-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EL30yMy9RhPaRtO3FPX5pvoqwMfr8cty7GwYHpdmrkDtBUjovoF2+SMGex38sPum z+i8M+Yixj3RdSRic1VBkw== 0000912057-96-012693.txt : 19960620 0000912057-96-012693.hdr.sgml : 19960620 ACCESSION NUMBER: 0000912057-96-012693 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19960619 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: METRO NETWORKS INC CENTRAL INDEX KEY: 0001016718 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 760505148 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-06311 FILM NUMBER: 96583117 BUSINESS ADDRESS: STREET 1: 2700 POST OAK BOULEVARD CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7136212800 MAIL ADDRESS: STREET 1: 2700 POST OAK BLVD CITY: HOUSTON STATE: TX ZIP: 77056 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1996 REGISTRATION NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ METRO NETWORKS, INC. (Exact name of Registrant as specified in its charter) DELAWARE 4899 76-0505148 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Classification Identification No.) incorporation or Code Number) organization)
2700 POST OAK BOULEVARD SUITE 1400 HOUSTON, TEXAS 77056 (713) 621-2800 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) DAVID I. SAPERSTEIN CHIEF EXECUTIVE OFFICER METRO NETWORKS, INC. 2700 Post Oak Boulevard Houston, Texas 77056 (713) 621-2800 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------ COPIES TO: Neil A. Torpey, Esq. Robert E. Buckholz, Jr., Paul, Hastings, Janofsky & Esq. Walker Sullivan & Cromwell 399 Park Avenue 125 Broad Street New York, New York 10022 New York, New York 10004
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / ------------------------ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / ------------------------ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: / / CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM TITLE OF EACH CLASS OF SECURITIES TO BE AGGREGATE OFFERING AMOUNT OF REGISTRATION REGISTERED PRICE(1) FEE Common Stock, $.001 par value.......... $115,000,000 $39,656
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended. ------------------------------ 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 THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- METRO NETWORKS, INC. CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-1
REGISTRATION STATEMENT ITEM LOCATION IN PROSPECTUS - ---------------------------------------------------------------- ----------------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus....................... Front Cover Page of Registration Statement; Cross-Reference Sheet; Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus........................................... Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges............................ Prospectus Summary; Risk Factors; The Company; Selected Consolidated Financial Data 4. Use of Proceeds...................................... Use of Proceeds 5. Determination of Offering Price...................... Underwriting 6. Dilution............................................. Dilution 7. Selling Security Holders............................. Principal and Selling Stockholders 8. Plan of Distribution................................. Underwriting 9. Description of Securities to be Registered........... Description of Capital Stock 10. Interests of Named Experts and Counsel............... * 11. Information with Respect to the Registrant........... Outside Front Cover Page of Prospectus; Prospectus Summary; Risk Factors; The Company; Capitalization; Selected Financial and Operating Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Principal and Selling Stockholders; Certain Transactions; Description of Capital Stock; Shares Eligible for Future Sale; Available Information; Combined Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities....................... *
- ------------------------ * Not applicable. 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 such State. SUBJECT TO COMPLETION, DATED JUNE 19, 1996 [ ] SHARES [LOGO] METRO NETWORKS, INC. COMMON STOCK (PAR VALUE $.001 PER SHARE) -------------- Of the [ ] shares of Common Stock offered hereby, [ ] shares are being sold by the Company and [ ] shares are being sold by the Selling Stockholder. The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholder. See "Principal and Selling Stockholders." Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price per share will be between $ and $ . For factors to be considered in determining the initial public offering price, see "Underwriting." SEE "RISK FACTORS" BEGINNING ON PAGE 11 HEREOF FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. Application will be made for quotation of the Common Stock on the Nasdaq National Market under the symbol "MTNT." -------------- 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. -------------- PROCEEDS TO INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDER(2) ------------------ ------------------ ------------------ ------------------ Per Share........................... $ $ $ $ Total(3)............................ $ $ $ $
- -------------- (1) The Company and the Selling Stockholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) Before deducting estimated expenses of $ payable by the Company. (3) The Company has granted the Underwriters an option for 30 days to purchase up to an additional [ ] shares of Common Stock at the initial public offering price per share, less the underwriting discount, solely to cover over-allotments. If such option is exercised in full, the total initial public offering price, underwriting discount and proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting". -------------- The shares offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that certificates for the shares will be ready for delivery in New York, New York on or about August , 1996, against payment therefor in immediately available funds. -------------- GOLDMAN, SACHS & CO. CS FIRST BOSTON DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION -------------- The date of this Prospectus is , 1996. [PICTURES AND TEXT] [MAP OF MARKETS] -------------- The Company intends to furnish to its shareholders annual reports containing audited financial statements and quarterly reports containing unaudited interim financial information for the first three fiscal quarters of each fiscal year. -------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10B-6, 10B-7 AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND COMBINED FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE OVER-ALLOTMENT OPTIONS GRANTED TO THE UNDERWRITERS ARE NOT EXERCISED. IN ADDITION, UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES TO THE COMPANY REFER TO METRO NETWORKS, INC., A DELAWARE CORPORATION, AND ITS SUBSIDIARIES AFTER THE REORGANIZATION (AS DEFINED HEREIN). A GLOSSARY OF CERTAIN TERMS APPEARING HEREIN HAS BEEN INCLUDED IN THIS PROSPECTUS. SEE "GLOSSARY." THE COMPANY OVERVIEW The Company is the largest provider of traffic reporting services, and a leading supplier of local news, sports, weather and other information reporting services, to the television and radio broadcast industries. The Company's information reports, which are customized to meet the specific needs of each of the Company's individual radio and television station affiliates, are presently being broadcast by approximately 1,275 radio station affiliates and 100 television station affiliates. The Company provides local broadcast information reports in 47 of the 50 largest MSA markets in the United States. In exchange for the Company's information reports, radio and television station affiliates provide commercial airtime inventory to the Company. The packaging and sale of this commercial airtime inventory accounts for substantially all of the Company's revenue. See "Business." Because the Company has numerous radio station affiliates in each of its markets (averaging 21 affiliates per market), the Company believes that its broadcasts of local traffic information reach more people, more often, in a higher impact manner than can be achieved using any other advertising medium. The Company's information reports are broadcast daily in 60 MSA markets and are heard by more than 100 million people (age 12 and over). Such reports and the Company's commercial messages are listened to by an average of 88% of the population (age 12 and over) in its markets. The Company's large network of affiliates allows it to offer advertisers the opportunity to reach a broad-based local, regional or national audience, through a single purchase of commercial airtime inventory. See "Business." The Company offers advertisers three different networks on which to broadcast their advertisements: the network of radio stations (the "Radio Traffic Services Network") which broadcasts the Company's traffic information reports (the "Radio Traffic Services"); the network of radio stations (the "Expanded Radio Services Network") which broadcasts an array of customized local news, sports, weather and other programming services (the "Expanded Radio Services"); and the network of television stations (the "MetroTV Network") which broadcasts the Company's television traffic services and video news services (the "Television Traffic Services" and "Video News Services" and collectively, the "MetroTV Services"). The Company believes that the Expanded Radio Services Network and the MetroTV Network, both of which are currently being developed, will become separate broad-based networks through which the Company will be able to acquire, package and sell additional commercial airtime inventory. See "Business -- Operating Strategy." Since its founding in 1978, the Company has demonstrated growth in net revenues and Pro Forma EBITDA (I.E., the Company's income from operations plus depreciation and amortization and predecessor shareholder costs). The Company had net revenues of $23.0 million and Pro Forma EBITDA of $3.7 million for the three months ended March 31, 1996, representing increases of $8.4 million and $2.8 million, respectively, from $14.7 million and $0.9 million, respectively, for the three months ended March 31, 1995. For the year ended December 31, 1995, the Company had net revenues of $72.4 million and Pro Forma EBITDA of $10.8 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Selected Financial and Operating Data." 3 OPERATING STRATEGY The Company's strategy is to realize operating efficiencies by; (i) expanding geographically, (ii) increasing the number of affiliates using Radio Traffic Services within existing markets, (iii) developing the Expanded Radio Services, (iv) developing the MetroTV Services and (v) continuing to strengthen its marketing, sales and inventory management operations. -EXPAND GEOGRAPHICALLY. The Company, which currently operates in 60 MSA markets in the United States, including 54 of the largest 75 MSA markets, believes that the economic model for its local information services business is viable in each of those markets. Since July 1994, the Company has entered 16 new markets and the Company intends to expand into the remaining 21 markets over the next three years through strategic acquisitions and start-ups. The Company is always examining acquisition and expansion opportunities. -INCREASE THE NUMBER OF AFFILIATES USING RADIO TRAFFIC SERVICES WITHIN EXISTING MARKETS. The Company believes there are substantial opportunities for continued growth in the Radio Traffic Services Network. As of March 31, 1996, the Company provided its Radio Traffic Services to approximately 1,275 radio station affiliates, an increase from 914 radio station affiliates as of December 31, 1994. The Company believes that opportunities are available to increase its market penetration by establishing affiliate relationships with additional radio stations nationwide. Its current affiliates represent 68% of the approximately 1,861 radio stations in the 60 MSA markets in which the Company operates. The Company believes that in many markets, it may be possible to establish affiliate relationships with substantially all of the radio stations in the market. -DEVELOP THE EXPANDED RADIO SERVICES. Having established a substantial market presence in Radio Traffic Services, the Company began during 1994 to leverage this business by offering Expanded Radio Services to its network of radio station affiliates. As of March 31, 1996, the Company provided Expanded Radio Services to more than 200 radio station affiliates in 26 MSA markets, an increase from 92 radio station affiliates in 17 MSA markets as of December 31, 1994. The Company intends to expand these services to all of its markets by the end of 1997. -DEVELOP METROTV SERVICES. The Company has provided Television Traffic Services to the MetroTV Network for over ten years. This network consisted of 103 television stations in 46 DMA markets as of March 31, 1996, an increase from 71 television stations in 33 DMA markets as of December 31, 1994. In connection with its core Radio Traffic Services business, the Company developed an extensive array of video surveillance and broadcast equipment, including jet helicopters, broadcast quality remote and omni-directional aircraft mounted camera systems, mobile units, computer-generated graphic displays and broadcasting technology. In 1995, the Company began to use this infrastructure to offer the Video News Services to its network of television station affiliates, and is currently providing these services to 16 of its television station affiliates in nine of its 46 DMA markets. The MetroTV Services include full service, 24 hours per day/7 days per week video coverage from camera crews in the Company's aircraft and mobile ground units covering breaking news stories. The Company intends to expand the Video News Services into the 25 largest DMA markets in the United States over the next three years. -CONTINUE TO STRENGTHEN ITS MARKETING, SALES AND INVENTORY MANAGEMENT OPERATIONS. Over the past year, the Company has invested in, and continues to initiate and implement, new operating strategies and systems to increase revenues and Pro Forma EBITDA. In order to increase the percentage of the Company's commercial airtime inventory sold, the Company has (i) increased its sales force from approximately 70 sales representatives as of December 31, 1994 to approximately 125 sales representatives as of March 31, 1996; (ii) developed a corporate marketing department to support the efforts of its sales representatives by providing extensive training, research, sales/marketing materials and analysis; (iii) hired additional general managers and sales managers to better manage the activities of its sales representatives and enhance its affiliate relationships; (iv) fully automated its commercial airtime inventory management system to 4 improve inventory control and pricing; and (v) reduced the level of reciprocal arrangements (the exchange of commercial airtime for goods and services) to focus sales representatives on cash revenue business. PROGRAMMING Every aspect of the Company's information reports (including the length of report, content of report, specific geographic coverage area, time of broadcast, number of reports aired per day, broadcaster's style, etc.) is customized to meet each individual affiliate's requirements. The Company typically works closely with the program directors, news directors, and general managers of its affiliates to ensure that the Company's services meet its affiliates' quality standards. The Company and its affiliates jointly select the on-air broadcasters to ensure that each broadcaster's style is appropriate for the station's format. The Company's broadcasters often become integral "personalities" on such affiliates' stations as a result of their significant on-air presence and interaction with the stations' on-air personnel. In order to realize operating efficiencies, the Company endeavors to utilize its professional broadcasters on multiple affiliate stations within a particular market. Generally, each of the Company's broadcasters deliver reports to between two and four of the Company's affiliates. The Company does not require its affiliates to identify the Company as the supplier of its information reports. This provides the Company's affiliates with a high degree of customization and flexibility, as each affiliate has the right to present the information reports provided by the Company as if the affiliate had generated such reports with its own resources. For example, multiple affiliates in a single market may suggest that the Company's infrastructure, including its airplanes, helicopters and broadcasters, are those of the affiliate. See "Business -- Programming". INFRASTRUCTURE The Company believes that its extensive fleet of aircraft and other information-gathering technology and broadcast equipment has allowed the Company to provide high quality programming, enabling it to retain and expand its affiliate base. In the aggregate, the Company has approximately 69 fixed-wing aircraft, 17 helicopters, 30 mobile units, 7 airborne camera systems, 16 fixed-position camera systems, 50 broadcast studios and 1,148 broadcasters and producers. The Company also maintains a staff of computer programmers and graphics experts to supply customized graphics and other visual programming elements to television stations. In addition, each of the Company's operating centers and broadcast studios has sophisticated computer technology, video and broadcast equipment and cellular and wireless technology which enables the Company's broadcasters to deliver accurate and timely reports to its affiliates. The infrastructure and resources dedicated to a specific market by the Company are determined by the size of the market, the number of affiliates the Company serves in the market and the type of services being provided. See "Business - Infrastructure." ADVERTISING SALES AND MARKETING The Company's primary source of revenue is the packaging and sale to advertisers of commercial airtime inventory provided to the Company by its affiliates in exchange for its information reports. The Company's standard radio affiliate contract, which is generally for a term of one year or longer, typically requires that for each report provided by the Company, the radio station provide the Company with an opening announcement and a ten second commercial message (or "sponsorship") to be broadcast as part of the report. The Company packages its radio commercial airtime inventory for sale to advertisers on a market-wide, regional or national basis and then broadcasts these sponsorship advertisements among its entire network of affiliates within a particular market on a fair and equal rotation (i.e., each advertiser receives its pro rata share of advertisements on each of the Company's affiliates in the relevant market). The Company believes that its radio sponsorships, which are typically sold in multiple "sponsorship" packages (generally 125, 250 or 500 sponsorships broadcast over four week periods in each market), provide advertisers with an effective and efficient medium to reach a high percentage of the population in its markets. In the Company's MSA markets, the Company's 500 sponsorship package (which the Company believes is the most frequently purchased package) reaches an average of approximately 70% of the population (age 12 and over). The Company's advertisers have the ability to 5 target individual markets and customize their commercial messages by station format. Because most of the sponsorships are read live, advertisers can change their messages on short notice. The Company believes that its radio advertising networks have a high degree of impact because the commercial messages are imbedded in the affiliates' programming and are generally delivered live by the Company's broadcasters during peak drive periods. The Company provides its MetroTV Services to television stations in exchange for thirty second commercial airtime inventory. The amount and day-part placement of the commercial airtime inventory that the Company receives from television stations varies by market and by the type of service provided by the Company. In each of the markets in which it conducts operations, the Company maintains an advertising sales office as part of its operations center. The Company's advertising sales force is able to sell available commercial airtime inventory in any and all of the Company's markets in addition to selling such inventory in each local market. The Company believes this affords its sales representatives an advantage over certain of their competitors. The Company's advertising sales force is comprised of approximately 125 sales representatives. Although the Company typically has two or three sales representatives in an individual market, the number of sales representatives ranges from one to eight depending on the size of the market and the number of potential regional and national advertising clients headquartered in the market. Specialized programs and marketing campaigns, which support nationwide sales and other special forms of advertising, are managed from the Company's headquarters in Houston, Texas. As the Company's business has developed, the Company has sold increasing amounts of its commercial airtime inventory to regional/national advertisers. For the year ended December 31, 1994, approximately 25% of the Company's advertising revenue was attributable to regional/national advertisers, with the balance attributable to local advertisers. For the three months ended March 31, 1996, sales to regional/national advertisers accounted for approximately 50% of total advertising revenues. See "Business -- Advertising and Sales". RECENT DEVELOPMENTS During the past two years, through strategic acquisitions and new start-ups, the Company has expanded into 16 new markets, comprised of 14 new markets as a result of strategic acquisitions and two new markets as a result of new start-ups. In this period, the Company has made six strategic acquisitions (which accounted for new markets including Salt Lake City, Utah; Phoenix and Tucson, Arizona; Las Vegas, Nevada; St. Louis, Missouri; Milwaukee, Wisconsin; Nashville and Memphis, Tennessee; Louisville, Kentucky; Charlotte, North Carolina; Providence, Rhode Island; Hartford, Danbury and New Haven, Connecticut) and made an additional strategic acquisition to expand its operations in Atlanta, Georgia, for an aggregate purchase price of approximately $20 million. On a pro forma basis, the operations acquired by the Company in this period generated revenues of approximately $15 million and EBITDA of approximately $3 million for the year ended December 31, 1995. See "Business -- Acquisitions". -SALT LAKE CITY ACQUISITION. On January 3, 1996, the Company acquired Aeromedia, Inc. ("Aeromedia"). As of March 31, 1996, the Company (through Aeromedia) provided traffic services to 22 radio station and two television station affiliates in Salt Lake City, Utah, the thirty-fifth largest MSA market. -NEW ENGLAND ACQUISITION. On January 4, 1996, the Company acquired a group of companies (the "Traffic Net Group"). As of March 31, 1996, the Company (through the Traffic Net Group) provided local traffic information services to approximately 70 radio station and three television station affiliates in and around the Hartford, Connecticut area (the forty-first largest MSA market), and Providence, Rhode Island (the thirty-first largest MSA market). In addition, one of the companies in the Traffic Net Group provides weather reporting services to approximately 47 radio station affiliates in Boston, Massachusetts (the tenth largest MSA market), and throughout New England. See "Business -- Acquisitions." 6 REORGANIZATION From 1978 until the closing of the offering, the business of the Company will have been operated through Metro Traffic Control, Inc., a Maryland corporation; Metro Networks, Ltd., a Texas limited partnership, Metro Video News, Inc., a Texas corporation; Metro Reciprocal, Inc., a Texas corporation and their subsidiaries (collectively, the "Predecessor Companies"). Until the closing of this offering, all of the equity interests in the Predecessor Companies will be owned by David I. Saperstein, the Chairman and Chief Executive Officer of the Company, and certain trusts (the "Trusts") created for the benefit of Mr. Saperstein's children (collectively, the "Saperstein Family"). In May 1996, the Company was incorporated in Delaware. Immediately prior to the closing of this offering, the Saperstein Family will establish the Company as a holding company in order to consolidate the issued and outstanding equity interests in the Predecessor Companies, in exchange for shares of the Company's Common Stock. As of the date of the closing of this offering, each of the Predecessor Companies will be a direct or indirect wholly-owned subsidiary of the Company. See "Business -- Reorganization." The principal executive offices of Metro Networks, Inc. are located at 2700 Post Oak Boulevard, Suite 1400, Houston, Texas 77056. The telephone number at that location is (713) 621-2800. 7 THE OFFERING Common Stock offered by the Company.......... [ ] shares Common Stock offered by the Selling Stockholder................................. [ ] shares Common Stock outstanding after the offering.................................... [ ] shares(1) Proposed Nasdaq National Market Symbol....... MTNT Use of Proceeds.............................. To reduce bank indebtedness, to fund growth, including growth through potential acquisitions and entry into new markets, and for working capital purposes. See "Use of Proceeds." Risk Factors................................. See "Risk Factors" for a discussion of certain considerations relevant to an investment in the Common Stock.
- ------------------------ (1) Does not include 350,000 shares of Common Stock reserved for issuance upon the exercise of stock options to be granted to employees under the Company's 1996 Incentive Stock Option Plan upon the effective date of the offering (the "1996 Plan"). See "Management -- Executive Compensation." 8 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER OPERATING DATA
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, -------------------------------------------- MARCH 31, PRO FORMA -------------------- 1993 1994 1995 1995(1) 1995 1996 --------- --------- --------- ----------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA) STATEMENT OF OPERATIONS DATA: Advertising revenues, net.......................... $ 47,905 $ 60,048 $ 72,433 $ 77,704 $ 14,655 $ 23,030 Cost of operations............................... 27,384 32,239 41,286 43,354 9,442 12,468 --------- --------- --------- ----------- --------- --------- Gross margin....................................... 20,521 27,809 31,147 34,350 5,213 10,562 Operating expenses: Marketing expense................................ 8,848 11,355 14,504 15,502 2,830 5,485 General and administrative expense............... 6,994 5,939 7,193 7,662 1,784 1,710 Depreciation and amortization expense............ 1,814 1,302 3,981 5,658 474 1,462 --------- --------- --------- ----------- --------- --------- Income from operations............................. 2,865 9,213 5,469 5,528 125 1,905 Other expense (income)........................... 237 (164) (137) (137) (60) (30) Interest expense................................. 145 293 1,260 1,628 203 323 --------- --------- --------- ----------- --------- --------- Income before tax provision........................ 2,482 9,084 4,346 4,037 (18) 1,612 Income tax provision............................. 1,066 2,179 1,036 962 (5) 503 Income (loss) from continuing operations........... 1,416 6,905 3,310 3,075 (13) 1,109 --------- --------- --------- ----------- --------- --------- Discontinued operations.......................... (561) -- -- -- -- -- --------- --------- --------- ----------- --------- --------- Net income (loss).................................. $ 855 $ 6,905 $ 3,310 $ 3,075 $ (13) $ 1,109 Pro forma net income per share from continuing operations(2) --------- --------- --------- ----------- --------- --------- Pro forma weighted average shares outstanding(2) --------- --------- --------- ----------- --------- --------- OTHER DATA: EBITDA (3)......................................... $ 4,679 $ 10,515 $ 9,450 $ 11,186 599 3,367 Predecessor shareholder costs (4).................. 2,022 1,734 1,392 1,392 295 355 --------- --------- --------- ----------- --------- --------- Pro Forma EBITDA (5)............................... $ 6,701 $ 12,249 $ 10,842 $ 12,578 894 3,722 Capital expenditures............................... 890 2,712 2,746 2,746 659 562 Affiliates: Radio.......................................... 754 914 1,152 1,244 1,040 1,276 Television..................................... 59 71 91 96 82 103 Markets: Radio.......................................... 38 46 54 59 52 60 Television..................................... 29 33 38 41 37 46
AT MARCH 31, 1996 -------------------------- AS ADJUSTED ACTUAL ------------- ----------- (UNAUDITED) BALANCE SHEET DATA: Working capital................................................................ $ 7,655 $ Total assets................................................................... 47,755 Total debt..................................................................... 25,902 Common stockholder's equity/partners' capital.................................. 4,566
- ------------------------------ (1) The unaudited pro forma operating data for the year ended December 31, 1995 were prepared assuming that the 1995 Acquisitions and 1996 Acquisitions were consummated as of January 1, 1995. The unaudited pro forma operating data give effect to the proposed acquisitions under the purchase method of accounting and certain estimated operational and financial effects that are direct results of the acquisitions. See "Business -- Acquisitions." (2) Weighted average shares outstanding and net income per common share are calculated assuming the shares issued in conjunction with the Reorganization were outstanding for all periods presented. See "Reorganization." 9 (3) EBITDA is earnings before other expense (income), interest expense, taxes, depreciation and amortization. EBITDA does not represent cash flows as defined by generally accepted accounting principles and does not necessarily indicate that cash flows are sufficient to fund all of the Company's cash needs. EBITDA should not be considered in isolation or as a substitute for net income, cash from operating activities or other measures of liquidity determined in accordance with generally accepted accounting principles. (4) Predecessor shareholder costs consist of the expenses incurred by the Predecessor Companies on behalf of their shareholders, which expenses will not be incurred by the Company after the closing of this offering. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Transactions." (5) Pro Forma EBITDA is EBITDA plus predecessor shareholder costs. The Company believes that Pro Forma EBITDA is useful to prospective investors as a measure of the Company's historical financial performance. 10 RISK FACTORS IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. INFORMATION SERVICES COMPETITION The success of the Company's business is largely dependent on the Company's ability to maintain and acquire affiliate contracts with radio and television stations. The Company faces intense competition for such affiliates from other providers of information reporting services in many of its markets. Additionally, the Company faces competition from individual radio stations and groups of radio stations that provide their own information services. As a result of the passage of the Telecommunications Act of 1996 (the "Telecom Act"), the Company may face additional competition from consolidated groups of radio stations that choose to provide their own information services. Certain of the Company's current and potential competitors may offer alternative types of information services and may have substantially greater financial, technical, marketing and other resources than the Company. There can be no assurance that the Company's business will not be adversely affected by current or increased competition for the provision of information services in the markets in which it operates. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations -- Liquidity and Capital Resources." DEPENDENCE ON ADVERTISING REVENUES The success of the Company's business is closely linked to the performance of the advertising industry. A significant decline in national and regional advertising would have a material adverse effect on the Company's revenues. There can be no assurance that such a decline will not occur, or that the Company's business will not be materially adversely affected thereby. See "Business." COMPETITION FOR ADVERTISING SALES The Company's business is dependent, in part, on its ability to sell the commercial airtime inventory obtained from its affiliates in exchange for the Company's provision of information reporting services. The business of selling broadcast advertising time is highly competitive. The Company positions its advertising so as not to compete with the advertising of its local radio and television station affiliates. The Company competes for advertising dollars with other media such as newspapers and magazines, outdoor advertising, network radio and network television advertising, transit advertising, direct response advertising, yellow page directories and point of sale advertising. There can be no assurance that the Company will not be adversely affected by such competition in the future. See "Business -- Competition." LIMITED OPERATING HISTORY IN NEW BUSINESSES The Company introduced its Expanded Radio Services to radio stations in 1994 and its Video News Services to television stations in 1995. Accordingly, although the Company has provided its Radio Traffic Services and Television Traffic Services for many years, the Company has a limited history of providing its Expanded Radio Services and Video News Services. The success of the Company's Radio Traffic Services may not be indicative of the results of its efforts to provide the Expanded Radio Services and Video News Services. The successful operation of the Expanded Radio Services Network and MetroTV Network will require a certain level of continued capital expenditures and operating expenditures which the Company is committed to undertaking. There can be no assurance that the Company will be able to develop such businesses as successfully as it has its Radio Traffic Services business. See "Business." ACQUISITIONS AND NEW MARKETS The Company's continued growth and expansion is dependent, in part, on its ability to establish affiliate relations in new markets by acquiring existing operations or developing new operations. There can be no assurance that the Company will be able to identify and acquire operations or establish operations in new markets or that it will be able to finance such acquisitions or expansion in the future. 11 There can be no assurance that the Company will be able to integrate successfully any acquired business or realize any operating efficiencies therefrom. The Company's past operating history may not be indicative of its ability to integrate new markets and acquisitions. See "Business -- Acquisitions." INCREASING CAPITAL REQUIREMENTS The Company's expansion into new markets and continued growth of its Expanded Radio Services Network and MetroTV Network will require significant additional capital expenditures. There can be no assurance that the Company will be able to secure financing for such expenditures when needed or on terms acceptable to the Company. Moreover, the Company's day-to-day operations require the use of sophisticated equipment and technology. The maintenance and replacement of such equipment requires significant expenditures. There can be no assurance that the Company will be able to continue to finance the maintenance and replacement of such equipment. DEPENDENCE ON KEY PERSONNEL The Company's continued success is dependent to a significant degree upon the efforts of its current executive officers. The loss or unavailability of any such executive officer could have an adverse effect on the Company. The Company intends to enter employment agreements with Messrs. David I. Saperstein, the Company's Founder, Chairman and Chief Executive Officer, Charles I. Bortnick, the Company's President, Shane E. Coppola, the Company's Executive Vice President, Curtis H. Coleman, the Company's Senior Vice President and Chief Financial Officer and Gary L. Worobow, the Company's Senior Vice President, General Counsel and Secretary; however, there can be no assurance that these individuals will continue to provide services to the Company. Moreover, the continued success and viability of the Company is dependent to a significant extent upon its ability to attract and retain qualified personnel in all areas of its business, especially management positions. In the event the Company is unable to attract and retain qualified personnel, its business may be adversely affected. See "Management." FEDERAL REGULATION OF BROADCASTING The ownership, operation and sale of stations are subject to the jurisdiction of the Federal Communications Commission (the "FCC"), which acts under authority granted by the Communications Act of 1934, as amended, (the "Communications Act"). Among other things, the FCC adopts and implements regulations and policies that directly or indirectly affect the ownership, operations and sale of radio and television stations, and has the power to impose penalties for violations of its rules or the Communications Act. Such regulation may adversely affect the Company's business. On February 8, 1996, President Clinton signed the Telecom Act. The Telecom Act, among other measures, directs the FCC to eliminate national radio ownership limits and increase local radio ownership limits. Certain of these measures have been adopted by the FCC. Other provisions of the Telecom Act will be acted upon by the FCC through rulemaking proceedings, presently scheduled for completion by the end of 1996. These measures could lead to greater industry consolidation. The effects of the Telecom Act on the broadcasting industry and thus on the Company's businesses are uncertain, and there can be no assurance that the Telecom Act will not negatively impact the Company's operations in the future. RESTRICTIONS IMPOSED BY LENDERS The Credit Agreement among NationsBank of Texas, N.A. and the Company's subsidiaries, Metro Traffic Control, Inc. and Metro Networks, Ltd., dated October 21, 1994, as amended (the "Credit Agreement") prohibits the Company from, among other things, (i) incurring certain additional indebtedness, (ii) incurring certain liens, (iii) disposing of the assets of the Company through merger, consolidation or sale, (iv) making certain acquisitions without the consent of the lenders, and (v) achieving certain leverage ratios. Although these restrictions to date have not restricted the Company's ability to operate or to make strategic acquisitions, there can be no assurance that such restrictions will not have a materially adverse effect on the Company's operations in the future. Upon completion of this offering, the Company expects to enter into an amended and restated credit agreement (the "Amended Line of Credit") with NationsBank. The Company anticipates that the Amended Line of Credit will be secured by 12 the granting of a lien by the Company on all of its assets and the pledge of its equity interests in each of the Predecessor Companies in favor of NationsBank. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations -- Liquidity and Capital Resources." CONTROL BY EXISTING STOCKHOLDERS Upon completion of this offering, the Saperstein Family will beneficially own % of the Company's outstanding Common Stock ( % if the Underwriters' overallotment option is exercised in full). As a result, the Saperstein Family will continue to have the ability to elect or remove any or all of the Company's directors and to control substantially all corporate activities involving the Company, including tender offers, mergers, proxy contests or other purchases of Common Stock that could give the stockholders of the Company the opportunity to realize a premium over the then prevailing market price for their shares of Common Stock. See "Principal and Selling Stockholders." ANTI-TAKEOVER PROVISIONS The Company's Certificate of Incorporation and Bylaws contain provisions that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of Common Stock. The Company's Certificate of Incorporation provides that up to 1,000,000 shares of Preferred Stock may be issued by the Company from time to time in one or more series. The Board of Directors may authorize and issue Preferred Stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of Common Stock. See "-- Control by Existing Stockholders" and "Description of Capital Stock -- Preferred Stock." DILUTION Purchasers of Common Stock in this offering will experience immediate and substantial dilution in the net tangible book value per share of Common Stock from the initial public offering price and may incur additional substantial dilution upon the exercise of outstanding stock options. See "Dilution." INTANGIBLE ASSETS Of the Company's total assets at March 31, 1996, approximately $17.8 million, or 37.2%, represented purchased broadcast contracts and other intangibles associated with recent acquisitions. It is possible that no cash would be recoverable from the voluntary or involuntary sale of the intangible assets of the Company, including its goodwill. However, the Company believes that its affiliation contracts and operating systems constitute assets having substantial value, although there can be no assurance that such value or any substantial part thereof would actually be realized upon a voluntary or involuntary sale. See "Business -- Affiliates." SHARES ELIGIBLE FOR FUTURE SALE; NO PRIOR TRADING MARKET Sales of a substantial number of shares of the Company's Common Stock could have the effect of depressing the prevailing market price of its Common Stock. Upon completion of this offering, the Company will have outstanding shares of Common Stock. Of these shares, the shares sold in this offering, ( if the over-allotment option is exercised in full) will be freely transferable without restriction or further registration under the Securities Act of 1993 (the "Securities Act") unless purchased by "affiliates" of the Company as that term is defined in Rule 144 of the Securities Act (an "Affiliate"), which Shares purchased by affiliates will be subject to the resale limitations of Rule 144 adopted under the Securities Act. The remaining shares outstanding upon completion of this offering, ( if the over-allotment option is exercised in full) and held by existing shareholders will be "Restricted Securities" as that term is defined under Rule 144 (the "Restricted Shares"). The Company intends to file one or more registration statements on Form S-8 under the Securities Act to register shares of Common Stock subject to stock options which will permit resale of such shares, subject to the Rule 144 volume limitations applicable to affiliates, vesting restrictions with the Company and lock-up agreements between the option holders and the Company and the Underwriters. See "Shares Eligible for Future Sale" and "Description of Capital Stock." 13 ABSENCE OF PUBLIC MARKET There is currently no public market for the Common Stock. Although application will be made to approve the Common Stock for quotation and trading on the Nasdaq National Market, there can be no assurance that an active public market in the Common Stock will develop or that the initial public offering price thereof will correspond to the price at which the Common Stock will trade in the public market subsequent to this offering. The initial public offering price for the Common Stock will be determined by negotiations among the Company and the representatives of the Underwriters based on the factors described under "Underwriting." 14 USE OF PROCEEDS The net proceeds to the Company from the offering are estimated to be approximately $ million ($ million if the Underwriters' over-allotment option is exercised in full), based on an assumed offering price of $ per share and after deductions for the underwriting discount and the estimated offering expenses. The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Stockholder. The Company intends to use approximately $27 million of the proceeds to repay existing indebtedness under the Credit Agreement and the balance of the proceeds, including any proceeds from the Underwriters' exercise of the over-allotment option, to fund its growth, including additional strategic acquisitions or development of businesses complementary to the operations of the Company including broadcast traffic reporting services and news, sports, weather and other programming and information services. In addition, the Company will use the proceeds to fund the continued expansion of its networks, its development of new products and services, including capital expenditures for the expansion of its networks and for working capital purposes. Although the Company continually reviews potential acquisitions, and has engaged in discussions concerning certain acquisitions (some of which are currently on-going), the Company currently has no commitments, arrangements, or understandings with respect to any such acquisition. The Company's indebtedness outstanding under the Credit Agreement has a final maturity of June 30, 2000 and bears interest at a variable rate (approximately 7.17% at March 31, 1996). In fiscal 1995, interest on borrowings under the Credit Agreement ranged from 6.80% to 7.55%. Upon the closing of this offering, the Company expects to enter into the Amended Line of Credit. See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Following the repayment of outstanding indebtedness under the Credit Agreement, approximately $30 million principal amount will be available thereunder for borrowing. Pending the application of the net proceeds for the purposes described above, the Company will invest the net proceeds from the sale of the Common Stock offered hereby in short-term interest-bearing marketable securities. See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." DIVIDEND POLICY The Company intends to retain all of its earnings to finance the development and expansion of its business and therefore does not intend to pay any cash dividends on the Common Stock for the foreseeable future. Any future payment of cash dividends will be at the discretion of the Company's Board of Directors and will depend on the Company's financial condition, results of operations, capital requirements and other factors deemed relevant by the Company's Board of Directors. In addition, the Credit Agreement restricts the payment of cash dividends in certain situations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 15 CAPITALIZATION The following table sets forth the combined capitalization of the Company at March 31, 1996 and as adjusted to reflect the sale of shares of Common Stock offered by the Company hereby (assuming an initial public offering price of $ per share) after deducting the estimated underwriting discount and estimated offering expenses payable by the Company and the application of the net proceeds as described under "Use of Proceeds." This table should be read in conjunction with the Company's Combined Financial Statements and the Notes thereto included elsewhere in this Prospectus. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
AS OF MARCH 31, 1996 ----------------------- ACTUAL AS ADJUSTED --------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) Cash and cash equivalents............................................................... $ 3,450 $ --------- ------------ --------- ------------ SHORT-TERM DEBT: Current maturities of long-term debt.................................................. $ 749 $ --------- ------------ --------- ------------ LONG-TERM DEBT: Bank debt............................................................................. 24,718 Notes payable......................................................................... 435 --------- ------------ Total long-term debt................................................................ 25,153 --------- ------------ STOCKHOLDERS' EQUITY: Preferred Stock, par value $.001 per share, 1,000,000 shares authorized; shares of Series A Convertible Preferred Stock issued and outstanding as adjusted........... -- Common Stock, par value $.001 per share, shares authorized, shares issued and outstanding; shares issued and outstanding as adjusted..................... 3 Additional paid-in capital............................................................ 4,024 Partners' capital..................................................................... 517 Retained earnings..................................................................... 22 --------- Total stockholder's equity/partners' equity........................................... 4,566 --------- ------------ Total capitalization................................................................ $ 29,719 $ --------- ------------ --------- ------------
16 DILUTION The net tangible book value of the Company at March 31, 1996 was $ million, or $ per share of Common Stock. Net tangible book value per share is equal to the Company's total tangible assets less total liabilities, divided by the total number of outstanding shares of Common Stock. After giving effect to the sale of shares of Common Stock offered by the Company hereby (after deduction of the underwriting discount and estimated expenses of this offering) and the application of the estimated proceeds to be received by the Company therefrom, the pro forma net tangible book value at March 31, 1996 would have been $ , or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing shareholders and an immediate dilution of $ per share to new investors. The following table illustrates this per share dilution with respect to a new investor's purchase of a share of Common Stock at March 31, 1996: Assumed initial public offering price.......................... $ Net tangible book value per share before this offering......... $ Increase in net tangible book value per share attributable to new investors................................................. $ Pro forma net tangible book value per share after this offering...................................................... $ Dilution in net tangible book value per share to new investors..................................................... $
The following table summarizes, on a pro forma basis as of March 31, 1996, the number of shares of Common Stock outstanding, the total consideration paid, and the average price per share paid by current stockholders and by new investors who purchase Common Stock pursuant to this offering, assuming an initial public offering price of $ per share:
AVERAGE SHARES PURCHASED TOTAL CONSIDERATION PRICE PER -------------------- -------------------- --------- NUMBER PERCENT AMOUNT PERCENT SHARE --------- --------- --------- --------- --------- Existing stockholders(1)............................... % $ % $ New investors.......................................... --------- --------- --------- --------- --------- Total.............................................. 100.0% $ 100.0% --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- ------------------------ (1) Sales by the Selling Stockholder in this offering will reduce the number of shares of Common Stock held by the current stockholders to shares, or % of the total number of shares of Common Stock to be outstanding after this offering, and will increase the number of shares held by new investors after this offering to shares, or % of the total number of shares of Common Stock outstanding after this offering. The foregoing tables do not assume exercise of any outstanding options. Upon the effective date of this offering, there will be outstanding options to purchase 350,000 shares of Common Stock under the 1996 Plan. The weighted average exercise price of such options will be $ per share. To the extent that any options are exercised in the future, there may be further dilution to new investors. See "Business -- Management -- 1996 Incentive Stock Option Plan" and "Management -- Board of Directors." 17 SELECTED FINANCIAL AND OPERATING DATA The following selected financial and operating data should be read in conjunction with the Company's historical combined financial statements and related notes thereto and with Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein. The statement of operations data set forth below with respect to the years ended December 31, 1993, 1994 and 1995 are derived from the audited financial statements included elsewhere in the Prospectus. The selected financial data for the years ended December 31, 1991 and 1992 and the three months ended March 31, 1995 and 1996 are unaudited and reflect all normal recurring adjustments that in the opinion of management of the Company are necessary for a fair presentation of the results of such periods. The unaudited results of operations for the three months ended March 31, 1996 are not necessarily indications of results expected for the year ended December 31, 1996. The unaudited pro forma financial information for 1995 presents the results of operations of the Company as if the 1995 Acquisitions and 1996 Acquisitions had been completed at the beginning of 1995. The unaudited pro forma financial data presented are not necessarily indicative of the Company's financial results of operations that might have occurred had such transactions been completed at the beginning of the period and do not purport to indicate the Company's results of operations for any future periods.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ MARCH 31, PRO FORMA -------------------- 1991 1992 1993 1994 1995 1995(1) 1995 1996 --------- --------- --------- --------- --------- ----------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Advertising revenues, net........ $ 39,092 $ 41,957 $ 47,905 $ 60,048 $ 72,433 $ 77,704 $ 14,655 $ 23,030 Cost of operations............. 20,672 26,760 27,384 32,239 41,286 43,354 9,442 12,468 --------- --------- --------- --------- --------- ----------- --------- --------- Gross margin..................... 18,420 15,197 20,521 27,809 31,147 34,350 5,213 10,562 Operating expenses: Marketing expense.............. 8,278 8,393 8,848 11,355 14,504 15,502 2,830 5,485 General and administrative expense....................... 3,845 4,522 6,994 5,939 7,193 7,662 1,784 1,710 Depreciation and amortization expense....................... 1,564 1,841 1,814 1,302 3,981 5,658 474 1,462 --------- --------- --------- --------- --------- ----------- --------- --------- Income from operations........... 4,733 441 2,865 9,213 5,469 5,528 125 1,905 Other expense (income)......... 63 (60) 237 (164) (137) (137) (60) (30) Interest expense............... 43 97 145 293 1,260 1,628 203 323 --------- --------- --------- --------- --------- ----------- --------- --------- Income before tax provision...... 4,627 404 2,482 9,084 4,346 4,037 (18) 1,612 Income tax provision........... 1,241 2,649 1,066 2,179 1,036 962 (5) 503 --------- --------- --------- --------- --------- ----------- --------- --------- Income (loss) from continuing operations...................... 3,386 (2,235) 1,416 6,905 3,310 3,075 (13) 1,109 --------- --------- --------- --------- --------- ----------- --------- --------- Discontinued operations........ -- (563) (561) -- -- -- -- -- --------- --------- --------- --------- --------- ----------- --------- --------- Net income (loss)................ $ 3,386 $ (2,798) $ 855 $ 6,905 $ 3,310 $ 3,075 $ (13) $ 1,109 --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- --------- --------- ----------- --------- --------- Pro forma net income (loss) per common share from continuing operations (2).................. --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- --------- --------- ----------- --------- --------- Pro forma weighted average shares outstanding (2) --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- --------- --------- ----------- --------- --------- OTHER DATA: EBITDA (3)..................... $ 6,297 $ 2,282 $ 4,679 $ 10,515 $ 9,450 $ 11,186 599 3,367 Predecessor shareholder costs (4)..................... 597 1,091 2,022 1,734 1,392 1,392 295 355 --------- --------- --------- --------- --------- ----------- --------- --------- Pro Forma EBITDA (5)........... $ 6,800 $ 3,373 $ 6,701 $ 12,249 $ 10,842 $ 12,578 894 3,722 Capital expenditures........... 1,299 1,063 890 2,712 2,746 2,746 659 562
18
AT DECEMBER 31, AT MARCH 31, ----------------------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- --------- --------- BALANCE SHEET DATA: Working capital............................. $ 1,782 $ 18 $ 404 $ 7,414 $ 7,900 $ 6,348 $ 7,655 Total assets................................ 21,458 24,356 20,921 18,803 42,437 53,437 47,755 Total debt.................................. 82 466 2,097 6,650 22,624 14,718 25,902 Common stockholder's equity/partners' capital.................................... 6,798 3,711 8,582 9,401 4,478 4,401 4,566
- ------------------------ * See discussions of acquisitions in "Business -- Acquisitions" and "Management's Discussion and Analysis of Financial Conditions and Results of Operations." (1) The unaudited pro forma operating data for the year ended December 31, 1995 were prepared assuming that the 1995 Acquisitions and 1996 Acquisitions were consummated as of January 1, 1995. The unaudited pro forma operating data give effect to the proposed acquisitions under the purchase method of accounting and certain estimated operational and financial effects that are direct results of the acquisitions. See "Business -- Acquisitions." (2) Weighted average shares outstanding and net income per common share are calculated assuming the shares issued in conjunction with the reorganization were outstanding for all periods presented. See "Reorganization." (3) EBITDA is earnings before other expense (income), interest expense, taxes, depreciation and amortization. EBITDA does not represent cash flows as defined by generally accepted accounting principles and does not necessarily indicate that cash flows are sufficient to fund all of the Company's cash needs. EBITDA should not be considered in isolation or as a substitute for net income, cash from operating activities or other measures of liquidity determined in accordance with generally accepted accounting principles. (4) Predecessor shareholder costs consist of the expenses incurred by the Predecessor Companies on behalf of their shareholders, which expenses will not be incurred by the Company after the closing of this offering. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (5) Pro Forma EBITDA consists of EBITDA plus predecessor shareholder costs. The Company believes that Pro Forma EBITDA is useful to prospective investors as a measure of the Company's historical financial performance. 19 MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company, which was founded in 1978, is the largest provider of traffic reporting services and a leading supplier of local news, sports, weather and other information reporting services to the television and radio broadcast industries in the United States. The Company provides customized information reports to affiliated radio and television stations in exchange for commercial airtime inventory. The Company generates revenues by packaging such commercial airtime inventory and selling it on a local, regional or national basis. While the majority of the Company's revenues are currently generated from sales of advertising on its Radio Traffic Services Network, the Company is experiencing increased revenues from its Expanded Radio Services Network and its MetroTV Network. The Company's expenses are primarily comprised of three categories: (i) operations, which includes all the expenses related to gathering, producing, and broadcasting its information reports; (ii) marketing, which includes sales commissions, salaries and benefits for Company's sales personnel; and (iii) general and administrative expenses, which includes corporate overhead. Most of the Company's expenses are associated with its Radio Traffic Services. However, during 1994, 1995 and the first quarter of 1996, the Company incurred additional expenses attributable to the development and operation of its Expanded Radio Services (including operating expenses incurred prior to the generation of significant revenue from the Expanded Radio Services), and during 1995 and the first quarter of 1996, it incurred similar additional expenses associated with the development of its MetroTV Services. The Company has experienced 18 years of growth in revenues. The Company has also experienced increases in Pro Forma EBITDA, which has grown in each of the last 18 years with the exception of 1992 and 1995. In 1995, Pro Forma EBITDA results reflect the impact of approximately $3.1 million of expenses (with minimal incremental revenues) associated with the development and operation of the Company's Expanded Radio Services and MetroTV Services, which the Company introduced in 1994 and 1995, respectively. The Company has grown through acquisitions, new market expansion, internally generated growth, and by offering new products and services to its affiliate stations and advertising clients. In the analysis set forth below, the Company discusses its Pro Forma EBITDA. "Pro Forma EBITDA" is defined as EBITDA plus predecessor shareholder costs. "Predecessor shareholder costs" consist of expenses incurred by the Predecessor Companies on behalf of their shareholders which will not be incurred by the Company after its initial public offering. Such predecessor shareholder costs include the portion of David I. Saperstein's current salary which exceeds that which Mr. Saperstein will receive after the offering and certain other costs described in "Certain Transactions." The Company believes that EBITDA is a measure of financial performance widely used in the media and broadcast industries and that Pro Forma EBITDA is useful to prospective investors as a measure of the Company's historical financial performance. However, such analysis should not be used singularly or as a substitute for net income, cash flows from operating activities or other financial information prepared in accordance with GAAP. In certain circumstances, the Company engages in reciprocal arrangements with advertisers whereby the Company exchanges a portion of its unsold commercial airtime inventory for goods and services. The Company believes that reciprocal arrangements are common in the broadcasting industry. The Company's reciprocal arrangements are recorded based on their estimated fair market value and generally have had a net neutral effect on Pro Forma EBITDA; the net impact of reciprocal arrangements in 1994 and 1995 on Pro Forma EBITDA was $0.6 million and ($0.1) million, respectively. In recent years, however, the Company has reduced the number of reciprocal arrangements in which it engages in order to better focus its efforts on cash revenue generation and reduce the administrative costs associated with reciprocal arrangements. In 1993, revenues from reciprocal arrangements accounted for 16.8% of total revenues and declined to 13.3% in 1994 and 11.6% in 1995. During the three months ended March 31, 1995, revenues from reciprocal arrangements accounted for 17.2% of total revenues, and 20 declined to 14.3% for the three months ended March 31, 1996. Revenues from reciprocal arrangements generally comprise a higher percentage of total revenues during the first quarter of each year because the Company tends to have its highest level of unsold commercial airtime inventory during that quarter, which it seeks to use to fulfill reciprocal arrangements. The Company expects revenues from reciprocal arrangements to be approximately 10% or less of total revenues in 1996. The Company's advertising revenues vary moderately over the calendar year with the first quarter generally reflecting the lowest revenues and the fourth quarter the highest revenues for the year. Expenses, other than cost of operations, are generally spread evenly over the year, resulting in some seasonality in the Company's Pro Forma EBITDA. INCOME TAXES The combined financial statements are derived from the combined financial statements of Metro Traffic Control, Inc., Metro Reciprocal, Inc., Metro Networks, Ltd. and Metro Video News, Inc. and their subsidiaries. Metro Reciprocal, Inc., Metro Video News, Inc. and Metro Traffic Control, Inc. have elected to be taxed under the S Corporation provisions of the Internal Revenue Code. Metro Networks, Ltd. is a partnership for federal income tax purposes. These entities are, therefore, not liable for federal income taxes on their taxable income and accordingly no provision for federal income taxes in respect of these entities is made in the combined financial statements. Metro Networks, Ltd., however, wholly owns a corporation which is taxed under the C Corporation provisions of the Internal Revenue Code and accordingly is liable for federal income taxes on its federal taxable income. The income taxes payable by this subsidiary have been reflected in the combined financial statements. As a result, the income tax expense reflects the varying levels of income of the taxable and nontaxable entities included in the combined financial statements rather than the aggregate levels of income of the combined companies. After consummation of the Reorganization, all of the entities described above will be liable for federal income taxes. In addition, any differential between the book and tax basis in the underlying net assets which is not presently reflected as a deferred tax asset or liability will be recorded with a corresponding increase or decrease in income tax expense. 21 RESULTS OF OPERATIONS The following table provides a summary of the Company's statement of operations on an actual and percentage of revenues basis for the periods indicated: SUMMARY COMBINED FINANCIAL DATA
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED -------------------------------------------------------------------------------------- MARCH 31, PRO FORMA -------------------- 1993 1994 1995 1995(1) 1995 -------------------- -------------------- -------------------- -------------------- -------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Advertising revenues, net...... $ 47,905 100.0% $ 60,048 100.0% $ 72,433 100.0% $ 77,704 100.0% $ 14,655 100.0% Cost of operations....... 27,384 57.2 32,239 53.7 41,286 57.0 43,354 55.8 9,442 64.4 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Gross Margin........ 20,521 42.8 27,809 46.3 31,147 43.0 34,350 44.2 5,213 35.6 Operating expenses: Marketing expense.......... 8,848 18.5 11,355 18.9 14,504 20.0 15,502 20.0 2,830 19.3 General and administrative expense.......... 6,994 14.6 5,939 9.9 7,193 9.9 7,662 9.9 1,784 12.2 Depreciation and amortization expense.......... 1,814 3.8 1,302 2.2 3,981 5.5 5,658 7.3 474 3.2 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Operating Income.... 2,865 6.0 9,213 15.3 5,469 7.6 5,528 7.1 125 .9 Other expenses.... 237 0.5 (164) (0.3) (137) (0.2) (137) (.2) (60) (0.4) Interest expense.......... 145 0.3 293 0.5 1,260 1.7 1,628 2.1 203 1.4 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Income before income tax provision...... 2,482 5.2 9,084 15.1 4,346 6.0 4,037 5.2 (18) N.M. Income tax provision........ 1,066 2.2 2,179 3.6 1,036 1.4 962 1.2 (5) N.M. Discontinued operations....... (561) 1.2 -- * -- * -- * -- * --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income.......... $ 855 1.8% $ 6,905 11.5% $ 3,310 4.6% $ 3,075 4.0% $ (13) N.M. --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- 1996 -------------------- Advertising revenues, net...... $ 23,030 100.0% Cost of operations....... 12,468 54.1 --------- --------- Gross Margin........ 10,562 45.9 Operating expenses: Marketing expense.......... 5,485 23.8 General and administrative expense.......... 1,710 7.4 Depreciation and amortization expense.......... 1,462 6.4 --------- --------- Operating Income.... 1,905 8.3 Other expenses.... (30) (0.1) Interest expense.......... 323 1.4 --------- --------- Income before income tax provision...... 1,612 7.0 Income tax provision........ 503 2.2 Discontinued operations....... -- * --------- --------- Net income.......... $ 1,109 4.8% --------- --------- --------- ---------
