................................................. 2,547,946 2,545,182 2,878,346
-------------- -------------- --------------
25,744,445 30,081,134 29,521,413
-------------- -------------- --------------
Income from operations.......................................... 9,115,753 11,355,906 8,350,361
-------------- -------------- --------------
Other income (expense):
Interest expense.............................................. (5,548,379) (7,346,241) (7,012,646)
Loss on sale of a division.................................... -- -- (494,824)
Loss on disposal of property and equipment, net............... (346,974) (64,332) (329,056)
Interest and other income..................................... 367,500 42,244 24,412
-------------- -------------- --------------
(5,527,853) (7,368,329) (7,812,114)
-------------- -------------- --------------
Income before income taxes and extraordinary item............... 3,587,900 3,987,577 538,247
-------------- -------------- --------------
Provision for income taxes:
Current....................................................... 150,000 158,264 37,572
Deferred...................................................... 1,630,000 1,817,067 1,256,910
-------------- -------------- --------------
1,780,000 1,975,331 1,294,482
-------------- -------------- --------------
Income (loss) before extraordinary item......................... 1,807,900 2,012,246 (756,235)
Extraordinary item:
Loss on early extinguishment of debt, net of income tax
expense of ($147,350)........................................ -- -- (244,552)
-------------- -------------- --------------
Net income (loss)............................................... $ 1,807,900 $ 2,012,246 $ (1,000,787)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
POA ACQUISITION CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON PREFERRED ADDITIONAL ACCUMULATED SHAREHOLDER'S
STOCK STOCK PAID-IN 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................. -- -- -- (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........ 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................. -- -- -- 1,807,900 1,807,900
--------- ------------ --------------- --------------- ---------------
Balance at September 30, 1996 $ 1 $ -- $ 45,419,909 $ (33,098,426) $ 12,321,484
--------- ------------ --------------- --------------- ---------------
--------- ------------ --------------- --------------- ---------------
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
POA ACQUISITION CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- ---------------------------
1996 1995 1994
-------------- ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................................................... $ 1,807,900 $ 2,012,246 $ (1,000,787)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Amortization........................................................ 3,811,034 5,061,849 5,208,589
Depreciation........................................................ 2,547,946 2,545,182 2,878,346
Deferred income taxes............................................... 1,695,000 1,817,067 1,123,867
Loss on sale of division............................................ -- -- 494,824
Loss on disposal of property and equipment, net..................... 346,977 64,332 329,056
Provision for bad debts............................................. 176,000 64,285 375,190
Changes in operating assets and liabilities:
Increase in accounts receivable................................... (957,596) (1,213,085) (523,087)
Increase in prepaid expenses...................................... (574,486) (124,425) (253,802)
Decrease (increase) in prepaid income taxes....................... -- 7,754 (27,786)
Decrease (increase) in other assets............................... (126,183) (500,248) (2,511,167)
(Increase) decrease in accounts payable and accrued expenses...... 1,253,284 (440,507) 772,507
-------------- ------------- ------------
Net cash provided by operating activities............................. 9,979,876 9,294,450 6,865,750
-------------- ------------- ------------
INVESTING ACTIVITIES
Proceeds from sale of division........................................ -- -- 2,000,000
Proceeds from disposal of property and equipment...................... 367,500 227,854 101,463
Payments for acquisitions net of cash acquired........................ (9,898,338) -- --
Purchases of property, plant and equipment............................ (3,805,706) (5,729,495) (1,787,528)
Purchases of intangibles.............................................. -- (150,000) --
-------------- ------------- ------------
Net cash provided by (used in) investing activities................... (13,336,544) (5,651,641) 313,935
-------------- ------------- ------------
FINANCING ACTIVITIES
Proceeds from long-term borrowings.................................... 13,147,633 4,500,000 83,023,442
Payments of long-term debt............................................ (7,068,189) (8,059,147) (70,696,101)
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................... 6,079,444 (3,559,147) (7,302,053)
-------------- ------------- ------------
Net increase (decrease) in cash....................................... 2,722,776 83,662 (122,368)
Cash at beginning of year............................................. 811,352 727,690 850,058
-------------- ------------- ------------
Cash at end of year................................................... 3,534,128 $ 811,352 $ 727,690
-------------- ------------- ------------
-------------- ------------- ------------
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS
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 -- 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>
Buildings...................................................... 28-30 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>
Advertising structure leases.................................... 8-10 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.
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.
F-39
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- ACCOUNTING POLICIES (CONTINUED)
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 $1,183,354, $1,497,000 and
$830,000 for the nine month period ended September 30, 1996 and for the years
ended December 31, 1995 and 1994, 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 September 30, 1996 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 September 30, 1996
there were no indications of impairment that would effect the carrying value of
assets.