- ------------------------------ (1) The unaudited pro forma operating data for the year ended December 31, 1995 were prepared assuming that the 1995 Acquisitions and 1996 Acquisitions were consummated as of January 1, 1995. The unaudited pro forma operating data give effect to the proposed acquisitions under the purchase method of accounting and certain estimated operational and financial effects that are direct results of the acquisitions. See "Business -- Acquisitions." THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995 REVENUES. Revenues increased by $8.4 million, or approximately 57.2%, to $23.0 million in the three months ended March 31, 1996 (the "March 1996 Period") from $14.7 million in the three months ended March 31, 1995 (the "March 1995 Period"), primarily due to increased sales of commercial airtime inventory. Excluding the results for the operations acquired in connection with the 1995 Acquisitions and 1996 Acquisitions, revenues increased by $5.2 million, or 36.5%, to $19.8 million in the March 1996 Period from $14.7 million in the March 1995 Period. The increase in "same market" revenues was primarily attributable to an increased rate of commercial airtime inventory utilization ("sell-through rate") which resulted from (i) the strengthening of the Company's sales, marketing and inventory management operations, (ii) continued growth in the Radio Traffic Services Network within markets historically served by the Company and (iii) continued development of the Expanded Radio Services and MetroTV Services. 22 COST OF OPERATIONS. Cost of operations increased by $3.1 million, or approximately 32.0%, to $12.5 million in the March 1996 Period from $9.4 million in the March 1995 Period. This increase was attributable to increased operating costs associated with the 1995 Acquisitions and 1996 Acquisitions, the continued development and operation of the Company's Expanded Radio Services and MetroTV Services and the commencement of operations in Cincinnati, Ohio. As a percentage of revenues, cost of operations declined to 54.1% for the March 1996 Period as compared to 64.4% in the March 1995 Period reflecting the improved sell-through rate. MARKETING EXPENSE. Marketing expense increased by $2.7 million to $5.5 million in the March 1996 Period from $2.8 million in the March 1995 Period. This resulted from increased sales commissions associated with the increased revenues generated in the March 1996 Period. As a percentage of revenues, marketing expense increased to 23.8% in the March 1996 Period as compared to 19.3% in the March 1995 Period reflecting the impact of the Company's increased hiring of sales representatives, sales managers and general managers. GENERAL AND ADMINISTRATION EXPENSE. General and administrative expense decreased by $0.1 million, or approximately 4.2%, to $1.7 million in the March 1996 Period from $1.8 million in the March 1995 Period. The Company increased its headquarters staff in late 1994 and early 1995 in order to support the operations acquired in the 1994 Acquisitions and 1995 Acquisitions and the development of the Expanded Radio Services and MetroTV Services. As a result, the Company did not need to increase its headquarters staff in the March 1996 Period and, therefore, general and administrative expense remained relatively constant for such period. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased by $1.0 million to $1.5 million in the March 1996 Period, as a result of the Company's increased asset base following the 1995 Acquisitions and 1996 Acquisitions. INTEREST EXPENSE. Interest expense increased by $0.1 million to $0.3 million in the March 1996 Period from $0.2 million in the March 1995 Period. The increase was primarily due to the incurrence of indebtedness in connection with the 1995 Acquisitions and 1996 Acquisitions. NET INCOME. As a result of the foregoing, net income increased to $1.1 million in the March 1996 Period from a loss of $13,000 in the March 1995 Period. PRO FORMA EBITDA. Pro Forma EBITDA increased by $2.8 million to $3.7 million in the March 1996 Period from $0.9 million in the March 1995 Period. In addition, Pro Forma EBITDA as a percentage of revenues ("operating margin") improved to 16.2% in the March 1996 Period from 6.1% in the March 1995 Period. These increases were primarily attributable to the Company's operating leverage. Because cost of operations and general and administrative expense which typically account for approximately 70-75% of the Company's operating expenses, tend not to increase proportionately with revenues, increases in the Company's revenues typically result in increases in operating margin and Pro Forma EBITDA growth. On a "same market" basis, excluding the 1995 Acquisitions and 1996 Acquisitions, Pro Forma EBITDA increased by $1.5 million, to $2.3 million in the March 1996 Period. RECIPROCAL ARRANGEMENTS. Revenues from reciprocal arrangements were $3.3 million in the March 1996 Period and $2.5 million in the March 1995 Period. As a percentage of total revenues, revenues from reciprocal arrangements declined to 14.3% in the March 1996 Period from 17.2% in the March 1995 Period. Such decrease was primarily attributable to the Company's efforts to focus on cash revenue generation and reduce the number of reciprocal arrangements in which it engages. Pro Forma EBITDA from reciprocal arrangements was insignificant for each of these periods. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994. REVENUES. Revenues increased by $12.4 million, or approximately 20.6%, to $72.4 million in 1995 from $60.0 million in 1994. This increase was primarily due to revenues generated by the operations acquired in connection with the 1995 Acquisitions and increased sales of commercial airtime inventory on the Radio Traffic Services Network. The 1995 Acquisitions generated revenues of approximately $7.1 23 million in 1995. Excluding these revenues, "same market" revenues increased $5.3 million in 1995 or 8.9%, a slower growth rate than in prior periods, because the Company's management focused primarily on the acquisitions strategy during the first half of 1995. Including the 1996 Acquisitions and the full year of the 1995 Acquisitions, pro forma revenues increased 29.4% to $77.7 million from $60.0 million. COST OF OPERATIONS. Cost of operations increased by $9.0 million, or 28.1%, to $41.3 million in 1995 from $32.2 million in 1994. This increase was attributable to the addition of 16 markets to the Company's operations (including personnel costs and costs related to the facilities required to support the Company's operations in its new markets), continued development of the Expanded Radio Services and the development and operation of the MetroTV Services. Cost of operations as a percentage of revenues increased to 57.0% in 1995 from 53.7% in 1994, primarily because the Company incurred $3.1 million of operating costs associated with the development and operation of the Expanded Radio Services and Video News Services in 1995, compared to $1.4 million of such costs in 1994. MARKETING EXPENSE. Marketing expense increased by $3.1 million, or approximately 27.7%, to $14.5 million in 1995 from $11.4 million in 1994. This increase resulted from increased sales commissions associated with the increased revenues generated in 1995. As a percentage of revenues, marketing expenses were 20.0% in 1995 and 18.9% in 1994. This increase in percentage terms resulted primarily from the addition of sales representatives, sales managers and managerial staff in connection with the Company's efforts to improve the sell-through rate, and higher marketing costs associated with the operations acquired in connection with the 1995 Acquisitions. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased by $1.3 million, or approximately 21.1%, to $7.2 million in 1995 from $5.9 million in 1994. This increase was primarily attributable to costs associated with the acquisition and operation of the 1995 Acquisitions and the development and expansion of the Expanded Radio Services and MetroTV Services. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased to $4.0 million in 1995 from $1.3 million in 1994. This increase resulted primarily from the increases in the Company's asset base resulting from the 1995 Acquisitions and the 1994 Acquisitions. INTEREST EXPENSE. Interest expense increased to $1.3 million in 1995 from $0.3 million in 1994. This increase resulted primarily from increases in indebtedness incurred in connection with the 1995 Acquisitions. NET INCOME. As a result of the foregoing, net income decreased by $3.6 million to $3.3 million in 1995 from $6.9 million in 1994. PRO FORMA EBITDA. Pro Forma EBITDA decreased by $1.4 million, or approximately 11.5%, to $10.8 million in 1995 from $12.2 million in 1994. This decrease was attributable to increases in cost of operations, marketing expense and general and administrative expense as discussed above. Pro Forma EBITDA as a percentage of revenues decreased to 15.0% in 1995 from 20.4% in 1994. Pro Forma EBITDA would have been $12.6 million in 1995, if the 1995 Acquisitions and 1996 Acquisitions had occurred as of January 1, 1995. RECIPROCAL ARRANGEMENTS. Revenues from reciprocal arrangements as a percentage of total revenues declined to 11.6% in 1995 from 13.3% in 1994. Pro Forma EBITDA from reciprocal arrangements decreased $0.7 million to a loss of $(0.1) million in 1995 from $0.6 million in 1994. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 REVENUES. Revenues increased by $12.1 million, or approximately 25.3%, to $60.0 million in 1994 from $47.9 million in 1993, primarily due to increased sales of commercial airtime inventory in existing markets. In 1994, the operations acquired in the 1994 Acquisitions generated revenues of approximately $0.6 million. COST OF OPERATIONS. Costs of operations increased by $4.9 million, or approximately 17.7%, to $32.2 million in 1994 from $27.4 million in 1993. Such increase was attributable to the 1994 Acquisitions, 24 start-ups in new markets and costs of $1.4 million related to the development of the Expanded Radio Services. Cost of operations as a percentage of revenues decreased to 53.7% in 1994 from 57.2% in 1993, primarily as a result of strong revenue growth. Such costs generally do not increase proportionately with revenues. MARKETING EXPENSE. Marketing expense increased by $2.5 million, or approximately 28.3%, to $11.4 million in 1994 from $8.8 million in 1993. This increase was attributable to increased sales commissions associated with revenue increases in 1994. Marketing expense as a percentage of revenues remained relatively constant at 18.9% in 1994 and 18.5% in 1993. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense decreased $1.1 million, or approximately 15.1%, to $5.9 million in 1994 from $7.0 million in 1993. This decrease was primarily due to a decrease in predecessor shareholder costs. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense decreased by $0.5 million, or 28.2%, to $1.3 million in 1994 from $1.8 million in 1993, as a result of certain intangible assets associated with prior acquisitions becoming fully amortized. INTEREST EXPENSE. Interest expense increased by $0.2 million, to $0.3 million in 1994 from $0.1 million in 1993. This increase was primarily due to an increase in indebtedness related to the 1994 Acquisitions. NET INCOME. As a result of the foregoing, net income increased by $6.0 million to $6.9 million in 1994 from $0.9 million in 1993. PRO FORMA EBITDA. Pro Forma EBITDA increased by $5.5 million to $12.2 million in 1994 from $6.7 million in 1993. This increase was due to an increase in revenues which was partially offset by increases in the cost of operations, marketing expenses and general and administrative expenses. Pro Forma EBITDA as a percentage of revenues increased to 20.4% in 1994 from 14.0% in 1993. RECIPROCAL ARRANGEMENTS. Revenues from reciprocal arrangements as a percentage of total revenues declined to 13.3% in 1994 from 16.8% in 1993. Pro Forma EBITDA from reciprocal arrangements decreased to $0.6 million in 1994 from $0.7 million in 1993. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1995, the Company's working capital was $7.9 million compared to $7.4 million at December 31, 1994. This increase was primarily attributable to an increase in accounts receivable resulting from an increase in the Company's revenues to $72.4 million in 1995 from $60.0 million in 1994. Such increase was partially offset by an increase in accounts payable and accrued liabilities to $4.5 million at December 31, 1995 from $3.5 million at December 31, 1994. Net cash provided by operating activities increased by $1.5 million to $3.2 million in 1995 from $1.7 million in 1994. Historically, the Company has financed its operations from cash generated by operations and funds provided pursuant to the Credit Agreement. The Company has used cash provided by operating activities to fund capital expenditures, operations and distributions to its stockholders. Net cash used in investing activities was $2.4 million in 1994 and $12.0 million in 1995. Cash used in investing activities related primarily to (i) in 1994, the 1994 Acquisitions and advances to a stockholder of the Company (primarily for the payment of income taxes payable by the shareholders in respect of S Corporation income) and (ii) in 1995, the 1995 Acquisitions and acquisitions of information gathering and broadcasting equipment. Net cash provided by financing activities in 1994 and 1995 was $3.2 million and $8.1 million, respectively. Cash provided by financing activities was primarily proceeds from funds provided pursuant to the Credit Agreement. As of March 31, 1996, the Company had short-term debt of $0.8 million and long-term debt of $25.1 million. Short-term debt consisted of current maturities of borrowings under the 25 Credit Agreement, current portions of long-term debt and current portions of capitalized lease obligations. Long-term debt consisted of the long-term portion of the Credit Agreement and the long-term portion of the notes relating to certain acquisitions. THE CREDIT AGREEMENT AND NOTES PAYABLE The maximum aggregate permitted borrowings (the "Line of Credit") under the Credit Agreement are $30.0 million. The Line of Credit bears interest at a variable rate determined by the lender's prime rate or LIBOR and the Company's total leverage; the interest rate ranges from 50 to 100 basis points over the prime rate or 100 to 200 basis points over LIBOR. The Line of Credit has a commitment fee of 0.375% per annum on the daily average unborrowed balance of the Line of Credit. The Line of Credit currently is secured by a pledge of the equity interests in each of the Predecessor Companies. The Credit Agreement provides for various restrictions on the Company which preclude the Company, without first obtaining the lender's consent, from taking certain actions, including incurring additional indebtedness, purchasing the assets of any entity other than in the ordinary course of business, merging or consolidating with any other entity, altering its existing capital structure and paying certain dividends. As of March 31, 1996, the Company had $24.6 million outstanding under the Line of Credit. The Company intends to repay the balance outstanding under the Line of Credit with a portion of the net proceeds of this offering. Upon the closing of this offering, the Company expects to enter into an Amended and Restated Credit Agreement with its lender. Such Amended Line of Credit is expected to provide for maximum aggregate permitted borrowings of $30.0 million. The Amended Line of Credit is expected to expire September 30, 2003, and to begin amortizing in September 1998. The Amended Line of Credit is expected to bear interest at a variable rate indexed to the lender's prime rate or LIBOR and the Company's total leverage. The Amended Line of Credit is expected to have a commitment fee based on the daily average unborrowed balance of the Amended Line of Credit. Upon the closing, the Company anticipates that the Amended Line of Credit will be secured by the granting of a lien by the Company on all of its assets and a pledge of its equity interests in each of the Predecessor Companies in favor of its lender. The Amended Line of Credit is expected to provide for various restrictions on the Company which would preclude the Company, without first obtaining the lender's consent, from taking certain actions, including incurring additional indebtedness, purchasing the assets of any entity other than in the ordinary course of business, merging or consolidating with any other entity, altering its existing capital structure and paying certain dividends. The Company issued noninterest bearing notes in connection with the Arizona Acquisition and the Las Vegas Acquisition in 1995, and the Tennessee/Kentucky Acquisition and the Charlotte Acquisition in 1994 which had principal amounts of $0.2 million, $0.1 million, $0.2 million and $0.7 million, respectively, outstanding as of March 31, 1996. The Company has guaranteed $0.7 million letters-of-credit related to the Charlotte Acquisition as of December 31, 1995. CAPITAL EXPENDITURES Capital expenditures were $2.7 million in both 1994 and 1995. Historically, the Company's capital expenditures have related principally to increasing the Company's information gathering capabilities, broadcasting capacity and technology base. The Company anticipates that capital expenditures in 1996 will be approximately $7.0 million, which is expected to include between $4.0 million and $5.0 million for expenditures associated with expanding the Company's information gathering and broadcasting capabilities, including significant expenditures on video broadcasting and surveillance. The Company believes its existing sources of liquidity, cash provided by operations, the Credit Agreement and the proceeds of this offering will satisfy the Company's anticipated working capital and capital expenditure requirements for the foreseeable future. EFFECTS OF INFLATION The Company believes that the relatively moderate rate of inflation over the past few years has not had a significant impact on the Company's results of operations. 26 RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock Based Compensation" in October 1995, which establishes financial accounting and reporting standards for stock based on employee compensation plans including, stock purchase plans, stock options, restricted stock and stock appreciation rights. The Company has elected to continue accounting for stock based on compensation under Accounting Principles Board Opinion No. 25. The disclosure requirements of SFAS No. 123 will be effective for the Company's financial statements beginning in 1996. Management does not believe that the implementation of SFAS 123 will have a material effect on its financial statements. 27 BUSINESS OVERVIEW The Company is the largest provider of traffic reporting services, and a leading supplier of local news, sports, weather and other information reporting services, to the television and radio broadcast industries. The Company's information reports, which are customized to meet the specific needs of each of the Company's individual radio and television station affiliates, are presently being broadcast by more than 1,275 radio stations affiliates and 100 television station affiliates. The Company provides local broadcast information reports in 47 of the 50 largest MSA markets in the United States. In exchange for the Company's information reports, radio and television station affiliates provide commercial airtime inventory to the Company. The packaging and sale of this commercial airtime inventory accounts for substantially all of the Company's revenue. Because the Company has numerous radio station affiliates in each of its markets (averaging 21 affiliates per market), the Company believes that its broadcasts of local traffic information reach more people, more often, in a higher impact manner than can be achieved using any other advertising medium. The Company's information reports are broadcast daily in 60 MSA markets and are heard by more than 100 million people (age 12 and over). Such reports and the Company's commercial messages are listened to by an average of 88% of the population (age 12 and over) in its markets. The Company's large network of affiliates allows it to offer advertisers the opportunity to reach a broad-based local, regional or national audience, through a single purchase of commercial airtime inventory from the Company. The Company offers advertisers three different networks on which to broadcast their advertisements: the Radio Traffic Services Network which broadcasts the Radio Traffic Services, the Expanded Radio Services Network which broadcasts the Expanded Radio Services and the MetroTV Network which broadcasts the MetroTV Services. The Company believes that the Expanded Radio Services Network and the MetroTV Network, both of which are currently being developed, will become separate broad-based networks through which the Company will be able to acquire, package and sell additional commercial airtime inventory. See "Business --Operating Strategy." Since its founding in 1978, the Company has demonstrated growth in net revenues and Pro Forma EBITDA. The Company had net revenues of $23.0 million and Pro Forma EBITDA of $3.7 million for the three months ended March 31, 1996, representing increases of $8.4 million and $2.8 million, respectively, from 14.7 million and $0.9 million for the three months ended March 31, 1995. For the year ended December 31, 1995, the Company had net revenues of $72.4 million and Pro Forma EBITDA of $10.8. OPERATING STRATEGY The Company's strategy is to realize operating efficiencies by: (i) expanding geographically, (ii) increasing the number of affiliates using Radio Traffic Services within existing markets, (iii) developing the Expanded Radio Services, (iv) developing the MetroTV Services and (v) continuing to strengthen its marketing, sales and inventory management operations. EXPAND GEOGRAPHICALLY. The Company, which currently operates in 60 MSA markets in the United States, including 54 of the largest 75 MSA markets in the United States, believes that the economic model for its local information services business is viable in each of those markets. Since July 1994, the Company has entered 16 new markets, including six strategic acquisitions accounting for an additional 14 markets and start-ups in two new markets throughout the United States. Additionally, the Company intends to expand into the remaining 21 markets over the next three years through strategic acquisitions and start-ups. Strategic acquisitions afford the Company the opportunity to realize economies of scale and cost savings as existing operations are acquired and duplicative functions eliminated. INCREASE THE NUMBER OF AFFILIATES USING RADIO TRAFFIC SERVICES WITHIN EXISTING MARKETS. The Company believes that there are substantial opportunities for continued growth in its Radio Traffic Services Network. As of March 31, 1996, the Company provided Radio Traffic Services to approximately 1,275 radio station affiliates, an increase from 914 radio station affiliates as of December 31, 1994. The 28 Company believes that opportunities are available to increase its market penetration by establishing affiliate relationships with additional radio stations. Its current affiliates represent 68% of the approximately 1,861 radio stations in the 60 MSA markets in which the Company operates. The Company believes that in numerous markets, it may be possible to establish affiliate relationships with substantially all of the radio stations in the market. Once the Company establishes a presence in a market by providing its services to at least one affiliate, it can leverage its investment in information gathering technology, such as aircraft and fixed-position cameras, by providing traffic services to multiple affiliates, at minimal additional costs. DEVELOP THE EXPANDED RADIO SERVICES. Having established a substantial market presence in Radio Traffic Services, the Company began during 1994 to leverage this business by offering Expanded Radio Services to its network of radio station affiliates. As of March 31, 1996, the Company provided Expanded Radio Services to more than 200 radio station affiliates in 26 MSA markets, an increase from 92 radio station affiliates in 17 MSA markets as of December 31, 1994. The Company believes it can provide customized information reports of a superior quality, at a lower cost than an individual station can provide on its own. Moreover, the Company believes that consolidation in the radio industry may increase the demand for the Expanded Radio Services Network because radio station owners are likely to continue to increase their out-sourcing of various programming elements in order to minimize operating costs. The Company plans to focus on increasing the number of radio stations broadcasting the Expanded Radio Services within its current markets, and to expand these services to all of its markets by the end of 1997. DEVELOP METROTV SERVICES. The Company has provided its Television Traffic Services to the MetroTV Network for over ten years. This network consisted of 103 television stations in 46 DMA markets as of March 31, 1996 an increase from 71 television stations in 33 DMA markets as of December 31, 1994. In connection with its core Radio Traffic Services business, the Company developed an extensive infrastructure of video surveillance and broadcast equipment, including jet helicopters, broadcast quality remote and omni-directional aircraft-mounted camera systems, mobile units, computer generated graphic displays and broadcasting technology. In 1995, the Company began to use this infrastructure to offer the Video News Services to its network of television station affiliates; the Company currently provides this service to 16 of its television affiliates in nine of its DMA markets. The Company's MetroTV Services include full service, 24 hours per day/7 days per week video coverage from camera crews in the Company's aircraft and in the Company's mobile ground units covering news stories. In addition, the Company's strategically located fixed-position ground-based camera systems offer affiliates coverage of crucial traffic arteries and news stories, and are capable of providing panoramic views of the cities in which such cameras are located. The Company intends to expand the Video News Services into the 25 largest DMA markets in the United States over the next three years. CONTINUE TO STRENGTHEN ITS SALES, MARKETING AND INVENTORY MANAGEMENT OPERATIONS. Over the past year, the Company has invested in, and continues to initiate and implement, new operating strategies and systems to increase revenues and Pro Forma EBITDA in its operations. In order to increase the percentage of the Company's commercial airtime inventory sold, the Company has (i) increased its sales force from approximately 70 sales representatives as of December 31, 1994 to approximately 125 sales representatives as of March 31, 1996; (ii) developed a corporate marketing department to support the efforts of its sales representatives by providing extensive training, research, sales/marketing materials and analysis; (iii) hired additional general managers and sales managers to better manage the activities of its sales representatives and enhance its affiliate relationships; (iv) fully automated its commercial airtime inventory management system to improve inventory control and pricing; and (v) reduced the level of reciprocal arrangements to focus sales representatives on cash revenue business. These enhancements have allowed the Company to increase advertising rates in each of 1994 and 1995. In addition, the Company estimates that it sold approximately 66% in 1994 and 69% in 1995, respectively, of its Radio Traffic Services Network and Expanded Radio Services Network commercial airtime inventory. For the quarter ended March 31, 1996, the Company estimates that it sold approximately 72% of its existing radio network commercial airtime inventory. 29 PROGRAMMING Every aspect of the Company's information reports (including the length of report, content of report, specific geographic coverage area, time of broadcast, number of reports aired per day, broadcaster's style, etc.) is customized to meet each individual affiliate's requirements. The Company typically works closely with the program directors, news directors, and general managers of its affiliates to ensure that the Company's services meet its affiliates' quality standards. The Company and its affiliates jointly select the on-air broadcasters to ensure that each broadcaster's style is appropriate for the station's format. The Company's broadcasters often become integral "personalities" on such affiliates' stations as a result of their significant on-air presence and interaction with the stations' on-air personnel. In order to realize operating efficiencies, the Company endeavors to utilize its professional broadcasters on multiple affiliate stations within a particular market. Generally, each of the Company's broadcasters deliver reports to between two and four of the Company's affiliates. The Company does not require its affiliates to identify the Company as the supplier of its information reports. This provides the Company's affiliates with a high degree of customization and flexibility, as each affiliate has the right to present the information reports provided by the Company as if the affiliate had generated such reports with its own resources. For example, multiple affiliates in a single market may suggest that the Company's infrastructure, including its airplanes, helicopters and broadcasters, are those of the affiliate. RADIO PROGRAMMING SERVICES The Company has been supplying radio stations with customized Radio Traffic Services since its inception in 1978. The Company is now the largest supplier of Radio Traffic Services in the United States. The Company has offered its Expanded Radio Services since 1994 and is now a leading supplier of such services, with over 200 affiliates in 26 markets. Further, the Company intends to have a general news reporting presence in all of its 60 markets by the end of 1997. The Company gathers traffic and other data utilizing the Company's information-gathering infrastructure, which includes aircraft (jet helicopters and airplanes), broadcast quality remote camera systems positioned both at strategically located ground positions and on aircraft, mobile units and cellular systems, and by accessing various government based traffic tracking systems. The Company also gathers information through various services including Reuters America Inc., WeatherBank, Inc., Weather Services Corporation, City News Service of Los Angeles, Sports Final Radio Net, Inc. and Bay City News, Inc. The information is then processed, written into broadcast copy and entered into the Company's computer systems by the Company's local writers and producers. The Company's professional broadcasters then read the customized reports on the air. The Company's information-gathering infrastructure and the flexibility created by its ability to provide services 24 hours per day/7 days per week to its affiliates, enabling the Company to respond to changing conditions and enable its affiliates to provide their listeners with accurate up-to-the-minute information. For example, responding to numerous radio station requests during the Long Island fires in 1995, the Company's New York operations center substantially increased the number of reports regarding this subject provided to affiliates. Rapid response in similar circumstances, such as in connection with the 1994 Los Angeles earthquake, is routinely achieved by the Company whenever weather or other events impact either traffic or other conditions of interest to the listeners or viewers of the Company's affiliates. As a result, the Company has received numerous letters of commendation for its assistance efforts in crisis situations, which management believes strengthens its affiliate relationships. See "-- Infrastructure." As a result of its extensive network of operations and broadcasters, the Company often reports important news stories and provides its affiliates with live coverage of these stories. The Company is able to customize and personalize its reports of breaking stories using its individual affiliates' call letters from the scene of news events. For example, during the Oklahoma City bombing, the Company provided live 30 customized reports from Oklahoma City to its affiliates all over the country. The Company believes that it is the only radio network news organization which has local studio operations which cover 60 markets and that is able to provide such customized reports to these markets. In addition, the Company is currently test marketing a regional news wire service (non-customized text and audio) in five markets. If the test is successful, the Company plans to launch its news wire service in various regions beginning in the fourth quarter of 1996 and throughout 1997. The Company could eventually offer this service in small and medium-sized markets without opening any local operations centers as this would be a non-customized service and distributed via satellite, thereby generating additional commercial airtime inventory for Expanded Radio Services. TELEVISION PROGRAMMING SERVICES The Company has been supplying its Television Traffic Services to television stations for over ten years and is currently providing such services to 103 television stations in 46 markets. Originally, the Company provided television stations with audio reports of traffic information and simple graphics; as the Company developed its Television Traffic Services, it provided more sophisticated graphics displays to the MetroTV Network. In 1995, the Company began to expand and enhance the information services that it provides to television stations. The Company is now providing its Video News Services to approximately 16 television stations in nine markets. As with its radio programming services, the Company supplies customized information reports which are delivered on air by its professional broadcasters to its television station affiliates. In addition, the Company supplies customized graphics and other visual programming elements to its television station affiliates. The Company began utilizing live studio cameras in order to enable its traffic reporters to provide its Video News Services on television from the Company's local broadcast studios. In addition, the Company began in 1995 to provide its Video News Services from its aircraft and ground based camera systems. The Company provides its Television Traffic Services and Video News Services to television stations owned by some of the largest television groups in the nation, including A.H. Belo Corporation, Cox Communications, Inc., ABC Inc., a subsidiary of The Walt Disney Company, Ellis Communications, Inc., Fox Television Stations, Inc., a subsidiary of The News Corporation Limited, National Broadcasting Company, Inc., a subsidiary of General Electric Company, The Washington Post Co. and CBS, Inc., a subsidiary of Westinghouse Electric Company. The Video News Services include: (i) full-service, 24 hours per day/7 days per week video coverage from the Company's camera crews, using broadcast quality camera equipment and news vehicles; (ii) live video news feeds from the Company's aircraft; and (iii) live video coverage from strategically located ground based camera systems. Currently, the Company is providing all of such Video News Services to four affiliates in Houston, Texas, where the Company has tested the product for the past fifteen months, and plans to expand it into the 25 largest DMA markets in the country over the next three years. The capital and operating expenditures needed to expand the Company's Video News Services have been and will continue to be significant relative to the capital expenditures required by the Company to operate its radio information services business. METRO INFORMATION SERVICES The Company initiated its Metro Information Services ("MIS") division to develop non-broadcast, traffic information business. MIS develops innovative techniques of gathering local traffic and transportation information as well as new methods of distributing such information to the public. The Company believes that in order to remain competitive and to continue to provide an information product of the highest quality to its affiliates, it is necessary to invest in and participate in the development of new technology. The Company is currently working with numerous public and private entities across the United States to improve dissemination of traffic and transportation information. The Company is currently one of the largest information suppliers to the wireless telephone industry, providing customized traffic information, direction services, and other local information to cellular subscribers via the Company's STAR JAM (TM) and STAR FIND (TM) services. Also, the Company plans to offer traffic 31 information services via the Internet, other wireless communications, in-vehicle systems and other potential delivery mechanisms. The Company believes that it is well positioned, as a leading supplier of local traffic and other information, to benefit from the evolution of future distribution systems. The Company is currently participating in several United States Department of Transportation ("USDOT") funded "Intelligent Transportation Systems" projects including: (i) The Atlanta Showcase, a federally funded technology demonstration project, which will take place during the Summer Olympics in 1996 and will involve the delivery of traffic and mobility information and (ii) TravInfo Traveler Information Center, a field operational test being conducted in the San Francisco Bay Area to implement a region-wide, open-access, multi-model advanced traveler information service. INFRASTRUCTURE The Company's geographically dispersed operations have historically been organized into several regions. Formerly, a regional General Manager would typically have overall management responsibility for sales and operations in such General Manager's region, which would comprise four to six markets, depending on the size of the markets. However, the Company believes that as it continues to grow its Expanded Radio Services and Video News Services, a General Manager focused exclusively on one market or a smaller number of markets will be able to more effectively implement and maintain affiliate relationships and maximize the percentage of available advertising inventory sold. Accordingly, the Company presently intends to reorganize its management to place a single General Manager in each of its 10 largest markets and to assign a General Manager in its remaining markets to a small number of markets, generally one to three. In each of its markets, the Company employs a Director of Operations who is responsible for all aspects of the Company's day-to-day operations. Each Director of Operations is responsible for supervising all of the broadcasters, airborne reporters, producers, editors, and writers in such Director's operation center. Moreover, the Director of Operations is responsible for maintaining day-to-day relations with affiliates and pursuing relationships with unaffiliated stations. In addition, the Company employs eight Regional Directors of Operations who supervise the Directors of Operation and who report to the Company's General Managers. The Company believes that its extensive fleet of aircraft and other information-gathering technology and broadcast equipment have allowed the Company to provide high quality programming, enabling it to retain and expand its affiliate base. In the aggregate, the Company has approximately 69 fixed-wing aircraft, 17 helicopters, 30 mobile units, 7 airborne camera systems, 16 fixed-position camera systems, 50 broadcast studios and 1,148 broadcasters and producers. The Company also maintains a staff of computer programmers and graphics experts to supply customized graphics and other visual programming elements to television stations. In addition, each of the Company's operating centers and broadcast stations has sophisticated computer technology, video and broadcast equipment and cellular and wireless technology which enables the Company's broadcasters to deliver accurate reports to its affiliates. The infrastructure and resources dedicated to a specific market by the Company are determined by the size of the market, the number of affiliates the Company serves in the market and the type of services being provided. For example, in the New York City metropolitan area, the Company currently utilizes two jet helicopters with mounted omni-directional cameras, four airplanes and fixed position cameras positioned strategically to deliver up-to-the-minute live reports. Traffic conditions are relayed via two way radio to the producers in the Company's New York broadcast studio who transcribe the report, enter it into the computer system and produce the broadcast copy which is then delivered on-air to the Company's New York radio and television affiliates by its broadcasters. The Company recently installed cameras on its helicopters and on certain buildings, including the Empire State Building, enabling the Company to provide its television station affiliates with live video of breaking news and traffic conditions. The Company believes that its investment in its New York City-area infrastructure has been a significant factor in the increase in its number of radio station and television station affiliates in its New York, Nassau/ 32 Suffolk (Long Island) and Monmouth/Ocean markets from 24 as of December 31, 1994 to 38 as of March 31, 1996. The following diagram depicts the infrastructure supporting the Company's New York City metropolitan area operation: [graph goes here] [EDGAR DESCRIPTION: GRAPHIC DEPICTING THE NEW YORK METROPOLITAN AREA'S OPERATIONAL RESOURCES. This graphic demonstrates the infrastructure utilized in the operations of the New York City Metropolitan area. The New York area is serviced by (i) four airplanes (one in Central/Northern New Jersey, one in Westchester County and two in Long Island), (ii) two jet helicopters (each with a mounted camera system); and (iii) two camera systems, one at Newark Airport and one on the Empire State Building. Traffic and news information reports and video are relayed back to the New York City bureau. The graphic also shows the total personnel servicing the local bureaus in the New York City metropolitan area. The New Jersey bureau has two broadcasters and producers, the Long Island bureau has two broadcasters, the Westchester County bureau has four broadcasters and producers and the New York City broadcast studio has 25 traffic broadcasters, five news, sports and weather broadcasters and eight producers and writers.] In 1995, the Company established an electronic communications network in its headquarters in Houston, Texas. The Company began expanding this network to include its marketing and operations offices throughout the country in 1996. The Company has created this Intranet for internal management as well as Internet access. The Company believes that by networking each of its regional offices to the corporate office, access to certain sales, marketing, scheduling and accounting information will be more effectively updated, maintained and disseminated to the Company's employees. The Company believes this will result in an improvement in sales and marketing efficiency, and will also be beneficial to general managers in tracking and maintaining commercial airtime inventory and rate controls and affiliate information for their respective markets. The Company has invested in this infrastructure, with ten markets currently on the network, and plans to add its remaining markets to this network by 1997. ADVERTISING SALES AND MARKETING The Company packages its radio commercial airtime inventory on a network basis, covering all affiliates in relevant markets. This packaged inventory typically appeals to advertisers seeking a broader demographic reach than that delivered by individual radio stations, which generally deliver an audience with narrow, specific demographic characteristics. Because the Company sells its commercial airtime inventory on a network basis rather than station by station, the Company does not compete for advertising dollars with its local radio station affiliates. The Company believes that this corporate policy is a key factor in maintaining its affiliate relationships. Currently, the Company's television commercial airtime inventory is sold by members of its general advertising sales force. The Company is developing a separate sales force to sell its television commercial airtime inventory. Currently, the Company packages its television commercial airtime inventory on a local, regional and national network basis. However, advertisers on the MetroTV Network have the ability to select specific markets and television stations for their advertisements. This enables advertisers to customize advertising packages to their individual requirements. In each of the markets in which it conducts operations, the Company maintains an advertising sales office as part of its operations center. The Company's advertising sales force is able to sell available commercial airtime inventory in any and all of the Company's markets in addition to selling such inventory in each local market, which the Company believes affords its sales representatives an advantage over certain of their competitors. For example, an airline advertiser can purchase airtime inventory in multiple markets from the Company's local sales representative in the city in which the airline is 33 headquartered. The Company's advertising sales force is comprised of approximately 125 sales representatives. Although the Company typically has two or three sales representatives in an individual market, the number of sales representatives in an individual market ranges from one to eight depending on the size of the market and the number of potential national and regional advertising clients headquartered in the market. Specialized programs and marketing campaigns, which support nationwide sales and other special forms of advertising, are managed from the Company's headquarters in Houston, Texas. Due to the number of the Company's markets, its reach within its markets and the range of services it provides, the Company has a large number of advertising clients in a diverse group of industries. No single advertiser represented more than 6% of the Company's total revenues and the Company's top ten advertisers, as a group, represented only 21% of the Company's total revenues for the year ended December 31, 1995. As the following table indicates, for the year ended December 31, 1995, advertising sales to the ten largest industry groups which are purchasers of the Company's commercial airtime inventory accounted for approximately 58% of the Company's total sales and no single industry group accounted for more than 8% of the Company's total sales.
% OF TOTAL SALES FOR TWELVE MONTHS ADVERTISER INDUSTRY ENDED 12/31/95 - --------------------------------------------------------------------- --------------------- Consumer Goods....................................................... 8% Retail (Home Improvement)............................................ 7% Supermarkets......................................................... 6% Automotive (Retail).................................................. 6% Automotive........................................................... 6% Other Retail......................................................... 6% Cellular............................................................. 5% Newspapers........................................................... 5% Oil & Gasoline....................................................... 5% Lotteries............................................................ 4% --- Total.............................................................. 58% --- ---
Due to the relatively long lead-time required to educate advertising agencies on the merits of the Company's advertising packages, the Company has historically targeted its advertising sales efforts directly to advertisers. Many advertisers, however, have directed their advertising agencies to place advertising with the Company and, as a result, such agencies have themselves begun to direct more advertisers to the Company. Due to the growing strength of the Company's advertising agency relationships, advertising sales booked through advertising agencies grew to approximately 75% of the Company's total revenues in 1995, an increase from 63% in 1992. The Company does not have significant sales concentration among its agency-placed advertising, with advertising inventory sold through an estimated 400 agencies during 1995. RADIO TRAFFIC SERVICES NETWORK AND EXPANDED RADIO SERVICES NETWORK The Company's typical radio advertisement on the Radio Traffic Services Network and the Expanded Radio Services Network consists of an opening announcement and a ten second commercial message presented immediately prior to, in the middle of, or immediately following a regularly scheduled information report. Because the Company has numerous radio station affiliates in each of its markets (averaging 21 affiliates per market), the Company believes that its traffic broadcasts reach more people, more often, in a higher impact manner than can be achieved using any other advertising medium. The Company combines its commercial airtime inventory into multiple "sponsorship" packages (generally 125, 250 or 500 sponsorships broadcast over a four week period in each market) which it then sells as an information sponsorship package to radio advertisers. These Company sponsorship packages are run on a fair and equal rotation (i.e., each advertiser receives its pro rata share of 34 advertisements sold by the Company for broadcast on each of the Company's affiliates in the relevant market or markets) throughout the Traffic Services Network on a local, regional or national basis, primarily during prime morning and afternoon drive periods. The Company does not allow an advertiser to select individual stations from the Radio Traffic Services Network or Expanded Radio Services Network on which to run its advertising campaign. In the Company's MSA markets the Company's 500 sponsorship package (which the Company believes is its most frequently purchased package), reaches an average of approximately 70% of the population (age 12 and over). In addition, the Company's large network of affiliates allows the Company to offer advertisers the opportunity to purchase advertising in multiple markets nationwide through a single purchase from the Company. As the Company has developed and expanded the Expanded Radio Services Network, it has primarily packaged and sold its commercial sponsorships of the Expanded Radio Services in conjunction with its existing traffic report sponsorships. Because the Expanded Radio Services Network is not fully mature, the Company has not yet maximized the marketing of commercial airtime inventory on the Expanded Radio Services Network as a separate product line. Accordingly, the Company has only generated minimal revenues from the sale of advertisements on the Expanded Radio Services Network. As the Company develops the Expanded Radio Services Network in individual markets, it intends to package and sell advertisements as a separate product. During the first quarter of 1996, the Company began to package and sell separate Expanded Radio Services Network sponsorship packages in five markets (Boston, Washington, Houston, Phoenix, and Los Angeles). The Company intends to introduce the Expanded Radio Services Network sponsorships in additional markets as it further develops the Expanded Radio Services Network throughout 1996 and 1997. As the Company's business has developed, it has sold increasing amounts of its advertising to regional/national advertisers. For the year ended December 31, 1994, approximately 25% of the Company's radio advertising revenue was attributable to regional/national advertisers, with the balance attributable to local advertisers, and for the three months ended March 31, 1996, sales to regional/ national advertisers accounted for approximately 50% of sales of total commercial airtime inventory. The Company believes that the positioning of advertisements within or adjacent to its information reports appeals to advertisers because the advertisers' messages are broadcast along with regularly scheduled programming during peak morning and afternoon drive times when a majority of the radio audience is listening. Radio advertisements broadcast during these times typically generate premium rates. Moreover, surveys commissioned by the Company demonstrate that because the Company's customized information reports are related to topics of significant interest to listeners, listeners often seek out the Company's information reports. Since advertisers' messages are imbedded in the Company's information reports, such messages have a high degree of impact on listeners and generally will not be "pre-empted" (i.e., moved by the radio station to another time slot). Most of the Company's advertisements are read live by the Company's on-air broadcasters, providing the Company's advertisers with the added benefit of an implied endorsement for their product. METROTV SERVICES The Company provides its MetroTV Services to television stations in exchange for thirty second commercial airtime inventory. The amount and day-part placement of the commercial airtime inventory that the Company receives from television stations varies by market and by the type of service provided by the Company. As the Company has provided more enhanced MetroTV Services, it has been able to acquire more commercial airtime inventory with better day-part placement. The Company, in turn, packages this commercial airtime inventory and sells it to advertisers on a local, regional and national basis. The Company believes that it offers advertisers significant benefits because, unlike traditional television networks, the MetroTV Network often delivers more than one station in a market and advertisers have the ability to select specific television stations and markets. Therefore, the Company can customize advertising packages for individual advertisers based on each advertiser's requirements. Historically, revenues from sales of television commercial airtime inventory have been an insignificant part of the Company's total revenues. In order to significantly increase the Company's revenues 35 from sales of television commercial airtime inventory, in early 1996 the Company: (i) formed a separate television advertising sales staff; (ii) began seeking an increased amount of higher value fixed position commercial airtime inventory from television stations in exchange for providing enhanced Video News Services; and (iii) pre-sold a significant amount of commercial airtime inventory to a large national advertiser. As the Company continues to expand all aspects of its Television Traffic Services and Video News Services, the Company believes that revenues from television advertising sales will continue to increase. AFFILIATES The Company's large network of affiliates allows the Company to offer advertisers the opportunity to reach a broad-based, local, regional or national audience through a single purchase of commercial airtime from the Company. The Company has demonstrated consistent affiliate growth; for example, the number of radio station affiliates has grown 39.6% from 914 as of December 31, 1994 to 1,276 as of March 31, 1996, and the number of the Company's television station affiliates has increased 45.1% from 71 to 103 over the same period. In addition, the Company's relationships with numerous radio station and television station affiliates within a certain market creates economies of scale which allow the Company to utilize a wide array of professional broadcasters, information-gathering equipment and technology and extended hour operations less expensively than if it had an affiliate relationship with only one individual station or group in a particular market. The number of the Company's radio station affiliates in an individual market varies from 59 in the Los Angeles, California market to two in the Cincinnati, Ohio market (which was a 1996 start-up) and currently averages 21 affiliates per market. The Company's primary goal when entering a market is to enter into affiliate relationships with every radio station and television station in the market, thereby maximizing the percentage of listeners (i.e., the number of people in the radio audience who have heard a report in a particular market) of the Company's networks within each of its markets; such maximization is an integral part of the Company's sales and marketing strategy. With the exception of Cincinnati, Ohio, the Company's reports and sponsorships are heard by a low of 43.7% in Nashville, Tennessee to a high of 100% of the radio listening audience in six markets; on average the Company's reports and sponsorships are heard by over 88% of the population (age 12 and over) in its markets. The following chart presents, in order of MSA population (age 12 and over), the Company's current number of radio station affiliates in each of its MSAs, the MSA's population and the Company's audience reached in the relevant MSA. 36
# OF RADIO STATION MSA MSA(1) AFFILIATES POPULATION(1) % LISTENERS(2) - -------------------- ----------- ------------- --------------- New York, NY 30 14,114,700 83.5 Monmouth/Ocean NJ 884,300 48.9 Los Angeles, CA 59 9,687,300 80.6 Riverside/San Bernardino, CA 1,343,200 89.3 Oxnard, CA 362,000 68.9 Chicago, IL 35 6,895,700 81.8 San Francisco/ 30 5,367,400 78.6 Oakland, CA Philadelphia, PA 33 4,067,000 95.3 Detroit, MI 31 3,652,100 91.3 Dallas/Ft. Worth, TX 29 3,570,000 84.0 Washington, DC 36 3,512,500 98.6 Houston/Galveston, 34 3,348,800 99.7 TX Boston, MA 32 3,236,600 84.4 Miami/Ft. 33 2,936,100 96.9 Lauderdale/ Hollywood, FL Atlanta, GA 37 2,843,600 80.3 Seattle/Tacoma, WA 23 2,698,900 100.0 Nassau/Suffolk (Long 3 2,253,200 64.5 Island), NY San Diego, CA 23 2,212,900 75.3 Minneapolis/St. 33 2,202,400 98.4 Paul, MN St. Louis, MO 27 2,083,800 95.6 Baltimore, MD 23 2,056,700 81.9 Pittsburgh, PA 25 2,036,900 84.1 Phoenix, AZ 40 1,997,400 99.8 Tampa/St. 30 1,885,200 100.0 Petersburg/ Clearwater, FL Cleveland, OH 25 1,759,300 100.0 Denver/Boulder, CO 31 1,733,500 98.2 Portland, OR 23 1,598,900 83.0 Cincinnati, OH 2 1,556,300 6.0 Kansas City, MO 19 1,349,300 60.3 Milwaukee/Racine, WI 23 1,339,700 98.3 # OF RADIO STATION MSA MSA(1) AFFILIATES POPULATION(1) % LISTENERS(2) - -------------------- ----------- ------------- --------------- Sacramento, CA 35 1,337,200 99.2 Stockton, CA 420,400 67.4 Modesto, CA 330,400 67.2 San Jose, CA 10 1,317,700 47.3 Providence/Warwick/ 20 1,263,700 96.9 Pawtucket, RI Columbus, OH 12 1,223,900 60.4 Norfolk/Virginia 29 1,210,900 100.0 Beach/Newport News, VA San Antonio, TX 25 1,183,200 96.0 Salt Lake City/ 22 1,158,600 99.6 Ogden/Provo, UT Indianapolis, IN 19 1,108,500 91.6 Charlotte/Gastonia/ 21 1,077,400 87.9 Rock Hill, NC Orlando, FL 28 1,017,100 100.0 Buffalo/Niagara 14 991,600 98.5 Falls, NY Hartford, CT 50 962,700 91.2 New Haven, CT 389,300 83.6 Danbury, CT 164,300 57.3 Memphis, TN 13 931,800 69.4 Nashville, TN 27 911,900 43.7 Rochester, NY 15 900,700 85.2 West Palm Beach/ 20 850,200 79.0 Boca Raton, FL Las Vegas, NV 25 847,700 99.8 Louisville, KY 25 845,900 88.9 Oklahoma City, OK(3) 6 836,200 70.5 Jacksonville, FL(3) 21 823,900 98.7 Austin, TX 17 821,600 95.9 Richmond, VA 21 775,000 100.0 Tucson, AZ 12 628,100 94.1 Albuquerque, NM(3) 13 537,700 78.1 Wilmington, DE 2 506,900 67.4 Daytona Beach, FL 5 390,300 46.5 TOTAL 1,276 117,606,500(4) 88.0%
- ------------------------ (1) Listed in The Arbitron Radio Metro and Television Market Population Estimates in 1995-1996.* (2) Percentage of the MSA population which hears the Company's information reports, calculated using Arbitron Winter 1996 Radio Market Reports* and Strata Marketing, Inc. Statistical Analysis. (3) The Company has license agreements to provide national sales, marketing and operational support in exchange for certain amounts of commercial airtime inventory in Jacksonville, FL, Oklahoma City, OK, and Albuquerque, NM. The Company packages and sells such commercial airtime on a regional and national basis to its advertisers. (4) Arbitron includes the population of Nassau/Suffolk and Monmouth counties in the New York MSA. Therefore, these populations are not duplicated in the total population figure. */ Copyright 1996 The Arbitron Company. All Rights Reserved. 37 The following chart presents, in order of market population (age 12 and over), the Company's current number of television affiliates in each market and the DMA's population.
# OF TELEVISION STATION DMA DMA(1) AFFILIATES POPULATION(1) - --------------------------- --------------- ------------- New York, NY 3 15,922,200 Los Angeles, CA 2 12,447,700 Chicago, IL 2 7,153,300 Philadelphia, PA 1 6,046,200 San Francisco/Oakland/ San 3 5,304,500 Jose CA Boston, MA 2 4,850,800 Washington, DC 5 4,323,100 Dallas/Ft. Worth, TX 1 4,033,000 Detroit, MI 2 3,899,200 Houston, TX 7 3,610,800 Atlanta, GA 4 3,557,400 Seattle/Tacoma, WA 2 3,199,100 Cleveland/Akron, OH 3 3,193,200 Minneapolis/St. Paul, MN 1 3,100,200 Miami/Ft. Lauderdale, FL 4 3,009,000 Tampa/St. Petersburg/ 3 2,901,800 Sarasota, FL Phoenix, AZ 4 2,584,000 Sacramento/Stockton/ 4 2,561,700 Modesto, CA Pittsburgh, PA 1 2,498,400 Denver, CO 1 2,437,800 St. Louis, MO 4 2,433,600 Baltimore, MD 2 2,214,500 Orlando/Daytona Beach/ 2 2,176,500 Melbourne, FL Portland, OR 1 2,053,500 # OF TELEVISION STATION DMA DMA(1) AFFILIATES POPULATION(1) - --------------------------- --------------- ------------- Hartford/New Haven, CT 2 2,050,700 Indianapolis, IN 2 2,033,200 Charlotte, NC 1 1,780,700 Nashville, TN 1 1,695,100 Kansas City, MO 2 1,682,200 Columbus, OH 1 1,609,200 Salt Lake City, UT 2 1,602,600 San Antonio, TX 2 1,514,400 Norfolk/Portsmouth/ Newport 3 1,411,000 News, VA Buffalo, NY 1 1,400,800 Oklahoma City, OK 1 1,271,500 Albuquerque/Santa Fe, NM 1 1,266,300 Providence/New Bedford, RI 1 1,263,700 West Palm Beach/Ft. Pierce, 2 1,206,900 FL Louisville, KY 2 1,199,600 Richmond/Petersburg, VA 2 1,109,700 Austin, TX 1 894,200 Las Vegas, NV 3 869,800 Rochester, NY 2 812,500 Tucson, AZ 2 747,300 Springfield/Holyoke, MA 1 554,100 Monterey/Salinas, CA 1 511,900 Total Affiliates 99 Cable News Channels(2) 4 TOTAL 103 133,998,900
- ------------------------ (1) Listed in The Arbitron Radio Metro and Television Market Population Estimates in 1995-1996.* (2) Cable news channel affiliates in New York(2), Washington(1), and Rochester(1). * Copyright 1996 The Arbitron Company. All Rights Reserved. The Company provides its Television Traffic Services to four cable television affiliates. The Company believes that opportunities exist to increase the number of cable news channel affiliates receiving Television Traffic Services and Video News Services, and it intends to continue to market its services to those stations. ACQUISITIONS Since July 1994, the Company has expanded into 14 markets through six strategic acquisitions, and made an additional acquisition to expand its operations in Atlanta, Georgia, for a total consideration of approximately $20 million. The Company is in various stages of pursuing additional strategic acquisitions. The Company is currently in discussions with five entities that, if acquired, would result in new or expanded coverage of approximately eight to ten markets by the Company. The Company, however, does not have any commitments, arrangements, or understandings with respect to any such acquisitions. Further, there can be no assurance that the Company will be able to effect any such transactions or that any such transactions, if consummated, will prove to be beneficial to the Company. The Company generally consolidates the operations of the acquired companies or assets into its existing operations so that duplicative costs can be eliminated, resulting in margin improvements for the consolidated operations. In addition, as a result of the Company's significant sales force and existing advertising relationships, the Company is generally able to increase revenues by selling advertising in 38 the acquired market to the Company's existing regional and national sponsors. Moreover, as the Company continues to add new markets and to increase its presence in existing markets, it has been able to offer advertisers increased market penetration and to generate incremental revenues from existing advertising clients. The following acquisitions have been completed in 1996 (the "1996 Acquisitions"): SALT LAKE CITY ACQUISITION. On January 3, 1996, the Company acquired (the "Salt Lake City Acquisition") all of the tangible and intangible assets of Aeromedia, Inc. ("Aeromedia"). As of March 31, 1996, the Company, (through Aeromedia), provided Radio Traffic Services to a network of 22 radio stations and two television stations in Salt Lake City, Utah, which is the thirty-fifth largest MSA market. NEW ENGLAND ACQUISITION. On January 4, 1996, the Company acquired (the "New England Acquisition") all of the stock of Traffic Net Inc., a Rhode Island corporation, Traffic Net of Connecticut, Inc., a Connecticut corporation, and The Weather Bureau, Inc., a Massachusetts corporation (collectively, the "Traffic Net Group"). As of March 31, 1996, the Company (through the Traffic Net Group) provided local traffic information services to approximately 70 radio station and three television station affiliates in and around the Hartford, Connecticut area (the forty-first largest MSA market), and Providence, Rhode Island (the thirty-first largest MSA market). In addition, The Weather Bureau, Inc. (d/b/a The New England Weather Bureau) provides weather reporting services to approximately 47 radio station affiliates in Boston, Massachusetts (the tenth largest MSA market), and throughout New England. The following acquisitions were completed in 1995 (the "1995 Acquisitions"): THE ARIZONA ACQUISITION. On March 9, 1995, the Company acquired (the "Arizona Acquisition") the stock of Skyview Broadcasting Networks, Inc., an Arizona corporation ("Skyview"). As of March 31, 1996, the Company (through Skyview) provided services to 52 radio and 5 television stations in Phoenix and Tucson, Arizona, the twentieth and sixty-second largest MSAs, respectively. THE LAS VEGAS ACQUISITION. On March 9, 1995, the Company acquired (the "Las Vegas Acquisition") the stock of Airborne Broadcast Consultants, a Nevada corporation ("Airborne"), which was under common ownership with Skyview. As of March 31, 1996, the Company (through Airborne) provided traffic programming services to 25 radio and 3 television stations in Las Vegas, Nevada, the forty-eighth largest MSA market, respectively. THE TENNESSEE/KENTUCKY ACQUISITION. On March 9, 1995, the Company acquired (the "Tennessee/ Kentucky Acquisition") substantially all of the tangible and intangible assets and certain liabilities of Airborne Broadcasting Systems, Inc., a Tennessee corporation ("ABS", which was also under common ownership with Skyview (ABS, Skyview and Airborne are collectively referred to as the "Skyview Group")). As of March 31, 1996, the Company provided traffic information reports to a network of 65 radio station affiliates serving the greater Nashville and Memphis, Tennessee markets and the Louisville, Kentucky market. The MSA market rank of these MSA markets is forty-fourth, forty-third and forty-ninth, respectively. THE ATLANTA ACQUISITION. On March 24, 1995, the Company acquired (the "Atlanta Acquisition") 100% of the stock of TrafficScan, Inc., a Georgia corporation ("TSI"). As of March 31, 1996, the Company (through TSI) provided traffic information services to 23 radio station affiliates and one television station affiliate in the greater Atlanta region. Atlanta is the twelfth largest MSA market. The following acquisitions were completed in 1994 (the "1994 Acquisitions"): THE WISCONSIN ACQUISITION. On July 1, 1994, the Company acquired (the "Wisconsin Acquisition") substantially all of the tangible and intangible assets of Wisconsin Information Systems, Inc., an Ohio corporation ("WIS"). As of March 31, 1996, the Company provided traffic information reports to 23 radio station affiliates in Milwaukee, Wisconsin, the twenty-eighth largest MSA market. 39 THE ST. LOUIS ACQUISITION. On July 19, 1994, the Company acquired (the "St. Louis Acquisition") substantially all of the tangible and intangible assets of Hildebrand Communications, Inc. ("Hildebrand"). As of March 31, 1996, the Company provided traffic information reports to 27 radio station affiliates and 4 television station affiliates in St. Louis, Missouri, the seventeenth largest MSA market. THE CHARLOTTE ACQUISITION. On October 24, 1994, the Company acquired (the "Charlotte Acquisition") substantially all of the tangible and intangible assets of Charlotte Traffic Patrol, Inc., a North Carolina corporation ("Charlotte"). As of March 31, 1996, the Company provided traffic reports to 21 radio station affiliates and 1 television station affiliate in the metropolitan area of Charlotte, North Carolina, the thirty-seventh largest MSA market. RADIO AND TELEVISION INDUSTRY Total radio and television advertising revenues increased 4.2% to $39.4 billion during 1995, according to industry sources. Total radio advertising revenues were $11.5 billion while television advertising revenues were approximately $23.9 billion in 1995, the highest levels in each respective industry's history. The growth in total radio and television advertising revenues tends to be fairly stable and has generally grown at a faster rate than the Gross National Product ("GNP"). With the exception of 1991, when total radio and television advertising revenues fell by approximately 3.4% compared to the prior year, advertising revenues have risen in each of the past 15 years more rapidly than either inflation or the GNP. The United States radio market is comprised of approximately 11,528 commercially licensed stations which primarily serve local markets. The United States television market is comprised of approximately 1,103 commercially licensed stations which also serve primarily local markets. According to the Radio Advertising Bureau's Radio Marketing Guide and Fact Book for Advertisers (1993-1994), each week, radio reaches approximately 96% of all Americans over the age of 12. More than one-half of all radio listening is done outside the home, in contrast to other advertising mediums, and three out of four adults are reached by car radio each week. The average listener spends approximately three hours and 12 minutes per day listening to radio. The highest portion of radio listenership occurs during the morning, particularly between the time a listener wakes up and the time the listener reaches work. This "morning drive time" period reaches more than 85% of people over 12 years of age. According to the Television Advertising Bureau, television reaches approximately 98% of all American households each week. The average household spends approximately seven hours and sixteen minutes per day watching television INTERNATIONAL The Company's international presence has been limited to its participation in licensing agreements in the United Kingdom and France. Pursuant to these license agreements, the Company provides its licensees the right to use its name, computer technology, training and sales expertise in exchange for commercial airtime inventory. Revenues from such licensing agreements are not material and the Company has no immediate intention to pursue opportunities internationally, although it may choose to do so in the future if resources and opportunities are available. COMPETITION The Company faces various sources of competition in the provision of its information reporting services. Single market operators and groups of radio stations providing their own information reports comprise the Company's primary competition. Although the Company is significantly larger than the next largest provider of traffic and local information services, there are several multi-market operators providing local radio and television programming services in various markets. The Company believes that the next largest provider of traffic and local information services (which operates under the names "Shadow Traffic" and "Express Traffic") currently has a presence in approximately 14 of the 50 largest MSA markets in the United States, as compared to the Company's operations in 47 of the 50 largest MSA markets. 40 The Company also faces competition in the sale of its commercial airtime inventory. The Company positions its advertising so as not to compete with the advertising of its local radio and television affiliates. The Company competes for advertising dollars with other media such as newspapers and magazines, outdoor advertising, network radio and network television advertising, transit advertising, direct response advertising, yellow page directories and point-of-sale advertising. EMPLOYEES The Company employed approximately 939 full-time and 435 part-time persons as of March 31, 1996, none of whom was covered by a collective bargaining arrangement. Of these employees, approximately 1,148 were engaged in broadcasting and operations; 125 in sales and marketing; and 101 in general and administrative activities. Approximately 18% of the Company's employees are located in the Company's Houston, Texas headquarters. The Company considers its relationship with its employees to be satisfactory. PROPERTIES The Company's headquarters facility, which includes its principal administrative, sales, marketing, management information systems and product development offices and its local operations center, is located in approximately 23,232 square feet of leased space in Houston, Texas. The lease on this facility terminates in July 1998. The Company intends to relocate its headquarters during the third quarter of 1996, to another facility in Houston, Texas. The new facility is located in approximately 28,216 square feet of subleased space, the sublease with respect to this facility began in April, 1996 and terminates in March 2004. The Company leases additional operation centers/broadcast studios and marketing offices across the United States consisting of approximately 44,964 square feet in the aggregate, pursuant to the terms of various lease agreements. The Company believes that its existing facilities are adequate to meet current requirements and that suitable additional space in close proximity to its existing headquarters will be available as needed to accommodate growth of its operations and additional sales and support offices through the foreseeable future. For the year ended December 31, 1995, the Company incurred $2.7 million in facilities rental expense. TRADEMARKS The Company has registered "Metro Traffic Control", "Metro Networks" and certain other marks which are relevant to its business. The Company does not believe that its operations are materially dependent on these trademarks. LEGAL PROCEEDINGS The Company is subject to certain litigation arising in the ordinary course of business. Management believes that the resolution of such matters will not have a material adverse effect on the Company's financial position or results of operations. REORGANIZATION From 1978 through the closing of this offering, the business of the Company will have been operated through the Predecessor Companies. Until the closing of this offering, all of the equity interests in the Predecessor Companies will be owned by the Saperstein Family. Immediately prior to the closing of this offering, the Saperstein Family will establish the Company as a holding company in order to consolidate the issued and outstanding equity interests in the Predecessor Companies, in exchange for shares of the Company's Common Stock. As of the date of the closing of this offering, each of the Predecessor Companies will be a direct or indirect wholly-owned subsidiary of the Company. 41 MANAGEMENT The following table sets forth certain information regarding the directors and executive officers of the Company.
NAME AGE TITLE - --------------------------------- ----------- -------------------------------------------------------------------- David I. Saperstein 55 Chairman of the Board of Directors and Chief Executive Officer Charles I. Bortnick 42 President and Director Shane E. Coppola 30 Executive Vice President and Director Curtis H. Coleman 46 Senior Vice President, Chief Financial Officer and Director Gary L. Worobow 31 Senior Vice President, General Counsel, Secretary and Director
DAVID I. SAPERSTEIN founded the Company in 1978. Since 1978, Mr. Saperstein has been the Chief Executive Officer and a Director of the Company. Mr. Saperstein serves on the Boards of Directors for the Variety Club of Houston, the Business Arts Fund, the Houston Symphony and the Toxoplasmosis Research Institute of the Michael Reese Hospital in Chicago. Mr. Saperstein serves on the Board of Trustees for the local chapter of the United Way and is a member of the Dean's Advisory Council for Touro College of Law in New York. Prior to 1978, Mr. Saperstein owned and operated several Ford automobile dealerships in Baltimore, Maryland. CHARLES I. BORTNICK has been President and a Director of the Company since June 1996. From April 1994 to May 1996, Mr. Bortnick served as Executive Vice President/General Manager of the Company. Mr. Bortnick joined the Company in March 1993 as Vice President/General Manager-Midwest Region based in Chicago. Prior to joining the Company, Mr. Bortnick had 17 years of experience in the radio broadcasting industry. From November 1987 through March 1993, Mr. Bortnick served as Vice President/General Manager for Malrite Communications at its WMMS-FM/WHK-AM radio station in Cleveland, Ohio and its KKHT-FM radio station in Houston, Texas. From September 1984 to October 1987, Mr. Bortnick served as Vice President/General Manager for TK Communications at its WSHE-FM/WSRF-AM radio stations in Miami/Ft. Lauderdale. SHANE E. COPPOLA has served as Executive Vice President and a Director of the Company since June 1996. From April 1992 through May 1996, Mr. Coppola was Vice President -- Corporate Development of the Company. From August 1989 through March 1992, Mr. Coppola was a member of the Communications Finance Group at The Toronto-Dominion Bank. Mr. Coppola earned a Masters of Business Administration from the William E. Simon School of Business Administration in 1989 and a Bachelor of Arts from the University of Rochester in 1988. Mr. Coppola is the son-in-law of Mr. Saperstein. CURTIS H. COLEMAN has served as Chief Financial Officer of the Company since September 1995, as a Senior Vice President and a Director of the Company since June 1996. Mr. Coleman served as Vice President-Treasurer and Vice President-Controller of the Company from March 1990 through September 1995. Prior to joining the Company, Mr. Coleman served in various financial and accounting positions with Energy Service Company, Inc., Crutcher Resources Corporation and Arthur Young & Company. Mr. Coleman is a certified public accountant. GARY L. WOROBOW has served as General Counsel and Secretary of the Company since May 1995, as a Senior Vice President and a Director of the Company since June 1996. From August 1991 until joining the Company, Mr. Worobow was an attorney with the New York law firm of Stursberg & Veith. Mr. Worobow earned a Juris Doctorate from Fordham Law School in 1991, a Masters of Business Administration from the William E. Simon School of Business Administration in 1989 and a Bachelor of Arts from the University of Rochester in 1987. 42 BOARD OF DIRECTORS The Company intends to name four outside directors to the Board of Directors prior to the closing of the offering. These outside directors will comprise the majority of the members of the Company's Audit and Compensation Committees. NON-EMPLOYEE DIRECTOR COMPENSATION Each member of the Board of Directors who is not an officer or an owner, or the representative of an owner, of more than 5% of the outstanding Common Stock of the Company receives compensation of $1,000 per meeting for serving on the Board of Directors. The Company also reimburses Directors for any expenses incurred in attending meetings of the Board of Directors and the committees thereof. Upon their election to the Board of Directors or the closing of this offering (whichever is later), each non-employee Board member will be granted options to purchase 10,000 shares of the Company's Common Stock. Such options will be exercisable at the fair market value of the common stock at the date of grant. These options will become vested and exercisable for up to 33% of the total optioned shares upon the first anniversary of the grant of the options and for an additional 33% of the total optioned shares upon each succeeding anniversary until the option is fully exercisable at the end of the third year. EXECUTIVE COMPENSATION The following table sets forth certain information for the fiscal years indicated concerning the cash and non-cash compensation earned by or awarded to the Chief Executive Officer of the Company and each of the other four most highly compensated executive officers of the Company whose combined salary and bonus exceeded $100,000 in such periods (the "Named Executive Officers.") SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION --------------------------------------------- NAME AND OTHER ANNUAL STOCK PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) ALL OTHER - --------------------------------------- --------- ----------- ----------- ------------------- --------------- ------------- David I. Saperstein.................... 1995 960,000 -- 58,982(1) 23,081(2) -- -- Charles I. Bortnick.................... 1995 256,290(3) 58,303 -- -- -- Shane E. Coppola....................... 1995 247,917 -- -- -- -- Curtis H. Coleman...................... 1995 131,042(3) -- -- -- --
- ------------------------------ (1) Expenses related to automobiles. (2) Non-taxable shareholder distribution. (3) Includes the Company's contributions under the 401(k) Plan. 1996 INCENTIVE STOCK OPTION PLAN The Company's Board of Directors has adopted the 1996 Incentive Stock Option Plan (the "1996 Plan") for the Company's officers and employees. The Board of Directors has discretionary authority, subject to certain restrictions, to administer the 1996 Plan, including but not limited to determining the individuals to whom, the times at which, and the exercise price for which options will be granted. The total number of shares reserved for issuance under the 1996 Plan is , of which 350,000 will be issued upon the effective date of this offering. The exercise price of options granted under the 1996 Plan may not be less than 100% of the fair market value (or not less than 110% of the fair market value as to any individual who, at the time the option is granted, owned more than 10% of the total combined voting power of all classes of stock of the Company) of the Common Stock on the date such option was granted. Options granted under the 1996 Plan are not transferable by the optionholders except by will or by the laws of descent and distribution. Options granted under the 1996 Plan typically become vested and exercisable for up to 33 1/3% of the total optioned shares upon the first anniversary of the grant of the option and for an additional 33 1/3% of the total optioned shares upon each succeeding anniversary until the option is fully exercisable at the end of the third year. Generally, the unexercised portion of any option 43 automatically terminates upon (i) termination of the optionee's employment with the Company, (ii) the expiration of 90 days from the date his employment with the Company terminates for any reason other than cause, death, or disability or (iii) the expiration of one year after the optionee's death. Upon the sale, merger or liquidation of the Company, outstanding options may be exercised immediately prior to the consummation of such a transaction, whether or not vested as of such date of consummation. EMPLOYEE STOCK PURCHASE PLAN A total of shares of the Company's Common Stock have been reserved for issuance under the Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan"). None of such shares have been issued. The Purchase Plan permits an eligible employee of the Company to purchase common stock at a discount through payroll deductions not to exceed 10% of the compensation received by such employee during such pay period ("Employee Purchases"). Employee Purchases cannot exceed $25,000 in any plan year. The price at which the Common Stock is purchased under the Purchase Plan is set by the Board of Directors but may not be less than 95% of the fair market value of the Common Stock on the date of purchase. DEFINED BENEFIT AND DEFINED CONTRIBUTION PLAN Effective in April 1995, the Company established a profit sharing plan under Section 401(k) of the Internal Revenue Code (the "401(k) Plan") for all eligible employees. Under the 401(k) Plan, all eligible employees are permitted to defer compensation up to a maximum of 10% of their income. The 401(k) Plan provides for a matching contribution by the Company equal to 25% of the amount contributed by the employee, up to 6% of the employee's total compensation. These contributions amounted to $195,000 in 1995. The employee's contribution is immediately vested, which 20% of the Company's matching contribution vests every year after the second year of the employee's participation in the plan. Accordingly, the matching contribution is fully vested six years after such contribution. EMPLOYMENT AGREEMENTS As discussed more particularly below, the Company intends to enter into employment agreements with each of the Named Executive Officers and with Gary L. Worobow, the Company's Senior Vice President, Secretary and General Counsel ("Mr. Worobow", and collectively with the Named Executive Officers, the "Executive Officers"). Such employment agreements prohibit each of the Executive Officers from competing with the Company for a period of one year after termination of employment. Each of such agreements also provides that upon the termination of such agreement by the Company under certain circumstances, or upon the termination of such agreement by the Executive Officer under certain circumstances, the Executive Officer will continue to receive the benefits provided for under his employment agreement as well as payments of salary and bonus, for a specified period following termination of employment. Additionally, upon a change of control (as defined in the employment agreement) of the Company, if the Executive Officer's employment does not continue for a minimum of one year, he would be entitled to receive two (2) times his then current base salary. Mr. Saperstein will be a party to an employment agreement with the Company pursuant to which he will serve as Chief Executive Officer of the Company. Under the terms of Mr. Saperstein's employment agreement, he will be entitled to receive an annual base salary of $350,000. Such base salary will increase by 5% during each year term of the employment agreement. The employment agreement will provide that Mr. Saperstein may receive a bonus of up to $150,000 per annum at the discretion of the Board of Directors. The bonus potential will increase by 5% during each year of the term of the employment agreement. Pursuant to the employment agreement, Mr. Saperstein will be granted stock options under the 1996 Plan to purchase up to 100,000 shares of the Company's Common Stock at an exercise price equal to 110% of the initial public offering price. Subsequent grants of options to Mr. Saperstein during the term of the employment agreement will be at the discretion of the Board of Directors. Mr. Saperstein's employment agreement will be effective as of the closing of this offering, and will have a two year term subject to automatic renewal at the end of the second year for an additional 44 period of one year, unless the Company gives written notice at least 90 days prior to the end of such second year of its election to terminate such employment agreement at the end of such second year (hereinafter, a "Non-Renewal"). Mr. Saperstein currently receives a base salary of $960,000. Mr. Bortnick will be a party to an employment agreement with the Company pursuant to which he will serve as President of the Company. Under the terms of Mr. Bortnick's employment agreement he will be entitled to receive an annual base salary of $275,000. Such base salary will increase by 5% upon each anniversary of the closing during the term of the employment agreement. The agreement will provide that Mr. Bortnick may receive a bonus of up to $100,000 per annum at the discretion of the Board of Directors. The bonus potential increases by 5% during each year of the term of the employment agreement. Pursuant to the employment agreement, Mr. Bortnick will be granted stock options under the 1996 Plan to purchase up to 75,000 shares of the Company's Common Stock at an exercise price equal to the initial public offering price. Subsequent grants during the term of the employment agreement will be at the discretion of the Board of Directors. Mr. Bortnick's employment agreement will have a two year term from the closing date of the offering with an automatic renewal provision of one year, subject to Non-Renewal. Mr. Bortnick currently receives a base salary of $275,000. Mr. Coppola will be a party to an employment agreement with the Company pursuant to which he will serve as Executive Vice President of the Company. Under the terms of Mr. Coppola's employment agreement he will be entitled to receive an annual base salary of $200,000. Such base salary will be increased by 5% during each year of the term of the employment agreement. The employment agreement provides that Mr. Coppola may receive a bonus of up to $100,000 per annum at the discretion of the Board of Directors. The bonus potential will increase by 5% during each year of the term of the employment agreement. Pursuant to the employment agreement, Mr. Coppola will be granted stock options under the 1996 Plan to purchase up to 75,000 shares of the Company's Common Stock at an exercise price equal to the initial public offering price. Subsequent grants during the term of the employment agreement will be at the discretion of the Board of Directors. Mr. Coppola's employment agreement will be effective as of the closing of this offering, and will have a two year term with an automatic renewal provision of one year, subject to Non-Renewal. Mr. Coppola currently receives a base salary of $410,000. Mr. Coleman will be a party to an employment agreement with the Company pursuant to which he will serve as Senior Vice President and Chief Financial Officer of the Company. Under the terms of Mr. Coleman's employment agreement he will be entitled to receive an annual base salary of $150,000. Such base salary will increase by 5% during each year of the term of the employment agreement. The employment agreement provides that Mr. Coleman may receive a bonus of up to $50,000 per annum at the discretion of the Board of Directors. The bonus potential will increase by 5% during each year of the term of the employment agreement. Pursuant to the employment agreement, Mr. Coleman will be granted stock options under the 1996 Plan to purchase up to 55,000 shares of the Company's Common Stock at an exercise price equal to the initial public offering price. Subsequent grants during the term of the employment agreement will be at the discretion of the Board of Directors. Mr. Coleman currently receives a base salary of $150,000. Mr. Worobow will be a party to an employment agreement with the Company pursuant to which he will serve as Senior Vice President, General Counsel and Secretary of the Company. Under the terms of Mr. Worobow's employment agreement he will be entitled to receive an annual base salary of $117,500. Such base salary will increase by 5% during each year of the term of the employment agreement. The employment agreement provides that Mr. Worobow may receive a bonus of up to $37,500 per annum at the discretion of the Board of Directors. The bonus potential will increase by 5% during each year of the term of the employment agreement. Pursuant to the employment agreement, Mr. Worobow will be granted stock options under the 1996 Plan to purchase up to 45,000 shares of the Company's Common Stock at an exercise price equal to the initial public offering price. Subsequent grants during the term of 45 the employment agreement will be at the discretion of the Board of Directors. Mr. Worobow's employment agreement will be effective as of the closing of this offering, and will have a two year term with an automatic renewal provision of one year, subject to Non-Renewal. Mr. Worobow currently receives a base salary of $105,000. INDEMNIFICATION MATTERS The Company's Articles of Incorporation and Bylaws requires the Company to indemnify each officer, director or employee in respect of claims made by reason of his or her status with the Company, including stockholder derivative suits, provided he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interest of the Company and, with respect to any criminal act or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Expenses incurred in the defense of any such action may be paid by the Company in advance of final disposition upon receipt of an undertaking from the officer, director or employee to repay the advances if there is an ultimate determination that he or she is not entitled to be indemnified. CERTAIN TRANSACTIONS The Company has entered into several arrangements with or on behalf of parties related to the Company. Upon the closing of this offering these arrangements will terminate, except as indicated below, and the Company will enter into transactions with related parties only on an arm's-length basis. The Company leases certain real property in Vail, Colorado and in Malibu, California from Five S Properties, Ltd., a limited partnership of which a company owned by Mr. Saperstein is the general partner ("Five S"). The annual lease payments on these properties are $60,000 and $240,000, respectively. Such leases will be terminated as of the closing of this offering, and the Company has no intention to enter into similar leases. The Company has entered into certain reciprocal arrangements with unrelated third parties as a result of which the Company will receive goods and services for the benefit of Mr. Saperstein. The reciprocal arrangements obligate the Company to provide commercial airtime, provide other goods and services, and make cash disbursements to such third parties in exchange for the goods and services received by the Company. As of March 31, 1996, the Company was obligated to provide approximately $2.5 million of commercial airtime, goods and services and cash under these reciprocal arrangements. Immediately prior to the offering, the Company intends to enter into an agreement with Mr. Saperstein pursuant to which Mr. Saperstein will be distributed the goods and services the Company holds for Mr. Saperstein's benefit. The Company also will distribute to Mr. Saperstein all of its rights to the goods and services that are the subject of existing reciprocal arrangements but which have not yet been delivered to the Company. The value of such goods and services is expected to be approximately $2.0 million. Following the offering, the Company does not intend to enter into reciprocal arrangements for the benefit of Mr. Saperstein. The Company has entered into certain transactions with Pro Journey Travel, Inc., a company owned by Mr. Saperstein ("Pro Journey"). The Company has guaranteed annual lease payments for Pro Journey, in the amount of $60,000 per annum; such obligation shall continue through December 31, 1996. Additionally, the Company has (i) posted a bond of $20,000 with the Airline Reservations Clearinghouse on behalf of Pro Journey and (ii) provided coverage for Pro Journey under the Company's liability insurance policies. The premiums which would have been paid by Pro Journey to obtain such coverage had a value in 1995 equal to approximately $2,548. In addition, the employees of Pro Journey participate in the Company's insurance plans; the premiums which would have been paid by Pro Journey to obtain coverage under similar insurance plans had a value in 1995 equal to approximately $6,539. The Company purchases the majority of its travel tickets through Pro Journey, on terms which the Company believes are no less favorable than those available from third parties. After December 31, 1996, the Company will cease all transactions and arrangements with Pro Journey. 46 Mr. Saperstein has personally utilized the services of several of the Company's employees. The total compensation paid to such employees was $180,995 in 1995. Except for two individuals who will provide security and transportation services to Mr. Saperstein, these persons will cease to be employees of the Company as of the closing of this offering. The individuals who will remain in the Company's employ will be paid combined annual compensation of approximately $75,000. Through a separate company, Mr. Saperstein holds an equity interest in Posh International, Inc. ("Posh"), a car care products company. In exchange for such interest, the Company provided Posh with commercial airtime inventory valued at $566,000 during the twelve months ended December 31, 1995 and $363,000 during the year ended December 31, 1994. The Company has agreed to sell commercial airtime inventory valued at $1.1 million to Posh at a discount through December 31, 1996, subject to availability and prepayment. As of the date of this Prospectus, Posh has not purchased any such inventory from the Company. Upon the closing of this offering, the Company and Mr. Saperstein will enter into an agreement pursuant to which Mr. Saperstein may seek reimbursement from the Company for any income tax obligation attributable to any period prior to the Reorganization. Alternatively, the Company may seek reimbursement from Mr. Saperstein for any distributions in excess of his income tax obligations during such periods. The Company does not anticipate that such liability would exceed $1.0 million. Immediately prior to the closing of this offering, the Company will enter into a Stock Loan and Pledge Agreement with Mr. Saperstein pursuant to which the Company will loan Mr. Saperstein __ shares of Common Stock. The loan will be for a term of ten years, although the Company will have the right to require the return of the loaned Common Stock (the "Loaned Stock") from Mr. Saperstein prior to that time upon three days notice. As security for the loan, Mr. Saperstein will pledge a number of shares of Series A Convertible Preferred Stock of the Company equal to the number of shares of Loaned Stock. Mr. Saperstein will be obligated to pay to the Company an annual fee over the term of the loan of % of the average fair market value of the Loaned Stock during the five day period immediately following the date of the Stock Loan and Pledge Agreement. One-half of this fee will be payable annually, and the remaining one-half of this fee will be payable upon the termination of the loan if such termination occurs pursuant to an Event of Default (as defined in the Stock Loan and Pledge Agreement) or at the end of the ten year term of the Stock Loan and Pledge Agreement. The Company will forfeit this portion of the fee if it calls the loan prior to the end of the ten year term. In addition, Mr. Saperstein will pay an upfront transaction fee of $ to the Company. 47 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock by (i) the Selling Stockholder, (ii) each person known to the Company to be the beneficial owner of 5% or more thereof, (iii) each director of the Company, (iv) each Executive Officer and (v) all executive officers and directors as a group, as of June , 1996, and as adjusted to reflect the sale of the Common Stock offered hereby. Each of the named persons has sole voting and investment power with respect to all shares of Common Stock owned by such person. See "Management."
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED PRIOR TO THIS OFFERING AFTER THIS OFFERING ---------------------------- SHARES BEING -------------------------- NAME AND ADDRESS SHARES PERCENTAGE OFFERED SHARES PERCENTAGE - --------------------------------------------------- ----------- --------------- ----------------- --------- --------------- % David I. Saperstein................................ % (1) Charles I. Bortnick................................ -- -- 75,000(2) * Shane E. Coppola................................... -- 75,000(2) * Curtis H. Coleman.................................. -- -- 55,000(2) * Gary L. Worobow.................................... -- -- 45,000(2) * All executive officers and directors as a group (5 persons).......................................... % (2)
- ------------------------------ * Less than 1%. (1) Includes 100,000 shares pursuant to the grant of stock options under the 1996 Plan upon the effective date of this offering. (2) Pursuant to the grant of stock options under the 1996 Plan upon the effective date of the offering. All of the shares of Common Stock being offered for sale by David I. Saperstein were borrowed from the Michelle Joy Coppola 1994 Trust, the Jennifer Beth Saperstein 1994 Trust, the Jonathan Alexander Saperstein 1994 Trust, the Alexis Daniella Saperstein 1994 Trust, and the Stefanie Nicole Saperstein 1994 Trust (collectively, the "Trusts") and the Company. Mr. Saperstein will be obligated to repay these loans by delivering a number of shares of Common Stock equal to the number of borrowed shares. Mr. Saperstein will pledge an equivalent number of shares of Series A Convertible Preferred Stock as security for the loans from the Company. See "Management -- Certain Transactions". 48 DESCRIPTION OF CAPITAL STOCK The Company is authorized to issue [ ] shares of Common Stock, par value $0.001 per share, shares of preferred stock, par value $0.001 per share. At June , 1996, there were shares of Common Stock and shares of Series A Convertible Preferred Stock outstanding. COMMON STOCK Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Stockholders casting a plurality of votes of the stockholders entitled to vote in an election of directors may elect all of the directors standing for election. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefore, subject to any preferential dividend rights of Preferred Stock that may be issued at such future time or times. Upon the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to receive ratably the net assets of the Company that may be available after the payment of all debts and other liabilities and subject to the prior rights of Preferred Stock that may be issued and outstanding at such time. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of Common Stock are, and the shares of Common Stock offered in this offering, when issued and paid for, will be fully paid and nonassessable. The rights, preferences and privileges of holders of Common Stock are subject to the rights of the holders of shares of any series of Preferred Stock which the Company may designate and issue in the future. As of June , 1996 there were shares of Common Stock outstanding held only by or for the benefit of members of the Saperstein Family. PREFERRED STOCK Preferred Stock may be issued from time to time by the Company's Board of Directors, without stockholder approval, in one or more classes or series. Subject to the provisions of the Certificate of Incorporation and the limitations prescribed by law, the Board of Directors is expressly authorized to adopt resolutions to issue the shares of Preferred Stock, 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 Preferred Stock, in each case without any further action or vote by the stockholders. 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 at a premium or may otherwise adversely affect the market price of the Common Stock. SERIES A CONVERTIBLE PREFERRED STOCK The Company has created a series of Preferred Stock designated as "Series A Convertible Preferred Stock." Such series consists of shares. Holders of Series A Convertible Preferred Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Shares of the Series A Convertible Preferred Stock will not be entitled to receive dividends. Upon the liquidation, dissolution or winding-up of the Company, the holders of the Series A Convertible Preferred Stock are entitled to a liquidation preference over the then outstanding 49 Common Stock and any other then outstanding Preferred Stock of other classes with respect to the assets of the Company in an amount equal to 10% of the fair market value of the Common Stock to be determined at the closing of the initial public offering. Each share of Series A Convertible Preferred Stock is convertible upon three days notice with no premium into one share of Common Stock (subject to adjustment for stock splits, stock dividends, reverse stock splits, recapitalization and similar events) at the option of the holder. The Series A Convertible Preferred Stock will be, when issued and paid for, fully paid and nonassessable. DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS Upon consummation of this offering, the Company will be subject to the provisions of Section 203 of Delaware General ("Section 203"). Section 203 provides, with certain exceptions, that a Delaware corporation may not engage in any of a broad range of business combinations with a person or an affiliate, or associate of such person, who is an "interested stockholder" for a period of three years from the date that such person became an interested stockholder unless (i) prior to such date either the transaction which resulted in the person becoming an interested stockholder, or the business combination, is approved by the board of directors, (ii) upon consummation of the transaction which resulted in such person becoming an interested stockholder, the interested stockholder owned 85% or more of the outstanding voting stock of the corporation (excluding shares owned by persons who are both officers and directors of the corporation, and shares held by certain employee stock ownership plans) or (iii) on or after the date the person becomes an interested stockholder, the business combination is approved by the corporation's board of directors and by the holders of at least 66 2/3% of the corporation's outstanding voting stock at an annual or special meeting, excluding shares owned by the interested stockholder. Under Section 203, an "interested stockholder" is defined as any person who is (i) the owner of 15% or more of the outstanding voting stock of the corporation or (ii) an affiliate or associate of the corporation and who was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder. Mr. Saperstein will not be subject to the restrictions of Section 203 because he was an interested stockholder at the time of Reorganization. A corporation may, at its option, exclude itself from the coverage of Section 203 by amending its certificate of incorporation or bylaws by action of its stockholders to exempt itself from coverage, provided that such bylaw or certificate of incorporation amendment shall not become effective until 12 months after the date it is adopted. The Company intends to adopt an amendment to its Certificate of Incorporation to exempt itself from coverage of Section 203. CERTAIN CHARTER AND BYLAW PROVISIONS STAGGERED BOARD OF DIRECTORS Pursuant to Article 3 of the Company's Bylaws the Company's Board of Directors is divided into three classes, which are elected for staggered terms of three years. As a result, a change in a majority of the directors of the Company cannot be effected at a single annual meeting of stockholders. While the principal purpose of Article 3 is to provide continuity on the Board of Directors, the provisions could have the effect of discouraging a third party from attempting to change the management and policies of the Company by effecting a change in the majority of the Board of Directors through a proxy contest. These provisions of the Company's Bylaws may have the effect of delaying consideration of a stockholder proposal until the next annual meeting of stockholders, unless a special meeting is called by the Chief Executive Officer or the Board of Directors. These provisions also would prevent the holders of a majority of the voting power of the Company from using the written consent procedure to take stockholder action without giving all the stockholders of the Company entitled to vote on a particular matter the opportunity to participate in determining such proposed action. Additionally, a stockholder 50 could not force consideration of a proposal by stockholders over the opposition of the Board of Directors of the Company by calling a special meeting of stockholders prior to the time the Board believes such consideration to be appropriate. ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS The Company's Bylaws establish an advance notice procedure for the nomination of candidates for election as directors and the presentation of certain other matters before an annual meeting of stockholders of the Company, other than by or at the direction of the Board of Directors or the chairman of the meeting. For such nominations or other business to be considered properly brought by a stockholder before an annual meeting of stockholders of the Company, such stockholder must have given timely prior written notice to the Secretary of the Company of his or her intent to bring such nominations or business before the meeting. To be timely, such notice must be received by the Secretary at least 90 days prior to the date on which, in the immediately preceding calendar year, the annual meeting of stockholders of the Company for such year was held (provided that if the date of the annual meeting is changed by more than 30 days from such anniversary date, such stockholder's notice must be received by the Secretary no later than 10 days after notice or prior public disclosure of the meeting is first given or made to stockholders). A stockholder notice must contain a brief description of the nomination or business to be brought before the meeting, the name and address of the stockholder making the notice and of any person to be nominated, a representation that the stockholder is a holder of record of stock of the Company entitled to vote at the meeting and intends to appear at the meeting to bring such nominations or business before the meeting; a description of all arrangements or understandings between the stockholder and each nominee (in the case of a nomination) or of any material interest of the stockholder in the business matter (in the case of other business); such other information regarding the nominee or matter of business to be proposed as would be required to be included in a proxy statement soliciting proxies for the election of such nominee or approval of such other business; and, in the case of a nomination of the nominee. The purpose of these procedures is to provide an orderly procedure for conducting annual meetings of stockholders and to afford the Board of Directors a meaningful opportunity to consider the qualifications of the proposed nominees and to inform themselves, and where appropriate to inform stockholders, in advance of the meeting of any business proposed to be conducted at the meeting. Although the Company's Bylaws do not give the Board of Directors any power to approve or disapprove stockholder nominations for the election of directors or any other business proposed by a stockholder to be conducted at any annual meeting, the Bylaws may have the effect of precluding a nomination or the consideration of certain business at a particular annual meeting if the proper procedures are not followed. These procedures may also discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or from attempting to obtain control of the Company, even if the conduct of such solicitation or such attempt might be beneficial to the Company and its stockholders. INDEMNIFICATION OF DIRECTORS AND OFFICERS; LIMITATION OF MONETARY LIABILITY Section 145 of the General Corporation Law of the State of Delaware Law permits the Company to indemnify an officer, director or employee in respect of claims made by reason of his or her status with the Company, including stockholder derivative suits, provided he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interest of the Company and, with respect to any criminal act or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Expenses incurred in the defense of any such action may be paid by the Company in advance of final disposition upon receipt of an undertaking from the officer, director or employee to repay the advances if there is an ultimate determination that he or she is not entitled to be indemnified. Article 8 of the Company's Certificate of Incorporation provides such indemnification to the full extent permitted by law. The Company intends to purchase directors' and officers' liability coverage to insure its indemnification of the Company's directors and officers. Article 6 of the Company's Certificate of Incorporation exonerates the Company's directors from personal liability to the Company or its stockholders for monetary damages for breach of the fiduciary 51 duty of care as a director, provided that Article 6 does not eliminate or limit liability for any breach of the directors' duty of loyalty for acts or omissions not in good faith or which involve intentional misconduct or knowing violations of law, for any improper declaration of dividend or for any transaction from which the director derived an improper personal benefit. Article 6 does not eliminate a stockholder's right to seek non-monetary, equitable remedies, such as an injunction or recision to redress an action taken by the directors. However, as a principal matter, equitable remedies may not be available in all situations, and there may be instances in which no effective remedy is available. The discussions of the Common Stock and Preferred Stock here and elsewhere in this Prospectus are qualified in their entirety by reference to (i) the Certificate of Incorporation of the Company, as amended, and the Bylaws of the Company, copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part, and (ii) the applicable provisions of Delaware law. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Company's Common Stock is . SHARES ELIGIBLE FOR FUTURE SALE Upon consummation of this offering, there will be shares of Common Stock outstanding. Of these shares, the shares sold in this offering will be freely tradeable without restriction (except as to "affiliates" of the Company (as defined under the Securities Act)) or registration under the Securities Act of 1933. The remaining shares will be "restricted securities" as defined in Rule 144 under the Securities Act ("Rule 144"). Of such shares, without consideration of the contractual restrictions described below, approximately shares would be available for resale in the public market pursuant to Rule 144(k) (see below). Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules are summarized below. As a result of the contractual restrictions described below, and the provisions of Rule 144, 144(k) and 701, additional shares will be available for sale in the public market as follows: (i) no shares will be available for immediate sale in the public market on the date of the Prospectus, (ii) shares issuable upon the exercise of stock options granted under the 1996 Plan that are vested or will vest and, if exercised, will become eligible for sale without lock-up restrictions on various dates prior to 180 days following the date of this Prospectus, (iii) currently outstanding shares will be eligible for sale upon expiration of lock-up agreements 180 days after the date of this Prospectus, and (iv) currently outstanding shares will be eligible for sale upon expiration of their respective two-year holding periods, subject in the case of shares held by affiliates to compliance with certain volume restrictions. Rule 701 under the Securities Act provides that, beginning ninety (90) days after the date of this Prospectus, shares of Common Stock acquired upon the exercise of outstanding options may be resold by persons other than affiliates subject only to the manner of sale provisions of Rule 144 ( ), and by affiliates subject to all provisions of Rule 144 except the two-year minimum holding period. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares of Common Stock for at least two years, including an "affiliate" as that term is defined under the Securities Act, is entitled to sell a number of shares that does not exceed the greater of 1% of the then outstanding shares of Common Stock or the average weekly trading volume of the Common Stock on all exchanges and/or reported through the automated quotation system of a registered securities association during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. A person (or persons whose shares are aggregated) who 52 is not deemed to have been an "affiliate" of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least three years, would be entitled to sell such shares under Rule 144(k) without regard to the limitations described above. VALIDITY OF COMMON STOCK The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Paul, Hastings, Janofsky & Walker, New York, New York and for the Underwriters by Sullivan & Cromwell, New York, New York. EXPERTS The combined financial statements of Metro Traffic Control, Inc., Metro Reciprocal, Inc., Metro Networks, Ltd. and Metro Video News, Inc. as of December 31, 1994 and 1995, and for each of the years in the three-year period ended December 31, 1995, included herein have been included herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), a Registration Statement on Form S-1 under the Securities Act, with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the shares of Common Stock offered hereby, reference is hereby made to such Registration Statement, and the exhibits and schedules thereto, copies of which may be inspected without charge at the public reference facilities maintained by the Commission at Judiciary Plaza Building, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and its regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies of all or any part thereof may be obtained from each office upon payment of the fees prescribed by the Commission. The summaries in this Prospectus of additional information included in the Registration Statement or any exhibit thereto are qualified in their entirety by reference to such information or exhibit. 53 GLOSSARY DMA. Designated Market Area, as listed on The Arbitron Radio Metro and Television Market Population Estimates 1995-1996. EXPANDED RADIO SERVICES. The Company's news, sports, weather and other information reports provided to radio station affiliates. EXPANDED RADIO SERVICES NETWORK. The network of radio station affiliates to which the Company provides its Expanded Radio Services. GAAP. Generally accepted accounting principles. % LISTENERS. Percentage of an MSA population which hears the Company's information reports over a 4-week period calculated using data from the Arbitron Winter 1996 Radio Market Reports* and Strata Marketing, Inc. statistical analysis. METROTV NETWORK. The network of broadcast television station affiliates and cable news channel affiliates to which the Company provides its Television Traffic Services and Video News Services. MSA. Metro Survey Area, as listed in The Arbitron Radio Metro and Television Market Population Estimates 1995-1996.* RADIO TRAFFIC SERVICES. The Company's core traffic information reports provided to radio station affiliates. RADIO TRAFFIC SERVICES NETWORK. The network of radio station affiliates to which the Company provides its Radio Traffic Services. RECIPROCAL ARRANGEMENTS. Arrangements in which the Company exchanges certain commercial advertising inventory for goods and services. ROS. Thirty second and sixty second commercial advertising that the Company's affiliate radio and television stations broadcast for the Company based on availabilities in such affiliates's schedules. Generally, ROS time provided to the Company is broadcast between 6:00 a.m. and 11:00 p.m., Monday- Sunday. SPONSORSHIP. An opening announcement and ten second commercial message broadcast during, immediately before or immediately after one of the Company's information reports on either the Radio Traffic Services Network or the Expanded Radio Services Network. TELEVISION TRAFFIC SERVICES. The Company's traffic information reports provided to television station affiliates. VIDEO NEWS SERVICES. The Company's video news (other than traffic) information products provided to television station affiliates. - ------------------------ * Copyright 1996 by The Arbitron Company. All Rights Reserved. The information provided herein regarding Arbitron's audience listening estimates is based on Arbitron's copyrighted and proprietary data and estimates concerning the applicable stations' average quarter hour persons share, Monday- Sunday, 6am-Midnight, from the applicable Winter 1996 Radio Market Reports for the demographic, day-part and metro areas listed herein and from The Arbitron Radio Metro Television Market Population Estimates 1995-1996. 54 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Company and the Selling Stockholder have agreed to sell to each of the Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs & Co., CS First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation are acting as representatives, has severally agreed to purchase from the Company and the Selling Stockholder, the respective number of shares of Common Stock set forth opposite its name below:
NUMBER OF SHARES OF UNDERWRITER COMMON STOCK - ------------------------------------------------------------------------- --------------- Goldman, Sachs & Co...................................................... CS First Boston Corporation.............................................. Donaldson, Lufkin & Jenrette Securities Corporation...................... --------------- Total............................................................ --------------- ---------------
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all of the shares offered hereby, if any are taken. The Underwriters propose to offer the shares in part directly to the public at the public offering price set forth on the cover page of this Prospectus and in part to certain securities dealers at such a price less a concession of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain brokers and dealers. After the shares of Common Stock are released for sale to the public, the offering price and other selling terms may from time to time be varied by the representatives. The Company has granted the Underwriters an option exercisable for 30 days after the date of this Prospectus to purchase up to an aggregate of additional shares of Common Stock to cover over-allotments, if any. If the Underwriters exercise their over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to be purchased by each of them, as shown in the foregoing table, bears to the shares of Common Stock offered. The Company, the Seller Stockholder and the Trusts have agreed that, during the period beginning from the date of this Prospectus and continuing to and including the date 180 days after the date of the Prospectus, they will not offer, sell, contract to sell or otherwise dispose of any securities of the Company (other than pursuant to employee stock option plans existing, or on the conversion or exchange of convertible or exchangeable securities outstanding, on the date of this Prospectus) which are substantially similar to the shares of Common Stock or which are convertible or exchangeable into securities which are substantially similar to the shares of Common stock without the prior written consent of the representatives, except for the shares of Common Stock offered in connection with the offering. The representatives of the Underwriters have informed the Company that they do not expect sales to accounts over which the Underwriters exercise discretionary authority to exceed five percent of the total number of shares of Common Stock offered by them. U-1 Prior to this offering, there has been no public market for the shares. The initial public offering price will be negotiated among the Company, the Selling Stockholder and the representatives. Among the factors to be considered in determining the initial public offering price of the Common stock, in addition to prevailing market conditions, will be the Company's historical performance, estimates of the business potential and earnings prospects of the Company, an assessment of the Company's management and the consideration of the above factors in relation to market valuation of companies in related businesses. The Common Stock will be quoted on the Nasdaq National Market under the symbol "MTNT". The Company and the Selling Stockholder have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933. U-2 INDEX TO FINANCIAL STATEMENTS
PAGE --------- Independent Auditors' Report.......................................................................... F-2 Combined Balance Sheets............................................................................... F-3 Combined Statements of Operations..................................................................... F-5 Combined Statements of Stockholder's Equity/Partners' Capital......................................... F-6 Combined Statements of Cash Flows..................................................................... F-7 Notes to Combined Financial Statements................................................................ F-9
F-1 INDEPENDENT AUDITORS' REPORT Boards of Directors and Partners Metro Traffic Control, Inc. Metro Reciprocal, Inc. Metro Networks, Ltd. Metro Video News, Inc.: We have audited the accompanying combined balance sheets of Metro Traffic Control, Inc., Metro Reciprocal, Inc., Metro Networks, Ltd., and Metro Video News, Inc. (collectively, the Companies) as of December 31, 1995 and 1994, and the related combined statements of operations, stockholder's equity/ partners' capital and cash flows for each of the years in the three-year period ended December 31, 1995. These financial statements are the responsibility of the Companies' 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 audits 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of the Companies as of December 31, 1995 and 1994, and the combined results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Houston, Texas June 13, 1996 F-2 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. COMBINED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, MARCH 31, 1996 ASSETS 1994 1995 (UNAUDITED) -------------- -------------- -------------- Current assets: Cash and cash equivalents..................................... $ 3,676,357 3,049,946 3,450,031 Accounts receivable, net........................................ 8,636,230 12,662,716 12,909,159 Prepaid expenses and other current assets....................... 226,129 357,473 414,193 Total cash exchange............................................. 12,538,716 16,070,135 16,773,383 Barter receivables, net......................................... 5,002,719 4,561,786 4,241,063 Merchandise and scrip inventory................................. 422,851 399,606 643,858 Prepaid expenses and other current assets....................... 838,249 679,199 810,227 Total barter exchange........................................... 6,263,819 5,640,591 5,695,148 Total current assets............................................ 18,802,535 21,710,726 22,468,531 Receivables from related parties................................ 288,669 1,075,030 1,224,397 Note receivable from stockholder................................ 1,706,641 -- -- Property and equipment: Operating equipment............................................. 5,627,122 7,887,769 8,344,062 Transportation equipment........................................ 136,876 709,323 741,233 Leasehold improvements.......................................... 476,190 615,380 716,365 -------------- -------------- -------------- 6,240,188 9,212,472 9,801,660 -------------- -------------- -------------- Less: accumulated depreciation 3,046,307 4,234,972 4,599,497 -------------- -------------- -------------- 3,193,881 4,977,500 5,202,163 -------------- -------------- -------------- Purchased broadcast contracts and other intangibles, net of accumulated amortization of $4,103,863 in 1995 and $3,437,712 in 1994........................................................ 3,107,634 13,749,644 17,809,854 Other assets.................................................... 402,244 923,714 1,050,475 -------------- -------------- -------------- $ 27,501,604 42,436,614 47,755,420 -------------- -------------- -------------- -------------- -------------- --------------
See accompanying notes to combined financial statements. F-3 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. COMBINED BALANCE SHEETS, CONTINUED
DECEMBER 31, MARCH 31, ----------------------------- 1996 LIABILITIES 1994 1995 (UNAUDITED) -------------- ------------- ------------- Current liabilities Disbursement float............................................... $ 1,511,672 1,800,433 1,569,990 Accounts payable................................................. 1,465,253 1,808,274 2,378,237 Accrued liabilities.............................................. 1,146,228 1,707,085 2,132,589 Accrued payroll liabilities...................................... 863,831 996,695 1,113,258 Notes payable and current portion of long-term debt.............. 202,758 746,537 749,172 Deferred revenues................................................ 1,340,017 727,947 804,285 Income tax payable............................................... 68,868 302,000 744,948 -------------- ------------- ------------- Total cash exchange.......................................... 6,598,627 8,088,971 9,492,479 -------------- ------------- ------------- Accrued barter liabilities....................................... 2,350,367 2,316,975 2,591,400 Barter and airtime obligations................................... 2,439,990 3,404,296 2,730,109 -------------- ------------- ------------- Total barter exchange........................................ 4,790,357 5,721,271 5,321,509 Total current liabilities.................................... 11,388,984 13,810,242 14,813,988 -------------- ------------- ------------- Long-term debt..................................................... 6,447,245 21,877,156 25,152,924 Deferred income tax................................................ -- 2,083,842 3,054,311 Other liabilities.................................................. 264,189 187,146 167,885 -------------- ------------- ------------- Total liabilities............................................ 18,100,418 37,958,386 43,189,108 -------------- ------------- ------------- Stockholder's equity/partners' capital Common stock....................................................... 3,015 3,015 3,015 Additional paid-in capital......................................... 1,023,811 4,023,811 4,023,811 Partners' capital.................................................. 1,239,646 736,403 517,165 Retained earnings (deficit)........................................ 7,134,714 -285,001 22,319 Total stockholder's equity/partners' capital................. 9,401,186 4,478,228 4,566,310 $ 27,501,604 42,436,614 47,755,418
See accompanying notes to combined financial statements. F-4 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, (UNAUDITED) -------------------------------------------- ---------------------------- 1993 1994 1995 1995 1996 -------------- ------------- ------------- ------------- ------------- Advertising revenues........................ $ 47,904,876 60,048,350 72,432,951 14,655,448 23,030,197 Cost of operations.......................... 27,384,125 32,239,358 41,285,973 9,442,191 12,468,213 -------------- ------------- ------------- ------------- ------------- Gross margin............................ 20,520,751 27,808,992 31,146,978 5,213,257 10,561,984 -------------- ------------- ------------- ------------- ------------- Operating costs: Marketing expense......................... 8,848,207 11,354,698 14,503,640 2,829,617 5,484,607 General and administrative expense........ 8,125,752 6,438,692 10,731,367 2,147,449 3,123,914 Provision for doubtful receivables........ 681,810 802,230 443,169 110,970 48,977 -------------- ------------- ------------- ------------- ------------- 17,655,769 18,595,620 25,678,176 5,088,036 8,657,498 -------------- ------------- ------------- ------------- ------------- 2,864,982 9,213,372 5,468,802 125,221 1,904,486 -------------- ------------- ------------- ------------- ------------- Other (income) expense: Interest income........................... (59,929) (165,551) (165,079) (60,385) (22,608) Interest expense.......................... 145,064 293,010 1,260,185 203,174 322,109 Other..................................... 297,354 1,785 27,967 (6,691) -------------- ------------- ------------- ------------- ------------- 382,489 129,244 1,123,073 142,789 292,810 -------------- ------------- ------------- ------------- ------------- Income (loss) from continuing operations before income tax.......................... 2,482,493 9,084,128 4,345,729 (17,568) 1,611,676 Income tax expense (benefit)................ 1,066,448 2,179,143 1,036,352 (4,392) 502,948 -------------- ------------- ------------- ------------- ------------- Income (loss) from continuing operations.... 1,416,045 6,904,985 3,309,377 (13,176) 1,108,728 Discontinued operations: Loss from operations (net of tax benefit of $166,600)............................. 323,435 -- -- -- -- Loss on disposal (net of tax benefit of $122,200)................................ 237,363 -- -- -- -- Net income (loss)....................... $ 855,247 6,904,985 3,309,377 (13,176) 1,108,728 -------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- Pro forma income (loss) data (unaudited): Income (loss) from continuing operations as reported.............................. $ 4,345,729 $ 1,611,676 Proforma federal and state income tax..... (1,542,734) (572,145) ------------- ------------- Pro forma net income...................... $ 2,802,995 $ 1,039,531 ------------- ------------- ------------- -------------
See accompanying notes to combined financial statements. F-5 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY/PARTNERS' CAPITAL For the years ended December 31, 1995, 1994, 1993 and for the three month period ended March 31, 1996
ADDITIONAL RETAINED COMMON PAID-IN PARTNERS' EARNINGS STOCK CAPITAL CAPITAL (DEFICIT) TOTAL ----------- ----------- ----------- ------------- -------------- Balance at December 31, 1992............... $ 2,995 21,831 -- 5,143,183 5,168,009 Distribution............................... -- -- -- -1,871,296 -1,871,296 Capital contributed........................ 10 990 -- -- 1,000 Net earnings............................... -- -- -- 855,247 855,247 Balance at December 31, 1993............... 3,005 22,821 -- 4,127,134 4,152,960 Distribution............................... -- -- -- -3,857,759 -3,857,759 Stock issuance............................. 10 990 -- -- 1,000 Capital contributed........................ -- 1,000,000 1,200,000 -- 2,200,000 Net earnings............................... -- -- 35,484 6,869,501 6,904,985 Balance at December 31, 1994............... 3,015 1,023,811 1,235,484 7,138,876 9,401,186 Distribution............................... -- -- -- -11,232,335 -11,232,335 Capital contributed........................ -- 3,000,000 -- -- 3,000,000 Net earnings (loss)........................ -- -- -584,576 3,893,953 3,309,377 Balance at December 31, 1995............... 3,015 4,023,811 650,908 -199,506 4,478,228 Distribution - unaudited................... -- -- -- -1,020,646 -1,020,646 Net earnings (loss) - unaudited............ -- -- -133,743 1,242,471 1,108,728 Balance at March 31, 1996 - unaudit........ $ 3,015 4,023,811 517,165 22,319 4,566,310
See accompanying notes to combined financial statements. F-6 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, (UNAUDITED) ----------------------------------------- ---------------------------- 1993 1994 1995 1995 1996 ----------- ------------- ------------- ------------- ------------- Cash flows from operating activities: Net earnings................................. $ 855,247 6,904,985 3,309,377 -13,176 1,108,728 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation and amortization.................. 1,814,257 1,302,434 3,980,525 611,775 1,489,671 (Gain) loss on disposition of property and equipment..................................... 297,353 -98,215 1,607 -- -- Loss on discontinued operations.............. 849,598 -- -- -- -- Loss on investment........................... -- 100,000 26,900 -- -- Amortization of discount on note payable -- -- 27,580 -- 23,526 Provision for doubtful receivables........... 681,810 802,230 443,169 110,970 48,977 Deferred federal income tax.................... -66,599 366,599 -- -- -180,108 Decrease (increase) in, net of acquisition of businesses Accounts receivable, net..................... -1,697,853 -4,178,646 -3,496,445 2,412,164 258,562 Prepaid expenses and other curre............. -580,491 -8,822 -124,344 -424,354 -56,720 Other assets................................. 27,554 -116,606 -286,221 -61,557 -147,464 (Decrease) increase in, net of acquisition of businesses Accounts payable................... -207,313 365,984 -521,669 -256,562 466,721 Accrued liabilities.......................... -120,861 37,852 506,101 -56,534 425,504 Accrued payroll liabilities.................. 39,480 152,979 132,864 21,709 116,563 Deferred revenues............................ -414,408 725,347 -612,070 2,625,084 76,338 Income tax payable........................... -124,015 -1,810,851 220,328 5,688 442,948 Other liabilities............................ -77,043 -77,043 -77,043 -19,261 -19,261 Net barter activity............................ -2,188,772 -3,214,830 -1,424,927 478,187 -838,083 Net cash provided by (used in) operating activities................................. -912,056 1,253,397 2,105,732 5,434,133 3,215,902 Cash flows from investing activities: Acquisitions of companies.................... -- -585,432 -9,218,718 -8,970,780 -4,266,886 Advances on receivables to related p......... -1,004,150 -316,993 -786,361 -1,014,816 -149,367 Advances on receivable from stockholders..... 25,300 -1,693,043 -84,227 -42,275 -- Proceeds from sale of property and e......... 31,150 1,043,601 224,957 39,184 -- Acquisitions of property and equipment....... -270,400 -835,050 -2,043,245 -596,818 -486,907 Net cash used in investing activities.... -1,218,100 -2,386,917 -11,907,594 -10,585,505 -4,903,160
See accompanying notes to combined financial statements. F-7 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. COMBINED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, (UNAUDITED) ------------------------------------------- ---------------------------- 1993 1994 1995 1995 1996 ------------- ------------- ------------- ------------- ------------- Cash flows from financing activities: Increase (decrease) in disbursements....... 376,085 451,249 288,761 -559,425 -230,443 Financing costs............................ -- -229,885 -314,601 -- -- Proceeds from long-term debt............... 1,981,564 8,008,536 16,890,155 6,917,111 3,532,060 Principal payments on long-term debt....... -395,931 -4,441,471 -2,057,748 -156,148 -281,901 Distributions.............................. -- -2,364,225 -8,631,116 -2,406,726 -932,373 Issuance of stock.......................... 1,000 1,000 -- -- -- Capital contributions........................ -- 2,200,000 3,000,000 -- -- Net cash provided by financing activities.... 1,962,718 3,625,204 9,175,451 3,794,812 2,087,343 Net (decrease) increase in cash and cash equivalents................................. -167,438 2,491,684 -626,411 -1,356,560 400,085 Cash and cash equivalents at beginning of year........................................ 1,352,111 1,184,673 3,676,357 3,676,357 3,049,946 Cash and cash equivalents at end of year..... $ 1,184,673 3,676,357 3,049,946 2,319,797 3,450,031 Supplemental disclosures of cash flow information: Cash paid during the year for interest..... $ 154,064 261,000 1,246,000 -- 106,970 Cash paid during the year for income taxes...................................... $ 1,115,387 4,325,000 923,000 69,000 60,000 Supplemental noncash investing and financing activities: Stockholder distributions by: Reduction of stockholder note receivable... -- 560,165 1,790,868 -- -- Transfer of property....................... 1,871,296 933,369 810,351 218,953 -- ------------- ------------- ------------- ------------- ------------- $ 1,871,296 1,493,534 2,601,219 218,953 -- ------------- ------------- ------------- ------------- ------------- Property and equipment acquired through barter activities.......................... $ 620,868 1,877,372 702,970 61,691 74,626 Barter activities related to business acquisitions............................... $ -- 2,000,000 1,500,000 -- --
See accompanying notes to combined financial statements. F-8 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The combined financial statements consist of Metro Traffic Control, Inc. (MTC), Metro Reciprocal, Inc. (MRI), Metro Networks, Ltd. (MNW) (a limited liability partnership) and Metro Video News, Inc. (MVN) and their subsidiaries (collectively, the "Company"). These entities are all controlled by the same shareholder. All intercompany accounts and transactions have been eliminated in combination. The Company provides traffic reporting services, local news, sports, weather and other information reporting services to the television and radio broadcast industries. In exchange for the Company's information reports, television and radio station broadcast affiliates provide commercial airtime to the Company. The packaging and sale of this commercial airtime accounts for substantially all of the Company's revenue. The Companies' information reports are broadcast by broadcast affiliates throughout the United states and in over 50 of the largest metropolitan areas. REVENUE RECOGNITION The Company provides programming to radio and television stations in exchange for commercial airtime. The airtime is subsequently sold to advertisers for either cash or other goods and services. Revenue is recognized at the time commercials are broadcasted, and accounts receivable are recorded at that time. If cash, merchandise or services are received prior to the broadcast of the commercial, deferred revenue is recorded. Revenue from the Company's exchange of advertising time for goods and services is recorded at the estimated fair market value of goods or services received or to be received. The value of goods and services is charged to expense when used. Operations are charged with a provision for doubtful accounts based on collection experience and a current review of the collectibility of accounts. Accounts deemed uncollectible are applied against the allowance for doubtful accounts. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. MERCHANDISE AND SCRIP INVENTORY Merchandise and scrip inventory consists of miscellaneous merchandise and airline tickets, lodging, meals and other goods received by the Company in exchange for advertising time, and are valued at the fair market value of goods received. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. The cost of ordinary maintenance is charged to operations, while renewals and replacements are capitalized. Depreciation is computed based on the straight-line method over the following estimated useful lives: Operating equipment 3 - 10 years Transportation equipment 3 years Leasehold improvements 10 years
Depreciation expense for the years ended December 31, 1995, 1994 and 1993 was $1,249,702, $882,577 and $746,919, respectively. F-9 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTANGIBLE ASSETS Intangible assets include goodwill, purchased broadcast contracts, non-compete agreements, trademarks and licenses. Intangible assets are amortized on a straight-line basis over the term of the contract or the estimated useful life of the asset for periods ranging from three to five years. The Company adopted FAS 121 (Accounting for Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of) effective January 1, 1996. This standard requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in events indicate that the carrying amount of the asset cannot be recoverable. The adoption of FAS 121 did not materially affect the Company's combined results of operations or financial position. FEDERAL AND STATE INCOME TAX The Companies file separate federal and state tax returns. Therefore, the Companies record the income tax expense (recovery) based on their separate returns. MRI and MVN have elected to be taxed under S Corporation provisions of the Internal Revenue Code. Effective July 1, 1994, MTC elected to be taxed under S Corporation provisions of the Internal Revenue Code. Under these provisions, MRI, MVN and MTC are not liable for federal income taxes. Instead, the stockholders are liable for individual federal income taxes on their taxable income. Accordingly, losses are not available to the Company to offset income. MNW is a partnership for federal income tax purposes and accordingly, the partners are liable for federal income taxes on their respective income. MNW owns corporations which are taxed under the C corporation provisions of the Internal Revenue Code. Taxes related to income from the entities taxed under the C corporation provisions are reported under the liability method; accordingly, deferred tax assets and liabilities are determined based on differences between financial and tax basis of assets and liabilities and are measured using the enacted tax rates and laws. ACCRUED BARTER LIABILITIES Accrued barter liabilities represent goods and services owed to radio stations in exchange for airtime received from these radio stations. BARTER AND AIRTIME OBLIGATIONS Barter and airtime obligations represent broadcast obligations incurred as part of the purchase price for acquisitions. Such obligations are recorded at the fair market value of the airtime when the acquisition was made. 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. UNAUDITED INTERIM FINANCIAL STATEMENTS (UNAUDITED) In the opinion of management, the unaudited interim financial statements for the three months ended March 31, 1995 and 1996, presented herein, include all adjustments, consisting only of normal F-10 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) recurring adjustments, necessary for the fair presentation of the Company's financial position, results of operations, shareholder's equity and cash flows for the interim period. The combined results of operations and cash flows for the three months ended March 31, 1996 and 1995 are not necessarily indicative of the results which would be expected for a full year. PRO FORMA FINANCIAL DATA Pro forma income taxes are set forth herein because certain of the combined companies operate as subchapter S corporations. Pro forma income taxes reflect federal income taxes that would have been incurred had all the combined companies been subject to such taxes. Such amounts have been deducted from net earnings in the accompanying statement of operations pursuant to the rules and regulations of the Securities and Exchange Commission. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of related party receivables, note receivable from shareholder and long-term debt are not materially different from carrying value for financial statement purposes. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company made the following acquisitions, each of which has been accounted for as a purchase. On October 26, 1994, the Company acquired substantially all of the business assets and assumed certain liabilities of Charlotte Traffic Patrol, Inc. (CTP), a North Carolina corporation. CTP is engaged in the business of providing vehicular traffic condition reports through the broadcast media in the metropolitan area of Charlotte, North Carolina and certain surrounding areas. The purchase price of $3.5 million consisted of a $600,000 cash payment at closing and notes payable of $900,000. The notes payable are secured by a stand-by letter of credit issued by a commercial bank. As part of the consideration for the purchase of the assets, the Company agreed to provide CTP with advertising radio spots in the Charlotte area each calendar month during the five-year period beginning the date of closing and ending October 31, 1999. The Company also assumed CTP's obligations under its existing office lease and CTP's affiliate contracts. On July 19, 1994, the Company acquired substantially all of the tangible and intangible assets, contracts, distributor relationships, advertiser and affiliate lists of Hildebrand Communications, Inc. (Hildebrand), and assumed certain liabilities in exchange for cash consideration of $100,000. The excess of the aggregate purchase price over the fair market value of the net assets acquired of $15,000 was recognized as the value of the non-compete agreement executed by the seller and is being amortized over a five-year period. On July 1, 1994, the Company acquired substantially all of the tangible and intangible assets, contracts, distributor relationships, advertiser and affiliate lists of Wisconsin Information Systems, Inc. (Wisconsin), and assumed certain liabilities in exchange for cash consideration of $79,000. MTC also agreed to provide the seller with a performance fee for the initial twenty-four months of MTC's ownership equal to 15% of net operating revenue, as defined. The excess of the aggregate purchase price over the fair market value of the net assets acquired of $15,000 was recognized as the value of the non-compete agreement executed by the seller and is being amortized over a five-year period. F-11 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) On March 24, 1995, the Company acquired 100% of the stock of TrafficScan, Inc. (TSI). TSI is in the business of providing traffic information services to the broadcast media in the greater Atlanta geographic region. The consideration for the stock of TSI included cash of approximately $4 million and trade credits of approximately $1.5 million. Approximately $5.1 million of the purchase price was allocated to the value of purchased broadcast contracts, non-compete agreements and goodwill and is being amortized on a straight-line basis over five years. On March 9, 1995, the Company acquired all of the outstanding shares of Skyview Broadcasting Networks, Inc. (SBN), an Arizona corporation. The consideration for the stock of SBN included cash of $2.28 million and noninterest bearing notes payable of approximately $463,000. The purchase price was allocated to the net assets based upon their estimated fair market values. The excess of the purchase price over the estimated fair value of the net assets acquired was approximately $2.5 million. The excess purchase price was allocated to the value of purchased broadcast contracts, non-compete agreements and goodwill and is being amortized on a straight-line basis over five years. On March 9, 1995, the Company also acquired 100% of the shares of Airborne Broadcast Consultants, Inc. (ABC), a Nevada corporation. The Company acquired the stock for cash consideration of $1.14 million and noninterest bearing notes payable of approximately $232,000. The purchase price was allocated to the net assets of the acquired company based upon their estimated fair value. The excess purchase price of approximately $1.3 million was allocated to the value of purchased broadcast contracts, non-compete agreements and goodwill and is being amortized on a straight-line basis over five years. The consideration represented by the notes payable for the SBN and ABC stock purchases are payable in the amounts of approximately $347,000 each to the two previous owners in twenty-three equal installments of approximately $15,000, with a final payment in the twenty-fourth month. These notes payable are noninterest bearing and are discounted at an interest rate of 8%. On March 9, 1995, the Company acquired substantially all of the tangible and intangible business assets and acquired certain liabilities of Airborne Broadcasting Systems, Inc. (ABS), a Tennessee corporation. ABS operates a network of broadcast affiliates serving the greater Nashville and Memphis, Tennessee markets and the Louisville and Lexington, Kentucky markets. Through these affiliates, ABS provides traffic, news and weather information in exchange for advertising availabilities. The purchase price of approximately $2.1 million consisted of cash consideration of $1,780,000 and noninterest bearing notes payable of approximately $358,000, less note discount at 8%. The purchase price was allocated to the net assets based upon their estimated fair market values. The excess purchase price of approximately $2.1 million was allocated to the value of purchased broadcast contracts, non-compete agreements and goodwill and is being amortized over a five-year period. Subsequent to December 31, 1995, the Company made the following asset and stock acquisitions. These acquisitions were accounted for on the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets based upon their fair market values. The excess purchase price was allocated to the value of purchased affiliate contracts, non-compete agreements and goodwill and will be amortized over five years. On January 3, 1996, the Company acquired substantially all of the tangible and intangible business assets and certain liabilities of Aeromedia, Inc. (Aeromedia), a Utah corporation. Aeromedia operates a network of broadcast affiliates serving the Salt Lake City metropolitan area in exchange for advertising availabilities and other compensation. As consideration for the asset purchase, the Company paid $200,000 at closing and agreed to pay additional contingent consideration in a final payment based F-12 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) upon net sales of Aeromedia for the calendar year 1996. The final payment, based upon net sales as defined in the Asset Purchase Agreement, ranges from zero for net sales less than $500,000 up to $250,000 for net sales greater than $600,000. On January 4, 1996, the Company acquired the stock of TrafficNet, Inc. (TNI), a Rhode Island corporation, TrafficNet of Connecticut, Inc. (TNCI), a Connecticut corporation, and The Weather Bureau, Inc. (TWB), a Massachusetts corporation (collectively, the Traffic Net Group). In exchange for 100% of the outstanding shares of the Traffic Net Group, the Company paid cash consideration of approximately $2.9 million, net of $100,000 in deferred purchase price related to certain contingent liabilities, as described in the TNI Stock Purchase Agreement. As additional consideration, the Company paid cash of approximately $410,000 to acquire existing trade receivables, net of an escrow reserve of approximately $137,000 for potentially uncollectible trade account. The following is a summary of the acquisitions:
DECEMBER 31, ---------------------------- MARCH 31, 1994 1995 1996 ------------- ------------- ------------- Assets acquired: Accounts receivable............................................. $ 126,831 $ 855,722 $ 410,000 Fixed Assets.................................................... 226,911 513,670 27,655 Other assets.................................................... 30,000 339,542 6,520 Purchased broadcast contracts and other intangibles............. 5,053,258 12,480,377 4,076,179 ------------- ------------- ------------- 5,437,000 14,189,311 4,520,354 Liabilities assumed: Notes payable................................................... 601,839 1,956,610 -- Other liabilities............................................... 3,156,161 2,003,177 528,775 ------------- ------------- ------------- 3,758,000 3,959,787 528,775 Less: Notes payable issued........................................ 900,000 1,052,913 -- ------------- ------------- ------------- Cash paid......................................................... $ 779,000 $ 9,176,611 $ 3,991,579 ------------- ------------- -------------
The following unaudited pro forma information represents the combined results of operations of the Company as if (i) the TSI, SBN, ABC and ABS acquisitions had been combined with the Company as of January 1, 1995 and 1994 and (ii) the CTP, Hildebrand and Wisconsin acquisitions had been combined with the Company as of January 1, 1994.