NOTE 3 -- ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- ----------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Trade.................................................... $ 7,308,087 $ 5,701,472 $ 4,493,568
Employee notes and other................................. 293,356 463,300 458,119
-------------- ------------- -------------
7,601,443 6,164,772 4,951,687
Less allowance for uncollectible accounts................ (855,082) (533,452) (469,167)
-------------- ------------- -------------
$ 6,746,361 $ 5,631,320 $ 4,482,520
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
Included in employee notes and other are notes and accrued interest
aggregating $109,176 as of September 30, 1996 and $279,473 and $299,269 as of
December 31, 1995 and 1994, respectively, from common shareholders.
F-40
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- PREPAID EXPENSES
Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- ----------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Lease rental payments.................................... $ 1,476,562 $ 1,261,795 $ 1,065,874
Maintenance supplies..................................... 518,009 94,581 133,268
Other.................................................... 582,427 466,588 499,397
-------------- ------------- -------------
$ 2,576,998 $ 1,822,964 $ 1,698,539
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------- --------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Land................................................ $ 2,466,681 $ 2,466,681 $ 2,466,681
Buildings........................................... 2,077,423 2,074,084 2,011,256
Advertising structures.............................. 42,876,007 31,857,123 27,446,874
Equipment........................................... 4,612,869 3,602,942 2,978,167
--------------- --------------- ---------------
52,032,980 40,000,830 34,902,978
Less accumulated depreciation....................... (19,211,169) (16,995,772) (14,790,047)
--------------- --------------- ---------------
$ 32,821,811 $ 23,005,058 $ 20,112,931
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
NOTE 6 -- OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------- --------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Goodwill............................................ $ 45,811,889 $ 45,239,949 $ 45,239,949
Advertising structure leases, at cost............... 26,204,360 26,096,863 26,021,863
Non-compete and other, at cost...................... 6,514,322 6,495,641 6,420,390
Deferred loan costs................................. 3,403,069 3,403,065 2,903,068
--------------- --------------- ---------------
81,933,640 81,235,518 80,585,270
Less accumulated amortization....................... (43,192,061) (39,381,027) (34,319,178)
--------------- --------------- ---------------
$ 38,741,579 $ 41,854,491 $ 46,266,092
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
NOTE 7 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- ----------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Trade accounts payable................................... $ 295,576 $ 1,285,008 $ 1,794,814
Accrued compensation and other........................... 3,964,353 1,677,573 1,623,766
Accrued interest......................................... 29,531 29,531 14,039
-------------- ------------- -------------
$ 4,289,460 $ 2,992,112 $ 3,432,619
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
F-41
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- ------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Notes payable to banks................................ $ 80,650,000 $ 74,500,000 $ 78,000,000
Other long-term debt.................................. 142,066 212,622 271,769
-------------- -------------- --------------
80,792,066 74,712,622 78,271,769
Less amounts due within one year...................... (9,109,419) (9,109,419) (8,061,214)
-------------- -------------- --------------
$ 71,682,647 $ 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 -- $9,109,419: 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 $5,577,909, $7,331,000 and $7,570,000 in cash
for interest during the nine month period ended September 30, 1996 and during
the years ended December 31, 1995 and 1994, respectively.
NOTE 9 -- 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 $75,000 for the nine month period ended September
30, 1996 and $100,000 in 1995 and 1994.
NOTE 10 -- INCOME TAXES
At September 30, 1996, the Company had federal and state net operating loss
carryforwards 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. The tax paid
will be allowed as a credit carryover against regular tax in future periods. For
financial reporting
F-42
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- INCOME TAXES (CONTINUED)
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 September 30, 1996, 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 period are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
SEPTEMBER 30, ----------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Current
Federal................................................ $ 125,000 $ 132,754 $ 11,522
State.................................................. 25,000 25,510 26,050
-------------- ------------- -------------
Total current............................................ $ 150,000 $ 158,264 $ 37,572
-------------- ------------- -------------
-------------- ------------- -------------
Deferred:
Federal................................................ $ 1,375,000 $ 1,532,587 $ 1,073,054
State.................................................. 255,000 284,480 183,856
-------------- ------------- -------------
Total deferred........................................... $ 1,630,000 $ 1,817,067 $ 1,256,910
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
The reconciliation of the statutory federal income tax rate to the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
NINE-MONTH YEAR ENDED
PERIOD ENDED DECEMBER 31,
SEPTEMBER 30, --------------------
1996 1995 1994
-------------- --------- ---------
<S> <C> <C> <C>
Income tax expense at the statutory rate......................... 34.0% 34.0% 34.0%
Goodwill......................................................... 9.8% 9.7% 175.1%
State taxes, net of federal benefit.............................. 5.2% 5.1% 25.7%
Other............................................................ 0.6% 0.7% 5.7%
------- --------- ---------
49.6% 49.5% 240.5%
------- --------- ---------
------- --------- ---------
</TABLE>
Components of deferred tax assets for each year are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward..................... $ 3,000,000 $ 3,000,000 $ 2,444,000
Charitable contribution carryforward................ -- 2,050 --
Bad debt allowance.................................. 344,000 254,347 176,407
Accrued liabilities................................. 50,000 39,782 90,728
Property and equipment.............................. 11,000 141,450 87,150
Alternative minimum tax credit...................... 372,000 276,112 148,370
Net operating loss carryforward..................... 11,434,258 13,391,143 16,269,565
-------------- -------------- --------------
Total deferred tax assets............................. $ 15,211,258 $ 17,104,884 $ 19,216,220
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The Company paid income taxes of $149,000 and $148,000 in 1995 and 1994,
respectively.