DECEMBER 31, (000'S) (UNAUDITED) -------------------- 1994 1995 --------- --------- Advertising Revenues................................................... $ 67,469 $ 74,042 Net Income............................................................. 7,197 2,546
The pro forma information is not necessarily indicative of operating results that would have occurred if each major acquisition had been consummated as of January 1 of each respective period, nor is it necessarily indicative of future operating results. The actual results of operations of an acquired company are included in the Company's combined financial statements only from the date of acquisition. F-13 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 3 -- ALLOWANCE FOR DOUBTFUL ACCOUNTS The activity in the allowance for doubtful accounts is as follows:
BALANCE AT CHARGED TO WRITE-OFFS BEGINNING OF COSTS AND NET BALANCE AT THE PERIOD EXPENSES OF RECOVERIES END OF PERIOD ------------- -------------- ------------- -------------- Year ended December 31, 1993...................... $ 633,740 $ 681,810 $ (623,638) $ 691,912 Year ended December 31, 1994...................... 691,912 802,230 (1,000,299) 493,843 Year ended December 31, 1995...................... 493,843 443,169 (626,750) 310,262
NOTE 4 -- PURCHASED BROADCAST CONTRACTS AND OTHER INTANGIBLES Purchased broadcast contracts and other intangibles is comprised of the following:
DECEMBER 31, DECEMBER 31, MARCH 31, 1994 1995 1996 -------------- -------------- -------------- Non-compete agreements........................................... $ 1,516,686 $ 3,060,649 $ 3,473,570 Purchased broadcast contracts.................................... 4,986,483 12,278,545 15,703,335 Goodwill, trademarks and licenses................................ 42,177 2,514,313 3,807,358 -------------- -------------- -------------- 6,545,346 17,853,507 22,984,263 Less: accumulated amortization................................... 3,437,712 4,103,863 5,174,409 -------------- -------------- -------------- $ 3,107,634 $ 13,749,644 $ 17,809,854 -------------- -------------- -------------- -------------- -------------- --------------
Amortization expense for the years ended December 31, 1995, 1994 and 1993 was $2,669,151 and $408,362, $1,067,338, respectively. NOTE 5 -- LONG-TERM DEBT
DECEMBER 31, DECEMBER 31, 1994 1995 MARCH 31, 1996 -------------- -------------- -------------- Notes payable related to $30,000,000 revolving credit agreement...................................................... $ 5,847,423 $ 21,121,000 $ 24,621,000 Various acquisition notes payable, discounted at 8%, due 1996 through 1999................................................... 682,432 1,224,083 1,079,995 Unsecured note payable to bank at prime (8.75% at December 31, 1995), due 1996 through 2000................................... 132,750 123,750 Various notes payable at fixed rates of 7% to 9.50%, due 1996 through 2000................................................... 120,148 145,860 77,351 -------------- -------------- -------------- 6,650,003 22,623,693 25,902,096 Less: Current portion 202,758 746,537 749,172 -------------- -------------- -------------- $ 6,447,245 $ 21,877,156 $ 25,152,924 -------------- -------------- -------------- -------------- -------------- --------------
F-14 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 5 -- LONG-TERM DEBT (CONTINUED) The following is a schedule of future maturities of notes payable and long-term debt as of December 31, 1995: 1996............ $ 746,537 1997............ 1,906,080 1998............ 5,919,310 1999............ 7,333,251 2000............ 6,718,515 ----------- $22,623,693 ----------- -----------
In October, 1994, the Company entered into a credit agreement, as subsequently amended, with a commercial bank that allows borrowings up to $30,000,000 under notes payable indexed to the bank's prime rate or the London Interbank Offered Rate (LIBOR). The credit agreement, as amended, provides for scheduled commitment reductions, which ranges between 5% and 10% of the original commitment, beginning June 30, 1996 through June 30, 2000, at which time the commitment matures. The credit agreement also contains, among other provisions, requirements for maintaining defined levels of debt service coverage, fixed charges coverage and maximum levels of leverage indebtedness, executive compensation and other restrictions. The credit facility is secured by a pledge of the stock or other equity interests of each of the combined Companies. A commitment fee of .375% per year is charged on the daily unused balance. The Company issued noninterest bearing notes payable, discounted at 8% per annum, in connection with the stock acquisitions of SBN and ABC in 1995, and the asset acquisitions of ABS in 1995 and CTP in 1994. The Company has guaranteed $732,000 letters-of-credit related to its acquisition of the assets of CTP as of December 31, 1995. NOTE 6 -- INCOME TAXES Income tax expense from continuing operations is comprised of the following:
DECEMBER 31, ------------------------------------------- 1993 1994 1995 ------------- ------------- ------------- Current, federal.................................................... $ 1,022,307 $ 1,265,662 $ 722,254 Current, state...................................................... 110,740 546,882 314,098 Deferred, non-current federal....................................... (66,559) 366,599 ------------- ------------- ------------- $ 1,066,448 $ 2,179,143 $ 1,036,352 ------------- ------------- ------------- ------------- ------------- -------------
F-15 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 6 -- INCOME TAXES (CONTINUED) The difference between the effective tax rate of income tax expense and the amount which would be determined by applying the statutory U.S. income tax rates to income from continuing operations before income tax expense is explained below according to the tax implications of various items of income or expense:
1993 1994 1995 ------------- ------------- ------------- Provision for income tax expense at U.S. statutory rates............ $ 844,048 $ 3,088,604 $ 1,477,548 Increase (decrease) in tax provision resulting from: Nontaxable S-Corporation and partnership (earnings) losses........ 10,410 (1,645,277) (666,838) State income taxes, net of federal tax benefit.................... 73,088 351,042 204,164 Deferred federal income tax reversal due to change in tax status........................................................... 321,599 Other............................................................. 138,902 63,175 21,478 ------------- ------------- ------------- $ 1,066,448 $ 2,179,143 $ 1,036,352 ------------- ------------- ------------- ------------- ------------- -------------
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes related to the C corporations included in the combined group. As of December 31, 1995, this amount primarily relates to the differential in book and tax basis of the intangibles as a result of the recent acquisitions. MTC is subject to IRC 1374 tax on pre-election built-in gains on property held prior to election as an S corporation for a ten-year period following the election. The built-in gain has not been determined at this time. Recognition of the built-in gain and the accompanying tax liability is contingent upon assets owned at the time of the S election being sold in the future at amounts exceeding their tax basis and their fair market values at election date. The book basis exceeds the tax basis in the underlying assets of the entities included in the combined group which have elected by be taxed under the S corporation provisions of the Internal Revenue Code by approximately $2.4 million. NOTE 7 -- COMMITMENTS AND CONTINGENCIES The Company leases certain of its office facilities and equipment over periods ranging from one to ten years. Rent expense for the years ended December 31, 1995, 1994 and 1993, was $2,701,000, $2,256,000 and $636,000, respectively. Future rentals for operating leases at December 31, 1995, are as follows: 1996.................................................. $ 1,329,000 1997.................................................. 1,104,000 1998.................................................. 780,000 1999.................................................. 474,000 2000.................................................. 401,000 Thereafter............................................ 1,266,000 ----------- $ 5,354,000 ----------- -----------
F-16 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 7 -- COMMITMENTS AND CONTINGENCIES (CONTINUED) Additionally, the Company is obligated to provide advertising in exchange for leasing certain office facilities and equipment over periods ranging from one to ten years. Future rentals for operating leases at December 31, 1995, based on the fair market value of the lease are as follows: 1996.................................................. $ 1,297,000 1997.................................................. 1,030,000 1998.................................................. 593,000 1999.................................................. 524,000 2000.................................................. 399,000 Thereafter............................................ 642,000 ----------- $ 4,485,000 ----------- -----------
The Company is subject to other litigation arising in the ordinary course of business. Management believes that the resolution of such matters will not have a material adverse effect on the Company's financial position or results of operations. NOTE 8 -- PROFIT SHARING PLAN Effective April, 1995, the Company established a profit sharing plan under Section 401(k) of the Internal Revenue Code for all eligible employees. All eligible employees are permitted to defer compensation up to a maximum of 10% of their income. The plan provides for a matching contribution by the Company, which amounted to $195,000 in 1995. NOTE 9 -- COMMON STOCK AND PARTNERS' CAPITAL Common stock is as follows:
DECEMBER 31, -------------------- 1995 1994 --------- --------- METRO TRAFFIC CONTROL, INC. Common stock - stated value $2.50, 2,600 shares authorized, 1,198 shares issued and outstanding............................................................................... $ 2,995 $ 2,995 METRO RECIPROCAL, INC. Common stock - $.01 par value, 1,000,000 shares authorized, 1,000 issued and outstanding... 10 10 METRO VIDEO NEWS, INC. Common stock - $.01 par value, 1,000,000 shares authorized, 1,000 shares issued and outstanding............................................................................... 10 10 --------- --------- $ 3,015 $ 3,015 --------- --------- --------- ---------
Partners' capital account represents the partners capital of MNW. NOTE 10 -- RELATED PARTY TRANSACTIONS The Company leases certain real property in Vail, Colorado and in Malibu, California from a partnership owned by the controlling shareholder. The annual lease payments on these properties are $60,000 and $240,000, respectively. The Company has entered into certain reciprocal arrangements with unrelated third parties as a result of which the Company will receive goods and services for the benefit of the controlling shareholder. The reciprocal arrangements obligate the Company to provide commercial airtime, provide other F-17 METRO TRAFFIC CONTROL, INC., METRO RECIPROCAL, INC., METRO NETWORKS, LTD., AND METRO VIDEO NEWS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 10 -- RELATED PARTY TRANSACTIONS (CONTINUED) goods and services, and make cash disbursements to such third parties in exchange for the goods and services received by the Company. As of March 31, 1996, the Company was obligated to provide approximately $2.5 million (unaudited) of commercial airtime, goods and services under these reciprocal arrangements. The Company intends to enter into an agreement with the controlling shareholder pursuant to which the controlling shareholder will be distributed the goods and services the Company holds for the controlling shareholder's benefit. The Company also will distribute to the controlling shareholder all of its rights to the goods and services that are the subject of existing reciprocal arrangements but which have not yet been delivered to the Company. The value of such goods and services is expected to be approximately $2 million (unaudited). The Company does not intend to enter into future reciprocal arrangements for the benefit of the controlling shareholder. The Company has entered into certain transactions with a company owned by the stockholder. The Company has guaranteed the annual lease payments for such company in the amount of $60,000; such obligations shall continue through December 31, 1996. Additionally, the Company has posted a bond of $20,000 with the Airline Reservations Clearinghouse for the company. The Company purchases the majority of its travel tickets through the company. The stockholder and members of his family have personally utilized the services of several of the Company's employees. The total compensation paid to such employees was $180,995 in 1995. At December 31, 1994, the Company had a demand note receivable from the stockholder totaling $1,706,641, bearing interest at the prime rate plus 1% for cash advances made to the controlling stockholder. In addition, at December 31, 1995 and 1994, the Company had outstanding receivables from affiliated entities totaling $1,075,030 and $288,669, respectively, bearing interest at the prime rate plus 1%. For the years ended December 31, 1995, 1994 and 1993, the Company had recorded $131,797, $105,641 and $112,736, respectively, in interest income related to the above receivables. The Company paid $300,000 and $100,000 in rent expense to an entity related by common control for the years ended December 31, 1995 and 1994, respectively. Additionally, the Company is obligated under lease agreements for future minimum lease payments of $300,000 in 1996 and $135,000 in 1997. These amounts have been included in Note 7. NOTE 11 -- DISCONTINUED OPERATIONS In June 1993, the Company approved a plan to discontinue the Company's magazine publishing business, and disposed of the business in August 1993. NOTE 12 -- EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT - REORGANIZATION (UNAUDITED) From 1978 through June 1996, the business of the Company was operated through Metro Traffic Control, Inc. and the other combined companies. All of the equity interest in these companies were controlled by a single shareholder. In conjunction with an anticipated offering of equity securities, a new entity was formed. It is expected that the single share holder will contribute or cause to be contributed all of the issued and out standing equity interests in the Companies to this newly formed entity in exchange for common stock. Subsequent to the reorganization, the Companies will be direct or indirect wholly owned subsidiaries of the newly formed entity. Upon the reorganization, the resulting entity will be liable for income taxes, at which time the entity will be required to record a deferred tax liability for the differential between the book and tax basis of the underlying assets. Accordingly, this differential will result in an increase in income tax expense at the time of reorganization of approximately $800,000. F-18 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------ TABLE OF CONTENTS
PAGE --------- Prospectus Summary............................. 3 Risk Factors................................... 11 Use of Proceeds................................ 15 Dividend Policy................................ 15 Capitalization................................. 16 Dilution....................................... 17 Selected Financial and Operating Data.......... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 20 Business....................................... 28 Management..................................... 42 Certain Transactions........................... 46 Principal and Selling Stockholders............. 48 Description of Capital Stock 49 Shares Eligible For Future Sale................ 52 Validity of Common Stock....................... 53 Experts........................................ 53 Additional Information......................... 53 Glossary....................................... 54 Underwriting................................... U-1 Index to Consolidated Financial Statements..... F-1
THROUGH AND INCLUDING , 1996 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. SHARES METRO NETWORKS, INC. COMMON STOCK (PAR VALUE $.001 PER SHARE) ------------------------ [LOGO] ------------------ GOLDMAN, SACHS & CO. CS FIRST BOSTON DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION REPRESENTATIVES OF THE UNDERWRITERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts, payable by the Company in connection with the sale of the Common Stock being registered. All amounts are estimates except the registration and filing fees:
AMOUNT TO BE PAID ----------- Securities and Exchange Commission Registration Fee............................................................. $ 39,656 NASD Fee...................................................................... 12,000 Printing and engraving expenses............................................... * Legal fees and expenses....................................................... * Accounting fees and expenses.................................................. * Blue Sky fees and expenses.................................................... * Transfer Agent and Registrar fee.............................................. * Miscellaneous expenses........................................................ * ----------- Total......................................................................... *
- ------------------------ * To be supplied by amendment. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware Law General Law and Article EIGHTH of the Company's Certificate of Incorporation provide for indemnification of the Company's directors and officers in a variety of circumstances which may include liabilities under the Securities Act of 1933. Article EIGHTH provides that unless otherwise determined by the Board of Directors of the Company, the Company shall indemnify to the full extent permitted by the laws of Delaware as from time to time in effect, the persons described in Section 145 of Delaware Law. The general effect of the provisions in the Company's Amended and Restated Certificate of Incorporation and Delaware Law is to provide that the Company shall indemnify its directors and officers against all liabilities and expenses actually and reasonably incurred in connection with the defense or settlement of any judicial or administrative proceedings in which they have become involved by reason of their status as corporate directors or officers, if they acted in good faith and in the reasonable belief that their conduct was neither unlawful (in the case of criminal proceedings) nor inconsistent with the best interests of the Company. With respect to legal proceedings by or in the right of the Company in which a director or officer is adjudged liable for improper performance of his duty to the Company or another enterprise which such person served in a similar capacity at the request of the Company, indemnification is limited by such provisions that amount which is permitted by the court. The Company will maintain officers' and directors' liability insurance which will insure against liabilities that officers and directors of the Company may incur in such capacities. The Company has also entered into indemnification agreements with its directors and officers. Reference is made to the Proposed Form of Underwriting Agreement filed as Exhibit 1 which provides for indemnification of the directors and officers of the Company signing the Registration Statement and certain controlling persons of the Company against certain liabilities, including those arising under the Securities Act in certain instances, of the Underwriters. II-1 RECENT SALES OF UNREGISTERED SECURITIES In connection with the Reorganization, the Company issued shares of Common Stock to Mr. David Saperstein, shares of Common Stock to the Michelle Joy Saperstein Coppola 1994 Trust, shares of Common Stock to the Jennifer Beth Saperstein 1994 Trust, shares of Common Stock to the Jonathan Alexander Saperstein 1994 Trust, shares of Common Stock to the Alexis Daniella Saperstein 1994 Trust and shares to the Stefanie Nicole Saperstein 1994 Trust. EXHIBITS (2a) Exhibits. See Exhibit Index UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1)For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2)For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 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 New York, State of New York on June 18, 1996. METRO NETWORKS, INC. By: /s/ DAVID I. SAPERSTEIN ----------------------------------- David I. Saperstein CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. Saperstein and Coppola, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated. NAME TITLE DATE - ------------------------------------------------------ ------------------------------- ------------------------ /s/ /S/ DAVID I. SAPERSTEIN Chairman of the Board of ------------------------------------------- Directors and Chief Executive June 18, 1996 David I. Saperstein Officer /s/ CHARLES I. BORTNICK ------------------------------------------- President and Director June 18, 1996 Charles I. Bortnick /s/ SHANE E. COPPOLA ------------------------------------------- Executive Vice President and June 18, 1996 Shane E. Coppola Director /s/ CURTIS H. COLEMAN ------------------------------------------- Senior Vice President, Chief June 18, 1996 Curtis H. Coleman Financial Officer and Director /s/ GARY L. WOROBOW Senior Vice President, General ------------------------------------------- Counsel, Secretary and June 18, 1996 Gary L. Worobow Director
II-3 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits 1.1** Form of Underwriting Agreement between the Registrant and the Representatives. 3.1** Certificate of Incorporation of the Registrant 3.2** Form of Amended and Restated Certificate of Incorporation of the Registrant 3.3** Bylaws of the Registrant 4.1** Form of Common Stock Certificate 5.1** Opinion of Paul, Hastings, Janofsky & Walker as to the validity of the Common Stock. 10.1* Credit Agreement dated October 21, 1994 among Metro Traffic Control, Inc., Metro Networks, Ltd, and NationsBank of Texas, N.A. 10.2* First Amendment to Credit Agreement dated May 22, 1995 among Metro Traffic Control, Inc., Metro Networks, Ltd, and NationsBank of Texas, N.A. 10.3* Second Amendment to Credit Agreement dated November 22, 1995 among Metro Traffic Control, Inc., Metro Networks, Ltd, and NationsBank of Texas, N.A. 10.4* Lease Agreement, dated April 15, 1988 between Tower, Limited and Metro Traffic Control, Inc. 10.5* First Amendment to Lease Agreement, dated September 1, 1988 between Tower, Limited and Metro Traffic Control, Inc. 10.6* Lease Amendment Number Two, dated April 23, 1991 between Tower, Limited and the Registrant. 10.7* Lease Amendment Number Three, dated January 28, 1992 between Tower, Limited and the Registrant. 10.8* Sublease Agreement dated January 5, 1996 between Transcontinental Gas Pipe Line Corporation and Metro Traffic Control, Inc. 10.9* Lease Agreement dated April 18, 1980 between Transco Tower Limited and Metro Traffic Control, Inc. 10.10* Lease Amendment Number One dated October 19, 1988 between Transco Tower, Limited and Metro Traffic Control, Inc. 10.11* Lease Amendment Number Two dated January 29, 1992 between Transco Tower, Limited and Metro Traffic Control, Inc. 10.12* Lease Amendment Number Three dated May 28, 1992 between Transco Tower, Limited and Metro Traffic Control, Inc. 10.13** Employment Agreement between the Registrant and Mr. David I. Saperstein. 10.14** Employment Agreement between the Registrant and Mr. Charles I. Bortnick 10.15** Employment Agreement between the Registrant and Mr. Shane E. Coppola 10.16** Employment Agreement between the Registrant and Mr. Curtis H. Coleman 10.17** Employment Agreement between the Registrant and Mr. Gary L. Worobow 10.18** Metro Networks, Inc. Employee Payroll Deduction Stock Purchase Plan 10.19** 1996 Incentive Stock Option Plan 11.1** Statement re: computation of per share earnings 21.1** Subsidiaries of the Company. 23.1** Consent of KPMG Peat Marwick LLP 23.2** Consent of Paul, Hastings, Janofsky & Walker (included in Exhibit 5.1). 24. (a) Powers of Attorney, included on pages II-4 to II-9. (b) Consolidated Financial Statement Schedules 27.1* Financial Data Schedule
- ------------------------ * Filed herewith. ** To be filed by amendment. EX-10.1 2 EXHIBIT 10.1 CREDIT AGREEMENT THIS CREDIT AGREEMENT is dated as of October 21, 1994, among METRO TRAFFIC CONTROL, INC., a Maryland corporation ("Metro"), METRO NETWORKS, LTD., a Texas limited partnership ("MNLP") (Metro and MNLP are each a "Borrower", and together with other Persons who may from time to time become a Borrower hereunder, collectively, the "Borrowers"), the Lenders from time to time party hereto, and NATIONSBANK OF TEXAS, N.A., a national banking association, as administrative agent for the Lenders. BACKGROUND The Borrowers have requested that the Lenders make a credit facility available to the Borrowers up to the maximum principal amount of $15,000,000. The Lenders have agreed to do so, subject to the terms and conditions set forth below. In consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 Definitions Section 1.1 Defined Terms. For purposes of this Agreement: "Accounts" shall have the meaning assigned to such term in the UCC. "Acquisition" shall mean any transaction pursuant to which any Borrower or any Subsidiary, (i) whether by means of a capital contribution or purchase or other acquisition of stock or other securities or other equity participation or interest, (A) acquires more than 50% of the equity interest in any Person pursuant to a solicitation by such Borrower or such Subsidiary of tenders of equity securities of such Person, or through one or more negotiated block, market, private or other transactions not involving a tender offer, or a combination of any of the foregoing, (B) makes any corporation a Subsidiary, or causes any corporation to be merged into such Borrower or such Subsidiary (or agrees to be merged into any other corporation other than a wholly-owned Subsidiary), or (C) agrees to purchase all or substantially all of the assets of any corporation, pursuant to a merger, purchase of assets or other reorganization providing for the delivery or issuance to the holders of such corporation's then outstanding securities, in exchange for such securities, of cash or securities of such Borrower or such Subsidiary, or any combination thereof, or (ii) purchases all or substantially all of the business or assets of any Person or of any operating division of any Person. "Acquisition Consideration" shall mean, without duplication, the consideration given by any Borrower or any Subsidiary for an Acquisition, including, but not limited to, the fair market value of any cash, property, stock or services given, the amount of any Indebtedness assumed or incurred. "Adjusted Excess Cash Flow" shall mean, for any year, calculated for the Borrowers and the Subsidiaries on a combined basis, an amount equal to the remainder of (a) Operating Cash Flow for said year (which calculation of Operating Cash Flow shall not exclude from net income compensation to David Saperstein permitted pursuant to Section 7.18(ii) hereof), minus (b) the sum of (i) the greater of (X)$750,000, or (Y) Capital Expenditures for said year, plus (ii) Dividends paid during said year, plus (iii) cash expenditures (other than Cash Tax Dividends) for the payment of taxes during said year, if applicable, plus (iv) principal, interest, fees and other amounts scheduled to be paid for said year with respect to Indebtedness. "Administrative Lender" shall mean NationsBank of Texas, N.A., a national banking association, as administrative agent for Lenders, or such successor administrative agent appointed pursuant to Section 10.1(b) hereof. "Advance" shall mean any amount advanced by the Lenders to any Borrower pursuant to Article 2 hereof on the occasion of any borrowing, including without limitation any Refinancing Advance. "Affiliate" shall mean any Person that directly or indirectly through one or more Subsidiaries Controls, or is Controlled By or Under Common Control with, any Borrower. "Agreement" shall mean this Credit Agreement, as amended or renewed from time to time. "Agreement Date" shall mean the date of this Agreement. "Applicable Environmental Laws" shall mean applicable laws pertaining to health or the environment, including without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 (as amended from time to time, "CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as amended from time to time, "RCRA"), the Texas Water Code, and the Texas Solid Waste Disposal Act. "Applicable Law" shall mean (a) in respect of any Person, all provisions of constitutions, statutes, rules, regulations and orders of governmental bodies or regulatory agencies applicable to such Person and its properties, including, without limiting the foregoing, all orders and decrees of all courts and arbitrators in proceedings or actions to which the Person in question is a party, and (b) in respect of contracts relating to interest or finance charges that are made or performed in the State of Texas, "Applicable Law" shall mean the laws of the United States of America, including without limitation 12 USC Sections 85 and 86, as amended from time to time, -2- and any other statute of the United States of America now or at any time hereafter prescribing the maximum rates of interest on loans and extensions of credit, and the laws of the State of Texas, including, without limitation, Article 5069-1.04, Title 79, Revised Civil Statutes of Texas, 1925, as amended ("Art. 1.04"), and any other statute of the State of Texas now or at any time hereafter prescribing maximum rates of interest on loans and extensions of credit; provided that the parties hereto agree that the provisions of Chapter 15, Title 79, Revised Civil Statutes of Texas, 1925, as amended, shall not apply to Advances, this Agreement, the Notes or any other Loan Documents. "Applicable Margin" shall mean the following per annum percentages, applicable in the following situations: Prime Rate LIBOR Applicability Basis Basis ------------- ----- ----- (i) If the Leverage Ratio is not less than 2.0 to 1 0.875 1.875 (ii) If the Leverage Ratio is less than 2.0 to 1 but 0.750 1.750 is not less than 1.5 to 1 (iii) If the Leverage Ratio is less than 1.5 to 1 but 0.500 1.500 is not less than 1.0 to 1 (iv) If the Leverage Ratio is less than 1.0 to 1 0.250 1.250 The Applicable Margin payable by the Borrowers on the Advances outstanding hereunder shall be subject to reduction or increase, as applicable and as set forth in the table above, on a quarterly basis according to the performance of the Borrowers as tested by the Leverage Ratio. Except as set forth in the last sentence hereof, any such increase or reduction in the Applicable Margin provided for herein shall be effective three Business Days after receipt by Administrative Lender of the financial statements required to be delivered pursuant to Section 6.l(b) or 6.2(b) hereof, as applicable. If financial statements of the Borrowers setting forth the Leverage Ratio are not received by the Administrative Lender by the date required pursuant to Section 6.1 (b) or 6.2(b) hereof, as applicable, the Applicable Margin shall be determined as if the Leverage Ratio is not less than 2.0 to 1 until such time as such financial statements are received. For the final quarter of any fiscal year of the Borrowers, the Borrowers may provide their unaudited financial statements, subject only to year-end adjustments, for the purpose of adjusting the Applicable Margin. "Art. 1.04" shall have the meaning ascribed thereto in the definition of "Applicable "Assignees" shall mean any assignee of a Lender pursuant to an Assignment Agreement and shall have the meaning ascribed thereto in Section 11.6 hereof. "Assignment Agreement" shall have the meaning ascribed thereto in Section 11.6 hereof. -3- "Authorized Signatory" shall mean such senior personnel of the Notification Agent as may be duly authorized and designated in writing by the Notification Agent to execute documents, agreements and instruments on behalf of the Notification Agent, and to request Advances and Letters of Credit hereunder. "Borrowers" shall mean, collectively, Metro, MNLP, and any other Persons who as a result of a Corporate Reorganization shall become a Borrower hereunder and for which the conditions precedent set forth in Section 3.3 hereof have been satisfied, and "Borrower" means any one of them, as appropriate. "Borrower Pledge Agreement" shall mean one or more pledge agreements, executed by any Borrower, granting a first priority Lien on (i) the Pledged Stock owned directly by such Borrower and (ii) each Intercompany Note evidencing intercompany advances made by such Borrower, as security for the Obligations, substantially in the form of Exhibit B hereto, as such agreement may be amended, modified, renewed or extended from time to time. "Borrower Security Agreement" shall mean one or more security agreements, executed by any Borrower, granting a first priority Lien on (i) the Accounts and related items of such Borrower and (ii) the tangible personal property of such Borrower, as security for the Obligations, substantially in the form of Exhibit E hereto, as such agreement may be amended, modified, renewed or extended from time to time. "Borrowers' Business" shall mean the communications, broadcasting (including, but not limited to, traffic, news, sports and weather reports on radio and television stations), media, information services, and advertising and activities related thereto. "Business Day" shall mean a day on which banks are open for the transaction of business as required by this Agreement in Dallas, Texas and, with respect to any LIBOR Advance, in London, England, and as otherwise relevant to the determination to be made or the action to be taken. "Capital Expenditures" shall mean cash expenditures for the purchase of tangible assets of long-term use which are capitalized in accordance with GAAP. "Capitalized Lease Obligations" shall mean that portion of any obligation of any Borrower or any Subsidiary as lessee under a lease which at the time would be required to be capitalized on a balance sheet prepared in accordance with GAAP. "Cash Tax Dividends" shall mean Dividends paid by (a) any corporate Borrower which has elected Subchapter S status under the Code to such Borrower's shareholders to pay income Taxes incurred by such shareholders solely as a result of net income generated by such Borrower and (b) any Borrower which is a partnership to such Borrower's partners to pay income Taxes incurred by such partners solely as a result of net income generated by such Borrower. -4- "Code" shall mean the Internal Revenue Code of 1986, as amended. "Collateral" shall mean any collateral hereafter granted by any Person to the Administrative Lender for the benefit of the Lenders to secure the Obligations. "Commitment" shall mean $15,000,000, as reduced from time to time pursuant to Section 2.6 hereof. "Commitment Reduction Date" shall mean the last Business Day of March 1995. "Control" or "Controlled By" or "Under Common Control" shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of voting securities, by contract or otherwise); provided, however, that any Person which beneficially owns, directly or indirectly, 5% or more (in number of votes) of the securities (or in the case of a Person that is not a corporation, 5% or more of the equity interest) having ordinary voting power shall be conclusively presumed to control such Person. "Controlled Group" shall mean, as to any Person, all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) which are under common control with such Person and which, together with such Person, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code; provided, however, that the Subsidiaries of any Borrower shall be deemed to be members of such Borrower's Controlled Group, and any Borrower and any other entities (whether incorporated or not incorporated) which are under common control with such Borrower and which, together with such Borrower, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code, shall be deemed to be members of such Borrower's Controlled Group on and after the Agreement Date. "Default" shall mean an Event of Default and/or any of the events specified in Section 8.1, regardless of whether there shall have occurred any passage of time or giving of notice that would be necessary in order to constitute such event an Event of Default. "Default Rate" shall mean a simple per annum interest rate equal to the lesser of (a) the Highest Lawful Rate, or (b) the sum of the Prime Rate Basis plus two percent. "Determining Lenders" shall mean, on any date of determination, any combination of the Lenders having at least 100% of the aggregate amount of Advances then outstanding; provided, however, that if there are no Advances outstanding hereunder, "Determining Lenders" shall mean any combination of Lenders whose Specified Percentages aggregate 100%. In the event that at any time there shall be more than two Lenders, "Determining Lenders" shall mean, on any date of determination, any combination of the Lenders having at least 66-2/3% of the aggregate amount of the Advances then outstanding; provided, however, that if there are no Advances outstanding hereunder, "Determining Lenders" shall mean any combination of Lenders whose Specified Percentages aggregate at least 66-2/3%. -5- "Dividend" shall mean, as to any Person, (a) any payment of any dividend (other than a stock dividend) on, or the making of any distribution, loan, advance or investment to or in any holder of, any shares of capital stock of such Person and with respect to such shares, or (b) any purchase, redemption, or other acquisition or retirement for value of any shares of capital stock of such Person. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any regulation promulgated thereunder. "ERISA Event" shall mean, with respect to any Borrower and its Subsidiaries, (a) a Reportable Event (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under regulations issued under Section 4043 of ERISA), (b) the withdrawal of any such Person or any member of its Controlled Group from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the (filing of a notice of intent to terminate under Section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, (e) the failure to make required contributions which could result in the imposition of a lien under Section 412 of the Code or Section 302 of ERISA, or (f) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or the imposition of any liability under Title IV of ERISA other than PBGC premiums due but not delinquent under Section 4007 of ERISA. "Event of Default" shall mean any of the events specified in Section 8.1, provided that any requirement for notice or lapse of time has been satisfied. "Excess Cash Flow" shall mean, for any year, calculated for the Borrowers and the Subsidiaries on a combined basis, an amount equal to the remainder of (a) Operating Cash Flow for said year, minus (b) the sum of (i) Capital Expenditures for said year, plus (ii) Dividends paid during said year, plus (iii) cash expenditures (other than Cash Tax Dividends) for the payment of taxes during said year, if applicable, plus (iv) principal, interest, fees, and other amounts scheduled to be paid for said year with respect to Indebtedness. "Existing Loan Agreement" shall mean that certain Amended and Restated Loan Agreement dated as of March 15, 1993, by and between Metro and Southwest Bank of Texas, N.A., as the same may have been amended, modified, renewed or extended from time to time. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall -6- be the average rate quoted to the Administrative Lender on such day on such transactions as determined by Administrative Lender. "Fixed Charges" shall mean, for the Borrowers and the Subsidiaries on a combined basis determined in accordance with GAAP, for the four most recently ended fiscal quarters preceding any date of determination, an amount equal to the sum of (a) all payments of principal, interest, fees and other amounts paid on Total Debt, plus (b) all payments under Capitalized Leases, plus (c) all Capital Expenditures, plus (d) cash expenditures (including Cash Tax Dividends) for the payment of taxes. "GAAP" shall mean generally accepted accounting principles applied on a consistent basis, set forth in the Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants, or the successors which are applicable in the circumstances as of the date in question. The requisite that such principles be applied on a consistent basis shall mean that the accounting principles observed in a current period are comparable in all material respects to those applied in a preceding period. "Governmental Authority" shall mean (a) the government of (i) the United States of America and any State or other political subdivision thereof or (ii) any jurisdiction in which any Borrower or any Subsidiary conducts all or any part of its business or owns any property or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "Guaranty" or "Guaranteed", as applied to an obligation, shall mean and include (a) a guaranty, direct or indirect, in any manner, of any part or all of such obligation, and (b) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of nonperformance) of any part or all of such obligation. "Highest Lawful Rate" shall mean at the particular time in question the maximum rate of interest which, under Applicable Law, the Lenders are then permitted to charge on the Obligations. If the maximum rate of interest which, under Applicable Law, the Lenders are permitted to charge on the Obligations shall change after the date hereof, the Highest Lawful Rate shall be automatically increased or decreased, as the case may be, from time to time as of the effective time of each change in the Highest Lawful Rate without notice to the Borrowers or the Notification Agent. For purposes of determining the Highest Lawful Rate under the Applicable Law of the State of Texas, the applicable rate ceiling shall be (a) the indicated rate ceiling described in and computed in accordance with the provisions of Section (a)(1) of Art. 1.04, or (b) if the parties subsequently contract as allowed by Applicable Law, the quarterly ceiling or the annualized ceiling computed pursuant to Section (d) of Art. 1.04; provided, however, that at any time the indicated rate ceiling, the quarterly ceiling or the annualized ceiling shall be less than 18% per annum or more than 24% per annum, the provisions of Sections (b)(1) and (2) of said Art. 1.04 shall control for purposes of such determination, as applicable. -7- "Indebtedness" shall mean, with respect to any Person, (a) all items, except items of partners' equity or of capital stock or of surplus or of general contingency or deferred tax reserves, which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person, (b) the market value of any property or asset owned by such Person on which a Lien has been granted to secure any obligation, whether or not the obligation secured thereby shall have been assumed, (c) to the extent not otherwise included, all Capitalized Lease Obligations of such Person, all obligations of such Person with respect to leases constituting part of a sale and leaseback arrangement, all Guaranties, all obligations under Interest Hedge Agreements or similar hedge agreements, all indebtedness for borrowed money (excluding, for purposes of calculation of financial covenants only, indebtedness evidenced by Intercompany Notes), and all reimbursement obligations with respect to outstanding letters of credit, (d) any "withdrawal liability" of any Borrower or Subsidiary, as such term is defined under Part I of Subtitle E of Title IV of ERISA, and (e) all Seller Obligations of any Borrower or Subsidiary. "Indemnified Matters" shall have the meaning ascribed to it in Section 5.10(a) hereof. "Indemnitees" shall have the meaning ascribed to it in Section 5.10(a) hereof. "Intercompany Notes" shall mean any promissory note executed by any Subsidiary made payable to the order of any Borrower in the original principal amount not to exceed $15,000,000 evidencing loans and advances made or to be made by such Borrower to such Subsidiary, together with any extension, renewal, increase or amendment thereof, or substitution therefor. "Interest Hedge Agreements" shall mean any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, as the same may be amended or modified and in effect from time to time, and any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing. "Interest Period" shall mean (a) for any Prime Rate Advance, the period beginning on the day the Advance was made and ending on the first Quarterly Date thereafter, and (b) for any LIBOR Advance, the period beginning on the day the Advance is made and ending one, two, three or six months thereafter (as the Borrowers shall select). "Investment" shall mean any acquisition of all or substantially all assets of any Person, or any direct or indirect purchase or other acquisition of, or beneficial interest in, capital stock or other securities of any other Person, or any direct or indirect loan, advance (other than advances to employees for moving and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution to, or investment in any other Person, including without limitation the incurrence or sufferance of Indebtedness or the -8- purchase (other than purchases in connection with an Acquisition) of accounts receivable of any other Person that are not current assets or do not arise in the ordinary course of business, which is not an Acquisition. "Issuing Bank" shall mean NationsBank of Texas, N.A., in its capacity as issuer of the Letters of Credit. "Lender" shall mean each financial institution shown on the signature pages hereof so long as such financial institution maintains a Commitment or is owed any part of the Obligations (including the Administrative Lender in its individual capacity), and each Assignee that hereafter becomes party hereto pursuant to Section 11.6 hereof. "L/C Cash Collateral Account" shall have the meaning specified in Section 2.16(g) hereof. "L/C Related Documents" shall have the meaning specified in Section 2.16(d) hereof. "Letter of Credit" shall have the meaning specified in Section 2.16(a) hereof. "Letter of Credit Agreement" shall have the meaning specified in Section 2.16(b) hereof. "Letter of Credit Facility" shall mean the amount of the Letters of Credit the Issuing Bank may issue pursuant to Section 2.16(a) hereof. "Leverage Ratio" shall mean, for any date of determination, the ratio of Total Debt as of the date of determination to Operating Cash Flow for the four most recently ended fiscal quarters preceding such date of determination. "LIBOR Advance" shall mean an Advance which the Borrowers request to be made as a LIBOR Advance or which is reborrowed as a LIBOR Advance, in accordance with the provisions of Section 2.2 hereof. "LIBOR Basis" shall mean a simple per annum interest rate equal to the lesser of (a) the Highest Lawful Rate, or (b) the sum of the LIBOR Rate plus the Applicable Margin. The LIBOR Basis shall, with respect to LIBOR Advances with Interest Periods in excess of six months, be subject to premiums assessed by each Lender, which are payable directly to each Lender. Once determined, the LIBOR Basis shall remain unchanged during the applicable Interest Period. "LIBOR Lending Office" shall mean, with respect to a Lender, the office designated as its LIBOR Lending Office on Schedule 1 attached hereto, and such other office of the Lender or any of its affiliates hereafter designated by notice to the Notification Agent and the Administrative Lender. -9- "LIBOR Rate" shall mean, for any Interest Period, the interest rate per annum rounded upward to the nearest one-sixteenth (1/16th) of one percent) at which deposits in United States Dollars are offered to the Administrative Lender by leading banks reasonably selected by the Administrative Lender in the London interbank market at approximately 11:00 a.m. (London time), two Business Days before the first day of such Interest Period, in an amount approximately equal to the principal amount of, and for a length of time approximately equal to the Interest Period for, the LIBOR Advance sought by the Borrowers. "Lien" shall mean, with respect to any property, any mortgage, lien, pledge, collateral assignment, hypothecation, charge, security interest, title retention agreement, levy, execution, seizure, attachment, garnishment or other encumbrance of any kind in respect of such property, whether or not choate, vested or perfected. "Loan Documents" shall mean this Agreement, the Notes, the Pledge Agreements, the Subsidiary Guaranty, the Security Agreements, any Interest Hedge Agreement, with any of the Lenders, fee letters, and any other document, agreement or instrument executed or delivered from time to time by any Borrower, any Subsidiary or any other Person in connection herewith or as security for the Obligations. "Material Adverse Effect" shall mean any act or circumstance or event which (a) causes a Default, (b) otherwise could be material and adverse to the business, consolidated assets, liabilities, financial condition, results of operations or prospects of the Borrowers and the Subsidiaries, together taken as a whole, (c) in any material manner could adversely affect the validity or enforceability of any of the Loan Documents, or (d) in any manner could impair the value of any Collateral. "Maturity Date" shall mean the last Business Day of September 30, 1999. "Maximum Amount" shall mean the maximum amount of interest which, under Applicable Law, the Lenders are permitted to charge on the Obligations. "Metro" shall mean Metro Traffic Control, Inc., a Maryland corporation. "MNLP" shall mean Metro Networks, Ltd., a Texas limited partnership. "Multiemployer Plan" shall mean, as to any Person, at any time, a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to which such Person or any member of its Controlled Group is making, or is obligated to make contributions or has made, or been obligated to make, contributions. "Necessary Authorization" shall mean any license, permit, consent, approval or authorization from, or any filing or registration with, any governmental or other regulatory authority necessary or appropriate to enable any Borrower or Subsidiary to maintain and operate its business and properties. -10- "Note" shall mean each promissory note of the Borrowers evidencing Advances hereunder, substantially in the form of Exhibit A hereto, together with any extension, renewal or amendment thereof, or substitution therefor. "Notification Agent" shall mean Metro, or such other Borrower designated by Metro and agreed to in writing by the Administrative Lender. "Obligations" shall mean (a) all obligations of any nature (whether matured or unmatured fixed or contingent, including the Reimbursement Obligations) of the Borrowers and the Subsidiaries to the Lenders under the Loan Documents (including obligations under any Interest Hedge Agreement to any Lender), as they may be amended from time to time, and (b) all obligations of the Borrowers and the Subsidiaries for losses, damages, expenses or any other liabilities of any kind that any Lender may suffer by reason of a breach by any Borrower or any Subsidiary of any obligation, covenant or undertaking with respect to any Loan Document. "Operating Cash Flow" shall mean, for any period, determined in accordance with GAAP on a combined basis for the Borrowers and the Subsidiaries, the sum of (a) pre-tax net income (pre-tax net income shall exclude (i) any items of extraordinary gain, including net gains on the sale of assets other than asset sales in the ordinary course of business, (ii) any items of extraordinary loss, including net losses on the sale of assets other than asset sales in the ordinary course of business, (iii) non-cash credits to the extent included in net income, and (iv) any Seller Obligations to the extent such Seller Obligations are treated as an expense and not a liability according to GAAP), plus (b) interest expense, depreciation and amortization, and other non-cash expenses. For purpose of calculation of Operating Cash Flow with respect to assets not owned at all times during the four fiscal quarters preceding the date of determination of Operating Cash Flow there shall be (i) included in Operating Cash Flow the Operating Cash Flow of any assets acquired during any of such four fiscal quarters for the twelve month period preceding the date of determination and (ii) excluded from Operating Cash Flow the Operating Cash Flow of any assets disposed of during any of such four fiscal quarters for the twelve month period preceding the date of determination. "Owner Pledge Agreement" shall mean one or more Pledge Agreements executed by any Person owning or otherwise holding an equity interest in any Borrower, granting a first priority Lien on the Pledged Stock owned by such Person, substantially in the form of Exhibit I hereto, as such agreement may be amended, modified, renewed or extended from time to time. "Participant" shall have the meaning ascribed to it in Section 11.6(c) hereof. "Participation" shall have the meaning ascribed to it in Section 11.6(c) hereof. "Payment Date" shall mean the last day of the Interest Period for any Advance. -11- "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Liens" shall mean, as applied to any Person: (a) any Lien in favor of the Lenders to secure the Obligations hereunder; (b) (i) Liens on real estate for real estate taxes not yet delinquent, (ii) Liens created by lease agreements to secure the payments of rental amounts and other sums not yet due thereunder, (iii) Liens on leasehold interests created by the lessor in favor of any mortgagee of the leased premises, and (iv) Liens for taxes, assessments, governmental charges, levies or claims that are being diligently contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on such Person's books, but only so long as no foreclosure, restraint, sale or similar proceedings have been commenced with respect thereto; (c) Liens of carriers, warehousemen, mechanics, laborers and materialmen and other similar Liens incurred in the ordinary course of business for sums not yet due or being contested in good faith, if such reserve or appropriate provision, if any, as shall be required by GAAP shall have been made therefor; (d) Liens incurred in the ordinary course of business in connection with worker's compensation, unemployment insurance or similar legislation; (e) Easements, right-of-way, restrictions and other similar encumbrances on the use of real property which do not interfere with the ordinary conduct of the business of such Person; (f) Liens created to secure Indebtedness permitted by Section 7.l(f) hereof which is incurred solely for the purpose of financing the acquisition of such assets and incurred at the time of acquisition, so long as (i) each such Lien shall at all times be confined solely to the asset or assets so acquired (and proceeds thereof), and refinancings thereof and (ii) the amount of Indebtedness related thereto does not result in a violation of Section 7.1(f) hereof; (g) Liens in respect of judgments or awards for which appeals or proceedings for review are being prosecuted and in respect of which a stay of execution upon any such appeal or proceeding for review shall have been secured, provided that (i) such Person shall have established adequate reserves for such judgments or awards, (ii) such judgments or awards shall be fully insured and the insurer shall not have denied coverage, or (iii) such judgments or awards shall have been bonded to the satisfaction of the Determining Lenders; and (h) Any Liens existing on the Agreement Date which are described on Schedule 2 hereto, and Liens resulting from the refinancing of the related Indebtedness, provided that the Indebtedness secured thereby shall not be increased and the Liens shall not cover additional assets of the Borrowers or the Subsidiaries. -12- "Person" shall mean an individual, corporation, partnership, trust or unincorporated organization, or a government or any agency or political subdivision thereof. "Plan" shall mean an employee pension benefit plan as defined in Section 3(2) of ERISA (including a Multiemployer Plan) that is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is maintained for the employees of any Borrower, its Subsidiaries or any member of their Controlled Group. "Pledge Agreements" shall mean the Borrower Pledge Agreements, the Subsidiary Pledge Agreements and the Owner Pledge Agreements. "Pledged Stock" shall mean, (a) as to any Borrower, the equity interests in such Borrower, including, without limitation, the shares of each class of capital stock of any Borrower that is a corporation and partnership interests (general and limited) in any Borrower that is a partnership and (b) as to any Subsidiary, the equity interests in such Subsidiary, including, without limitation, the shares of each class of capital stock of any Subsidiary that is a corporation and partnership interests (general and limited) in any Subsidiary that is a partnership. "Prime Rate" shall mean, at any time, the prime interest rate announced or published by the Administrative Lender from time to time as its reference rate for the determination of interest rates for loans of varying maturities in United States dollars to United States residents of varying degrees of creditworthiness and being quoted at such time by the Administrative Lender as its "prime rate;" it being understood that such rate may not be the lowest rate of interest charged by the Administrative Lender. "Prime Rate Advance" shall mean any Advance bearing interest at the Prime Rate Basis. "Prime Rate Basis" shall mean, for any day, a per annum interest rate equal to the lesser of (a) the Highest Lawful Rate on such day, or (b) the higher of (i) the sum of (A) 0.50% plus (B) the Federal Funds Rate plus (C) the Applicable Margin, or (ii) the sum of (A) the Prime Rate on such day plus (B) the Applicable Margin. The Prime Rate Basis shall be adjusted automatically as of the opening of business on the effective date of each change in the Prime Rate or Federal Funds Rate, as the case may be, to account for such change. "Pro-Forma Debt Service" shall mean, as of any date of determination, determined in accordance with GAAP for the Borrowers and the Subsidiaries on a combined basis, the sum (without duplication) of all payments of principal, interest, fees and other amounts scheduled to be paid on all Indebtedness during the succeeding four fiscal quarters (assuming for any Indebtedness subject to a floating interest rate, an interest rate equal to the applicable rate in effect on the date of determination). "Quarterly Date" shall mean the last Business Day of each September, December, March and June, beginning December, 1994. -13- "Radio Affiliate Contracts" shall mean any agreements between any Borrower or Subsidiary and any radio station pursuant to which such radio station agrees to broadcast such Borrower's or such Subsidiary's traffic reports. "Refinancing Advance" shall mean any Advance which is used to pay the principal amount (or any portion thereof) of an Advance at the end of its Interest Period and which, after giving effect to such application, does not result in an increase in the aggregate amount of outstanding Advances. "Reimbursement Obligation" shall mean, in respect of any Letter of Credit as at any date of determination, the maximum aggregate amount which is then available to be drawn under such Letter of Credit. "Release Date" shall mean the date on which the Notes have been paid, all other Obligations due and owing have been paid and performed in full, and the Commitment has been terminated. "Reportable Event" shall have the meaning set forth in Title IV of ERISA. "Security Agreements" shall mean the Borrower Security Agreements and the Subsidiary Security Agreements. "Seller Obligations" shall mean all unconditional obligations to pay a sum certain, of any Borrower or Subsidiary in respect of an Acquisition, whether or not such obligations arise under a non-competition agreement, management agreement, employment contract, earn-out or under any other agreement. "Solvent" shall mean, with respect to any Person, that the fair value of the assets of such Person (both at fair valuation and at present fair saleable value) is, on the date of determination, greater than the total amount of liabilities (including contingent and unliquidated liabilities) of such Person as of such date and that, as of such date, such Person is able to pay all liabilities of such Person as such liabilities mature and such Person does not have unreasonably small capital with which to carry on its business. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability discounted to present value at rates believed to be reasonable by such Person. "Special Counsel" shall mean the law firm of Donohoe, Jameson & Carroll, P.C., or such other legal counsel as the Administrative Lender may select. "Specified Percentage" shall mean, as to any Lender, the percentage indicated beside its name on the signature pages hereof, or if applicable, specified in its most recent Assignment Agreement. -14- "Subordinated Debt" shall mean any Indebtedness of any Borrower or Subsidiaries which shall have been and continues to be, validly and effectively subordinated to the prior payment of the Obligations on terms and documentation approved in writing by the Determining Lenders. "Subsidiary" shall mean (a) any corporation of which 50% or more of the outstanding stock (other than directors' qualifying shares) having ordinary voting power to elect a majority of its board of directors, regardless of the existence at the time of a right of the holders of any class of securities of such corporation to exercise such voting power by reason of the happening of any contingency, is at the time owned by any Borrower, directly or through one or more intermediaries, (b) any other entity which is Controlled or then capable of being Controlled by any Borrower, directly or through one or more intermediaries, and (c) Metro Reciprocal, Inc., a Texas corporation, and Metro Video News, Inc., a Texas corporation. "Subsidiary Guaranty" shall mean any Guaranty executed by one or more Subsidiaries, guarantying payment and performance of the Obligations, substantially in the form of Exhibit D hereto, as such agreement may be amended, modified, renewed or extended from time to time. "Subsidiary Pledge Agreement" shall mean one or more Pledge Agreements executed by a Subsidiary, granting a first priority Lien on (i) the Pledged Stock owned by such Subsidiary and (ii) each Intercompany Note evidencing intercompany advances made by such Subsidiary, as security for the Obligations, substantially in the form of Exhibit C hereto, as such agreement may be amended, modified, renewed or extended from time to time. "Subsidiary Security Agreement" shall mean one or more security agreements, executed by a Subsidiary, granting a first priority Lien on (i) the Accounts and related items of such Subsidiary and (ii) the tangible personal property of such Subsidiary, as security for the Obligations, substantially in the form of Exhibit F hereto, as such agreement may be amended, modified, renewed or extended from time to time. "Tax" shall mean all taxes, assessments, imposts, fees, or other charges at any time imposed by any laws or any state, commonwealth, federal, foreign, international or other court or government body, subdivision, agency, department, commission, board, bureau, or instrumentality of a governmental body. "Tax Benefits" shall mean, with respect to (a) each shareholder of any Borrower which is a corporation, net operating losses and other Tax benefits available to such shareholder solely as a result of such shareholder's ownership interest in such Borrower, excluding and without giving effect to any Tax benefits otherwise available to such shareholder and (b) each partner of any Borrower which is a partnership, net operating losses and other Tax benefits available to such partner solely as a result of such partner's ownership interest in such Borrower, excluding and without giving effect to any Tax benefits otherwise available to such partner.. "Termination Event" shall mean, with respect to any Borrower, any Subsidiary, or any Plan, (a) a Reportable Event, (b) the withdrawal from a Plan during a Plan year in which it was -15- a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (d) the institution of proceedings by the Pension Benefit Guaranty Corporation to terminate a Plan or appoint a trustee to administer a Plan, (e) the failure to comply with the minimum funding requirements of ERISA with respect to any Plan, or (f) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "Total Debt" shall mean, as of any date of determination, determined for the Borrowers and the Subsidiaries on a combined basis, the sum (without duplication and excluding debt evidenced by Intercompany Notes) of (a) all principal and interest owing under the Loan Documents, (b) all debt evidenced by a promissory note or otherwise representing borrowed money, (c) all Capitalized Lease Obligations, (d) all Guaranties, (e) all reimbursement obligations for letters of credit, and (f) all Seller Obligations. "Trusts" shall mean, collectively, Michelle Joy Coppola 1994 Trust, Jennifer Beth Saperstein 1994 Trust, Jonathan Alexander Saperstein 1994 Trust, Alexis Daniella Saperstein 1994 Trust and Stephanie Nicole Saperstein 1994 Trust, all trusts organized under the laws of the State of Texas. Section 1.2 Amendments and Renewals. Each definition of an agreement in this Article 1 shall include such agreement as amended to date, and as amended or renewed from time to time in accordance with its terms, but only with the prior written consent of the Determining Lenders. Section 1.3 Construction. The terms defined in this Article 1 (except as otherwise expressly provided in this Agreement) for all purposes shall have the meanings set forth in Section 1.1 hereof, and the singular shall include the plural, and vice versa, unless otherwise specifically required by the context. All accounting terms used in this Agreement which are not otherwise defined herein shall be construed in accordance with GAAP on a combined basis for the Borrowers and the Subsidiaries, unless otherwise expressly stated herein. For the purpose of calculating the financial ratios set forth in Sections 7.10, 7.11 and 7.12 hereof and the maximum compensation of David Saperstein pursuant to Section 7.18 hereof, such calculations shall be based solely on cash financial statements without inclusion of any barter transactions. ARTICLE 2 Advances Section 2.1 The Advances. Each Lender severally agrees, upon the terms and subject to the conditions of this Agreement, to make Advances to the Borrowers from time to time in an aggregate amount not to exceed its Specified Percentage of the Commitment less its Specified Percentage of the Reimbursement Obligations then outstanding (assuming compliance with all -16- conditions to drawing) for the purposes set forth in Section 5.9 hereof. Subject to Section 2.9 hereof, Advances may be repaid and then reborrowed. Any Advance shall, at the option of the Borrowers as provided in Section 2.2 hereof (and, in the case of LIBOR Advances, subject to availability and to the provisions of Article 9 hereof), be made as a Prime Rate Advance or a LIBOR Advance; provided that there shall not be outstanding to any Lender, at any one time, more than six LIBOR Advances. Notwithstanding any provision in any Loan Document to the contrary, in no event shall the principal amount of all outstanding Advances and Reimbursement Obligations exceed the Commitment. On the Maturity Date unless sooner paid as provided herein, the Obligations shall be repaid in full. Section 2.2 Manner of Borrowing and Disbursement. (a) In the case of Prime Rate Advances, the Notification Agent, through an Authorized Signatory, shall give the Administrative Lender at least one Business Days' irrevocable written notice, or irrevocable telephonic notice followed immediately by written notice (provided, however, that the Notification Agent's failure to confirm any telephonic notice in writing shall not invalidate any notice so given), of the Borrowers' intention to borrow or reborrow a Prime Rate Advance hereunder. Notice shall be given to the Administrative Lender prior to 11:00 a.m., Dallas, Texas time, in order for such Business Day to count toward the minimum number of Business Days required. Such notice of borrowing shall specify the requested funding date, which shall be a Business Day, and the amount of the proposed aggregate Prime Rate Advances to be made by Lenders. Each Prime Rate Advance shall have an Interest Period beginning on the date such Advance is made and ending on the Quarterly Date next following the date the Advance is made; provided that no such Interest Period shall extend past the Maturity Date. (b) In the case of (i) LIBOR Advances other than the initial LIBOR Advance, the Notification Agent, through an Authorized Signatory, shall give the Administrative Lender at least three Business Days irrevocable written notice, or irrevocable telephonic notice followed immediately by written notice (provided, however, that the Notification Agent's failure to confirm any telephonic notice in writing shall not invalidate any notice so given), of the Borrowers' intention to borrow or reborrow a LIBOR Advance hereunder and (ii) the initial LIBOR Advance, the Notification Agent, through an Authorized Signatory, shall give the Administrative Lender at least two Business Days' irrevocable written notice, or irrevocable telephonic notice followed immediately by written notice (provided, however, that the Notification Agent's failure to confirm any telephonic notice in writing shall not invalidate any notice so given), of the Borrowers' intention to borrow or reborrow a LIBOR Advance hereunder. Notice shall be given to the Administrative Lender prior to 11:00 a.m., Dallas, Texas time, in order for such Business Day to count toward the minimum number of Business Days required. LIBOR Advances shall in all cases be subject to availability and to Article 9 hereof. For LIBOR Advances, the notice of borrowing shall specify the requested funding date, which shall be a Business Day, the amount of the proposed aggregate LIBOR Advances to be made by Lenders and the Interest Period of the proposed aggregate LIBOR Advances, provided -17- that no such Interest Period shall extend past the Maturity Date or prohibit or impair any Borrower's ability to comply with Section 2.8 hereof. (c) Subject to Sections 2.1 and 2.9 hereof, at least three Business Days prior to each Payment Date for a LIBOR Advance, the Notification Agent, through an Authorized Signatory, shall give the Administrative Lender irrevocable written notice, or irrevocable telephonic notice followed immediately by written notice (provided, however, that the Notification Agent's failure to confirm any telephonic notice in writing shall not invalidate any notice so given), specifying whether all or a portion of such LIBOR Advance outstanding on the Payment Date (i) is to be repaid and then reborrowed in whole or in part as a LIBOR Advance, (ii) is to be repaid and then reborrowed in whole or in part as a Prime Rate Advance, or (iii) is to be repaid and not reborrowed; provided, however, notwithstanding anything in this Agreement to the contrary, if on any Payment Date a Default shall exist, such LIBOR Advance may only be reborrowed as a Prime Rate Advance. Upon such Payment Date, such LIBOR Advance shall, subject to the provisions hereof, be so repaid and, as applicable, reborrowed. (d) Subject to Sections 2.1 and 2.9 hereof, upon at least one Business Day's irrevocable prior written notice (or three Business Days if the Borrowers wish to reborrow a LIBOR Advance); the Notification Agent, through an Authorized Signatory, or irrevocable telephonic notice followed immediately by written notice (provided, however, that the Notification Agent's failure to confirm any telephonic notice in writing shall not invalidate any notice so given), the Borrowers may repay a Prime Rate Advance on its Payment Date, or prepay a Prime Rate Advance without regard to its Payment Date, and (i) reborrow all or a portion of the principal amount thereof as a Prime Rate Advance, (ii) reborrow all or a portion of the principal amount thereof as one or more LIBOR Advances, or (iii) not reborrow all or any portion of such Prime Rate Advance. Upon such Payment Date or date of repayment, such Prime Rate Advance shall, subject to the provisions hereof, be so repaid and, as applicable, reborrowed. (e) The aggregate amount of Prime Rate Advances to be made by the Lenders on any day shall be in a principal amount which is at least $50,000 and which is an integral multiple of $10,000; provided, however, that such amount may equal the unused amount of the Commitment. The aggregate amount of LIBOR Advances having the same Interest Period and to be made by the Lenders on any day shall be in a principal amount which is at least $250,000 and which is an integral multiple of $50,000. (f) The Administrative Lender shall promptly notify the Lenders of each notice received from the Notification Agent pursuant to this Section. Failure of the Notification Agent to give any notice in accordance with Sections 2.2(c) and (d) hereof shall result in a repayment of any such existing Advance on the applicable Payment Date by a Refinancing Advance which is a Prime Rate Advance. Each Lender shall, not later than noon, Dallas, Texas time, on the date of any Advance that is not a Refinancing Advance, deliver to the Administrative Lender, at its address set forth herein, such Lender's Specified Percentage of such Advance in immediately available funds in accordance with the Administrative Lender's instructions. Prior -18- to 2:00 p.m., Dallas, Texas time, on the date of any Advance hereunder, the Administrative Lender shall, subject to satisfaction of the conditions set forth in Article 3, disburse the amounts made available to the Administrative Lender by the Lenders by (i) transferring such amounts by wire transfer pursuant to the Notification Agent's instructions, or (ii) in the absence of such instructions, crediting such amounts to the joint account of the Borrowers maintained with the Administrative Lender. All Advances shall be made by each Lender according to its Specified Percentage. Section 2.3 Interest. (a) On Prime Rate Advances. (i) The Borrowers jointly and severally shall pay interest on the outstanding unpaid principal amount of each Prime Rate Advance, from the date such Advance is made until it is due (whether at maturity, by reason of acceleration, by scheduled reduction, or otherwise) or repaid, at a simple interest rate per annum equal to the Prime Rate Basis as in effect from time to time, provided that interest on Prime Rate Advances shall not exceed the Maximum Amount. If at any time the Prime Rate Basis would exceed the Highest Lawful Rate, interest payable on Prime Rate Advances shall be limited to the Highest Lawful Rate, but the Prime Rate Basis shall not thereafter be reduced below the Highest Lawful Rate until the total amount of interest accrued on such Advances equals the amount of interest that would have accrued if the Prime Rate Basis had been in effect at all times. (ii) Interest on each Prime Rate Advance shall be computed on the basis of a year of 365 or 366 days, as applicable, for the number of days actually elapsed, and shall be payable in arrears on each Quarterly Date and on the Maturity Date. (b) On LIBOR Advances. (i) The Borrowers jointly and severally shall pay interest on the unpaid principal amount of each LIBOR Advance, from the date such Advance is made until it is due (whether at maturity, by reason of acceleration, by scheduled reduction, or otherwise) or repaid, at a rate per annum equal to the LIBOR Basis for such Advance. The Administrative Lender, whose determination shall be conclusive, shall determine the LIBOR Basis on the second Business Day prior to the applicable funding date and shall notify the Notification Agent and the Lenders of such LIBOR Basis. (ii) Subject to Section 11.9 hereof, interest on each LIBOR Advance shall be computed on the basis of a 360-day year for the actual number of days elapsed, and shall be payable in arrears on the applicable Payment Date and on the Maturity Date; provided, however, that if the Interest Period for such Advance exceeds three months, interest shall also be due and payable in arrears on each Quarterly Date during such Interest Period. -19- (c) Interest if No Notice of Selection of LIBOR Basis or Interest Period. If the Notification Agent fails to give the Administrative Lender timely notice of the Borrowers' selection of a LIBOR Basis for a LIBOR Advance, or if for any reason a determination of a LIBOR Basis for any Advance is not timely concluded due to the fault of the Borrowers or the Notification Agent, the Prime Rate Basis shall apply to the applicable Advance. If the Notification Agent fails to give the Administrative Lender timely notice of the Borrowers' selection of an Interest Period for a LIBOR Advance, a one-month Interest Period shall apply to the applicable Advance. (d) Interest After an Event of Default. (i) After an Event of Default (other than an Event of Default specified in Section 8.1 (g) or (h) hereof) and during any continuance thereof, at the option of Determining Lenders, and (ii) after an Event of Default specified in Section 8.l (g) or (h) hereof and during any continuance thereof, automatically and without any action by the Administrative Lender or any Lender, the Obligations shall bear interest at a rate per annum equal to the Default Rate. Such interest shall be payable on the earlier of demand or the Maturity Date, and shall accrue until the earlier of (i) waiver or cure (to the satisfaction of the Determining Lenders) of the applicable Event of Default, (ii) agreement by the Lenders to rescind the charging of interest at the Default Rate, or (iii) payment in full of the Obligations. The Lenders shall not be required to accelerate the maturity of the Advances, to exercise any other rights or remedies under the Loan Documents, or to give notice to the Borrowers or the Notification Agent of the decision to charge interest at the Default Rate. The Lenders will undertake to notify the Notification Agent, after the effective date, of the decision to charge interest at the Default Rate. Section 2.4 Fees. (a) Commitment Fee. Subject to Section 11.9 hereof, the Borrowers jointly and severally agree to pay to the Administrative Lender, for the ratable account of the Lenders, a commitment fee equal to 0.375% per annum of the daily average unborrowed balance of the Commitment. Such fees shall be (i) payable in arrears on each Quarterly Date and the Maturity Date, fully earned when due and, subject to Section 11.9 hereof, nonrefundable when paid and (ii) subject to Section 11.9 hereof, computed on the basis of a year of 360 days for the actual number of days elapsed. For purposes of calculating the commitment fee, undrawn portions of Letters of Credit outstanding from time to time will reduce the unused portion of the Commitment. (b) Facility Fee. Subject to Section 11.9 hereof, the Borrowers jointly and severally agree to pay directly to each Lender a facility fee in the amount provided for in a facility fee letter between the Borrowers and each Lender. Such fee shall be payable on the Agreement Date, fully earned when due and, subject to Section 11.9 hereof, nonrefundable when paid. (c) Administrative Fee. If at any time there shall be more than one Lender party to this Credit Agreement and subject to Section 11.9 hereof, the Borrowers jointly and severally shall pay to the Administrative Lender, for its account and not the account of the Lenders, an -20- administrative fee to be agreed upon by the Borrowers and the Administrative Lender. Such fee shall be payable in arrears on each Quarterly Date and the Maturity Date, fully earned when due and, subject to Section 11.9 hereof, nonrefundable when paid. Section 2.5 Prepayment. (a) Voluntary Prepayments. The principal amount of any Prime Rate Advance may be prepaid in full or in part at any time, without penalty and without regard to the Payment Date for such Advance, upon one Business Day's (or three Business Days for prepayment of a LIBOR Advance) prior telephonic notice (to be promptly followed by written notice) by the Notification Agent, through an Authorized Signatory, to the Administrative Lender. LIBOR Advances may be voluntarily prepaid only so long as the Borrowers concurrently reimburse the Lenders in accordance with Section 2.9 hereof. Any notice of prepayment shall be irrevocable. (b) Mandatory Prepayment. On or before the date of any reduction of the Commitment, the Borrowers jointly and severally shall prepay applicable outstanding Advances in an amount necessary to reduce the sum of outstanding Advances and Reimbursement Obligations to an amount less than or equal to the Commitment as so reduced. The Borrowers jointly and severally shall first prepay all Prime Rate Advances and shall thereafter prepay LIBOR Advances. To the extent that any prepayment requires that a LIBOR Advance be repaid on a date other than the last day of its Interest Period, the Borrowers jointly and severally shall reimburse each Lender in accordance with Section 2.9 hereof. (c) Prepayments from Excess Cash Flow. Commencing on September 30, 1995 and on each September 30 thereafter, the Borrowers jointly and severally shall prepay Advances in an aggregate amount equal to 50% of the Excess Cash Flow, if any, for the fiscal year ending on each June 30 immediately preceding each such September 30; provided, however, that no such prepayment shall be required (i) if the Leverage Ratio as of the June 30th date immediately preceding the September 30th date such prepayment is to be made is less than or equal to 1.50 to 1 and (ii) in an amount exceeding the product of (Y) .25 times (Z) the required Commitment reduction pursuant to Section 2.6(c) hereof on the June 30th date immediately preceding the September 30th date such prepayment is to be made. (d) Prepayments, Generally. Any prepayment of an Advance shall be accompanied by interest accrued on the principal amount being prepaid. Any voluntary partial prepayment of a Prime Rate Advance shall be in a principal amount which is at least $50,000 and which is an integral multiple of $10,000. Any voluntary partial prepayment of a LIBOR Advance shall be in a principal amount which is at least $100,000 and which is an integral multiple thereof. Following the Commitment Reduction Date, prepayments shall be applied to the mandatory reductions of the Commitment pursuant to Section 2.6(c) hereof in inverse order and such prepayment shall not otherwise reduce the scheduled Commitment reductions required pursuant to Section 2.6(c) hereof. -21- Section 2.6 Reduction of Commitment. (a) Voluntary Reduction. The Borrowers shall have the right, upon not less than three Business Days' notice (provided no notice shall be required for a termination in whole of the Commitment) by the Notification Agent, through an Authorized Signatory, to the Administrative Lender (if telephonic, to be confirmed by telex or in writing on or before the date of reduction or termination), which shall promptly notify the Lenders, to terminate or reduce the Commitment, in whole or in part. Each partial termination shall be in an aggregate amount which is at least $100,000 and which is an integral multiple of $100,000, and no voluntary reduction in the Commitment shall cause any LIBOR Advance to be repaid prior to the last day of its Interest Period. Notwithstanding anything herein to the contrary, in no event shall the Borrowers have the right to reduce the Commitment to an amount less than the aggregate outstanding Reimbursement Obligations. (b) Mandatory Reduction. The Commitment shall be automatically reduced (i) by the amount of any amount prepaid or required to be prepaid pursuant to Section 2.5(b) or (c) hereof, and (ii) as set forth in Section 2.6(c) hereof. Notwithstanding anything herein to the contrary, in no event shall the Borrowers reduce the Commitment to an amount less than the aggregate outstanding Reimbursement Obligations. (c) Scheduled Reductions. On each Quarterly Date, commencing on the Commitment Reduction Date, through the last Business Day of September 1999, the Commitment outstanding on the Commitment Reduction Date shall automatically reduce by an amount equal to the percentage reduction that the Commitment is to reduce on the Quarterly Date pursuant to the table below. Notwithstanding the foregoing, on the Maturity Date, the Commitment shall automatically reduce to zero. Quarterly Date % Reduction -------------- ----------- March 1995 5.26% June 1995 5.26% September 1995 5.26% December 1995 5.26% March 1996 5.26% June 1996 5.26% September 1996 5.26% December 1996 5.26% March 1997 5.26% June 1997 5.26% September 1997 5.26% December 1997 5.26% March 1998 5.26% June 1998 5.26% September 1998 5.26% -22- December 1998 5.26% March 1999 5.26% June 1999 5.26% September 1999 5.32% and any remaining balance such that the Commitment shall be zero (d) General Requirements. Upon any reduction of the Commitment pursuant to Section 2.6(b) or 2.6(c), the Borrowers jointly and severally shall immediately make a repayment of applicable Advances in accordance with Section 2.5(b) hereof. The Borrowers jointly and severally shall reimburse each Lender for any loss or out-of-pocket expense incurred by each Lender in connection with any such payment, as set forth in Section 2.9 hereof. The Borrowers shall not have any right to rescind any termination or reduction. Once reduced, the Commitment may not be increased or reinstated. Section 2.7 Non-Receipt of Funds by the Administrative Lender. Unless the Administrative Lender shall have been notified by a Lender prior to the date of any proposed Advance (which notice shall be effective upon receipt) that such Lender does not intend to make the proceeds of such Advance available to the Administrative Lender, the Administrative Lender may assume that such Lender has made such proceeds available to the Administrative Lender on such date, and the Administrative Lender may in reliance upon such assumption (but shall not be required to) make available to the Borrowers a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Lender by such Lender, the Administrative Lender shall be entitled to recover such amount on demand from such Lender (or, if such Lender fails to pay such amount forthwith upon such demand, from the Borrowers) together with interest thereon in respect of each day during the period commencing on the date such amount was available to the Borrowers and ending on (but excluding) the date the Administrative Lender receives such amount from the Lender, with interest thereon at a per annum rate equal to the Federal Funds Rate. No Lender shall be liable for any other Lender's failure to fund an Advance hereunder. Section 2.8 Payment of Principal of Advances. The Borrowers jointly and severally agree to pay the principal amount of the Advances to the Administrative Lender for the account of the Lenders as follows: (a) End of Interest Period. The principal amount of each Advance hereunder shall be due and payable on its Payment Date, which principal payment may be made by means of a Refinancing Advance. (b) Commitment Reduction. On the date of reduction of the Commitment pursuant to Section 2.6 hereof, including the Maturity Date, the aggregate amount of the Advances outstanding on such date of reduction in excess of the Commitment as reduced minus all outstanding Reimbursement Obligations shall be due and payable, which principal payment may not be made by means of Refinancing Advances. -23- (c) Maturity Date. The principal amount of the Advances, all accrued interest and fees thereon, and all other Obligations, shall be due and payable in full on the Maturity Date. Section 2.9 Reimbursement. Whenever any Lender shall sustain or incur any losses or reasonable out-of-pocket expenses in connection with (a) failure by the Borrowers to borrow any LIBOR Advance after having given notice of their intention to borrow in accordance with Section 2.2 hereof (whether by reason of the Borrowers' election not to proceed or the non-fulfillment of any of the conditions set forth in Article 3 hereof), or (b) any prepayment for any reason of any LIBOR Advance in whole or in part (including a prepayment pursuant to Sections 2.5(c) and 9.3(b) hereof), the Borrowers jointly and severally agree to pay to any such Lender, upon its demand, an amount sufficient to compensate such Lender for all such losses and out-of-pocket expenses. Such Lender's good faith determination of the amount of such losses or out-of-pocket expenses, calculated in its usual fashion, absent manifest error, shall be binding and conclusive. Such losses shall include, without limiting the generality of the foregoing, lost profits and reasonable expenses incurred by such Lender in connection with the re-employment of funds prepaid, repaid, converted or not borrowed, converted or paid, as the case may be. Upon request of the Notification Agent, such Lender shall provide a certificate setting forth the amount to be paid to it by the Borrowers hereunder and calculations therefor. Section 2.10 Manner of Payment. (a) Each payment (including prepayments) by the Borrowers of the principal of or interest on the Advances, fees, and any other amount owed under this Agreement or any other Loan Document shall be made not later than 1:00 p.m. (Dallas, Texas time) on the date specified for payment under this Agreement to the Administrative Lender at the Administrative Lender's office, in lawful money of the United States of America constituting immediately available funds. (b) If any payment under this Agreement or any other Loan Document shall be specified to be made upon a day which is not a Business Day, it shall be made on the next succeeding day which is a Business Day, unless such Business Day falls in another calendar month, in which case payment shall be made on the preceding Business Day. Any extension or reduction of time shall in such case be included in computing interest and fees, if any, in connection with such payment. (c) The Borrowers jointly and severally agree to pay principal, interest, fees and all other amounts due under the Loan Documents without deduction for set-off or counterclaim or any deduction whatsoever. (d) If some but less than all amounts due from the Borrowers are received by the Administrative Lender, the Administrative Lender shall apply such amounts in the following order of priority: (i) to the payment of the Administrative Lender's expenses incurred on behalf of the Lenders then due and payable, if any; (ii) to the payment of all other fees then due and payable; (iii) to the payment of interest then due and payable on the Advances; (iv) to the -24- payment of all other amounts not otherwise referred to in this clause (d) then due and payable under the Loan Documents; and (v) to the payment of principal then due and payable on the Advances. Section 2.11 LIBOR Lending Offices. Each Lender's initial LIBOR Lending Office is set forth opposite its name in Schedule I attached hereto. Each Lender shall have the right at any time and from time to time to designate a different office of itself or of any Affiliate as such Lender's LIBOR Lending Office, and to transfer any outstanding LIBOR Advance to such LIBOR Lending Office. No such designation or transfer shall result in any liability on the part of the Borrowers for increased costs or expenses resulting solely from such designation or transfer (except any such transfer which is made by a Lender pursuant to Section 9.2 or 9.3 hereof, or otherwise for the purpose of complying with Applicable Law). Increased costs for expenses resulting from a change in law occurring subsequent to any such designation or transfer shall be deemed not to result solely from such designation or transfer. Section 2.12 Sharing of Payments. Any Lender obtaining a payment (whether voluntary or involuntary, due to the exercise of any right of set-off, or otherwise) on account of its Advances in excess of its Specified Percentage of all payments made by the Borrowers with respect to Advances shall purchase from each other Lender such participation in the Advances made by such other Lender as shall be necessary to cause such purchasing Lender to share the excess payment pro rata according to Specified Percentages with each other Lender which is not in default of its obligations hereunder with respect to such Advance; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. The Borrowers agree that any Lender so purchasing a participation from another Lender pursuant to this Section, to the fullest extent permitted by law, may exercise all its rights of payment (including the fight of set-off with respect to such participation as fully as if such Lender were the direct creditor of the Borrowers in the amount of such participation. Section 2.13 Calculation of LIBOR Rate. The provisions of this Agreement relating to calculation of the LIBOR Rate are included only for the purpose of determining the rate of interest or other amounts to be paid hereunder that are based upon such rate, it being understood that each Lender shall be entitled to fund and maintain its funding of all or any part of a LIBOR Advance as it sees fit. Section 2.14 Booking Loans. Any Lender may make, carry or transfer Advances at, to or for the account of any of its branch offices or the office of any Affiliate. Section 2.15 Taxes. (a) Any and all payments by the Borrowers hereunder shall be made, in accordance with Section 2.10, free and clear of and without deduction for any and all present or future taxes, levies, imposts, and withholdings, and all liabilities in respect of the Obligations, excluding, in the case of each Lender and the Administrative Lender, taxes imposed on its -25- overall net income, and franchise taxes imposed on it (including interest and penalties imposed thereon), by the jurisdiction under the laws of which such Lender or the Administrative Lender (as the case may be) is organized or any political subdivision thereof (all such non-excluded taxes, levies, imposts, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrowers shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Lender, (x) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.15) such Lender or the Administrative Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (y) the Borrowers jointly and severally shall make such deductions and (z) the Borrowers jointly and severally shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrowers jointly and severally agree to pay any and all stamp and documentary taxes and any and all other excise and property taxes, charges and similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrowers jointly and severally will indemnify each Lender and the Administrative Lender for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.15) paid by such Lender or the Administrative Lender (as the case may be) and all liabilities (including penalties, additions to tax, interest and reasonable expenses) arising therefrom or with respect thereto whether or not such Taxes or Other Taxes were correctly or legally asserted, other than penalties, additions to tax, interest and expenses arising as a result of gross negligence on the part of such Lender or the Administrative Lender, provided, however, that the Borrowers shall have no obligation to indemnify such Lender or the Administrative Lender unless (i) such Lender or the Administrative Lender, as applicable, has paid such Taxes or Other Taxes, (ii) notice has been given by such Lender or the Administrative Lender, as applicable, to the Notification Agent, in a time sufficient to afford the Borrowers, in good faith and in the names of and on behalf of such Lender or the Administrative Lender, a reasonable opportunity to contest such payment by such Lender or the Administrative Lender, provided such opportunity to contest exists under Applicable Law, and (iii) until such Lender or the Administrative Lender shall have delivered to the Notification Agent a certificate setting forth in reasonable detail the basis of the Borrowers' obligation to indemnify such Lender or the Administrative Lender pursuant to this Section 2.15. This indemnification shall be made within 45 days from the date such Lender or the Administrative Lender (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, the Notification Agent will furnish to the Administrative Lender the original or a certified copy of a receipt evidencing payment thereof. If no Taxes are payable in respect of any payment hereunder, the Notification Agent will furnish to the Administrative Lender a certificate from each appropriate taxing -26- authority, or an opinion of counsel acceptable to the Administrative Lender, in either case stating that such payment is exempt from or not subject to Taxes, provided, however, that such certificate or opinion need only be given if: (i) the Borrowers make any payment from any account located outside the United States, or (ii) the payment is made by a payor that is not a United States Person. For purposes of this Section 2.15 the terms "United States" and "United States Person" shall have the meanings set forth in Section 7701 of the Code. (e) Each Lender which is not a United States Person hereby agrees that: (i) it shall, no later than the Agreement Date (or, in the case of a Lender which becomes a party hereto pursuant to Section 11.16 after the Agreement Date, the date upon which such Lender becomes a party hereto) deliver to the Notification Agent through the Administrative Lender, with a copy to the Administrative Lender: (A) if any lending office is located in the United States of America, two (2) accurate and complete signed originals of Internal Revenue Service Form 4224 or any successor thereto ("Form 4224"), (B) if any lending office is located outside the United States of America, two (2) accurate and complete signed originals of Internal Revenue Service Form 1001 or any successor thereto ("Form 1001 "). in each case indicating that such Lender is on the date of delivery thereof entitled to receive payments of principal, interest and fees for the account of such lending office or lending offices under this Agreement free from withholding of United States Federal income tax; (ii) if at any time such Lender changes its lending office or lending offices or selects an additional lending office it shall, at the same time or reasonably promptly thereafter but only to the extent the forms previously delivered by it hereunder are no longer effective, deliver to the Notification Agent through the Administrative Lender, with a copy to the Administrative Lender, in replacement for the forms previously delivered by it hereunder: (A) if such changed or additional lending office is located in the United States of America, two (2) accurate and complete signed originals of Form 4224; or (B) otherwise, two (2) accurate and complete signed originals of Form 1001, in each case indicating that such Lender is on the date of delivery thereof entitled to receive payments of principal, interest and fees for the account of such changed or additional lending office under this Agreement free from withholding of United States Federal income tax; -27- (iii) it shall, before or promptly after the occurrence of any event (including the passing of time but excluding any event mentioned in clause (ii) above) requiring a change in the most recent Form 4224 or Form 1001 previously delivered by such Lender and if the delivery of the same be lawful, deliver to the Notification Agent through the Administrative Lender with a copy to the Administrative Lender, two (2) accurate and complete original signed copies of Form 4224 or Form 1001 in replacement for the forms previously delivered by such Lender; and (iv) it shall, promptly upon the request of the Notification Agent to that effect, deliver to the Notification Agent such other forms or similar documentation as may be required from time to time by any applicable law, treaty, rule or regulation in order to establish such Lender's tax status for withholding purposes. (f) Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements and obligations of the Borrowers contained in this Section 2.15 shall survive the payment in full of principal and interest hereunder. (g) Any Lender claiming any additional amounts payable pursuant to this Section 2.15 shall use its reasonable best efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its lending office, if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue and would not, in the sole judgment of such Lender, be otherwise disadvantageous to such Lender. (h) Each Lender (and the Administrative Lender with respect to payments to the Administrative Lender for its own account) agrees that (i) it will take all reasonable actions by all usual means to maintain all exemptions, if any, available to it from United States withholding taxes (whether available by treaty, existing administrative waiver, by virtue of the location of any Lender's lending office) and (ii) otherwise cooperate with the Borrowers to minimize amounts payable by the Borrowers under this Section 2.15; provided, however, the Lenders and the Administrative Lender shall not be obligated by reason of this Section 2.15(h) to contest the payment of any Taxes or Other Taxes or to disclose any information regarding its tax affairs or tax computations or reorder its tax or other affairs or tax or other planning. Section 2.16 Letters of Credit. (a) The Letter of Credit Facility. The Borrowers, through an Authorized Signatory of the Notification Agent, may request the Issuing Bank, on the terms and conditions hereinafter set forth, to issue, and the Issuing Bank shall, if so requested, issue, letters of credit (the "Letters of Credit") for the account of any Borrower from time to time on any Business Day from the date of the initial Advance until the Maturity Date in an aggregate maximum amount (assuming compliance with all conditions to drawing) not to exceed at any time outstanding the lesser of (i)$2,500,000 (the "Letter of Credit Facility"), and (ii) the sum of (A) the Commitment minus (B) the aggregate principal amount of Advances then outstanding. No Letter -28- of Credit shall have an expiration date (including all rights of renewal) later than the earlier of (i) the Maturity Date or (ii) one year after the date of issuance thereof. The Borrowers shall be jointly and severally liable for all obligations in respect of Letters of Credit. Immediately upon the issuance of each Letter of Credit, the Issuing Bank shall be deemed to have sold and transferred to each Lender, and each Lender shall be deemed to have purchased and received from the Issuing Bank, in each case irrevocably and without any further action by any party, an undivided interest and participation in such Letter of Credit, each drawing thereunder and the obligations of the Borrowers under this Agreement in respect thereof in an amount equal to the product of (i) such Lender's Specified Percentage of the Commitment times (ii) the maximum amount available to be drawn under such Letter of Credit (assuming compliance with all conditions to drawing). Within the limits of the Letter of Credit Facility, and subject to the limits referred to above, the Borrowers, through an Authorized Signatory of the Notification Agent, may request the issuance of Letters of Credit under this Section 2.16(a), repay any Advances resulting from drawings thereunder pursuant to Section 2.16(c) and request the issuance of additional Letters of Credit under this Section 2.16(a). During the term of this Agreement, provided that no Default or Event of Default then exists and subject to the appropriate conditions for the issuance of a Letter of Credit set forth in Article 3 hereof, the Issuing Bank shall automatically renew any expiring Letters of Credit for a period of time not to exceed the earlier of (x) the Maturity Date or (y) one year after the date of issuance thereof. (b) Request for Issuance. Each Letter of Credit shall be issued upon notice, given not later than 11:00 a.m. (Dallas time) on the third Business Day prior to the date of the proposed issuance of such Letter of Credit, by the Notification Agent, through an Authorized Signatory, to the Issuing Bank, which shall give to the Administrative Lender and each Lender prompt notice thereof by telex, telecopier or cable. Each Letter of Credit shall be issued upon notice given in accordance with the terms of any separate agreement between the Borrowers and the Issuing Bank in form and substance reasonably satisfactory to the Borrowers and the Issuing Bank providing for the issuance of Letters of Credit pursuant to this Agreement and containing terms and conditions not inconsistent with this Agreement (a "Letter of Credit Agreement"), provided that if any such terms and conditions are inconsistent with this Agreement, this Agreement shall control. Each such notice of issuance of a Letter of Credit (a "Notice of Issuance") shall be by telex, telecopier or cable, specifying therein, in the case of a Letter of Credit, the requested (A) date of such issuance (which shall be a Business Day), (B) maximum amount of such Letter of Credit, (C) expiration date of such Letter of Credit, (D) name and address of the beneficiary of such Letter of Credit, (E) form of such Letter of Credit and (F) such other information as shall be required pursuant to the relevant Letter of Credit Agreement. If the requested terms of such Letter of Credit are acceptable to the Issuing Bank in its reasonable discretion, the Issuing Bank will, upon fulfillment of the applicable conditions set forth in Article 3 hereof, make such Letter of Credit available to the Notification Agent at its office referred to in Section 11.1 or as otherwise agreed with the Borrowers in connection with such issuance. (c) Drawing and Reimbursement. The payment by the Issuing Bank of a draft drawn under any Letter of Credit shall constitute for all purposes of this Agreement the making by the -29- Issuing Bank of an Advance, which shall bear interest at the applicable Prime Rate Basis, in the amount of such draft (but without any requirement for compliance with the conditions set forth in Article 3 hereof). In the event that a drawing under any Letter of Credit is not reimbursed by the Borrowers by 11:00 a.m. (Dallas time) on the first Business Day after such drawing, the Issuing Bank shall promptly notify Administrative Lender and each other Lender. Each such Lender shall, on the first Business Day following such notification, make an Advance, which shall bear interest at the applicable Prime Rate Basis, and shall be used to repay the applicable portion of the Issuing Bank' s Advance with respect to such Letter of Credit, in an amount equal to the amount of its participation in such drawing for application to reimburse the Issuing Bank (but without any requirement for compliance with the applicable conditions set forth in Article 3 hereof) and shall make available to the Administrative Lender for the account of the Issuing Bank, by deposit at the Administrative Lender's office, in same day funds, the amount of such Advance. In the event that any Lender fails to make available to the Administrative Lender for the account of the Issuing Bank the amount of such Advance, the Issuing Bank shall be entitled to recover such amount on demand from such Lender together with interest thereon at a rate per annum equal to the lesser of (i) the Highest Lawful Rate or (ii) the Federal Funds Rate. (d) Increased Costs. If any change in any law or regulation or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof shall either (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against letters of credit or guarantees issued by, or assets held by, or deposits in or for the account of, the Issuing Bank or any Lender or (ii) impose on the Issuing Bank or any Lender any other condition regarding this Agreement or such Lender or any Letter of Credit, and the result of any event referred to in the preceding clause (i) or (ii) shall be, in the reasonable opinion of the Issuing Bank or any Lender, to increase the cost to the Issuing Bank of issuing or maintaining any Letter of Credit or to any Lender of purchasing any participation therein or making any Advance pursuant to Section 2.16(c), then, upon demand by the Issuing Bank or such Lender upon the Notification Agent, the Borrowers jointly and severally shall, subject to Section 11.9 hereof, pay to the Issuing Bank or such Lender, from time to time as specified by the Issuing Bank or such Lender, additional amounts that shall be sufficient to compensate the Issuing Bank or such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Notification Agent by the Issuing Bank or such Lender, shall include in reasonable detail the basis for the demand for additional compensation and shall be conclusive and binding for all purposes, absent demonstrable error. The obligations of the Borrowers under this Section 2.16(d) shall survive termination of this Agreement. The Issuing Bank or any Lender claiming any additional compensation under this Section 2.16(d) shall use reasonable efforts (consistent with legal and regulatory restrictions) to reduce or eliminate any such additional compensation which may thereafter accrue and which efforts would not, in the sole discretion of the Issuing Bank or such Lender, be otherwise disadvantageous. (e) Obligations Absolute. The obligations of the Borrowers under this Agreement with respect to any Letter of Credit, any Letter of Credit Agreement and any other agreement or instrument relating to any Letter of Credit or any Advance pursuant to Section 2.16(c) shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this -30- Agreement, such Letter of Credit Agreement and such other agreement or instrument under all circumstances, including, without limitation, the following circumstances: (i) any lack of validity or enforceability of this Agreement, any other Loan Document, any Letter of Credit Agreement, any Letter of Credit or any other agreement or instrument relating thereto (collectively, the "L/C Related Documents"); (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of the Borrowers in respect of the Letters of Credit or any Advance pursuant to Section 2.16(c) or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents; (iii) the existence of any claim, set-off, defense or other right that any Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Bank, any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C Related Documents or any unrelated transaction; (iv) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect, except to the extent that any payment by the Issuing Bank against any such statement or other document shall be as a result of the Issuing Bank's gross negligence or willful misconduct; (v) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not comply with the terms of the Letter of Credit, except for any payment made upon the Issuing Bank's gross negligence or willful misconduct; (vi) any exchange, release or non-perfection of any Collateral, or any release or amendment or waiver of or consent to departure from any Subsidiary Guaranty or any other guarantee, for all or any of the Obligations of the Borrowers in respect of the Letters of Credit or any Advance pursuant to Section 2.16(c); or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrowers or a guarantor, other than the Issuing Bank's gross negligence or wilful misconduct. (f) Compensation for Letters of Credit. (i) Credit Fees. Subject to Section 11.9 hereof, the Borrowers jointly and severally shall pay to the Administrative Lender for the account of each Lender a credit -31- fee (which shall be payable quarterly in arrears on each Quarterly Date and on the Maturity Date) on the average daily amount available for drawing under all outstanding Letters of Credit (computed, subject to Section 11.9 hereof, on the basis of a 360-day year for the actual number of days elapsed) at the following per annum percentages, applicable in the following situations: Applicability Percentage ------------- ---------- (A) If the Leverage Ratio is not less than 2.0 to 1 1.850% (B) If the Leverage Ratio is less than 2.0 to 1 but is not 1.750% less than 1.5 to 1 (C) If the Leverage Ratio is less than 1.5 to 1 but is not 1.500% less than 1.0 to 1 (D) If the Leverage Ratio is less than 1.0 to 1 1.250% (ii) Adjustment of Credit Fee. The credit fee payable in respect of the Letters of Credit shall be subject to reduction or increase, as applicable and as set forth in the table in (i) above, on a quarterly basis according to the performance of the Borrowers as tested by the Leverage Ratio. Except as set forth in the last sentence hereof, any such increase or reduction in such fee shall be effective on the third Business Day following the date of receipt of the applicable financial statements required to be delivered pursuant to Section 6.l(b) or 6.2(b) hereof. If financial statements of the Borrowers setting forth the Leverage Ratio are not received by the Administrative Lender by the date required pursuant to Section 6.1(b) or 6.2(a) hereof, as applicable, the fee payable in respect of the Letters of Credit shall be determined as if the Leverage Ratio exceeds 2.0 to 1 until such time as such financial statements are received. For the last fiscal quarter of any fiscal year of the Borrowers, the Borrowers may provide their unaudited financial statements, subject only to year-end adjustments, for the purpose of adjusting the Letter of Credit fee. (iii) Issuance Fee. Subject to Section 11.9 hereof, the Borrowers jointly and severally shall pay to the Administrative Lender, for the sole account of the Issuing Bank, an issuance fee of $500 on the date of issuance of each Letter of Credit. (g) L/C Cash Collateral Account. (i) Upon the occurrence of an Event of Default and demand by the Administrative Lender pursuant to Section 8.2(c), the Borrowers jointly and severally will promptly pay to the Administrative Lender in immediately available funds an amount equal to 100% of the maximum amount then available to be drawn under the Letters of Credit then outstanding. Any amounts so received by the Administrative Lender shall -32- be deposited by the Administrative Lender in a deposit account maintained by the Issuing Bank (the "L/C Cash Collateral Account"). (ii) As security for the payment of all Reimbursement Obligations and for any other Obligations, the Borrowers hereby grant, convey, assign, pledge, set over and transfer to the Administrative Lender (for the benefit of the Issuing Bank and Lenders), and creates in the Administrative Lender's favor (for the benefit of the Issuing Bank and Lenders) a Lien in, all money, instruments and securities at any time held in or acquired in connection with the L/C Cash Collateral Account, together with all proceeds thereof. The L/C Cash Collateral Account shall be under the sole dominion and control of the Administrative Lender and the Borrowers shall have no right to withdraw or to cause the Administrative Lender to withdraw any funds deposited in the L/C Cash Collateral Account except as otherwise provided in Section 2.16(g)(iii). At any time and from time to time, upon the Administrative Lender's request delivered to the Notification Agent, the Borrowers promptly shall execute and deliver any and all such further instruments and documents, including UCC financing statements, as may be necessary, appropriate or desirable in the Administrative Lender's judgment to obtain the full benefits (including perfection and priority) of the security interest created or intended to be created by this paragraph (ii) and of the rights and powers herein granted. The Borrowers shall not create or suffer to exist any Lien on any amounts or investments held in the L/C Cash Collateral Account other than the Lien granted under this paragraph (ii) and Liens arising by operation of Applicable Law and not by contract which secure amounts not yet due and payable. (iii) The Administrative Lender shall (A) apply any funds in the L/C Cash Collateral Account on account of Reimbursement Obligations when the same become due and payable if and to the extent that the Borrowers shall fail directly to pay such Reimbursement Obligations, (B) after the Maturity Date, apply any proceeds remaining in the L/C Cash Collateral Account first to pay any unpaid Obligations then outstanding hereunder and then to refund any remaining amount to the Borrowers, and (C) provided no Default or Event of Default shall be in existence, return any funds in the L/C Cash Collateral Account to the Borrowers. (iv) The Borrowers, no more than once in any calendar month, may, through an Authorized Signatory of the Notification Agent, direct the Administrative Lender to invest the funds held in the L/C Cash Collateral Account (so long as the aggregate amount of such funds exceeds any relevant minimum investment requirement) in (A) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof and (B) one or more other types of investments permitted by the Determining Lenders, in each case with such maturities as the Borrowers, with the consent of the Determining Lenders, may specify, pending application of such funds on account of Reimbursement Obligations or on account of other Obligations, as the case may be. In the absence of any such direction from the Borrowers through an Authorized Signatory of the Notification Agent, the Administrative -33- Lender shall invest the funds held in the L/C Cash Collateral Account (so long as the aggregate amount of such funds exceeds any relevant minimum investment requirement) in one or more types of investments with the consent of the Determining Lenders with such maturities as the Borrowers, with the consent of the Determining Lenders and through an Authorized Signatory of the Notification Agent, may specify, pending application of such funds on account of Reimbursement Obligations or on account of other Obligations, as the case may be. All such investments shall be made in the Administrative Lender's name for the account of the Lenders. The Borrowers recognize that any losses or taxes with respect to such investments shall be borne solely by the Borrowers, and the Borrowers jointly and severally agree to hold the Administrative Lender and the Lenders harmless from any and all such losses and taxes. Administrative Lender may liquidate any investment held in the L/C Cash Collateral Account in order to apply the proceeds of such investment on account of the Reimbursement Obligations (or on account of any other Obligation then due and payable, as the case may be) without regard to whether such investment has matured and without liability for any penalty or other fee incurred (with respect to which the Borrowers hereby agree to jointly and severally reimburse the Administrative Lender) as a result of such application. (v) The Borrowers jointly and severally shall pay to the Administrative Lender the fees customarily charged by the Issuing Bank with respect to the maintenance of accounts similar to the L/C Cash Collateral Account in an amount not to exceed $1,000 in aggregate per calendar year. ARTICLE 3 Conditions Precedent Section 3.1 Conditions Precedent to Closing and the Initial Advance to, and Letters of Credit on behalf of, Metro. The obligation of each Lender to sign this Agreement and to make the initial Advance to Metro, and the obligation of the Issuing Bank to issue the initial Letter of Credit on behalf of Metro, is subject to receipt by the Administrative Lender of each of the following, in form and substance satisfactory to the Administrative Lender, with a copy (except for the Notes) for each Lender: (a) a loan certificate of Metro certifying as to the incumbency of each Authorized Signatory, and including (i) a copy of the Articles of Incorporation of Metro, certified to be true, complete and correct by the secretary of state of its state of incorporation, (ii) a copy of the By-Laws of Metro, as in effect on the Agreement Date, (iii) a copy of the resolutions of Metro authorizing it to execute, deliver and perform this Agreement, the Notes, and the other Loan Documents to which it is a party, and (iv) a copy of a certificate of good standing and a certificate of existence, as applicable, for its state of incorporation and a certificate of authority to do business for each state in which it is qualified to do business; -34- (b) for each Subsidiary, a certificate of an officer acceptable to the Lenders of each such Subsidiary, certifying as to the incumbency of the officers signing the Loan Documents to which it is a party, and including (i) a copy of its Articles of Incorporation, certified as true, complete and correct by the secretary of state of its state of incorporation, (ii) a copy of its By-Laws, as in effect on the Agreement Date, (iii) a copy of the resolutions authorizing it to execute, deliver and perform the Loan Documents to which it is a party, and (iv) a copy of a certificate of good standing and a certificate of existence, as applicable, for its state of incorporation and certificate of authority to do business in each state in which it is qualified to do business; (c) duly executed Notes, payable to the order of each Lender and in an amount for each Lender equal to its Specified Percentage of the Commitment; (d) an Owner Pledge Agreement, duly executed and completed by David Saperstein and acknowledged and consented to by David Saperstein's spouse, dated as of the Agreement Date, granting the Lenders a first priority Lien and security interest in the Pledged Stock owned by David Saperstein; (e) a Borrower Pledge Agreement, duly executed and completed by Metro, dated as of the Agreement Date, granting the Lenders a first priority Lien and security interest in (i) the Pledged Stock owned directly by Metro and (ii) Intercompany Notes evidencing intercompany advances made, or to be made, by Metro to Subsidiaries; (f) duly executed and completed Subsidiary Pledge Agreements, dated as of the Agreement Date, granting the Lenders a first priority Lien and security interest in the (i) Pledged Stock owned directly by each Subsidiary, and (ii) Intercompany Notes evidencing intercompany advances made, or to be made, each Subsidiary to other Subsidiaries; (g) a duly executed and completed Borrower Security Agreement, dated as of the Agreement Date, granting the Lenders a first priority Lien and security interest in (i) the Accounts of Metro and (ii) the tangible personal property of Metro; (h) a duly executed and completed Subsidiary Security Agreement, dated as of the Agreement Date, granting the Lenders a first priority Lien and security interest in (i) the Accounts of each Subsidiary and (ii) the tangible personal property of each Subsidiary; (i) the Pledged Stock, together with stock powers duly executed in blank; (j) the Intercompany Notes, duly endorsed; (k) a duly executed and completed Subsidiary Guaranty, dated as of the Agreement Date executed by each Subsidiary; -35- (l) copies of insurance binders or certificates covering the assets of the Borrowers and the Subsidiaries, and meeting the requirements of Section 5.5 hereof; (m) reimbursement for Administrative Lender for Special Counsel's reasonable fees and expenses rendered through the date hereof; (n) evidence that all corporate proceedings of the Borrowers and the Subsidiaries taken in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be reasonably satisfactory in form and substance to the Lenders and Special Counsel; and the Lenders shall have received copies of all documents or other evidence which the Administrative Lender, Special Counsel or any Lender may reasonably request in connection with such transactions; (o) copies of the following combined and combining financial statements for Metro and its Subsidiaries, as of and for the period ended June 30, 1994: (i) combined and combining balance sheets as of the end of such period, and (ii) combined and combining statements of income and changes in cash for such period; which financial statements shall set forth in comparative form figures for the corresponding periods in the previous fiscal year, all in reasonable detail and certified by an Authorized Signatory to the best of his knowledge to be complete and correct and prepared in accordance with GAAP (other than footnotes thereto), subject to year-end adjustment; (p) the facility fee for the account of each Lender as required pursuant to Section 2.4(b) hereof; (q) all Indebtedness owing by Metro under the Existing Loan Agreement shall have been paid in full; (r) opinions of counsel to the Borrower and the Subsidiaries addressed to the Lenders and in form and substance reasonably satisfactory to the Lenders, dated the Agreement date; and (s) in form and substance satisfactory to the Lenders and Special Counsel, such other documents, instruments and certificates as the Administrative Lender may reasonably require in connection with the transactions contemplated hereby, including without limitation the status, organization or authority of the Borrowers or any Subsidiary, and the enforceability of and security for the Obligation. Section 3.2 Conditions Precedent to the Initial Advance to, and Letters of Credit on behalf of, MNLP. The obligation of each Lender to make the initial Advance to MNLP, and the obligation of the Issuing Bank to issue the initial Letter of Credit on behalf of MNLP, is subject to receipt by the Administrative Lender of each of the following, in form and substance satisfactory to the Administrative Lender, with a copy (except for the Notes) for each Lender: -36- (a) a general partner's certificate executed by the general partner of MNLP (i) certifying as to the general partner of the partnership, (ii) certifying as to the name of the partnership, (iii) including a copy of the Partnership Agreement, certified to be true, complete and correct, and in full force and effect, without amendment except as shown, and (iv) a copy of the certificate of limited partnership of the partnership, certified to be true and correct; (b) a certificate of an officer acceptable to the Lenders of Metro, certifying as to the incumbency of the officers signing Loan Documents on behalf of Metro, as the general partner of MNLP, and including a copy of the resolutions authorizing it to execute, deliver and perform the Loan Documents to which MNLP is a party; (c) a copy of the resolutions authorizing Metro to execute, deliver and perform the Owner Pledge Agreement; (d) a Trustee's certificate executed by the Trustees of each Trust (i) certifying as the numbers of the Trustees and (ii) including a copy of the Trust Agreement, certified to be true, complete and correct, and in full force and effect, without amendment except as shown; (e) [Intentionally Omitted]; (f) duly executed Notes, payable to the order of each Lender and in an amount for each Lender equal to its Specified Percentage of the Commitment; (g) an Owner Pledge Agreement, duly executed and completed by David Saperstein and acknowledged and consented to by David Saperstein's spouse, dated as of the Agreement Date, granting the Lenders a first priority Lien and security interest in the Pledged Stock owned by David Saperstein; (h) an Owner Pledge Agreement, duly executed and completed by Metro, dated as of the Agreement Date, granting the Lenders a first priority Lien and security interest in the Pledged Stock owned directly by Metro; (i) Owner Pledge Agreements, duly executed and delivered by the Trusts, dated as of the Agreement Date, granting the Lenders a first priority Lien and security interest in the Pledged Stock owned by the Trusts; (j) a Borrower Pledge Agreement, duly executed and completed by MNLP, dated as of the Agreement Date, granting the Lenders a first priority Lien and security interest in the Pledged Stock owned directly by MNLP; (k) a duly executed and completed Borrower Security Agreement, dated as of the Agreement Date, granting the Lenders a first priority Lien and security interest in (i) the Accounts of MNLP and (ii) the tangible personal property of MNLP; -37- (l) the Pledged Stock, together with stock powers duly executed in blank; (m) the Intercompany Notes, duly endorsed; (n) copies of insurance binders or certificates covering the assets of the Borrowers MNLP, and meeting the requirements of Section 5.5 hereof; (o) opinions of counsel to the Borrower and the Subsidiaries addressed to the Lenders and in form and substance reasonably satisfactory to the Lenders, dated the Agreement date; and (p) in form and substance satisfactory to the Lenders and Special Counsel, such other documents, instruments and certificates as the Administrative Lender may reasonably require in connection with the transactions contemplated hereby, including without limitation the status, organization or authority of the MNLP, and the enforceability of and security for the Obligation. Section 3.3 Conditions Precedent to the Initial Advance to, and Letters of Credit on behalf of, Additional Borrowers. The obligation of each Lender to make the initial Advance to, and the obligation of the Issuing Bank to issue the initial Letter of Credit on behalf of, additional Borrowers becoming party to this Agreement is subject to receipt by the Administrative Lender of each of the following, in form and substance satisfactory to the Administrative Lender, with a copy (except for the Notes) for each Lender: (a) to the extent such Borrower is a corporation, a loan certificate of such Borrower certifying as to the incumbency of officers signing the Loan Documents to which it is a party, and including (i) a copy of its Articles of Incorporation, certified to be true, complete and correct by the secretary of state of its state of incorporation, (ii) a copy of its By-Laws, as in effect on the Agreement Date, (iii) a copy of its resolutions authorizing it to execute, deliver and perform this Agreement, the Notes, and the other Loan Documents to which it is a party, and (iv) a copy of a certificate of good standing and a certificate of existence, as applicable, for its state of incorporation and a certificate of authority to do business for each state in which it is qualified to do business; (b) to the extent such Borrower is a partnership (general or limited), a partner's consent to borrowing executed by each of its general and/or limited partners (i) certifying as to the general and/or limited partners of the partnership, (ii) certifying as to the name of the partnership, (iii) if applicable, consenting to actions by the general partner on behalf of the Partnership, (iv) consenting to the borrowings under this Agreement, (v) including a copy of the Partnership Agreement, certified to be true, complete and correct, and in full force and effect, without amendment except as shown, and (vi) if applicable a copy of the certificate of limited partnership of the partnership, certified to be true and correct; (c) if a Subsidiary of such Borrower is a corporation, a certificate of an officer acceptable to the Lenders of each Subsidiary of such Borrower certifying as to the incumbency of the officers signing the Loan Documents to which it is a party, and including (i) a copy of -38- its Articles of Incorporation, certified as true, complete and correct by the secretary of state of its state of incorporation, (ii) a copy of its By-Laws, as in effect on the Agreement Date, (iii) a copy of the resolutions authorizing it to execute, deliver and perform the Loan Documents to which it is a party, and (iv) a copy of a certificate of good standing and a certificate of existence, as applicable, for its state of incorporation and certificate of authority to do business in each state in which it is qualified to do business; (d) to the extent any Subsidiary of such Borrower is a partnership (general or limited) a partner's consent to borrowing executed by each of its general and/or limited partners (i) certifying as to the general and/or limited partners of the partnership, (ii) certifying as to the name of the partnership, (iii) if applicable, consenting to actions by the general partner on behalf of the Partnership, (iv) consenting to the borrowings under this Agreement, (v) including a copy of the Partnership Agreement, certified to be true, complete and correct, and in full force and effect, without amendment except as shown, and (vi) if applicable a copy of the certificate of limited partnership of the partnership, certified to be true and correct; (e) duly executed Notes, payable to the order of each Lender and in an amount for each Lender equal to its Specified Percentage of the Commitment; (f) an Owner Pledge Agreement, duly executed and completed by each equity interest owner of such Borrower granting the Lenders a first priority Lien and security interest in the Pledged Stock owned by each such equity interest owner; (g) a duly executed and completed Borrower Pledge Agreement granting the Lenders a first priority Lien and security interest in (i) the Pledged Stock owned directly by such Borrower and (ii) Intercompany Notes evidencing intercompany advances made, or to be made, by such Borrower to Subsidiaries; (h) duly executed and completed Subsidiary Pledge Agreements granting the Lenders a first priority Lien and security interest in the (i) Pledged Stock owned directly by each Subsidiary, and (ii) Intercompany Notes evidencing intercompany advances made, or to be made, by each Subsidiary of such Borrower to other Subsidiaries; (i) a duly executed and completed Borrower Security Agreement granting the Lenders a first priority Lien and security interest in (i) the Accounts of such Borrower and (ii) the tangible personal property of such Borrower; (j) a duly executed and completed Subsidiary Security Agreement granting the Lenders a first priority Lien and security interest in (i) the Accounts of each Subsidiary of such Borrower and (ii) the tangible personal property of each Subsidiary of such Borrower; (k) the Pledged Stock, together with stock powers duly executed in blank; (l) the Intercompany Notes, duly endorsed; -39- (m) a duly executed and completed Subsidiary Guaranty executed by each Subsidiary of such Borrower; (n) copies of insurance binders or certificates covering the assets of such Borrower and its Subsidiaries, and meeting the requirements of Section 5.5 hereof; (o) evidence that all corporate and partnership proceedings of such Borrowers and its Subsidiaries taken in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be reasonably satisfactory in form and substance to the Lenders and Special Counsel; and the Lenders shall have received copies of all documents or other evidence which the Administrative Lender, Special Counsel or any Lender may reasonably request in connection with such transactions; (p) if available copies of the following combined and combining financial statements for such Borrower and its Subsidiaries, as of and for the most recently ended fiscal quarter and fiscal year of such Borrower: (i) combined and combining balance sheets as of the end of such period, and (ii) combined and combining statements of income and changes in cash for such period; which financial statements shall set forth in comparative form figures for the corresponding periods in the previous fiscal year, all in reasonable detail and certified by the president, vice president, treasurer or chief financial officer of such Borrower to the best of his knowledge to be complete and correct and prepared in accordance with GAAP (other than footnotes thereto), subject to year-end adjustment; (q) all prior Indebtedness of such Borrower shall have been paid in full; (r) opinions of counsel to the Borrower and the Subsidiaries addressed to the Lenders and in form and substance reasonably satisfactory to the Lenders, dated the Agreement date; and (s) in form and substance satisfactory to the Lenders and Special Counsel, such other documents, instruments and certificates as the Administrative Lender may reasonably require in connection with the transactions contemplated hereby, including without limitation the status, organization or authority of such Borrower or any of its Subsidiaries, and the enforceability of and security for the Obligation. Section 3.4 Conditions Precedent to All Advances. The obligation of each Lender to make each Advance (including the initial Advance) and the obligation of the Issuing Bank to issue each Letter of Credit (including the initial Letter of Credit) hereunder is subject to fulfillment of the following conditions immediately prior to or contemporaneously with each such Advance or issuance: (a) With respect to Advances (other than Refinancing Advances) and each issuance of a Letter of Credit, all of the representations and warranties of the Borrowers under this Agreement, which, pursuant to Section 4.2 hereof, are made at and as of the time of such -40- Advance or issuance, shall be true and correct at such time in all material respects, both before and after giving effect to the application of the proceeds of the Advance or issuance; (b) The incumbency of the Authorized Signatories and other officers shall be as stated in the certificates of incumbency delivered in the certificates pursuant to Sections 3.1(a) and (b), 3.2(a) and (b) and 3.3(a), (b) and (c) hereof or as subsequently modified and reflected in certificates of incumbency delivered to the Administrative Lender. The Lenders may, without waiving this condition, consider it fulfilled and a representation by the Borrowers made to such effect if no written notice to the contrary, dated on or before the date of such Advance or issuance, is received by the Administrative Lender from the Notification Agent prior to the making of such Advance or issuance; (c) There shall not exist a Default hereunder, with respect to Advances (other than Refinancing Advances) and with respect to issuance of each Letter of Credit, or an Event of Default, with respect to any Refinancing Advance; (d) The aggregate Advances and amount available for draws under Letters of Credit, after giving effect to such proposed Advance or Letter of Credit, shall not exceed the maximum principal amount then permitted to be outstanding hereunder; and (e) The Administrative Lender shall have received all such other certificates, reports, statements or other documents as the Administrative Lender may reasonably request. Each request by the Notification Agent to the Administrative Lender or the Issuing Bank, as appropriate, for an Advance or the issuance of a Letter of Credit shall constitute a representation and warranty by the Borrowers as of the date of the making of such Advance or the issuance of such Letter of Credit that all the conditions contained in this Section 3.4 have been satisfied. ARTICLE 4 Representations and Warranties Section 4.1 Representations and Warranties. Each Borrower hereby