F-43
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- 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 -- $28,750; 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 $6,548,000 for
the nine months ended September 30, 1996 and $7,461,000 and $6,947,000 in 1995
and 1994, respectively.
NOTE 12 -- 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.
During the nine months ended September 30, 1996, the Company acquired
certain fixed assets, customer lists and advertising leases for a combined total
of $10.0 million. In connection with the acquisition, intangible assets of
approximately $572,000 were recorded. The customer lists and advertising leases
were assigned useful lives of three and ten years, respectively. Goodwill is
amortized over 40 years.
NOTE 13 -- 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-44
<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-45
<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-46
<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-47
<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-48
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE MONTHS
ENDED DECEMBER ENDED SEPTEMBER 30,
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-49
<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-50
<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 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
F-51
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 NINE MONTHS
FOR THE YEAR ENDED SEPTEMBER 30,
ENDED 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>
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
F-52
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. GOODWILL: (CONTINUED)
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.
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>
F-53
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OTHER ASSETS: (CONTINUED)
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.
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.
F-54
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
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>
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.
F-55
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 NINE MONTHS ENDED
FOR THE YEAR SEPTEMBER 30,
ENDED 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.
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 NINE MONTHS ENDED
FOR THE YEAR SEPTEMBER 30,
ENDED 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.
F-56
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES: (CONTINUED)
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>
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.
F-57
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. MANAGEMENT STOCK OPTION PLAN: (CONTINUED)
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 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.
F-58
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS: (CONTINUED)
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 DECEMBER 31, 1995 AS OF SEPTEMBER 30, 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.
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
F-59
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. UNAUDITED PRO FORMA SUMMARY RESULTS OF OPERATIONS: (CONTINUED)
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 NINE
FOR THE YEAR MONTHS ENDED
ENDED DECEMBER SEPTEMBER 30,
31, 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-60
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY 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 OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, 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>
Prospectus Summary............................. 3
Risk Factors................................... 11
Use of Proceeds................................ 17
Dividend Policy................................ 17
Price Range of Common Stock.................... 17
Capitalization................................. 18
Pro Forma Financial Information................ 19
Selected Consolidated Financial and Operating
Data.......................................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 26
Business....................................... 35
Management..................................... 45
Certain Transactions........................... 50
Principal Stockholders......................... 51
Description of Noteholder Warrants............. 53
Description of Capital Stock................... 56
Shares Eligible for Future Sale................ 59
Description of Indebtedness and Other
Commitments................................... 60
Certain Federal Income Tax Consequences........ 63
Selling Securityholders and Plan of
Distribution.................................. 65
Legal Matters.................................. 66
Experts........................................ 66
Available Information.......................... 67
Index to Consolidated Financial Statements..... F-1
</TABLE>
24,200
WARRANTS TO PURCHASE
COMMON STOCK
387,200 SHARES
OF COMMON STOCK
[LOGO]
UNIVERSAL OUTDOOR
HOLDINGS, INC.
------------
PROSPECTUS
------------
July , 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............... $ 790
Printing and Engraving Expenses................................... 10,000
Legal Fees and Expenses........................................... 30,000
Accounting Fees and Expenses...................................... 20,000
Blue Sky Fees and Expenses........................................ 5,000
Exchange Agent Fees and Expenses.................................. 10,000
Miscellaneous..................................................... 15,000
---------
Total........................................................... $ 90,790
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Delaware Law") and
Article XI of the Registrant's Bylaws provide for indemnification of the
Registrant's directors and officers to the maximum extent provided by Delaware
Law, which may include liabilities under the Securities Act.
As permitted by Section 102(b) of the Delaware Law, the Certificate of
Incorporation provides that directors of the Company shall have no personal
liability to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except (i) for any breach of a director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or knowing violations of law,
(iii) under Section 174 of the Delaware Law, or (iv) for any transaction from
which a director derived an improper personal benefit.
The Company does not maintain directors' and officers' liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1993, the Company has issued the following securities which
were not registered under the Securities Act:
The 1996 Warrant Plan was adopted by the Board of Directors of the Company
in April 1996 in order to advance the interests of the Company by affording
certain key executives and employees an opportunity to acquire a proprietary
interest in the Company and thus to stimulate increased personal interest in
such persons in the success and future growth of the Company. The 1996 Warrant
Plan is administered by the Compensation Committee of the Company. Pursuant to
the 1996 Warrant Plan, Daniel L. Simon and Brian T. Clingen were awarded
warrants in April 1996 which have been divided into three series: the Series I
Warrants, the Series II Warrants and the Series III Warrants. In July 1996, the
1996 Warrant Plan was amended to, among other things (i) adjust the warrant
exercise price for the Series II Warrants and the Series III Warrants from $5.00
per share (as adjusted to reflect the 16 for 1 stock split) to (X) in the case
of the Series II Warrants, the Closing Price for the day immediately preceding
any such exercise minus $.01, PROVIDED, HOWEVER, that if at any time the average
of the Closing Price for any 30 consecutive trading days is equal to or greater
than $16.25 AND the Closing Price for the last day of such thirty day trading
period is equal to or greater than $16.25, then the warrant exercise price shall
thereafter be $5.00, and (Y) in the case of Series III Warrants, the Closing
Price for the day immediately preceding any such exercise minus $.01, PROVIDED,
HOWEVER, that if at any time the average of the Closing Price for any 30
consecutive trading days is equal to or greater than $20.00 AND the Closing
Price for the last day of such thirty day trading period is equal to or greater
than $20.00, then the warrant exercise price shall thereafter be $5.00; and (ii)
making each class of Warrants fully exercisable. The Warrants issued under the
1996 Warrant Plan are fully exercisable at a warrant exercise price of $5.00 per
share. The Warrants may not be sold, assigned, transferred, exchanged or
otherwise disposed of except to spouses and
II-1
<PAGE>
beneficiaries of the holders of such Warrants. The Company consented to an
assignment by Daniel L. Simon and Brian T. Clingen to Paul G. Simon of 123,530
Series I Warrants. A total of 2,470,608 shares of Common Stock have been
reserved for issuance pursuant to the Warrants issued under the 1996 Warrant
Plan. Daniel L. Simon holds 595,000 Series I Warrants, 700,000 Series II
Warrants and 700,000 Series III Warrants; Brian L. Clingen holds 105,006 Series
I Warrants, 123,536 Series II Warrants and 123,536 Series III Warrants; and Paul
G. Simon holds 123,530 Series I Warrants. The Company recognized a one-time
non-cash compensation charge of approximately $9 million in the quarter ended
June 30, 1996 relating to the issuance of the Warrants under the 1996 Warrant
Plan. See "Management -- The 1996 Warrant Plan and "Executive Compensation."
On April 5, 1996, the Company issued to KIA V and KEP V and certain
individuals designated by KIA V and KEP V 186,500 shares of Class B Common Stock
and 188,500 shares of Class C Common Stock in exchange for $30 million. Such
Class B Common Stock and Class C Common Stock was reclassified into 6,000,000
shares of Common Stock and 2,500,000 shares were sold in the Offering.
On June 30, 1994, the Company issued and sold to Bear, Stearns & Co. Inc. as
the Initial Purchaser (the "Initial Purchaser") 50,000 Units consisting of
$50,000,000 principal amount at maturity of 14% Series A Senior Secured Discount
Notes due 2004 (the "Old Notes") and 50,000 Noteholder Warrants (sold with a 4%
discount to the Initial Purchaser, along with compensation to Bear, Stearns &
Co. Inc., in its individual capacity and not as Initial Purchaser, of 12,500
Noteholder Warrants) for an aggregate offering price of approximately $25.4
million. Each Unit consisted of $1,000 principal amount at maturity of the Old
Notes and one Noteholder Warrant, and the Old Notes and Noteholder Warrants were
immediately detachable and separately transferable, subject to compliance with
applicable federal and state securities laws. This sale to the Initial Purchaser
was exempt from registration as an exempt private placement under Section 4(2)
of the Securities Act. On December 9, 1994, in a transaction registered under
the Securities Act, the Registrant issued $50,000,000 principal amount at
maturity of its 14% Senior Secured Discount Notes due 2004 in exchange for all
of the issued and outstanding Old Notes.
On November 18, 1993, pursuant to a Contribution Agreement between the
Company and all of the then shareholders of UOI, (i) the holders of all of the
common shares of UOI exchanged such shares on a one-for-one basis for shares of
Common Stock of the Company and (ii) the holders of all of the Class B common
shares of UOI exchanged such shares for an aggregate of 48,000 shares of Series
B Preferred Stock, no par value, of the Company. These exchanges were exempt
from registration as either not involving any "sale" or as exempt private
placements under Section 4(2) of the Securities Act.
On November 18, 1993, the Company entered into the Option Exchange Agreement
with UOI and William H. Smith ("WHS"), pursuant to which the Company granted to
WHS an option to purchase 0.52% of the issued and outstanding capital stock of
the Company at a purchase price of $130,000. The option was exercisable by WHS
upon the Company entering into a definitive agreement to issue shares of capital
stock through an underwritten public offering. WHS exercised his option in full
and received 67,600 shares of Common Stock of the Company in connection with the
Offering.