represents and warrants to each Lender as follows: (a) Organization; Power; Qualification. As of the Agreement Date, the respective jurisdictions of incorporation and percentage ownership by each Borrower and each Subsidiary listed on Schedule 6 are true and correct. Each Borrower and Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its state of organization. Each Borrower and Subsidiary has the corporate power and authority to own its properties and to carry on its business as now being and hereafter proposed to be conducted. Each Borrower and Subsidiary is duly qualified, in good standing and authorized to do business in each jurisdiction -41- in which the character of its properties or the nature of its business requires such qualification or authorization. (b) Authorization. Each Borrower has the corporate or partnership power, as applicable, and has taken all necessary corporate or partnership action, as applicable, to authorize it to borrow hereunder. Each Borrower and Subsidiary has the corporate or partnership power, as applicable, and has taken all necessary corporate or partnership action, as applicable, to execute, deliver and perform the Loan Documents to which it is party in accordance with the terms thereof, and to consummate the transactions contemplated thereby. Each Loan Document has been duly executed and delivered by the Borrower or the Subsidiary executing it. Each of the Loan Documents to which any Borrower or Subsidiary is party is a legal, valid and binding respective obligation of such Borrower or Subsidiary, as applicable, enforceable in accordance with its terms, subject, to enforcement of remedies, to the following qualifications: (i) equitable principles generally, and (ii) bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws affecting enforcement of creditors' rights generally (insofar as any such law relates to the bankruptcy, insolvency or similar event of such Borrower or Subsidiary). (c) Compliance with Other Loan Documents and Contemplated Transactions. The execution, delivery and performance by each Borrower and Subsidiary of the other Loan Documents to which they are respectively a party, and the consummation of the transactions contemplated thereby, do not and will not (i) require any consent or approval not already obtained, (ii) violate any Applicable Law, (iii) conflict with, result in a breach of, or constitute a default under the articles of incorporation, by-laws or partnership agreement as applicable, of such Borrower or Subsidiary, or under any Necessary Authorization, indenture, agreement or other instrument, to which such Borrower or Subsidiary is a party or by which they or their respective properties may be bound, or (iv) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by such Borrower or Subsidiary, except Permitted Liens. (d) Business. Each Borrower and Subsidiary is engaged solely in the Borrowers' Business. (e) Licenses, etc. All Necessary Authorizations have been duly authorized and obtained, and are in full force and effect. Each Borrower and Subsidiary is and will continue to be in compliance in all material respects with all provisions thereof. No Necessary Authorization is the subject of any pending or, to the best of each Borrower's knowledge, threatened challenge or revocation. (f) Compliance with Law. Each Borrower and Subsidiary is in compliance with all Applicable Laws, the violation of which could reasonably be expected to have a Material Adverse Effect. Each Borrower and Subsidiary has duly and timely filed all reports, statements and filings that are required to be filed by any of them with any Governmental Authority, and are in all material respects in compliance therewith, including without limitation the rules and -42- regulations of any Governmental Authority relating to their business. Each Borrower and Subsidiary has obtained all appropriate approvals and consents of, and has made all filings with, the Governmental Authorities in connection with the acquisition and ownership of each of their respective assets and the operation of their business where the failure to obtain such consents and approvals could have a Material Adverse Effect. (g) Title to Properties. Each Borrower and Subsidiary has good and indefeasible title to, or a valid leasehold interest in, all of their material assets. None of their assets are subject to any Liens, except Permitted Liens. No financing statement or other Lien filing (except relating to Permitted Liens) is on file in any state or jurisdiction that names any Borrower or Subsidiary as debtor or covers (or purports to cover) any assets of any Borrower or Subsidiary. Each Borrower and Subsidiary has not signed any such financing statement or filing, nor any security agreement authorizing any Person to file any such financing statement or filing. (h) Litigation. Except as reflected on Schedule 3 hereto, there is no action, suit or proceeding pending against, or, to the best of each Borrower's knowledge, threatened against such Borrower or any Subsidiary, or in any other manner relating directly and materially adversely to such Borrower, any Subsidiary, or any of their material properties, in any court or before any arbitrator of any kind or before or by any governmental body the result of which could reasonably be expected to require the payment of money by such Borrower or any Subsidiary in an amount of $250,000 or more in any one such action, suit or proceeding or $500,000 or more in the aggregate for all such actions, suits or proceedings. (i) Taxes. Except for where extensions have been duly filed and obtained, all federal, state and other tax returns of each Borrower and Subsidiary required by law to be filed have been duly filed and all federal, state and other taxes, assessments and other governmental charges or levies upon each Borrower, Subsidiary or any of their properties, income, profits and assets, which are due and payable, have been paid (other than federal income taxes for Metro's fiscal year ending on June 30, 1994), unless the same are being diligently contested in good faith by appropriate proceedings, with adequate reserves established therefor, and no Lien (other than a Permitted Lien) has attached and no foreclosure, distraint, sale or similar proceedings have been commenced. The charges, accruals and reserves on the books of each Borrower and Subsidiary in respect of their taxes are, in the judgment of such Borrower, adequate. (j) Financial Statements; Material Liabilities. Metro has furnished or caused to be furnished to the Lenders copies of its June 30, 1994, financial statements, which are prepared in good faith and complete in all material respects and present fairly in accordance with GAAP the financial position of Metro and its Subsidiaries as at such dates and the results of operations for the periods then ended, subject to normal year-end adjustments. No Borrower nor any Subsidiary has any material liabilities, contingent or otherwise, or material losses, except as disclosed in writing to the Lenders prior to the Agreement Date. (k) No Adverse Change. Since June 30, 1994, no event or circumstances has occurred or arisen that could have a Material Adverse Effect. -43- (l) ERISA. No Borrower or its Controlled Group maintains or contributes to any Plan other than those disclosed to the Administrative Lender in writing. Each such Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code, and any other applicable Federal or state law, rule or regulation. With respect to each Plan of each Borrower and each member of its Controlled Group (other than a Multiemployer Plan), all reports required under ERISA or any other Applicable Law to be filed with any governmental authority, the failure of which to file could reasonably result in liability of such Borrower or any member of its Controlled Group in excess of $100,000, have been duly filed. All such reports are true and correct in all material respects as of the date given. No such Plan of any Borrower or any member of its Controlled Group has been terminated nor has any accumulated funding deficiency (as defined in Section 412(a) of the Code) been incurred (without regard to any waiver granted under Section 412 of the Code), nor has any funding waiver from the Internal Revenue Service been received or requested. No Borrower or any member of its Controlled Group has failed to make any contribution or pay any amount due or owing as required by Section 412 of the Code or Section 302 of ERISA or the terms of any such Plan prior to the due date under Section 412 of the Code and Section 302 of ERISA. There has been no ERISA Event or any event requiring disclosure under Section 4041 (c)(3)(C), 4068(f), 4063(a) or 4043(b) of ERISA with respect to any Plan or trust of any Borrower or any member of its Controlled Group since the effective date of ERISA. The value of the assets of each Plan (other than a Multiemployer Plan) of each Borrower and each member of its Controlled Group equaled or exceeded the present value of the benefit liabilities, as defined in Title IV of ERISA, of each such Plan as of the most recent valuation date using Plan actuarial assumptions at such date. There are no pending or, to the best of any Borrower's knowledge, threatened claims, lawsuits or actions (other than routine claims for benefits in the ordinary course) asserted or instituted against, and no Borrower or any member of its Controlled Group has knowledge of any threatened litigation or claims against, (i) the assets of any Plan or trust or against any fiduciary of a Plan with respect to the operation of such Plan, or (ii) the assets of any employee welfare benefit plan within the meaning of Section 3(1) or ERISA, or against any fiduciary thereof with respect to the operation of any such plan. No Borrower or any member of its Controlled Group has engaged in any prohibited transactions, within the meaning of Section 406 of ERISA or Section 4975 of the Code, in connection with any Plan. No Borrower or any member of its Controlled Group has withdrawn from any Multiemployer Plan, nor has incurred or reasonably expects to incur (A) any liability under Title IV of ERISA (other than premiums due under Section 4007 of ERISA to the PBGC), (B) any withdrawal liability (and no event has occurred which with the giving of notice under Section 4219 of ERISA would result in such liability) under Section 4201 of ERISA as a result of a complete or partial withdrawal (within the meaning of Section 4203 or 4205 of ERISA) from a Multiemployer Plan, or (C) any liability under Section 4062 of ERISA to the PBGC or to a trustee appointed under Section 4042 of ERISA. No Borrower, any member of its Controlled Group, or any organization to which any Borrower or any member of its Controlled Group is a successor or parent corporation within the meaning of ERISA Section 4069(b), has engaged in a transaction within the meaning of ERISA Section 4069. No Borrower or any member of its Controlled Group maintains or has established any welfare benefit plan within the meaning of Section 3(1) of ERISA which provides for continuing benefits or coverage for any participant or any beneficiary of any participant after such -44- participant's termination of employment except as may be required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and the regulations thereunder, and at the expense of the participant or the beneficiary of the participant, or retiree medical liabilities. Each Borrower and its Controlled Group which maintains a welfare benefit plan within the meaning of Section 3(1) of ERISA has complied in all material respects with any applicable notice and continuation requirements of COBRA and the regulations thereunder. (m) Compliance with Regulations G, T, U and X. No Borrower is engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying any margin stock within the meaning of Regulations G, T, U and X of the Board of Governors of the Federal Reserve System, and no part of the proceeds of the Advances or the Letters of Credit will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. No assets of any Borrower or any Subsidiary are margin stock, and none of the Pledged Stock is margin stock. No Borrower or Subsidiary, nor any agent acting on their behalf, have taken or will knowingly take any action which might cause this Agreement or any Loan Documents to violate any regulation of the Board of Governors of the Federal Reserve System or to violate the Securities Exchange Act of 1934, in each case as in effect now or as the same may hereafter be in effect. (n) Governmental Regulation. Each Borrower and Subsidiary is not required to obtain any Necessary Authorization that has not already been obtained from, or effect any material filing or registration that has not already been effected with, any federal, state or local regulatory authority in connection with the execution and delivery of this Agreement or any other Loan Document, or the performance thereof (other than any enforcement of remedies by the Administrative Lender on behalf of the Lenders), in accordance with their respective terms, including any borrowings hereunder. (o) Absence of Default. Each Borrower and Subsidiary is in compliance in all material respects with all of the provisions of their articles of incorporation and by-laws, and no event has occurred or failed to occur, which has not been remedied or waived, the occurrence or non-occurrence of which constitutes, or which with the passage of time or giving of notice or both would constitute, (i) an Event of Default or (ii) a default by such Borrower or Subsidiary under any material indenture, agreement or other instrument, or any judgment, decree or order to which such Borrower or Subsidiary is a party or by which they or any of their material properties is bound. (p) Investment Company Act. No Borrower is required to register under the provisions of the Investment Company Act of 1940, as amended. Neither the entering into or performance by any Borrower of this Agreement nor the issuance of the Notes violates any provision of such act or requires any consent, approval, or authorization of, or registration with, the Securities and Exchange Commission or any other governmental or public body of authority pursuant to any provisions of such act. -45- (q) Environmental Matters. No Borrower nor any Subsidiary has any actual knowledge or reason to believe that any substance deemed hazardous by any Applicable Environmental Law, has been installed on any real property now owned by any Borrower or any of its Subsidiaries. Each Borrower and Subsidiary are not in violation of or subject to any existing, pending or, to the best of any Borrower's knowledge, threatened investigation or inquiry by any governmental authority or to any material remedial obligations under any Applicable Environmental Laws, and this representation and warranty would continue to be true and correct following disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to any real property of any Borrower and its Subsidiaries. Each Borrower and Subsidiary have not obtained and are not required to obtain any permits, licenses or similar authorizations to construct, occupy, operate or use any buildings, improvements, fixtures, and equipment forming a part of any real property of any Borrower or any Subsidiary by reason of any Applicable Environmental Laws. Each Borrower and Subsidiary undertook, at the time of acquisition of any real property, reasonable inquiry into the previous ownership and uses of such real property consistent with good commercial or customary practice. Each Borrower and Subsidiary has taken all reasonable steps to determine, and no Borrower or Subsidiary has actual knowledge or reason to believe, after reasonable investigation, that any hazardous substances or solid wastes have been disposed of or otherwise released on or to the real property of any Borrower or any Subsidiary in any manner or quantities which would be deemed a violation of the Applicable Environmental Laws. (r) Valid Issuance of Securities. All Pledged Stock has been duly authorized and validly issued, and is fully paid and nonassessable. The capital stock described on Exhibit A to the Pledge Agreements constitutes all the issued and outstanding capital stock of each Borrower, the Subsidiaries of each Borrower or the Subsidiaries of another Subsidiary. No Person has conversion rights with respect to, or any subscription rights, calls, commitments or claims of any character for, or any repurchase or redemption options relating to, the Pledged Stock, except for those listed on Schedule 5 hereto. The Pledged Stock, when issued or sold, was either (i) registered or qualified under applicable federal or state securities laws, or (ii) exempt therefrom. (s) Certain Fees. No broker's, finder's or other fee or commission will be payable by any Borrower (other than to the Lenders hereunder) with respect to the making of the Commitments or the Advances hereunder or the issuance of Letters of Credit. Each Borrower agrees to indemnify and hold harmless the Administrative Lender and each Lender from and against any claims, demand, liability, proceedings, costs or expenses asserted with respect to or arising in connection with any such fees or commissions. (t) Compliance. Attached as Schedule 4 hereto is a complete list of all material licenses, consents, authorizations, permits and Necessary Authorizations as of the Agreement Date. Such licenses, consents, permits and authorizations constitute all that are necessary, appropriate or advisable for each Borrower and Subsidiary to operation its business and own its properties, and are in full force and effect. No event has occurred which permits (or with the passage of time would permit) the revocation or termination of any such license, consents, -46- permits and authorizations, or which could result in the imposition of any restriction thereon of such a nature that could reasonably be expected to have a Material Adverse Effect. (u) Patents, Etc. Each Borrower and Subsidiary has obtained all patents, trademarks, service-marks, trade names, copyrights, licenses and other rights, free from burdensome restrictions, that are necessary for the operation of their business as presently conducted and as proposed to be conducted, the loss of which could reasonably be expected to have a Material Adverse Effect. Nothing has come to the attention of any Borrower or any Subsidiary to the effect that (i) any process, method, part or other material presently contemplated to be employed by any Borrower or Subsidiary may infringe any patent, trademark, service-mark, trade name, copyright, license or other right owned by any other Person, or (ii) there is pending or overtly threatened any claim or litigation against or affecting any Borrower or Subsidiary contesting its right to sell or use any such process, method, part or other material. (v) Disclosure. Neither this Agreement nor any other document, certificate or statement which has been furnished to any Lender by or on behalf of any Borrower or Subsidiary in connection herewith contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statement contained herein and therein not misleading at the time it was furnished. There is no fact known to any Borrower and not known to the public generally that could reasonably be expected to materially adversely affect the assets or business of any Borrower or Subsidiary, or in the future could reasonably be expected (so far as such Borrower can now foresee) to have a Material Adverse Effect, which has not been set forth in this Agreement or in the documents, certificates and statements furnished to the Lenders by or on behalf of such Borrower prior to the date hereof in connection with the transaction contemplated hereby. (w) Solvency. Each Borrower is, and the Borrowers and the Subsidiaries on a combined basis are, Solvent. (x) Consolidated Business Entity. Each Borrower and Subsidiary is engaged in the business set forth in Section 4.l(d) hereof. These operations require financing on a basis such that the credit supplied can be made available from time to time to the Borrowers and various of the Subsidiaries, as required for the continued successful operation of the Borrowers and the Subsidiaries as a whole. The Borrowers have requested Lenders to make credit available hereunder primarily for the purposes of financing the operations and acquisitions of the Borrowers and the Subsidiaries. The Borrowers and the Subsidiaries expect to derive benefit (and the boards of directors of the Borrowers and the Subsidiaries have determined that its Subsidiaries may reasonably be expected to derive benefit), directly or indirectly, from the credit extended by Lenders hereunder, both in their separate capacities and as members of the group of companies, since the successful operation and condition of the Borrowers and the Subsidiaries is dependent on the continued successful performance of the functions of the group as a whole. Section 4.2 Survival of Representations and Warranties, etc. All representations and warranties made under this Agreement and the other Loan Documents shall be deemed to be -47- made at and as of the Agreement Date and at and as of the date of each Advance and each Letter of Credit, and each shall be true and correct when made, except to the extent (a) previously fulfilled in accordance with the terms hereof, (b) applicable to a specific date or otherwise subsequently inapplicable, or (c) previously waived in writing by the Determining Lenders with respect to any particular factual circumstance. All such representations and warranties shall survive, and not be waived by, the execution hereof by any Lender, any investigation or inquiry by any Lender, or by the making of any Advance under this Agreement. ARTICLE 5 General Covenants So long as any of the Obligations are outstanding and unpaid or any Commitment is outstanding (whether or not the conditions to borrowing have been or can be fulfilled): Section 5.1 Preservation of Existence and Similar Matters. Each Borrower shall, and shall cause each Subsidiary to: (a) except in connection with any merger or consolidation permitted by Section 7.5(b) hereof, preserve and maintain, or timely obtain and thereafter preserve and maintain, its existence, rights, franchises, licenses, authorizations, consents, privileges and all other Necessary Authorizations from federal, state and local governmental bodies and any tribunal (regulatory or otherwise), the loss of which could have a Material Adverse Effect; and (b) qualify and remain qualified and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization, unless the failure to do so could not have a Material Adverse Effect. Section 5.2 Business; Compliance with Applicable Law. Each Borrower and Subsidiary shall (a) engage substantially in the Borrowers' Business, and (b) comply in all material respects with the requirements of all Applicable Law, the failure of which could reasonably be expected to have a Material Adverse Effect. Section 5.3 Maintenance of Properties. Each Borrower shall, and shall cause each Subsidiary to, maintain or cause to be maintained all its properties (whether owned or held under lease) in reasonably good repair, working order and condition, taken as a whole, and from time to time make or cause to be made all appropriate repairs, renewals, replacements, additions, betterments and improvements thereto. Section 5.4 Accounting Methods and Financial Records. Each Borrower shall, and shall cause each Subsidiary to, (a) maintain a system of accounting established and administered in accordance with GAAP, keep adequate records and books of account in which complete entries will be made and all transactions reflected in accordance with GAAP, and keep accurate -48- and complete records of its respective assets and (b) keep materially accurate and complete records detailing separately items representing tangible cash exchanges and intangible and barter exchanges. Each Borrower and Subsidiary shall maintain a fiscal year ending on June 30 unless Metro, in connection with its electing Subchapter S status under the Code, elects to have a fiscal year ending on December 31, whereupon, each Borrower and Subsidiary shall thereafter maintain a fiscal year ending on December 31. Section 5.5 Insurance. Each Borrower shall, and shall cause each Subsidiary to, maintain insurance from responsible companies in such amounts and against such risks as shall be customary and usual in the industry for companies of similar size and capability, but in no event less than the amount and types insured as of the Agreement Date. Each insurance policy shall provide for at least 30 days' prior notice to the Administrative Lender of any proposed termination or cancellation of such policy, whether on account of default or otherwise. Section 5.6 Payment of Taxes and Claims. Each Borrower shall, and shall cause each Subsidiary to, pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or its income or properties prior to the date on which penalties attach thereto, and all lawful material claims for labor, materials and supplies which, if unpaid, might become a Lien upon any of its properties; except that no such tax, assessment, charge, levy or claim need be paid which is being diligently contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on the appropriate books, but only so long as no Lien (other than a Permitted Lien) shall attach with respect thereto and no foreclosure, distraint, sale or similar proceedings shall have been commenced. Each Borrower shall, and shall cause each Subsidiary to, timely file all information returns required by federal, state or local tax authorities. Section 5.7 Visits and Inspections. Each Borrower shall, and shall cause each Subsidiary to, promptly permit representatives of the Administrative Lender or any Lender from time to time to (a) visit and inspect the properties of such Borrower and Subsidiary as often as the Administrative Lender or any Lender shall deem advisable, (b) inspect and make extracts from and copies of such Borrower's and Subsidiary's books and records, and (c) discuss with such Borrower's and Subsidiary's directors, officers, employees and auditors its business, assets, liabilities, financial positions, results of operations and business prospects. Section 5.8 Payment of Indebtedness. Subject to Section 5.6 hereof, each Borrower shall, and shall cause each Subsidiary to, pay its Indebtedness when and as the same becomes due, other than amounts (other than the Obligations) duly and diligently disputed in good faith. Section 5.9 Use of Proceeds. Each Borrower shall use the proceeds of Advances and Letters of Credit to make Acquisitions permitted under Section 7.6 hereof, to make Capital Expenditures, to make Investments (including advances to Subsidiaries) permitted pursuant to Section 7.3 hereof, to repay all outstanding Indebtedness under the Existing Loan Agreement, for working capital and for other general corporate purposes. -49- Section 5.10 Indemnity. (a) Each Borrower jointly and severally agrees to defend, protect, indemnify and hold harmless the Administrative Lender, each Lender, the Issuing Bank, each of their respective Affiliates, and each of their respective (including such Affiliates') officers, directors, employees, agents, attorneys, shareholders and consultants (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth herein) of each of the foregoing (collectively, "Indemnitees") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto), imposed on, incurred by, or asserted against such Indemnitees (whether direct, indirect or consequential and whether based on any federal, state, or local laws and regulations, under common law or at equitable cause, or on contract, tort or otherwise, arising from or connected with the past, present or future operations of any Borrower or its predecessors in interest, or the past, present or future environmental condition of property of any Borrower), in any manner relating to or arising out of this Agreement, the Loan Documents, or any act, event or transaction or alleged act, event or transaction relating or attendant thereto, the making of or any participations in the Advances or the Letters of Credit and the management of the Advances and the Letters of Credit, including in connection with, or as a result, in whole or in part, of any negligence of Administrative Lender, the Issuing Bank or any Lender (other than those matters raised exclusively by a participant against the Administrative Lender, the Issuing Bank or any Lender and not the Borrowers), or the use or intended use of the proceeds of the Advances and the Letters of Credit hereunder, or in connection with any investigation of any potential matter covered hereby, but excluding any claim or liability that arises as the result of the gross negligence or willful misconduct of any Indemnitee, as finally judicially determined by a court of competent jurisdiction, but excluding matters raised by one Lender against another Lender or by any shareholders of a Lender against a Lender or its management (collectively, "Indemnified Matters"); provided however, that so long as no Event of Default shall have occurred and be continuing, there shall be no settlement by the Indemnitees or any of them with respect to any Indemnified Matter without prior consultation with the Borrowers. (b) In addition, the Borrowers jointly and severally shall periodically, upon request, reimburse each Indemnitee for its reasonable legal and other actual out-of-pocket expenses (including the cost of any investigation and preparation) incurred in connection with any Indemnified Matter; provided, however, that the Indemnitees agree that they shall endeavor to use legal counsel common to all Indemnitees in connection with any Indemnification Matter unless any such Indemnitee shall reasonably determine, in its sole discretion, that the use of such common legal counsel would conflict with its interests in such Indemnification Matter. If for any reason the foregoing indemnification is unavailable to any Indemnitee or insufficient to hold any Indemnitee harmless with respect to Indemnified Matters, then the Borrowers jointly and severally shall contribute to the amount paid or payable by such Indemnitee as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the - 50 - relative benefits received by the Borrowers and the Borrowers' stockholders, shareholders or partners, as applicable, on the one hand and such Indemnitee on the other hand but also the relative fault of the Borrowers and such Indemnitee, as well as any other relevant equitable considerations. The reimbursement, indemnity and contribution obligations under this Section shall be in addition to any liability which the Borrowers may otherwise have, shall extend upon the same terms and conditions to each Indemnitee, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Borrowers, the Administrative Lender, the Issuing Bank, the Lenders and all other Indemnitees. This Section shall survive any termination of this Agreement and payment of the Obligations. Section 5.11 Environmental Law Compliance. The use which any Borrower or Subsidiary intends to make of any real property owned by it will not result in the disposal or other release of any hazardous substance or solid waste on or to such real property in any manner or quantities which would be deemed a violation of the Applicable Environmental Laws. As used herein, the terms "hazardous substance" and "release" as used in this Section shall have the meanings specified in CERCLA (as defined in the definition of Applicable Environmental Laws), and the terms "solid waste" and "disposal" shall have the meanings specified in RCRA (as defined in the definition of Applicable Environmental Laws); provided, however, that if CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment; and provided further, to the extent that any other law applicable to any Borrower, any Subsidiary or any of their properties establishes a meaning for "hazardous substance", "release," "solid waste," or "disposal" which is broader than that specified in either CERCLA or RCRA, such broader meaning shall apply. The Borrowers jointly and severally agree to indemnify and hold the Administrative Lender, the Issuing Bank and each Lender harmless from and against, and to reimburse them with respect to, any and all claims, demands, causes of action, loss, damage, liabilities, costs and expenses (including attorneys' fees and courts costs) of any kind or character, known or unknown, fixed or contingent, asserted against or incurred by any of them at any time and from time to time by reason of or arising out of (a) the failure of any Borrower or Subsidiary to perform any obligation hereunder regarding asbestos or Applicable Environmental Laws, (b) any violation on or before the Release Date of any Applicable Environmental Law in effect on or before the Release Date, and (c) any act, omission, event or circumstance existing or occurring on or prior to the Release Date (including without limitation the presence on such real property or release from such real property of hazardous substances or solid wastes disposed of or otherwise released on or prior to the Release Date), resulting from or in connection with the ownership of the real property, regardless of whether the act, omission, event or circumstance constituted a violation of any Applicable Environmental Law at the time of its existence or occurrence, or whether the act, omission, event or circumstance is caused by or relates to the negligence of any indemnified Person; provided that, no Borrower shall be under any obligation to indemnify the Administrative Lender, the Issuing Bank or any Lender to the extent that any such liability arises as the result of the gross negligence or willful misconduct of such Person, as finally judicially determined by a court of competent jurisdiction. The provisions of this paragraph shall survive the Release Date and shall continue thereafter in full force and effect. -51- Section 5.12 Interest Rate Hedging. Within 90 days after the Agreement Date, the Borrower will hedge its interest rate exposure pursuant to and in accordance with Interest Hedge Agreements, in an amount not less than 50% of the difference between outstanding Advances on any day after the Agreement Date minus $5,000,000; provided, however, that any such Interest Hedge Agreement shall be on terms and conditions mutually acceptable to the Borrowers and the Lenders. ARTICLE 6 Information Covenants So long as any of the Obligations are outstanding and unpaid or any Commitment is outstanding (whether or not the conditions to borrowing have been or can be fulfilled), the Borrowers shall furnish or cause to be furnished to the Administrative Lender: Section 6.1 Quarterly Financial Statements and Information. (a) Within 45 days after the end of each fiscal quarter, cash balance sheets of each Borrower and each Subsidiary detailing tangible cash exchanges as at the end of such quarter and the related cash statements of income and statements of changes in cash of each Borrower and each Subsidiary for such quarter and for the elapsed portion of the year ended with the last day of such quarter, all of which shall be certified by the president, vice president, treasurer or chief financial officer of the Borrowers or of the general partner of the Borrowers, as applicable, to be, in his or her opinion, complete and correct in all material respects and to present fairly, the financial position and results of operations of the Borrowers and the Subsidiaries as at the end of and for such period, and for the elapsed portion of the year ended with the last day of such period, subject only to normal year-end adjustments. In addition, the Borrowers shall furnish within such time period a reconciliation of such financial statements setting forth the difference in financial position and results of operations between its Subsidiaries and its Subsidiaries for such period and for the elapsed portion of the year ended with the last day on such period, subject to sound year-end adjustments. (b) Within 60 days after the end of each fiscal quarter, combined and combining balance sheets of the Borrowers and the Subsidiaries as at the end of such quarter and the related combined and combining statements of income and combined statements of changes in cash for such quarter and for the elapsed portion of the year ended with the last day of such quarter, all of which shall (i) be certified by the president, vice president, treasurer or chief financial officer of the Borrowers or of the general partner of the Borrowers, as applicable, to be, in his or her opinion, complete and correct in all material respects and to present fairly, in accordance with GAAP, the financial position and results of operations of the Borrowers and the Subsidiaries as at the end of and for such period, and for the elapsed portion of the year ended with the last day of such period, subject only to normal year-end adjustments and (ii) detail separately tangible cash exchange items and intangible and barter exchange items. In addition, the Borrowers shall - 52 - furnish within such time period a reconciliation of such financial statements setting forth the difference in financial position and results of operations between its Subsidiaries and its Subsidiaries for such period and for the elapsed portion of the year ended with the last day on such period, subject to sound year-end adjustments. Section 6.2 Annual Financial Statements and Information; Certificate of No Default. (a) Within 90 days after the end of each fiscal year, a copy of (i) the cash balance sheet of each Borrower and each Subsidiary, as of the end of the current and prior fiscal years and (ii) cash statements of earnings, statements of changes in shareholders' equity, and statements of changes in cash of each Borrower and each Subsidiary as of and through the end of such fiscal year, all of which are certified by independent certified public accountants acceptable to the Lenders, whose opinion shall be in scope and substance in accordance with generally accepted auditing standards and shall contain only such qualifications as may be acceptable to the Administrative Lender. In addition, the Borrowers shall furnish within such time period an unaudited reconciliation of such financial statements setting forth the difference in financial portion and results of operations between its Subsidiaries and its Subsidiaries as of and through the end of such fiscal year. (b) Within 120 days after the end of each fiscal year, a copy of (i) the combined and combining balance sheet of the Borrowers and the Subsidiaries, as of the end of the current and prior fiscal years and (ii) combined and combining statements of earnings, statements of changes in shareholders' equity, and statements of changes in cash as of and through the end of such fiscal year, all of which (A) are prepared in accordance with GAAP, and certified by independent certified public accountants acceptable to the Lenders, whose opinion shall be in scope and substance in accordance with generally accepted auditing standards and shall contain only such qualifications as may be acceptable to the Administrative Lender and (B) shall detail separately tangible cash exchange items and intangible and barter exchange items. In addition, the Borrowers shall furnish within such time period an unaudited reconciliation of such financial statements setting forth the difference in financial portion and results of operations between its Subsidiaries and its Subsidiaries as of and through the end of such fiscal year. (c) Simultaneously with the delivery of the statements required by this Section 6.2, a letter from the Borrowers' public accountants certifying that no Default was detected during the examination of the Borrowers and the Subsidiaries, and authorizing the Borrowers to deliver such financial statements and opinion thereon to the Administrative Lender and Lenders pursuant to this Agreement. (d) As soon as available, but in any event within 60 days following the end of each fiscal year, a copy of the annual combined operating budget of the Borrowers and the Subsidiaries for the succeeding fiscal year. Section 6.3 Compliance Certificates. At the time financial statements are furnished pursuant to Sections 6.1 and 6.2 hereof, a certificate of an Authorized Signatory: -53- (a) setting forth at the end of such period, a calculation of the Leverage Ratio, as well as certifications and arithmetical calculations required to establish whether the Borrowers and the Subsidiaries were in compliance with the requirements of Sections 7.1 (e) and (f), 7.3 (g), 7.6, 7.10, 7.11, 7.12, 7.18 and 7.19 hereof, which shall be substantially in the form of Exhibit G hereto; (b) setting forth the aggregate amount of outstanding Advances and Reimbursement Obligations and certifying as to compliance herewith; and (c) stating that, to the best of his or her knowledge after due inquiry, no Default has occurred as at the end of such period, or if a Default has occurred, disclosing each such Default and its nature, when it occurred, whether it is continuing and the steps being taken with respect to such Default. Section 6.4 Copies of Other Reports and Notices. Promptly upon their becoming available, a copy of (i) all material reports or letters submitted to any Borrower or Subsidiary by accountants in connection with any annual, interim or special audit, including without limitation any report prepared in connection with the annual audit referred to in Section 6.2 hereof, and any other comment letter submitted to management in connection with any such audit, (ii) each financial statement, report, notice or proxy statement sent by any Borrower or Subsidiary to stockholders generally, (iii) each regular or periodic report and any registration statement (other than statements on Form S-8) or prospectus (or material written communication in respect of any thereof) fried by any Borrower or Subsidiary with any securities exchange, with the Securities and Exchange Commission or any successor agency, and (iv) all press releases concerning material financial aspects of any Borrower or Subsidiary; (b) Promptly upon becoming aware that (i) the holder(s) of any note(s) or other evidence of indebtedness or other security of any Borrower or Subsidiary in excess of $250,000 in the aggregate has given notice or taken any action with respect to a breach, failure to perform, claimed default or event of default thereunder, (ii) any party to any Capitalized Lease Obligations or any local marketing agreement has given notice or taken any action with respect to a breach, failure to perform, claimed default or event of default thereunder, (iii) any occurrence or non-occurrence of any event which constitutes or which with the passage of time or giving of notice or both could constitute a material breach by any Borrower or Subsidiary under any material agreement or instrument which could reasonably be expected to result in a liability in excess of $250,000, other than this Agreement to which any Borrower or Subsidiary is a party or by which any of their properties may be bound, or (iv) any event, circumstance or condition which could reasonably be expected to have a Material Adverse Effect, a written notice specifying the details thereof (or the nature of any claimed default or event of default) and what action is being taken or is proposed to be taken with respect thereto; provided, however, no notice shall be required to be delivered hereunder with respect to any event, circumstance or condition set forth in clause (i), (ii) or (iii) immediately preceding if, in the opinion of counsel -54- to such Borrower or Subsidiary, there is no reasonable possibility of an adverse determination with respect to event, circumstance or condition; (c) Promptly upon receipt thereof, information with respect to and copies of any notices received from any federal, state or local regulatory agencies or any tribunal relating to any order, ruling, law, information or policy that could reasonably be expected to result in the payment of money by any Borrower or Subsidiary in an amount of $250,000 or more in the aggregate, or otherwise have a Material Adverse Effect, or result in the loss or suspension of any Necessary Authorization; provided, however, no information shall be required to be delivered hereunder if, in the opinion of counsel to such Borrower or Subsidiary, there is no reasonable possibility of an adverse determination with respect to such notice; (d) Promptly upon receipt from any governmental agency, or any government, political subdivision or other entity, any material notice, correspondence, hearing, proceeding or order regarding or affecting any Borrower, any Subsidiary, or any of their properties or businesses; and (e) From time to time and promptly upon each request, such data, certificates, reports, statements, opinions of counsel, documents or further information regarding the assets, business, liabilities, financial position, projections, results of operations or business prospects of any Borrowers or Subsidiary, as the Administrative Lender or any Lender may reasonably request. Section 6.5 Notice of Litigation, Default and Other Matters. Prompt notice of the following events after any Borrower has knowledge or notice thereof: (a) The commencement of all proceedings and investigations by or before any Governmental Authority, and all actions and proceedings in any court or before any arbitrator involving claims for damages, fines or penalties (including punitive damages) in excess of $250,000 in aggregate (after deducting the amount for which any Borrower or Subsidiary is insured), against or in any other way relating directly to any Borrower, any Subsidiary, or any of their properties or businesses; provided, however, no notice shall be required to be delivered hereunder if, in the opinion of counsel to such Borrower or such Subsidiary, there is no reasonable possibility of an adverse determination in such action or proceeding; (b) Promptly upon the happening of any condition or event which constitutes a Default, a written notice specifying the nature and period of existence thereof and what action is being taken or is proposed to be taken with respect thereto; and (c) Any material adverse change with respect to the business, assets, liabilities financial position, results of operations or prospective business of any Borrower or Subsidiary, other than changes in the ordinary course of business which have not had and are not likely to have a Material Adverse Effect. -55- Section 6.6 ERISA Reporting Requirements. (a) Promptly and in any event (i) within 30 days after any Borrower or any member of its Controlled Group knows or has reason to know that any ERISA Event described in clause (a) of the definition of ERISA Event or any event described in Section 4063(a) of ERISA with respect to any Plan of any Borrower or any member of its Controlled Group has occurred, and (ii) within 10 days after any Borrower or any member of its Controlled Group knows or has reason to know that any other ERISA Event with respect to any Plan of any Borrower or any member of its Controlled Group has occurred or a request for a minimum funding waiver under Section 412 of the Code with respect to any Plan of any Borrower or any member of its Controlled Group, a written notice describing such event and describing what action is being taken or is proposed to be taken with respect thereto, together with a copy of any notice of event that is given to the PBGC; (b) Promptly and in any event within two Business Days after receipt thereof by any Borrower or any member of its Controlled Group from the PBGC, copies of each notice received by such Borrower or any member of its Controlled Group of the PBGC's intention to terminate any Plan or to have a trustee appointed to administer any Plan; (c) Promptly and in any event within 30 days after the filing thereof by any Borrower or any member of its Controlled Group with the United States Department of Labor, the Internal Revenue Service or the PBGC, copies of each annual and other report (including Schedule B thereto) with respect to each Plan; (d) Promptly and in any event within 30 days after receipt thereof, a copy of any notice, determination letter, ruling or opinion any Borrower or any member of its Controlled Group receives from the PBGC, the United States Department of Labor or the Internal Revenue Service with respect to any Plan; (e) Promptly, and in any event within 10 Business Days after receipt thereof, a copy of any correspondence any Borrower or any member of its Controlled Group receives from the Plan Sponsor (as defined by Section 4001(a)(10) of ERISA) of any Plan concerning potential withdrawal liability pursuant to Section 4219 or 4202 of ERISA, and a statement from the chief financial officer of such Borrower or such member of its Controlled Group setting forth details as to the events giving rise to such potential withdrawal liability and the action which such Borrower or such member of its Controlled Group is taking or proposes to take with respect thereto; (f) Notification within 30 days of any material increases in the benefits of any existing Plan which is not a Multiemployer Plan, or the establishment of any new Plans, or the commencement of contributions to any Plan to which any Borrower or any member of its Controlled Group was not previously contributing; -56- (g) Notification within three Business Days after any Borrower or any member of its Controlled Group knows or has reason to know that any Borrower or any such member of its Controlled Group has or intends to file a notice of intent to terminate any Plan under a distress termination within the meaning of Section 4041(c) of ERISA and a copy of such notice; and (h) Promptly after receipt of written notice of commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Borrower or any member of its Controlled Group with respect to any Plan, except those which, in the aggregate, if adversely determined could not have a Material Adverse Effect. ARTICLE 7 Negative Covenants So long as any of the Obligations are outstanding and unpaid or any Commitment is outstanding (whether or not the conditions to borrowing have been or can be fulfilled): Section 7.1 Indebtedness. The Borrowers shall not, and shall not permit any Subsidiary to, create, assume, incur or otherwise become or remain obligated in respect of, or permit to be outstanding, or suffer to exist any Indebtedness, except: (a) Indebtedness of the Borrowers and the Subsidiaries under the Loan Documents; (b) Accounts payable of the Borrowers and the Subsidiaries incurred in the ordinary course of business; (c) Indebtedness of the Borrowers and the Subsidiaries evidenced by the Intercompany Notes; (d) Indebtedness of the Borrowers and the Subsidiaries set forth on Schedule 8 hereto, and all renewals and extensions (but not increases) thereof; (e) Subordinated Debt of the Borrowers and the Subsidiaries not to exceed $2,500,000 in aggregate amount, provided that the Lenders shall have received at least 10 Business Days prior to the incurrence of any Subordinated Debt a Compliance Certificate setting forth on a pro-forma basis, taking into account the proposed incurrence of the Subordinated Debt for the four fiscal quarters immediately preceding the date of determination, the covenant calculations described in Section 6.3(a) hereof; and (f) Other Indebtedness of the Borrowers and the Subsidiaries not to exceed $500,000 in aggregate amount; -57- provided, however, the incurrence of Indebtedness otherwise permitted pursuant to clauses (c), (e) and (f) immediately preceding shall be permitted only if there shall exist no Default prior to or after giving effect to any such proposed Indebtedness. Section 7.2 Liens. The Borrowers shall not, and shall not permit any Subsidiary to, create, assume, incur, permit or suffer to exist, directly or indirectly, any Lien on any of their assets, whether now owned or hereafter acquired, except Permitted Liens. The Borrowers shall not, and shall not permit any Subsidiary to, agree with any other Person that it shall not create, assume, incur, permit or suffer to exist or to be created, assumed, incurred or permitted to exist, directly or indirectly, any Lien on any of its assets. Section 7.3 Investments. The Borrowers shall not, and shall not permit any Subsidiary to, make, own or maintain any Investment, except that the Borrowers may purchase or otherwise acquire and own and maintain: (a) Marketable, direct obligations of, or guaranteed by, the United States of America and maturing within 365 days of the date of purchase; (b) Commercial paper maturing not more than 1 year from the date of creation having a rating of A-l/P-1 or better by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., a New York corporation; (c) Certificates of deposit of domestic banks maturing within 365 days of the date of purchase, which banks' debt obligations have one of the two highest ratings obtainable from Moody's Investors Service, Inc. or Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., a New York corporation; (d) Securities issued by U.S. corporations that have one of the two highest ratings obtainable from Moody' s Investors Service, Inc. or Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., a New York corporation; (e) Accounts receivable that arise in the ordinary course of business and are payable on standard terms; (f) Investments in existence on the Agreement Date which are described on Schedule 7 hereto; and (g) Other Investments primarily related to the Borrowers' Business not to exceed $100,000 in aggregate amount provided that no Default exists prior to or after giving effect to such an Investment. Section 7.4 Amendment and Waiver. Except in connection with any merger or consolidation permitted pursuant to Section 7.5(b) hereof, the Borrowers shall not, and shall not permit any Subsidiary to, enter into any amendment of any material term or provision of its -58- articles of incorporation, by-laws, or partnership agreement, as applicable. In addition, the Borrowers shall not, and shall not permit any Subsidiary to, enter into any amendment of, or agree to or accept any waiver of any of the provisions of, any Necessary Authorization, unless (a) the Determining Lenders consent to such amendment and (b) the Lenders are provided with 10 days' written notice prior to the execution or effectiveness of the proposed amendment or waiver. Section 7.5 Liquidation, Disposition or Acquisition of Assets, Merger, New Subsidiaries. The Borrowers shall not, and shall not permit any Subsidiary to, at any time: (a) liquidate or dissolve itself (or suffer any liquidation or dissolution) or otherwise wind up; or sell, lease, abandon, transfer or otherwise dispose of all or any part of its assets, properties or business, other than immaterial assets sold in the ordinary course of business; (b) enter into any merger or consolidation; provided, however, that, so long as there shall exist no Default prior to or after giving effect to a proposed transaction, any Borrower or any Subsidiary may merge or consolidate with another Person, so long as (i) the Lenders shall have received prior written notice at least 30 Business Days prior to the date of such transaction, (ii) the Administrative Lender shall have received at least 10 Business Days prior to the date of such transaction a Compliance Certificate in the form required by Section 6.3 hereof, but setting forth the covenant calculations described in Section 6.3(a) hereof both prior to and after giving effect to the proposed merger or consolidation, (iii) such merger or consolidation shall be pursuant to documentation acceptable to the Administrative Lender, (iv) the Person with whom such merger or consolidation is being consummated with shall be engaged in the Borrowers' Business, (v) such Borrower or Subsidiary shall be the surviving entity, provided, that if a Borrower merges or consolidates with a Subsidiary, either (Y) such Borrower shall be the surviving entity, or (Z) such Subsidiary shall have become a Borrower hereunder and all of the conditions precedent to the initial Advance to additional Borrowers set forth in Section 3.3 hereof shall have been satisfied with respect to such Subsidiary, and (vi) the Administrative Lender shall have received copies of all documents, instruments, opinions and other information relating to the seller and assets to be acquired as it may reasonably request; or (c) create or acquire any Subsidiary, except as permitted by Section 7.6. Section 7.6 Acquisitions. The Borrowers shall not, and shall not permit any Subsidiary to make (a) except for the Acquisition of Charlotte Traffic Control, Inc., any single Acquisition during the period commencing on the Agreement Date and ending on June 30, 1995, or during any fiscal year ending after June 30, 1995, the Acquisition Consideration for which exceeds $500,000; (b) any single Acquisition during the period commencing on the Agreement Date and ending on June 30, 1995, or during any fiscal year ending after June 30, 1995, if, during any such period, aggregate Acquisition Consideration given by the Borrowers and the Subsidiaries for Acquisitions prior to such Acquisition shall have equalled or exceeded $2,500,000; and (c) any Acquisition, including, without limitation, the Acquisition of Charlotte Traffic Control, -59- Inc., unless (i) the Lenders shall have received prior written notice at least 30 Business Days prior to the date of such transaction, (ii) the Administrative Lender shall have received at least 10 Business Days prior to the date of such transaction a Compliance Certificate in the form required by Section 6.3 hereof, but setting forth the covenant calculations described in Section 6.3(a) hereof both prior to and after giving effect to the proposed transaction, (iii) no Default or Event of Default shall exist prior to or after such Acquisition, (iv) the Person who is, or whose assets are being, acquired is engaged in the Borrowers' Business, (v) the capital stock, partnership interests and Intercompany Notes, as applicable, of the Subsidiary being acquired are pledged pursuant to the appropriate Pledge Agreement, (vi) the assets of the Subsidiary being acquired, or the assets being acquired, are pledged pursuant to the appropriate Security Agreement, and (vii) the Subsidiary being acquired becomes party to a Subsidiary Guaranty. Section 7.7 Dividends. The Borrowers shall not, and shall not permit any Subsidiary to, directly or indirectly declare or pay any Dividend; provided, however, (a) any Subsidiary may declare and pay Dividends to the Borrowers or to any other Subsidiary, (b) so long as (i) there exists no Default or Event of Default before and after such payment, (ii) the Borrowers have delivered to the Lenders a Compliance Certificate, demonstrating such compliance after giving effect to any such Dividend, and (iii) all the conditions precedent to the initial Advance to MNLP set forth in Section 3.2 hereof shall have been satisfied, a one-time payment of Dividends to David Saperstein used solely for the purpose of capitalizing MNLP not to exceed $2,000,000 in aggregate amount, and (c) so long as (i) there exists no Default or Event of Default before and after such payment and the Borrowers have delivered to the Lenders a Compliance Certificate demonstrating such compliance after giving effect to any Cash Tax Dividends and (ii) each shareholder and partner, as applicable, of the Borrowers delivers to the Lenders a certificate of each such shareholder and partner executed by the President, Vice President, Treasurer, Chief Financial Officer or auditor for such shareholder and partner, setting forth the amount of estimated income Taxes payable by such shareholder and partner as a direct result of the income of the Borrowers, taking into account all other Tax Benefits available to such shareholder and partner, in detail reasonably sufficient to the Lenders, Cash Tax Dividends payable to each shareholder and partner of the Borrowers, not to exceed an amount per year in the aggregate equal to the aggregate income Tax liability of such shareholder and partner set forth in the Certificates required to be delivered by such shareholder and partner pursuant to this Section 7.7(b). Section 7.8 Affiliate Transactions. Except for transactions between Borrowers between any Borrower and Metro Reciprocal, Inc. and Metro Video News, Inc. or between Metro Reciprocal, Inc. and Metro Video News, Inc., the Borrowers shall not, and shall not permit any Subsidiary to, at any time engage in any transaction with an Affiliate, nor make an assignment or other transfer of any of its assets or properties to any Affiliate, on terms materially less advantageous to the Borrowers or such Subsidiary than would be the case if such transaction had been effected with a non-Affiliate (other than advances to employees in the ordinary course of business). Notwithstanding the foregoing, the Borrowers may loan the proceeds of Advances to Subsidiaries, so long as (a) there shall exist no Default prior to or after giving effect to such -60- proposed loan, (b) such advances are evidenced by Intercompany Notes that have been pledged pursuant to the Pledge Agreements and for which entries in the financial records of the Borrowers and the Subsidiaries are made evidencing such loans and repayments thereof, (c) the Subsidiary to which such advance is being made has (i) pledged its assets pursuant to the Subsidiary Security Agreement, (ii) become a party to the SubSidiary Guaranty, and (d) the capital and stock of the Subsidiary to which such an advance is being made has been pledged pursuant to the appropriate Pledge Agreement. Section 7.9 Compliance with ERISA. The Borrowers shall not, and shall not permit any Subsidiary to, directly or indirectly, or permit any member of its Controlled Group to directly or indirectly, (a) terminate any Plan so as to result in any material (in the opinion of the Determining Lenders) liability to any Borrower or any member of its Controlled Group, (b) permit to exist any ERISA Event, or any other event or condition which presents the risk of a material (in the opinion of the Determining Lenders) liability of any Borrower or any member of its Controlled Group, (c) make a complete or partial withdrawal (within the meaning of Section 4201 of ERISA) from any Multiemployer Plan so as to result in any material (in the opinion of the Determining Lenders) liability to any Borrower or any member of its Controlled Group, (d) enter into any new Plan or modify any existing Plan so as to increase its obligations thereunder except in the ordinary course of business consistent with past practice which could result in any material (in the opinion of the Determining Lenders) liability to any Borrower or any member of its Controlled Group, or (e) permit the present value of all benefit liabilities, as defined in Title IV of ERISA, under each Plan of any Borrower or any member of its Controlled Group (using the actuarial assumptions utilized by the PBGC upon termination of a plan) to materially (in the opinion of the Determining Lenders) exceed the fair market value of Plan assets allocable to such benefits all determined as of the most recent valuation date for each such Plan. Section 7.10 Leverage Ratio. At the end of each fiscal quarter occurring during the periods indicated below, the Borrowers, on a combined basis, shall not permit the Leverage Ratio to be greater than: Period Ratio ------ ----- From date hereof through June 30, 1995 2.50 to 1 September 30, 1995 through June 30, 1996 2.00 to 1 September 30, 1996 and thereafter 1.50 to 1 Section 7.11 Fixed Charges Coverage Ratio. The Borrowers, on a combined basis shall not permit the ratio of (a) Operating Cash Flow for the four fiscal quarters then ending to (b) Fixed Charges for such fiscal quarters to be, as of the last day of any fiscal quarter during the term of this Agreement, to be less than 1.35 to 1. -61- Section 7.12 Debt Service Coverage Ratio. The Borrowers, on a combined basis, shall not permit the ratio of (a) Operating Cash Flow for the four fiscal quarters then ending, to (b) Pro-Forma Debt Service for the four succeeding fiscal quarters, to be less than 1.75 to 1 at the end of each fiscal quarter during the term of this Agreement. Section 7.13 Capital Stock of the Borrowers. No Borrower shall, and no Borrower shall permit any Subsidiary to, make or permit any issuance, transfer, assignment, distribution, mortgage, pledge or gift of any shares of Pledged Stock, except in connection with issuances permitted by Schedule 5 hereto and then only if such shares are pledged and delivered to the Administrative Lender pursuant to the Pledge Agreements. Section 7.14 Sale and Leaseback. The Borrowers shall not, and shall not permit any Subsidiary to, enter into any arrangement whereby it sells or transfers any of its assets, and thereafter rents or leases such assets. Section 7.15 Sale or Discount of Receivables. No Borrower shall, and no Borrower shall permit any Subsidiary to, directly or indirectly sell, with or without recourse, for discount or otherwise, any notes or accounts receivable. Section 7.16 Conduct of Business. The Borrowers shall not, and shall not permit any Subsidiary to, engage in any type of business except the Borrowers' Business. Section 7.17 Subordinated Debt. The Borrowers shall not, and shall not permit any Subsidiary to, (a) after the occurrence and during the continuance of a Default or Event of Default, make any payment of principal, interest, premium, fee or otherwise with respect to Subordinated Debt, (b) prepay, redeem, repurchase or defease, or set aside funds for the prepayment, redemption, repurchase or defeasance of all or any portion of the Subordinated Debt or (c) amend or change (or take any action or fail to take any action the result of which is an effective amendment or change) or accept any waiver or consent with respect to, any document or instrument in connection with any Subordinated Debt that would result in (i) an increase in the outstanding principal amount of the Subordinated Debt, (ii) a change in any principal, interest, fees, or other amounts payable under the Subordinated Debt (including without limitation a waiver or action that results in the waiver of any payment default under the Subordinated Debt), (iii) a change in any date fixed for any payment of principal, interest, fees, or other amounts payable under the Subordinated Debt (including, without limitation, as a result of any redemption, defeasance or otherwise), (iv) a change in any percentage of holders of the Subordinated Debt required to take (or refrain from taking) any action, (v) a change in any financial covenant, (vi) a change in any remedy or right of the holders of the Subordinated Debt, (vii) a change in any covenant, term or provision which would result in such term or provision being more restrictive than the terms of this Agreement and the other Loan Documents, (viii) a change that grants or permits the granting of any security interest or Lien on any asset or property of any Borrower or any Subsidiary to secure any Subordinated Debt, or (ix) a change in any term or provision of any document or instrument in connection with any Subordinated Debt that could have, in any material respect, an adverse effect on the interests of Lenders. -62- Section 7.18 Executive Compensation. Total cash compensation to David Saperstein during any fiscal year, including, without limitation, salary, bonus and Dividends (but excluding Cash Tax Dividends) shall not exceed the sum of (i) $950,000, plus (ii) 35% of Adjusted Excess Cash Flow. Section 7.19 Radio Affiliate Contracts. The aggregate number of Radio Affiliate Contracts of the Borrowers and the Subsidiaries, collectively, existing as of the last day of any fiscal quarter of the Borrowers shall not be less than the aggregate number of Radio Affiliate Contracts of the Borrowers and the Subsidiaries, collectively, existing as of the last day of the immediately preceding fiscal quarter; provided, however, that no Event of Default shall occur as a result of a violation of this Section 7.19 unless such violation exists for two consecutive fiscal quarters. ARTICLE 8 Default Section 8.1 Events of Default. Each of the following shall constitute an Event of Default, whatever the reason for such event, and whether voluntary, involuntary, or effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any governmental or non-governmental body: (a) Any representation or warranty made under any Loan Document shall prove to have been incorrect or misleading in any material respect when made; (b) Any Borrower shall default in the payment of (i) any interest under any Note or any fees payable hereunder or any other costs, fees, expenses or other amounts payable hereunder or under the Loan Documents, when due, which Default is not cured by the earlier of two Business Days after notice (which may be oral) from the Administrative Agent to the Notification Agent and three days from the date such payment became due by payment of such late amount, or (ii) any principal under any of the Notes; (c) If any Letter of Credit shall be then outstanding, the Administrative Lender may (or, upon the direction of the Determining Lenders, shall) demand upon the Borrowers through the Notification Agent to, and forthwith upon such demand, the Borrowers jointly and severally shall, pay to the Administrative Lender in same day funds at the office of the Administrative Lender on such demand for deposit in the L/C Cash Collateral Account, an amount equal to the maximum amount available to be drawn under the Letters of Credit then outstanding; (d) Any Borrower or Subsidiary shall default in the performance or observance of any agreement or covenant contained in Section 5.1 or Article 7 hereof; -63- (e) Any Borrower or Subsidiary shall default in the performance or observance of any other agreement or covenant contained in this Agreement not specifically referred to elsewhere in this Section 8.1, and such default shall not be cured within a period of 30 days after the earlier of written notice from the Administrative Lender thereof or actual notice thereof; (f) There shall occur any default or breach in the performance or observance of any agreement or covenant (after the expiration of any applicable grace period) or breach of any representation or warranty contained in any of the Loan Documents (other than this Agreement); (g) There shall be entered a decree or order by a court having jurisdiction in the premises constituting an order for relief in respect of any Borrower or Subsidiary under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable Federal or state bankruptcy law or other similar law, or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar official of any Borrower or Subsidiary, or of any substantial part of their respective properties, or ordering the winding-up or liquidation of the affairs of any Borrower or Subsidiary, and any such decree or order shall continue unstayed and in effect for a period of 60 consecutive days; (h) Any Borrower or Subsidiary shall file a petition, answer or consent seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable Federal or state bankruptcy law or other similar law, or any Borrower or Subsidiary shall consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment or taking of possession of a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of any Borrower or Subsidiary or of any substantial part of their respective properties, or any Borrower or Subsidiary shall fail generally to pay its debts as they become due, or any Borrower or Subsidiary shall take any action in furtherance of any such action; (i) A final judgment or judgments shall be entered by any court against any Borrower or Subsidiary for the payment of money which exceeds $250,000 in the aggregate, or a warrant of attachment or execution or similar process shall be issued or levied against property of any Borrower or Subsidiary which, together with all other such property of the Borrowers and the Subsidiaries subject to other such process, exceeds in value $250,000 in the aggregate, and if such judgment or award is not insured or, within 30 days after the entry, issue or levy thereof, such judgment, warrant or process shall not have been paid or discharged or stayed pending appeal, or if, after the expiration of any such stay, such judgment, warrant or process shall not have been paid or discharged; (j) With respect to any Plan of the Borrowers or any member of its Controlled Group: (i) any Borrower, any such member, or any other party-in-interest or disqualified person shall engage in transactions which in the aggregate would reasonably result in a direct or indirect liability to the Borrowers or any member of their Controlled Group in excess of $250,000 under Section 409 or 502 of ERISA or Section 4975 of the Code; (ii) the Borrowers, any one of them, or any member of their Controlled Group shall incur any accumulated funding deficiency, as -64- defined in Section 412 of the Code, in the aggregate in excess of $250,000, or request a funding waiver from the Internal Revenue Service for contributions in the aggregate in excess of $250,000; (iii) the Borrowers or any member of their Controlled Group shall incur any withdrawal liability in the aggregate in excess of $250,000 as a result of a complete or partial withdrawal within the meaning of Section 4203 or 4205 of ERISA; (iv) the Borrowers or any member of their Controlled Group shall fail to make a required contribution by the due date under Section 412 of the Code or Section 302 of ERISA which would result in the imposition of a lien under Section 412 of the Code or Section 302 of ERISA; (v) the Borrowers, any member of their Controlled Group or any Plan sponsor shall notify the PBGC of an intent to terminate, or the PBGC shall institute proceedings to terminate, or the PBGC shall institute proceedings to terminate, any Plan; (vi) a Reportable Event shall occur with respect to a Plan, and within 15 days after the reporting of such Reportable Event to the Administrative Lender, the Administrative Lender shall have notified the Notification Agent in writing that the Determining Lenders have made a determination that, on the basis of such Reportable Event, there are reasonable grounds for the termination of such Plan by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer such Plan and as a result thereof an Event of Default shall have occurred hereunder; (vii) a trustee shall be appointed by a court of competent jurisdiction to administer any Plan or the assets thereof; (viii) the benefits of any Plan shall be increased, or any Borrower or any member of its Controlled Group shall begin to maintain, or begin to contribute to, any Plan, without the prior written consent of the Determining Lenders; or (ix) any ERISA Event with respect to a Plan shall have occurred, and 30 days thereafter (A) such ERISA Event, other than such event described in clause (vi) of the definition of ERISA Event herein, (if correctable) shall not have been corrected and (B) the then present value of such Plan's benefit liabilities, as defined in Title IV of ERISA, shall exceed the then current value of assets accumulated in such Plan; provided, however, that the events listed in subsections (v) through (ix) shall constitute Events of Default only if, as of the date thereof or any subsequent date, the maximum amount of liability that the Borrowers or any member of their Controlled Group could incur in the aggregate under Section 4062, 4063, 4064, 4219 or 4023 of ERISA or any other provision of law with respect to all such Plans, computed by the actuary of the Plan taking into account any applicable rules and regulations of the PBGC at such time, and based on the actuarial assumptions used by the Plan, resulting from or otherwise associated with such event exceeds $250,000; (k) All or any material portion of the Collateral or the Loan Documents shall be the subject of any proceeding instituted by any Person other than a Lender (except in connection with any Lender's exercise of any remedies under the Loan Documents), or there shall exist any litigation or threatened litigation with respect to all or any material portion of the Collateral or the Loan Documents, or any Borrower or Subsidiary shall challenge in any manner whatsoever the validity or enforceability of all or any portion of the Loan Documents or the Collateral; provided, however, that during any such time any such circumstance shall be bonded or stayed in accordance with Applicable Law and to the satisfaction of the Determining Lenders, such circumstance shall not be an Event of Default; -65- (1) Any Borrower or Subsidiary shall default in the payment of any Indebtedness in an aggregate amount of $250,000 or more beyond any grace period provided with respect thereto, or shall default in the performance of any agreement or instrument under which such Indebtedness is created or evidenced beyond any applicable grace period or any event shall occur under such agreement or instrument, if the effect of such default or event is to permit or cause the holder of such Indebtedness (or a trustee on behalf of any such holder) to cause such Indebtedness to become due prior to its date of maturity; (m) All of the issued and outstanding capital stock or partnership interests of (i) the Subsidiaries shall not be owned, directly or indirectly, by a Borrower, (ii) Metro shall not be owned directly by David Saperstein, (iii) all of the limited partnership interests of MNLP shall not be owned by David Saperstein and the Trusts, and (iv) all of the general partnership interest of MNLP shall not be owned by Metro; (n) Any material Necessary Authorization shall be revoked; or there shall occur a material default under any material Necessary Authorization by any Borrower or Subsidiary beyond any applicable grace period; or any proceedings shall in any way be brought by any Person to challenge the validity or enforceability of any material Necessary Authorization; or proceedings for the renewal of any material Necessary Authorization shall not be commenced at least 90 days prior to the expiration thereof; or any material Necessary Authorization shall expire due to termination, nonrenewal or for any other reason, or shall be designated for a revocation heating; (o) The Dividends permitted pursuant to Section 7.7(b) hereof shall not have been used for the purpose of capitalizing MNLP within five days of the payment of such Dividends; or (p) Any material provision of any Loan Document shall for any reason cease to be valid and binding on or enforceable against any party to it (other than the Administrative Lender or any Lender) in all material respects, or any such party shall so state in writing. Section 8.2 Remedies. If an Event of Default shall have occurred and shall be continuing: (a) With the exception of an Event of Default specified in Section 8.l(g) or (h) hereof, the Administrative Lender shall, upon the direction of the Determining Lenders, terminate the Commitments and/or declare the principal of and interest on the Advances and all Obligations and other amounts owed under the Loan Documents to be forthwith due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, anything in the Loan Documents to the contrary notwithstanding. (b) Upon the occurrence of an Event of Default specified in Section 8.l(g) or (h) hereof, such principal, interest and other amounts shall thereupon and concurrently therewith become due and payable and the Commitments shall forthwith terminate, all without any action -66- by the Administrative Lender, any Lender or any holders of the Notes and without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in the Loan Documents to the contrary notwithstanding. (c) If any Letter of Credit shall be then outstanding, the Administrative Lender may (or, upon the direction of the Determining Lenders, shall) demand upon the Borrowers through the Notification Agent to, and forthwith upon such demand, the Borrowers jointly and severally shall pay to the Administrative Lender in same day funds at the office of the Administrative Lender on such demand for deposit in the L/C Cash Collateral Account, an amount equal to the maximum amount available to be drawn under the Letters of Credit then outstanding. (d) The Administrative Lender, and the Lenders may exercise all of the post-default rights granted to them under the Loan Documents or under Applicable Law. (e) The rights and remedies of the Administrative Lender and the Lenders hereunder shall be cumulative, and not exclusive. ARTICLE 9 Changes in Circumstances Section 9.1 LIBOR Basis Determination Inadequate. If with respect to any proposed LIBOR Advance for any Interest Period, any Lender determines that (i) deposits in dollars (in the applicable amount) are not being offered to that Lender in the relevant market for such Interest Period or (ii) the LIBOR Basis for such proposed LIBOR Advance does not adequately cover the cost to such Lender of making and maintaining such proposed LIBOR Advance for such Interest Period, such Lender shall forthwith give notice thereof to the Notification Agent, whereupon until such Lender notifies the Notification Agent that the circumstances giving rise to such situation no longer exist, the obligation of such Lender to make LIBOR Advances shall be suspended. Section 9.2 Illegality. If any applicable law, role or regulation, or any change therein or adoption thereof, or interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its LIBOR Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, shall make it unlawful or impossible for such Lender (or its LIBOR Lending Office) to make, maintain or fund its LIBOR Advances, such Lender shall so notify the Administrative Lender and the Administrative Lender shall so notify the Notification Agent. Before giving any notice to the Administrative Lender pursuant to this Section, the notifying Lender shall designate a different LIBOR Lending Office or other lending office if such designation will avoid the need for giving such notice and will not, in the sole judgment of the Lender, be materially disadvantageous to the Lender. Upon receipt of such notice by the Notification Agent, -67- notwithstanding anything contained in Article 2 hereof, the Borrowers jointly and severally shall repay in full the then outstanding principal amount of each LIBOR Advance owing to the notifying Lender, together with accrued interest thereon, on either (a) the last day of the Interest Period applicable to such Advance, if the Lender may lawfully continue to maintain and fund such Advance to such day, or (b) immediately, if the Lender may not lawfully continue to fund and maintain such Advance to such day. Concurrently with repaying each affected LIBOR Advance owing to such Lender, notwithstanding anything contained in Article 2 hereof, the Borrowers shall borrow a Prime Rate Advance from such Lender, and such Lender shall make such Prime Rate Advance, in an amount such that the outstanding principal amount of the Advances owing to such Lender shall equal the outstanding principal amount of the Advances owing immediately prior to such repayment. Section 9.3 Increased Costs. (a) If any applicable law, rule or regulation, or any change in or adoption of any law, rule or regulation, or any interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by any Lender (or its LIBOR Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or compatible agency: (i) shall subject a Lender (or its LIBOR Lending Office) to any tax, duty or other charge (net of any tax benefit engendered thereby) with respect to its LIBOR Advances or its obligation to make such Advances, or shall change the basis of taxation of payments to a Lender (or to its LIBOR Lending Office) of the principal of or interest on its LIBOR Advances or in respect of any other amounts due under this Agreement, as the case may be, or its obligation to make such Advances (except for changes in the rate of tax on the overall net income of the Lender or its LIBOR Lending Office and franchise taxes imposed upon such Lender); or (ii) shall impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, a Lender's LIBOR Lending Office or shall impose on the Lender (or its LIBOR Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its LIBOR Advances or its obligation to make such Advances; and the result of any of the foregoing is to increase the cost to a Lender (or its LIBOR Lending Office) of making or maintaining any LIBOR Advances, or to reduce the amount of any sum received or receivable by a Lender (or its LIBOR Lending Office) with respect thereto, by an amount deemed by a Lender to be material, then, within 15 days after demand by a Lender to the Notification Agent, the Borrowers jointly and severally agree to pay to such Lender such additional amount as will compensate such Lender for such increased costs or reduced amounts. The affected Lender will as soon as practicable notify the Notification Agent of any event of -68- which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section and will designate a different LIBOR Lending Office or other lending office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole judgment of the affected Lender made in good faith, be disadvantageous to such Lender, (b) A certificate of any Lender claiming compensation under this Section and setting forth the additional amounts to be paid to it hereunder and calculations therefor shall be conclusive in the absence of manifest error. In determining such amount, a Lender may use any reasonable averaging and attribution methods. If a Lender demands compensation under this Section, the Borrowers may at any time, upon at least five Business Days' prior notice to the Lender by the Notification Agent, after reimbursement to the Lender by the Borrowers in accordance with this Section of all costs incurred, prepay in full the then outstanding LIBOR Advances of the Lender, together with accrued interest thereon to the date of prepayment, along with any reimbursement required under Section 2.9 hereof. Concurrently with prepaying such LIBOR Advances, the Borrowers shall borrow a Prime Rate Advance from the Lender, and the Lender shall make such Prime Rate Advance, in an amount such that the outstanding principal amount of the Advances owing to such Lender shall equal the outstanding principal amount of the Advances owing immediately prior to such prepayment. Section 9.4 Effect On Prime Rate Advances. If notice has been given pursuant to Section 9.1, 9.2 or 9.3 hereof suspending the obligation of a Lender to make LIBOR Advances, or requiring LIBOR Advances of a Lender to be repaid or prepaid, then, unless and until the Lender notifies the Notification Agent that the circumstances giving rise to such repayment no longer apply, all Advances which would otherwise be made by such Lender as LIBOR Advances shall be made instead as Prime Rate Advances. Section 9.5 Capital Adequacy. If either (a) the introduction of or any change in or in the interpretation of any law, rule or regulation or (b) compliance by a Lender with any law, rule or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by a Lender or any corporation controlling such Lender, and such Lender determines that the amount of such capital is increased by or based upon the existence of such Lender's Commitment or Advances hereunder and other commitments or advances of such Lender of this type, then, upon demand by such Lender to the Notification Agent, subject to Section 11.9, the Borrowers jointly and severally shall immediately pay to such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender with respect to such circumstances, to the extent that such Lender reasonably determines in good faith such increase in capital to be allocable to the existence of such Lender's Commitment hereunder. A certificate as to such amounts submitted to the Notification Agent by a Lender hereunder, shall, in the absence of demonstrable error, be conclusive and binding for all purposes. -69- ARTICLE 10 AGREEMENT AMONG LENDERS Section 10.1 Agreement Among Lenders. The Lenders agree among themselves that: (a) Administrative Lender. Each Lender hereby appoints the Administrative Lender as its nominee in its name and on its behalf, to receive all documents and items to be furnished hereunder; to act as nominee for and on behalf of all Lenders under the Loan Documents; to take such action as may be requested by Determining Lenders, provided that, unless and until the Administrative Lender shall have received such requests, the Administrative Lender may take such administrative action, or refrain from taking such administrative action, as it may deem advisable and in the best interests of the Lenders; to arrange the means whereby the proceeds of the Advances of the Lenders are to be made available to the Borrowers; to distribute promptly to each Lender information, requests and documents received from the Borrowers and the Notification Agent, and each payment (in like funds received) with respect to any of such Lender's Advances, fee or other amount; and to deliver to the Borrowers and the Notification Agent requests, demands, approvals and consents received from the Lenders. Administrative Lender agrees to promptly distribute to each Lender, at such Lender's address set forth below information, requests, documents and payments received from the Borrowers and the Notification Agent. (b) Replacement of Administrative Lender. Should the Administrative Lender or any successor Administrative Lender ever cease to to be a Lender hereunder, or should the Administrative Lender or any successor Administrative Lender ever resign as Administrative Lender, or should the Administrative Lender or any successor Administrative Lender ever be removed with cause by the Determining Lenders, then the Lender appointed by the other Lenders shall forthwith become the Administrative Lender, and the Borrowers and the Lenders shall execute such documents as any Lender may reasonably request to reflect such change. Any resignation or removal of the Administrative Lender or any successor Administrative Lender shall become effective upon the appointment by the Lenders of a successor Administrative Lender; provided, however, that if the Lenders fail for any reason to appoint a successor within 60 days after such removal or resignation, the Administrative Lender or any successor Administrative Lender (as the case may be) shall thereafter have no obligation to act as Administrative Lender hereunder. (c) Expenses. Each Lender shall pay its pro rata share, based on its Specified Percentage, of any expenses paid by the Administrative Lender directly and solely in connection with any of the Loan Documents if Administrative Lender does not receive reimbursement therefor from other sources within 60 days after the date incurred, unless payment of such fees is being diligently disputed by such Lender or the Borrowers in good faith. Any amount so paid by the Lenders to the Administrative Lender shall be returned by the Administrative Lender pro rata to each paying Lender to the extent later paid by the Borrowers or any other Person on the Borrowers' behalf to the Administrative Lender. -70- (d) Delegation of Duties. The Administrative Lender may execute any of its duties hereunder by or through officers, directors, employees, attorneys or agents, and shall be entitled to (and shall be protected in relying upon) advice of counsel concerning all matters pertaining to its duties hereunder. (e) Reliance by Administrative Lender. The Administrative Lender and its officers, directors, employees, attorneys and agents shall be entitled to rely and shall be fully protected in relying on any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telex or teletype message, statement, order, or other document or conversation reasonably believed by it or them in good faith to be genuine and correct and to have been signed or made by the proper Person and, with respect to legal matters, upon opinions of counsel selected the Administrative Lender. The Administrative Lender may, in its reasonable judgment, deem and treat the payee of any Note as the owner thereof for all purposes hereof. (f) Limitation of Administrative Lender's Liability. Neither the Administrative Lender nor any of its officers, directors, employees, attorneys or agents shall be liable for any action taken or omitted to be taken by it or them hereunder in good faith and believed by it or them to be within the discretion or power conferred to it or them by the Loan Documents or be responsible for the consequences of any error of judgment, except for its or their own gross negligence or wilful misconduct. Except as aforesaid, the Administrative Lender shall be under no duty to enforce any rights with respect to any of the Advances, or any security therefor. The Administrative Lender shall not be compelled to do any act hereunder or to take any action towards the execution or enforcement of the powers hereby created or to prosecute or defend any suit in respect hereof, unless indemnified to its satisfaction against loss, cost, liability and expense. The Administrative Lender shall not be responsible in any manner to any Lender for the effectiveness, enforceability, genuineness, validity or due execution of any of the Loan Documents, or for any representation, warranty, document, certificate, report or statement made herein or furnished in connection with any Loan Documents, or be under any obligation to any Lender to ascertain or to inquire as to the performance or observation of any of the terms, covenants or conditions of any Loan Documents on the part of the Borrowers. To the extent not reimbursed by the Borrowers, each Lender hereby severally, but not jointly, indemnifies and holds harmless the Administrative Lender, pro rata according to its Specified Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and/or disbursements of any kind or nature whatsoever which may be imposed on, asserted against, or incurred by the Administrative Lender in any way With respect to any Loan Documents or any action taken or omitted by the Administrative Lender under the Loan Documents (including any negligent action of the Administrative Lender), except to the extent the same result from gross negligence or wilful misconduct by the Administrative Lender. (g) Liability Among Lenders. No Lender shall incur any liability (other than the sharing of expenses and other matters specifically set forth herein and in the other Loan Documents) to any other Lender, except for acts or omissions in bad faith. -71- (h) Rights as Lender. With respect to its commitment hereunder, the Advances made by it and Note issued to it, the Administrative Lender shall have the same rights as a Lender and may exercise the same as though it were not the Administrative Lender, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Administrative Lender in its individual capacity. The Administrative Lender or any Lender may accept deposits from, act as trustee under indentures of, and generally engage in any kind of business with, any Borrower and any of its Affiliates, and any Person who may do business with or own securities of any Borrower or any of its Affiliates, all as if the Administrative Lender were not the Administrative Lender hereunder and without any duty to account therefor to the Lenders. Section 10.2 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Lender or any other Lender and based upon the financial statements referred to in Sections 4.1(j), 6.1 and 6.2 hereof, and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Lender or any other Lender and based upon such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. Section 10.3 Benefits of Article. None of the provisions of this Article shall inure to the benefit of any Person other than Lenders or the Borrowers, as applicable; consequently, no Person other than Lenders or the Borrowers shall be entitled to rely upon, or to raise as a defense, in any manner whatsoever, the failure of the Administrative Lender or any Lender to comply with such provisions. ARTICLE 11 Miscellaneous Section 11.1 Notices. (a) All notices and other communications under this Agreement shall be in writing and shall be deemed to have been given on the date personally delivered or sent by telecopy (answerback received), or three days after deposit in the mail, designated as certified mail, return receipt requested, postage-prepaid, or one day after being entrusted to a reputable commercial overnight delivery service, or one day after being delivered to the telegraph office or sent out by telex addressed to the party to which such notice is directed at its address determined as provided in this Section. All notices and other communications under this Agreement shall be given to the parties hereto at the following addresses: -72- (i) If to the Borrowers or the Notification Agent, at: Metro Traffic Control, Inc. 2700 Post Oak Boulevard, Suite 1400 Houston, Texas, 77056 Attn: Robert Greer, Chief Financial Officer (ii) If to the Administrative Lender, at: NationsBank of Texas, N.A. 901 Main Street, 671h Floor Dallas, Texas 75202 Attn: Chad Coben, Assistant Vice President (iii) If to a Lender, at its address shown below its name on the signature pages hereof, or if applicable, set forth in its Assignment Agreement. (b) Any party hereto may change the address to which notices shall be directed by giving 10 days' written notice of such change to the other parties. Section 11.2 Expenses. The Borrowers jointly and severally shall promptly pay: (a) all reasonable out-of-pocket expenses of the Administrative Lender in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents, the transactions contemplated hereunder and thereunder, and the making of Advances and the issuance of Letters of Credit hereunder, including without limitation the reasonable fees and disbursements of Special Counsel; (b) all reasonable out-of-pocket expenses of the Administrative Lender in connection with the administration of the transactions contemplated in this Agreement and the other Loan Documents, the preparation, negotiation, execution and delivery of any waiver, amendment or consent by the Lenders relating to this Agreement or the other Loan Documents; and (c) all reasonable costs, out-of-pocket expenses and attorneys' fees of the Administrative Lender and each Lender incurred for enforcement, collection, restructuring, refinancing and "work-out", or otherwise incurred in obtaining performance under the Loan Documents, and all reasonable costs and out-of-pocket expenses of collection if default is made in the payment of the Notes, which in each case shall include without limitation reasonable fees and expenses of consultants, counsel for the Administrative Lender and any Lender, and administrative fees for the Administrative Lender. Section 11.3 Waivers. The rights and remedies of the Lenders under this Agreement and the other Loan Documents shall be cumulative and not exclusive of any rights or remedies which they would otherwise have. No failure or delay by the Administrative Lender or any -73- Lender in exercising any right shall operate as a waiver of such right. The Lenders expressly reserve the right to require strict compliance with the terms of this Agreement in connection with any funding of a request for an Advance and the Issuing Bank expressly reserves the right to require strict compliance with the terms of this Agreement in connection with any issuance of a Letter of Credit. In the event that any Lender decides to fund an Advance or the Issuing Bank decides to issue a Letter of Credit at a time when the Borrowers are not in strict compliance with the terms of this Agreement, such decision by such Lender shall not be deemed to constitute an undertaking by the Lender to fund any further requests for Advances or by the Issuing Bank to issue any additional Letter of Credit or preclude the Lenders from exercising any rights available under the Loan Documents or at law or equity. Any waiver or indulgence granted by the Lenders shall not constitute a modification of this Agreement, except to the extent expressly provided in such waiver or indulgence, or constitute a course of dealing by the Lenders at variance with the terms of the Agreement such as to require further notice by the Lenders of the Lenders' intent to require strict adherence to the terms of the Agreement in the future. Any such actions shall not in any way affect the ability of the Administrative Lender or the Lenders, in their discretion, to exercise any rights available to them under this Agreement or under any other agreement, whether or not the Administrative Lender or any of the Lenders are a party thereto, relating to the Borrowers. Section 11.4 Determination by the Lenders Conclusive and Binding. Any material determination required or expressly permitted to be made by the Administrative Lender or any Lender under this Agreement shall be made in its reasonable judgment and in good faith, and shall when made, prima facie evidence of the matters asserted. Section 11.5 Set-Off. In addition to any fights now or hereafter granted under Applicable Law and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Lender and any subsequent holder of any Note, and any assignee or participant in any Note is hereby authorized by the Borrowers at any time or from time to time, without notice to the Borrowers or any other Person, any such notice being hereby expressly waived, to set-off, appropriate and apply any deposits (general or special (except trust and escrow accounts), time or demand, including without limitation Indebtedness evidenced by certificates of deposit) and any other Indebtedness at any time held or owing by such Lender which is then due and payable or holder to or for the credit or the account of the Borrowers, against and on account of the Obligations which are then due and payable and other liabilities of the Borrowers to such Lender or holder, irrespective of whether or not the Lender or holder shall have made any demand hereunder. Any sums obtained by any Lender or by any assignee, participant or subsequent holder of any Note shall be subject to pro rata treatment of all Obligations and other liabilities hereunder. -74- Section 11.6 Assignment. (a) Except in connection with any merger or consolidation permitted pursuant to Section 7.5(b) hereof, the Borrowers may not assign or transfer any of their respective rights or obligations hereunder or under the other Loan Documents without the prior written consent of the Lenders. (b) No Lender shall be entitled to assign its interest in this Agreement, its Notes or its Advances, except as hereinafter set forth. (c) A Lender may at any time sell participations in all or any part of its Advances (collectively, "Participations") to any banks or other financial institutions ("Participants") provided that such Participation shall not confer on any Person (other than the parties hereto) any right to vote on, approve or sign amendments or waivers, or any other independent benefit or any legal or equitable right, remedy or other claim under this Agreement or any other Loan Documents, other than the right to vote on, approve, or sign amendments or waivers or consents with respect to items that would result in (i) any increase in the commitment of any Participant; or (ii) (A) the extension of the date of maturity of, or (B) the extension of the due date for any payment of principal, interest or fees respecting, or (C) the reduction of the amount of any installment of principal or interest on or the change or reduction of any mandatory reduction required hereunder, or (D) a reduction of the rate of interest on the Advances, the Letters of Credit, or the Reimbursement Obligations, or change in Applicable Margin; or (iii) the release of security for the Obligations, including without limitation any guarantee or Pledged Stock; or (iv) the reduction of any fees payable hereunder. Notwithstanding the foregoing, the Borrowers agree that the Participants shall be entitled to the benefits of Article 9 and Section 11.5 hereof as though they were Lenders and the Lenders may provide copies of all financial information received from the Borrowers to such Participants. To the fullest extent it may effectively do so under Applicable Law, the Borrowers agree that any Participant may exercise any and all rights of banker's lien, set-off and counterclaim with respect to this Participation as fully as if such Participant were the holder of the Advances in the amount of its Participation. (d) Each Lender may assign to one or more financial institutions or funds organized under the laws of the United States, or any state thereof, or under the laws of any other country that is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, which is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business (each, an "Assignee") its rights and obligations under this Agreement and the other Loan Documents; provided, however, that (i) each such assignment shall be subject to the prior written consent of the Administrative Lender and Borrowers, which approval shall not be unreasonably withheld (provided that without the consent of the Borrowers or the Administrative Lender, any Lender may make assignments to its Affiliates or another Lender), (ii) each such assignment shall be of a constant, and not a varying, percentage of the Lender' s rights and obligations under this Agreement, (iii) the amount of the Commitment, Advances and Reimbursement Obligations being assigned pursuant to each such assignment (determined as of the date of the assignment with respect to such assignment) -75- shall in no event be less than $5,000,000 and which is an integral multiple of $1,000,000, (iv) the applicable Lender, Administrative Lender and applicable Assignee shall execute and deliver to the Administrative Lender an Assignment and Acceptance Agreement (an "Assignment Agreement") in substantially the form of Exhibit H hereto, together with the Notes subject to such assignment, (v) the Assignee or the Lender executing the Assignment as the case may be, shall deliver to the Administrative Lender a processing fee of $2,500, and (vi) in no event shall NationsBank of Texas, N.A., hold less than 51% of the aggregate Specified Percentages outstanding at any time. Upon such execution, delivery and acceptance from and after the effective date specified in each Assignment, which effective date shall be at least three Business Days after the execution thereof, (A) the Assignee thereunder shall be party hereto and, to the extent that fights and obligations hereunder have been assigned to it pursuant to such Assignment, have the rights and obligations of a Lender hereunder and (B) the Administrative Lender shall, to the extent that fights and obligations hereunder have been assigned by it pursuant to such Assignment, relinquish such rights and be released from such obligations under this Agreement. The Borrowers shall not be liable for any fees or expenses of the Administrative Lender, any Lender, or any Assignee, incurred in connection with such an Assignment. (e) Notwithstanding anything in clause (d) above to the contrary, any Lender may assign and pledge all or any portion of its Advances and Note to any Federal Reserve Bank as collateral security pursuant to Regulation A of F.R.S. Board and any Operating Circular issued by such Federal Reserve Bank; provided, however, that no such assignment under this clause (e) shall release the assignor Lender from its obligations hereunder. (f) Upon the Notification Agent's receipt of an Assignment Agreement executed by a Lender and an Assignee, and any Note or Notes subject to such assignment, each Borrower shall, within three Business Days after the Notification Agent's receipt of such Assignment Agreement, at its own expense, execute and deliver to the Administrative Lender in exchange for the surrendered Notes new Notes to the order of such Assignee in an amount equal to the portion of the Advances, Reimbursement Obligations and Commitment assigned to it pursuant to such Assignment Agreement and new Notes to the order of the Administrative Lender in an amount equal to the portion of the Advances and Commitment retained by it hereunder. Such new Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Notes, shall be dated the effective date of such Assignment Agreement and shall otherwise be in substantially the form of Exhibit H hereto. (g) No Lender may, without the prior consent of the Notification Agent, which shall not be unreasonably withheld, in connection with any assignment or Participation or proposed assignment or Participation pursuant to this Section 11.6, disclose to the Assignee or Participant or proposed Assignee or Participant, any information (which is not otherwise publicly available) relating to the Borrowers furnished to such Lender by or on behalf of the Borrowers. The Notification Agent may not prohibit any Participation by withholding its consent pursuant to this Section 11.6(g). -76- (h) Except as specifically set forth in this Section 11.6, nothing in this Agreement or any other Loan Documents, expressed or implied, is intended to or shall confer on any Person other than the respective parties hereto and thereto and their successors and assignees permitted hereunder and thereunder any benefit or any legal or equitable right, remedy or other claim under this Agreement or any other Loan Documents. Section 11.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such separate counterparts shall together constitute but one and the same instrument. Section 11.8 Severability. Any provision of this Agreement which is for any reason prohibited or found or held invalid or unenforceable by any court or governmental agency shall be ineffective to the extent of such prohibition or invalidity or unenforceability without invalidating the remaining provisions hereof in such jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction. Section 11.9 Interest and Charges. It is not the intention of any parties to this Agreement to make an agreement in violation of the laws of any applicable jurisdiction relating to usury. Regardless of any provision in any Loan Documents, no Lender shall ever be entitled to receive, collect or apply, as interest on the Obligations, any amount in excess of the Maximum Amount. If any Lender or participant ever receives, collects or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial repayment of principal and treated hereunder as such; and ff principal is paid in full, any remaining excess shall be paid to the Borrowers. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Maximum Amount, the Borrowers and the Lenders shall, to the maximum extent permitted under Applicable Law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effect thereof, and (c) amortize, prorate, allocate and spread in equal parts, the total amount of interest throughout the entire contemplated term of the Obligations so that the interest rate is uniform throughout the entire term of the Obligations; provided, however, that if the Obligations are paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Maximum Amount, the Lenders shall refund to the Borrowers the amount of such excess or credit the amount of such excess against the total principal amount of the Obligations owing, and, in such event, the Lenders shall not be subject to any penalties provided by any laws for contracting for, charging or receiving interest in excess of the Maximum Amount. This Section shall control every other provision of all agreements pertaining to the transactions contemplated by or contained in the Loan Documents. Section 11.10 Headings. Headings used in this Agreement are for convenience only and shall not be used in connection with the interpretation of any provision hereof. Section 11.11 Amendment and Waiver. The provisions of this Agreement may not be amended, modified or waived except by the written agreement of the Borrowers and the -77- Determining Lenders; provided, however, that no such amendment, modification or waiver shall be made (a) without the consent of all Lenders, if it would (i) increase the Specified Percentage or commitment of any Lender, or (ii) extend the date of payment or maturity of, extend the due date for any payment of principal or interest on, reduce the amount of any installment of principal or interest on, or reduce the rate of interest on, any Advance, the Reimbursement Obligations, fees or other amounts owing under any Loan Documents, or (iii) release any security for or guaranty of the Obligations (except pursuant to this Agreement), or (iv) reduce the fees payable hereunder, or (v) revise this Section 11.11, or (vi) waive the date for payment of any of the Obligations, or (vii) amend the definition of Determining Lenders, (viii) revise Sections 2.5(b), (c) or (d) hereof or (ix) revise Sections 2.6(b) or (c) hereof; or (b) without the consent of the Administrative Lender, if it would alter the rights, duties or obligations of the Administrative Lender. Neither this Agreement nor any term hereof may be amended orally, nor may any provision hereof be waived orally but only by an instrument in writing signed by the Administrative Lender and, in the case of an amendment, by the Borrowers. Section 11.12 Exception to Covenants. Neither the Borrowers nor any Subsidiary shall be deemed to be permitted to take any action or fail to take any action which is permitted as an exception to any of the covenants contained herein or which is within the permissible limits of any of the covenants contained herein if such action or omission would result in the breach of any other covenant contained herein. Section 11.13 No Liability of Issuing Bank. The Borrowers assume all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Bank nor any Lender nor any of their respective officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit, except for any payment made upon the Issuing Bank's gross negligence or willful misconduct; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that the Borrowers shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to the Borrowers, to the extent of any direct, but not consequential, damages suffered by the Borrowers that the Borrowers prove were caused by (i) the Issuing Bank's willful misconduct or gross negligence in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) the Issuing Bank's willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. -78- Section 11.14 Credit Agreement Governs. In the event of any conflict between the terms of this Agreement and any terms of any other Loan Document, the terms of this Agreement shall control. SECTION 11.15 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(b), TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT THE PROVISIONS OF CHAPTER 15, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE BORROWERS AGREE THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 11.16 WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THIS AGREEMENT AND MAKING ANY ADVANCES HEREUNDER. SECTION 11.17 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 11.18 Joint and Several Obligations of the Borrowers. Each Borrower and the Lenders agree that the obligations and duties of the Borrowers hereunder, and under each of the other Loan Documents, shall be joint and several in all instances; provided, however, that anything contained in this Agreement or in any other Loan Document to the contrary notwithstanding, the obligations of each Borrower hereunder or in any other Loan Document shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder or in any other Loan Document subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of such Borrower, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Borrower in respect of intercompany indebtedness to Affiliates of such -79- Borrower to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Borrower hereunder and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any fights to subrogation or contribution of such Borrower pursuant to (i) applicable law or (ii) any agreement providing for an equitable allocation among such Borrower and Affiliates of such Borrower of obligations arising hereunder or in any other Loan Document. Section 11.19 Waiver of Subrogation. No Borrower shall assert, enforce, or otherwise exercise (a) any right of subrogation to any of the rights or Liens of Administrative Lender or any Lender or any other Person against any other Borrower or any other obligor on all or any part of the Obligations or any collateral or other security, or (b) any right of recourse, reimbursement, contribution, indemnification, or similar right against any other Borrower or any other obligor on all or any part of the Obligations or any collateral or any security, and each Borrower hereby waives any and all of the foregoing rights and the benefit of, and any right to participate in, any collateral or other security given to Administrative Lender or any Lender or any other Person to secure payment of the Obligations, however any such rights arise, whether hereunder or any other Loan Document or by operation of law. The provisions of this Section 11.19 shall survive the termination of this Agreement, and any satisfaction and discharge of the Borrowers and each other Obligor by virtue of any payment, court order, or law. ================================================================================ REMAINDER OF PAGE INTENTIONALLY BLANK ================================================================================ -80- IN WITNESS WHEREOF, this Credit Agreement is executed as of the date first set forth above. BORROWERS: METRO TRAFFIC CONTROL, INC. By: /s/ Robert Greer ------------------------ Robert Greer Chief Financial Officer ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A., as Administrative Lender By: /s/ Chad Coben ------------------------ Chad Coben Assistant Vice President LENDERS: NATIONSBANK OF TEXAS, N.A., as a Lender Specified Percentage: 100% By: /s/ Chad Coben ------------------------ Chad Coben Assistant Vice President 901 Main Street, 67th Floor Dallas, Texas 75202 Attn: Chad Coben Assistant Vice President -81- EX-10.2 3 EXHIBIT 10.2 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment"), dated as of May 22, 1995, is entered into among Metro Traffic Control, Inc., a Maryland corporation, Metro Networks, Ltd., a Texas limited partnership (collectively, the "Borrowers"), the banks listed on the signature pages hereto (collectively, the "Lenders"), and NationsBank of Texas, N.A., as Administrative Lender (in said capacity, the "Administrative Lender"). BACKGROUND Borrowers, Lenders and Administrative Lender heretofore entered into that certain Credit Agreement, dated as of October 21, 1994, as modified by that certain Letter Agreement dated as of February 6, 1995 (the "Credit Agreement"; the terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement). NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, Borrowers, Lenders and Administrative Lender covenant and agree as follows: 1. AMENDMENTS TO CREDIT AGREEMENT. Upon the satisfaction of the conditions of effectiveness set forth in Section 4 of this First Amendment, the following provisions of the Credit Agreement shall be amended as set forth below: (a) The definition of "Commitment" set forth in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows: "'Commitment' shall mean $19,211,000, as reduced from time to time pursuant to Section 2.6 hereof." (b) The definition of "Commitment Reduction Date" set forth in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows: "'Commitment Reduction Date' shall mean the last Business Day of December, 1995." (c) Section 2.6(c) of the Credit Agreement is hereby amended to read in its entirety as follows: "(c) Scheduled Reductions. On each Quarterly Date, commencing on the Commitment Reduction Date, through the last Business Day of September 1999, the Commitment outstanding on the Commitment Reduction Date shall automatically reduce by an amount equal to the percentage reduction that the Commitment is to reduce on the Quarterly Date pursuant to the table below. Notwithstanding the foregoing, on the Maturity Date, the Commitment shall automatically reduce to zero. Quarterly Date % Reduction -------------- ----------- December 1995 6.25% March 1996 6.25% June 1996 6.25% September 1996 6.25% December 1996 6.25% March 1997 6.25% June 1997 6.25% September 1997 6.25% December 1997 6.25% March 1998 6.25% June 1998 6.25% September 1998 6.25% December 1998 6.25% March 1999 6.25% June 1999 6.25% September 1999 6.25% and any remaining balance such that the Commitment shall be zero" 2. WAIVER. For a period commencing upon the satisfaction of the conditions of effectiveness set forth in Section 4 of this First Amendment and ending on July 21, 1995, Lenders waive the Event of Default existing as a result of Borrowers' failure to comply with Section 5.12 of the Credit Agreement. 3. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its execution and delivery hereof, each Borrower represents and warrants that, as of the date hereof and after giving effect to the amendments contemplated by the foregoing Section 1, and the waiver contemplated by the foregoing Section 2: (a) the representations and warranties contained in the Credit Agreement are true and correct on and as of the date hereof as made on and as of such date; (b) no event has occurred and is continuing which constitutes a Default or an Event of Default; (c) such Borrower has full power and authority to execute and deliver this First Amendment, and this First Amendment and the Credit Agreement, as amended hereby, - 2 - constitute the legal, valid and binding obligations of such Borrower, enforceable in accordance with their respective terms; and (d) no authorization, approval consent, or other action by, notice to, or filing with, any governmental authority or other Person, is required for the execution, delivery or performance by such Borrower of this First Amendment or the acknowledgement of the First Amendment by any Guarantor. 4. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective as of May 22, 1995, subject to the following: (a) Administrative Lender shall have received counterparts of this First Amendment executed by each Lender; (b) Administrative Lender shall have received counterparts of this First Amendment executed by each Borrower and acknowledged by each Guarantor; (c) each Lender shall have received a duly executed Note, payable to the order of such Lender and in an amount for such Lender equal to its Specified Percentage of the Commitment (as amended hereby); (d) Administrative Lender shall have received new Intercompany Notes in the amount of the Commitment (as amended hereby) duly endorsed in favor of the Administrative Lender; (e) Administrative Lender shall have received a certificate of an officer acceptable to the Lenders, certifying as to the incumbency of the officers signing this First Amendment and the Notes and including a copy of the resolutions of each Borrower authorizing the execution and delivery of this First Amendment and the Notes; and (f) Administrative Lender shall have received, in form and substance satisfactory to Administrative Lender and its counsel, such other documents, certificates and instruments as Administrative Lender shall require. 5. GUARANTOR'S ACKNOWLEDGMENT. By signing below, each of the Guarantors acknowledges this First Amendment and agrees that its obligations in respect of its Subsidiary Guaranty are not released, modified, impaired or affected in any manner by this First Amendment or any of the provisions contemplated herein. 6. REFERENCE TO THE CREDIT AGREEMENT. (a) Upon the effectiveness of this First Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", or words of like import shall mean and be a reference to the Credit Agreement, as affected and amended by this First Amendment. - 3 - (b) The Credit Agreement, as amended by this First Amendment, and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 7. COSTS EXPENSES AND TAXES. Each Borrower agrees, jointly and severally, to pay on demand all costs and expenses of Administrative Lender in connection with the preparation, reproduction, execution and delivery of this First Amendment and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses of counsel for Administrative Lender with respect thereto and with respect to advising Administrative Lender as to its rights and responsibilities under the Credit Agreement, as amended by this First Amendment). 8. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 9. GOVERNING LAW; BINDING EFFECT. This First Amendment shall be governed by and construed in accordance with the laws of the State of Texas and shall be binding upon each Borrower and each Lender and their respective successors and assigns. 10. HEADINGS. Section headings in this First Amendment are included herein for convenience of reference only and shall not constitute a part of this First Amendment for any other purpose. 11. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. ================================================================================ REMAINDER OF PAGE LEFT INTENTIONALLY BLANK ================================================================================ -4- IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as the date first above written. METRO TRAFFIC CONTROL, INC. By: /s/ Curtis H. Coleman ----------------------------------- Curtis H. Coleman Vice President/Treasurer METRO NETWORKS, LTD. By: METRO TRAFFIC CONTROL, INC., its general partner By: /s/ Curtis H. Coleman ----------------------------------- Curtis H. Coleman Vice President/Treasurer NATIONSBANK OF TEXAS, N.A., as Administrative Lender, as Lender and as Issuing Bank By: /s/ Chad Coben -------------------------------- Chad Coben, Vice President -5- ACKNOWLEDGED AND AGREED: METRO RECIPROCAL, INC. METRO VIDEO NEWS, INC. TRAFFICSCAN, INCORPORATED MTC GP, INC. SKYVIEW BROADCASTING NETWORKS, INC. AIRBORNE BROADCAST CONSULTANTS, INC. By: /s/ Curtis H. Coleman ----------------------------------- Name: Curtis H. Coleman Title: Vice President/Treasurer -6- EX-10.3 4 EXHIBIT 10.3 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment"), dated as of November 22, 1995, is entered into among Metro Traffic Control, Inc., a Maryland corporation, Metro Networks, Ltd., a Texas limited partnership (collectively, the "Borrowers"), the banks listed on the signature pages hereto (collectively, the "Lenders"), and NationsBank of Texas, N.A., as Administrative Lender (in said capacity, the "Administrative, Lender"). BACKGROUND Borrowers, Lenders and Administrative Lender heretofore entered into that certain Credit Agreement, dated as of October 21, 1994, as modified by that certain Letter Agreement dated as of February 6, 1995, and as amended by that certain First Amendment to Credit Agreement dated as of May 22, 1995 (as amended, modified or restated from time to time, the "Credit Agreement"; the terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement). NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, Borrowers, Lenders and Administrative Lender covenant and agree as follows: 1. AMENDMENTS TO CREDIT AGREEMENT. Upon the satisfaction of the conditions of effectiveness set forth in Section 4 of this Second Amendment, the following provisions of the Credit Agreement shall be amended as set forth below: (a) The definition of "Applicable Margin" set forth in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows: "Applicable Margin" shall mean the following per annum percentages, applicable in the following situations: Prime Rate LIBOR Applicability Basis Basis ------------- ----- ----- (i) If the Leverage Ratio is not less than 2.5 to 1 1.000 2.000 (ii) If the Leverage Ratio is less than 2.5 to 1 but 0.875 1.875 not less than 2.0 to 1 (iii) If the Leverage Ratio is less than 2.0 to 1 but 0.750 1.750 is not less than 1.5 to 1 (iv) If the Leverage Ratio is less than 1.5 to 1 but 0.500 1.500 is not less than 1.0 to 1 (v) If the Leverage Ratio is less than 1.0 to 1 0.250 1.250 The Applicable Margin payable by the Borrowers on the Advances outstanding hereunder shall be subject to reduction or increase, as applicable and as set forth in the table above, on a quarterly basis according to the performance of the Borrowers as tested by the Leverage Ratio. Except as set forth in the last sentence hereof, any such increase or reduction in the Applicable Margin provided for herein shall be effective three Business Days after receipt by Administrative Lender of the financial statements required to be delivered pursuant to Section 6.1(b) or 6.2(b) hereof, as applicable. If financial statements of the Borrowers setting forth the Leverage Ratio are not received by the Administrative Lender by the date required pursuant to Section 6.1(b) or 6.2(b) hereof, as applicable, the Applicable Margin shall be determined as if the Leverage Ratio is not less than 2.0 to 1 until such time as such financial statements are received. For the final quarter of any fiscal year of the Borrowers, the Borrowers may provide their unaudited financial statements, subject only to year-end adjustments, for the purpose of adjusting the Applicable Margin. (b) The definition of "Commitment" set forth in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows: "Commitment shall mean $30,000,000, as reduced from time to time pursuant to Section 2.6 hereof. (c) The definition of "Maturity Date" set forth in Section 1.1 of the Credit Agreement is hereby amended to read as follows: "Maturity Date" shall mean June 30, 2000. (d) The definition of "Commitment Reduction Date" set forth in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows: "'Commitment Reduction Date' shall mean the last Business Day of June, 1996." (e) Section 2.6(c) of the Credit Agreement is hereby amended to read in its entirety as follows: "(c) Scheduled Reductions. On each Quarterly Date, commencing on the Commitment Reduction Date, through the last Business Day of June, 2000, the Commitment outstanding on the Commitment Reduction Date shall automatically reduce by an amount equal to the percentage reduction that the Commitment is to reduce on the Quarterly Date pursuant to the table below. -2- Notwithstanding the foregoing, on the Maturity Date, the Commitment shall automatically reduce to zero. Quarterly Date % Reduction -------------- ----------- June 30, 1996 5.00% September 30, 1996 5.00% December 31, 1996 5.00% March 31, 1997 5.00% June 30, 1997 5.00% September 30, 1997 5.00% December 31, 1997 5.00% March 31, 1998 5.00% June 30, 1998 5.00% September 30, 1998 5.00% December 31, 1998 5.00% March 31, 1999 6.25% June 30, 1999 6.25% September 30, 1999 6.25% December 31, 1999 6.25% March 31, 2000 10.00% June 30, 2000 10.00% and any remaining balance such that the Commitment shall be zero (f) Section 5.9 of the Credit Agreement is hereby amended to read in its entirety as follows: Section 5.9 Use of Proceeds. Each Borrower shall use the proceeds of Advances and Letters of Credit to (a) make Acquisitions permitted under Section 7.6 hereof, (b) make Capital Expenditures, (c) make Investments (including advances to Subsidiaries) permitted pursuant to Section 7.3 hereof, (d) to repay all outstanding Indebtedness under the Existing Loan Agreement, and (e) for working capital and for other general corporate purposes; provided, however, that at no time shall the sum of the aggregate amount of outstanding Advances plus Reimbursement Obligations used for the purposes set forth in the foregoing subsections (b), (c), (d) and (e) exceed $25,000,000. (g) Section 7.10 of the Credit Agreement is hereby amended to read in its entirety as follows: -3 - 7.10 Leverage Ratio. At the end of each fiscal quarter ending during the periods indicated below, the Borrowers, on a combined basis, shall not permit the Leverage Ratio to be greater than: Period Ratio ------ ----- From date hereof through March 31, 1996 3.00 to 1 June 30, 1996 through December 31, 1996 2.50 to 1 March 31, 1997 and thereafter 2.00 to 1 2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its execution and delivery hereof, each Borrower represents and warrants that, as of the date hereof and after giving effect to the amendments contemplated by the foregoing Section 1: (a) the representations and warranties contained in the Credit Agreement are true and correct on and as of the date hereof as made on and as of such date; (b) no event has occurred and is continuing which constitutes a Default or an Event of Default; (c) such Borrower has full power and authority to execute and deliver this Second Amendment, and this Second Amendment and the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of such Borrower, enforceable in accordance with their respective terms; and (d) no authorization, approval consent, or other action by, notice to, or filing with, any governmental authority or other Person, is required for the execution, delivery or performance by such Borrower of this Second Amendment or the acknowledgement of the Second Amendment by any Guarantor or limited partners of Metro Networks, Ltd. (the "Partnership"). 3. CONDITIONS OF EFFECTIVENESS. This Second Amendment shall be effective as of November 22, 1995, subject to the following: (a) Administrative Lender shall have received counterparts of this Second Amendment executed by each Lender; (b) Administrative Lender shall have received counterparts of this Second Amendment executed by each Borrower and acknowledged by each Guarantor and limited partner of the Partnership; - 4 - (c) each Lender shall have received a duly executed Note, payable to the order of such Lender and in an amount for such Lender equal to its Specified Percentage of the Commitment (as amended hereby); (d) Administrative Lender shall have received new Intercompany Notes in the amount of the Commitment (as amended hereby) duly endorsed in favor of the Administrative Lender; (e) Administrative Lender shall have received a certificate of an officer acceptable to the Lenders, certifying as to the incumbency of the officers signing this Second Amendment and the Notes and including a copy of the resolutions of each Borrower authorizing the execution and delivery of this Second Amendment and the Notes; (f) Administrative Lender shall have received a fully-executed facility fee letter evidencing the facility fee and amendment fee for its account and the arrangement fee for the account of NationsBank Capital Markets, Inc., all as set forth in such facility fee letter between the Borrowers and Administrative Lender; and (g) Administrative Lender shall have received, in form and substance satisfactory to Administrative Lender and its counsel, such other documents, certificates, instruments and opinion letters as Administrative Lender shall require. 4. GUARANTOR'S ACKNOWLEDGMENT. By signing below, each of the Guarantors acknowledges this Second Amendment and agrees that its obligations in respect of its Subsidiary Guaranty are not released, modified, impaired or affected in any manner by this Second Amendment or any of the provisions contemplated herein. 5. LIMITED PARTNERS' CONSENT. By signing below, each of the limited partners of the Partnership acknowledges this Second Amendment and further acknowledges and agrees that (a) the general partner of the Partnership has the authority to execute and deliver this Second Amendment and a new Note evidencing the increased Commitment on behalf of the Partnership and (b) its obligations in respect of its Pledge Agreement are not released, modified, impaired or affected in any manner by this Second Amendment or any of the provisions contemplated herein. 6. REFERENCE TO THE CREDIT AGREEMENT. (a) Upon the effectiveness of this Second Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", or words of like import shall mean and be a reference to the Credit Agreement, as affected and amended by this Second Amendment. (b) The Credit Agreement, as amended by this Second Amendment, and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. - 5 - 7. LOCAL COUNSEL OPINIONS. The Borrowers agree to deliver to Administrative Lender, within 30 days of the effective date hereof, an opinion of local counsel for each of Airborne Broadcast Consultants, Inc., Skyview Broadcasting Networks, Inc. and Trafficscan, Incorporated in each such company's state of incorporation, opining as to the enforceability of the Loan Documents to which each such company is party, in form and substance satisfactory to Administrative Lender. 8. COSTS, EXPENSES AND TAXES. Each Borrower agrees, jointly and severally, to pay on demand all costs and expenses of Administrative Lender in connection with the preparation, reproduction, execution and delivery of this Second Amendment and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses of counsel for Administrative Lender with respect thereto and with respect to advising Administrative Lender as to its rights and responsibilities under the Credit Agreement, as amended by this Second Amendment). 9. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 10. GOVERNING LAW; BINDING EFFECT. This Second Amendment shall be governed by and construed in accordance with the laws of the State of Texas and shall be binding upon each Borrower and each Lender and their respective successors and assigns. 11. HEADINGS. Section headings in this Second Amendment are included herein for convenience of reference only and shall not constitute a pan of this Second Amendment for any other purpose. 12. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. ================================================================================ REMAINDER OF PAGE LEFT INTENTIONALLY BLANK ================================================================================ -6- IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as the date first above written. METRO TRAFFIC CONTROL, INC. By: /s/ Curtis H. Coleman ------------------------- Curtis H. Coleman Chief Financial Officer METRO NETWORKS, LTD. By: METRO TRAFFIC CONTROL, INC., its general partner By: /s/ Curtis H. Coleman ------------------------- Curtis H. Coleman Chief Financial Officer NATIONSBANK OF TEXAS, N.A., as Administrative Lender, as Lender and as Issuing Bank By: _______________________________ Chad E. Coben, Vice President - 7- IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as the date first above written. METRO TRAFFIC CONTROL, INC. By: ------------------------- Curtis H. Coleman Chief Financial Officer METRO NETWORKS, LTD. By: METRO TRAFFIC CONTROL, INC., its general partner By: ------------------------- Curtis H. Coleman Chief Financial Officer NATIONSBANK OF TEXAS, N.A., as Administrative Lender, as Lender and as Issuing Bank By: /s/ Chad E. Coben ------------------------------- Chad E. Coben, Vice President - 7- ACKNOWLEDGED AND AGREED BY THE GUARANTORS AND LIMITED PARTNERS THIS 22 DAY OF NOVEMBER, 1995: METRO RECIPROCAL, INC. METRO VIDEO NEWS, INC. TRAFFICSCAN, INCORPORATED MTC GP, INC. SKYVIEW BROADCASTING NETWORKS, INC. AIRBORNE BROADCAST CONSULTANTS, INC. By: /s/ Curtis H. Coleman -------------------------------- Name: Curtis H. Coleman Title: Chief Financial Officer - 8 - /s/ David Saperstein - ------------------------ David Saperstein - 9 - MICHELLE JOY COPPOLA 1994 TRUST By: /s/ Michelle J. Coppola ------------------------------------ Michelle Joy Coppola, Sole Trustee of the Michelle Joy Coppola 1994 Trust - 10 - JENNIFER BETH SAPERSTEIN 1994 TRUST By: /s/ Jennifer B. Saperstein --------------------------------------- Jennifer Beth Saperstein, Sole Trustee of the Jennifer Beth Saperstein 1994 Trust - 11 - JONATHAN ALEXANDER SAPERSTEIN 1994 TRUST By: /s/ Suzanne Saperstein ------------------------------------- Suzanne Saperstein, Sole Trustee of the Jonathan Alexander Saperstein 1994 Trust - 12 - ALEXIS DANIELLA SAPERSTEIN 1994 TRUST By: /s/ Suzanne Saperstein ------------------------------------- Suzanne Saperstein, Sole Trustee for the Alexis Daniella Saperstein 1994 Trust - 13 - STEPHANIE NICOLE SAPERSTEIN 1994 TRUST By: /s/ Suzanne Saperstein ------------------------------------- Suzanne Saperstein, Sole Trustee of the Stephanie Nicole Saperstein 1994 Trust - 14 - EX-10.4 5 EXHIBIT 10.4 LEASE AGREEMENT THE STATE OF TEXAS ) COUNTY OF HARRIS ) Lessor THIS LEASE AGREEMENT made and entered into on this the 15th day of April, 1988, between Tower, Limited whose address for purposes hereof is 2800 Post Oak Blvd., Houston, Texas 77056-6190 (hereinafter called "Lessor"), and Metro Traffic Control, Inc. whose address for purposes hereof is 4828 Loop Central Drive, Suite 800, Houston, Texas 77081 (hereinafter called "Lessee"); WITNESSETH: I. Leased 1. Subject to and upon the terms, provisions and conditions Premises hereinafter set forth, and each in consideration of the duties, covenants and obligations of the other hereunder, Lessor does hereby lease, demise and let to Lessee and Lessee does hereby lease and take from Lessor those certain premises (hereinafter sometimes called the "leased premises") in the Building known as Geosource Plaza located at 2700 Post Oak Blvd., Houston, Texas 77056 (hereinafter sometimes called the "Building") in the City of Houston, Harris County, Texas, such premises being more particularly described as follows: Approximately 12,000 square feet of Net Rentable Area located on Level 14.