On November 18, 1993, the Company entered into the Capital Appreciation
Right Agreement with Connecticut General Life Insurance Company, Cigna Property
and Casualty Insurance Company, Life Insurance Company of North America and
Aetna Life Insurance Company, pursuant to which the Company granted such parties
limited capital appreciation rights in the capital stock of the Company in
exchange for a waiver of the prepayment penalty in connection with the 1993
refinancing. Such capital appreciation rights are triggered by the occurrence of
any of the following: (i) liquidation or dissolution of the Company or UOI, (ii)
sale of all or substantially all of the issued and outstanding shares of common
stock or assets of the Company, or (iii) the merger or consolidation of the
Company or UOI, subject to certain exceptions. The maximum amount payable
pursuant to the agreement is $3.8 million and is required to be paid no later
than one year following the triggering event. The agreement expires June 30,
1998.
In each case, exemption from registration was claimed on the grounds that
the issuance of such securities did not involve any public offering within the
meaning of Section 4(2) of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<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 UOI's Registration
Statement on Form S-1 (Commission File No. 33-72710) and incorporated herein
by reference)
2.2 Stock Purchase Agreement (Stock Purchase Agreement) between Wind Point
Partners II, L.P., Marquette Venture Partners, L.P., Chemical Equity
Associates, a California Limited Partnership, Banc One Venture Corporation
and Management Shareholders and UOI relating to the capital stock of NOA
Holding Company dated February 27, 1996 (filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated April 5, 1996 (File No. 33-82582)
(the "Company 8-K") and incorporated herein by reference)
2.3 Amendment No. 1 to Stock Purchase Agreement (filed as Exhibit 2.2 to the
Company 8-K and incorporated herein by reference)
2.4 Agreement and Plan of Recapitalization between the Company, KIA V, KEP V and
certain stockholders of the Company (filed as Exhibit 2.4 to Amendment No. 2
to the Company's Registration Statement (File No. 333-12457) on Form S-1 (the
"Registration Statement") and incorporated herein by reference)
2.5 Agreement and Plan of Merger between UOI, Universal Acquisition Corp. and
Outdoor Advertising Holdings, Inc. dated August 27, 1996 (filed as Exhibit
2.5 to the Registration Statement and incorporated herein by reference)
2.6 Option and Asset Purchase Agreement between UOI and the Memphis/Tunica Sellers
dated September 12, 1996 (filed as Exhibit 2.6 to the Registration Statement
and incorporated herein by reference)
2.7 Asset Purchase Agreement among Mountain Media, Inc., d/b/a Iowa Outdoor
Displays, Robert H. Lambert and UOI dated September 12, 1996 (filed as
Exhibit 2.4 to UOI's Registration Statement on Form S-1, dated February 13,
1997 (File No. 333-21717) (the "UOI Registration Statement") and incorporated
herein by reference)
2.8 Asset Purchase Agreement between UOI and The Chase Company dated September 11,
1996 (filed as Exhibit 2.8 to the Registration Statement and incorporated
herein by reference)
2.9 Stock Purchase Agreement, dated as of November 22, 1996, among Revere, UOI and
the stockholders of Revere (filed as Exhibit 2.6 to the UOI Registration
Statement and incorporated herein by reference)
2.10 Asset Purchase Agreement, dated as of December 10, 1996, among Matthew,
Matthew Acquisition Corp. and UOI (filed as Exhibit 2.7 to the UOI
Registration Statement and incorporated herein by reference)
3.1 Third Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1
to the Registration Statement and incorporated herein by reference)
3.2 Second Amended and Restated Bylaws (filed as Exhibit 3.2 to the Registration
Statement and incorporated herein by reference)
4.1 Specimen Common Stock Certificate of the Company (filed as Exhibit 4.1 to the
Company's Registration Statement (File No. 333-5351) on Form S-1 and
incorporated herein by reference)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
4.2 Indenture of Trust between United States Trust Company of New York as trustee,
and UOI, dated as of October 16, 1996, relating to the October Notes (filed
as Exhibit 10.3 to the UOI Registration Statement and incorporated herein by
reference)
4.3 Indenture of Trust between United States Trust Company of New York, as
trustee, and UOI dated as of December 16, 1996, relating to the December
Notes (filed as Exhibit 4.1 to the UOI Registration Statement and
incorporated herein by reference)
4.4 Warrant Agreement between the Registrant and United States Trust Company of
New York, as warrant agent, dated June 30, 1994 relating to the Noteholder
Warrants (filed as Exhibit 4(i) to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 33-93852) and incorporated
herein by reference)
4.5 Purchase Agreement, dated as of June 23, 1994, between the Company and Bear,
Stearns & Co. Inc. (the "Initial Purchaser") relating to the Company's 14%
Series A Senior Secured Discount Notes due 2004 (the "Old Notes") and
Noteholder Warrants to purchase Common Stock (filed as Exhibit 4(a) to the
Company's Registration Statement on Form S-1 (File No. 33-82582) and
incorporated herein by reference)
4.6 Exchange and Registration Rights Agreement, dated as of June 23, 1994, between
the Company and the Initial Purchaser (filed as Exhibit 4(d) to the Company's
Registration Statement on Form S-1 (File No. 33-82582) and incorporated
herein by reference)
5.1* Opinion of Sidley & Austin
9.1 Voting Trust Agreement dated December 20, 1995 among the Company, Daniel L.
Simon and Brian T. Clingen (filed as Exhibit 9.1 to the Company's
Registration Statement (File No. 333-5351) on Form S-1 and incorporated
herein by reference)
9.2 Voting Trust Agreement among the Company, Daniel L. Simon and Paul G. Simon
(filed as Exhibit 9.2 to the Registration Statement and incorporated herein
by reference)
10.1 Consolidated Credit Agreement dated October 31, 1996, among UOI, the various
lending institutions from time to time parties thereto, LaSalle National
Bank, as Co-Agent and Bankers Trust Company, as Agent (filed as Exhibit 10.1
to the UOI Registration Statement and incorporated herein by reference)
10.2 Amended and Restated 1996 Warrant Plan of the Company (filed as Exhibit 10.3
to Amendment No. 2 to the Company's Registration Statement (File No.
333-5351) on Form S-1 and incorporated herein by reference)
10.3 Agreement Regarding Tax Liabilities and Payments dated as of November 18, 1993
by and between UOI and the Company (filed as Exhibit 10(f) to UOI's Form S-1
Registration Statement (File No. 33-72710) and incorporated herein by
reference)
10.4 Capital Appreciation Right Agreement among the Company, Connecticut General
Life Insurance Company, Cigna Property and Casualty Insurance Company, Life
Insurance Company of North America and Aetna Life Insurance Company dated
November 18, 1993 (filed as Exhibit 10.6 to Amendment No. 2 to the Company's
Registration Statement (File No. 333-5351) on Form S-1 and incorporated
herein by reference)
10.5 Fee Letter between the Company and Kelso & Company, L.P. (filed as Exhibit
10.9 to Amendment No. 2 to the Company's Registration Statement on Form S-1
(File No. 333-12457) and incorporated herein by reference)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.6 Registration Rights Agreement among the Company, KIA V, KEP V, Daniel L.
Simon, Brian T. Clingen and Paul G. Simon (filed as Exhibit 10.10 to
Amendment No. 2 to the Company's Registration Statement on Form S-1 (File No.
333-12457) and incorporated herein by reference)
10.7 Term Loan Agreement among UOI, various lending institutions, LaSalle National
Bank as Co-Agent and Bankers Trust Company as Agent dated as of May 21, 1997
(filed as Exhibit 10.7 to Post-Effective Amendment No. 5 to the Company's
Registration Statement on Form S-1 (File No. 33-93852) and incorporated
herein by reference)
10.8 Amended and Restated Credit Agreement among UOI, various lending institutions,
LaSalle National Bank as Co-Agent and Bankers Trust Company as Agent dated as
of May 21, 1997 (filed as Exhibit 10.8 to Post-Effective Amendment No. 5 to
the Company's Registration Statement on Form S-1 (File No. 33-93852) and
incorporated herein by reference)
11.1 Statement regarding computation of per share earnings (filed as Exhibit 11.1
to Post-Effective Amendment No. 5 to the Company's Registration Statement on
Form S-1 (File No. 33-93852) and incorporated herein by reference)
21.1 Subsidiaries of the Registrant (filed as Exhibit 21.1 to the Company's Annual
Report on Form 10-K dated December 31, 1996 (File No. 000-20823) and
incorporated herein by reference)
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Arthur Anderson LLP
23.4* Consent of Sidley & Austin (contained in Exhibit 5.1)
23.5 Consent of Price Waterhouse LLP
24.1* Powers of Attorney
</TABLE>
- ------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that:
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to Item 14 above, or otherwise, the Company has been
advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes:
(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-5
<PAGE>
(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 the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective 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;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form P-3 and the information
required to be included in a post-effective amendment by these paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1933 that are incorporated by reference 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.
(c) The undersigned Registrant hereby undertakes that:
For the purpose of determining any liability under the Securities Act of
1933, each filing of the Company's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in this Registration Statement shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
II-6
<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 24th day of July, 1997.
UNIVERSAL OUTDOOR HOLDINGS, INC.
By: /s/ BRIAN T. CLINGEN
-----------------------------------
Brian T. Clingen*
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ ----------------
<C> <S> <C> <C>
** President and Chief Executive
--------------------- Officer (Principal Executive July 24, 1997
Daniel L. Simon Officer) and Director
/s/ BRIAN T. CLINGEN Vice President and Chief Financial /s/ BRIAN T. CLINGEN
--------------------- Officer (Principal Financial and July 24, 1997 ---------------------
Brian T. Clingen Accounting Officer) and Director Brian T. Clingen*
**
--------------------- Director July 24, 1997
Michael J. Roche
--------------------- Director July 24, 1997
Michael B. Goldberg
--------------------- Director July 24, 1997
Frank K. Bynum
</TABLE>
* Brian T. Clingen was appointed Attorney-in-Fact pursuant to a Power of
Attorney filed with the Commission with this Registration Statement.
** /s/ Brian T. Clingen, Attorney-in-Fact
II-7
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
2.1 Plan and Agreement of Merger, dated November 18, 1993, between the Company and Universal
Outdoor II, Inc. (filed as Exhibit 2 to UOI's Registration Statement on Form S-1
(Commission File No. 33-72710) and incorporated herein by reference)
2.2 Stock Purchase Agreement (Stock Purchase Agreement) between Wind Point Partners II, L.P.,
Marquette Venture Partners, L.P., Chemical Equity Associates, a California Limited
Partnership, Banc One Venture Corporation and Management Shareholders and UOI relating to
the capital stock of NOA Holding Company dated February 27, 1996 (filed as Exhibit 2.1 to
the Company's Current Report on Form 8-K dated April 5, 1996 (File No. 33-82582) (the
"Company 8-K") and incorporated herein by reference)
2.3 Amendment No. 1 to Stock Purchase Agreement (filed as Exhibit 2.2 to the Company 8-K and
incorporated herein by reference)
2.4 Agreement and Plan of Recapitalization between the Company, KIA V, KEP V and certain
stockholders of the Company (filed as Exhibit 2.4 to Amendment No. 2 to the Company's
Registration Statement (File No. 333-12457) on Form S-1 (the "Registration Statement")
and incorporated herein by reference)
2.5 Agreement and Plan of Merger between UOI, Universal Acquisition Corp. and Outdoor
Advertising Holdings, Inc. dated August 27, 1996 (filed as Exhibit 2.5 to the
Registration Statement and incorporated herein by reference)
2.6 Option and Asset Purchase Agreement between UOI and the Memphis/Tunica Sellers dated
September 12, 1996 (filed as Exhibit 2.6 to the Registration Statement and incorporated
herein by reference)
2.7 Asset Purchase Agreement among Mountain Media, Inc., d/b/a Iowa Outdoor Displays, Robert
H. Lambert and UOI dated September 12, 1996 (filed as Exhibit 2.4 to UOI's Registration
Statement on Form S-1, dated February 13, 1997 (File No. 333-21717) (the "UOI
Registration Statement") and incorporated herein by reference)
2.8 Asset Purchase Agreement between UOI and The Chase Company dated September 11, 1996 (filed
as Exhibit 2.8 to the Registration Statement and incorporated herein by reference)
2.9 Stock Purchase Agreement, dated as of November 22, 1996, among Revere, UOI and the
stockholders of Revere (filed as Exhibit 2.6 to the UOI Registration Statement and
incorporated herein by reference)
2.10 Asset Purchase Agreement, dated as of December 10, 1996, among Matthew, Matthew
Acquisition Corp. and UOI (filed as Exhibit 2.7 to the UOI Registration Statement and
incorporated herein by reference)
3.1 Third Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the
Registration Statement and incorporated herein by reference)
3.2 Second Amended and Restated Bylaws (filed as Exhibit 3.2 to the Registration Statement and
incorporated herein by reference)
4.1 Specimen Common Stock Certificate of the Company (filed as Exhibit 4.1 to the Company's
Registration Statement (File No. 333-5351) on Form S-1 and incorporated herein by
reference)
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
4.2 Indenture of Trust between United States Trust Company of New York as trustee, and UOI,
dated as of October 16, 1996, relating to the October Notes (filed as Exhibit 10.3 to the
UOI Registration Statement and incorporated herein by reference)
4.3 Indenture of Trust between United States Trust Company of New York, as trustee, and UOI
dated as of December 16, 1996, relating to the December Notes (filed as Exhibit 4.1 to
the UOI Registration Statement and incorporated herein by reference)
4.4 Warrant Agreement between the Registrant and United States Trust Company of New York, as
warrant agent, dated June 30, 1994 relating to the Noteholder Warrants (filed as Exhibit
4(i) to Amendment No. 1 to the Company's Registration Statement on Form S-1 (File No.
33-93852) and incorporated herein by reference)
4.5 Purchase Agreement, dated as of June 23, 1994, between the Company and Bear, Stearns & Co.
Inc. (the "Initial Purchaser") relating to the Company's 14% Series A Senior Secured
Discount Notes due 2004 (the "Old Notes") and Noteholder Warrants to purchase Common
Stock (filed as Exhibit 4(a) to the Company's Registration Statement on Form S-1 (File
No. 33-82582) and incorporated herein by reference)
4.6 Exchange and Registration Rights Agreement, dated as of June 23, 1994, between the Company
and the Initial Purchaser (filed as Exhibit 4(d) to the Company's Registration Statement
on Form S-1 (File No. 33-82582) and incorporated herein by reference)
5.1* Opinion of Sidley & Austin
9.1 Voting Trust Agreement dated December 20, 1995 among the Company, Daniel L. Simon and
Brian T. Clingen (filed as Exhibit 9.1 to the Company's Registration Statement (File No.
333-5351) on Form S-1 and incorporated herein by reference)
9.2 Voting Trust Agreement among the Company, Daniel L. Simon and Paul G. Simon (filed as
Exhibit 9.2 to the Registration Statement and incorporated herein by reference)
10.1 Consolidated Credit Agreement dated October 31, 1996, among UOI, the various lending
institutions from time to time parties thereto, LaSalle National Bank, as Co-Agent and
Bankers Trust Company, as Agent (filed as Exhibit 10.1 to the UOI Registration Statement
and incorporated herein by reference)
10.2 Amended and Restated 1996 Warrant Plan of the Company (filed as Exhibit 10.3 to Amendment
No. 2 to the Company's Registration Statement (File No. 333-5351) on Form S-1 and
incorporated herein by reference)
10.3 Agreement Regarding Tax Liabilities and Payments dated as of November 18, 1993 by and
between UOI and the Company (filed as Exhibit 10(f) to UOI's Form S-1 Registration
Statement (File No. 33-72710) and incorporated herein by reference)
10.4 Capital Appreciation Right Agreement among the Company, Connecticut General Life Insurance
Company, Cigna Property and Casualty Insurance Company, Life Insurance Company of North
America and Aetna Life Insurance Company dated November 18, 1993 (filed as Exhibit 10.6
to Amendment No. 2 to the Company's Registration Statement (File No. 333-5351) on Form
S-1 and incorporated herein by reference)
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.5 Fee Letter between the Company and Kelso & Company, L.P. (filed as Exhibit 10.9 to
Amendment No. 2 to the Company's Registration Statement on Form S-1 (File No. 333-12457)
and incorporated herein by reference)
10.6 Registration Rights Agreement among the Company, KIA V, KEP V, Daniel L. Simon, Brian T.
Clingen and Paul G. Simon (filed as Exhibit 10.10 to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (File No. 333-12457) and incorporated herein by
reference)
10.7 Term Loan Agreement among UOI, various lending institutions, LaSalle National Bank as
Co-Agent and Bankers Trust Company as Agent dated as of May 21, 1997 (filed as Exhibit
10.7 to Post-Effective Amendment No. 5 to the Company's Registration Statement on Form
S-1 (File No. 33-93852) and incorporated herein by reference)
10.8 Amended and Restated Credit Agreement among UOI, various lending institutions, LaSalle
National Bank as Co-Agent and Bankers Trust Company as Agent dated as of May 21, 1997
(filed as Exhibit 10.8 to Post-Effective Amendment No. 5 to the Company's Registration
Statement on Form S-1 (File No. 33-93852) and incorporated herein by reference)
11.1 Statement regarding computation of per share earnings (filed as Exhibit 11.1 to
Post-Effective Amendment No. 5 to the Company's Registration Statement on Form S-1 (File
No. 33-93852) and incorporated herein by reference)
21.1 Subsidiaries of the Registrant (filed as Exhibit 12.1 to the Company's Annual Report on
Form 10-K dated December 31, 1996 (File No. 000-20823) and incorporated herein by
reference)
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Arthur Anderson LLP
23.4* Consent of Sidley & Austin (contained in Exhibit 5.1)
23.5 Consent of Price Waterhouse LLP
24.1* Powers of Attorney
</TABLE>
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* 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 Holdings,
Inc. for each of the three years in the period ended December 31, 1996, our
report dated June 14, 1996 relating to the statement of revenue and direct
expenses of Ad-Sign, and our report dated February 28, 1997 relating to the
financial statements of POA Acquisition Corporation which appear in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Consolidated Financial and Other Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Consolidated Financial and Other Data."
Price Waterhouse LLP
Chicago, Illinois
July 22, 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 financial statements
of NOA Holding Company included in the Post-Effective Amendment No. 6 to the
Registration Statement (No. 33-93852) and related Prospectus of Universal
Outdoor Holdings, Inc.
ERNST & YOUNG LLP
Minneapolis, Minnesota
July 22, 1997
<PAGE>
EXHIBIT 23.3
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 Registration
No. 33-93852.
Arthur Andersen LLP
Baltimore, Maryland,
July 22, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this registration statement on Form S-3 of Universal
Outdoor Holdings, Inc. of our report dated February 28, 1997 appearing on page
22 of Universal Outdoor Holdings, Inc. Annual Report on Form 10-K for the year
ended December 31, 1996.
[SIG]
Price Waterhouse
Chicago, Illinois
July 22, 1997