* as reflected on the floor plan of such premises attached hereto and made a part hereof as Exhibit A and initialed for identification by both parties. The term "net rentable area", as used herein, shall refer to (i) in the case of a single tenancy floor, all floor area measured from the inside surface of the outer glass or finished column wall of the Building to the inside surface of the opposite outer wall excluding only the areas ("service areas") within the outside walls used for building stairs, fire towers, elevator shafts, flues, vents, stacks, pipe shafts and vertical ducts, but including any such service areas which are for the specific use of the particular tenant such as special stairs or elevators plus an allocation of the square footage of the Building's elevator and main mechanical and electrical rooms, management office, other areas necessary to provide customary services to the Building, and public lobbies, and (ii) in the case of a floor to be occupied by more than one tenant, all floor areas within the inside surface of the outer glass or finished column walls enclosing the leased premises and measured to the mid-point of the walls separating areas leased by or held for lease to other tenants or from areas devoted to corridors, elevator foyers, rest rooms, mechanical rooms, janitor closets, vending areas and other similar facilities for the use of all tenants on the particular floor (hereinafter sometimes called "common areas"), but including a proportionate part of the common areas located on such floor based upon the ratio which the tenant's net rentable area (excluding common areas) on such floor bears to the aggregate net rentable area (excluding common areas) on such floor plus an allocation of the square footage of the Building's elevator and main mechanical and electrical rooms, management office, other areas necessary to provide customary services to the Building, and public lobbies. No deductions from net rentable area shall be made for columns or projections necessary to the Building. The net rentable area in the leased premises has been calculated on the basis of the foregoing definition and is hereby stipulated for all purposes hereof to be ______ square feet, whether the same should be more or less as a result of minor variations resulting from actual construction and completion of the leased premises for occupancy so long as such work is done in accordance with the terms and provisions hereof. * The exact measurement of the Leased Premises shall be determined by a licensed architect using BOMA standards. However, in no event shall the leased premises be less than 12,000 square feet of Net Rentable Area. 1 ** Basic Costs used herein shall be defined as actual 1988 Operating Costs adjusted for full occupancy. II. Term 1. (a) Subject to and upon the terms and conditions set forth herein, or in any exhibit or addendum hereto, this lease shall continue in force for a term of 120 months beginning on the 1st day of August, 1988, and ending on the 31st day of July, 1998. (b) In the event the leased premises should not be ready for occupancy by the commencement date stated in Paragraph 1 (a) above for any reason, Lessor shall not be liable or responsible for any claims, damages or liabilities in connection therewith or by reason thereof, and the term of this Lease shall commence at the time that the leased premises are ready for occupancy by Lessee. Should the term of this lease commence on a date other than that specified in Paragraph 1 (a) above, Lessor and Lessee will, at the request of either, execute a declaration specifying the beginning date of the term of this Lease Agreement. In such event, rental under this Lease Agreement shall not commence until said revised commencement date, and the stated term in this Lease Agreement shall thereupon commence and the expiration date shall be extended so as to give effect to the full stated term. Use 2. The leased premises are to be used and occupied by Lessee solely for the purpose of office space. Base 3. Lessee hereby agrees to pay a base monthly rental (herein Rental called "Base Rental") in the sum of Mos. 1-15 = -0- Mos. 16-50 = $8.844.00, Mos. 51-120 = $13,240.00*. The Lessee shall also pay, as additional rent, all such other sums of money as shall become due from and payable by Lessee to Lessor under this lease. The Lessor shall have the same remedies for default for the payment of additional rent as are available to Lessor in the case of a default in the payment of Base Rental. Such Base Rental, together with any adjustment of rent provided for herein then in effect, shall be due and payable in twelve (12) equal installments on the first day of each calendar month during the initial term of this lease and any extensions or renewals thereof, and Lessee hereby agrees to so pay such rent to Lessor at Lessor's address as provided herein (or such other address as may be designated by Lessor from time to time) monthly in advance without demand. If the term of this Lease Agreement as heretofore established commences on other than the first day of a month or terminates on other than the last day of a month, then the installments of Base Rental for such month or months shall be prorated and the installment or installments so prorated shall be paid in advance. All past due installments of rent shall bear interest at the maximum lawful rate per annum until paid. Base Rental 4. (a) Lessee's Base Rental shall include a component Adjustment applicable to Basic Costs equal to ** In the event that the Basic Following Costs (as hereinafter defined) of Lessor's operation of the Base Year Building, and related pedestrian walkways during the first calendar year shall differ from ** , Lessee shall pay its proportionate share of the year's increases in the Basic Costs for such year in the proportion its net rentable area bears to 95% of the total net rentable area of the Building or to the total net rentable area leased in the Building if such total is greater than 95% of the total Building area ("Lessee's proportionate share"). Any increase payable by Lessee under this provision shall be deemed additional rent. Lessor shall, within the period of one hundred fifty days (or as soon thereafter as possible) after the close of the first calendar year, give Lessee a statement of such year's actual Basic Costs. If such year's Basic Costs are greater than ** , Lessee shall pay Lessor, within thirty days of statement receipt, Lessee's proportionate share of such increase. If Basic Costs for the year covered by such statement are less than ** , Lessee shall not be obligated for rental in excess of Base Rental stated in Article II, Paragraph 3. (b) For each year during the term of this lease following the first calendar year, Lessor shall provide Lessee a statement of the projected Basic Costs for such year prior to January 1 of such year, and Lessee shall thereafter pay an Adjusted Base Rental for such year which shall include Lessee's proportionate share of any projected increase in Lessor's Basic Costs of operating the Building over ** . Lessor shall within the period of one hundred fifty days (or as soon thereafter as possible), after the close of each calendar year following the first calendar year, provide Lessee a statement of such year's actual Basic Costs showing the actual increase in Lessor's Basic Costs of operating the Building. If the actual increase is greater than that projected, Lessee shall pay Lessor, within thirty * The Base Rental is based upon the Leased Premises being comprised of approximately 12,000 sq. ft. of Net Rentable Area. In the event the Leased Premises are measured to be larger than 12,000 sq. ft. of Net Rentable Area, the Base Rental Rates shall be increased proportionately. 2 days of statement receipt, Lessee's proportionate share of the difference. If such year's projected Basic Costs are greater than the actual Basic Costs, Lessor shall pay Lessee, within thirty days of said statement's issuance, Lessee's proportionate share of the difference; provided, however, the rental owed by Lessee shall never be less than the Base Rental stated in Article II, Paragraph 3. (c) "Basic Costs" as said term is used herein shall consist of all operating expenses of the Building, which shall be computed on the accrual basis and shall consist of all expenditures by Lessor to maintain all facilities in operation during the Base Year and such additional facilities in subsequent years as may be determined by Lessor to be necessary. All operating expenses shall be determined in accordance with generally accepted accounting principles which shall be consistently applied. The term "operating expenses" as used herein shall mean all expenses, costs and disbursements (but not replacement of capital investment items nor specific costs especially billed to and paid by specific tenants) of every kind and nature which Lessor shall pay or become obligated to pay because of or in connection with the ownership and operation of the Building including but not limited to, the following: (1) Wages and salaries of all employees engaged in operating and maintenance, or access control, of the Building and personnel who may provide traffic control relating to ingress and egress to and from the Parking Area to the adjacent public streets. All taxes, insurance and benefits relating to employees providing these services shall be included. (2) All supplies, tools, equipment, and materials used in operation and maintenance of the Building. (3) Cost of all utilities for the Building including the cost of water and power, heating, lighting, air conditioning and ventilating for the Building. (4) Cost of all maintenance and service agreements for the Building and the equipment therein, including, but not limited, to access control service, window cleaning and elevator maintenance. (5) Cost of all insurance relating to the Building including, but not limited to. the cost of casualty and liability insurance applicable to the Building and Lessor's personal property used in connection therewith. (6) All taxes and assessments and governmental charges whether federal, state, county or municipal, and whether they be by taxing districts or authorities presently taxing the leased premises or by others, subsequently created or otherwise, and any other taxes and assessments attributable to the Building or its operation. It is agreed that Lessee will be responsible for ad valorem taxes on its personal property and on the value of leasehold improvements to the extent that same exceed standard building allowances. (7) Cost of repairs and general maintenance (excluding repairs and general maintenance paid by proceeds of insurance or by Lessee or other third parties, and alterations attributable solely to tenants of the Building other than Lessee). (8) Amortization of the cost of installation of capital investment items which are primarily for the purpose of reducing operating costs or which may be required by governmental authority. All such costs shall be amortized over the reasonable life of the capital investment items by an additional charge to be added to rent and paid by Lessee as additional rent, with the reasonable life and amortization schedule being determined in accordance with generally accepted accounting principles and in no event to extend beyond the reasonable life of the Building. In the case of installations for the purpose of reducing operating costs, Lessor shall provide a cost justification for its practicality. 3 (9) Lessor's central accounting and audit costs applicable to the Building. Notwithstanding any other provision herein to the contrary, it is agreed that in the event the Building is not fully occupied during the Base Year or any subsequent year; an adjustment shall be made in computing the Basic Costs for such year so that the Basic Costs shall be computed for such year as though the Building had been fully occupied during such year and as though the entire Building had been provided with building standard services during such year. Lessee at its expense shall have the right at all reasonable times to audit Lessor's books and records relating to this lease for the Base Year and any year or years for which additional rental payments become due; or at Lessor's sole discretion Lessor will provide such audit prepared by a certified public accountant. III. Lessor covenants and agrees with Lessee: 1. To use its best efforts to cause public utilities to furnish the electricity, gas and water utilized in operating any and all facilities serving the leased premises. Services to be Furnished 2. To provide (as part of the Basic Costs of the Building) by Lessor access control to the Building during weekends and after normal working hours during the week. Lessor shall not be liable to Lessee for losses due to theft or burglary, or for damages done by unauthorized persons on the premises. 3. To furnish (as part of the Basic Costs of the Building) Lessee while occupying the premises: (a) Hot and cold water at those points of supply provided for general use of other tenants in the Building; central heat and air conditioning in season, at such temperatures and in such amounts as are considered by Lessor to be standard, but such service at times during week days other than normal business hours for the Building, on Saturday afternoons, Sundays and holidays to be furnished only upon the request of Lessee, who shall bear the entire cost thereof; routine maintenance and electric lighting service for all public areas and special service areas of the Building in the manner and to the extent deemed by Lessor to be standard. (b) Janitor service on a five (5) day week basis at no extra charge; provided, however, if Lessee's floor covering or other improvements is other than building standard, Lessee shall pay the additional cleaning cost attributable thereto as additional rent. Lessee shall pay said additional rent upon presentation of a statement therefor by Lessor, and Lessee's failure to pay shall constitute default hereunder. (c) Electrical facilities to furnish sufficient power for typewriters, voice writers, calculating machines and other machines of similar low electrical consumption (total electrical power requirement not to exceed one watt per square foot of net rentable area); but not including electricity required for duplicating and electronic data processing equipment, special lighting in excess of building standard, and any other item of electrical equipment, the electrical power requirement of which (singly) is more than 0.5 kilowatts at rated capacity or requires a voltage other than 120 volts single phase; and provided that if the installation of said electrical equipment requires additional air conditioning capacity above that provided by the building standard system, then the additional air conditioning installation and operating costs will be the obligation of Lessee. (d) All building standard fluorescent bulb replacement in all areas and all incandescent bulb replacement in public areas, toilet and rest room areas and stairwells. (e) Failure by Lessor to any extent to furnish these defined services, or any cessation thereof, resulting from causes beyond the reasonable control of Lessor shall not render Lessor liable in any respect for damages to either person or property, nor be construed as an eviction of Lessee, nor work an abatement of rent, nor relieve Lessee from fulfillment of any covenant or agreement hereof. Should any of the equipment or machinery break down, or for any cause cease to function properly, Lessee shall have no claim for rebate of rent or damages on account of an interruption in service occasioned thereby or resulting therefrom. 4 * Lessor shall permit Lessee to install at Lessee's expense separate locks on interior doors of corporate officers' offices provided, however, Lessor shall install such locks and shall retain a duplicate key for Lessor's use. Keys and 4. To furnish Lessee two (2) keys for each corridor door Locks entering the leased premises * Additional keys will be furnished at a charge by Lessor on an order signed by Lessee or Lessee's authorized representative. All such keys shall remain the property of Lessor. No additional locks shall be allowed on any door of the leased premises without Lessor's permission, and Lessee shall not make, or permit to be made any duplicate keys, except those furnished by Lessor. Upon termination of this lease, Lessee shall surrender to Lessor all keys of the leased premises, and give to Lessor the explanation of the combination of all locks for safes, safe cabinets and vault doors, if any, in the leased premises. Graphics 5. To provide and install, at Lessee's cost, all letters or numerals on doors in the leased premises; all such letters and numerals shall be in the building standard graphics, and no others shall be used or permitted on the leased premises. Lessor also agrees to provide and install, at Lessee's expense, a listing on the Building Directory Board, ** See Page 5a. Improvements 6. All installations now or hereafter placed on the leased to be made premises in excess of building standard items as determined by by Lessor Lessor shall be for Lessee's account and at Lessee's cost (and Lessee shall pay ad valorem taxes and ***, which cost shall be payable by Lessee to Lessor as additional rent hereunder promptly upon being invoiced therefor, and failure by Lessee to pay same in full within 30 days shall constitute an event of default by Lessee hereunder giving rise to all remedies available to Lessor under this lease and at law for nonpayment of rent. *** provide insurance coverage as described in Article V, Paragraph 12 hereof). Peaceful 7. That Lessee shall, and may peacefully have, hold and Enjoyment enjoy the leased premises, subject to the other terms hereof, provided that Lessee pays the rental and other sums herein recited to be paid by Lessee and performs all of Lessee's covenants and agreements herein contained. It is understood, and agreed that this covenant and any and all other covenants of Lessor contained in the lease shall be binding upon Lessor and its successors only with respect to breaches occurring during its and their respective ownerships of the Lessor's interest hereunder. Limitation 8. Lessee specifically agrees to look solely to Lessor's of Lessor's interest in the Building for the recovery of any judgment from Personal Lessor, it being agreed that Lessor shall never be personally Liability liable for any such judgment. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right that Lessee might otherwise have to obtain injunctive relief against Lessor or Lessor's successors in interest, or any other action not involving the personal liability of Lessor to respond in monetary damages from assets other than Lessor's interest in the Building or any suit or action in connection with enforcement or collection of amounts which may become owing or payable under or on account of insurance maintained by Lessor. Parking 9. Parking shall be provided as defined in Schedule I attached hereto and made a part hereof. IV. Lessee covenants and agrees with Lessor: Payments by 1. To pay all rent and sums provided to be paid to Lessor Lessee hereunder at the times and in the manner herein provided. Repairs by 2. Unless otherwise stipulated herein, Lessor shall not be Lessor required to make any improvements to or repairs of any kind or character on the leased premises during the term of this lease, except such repairs as may be deemed necessary by Lessor for normal maintenance operations. The obligation of Lessor to maintain and repair the leased premises shall be limited to building standard items. Special leasehold improvements will, at Lessee's written request, be maintained by Lessor at Lessee's expense, at a cost or charge equal to the costs incurred in such maintenance plus an additional charge to cover overhead. Repairs by 3. At its own cost and expense, to repair or replace any Lessee damage or injury done to the Building, or any part thereof, caused by Lessee or Lessee's agents, employees, invitees, or visitors; provided, however, if Lessee fails to make such repairs or replacement promptly, Lessor may, at its option, 5 ** Lessor hereby grants Lessee the right to install at Lessee's expense, Lessee's company name and logo on the double glass entrance doors to the Leased Premises subject to Lessor's approval of an 8 1/2" x 11" scale drawing showing the dimensions of the glass entrance doors, the letters, and corporate logo and the type of materials to be used for said lettering and logo which shall be attached hereto and made a part hereof as Exhibit B and initialed for identification by both parties. 5a make repairs or replacements, and Lessee shall repay the cost thereof to the Lessor on demand, subject to Article V, Paragraph 15. Care of the 4. Not to commit or allow any waste or damage to be Leased committed on any portion of the leased premises, and at the Premises termination of this lease, by lapse of time or otherwise, to deliver up said leased premises to Lessor in as good condition as at date of possession by Lessee, ordinary wear and tear excepted, and upon such termination of this lease, Lessor shall have the right to re-enter and resume possession of the leased premises. Assignment 5. In the event Lessee should desire to assign this or Agreement or sublet the leased premises or any part thereof, Sub-lease Lessee shall give Lessor written notice of such desire at least sixty (60) days in advance of the date on which Lessee desires to make such assignment or sublease. Lessor shall then have a period of thirty (30) days following receipt of such notice within which to notify Lessee in writing that Lessor elects either (1) to terminate this Agreement as to the space so affected as of the date so specified by Lessee in which event Lessee will be relieved of all further obligation hereunder as to such space, or (2) to permit Lessee to assign this Agreement or sublet such space, subject, however, to written approval such approval not to be unreasonably withheld of the proposed Assignee or Sublessee by Lessor; and further subject to the requirement that Lessee, enter into written agreements with Lessor, and with Assignee or Sublessee, that any profit realized by Lessee as a result of such assignment or sublease (meaning the consideration agreed upon between Lessee and Assignee or the difference between the rental rate agreed upon between Lessee and Sublessee and the rent then required to be paid under this Agreement multiplied by the number of months in the term of the sublease) shall, to the extent such profit is immediate * be due and payable by Lessee to Lessor upon the execution of an assignment or sublease, and to the extent such profit is deferred, * be payable to Lessor by Assignee or Sublessee as it accrues. If Lessor should fail to notify Lessee in writing of such election within the stated thirty (30) day period, Lessor shall be deemed to have elected option (2) above. No consent by Lessor to any assignment or sublease shall be deemed to be consent to a use not permitted under this Agreement, to any act in violation of this Agreement, or to any other or subsequent assignment or sublease, and no assignment or sublease by Lessee shall relieve Lessee of any obligation under this Agreement. Any attempted assignment or sublease by Lessee in violation of the terms and covenants of this paragraph shall be void. * Twenty five percent (25%) of such profit shall Alterations, 6. Not to permit the leased premises to be used for any Additions, purpose other than that stated in the use clause hereof, or make Improvements or allow to be made any alterations or physical additions in or to the leased premises, or place signs on the leased premises which are visible from outside the leased premises, without first obtaining the written consent of Lessor. Any and all such alterations, physical additions, or improvements, when made to the leased premises by Lessee, shall at once become the property of lessor and shall be surrendered to Lessor upon termination of this lease by lapse of time or otherwise provided, however, this clause shall not apply to movable equipment or furniture owned by Lessee. Lessee agrees specifically that no food, soft drink or other vending machine will be installed within the leased premises. ** See Page 6A Legal Use and 7. Not to occupy or use, or permit any portion of the leased Violations premises to be occupied or used for any business or purpose which of Insurance is unlawful, disreputable or deemed to be extra-hazardous on Coverage account of fire, or permit anything to be done which would in any way increase the rate of fire or liability or any other insurance coverage on said Building and/or its contents. Laws and 8. To comply with all laws, ordinances, rules and Regulations; regulations (state, federal, municipal and other agencies or Rules of bodies having any jurisdiction thereof) relating to the use, Building condition or occupancy of the leased premises. Lessee will comply with the rules of the Building adopted and altered by Lessor from time to time for the safety, care and cleanliness of the leased premises and Building and for 6 ** Notwithstanding anything herein to the contrary, Lessee shall have the right to install at Lessee's expense two (2) vending machines owned by Lessee provided that such vending machines shall be for the use of Lessee's employees and visitors and shall not be used for commercial purposes. 6a preservation of good order therein, all of which will be sent by Lessor to Lessee in writing and shall be thereafter carried out and observed by Lessee. Entry for 9. To permit Lessor or its agents or representatives to Repairs and enter into and upon any part of the leased premises at all Inspection reasonable hours to inspect the same, clean or make repairs, alterations or additions thereto, as Lessor may deem necessary or desirable, and Lessee shall not be entitled to any abatement or reduction of rent by reason thereof. Nuisance 10. To conduct its business and control its agents, employees, invitees, and visitors in such manner as not to create any nuisance, or interfere with, annoy or disturb any other tenant or Lessor in its operation of the Building. Subordination 11. This lease is subject and subordinate to any first lien to Mortgage mortgage or deed of trust which may now or hereafter encumber the Building of which the leased premises form a part and to all renewals, modifications, consolidations, replacements and extensions thereof. This clause shall be self-operative and no further instrument of subordination need be required by any mortgagee. In confirmation of such subordination, however, Lessee shall at Lessor's request execute promptly any appropriate certificate or instrument that Lessor may request. Lessee hereby constitutes and appoints Lessor the Lessee's attorney-in-fact to execute any such certificate or instrument for and on behalf of Lessee. In the event of the enforcement by the trustee or the beneficiary under any such mortgage or deed of trust of the remedies provided for by law or by such mortgage or deed of trust, Lessee will, upon request of any person or party succeeding to the interest of Lessor as a result of such enforcement, automatically become the Lessee of such successor in interest without change in the terms or other provisions of such lease; provided, however, that such successor in interest shall not be bound by (i) any payment of rent or additional rent for more than one month in advance except prepayments in the nature of security for the performance by Lessee of its obligations under this lease or (ii) any amendment or modification of this lease made without the written consent of such trustee or such beneficiary or such successor in interest. Upon request by such successor in interest, Lessee shall execute and deliver an instrument or instruments confirming the attornment herein provided for. Estoppel 12. At Lessor's request, Lessee will execute either an Certificate estoppel certificate addressed to Lessor's mortgagee or a or Three Party three-party agreement among Lessor, Lessee and said mortgagee Agreement certifying to such facts (if true) and agreeing to such notice provisions and other matters as such mortgagee may reasonably require in connection with Lessor's financing. V. Lessor and Lessee mutually covenant and agree as follows: Condemnation 1. If the leased premises shall be taken or condemned for and Loss or any public purpose to such an extent as to render the leased Damage premises untenantable, this lease shall, at the option of either party, forthwith cease and terminate. All proceeds from any taking or condemnation of the leased premises shall belong to and be paid to Lessor. Damages from 2. Lessor shall not be liable or responsible to Lessee for Certain any loss or damage to any property or person occasioned by theft, Causes fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition or order of governmental body or authority, or for any damage or inconvenience which may arise through repair or alteration of any part of the Building, or failure to make any such repairs. Lien for 3. In consideration of the mutual benefits arising under Rent this Agreement, Lessee hereby grants to Lessor a lien and security interest on all property of Lessee now or hereafter placed in or upon the leased premises, and such property shall be and remain subject to such lien and security interest of Lessor for payment of all rent and other sums agreed to be paid by Lessee herein. The provisions of this paragraph relating to said lien and security interest shall constitute 7 a security agreement under the Uniform Commercial Code so that Lessor shall have and may enforce a security interest on all property of Lessee now or hereafter placed in or on the leased premises. including but not limited to all fixtures, machinery, equipment, furnishings and other articles of personal property now or hereafter placed in or upon the leased premises by Lessee. Lessee agrees to execute as debtor such financing statement or statements as Lessor may now or hereafter reasonably request in order that such security interest or interests may be protected pursuant to said Code. Lessor may at its election at any time file a copy of this lease as a financing statement. Lessor, as secured party, shall be entitled to all of the rights and remedies afforded a secured party under said Code in addition to and cumulative of the landlord's liens and rights provided by law or by the other terms and provision of this lease. Lessor's 4. In the event of default by Lessee in any of the terms or Right to covenants of this lease or in the event the leased premises are Relet abandoned by Lessee, Lessor shall have the right, but not the obligation, to relet same for the remainder of the term provided for herein, and if the rent received through reletting does not at least equal the rent provided for herein, Lessee shall pay and satisfy the deficiency between the amount of the rent so provided for and that received through reletting, including, but not limited to, the cost of renovating, altering and decorating for a new occupant. Nothing herein shall be construed as in any way denying Lessor the right, in the event of abandonment of said premises or other breach of this Agreement by Lessee, to treat the same as an entire breach and at Lessor's option to terminate this Agreement and/or immediately seek recovery for the entire breach of this Agreement and any and all damages which Lessor suffers thereby. Holding 5. In the event of holding over by Lessee after expiration Over or termination of this lease without the written consent of Lessor, Lessee shall pay as liquidated damages double the then prevailing market rental rate for the entire holdover period. No holding over by Lessee after the term of this lease shall be construed to extend the lease; in the event of any authorized holding over, Lessee shall indemnify Lessor against all claims for damages by any other Lessee to whom Lessor may have leased all or any part of the premises covered hereby effective upon the termination of this lease. Any holding over with the consent of Lessor in writing shall thereafter constitute this lease a lease from month to month. Fire 6. In the event of a fire in the leased premises, Lessee Clause shall immediately give notice thereof to Lessor. If the leased premises, through no fault or neglect of Lessee, its agents, employees, invitees or visitors, shall be partially destroyed by fire or other casualty so as to render the premises untenantable, the rental provided for herein shall abate thereafter until such time as the leased premises are made tenantable as determined by Lessor (but in no event shall Lessor's obligation exceed building standard improvements). In the event of the total destruction of the leased premises without fault or neglect of Lessee, its agents, employees, invitees or visitors, or if from any cause the same shall be so damaged that Lessor shall decide not to rebuild, then all rent owed up to the time of such destruction or termination shall be paid by Lessee and thenceforth this lease shall cease and come to an end. Attorney's 7. In the event Lessee makes default in the performance of Fees any of the terms. covenants. agreements or conditions contained in this lease and Lessor places the enforcement of this lease, or any part thereof, or the collection of any rent due, or to become due hereunder or recovery of the possession of the leased premises in the hands of an attorney, or files suit upon the same, Lessee agrees to pay Lessor reasonable attorney's fees of not less than 10% of the amount due to Lessor. Alteration 8. This Agreement may not be altered, changed or amended, except by an instrument in writing signed by both parties hereto. Assignment 9. Lessor shall have the right to transfer and assign, in by Lessor whole or in part, all its rights and obligations hereunder and in the Building and property referred to herein, and in such event and upon such transfer (any such transferee to have the benefit of, and be subject to, the provisions of Paragraphs 6 and 7 of Article III hereof) no further liability or obligation shall thereafter accrue against Lessor hereunder. 8 Default 10. If default shall be made in the payment of any sum to be by Lessee paid by Lessee under this lease, and default shall continue for ten (10) days, or default shall be made, in the performance of any of the other covenants or conditions which Lessee is required to observe and to perform, and such default shall continue for twenty (20) days, or if the interest of Lessee under this lease shall be levied on under execution or other legal process, or if any petition shall be filed by or against Lessee to declare Lessee a bankrupt or to delay, reduce or modify Lessee's debts or obligations, or if any petition shall be filed or other action taken to reorganize or modify Lessee's capital structure if Lessee be a corporation or other entity, or if Lessee be declared insolvent according to law, or if any assignment of Lessee's property shall be made for the benefit of creditors, or if a receiver or trustee is appointed for Lessee or its property, or if Lessee shall abandon the leased premises during the term of this lease or any renewals or extensions thereof, then Lessor may treat the occurrence of any one or more of the foregoing events as a breach of this lease (provided that no such levy, execution, legal process or petition filed against Lessee shall constitute a breach of this lease if Lessee shall vigorously contest the same by appropriate proceedings and shall remove or vacate the same within thirty (30) days from the date of its creation, service of filing) and thereupon, at Lessor's option, may have any one or more of the following described remedies in addition to all other rights and remedies provided at law or in equity: (a) Lessor may terminate this lease and forthwith repossess the leased premises and be entitled to recover forthwith as damages a sum of money equal to the total of (i) the cost of recovering the leased premises, (ii) the unpaid rent earned at the time of termination, plus interest thereon at the maximum lawful interest rate from the due date, (iii) the balance of the rent for the remainder of the term less the fair market value of the leased premises for said period and (iv) any other sum of money and damages owed by Lessee to Lessor. (b) Lessor may terminate Lessee's right of possession (but not the lease) and may repossess the leased premises by forcible entry or detainer suit or otherwise, without demand or notice of any kind to Lessee and without terminating this lease, in which event Lessor may, but shall be under no obligation to do so, relet the same for the account of Lessee for such rent and upon such terms as shall be satisfactory to Lessor. For the purpose of such reletting Lessor is authorized to decorate or to make any repairs, changes, alterations or additions in or to leased premises that may be necessary or convenient, and (i) if Lessor shall fail or refuse to relet the leased premises, or (ii) if the same are relet and a sufficient sum shall not be realized from such reletting after paying the unpaid basic and additional rent due hereunder earned but unpaid at the time of reletting plus interest thereon at the maximum lawful interest rate, the cost of recovering possession, and all of the costs and expenses of such decorations, repairs, changes, alterations and additions and the expense of such reletting and of the collection of the rent accruing therefrom to satisfy the rent provided for in this lease to be paid, then Lessee shall pay to Lessor as damages a sum equal to the amount of the rental reserved in this lease for such period or periods, or if the leased premises have been relet, the Lessee shall satisfy and pay any such deficiency upon demand therefor from time to time and Lessee agrees that Lessor may file suit to recover any sums falling due under the terms of this Article V, Paragraph 10 (b) from time to time, and that no delivery to or recovery of any portion due Lessor hereunder shall be any defense in any action to recover any amount not theretofore reduced to judgment in favor of Lessor, nor shall such reletting be construed as an election on the part of Lessor to terminate this lease unless a written notice of such intention be given to Lessee by Lessor. Notwithstanding any such reletting without termination, Lessor may at any time thereafter elect to terminate this Lease for such previous breach. Non- 11. Failure of Lessor to declare any default immediately Waiver upon occurrence thereof, or delay in taking any action in connection therewith, shall not waive such default, but Lessor shall have the right to declare any such default at any time and take such action as might be lawful or authorized hereunder, either in law or in equity. 9 Casualty 12. Lessor shall maintain fire and extended coverage Insurance insurance on the base building portion of the Building and on building standard improvements within the Lessee's premises. Said insurance shall be maintained with an insurance company authorized to do business in Texas, in amounts desired by Lessor and at the expense of Lessor and payments for losses thereunder shall be made solely to Lessor. Lessee shall maintain at its expense fire and extended coverage insurance on all of its personal property, including removable trade fixtures, located in the leased premises and on all additions and improvements to the leased premises which exceed building standard. If the annual premiums to be paid by Lessor shall exceed the standard rates because Lessee's operations, contents of the leased premises, or improvements with respect to the leased premises beyond building standard, result in extra-hazardous exposure, Lessee shall promptly pay the excess amount of the premium upon request by Lessor. Lessor's 13. Lessor shall at its expense, maintain a policy or Liability policies of comprehensive general liability insurance with the Insurance premiums thereon fully paid on or before due date, issued by and binding upon some solvent insurance company, such insurance to afford minimum protection (such insurance to inure to the benefit of Lessor only, and not to Lessee) of not less than $300,000.00 in respect of personal injury or death in respect of any one occurrence and of not less than $100,000.00 for property damage in any one occurrence. Hold 14. Lessor shall not be liable to Lessee, or to Lessee's Harmless agents, servants, employees, customers or invitees for any damage to person or property caused by any act, omission or neglect of Lessee, its agents, servants or employees, and Lessee agrees to indemnify and hold Lessor harmless from all liability and claims for any such damage. Lessee shall not be liable to Lessor, or to Lessor's agents, servants, employees, customers or invitees for any damage to person or property caused by any act, omission or neglect of Lessor, its agents, servants or employees, and Lessor agrees to indemnify and hold Lessee harmless from all claims for such damage. Waiver of 15. Anything in this lease to the contrary notwithstanding, Subrogation Lessor and Lessee each hereby waives any and all rights of Rights recovery, claim, action or cause of action, against the other, its agents. officers, or employees, for any loss or damage that may occur to the leased premises, or any improvements thereto, or said Building of which the leased premises are a part, or any improvements thereto, or any personal property of such party therein, by reason of fire, the elements, or any other cause which could be insured against under the terms of standard fire and extended coverage insurance policies referred to in Article V, Paragraph 12 hereof, regardless of cause or origin, including negligence of the other party hereto, its agents, officers or employees, and covenants that no insurer shall hold any right of subrogation against such other party. Construction And Moving Allowance 16. See Rider attached hereto and made a part hereof. Prior Entry 17. See page 10a, attached Expansion Option 18. See page 10b, attached Renewal Option 19. See page 10c, attached 10 17. PRIOR ENTRY Lessee, and its contractors, subcontractors, space planners, suppliers, agents and other representatives shall be permitted to enter the Leased Premises at any time prior to the Commencement Date, at Lessee's risk, for the purpose of inspecting the Leased Premises and performing all work according to the terms and provisions of Article IV, Paragraph 6 of the Lease Agreement in connection with Lessee's occupancy thereof, including (without limitation) installation of any partition walls, ceilings, HVAC systems, high and low voltage electrical outlets and switches, computer systems, and any other fixtures, equipment, wall and floor coverings, furniture, draperies and other items of personal property constituting or to constitute the Leasehold Improvements. In connection therewith, Lessor hereby grants (at no cost) to Lessee and the other parties referred to in the preceding sentence access to and the right to use all loading docks, parking and elevator facilities (including freight elevators) and other areas in the Building and the Garage necessary for the construction and installation of the Leasehold Improvements. Lessor shall also in connection with the construction of Leasehold Improvements in the Leased Premises supply to the Leased Premises, at no cost to the Lessee, all power, water, gas, sewage, drainage and other utility services in the capacities currently available at the Building, without material reduction of such services to other tenants in the Building. No entry by Lessee, its agents, employees, contractors or invitees into the Leased Premises prior to the completion of Leasehold Improvements in such space shall cause the Commencement Date to occur, or obligate Lessee to pay Base Rental (or any portion thereof), or otherwise accelerate the date on which Base Rental shall first be payable with respect to such space hereunder, or obligate Lessee or any person which is entitled to have access to the Premises to pay any Basic Costs during such period provided, however, the commencement date of this Lease shall be not later than June 1, 1988. Notwithstanding anything in this Article V, Paragraph 17 to the contrary, Lessee and such other parties shall not be entitled to perform work in the Leased Premises unless Lessee and such other parties are performing such work and related activities in the Leased Premises in accordance with the Building Rules and Regulations providing that such work and related activities do not interfere with or hinder Lessor's work, if any, in the Leased Premises. -10a- 18. EXPANSION OPTION/FIRST RIGHT OF REFUSAL EXPANSION OPTION Provided the Lessee is not in default of any condition of this Lease Agreement, Lessee shall have an expansion option on approximately 4,000 square feet of Net Rentable Area on Level 14 as shown on Exhibit A, hereinafter referred to as the "Expansion Space". Lessor shall have the right to lease the Expansion Space to a third party(s) for a term not to exceed a total of five (5) years. In the event Lessor leases the Expansion Space to a third party(s), Lessor shall notify Lessee in writing within thirty (30) days after the third party(s) lease term has commenced as to the expiration date of the third party(s) lease term. Lessee shall then notify Lessor in writing twelve (12) months prior to the third party(s) lease term expiration date of the Lessee's intention to exercise the Expansion Option. Failure by Lessee to notify Lessor of its election to exercise the Expansion Option twelve (12) months prior to the third party(s) lease term expiration date will result in Lessee waiving such Expansion Option. Any such expansion shall be upon the same terms and conditions of this Lease except that the Base Rental shall be ninety percent (90%) of the then prevailing market rate for similar space in the Uptown Houston Area and the space shall be accepted by Lessee in "as-is" condition. RIGHT OF FIRST REFUSAL Provided Lessee is not in default of any condition of this Lease Agreement, Lessee shall have a Right of First Refusal on the remaining contiguous square feet on Level 14 not previously encumbered by, or leased to, an existing Lessee and not previously leased to Lessee according to the terms and provisions of the Expansion Option of this Lease Agreement. This Right of First Refusal shall be in effect after Lessee has exercised its Expansion Option described herein. Lessee shall have three (3) business days in which to exercise this right on all, but not part, of the space Lessor offers to a third party, when presented by Lessor with a bona fide offer from Lessor to a third party. This right ceases if Lessee declines to exercise such right when presented by Lessor with a bona fide offer to a third party for said space. The Base Rental Rate for such additional space leased shall be the same offered to the third party. -10b- 19. RENEWAL OPTION As long as Lessee is not in default in the performance of its covenants under this Lease, Lessee is hereby granted the option to renew the term of this lease for one (1) successive period of five (5) years, such period ("Renewal Term") to commence at the expiration of the initial term of this lease. Lessee shall exercise its option to renew by delivering written notice of such election to Landlord at least twelve (12) months prior to the expiration of the initial term of this lease. Any such renewal of this lease shall be upon the same terms and conditions of this lease, except (a) the Base Rental during the Renewal Term shall be ninety percent (90%) of the prevailing Market Base Rental Rate (defined below) for similar space in the Uptown Houston Area at the time the Renewal Term commences, but in no event less than the Base Rental that Lessee is paying under the terms of this lease, (b) Lessee shall have no option to renew this lease beyond the expiration of said renewal term, (c) Lessee shall not have the right to assign its renewal right to any sublessee of the leased premises or assignee of the Lease, nor may any such sublessee or assignee exercise such renewal rights, and (d) the leasehold improvements will be provided in their then existing condition (on an "as is" basis) at the time the Renewal Term commences. As used in this Lease, the term "Market Base Rental Rate" shall mean the average of the annual rental rates then being charged in the Uptown Houston Area for space comparable to the space for which the Market Base Rental Rate is being determined (taking into consideration use, location and/or floor level within the applicable building, definition of net rentable area, leasehold improvements provided, quality, age and location of the applicable building, rental concessions (such as abatements or lease assumptions) and the time the particular rate under consideration became effective). It is agreed that bona fide written offers to lease the relevant space made to Lessor by third parties (at arm's-length) may be used by Lessor as an indication of Market Base Rental Rate. -10c- RIDER TO ARTICLE V, PARAGRAPH 16 OF THE LEASE AGREEMENT BETWEEN TOWER, LIMITED, AS LESSOR, AND METRO TRAFFIC CONTROL, INC., AS LESSEE To help offset the costs of (i) constructing Lessee's leasehold improvements in the leased premises, and (ii) moving expenses incurred by Lessee for moving into the leased premises, Lessor agrees to provide Lessee with an allowance (the "Allowance") equal to $130,000.00 (one-half of the Allowance shall be called the "Present Allowance" and one-half of the Allowance shall be called the "Deferred Allowance"), upon the following terms and conditions: (a) The Present Allowance shall be paid to Lessee on the date Lessee occupies the leased premises; provided, however, that if Lessee uses Lessor or its designated contractor to construct any of Lessee's improvements, then the Present Allowance shall be credited against amounts owing to Lessor or its designated contractor as such amounts become due, and any remainder of the Present Allowance shall be paid to Lessee on the date Lessee occupies the leased premises. (b) In the event Lessee defaults under the terms of this lease at any time prior to the end of the fiftieth (50th) month after the commencement of the term hereof, in addition to all other remedies available to Lessor, Lessee shall pay to Lessor an amount equal to the Present Allowance, payable in full on the date of such default. (c) The Deferred Allowance shall be placed in a Certificate of Deposit Account ("CD Account") on the commencement date of the term of this lease, at Texas American Bank/Galleria, in the name of Lessee. Lessor shall retain a security interest in the CD Account pursuant to the terms of that certain Pledge Agreement between Lessor and Lessee of even date herewith, until such time as Lessee has paid a total amount of $65,000.00 in Base Rental under the terms of this lease. If Lessee defaults under the terms of this lease prior to the point in time at which Lessee has paid $65,000.00 in Base Rental, then, in addition to all other remedies available to Lessor, Lessor shall exercise all of its rights and remedies arising under the above-mentioned Pledge Agreement to foreclose its security interest on the CD Account. If Lessee is not in default on the date Lessee has paid $65,000.00 in Base Rental, then Lessor shall release its security interest in the CD Account, in accordance with the terms of said Pledge Agreement. (d) The parties hereto agree that the cost of constructing Lessee's improvements in the leased premises, and moving expenses, above the amount of the Present Allowance shall be paid by Lessee, subject to receiving the Deferred Allowance pursuant to the terms of paragraph (c) above. (e) Lessor agrees to encapsulate, if necessary, the existing asbestos applied on the structure of the building within the area outlined in red as shown on Exhibit "B" attached hereto and made a part hereof and initialed for identification by both parties. Lessor shall not be obligated to encapsulate and/or remove asbestos applied to the structure of the building in any other area of the leased premises. Lessee agrees to bear any additional costs attributable to constructing Lessee's improvements in the leased premises as a result of Lessee's contractors, contractors representatives and installation technicians conforming to the Building Rules and Regulations and procedures pertaining to working in a building containing asbestos. Such Building Rules and Regulations are attached hereto and made a part hereof and initialed for identification by both parties. BUILDING RULES AND REGULATIONS 1. Sidewalks, doorways, vestibules, halls, stairways, and other similar areas shall not be obstructed by tenants or used by any tenant for any purpose other than ingress and egress to and from the leased premises and for going from one part of the building to another part of the building. 2. Plumbing fixtures and other building facilities shall be used only for the purpose for which designated, and no rubbish, rags or other unsuitable material shall be thrown or placed therein. Damage resulting to any such fixtures from misuse by a tenant shall be paid by him, and Lessor shall not in any case be responsible. 3. No signs, advertisements or notices shall be painted or affixed on or to any windows or doors or other part of the building except of such color, size, and style and in such places as shall be first approved in writing by Lessor. No nails, hooks or screws shall be driven or inserted in any part of the building except with the express consent of Lessor. 4. Lessor will provide and maintain a directory board for all tenants in the main lobbies of the building, and no other directory shall be permitted unless previously consented to by Lessor in writing. All directory board strips will be at Lessee's expense. 5. Lessor will provide at Lessee's expense all locks for doors in each tenant's leased area, and no tenant shall place any additional lock or locks on any door in its leased area without Lessor's written consent. All requests for duplicate keys shall be made to the Property Management Office and will be furnished at Lessee's expense. 6. Proposed plans for alterations affecting floors, walls, woodwork, trim, windows, ceilings, equipment, and/or any other physical portion of the building must be approved in writing by Lessor. Tenants will refer all contractors, contractor's representatives and installation technicians tendering any service to them to Lessor for Lessor's supervision, approval and control before the performance of any contractual services. This provision shall apply to all work performed in the building, including, but not limited to, installations of telephones, telegraph equipment, electrical devises and attachments, and any and all installations of every nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment, and any other physical portion of the building. Revised January, 1987 Building Rules and Regulations Revised January, 1987 Page 2 7. Movement in or out of the building of furniture or office equipment, or dispatch or receipt by tenants of any bulky material, merchandise or materials which requires use of elevators or stairways or movement through the building entrances or lobby shall be restricted to such hours as Lessor shall designate. All such movement shall be under the supervision of Lessor and in the manner agreed between the tenant and Lessor by pre-arrangement before performance. Such pre-arrangement initiated by a tenant shall include determination by Lessor, and subject to this decision and control, as to the time, safety or other concern which may prohibit any article, equipment, or any other item from being brought into the building. Lessor shall not be liable for acts of any persons engaged in, or any damage or loss to any of said property or persons resulting from any act in connection with such service performed for a tenant. 8. Lessor reserves the right to approve the weight and position of files, safes and other heavy objects, prior to installation by the Lessee. 9. A tenant shall notify the Property Manager when safes or other heavy equipment are to be taken in or out of the building, and the moving shall be done under the supervision of the Property Manager, after receiving written permission from Lessor. Persons employed to move such property must be acceptable to Lessor. 10. Should a tenant require telegraphic, telephonic, annunciator or other communications service, Lessor will direct the electricians where and how wires are to be introduced and placed and none shall be introduced or placed except as Lessor shall direct. 11. Corridor doors, when not in use, shall be kept closed. 12. Tenant shall not make or permit any improper noises in the building or otherwise interfere in any way with other tenants or persons having business. 13. No birds or animals shall be brought into or kept in, on, or about the tenants area. Building Rules and Regulations - Geosource Plaza Revised January, 1987 Page 3 14. This building was constructed during the era when asbestos was commonly used in the fire-retardant insulation and in certain other isolated areas. Inspections and tests have proven that the airborne fibre content is substantially below federal recognized acceptance levels. Many contractors have been notified; however, each tenant must notify the Building Management Office in writing prior to hiring any contractor that may come in contact with asbestos-containing materials so that the contractor can be given proper notification to insure necessary precautions will be taken. 15. No portion of any tenant's leased area shall at any time be used or occupied as sleeping or lodging quarters. 16. Tenants are requested to lock all office doors leading to corridors and to turn out all lights at the close of their working day. 17. Tenant shall not tamper with or attempt to adjust temperature control thermostats in the leased premises. Lessor shall make adjustments in thermostats on call from tenant. 18. Tenant will comply with all requirements necessary for the security of the premises, including all regulations established for the use of Kastle Security System. 19. All routine deliveries to a tenant's leased premises shall be made through the freight elevator. Passenger elevators are to be used only for the movement of persons, unless an exception is approved by the Building Management Office. 20. All requests for overtime air/conditioning and/or heating must be submitted to the Management Office in writing by 3:00 pm. Requests for weekend HVAC must be submitted in writing by 3:00 pm on Fridays. 21. Solicitation of any kind is strictly forbidden unless approved in advance by the Management Office. 22. In complying with the City Code which was established in November, 1986, smoking is not permitted in the common areas of the building, (i.e., elevators, restrooms, corridors, etc.). Smoking is permitted within the individual tenant spaces and these areas should be set up according to your own company policy. Building Rules and Regulations - Geosource Plaza Revised January, 1987 Page 4 23. Lessor reserves the right to rescind any of these rules and regulations and to make such other and further rules and regulations as in its judgement shall, from time to time, be needed for the safety, protection, care and cleanliness of the building, the operation thereof, the preservation of good order therein and the protection and comfort of the tenants and their agents, employees and invitees, which is given to a tenant, shall be binding upon it in like manner as if originally herein prescribed. EXHIBIT "B" GEOSOURCE PLAZA FLOOR PLAN LEVEL 14 NORTH Geosource Plaza, like many buildings constructed prior to 1980, has asbestos in the fire retardent insulation applied to the structure and in certain other isolated areas. Recent inspections and monitoring tests indicated that the level of airborne fibres, including asbestos, is below current or proposed OSHA acceptable limits. Should you plan to perform any construction or alterations to your lease space, please contact the Building Manager, Jean Gardner. Such activity may disturb the asbestos material and therefore, certain procedures must be followed. GALLERIA COMPLEX SCHEDULE 1 TO LEASE AGREEMENT BETWEEN TOWER, LIMITED "Lessor" AND METRO TRAFFIC CONTROL, INC. "Lessee" dated April 15, l988 Lessee shall at all times during the term of this Lease Agreement lease parking rights for at least 0 vehicles in the Garage. Lessee shall have the right to lease up to 48 additional parking rights during the lease term. No specific spaces in the Garage are to be assigned to Lessee, but Lessor will issue to Lessee the aforesaid number of parking stickers or tags, each of which will authorize parking in the Garage of a vehicle on which the sticker or tag is displayed, or Lessor will provide a reasonable alternative means of identifying and controlling vehicles authorized to be parked in the Garage. Lessor may designate the area within which each such vehicle may be parked, and Lessor may change such designations from time to time. Lessor may make, modify and enforce rules and regulations relating to the parking of vehicles in the Garage, and Lessee will abide by such rules and regulations. As the Basic Parking Charge, Lessee covenants and agrees to pay Lessor during the term of this Lease, as additional rental hereunder, the sum of $ 0 per month for each of the parking stickers to be issued by Lessor as herein provided, such sum to be payable monthly in advance on the first day of each and every calendar month during the lease term, and a pro rata portion of such sum shall be payable for the first partial calendar month in the event the lease term commences on a date other than the first day of a calendar month. The Basic Parking Charge may be adjusted annually to market value by the Galleria Parking Manager. Lessee's obligation to pay the Parking Charge shall be considered an obligation to pay rent for all purposes hereunder and shall be secured in like manner as is Lessee's obligation to pay rent. Default in payment of such Parking Charge (after notice as hereinafter provided) shall be deemed a default in payment of rent. IN TESTIMONY WHEREOF, the parties hereto have executed this schedule as of the date aforesaid. TOWER, LIMITED METRO TRAFFIC CONTROL, INC. By: Post Oak Associates, Ltd., General Partner By: Gerald D. Hines Interests, Ltd., General Partner By: /s/ Greg F. Walsh, III By: Hines Consolidated Investments, Inc., -------------------------- General Partner Lessee By: /s/ Louis S. Sklar ------------------------------------ Louis S. Sklar, Vice President Lessor This lease shall be binding upon and inure to the benefit of the successors and assigns of Lessor, and shall be binding upon and inure to the benefit of Lessee, its successors, and, to the extent assignment may be approved by Lessor hereunder, Lessee's assigns. The pronouns of any gender shall include the other genders, and either the singular or the plural shall include the other. All rights and remedies of Lessor under this lease shall be cumulative and none shall exclude any other rights or remedies allowed by law; and this lease is declared to be a Texas contract, and all of the terms thereof shall be construed according to the laws of the State of Texas. IN TESTIMONY WHEREOF, the parties hereto have executed this lease as of the date aforesaid. TOWER, LIMITED METRO TRAFFIC CONTROL, INC. By: Post Oak Associates, Ltd., General Partner By: Gerald D. Hines Interests, Ltd., General Partner By: /s/ Greg F. Walsh, III By: Hines Consolidated Investments, Inc., -------------------------- General Partner Lessee By: /s/ Louis S. Sklar ------------------------------------ Louis S. Sklar, Vice President Lessor 11 EX-10.5 6 EXHIBIT 10.5 FIRST AMENDMENT TO LEASE AGREEMENT This First Amendment to Lease Agreement is entered into as of this 1st day of September 1988 (the "Effective Date"), by and between Tower, Limited ("Lessor") and Metro Traffic Control, Inc. ("Lessee"). RECITALS A. Lessor and Lessee entered into that certain Lease Agreement dated April 15, 1988 (the "Lease"), covering approximately 12,000 square feet of net rentable area on Level 14 of the building known as Geosource Plaza, located at 2700 Post Oak Blvd., Houston, Texas 77056. B. Lessor and Lessee desire to amend the Lease as hereinafter provided. NOW THEREFORE, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as follows: 1. The terms used herein shall have the same meanings as defined in the Lease, unless otherwise defined herein, and all terms defined herein are hereby incorporated into the Lease for all pertinent purposes, unless otherwise stated. 2. Commencing on the Effective Date, and thereafter for the remainder of the initial term of the Lease, plus any renewals or extensions thereof, the leased premises are hereby amended to include, and Lessee hereby agrees to take and lease, according to the terms and conditions of the Lease as hereby amended, approximately 7,888 square feet of net rentable area (the "Additional Space") on Level 14 of the Building, as shown on Exhibit A attached hereto. 3. Commencing on the Effective Date, the leased premises shall consist of approximately 19,888 square feet of net rentable area on Level 14 of the Building, as shown on Schedule I attached hereto, which is hereby substituted in place of Exhibit A attached to the Lease. 4. Lessee hereby accepts the Additional Space in its present "as-is" condition. Lessee agrees that Lessor has no obligation to construct any improvements or perform -1- other work in connection with Lessee's leasing or occupying the Additional Space. 5. Subparagraph (e) of the Rider attached to the Lease as Article V, Paragraph 16 thereof, is hereby deleted and in its place is inserted the following: "(e) Lessee hereby accepts the leased premises in their present "as-is" condition, except for any structural or mechanical defects. Lessor has informed Lessee as to the existence of asbestos in the Building and that the level of airborne fibers, including asbestos, is below current or proposed OSHA acceptable limits. The parties hereto agree that asbestos is not a structural defect. Lessor agrees to make necessary repairs to the mechanical systems of the Building. Lessee agrees that Lessor shall have no obligation to construct any improvements or perform other work in connection with Lessee's leasing and occupying the leased premises. Lessor shall have no obligation to encapsulate or remove the asbestos contained in the Building, including any area within the leased premises, in connection with Lessee constructing improvements in the leased premises. Lessee's obligation to encapsulate or remove asbestos in the Building shall be limited to such encapsulation or removal required by any construction initiated by Lessee. If Lessee desires to construct any leasehold improvements in the leased premises (subject to Lessor's prior approval thereof*), then Lessee shall bear all costs attributable to constructing the leasehold improvements in the leased premises, including any additional costs resulting from Lessee's contractors, subcontractors, or installation technicians, or their agents or employees, complying with the Building's Rules and Regulations and other procedures pertaining to performing construction work in a building containing asbestos; provided, however, that Lessee shall not be obligated to pay, and Lessor agrees to pay, any increase in such additional costs relating to asbestos related procedures arising out of any changes to the Building's Rules and Regulations or any changes to such procedures pertaining to performing construction work in a building containing asbestos. Lessee agrees to construct the leasehold improvements in the leased premises in accordance with all such Rules and Regulations (a copy of which has been delivered to Lessee) and such procedures, and to cause all of its contractors, subcontractors and their agents and employees to do the same. * which approval shall not be unreasonably withheld -2- 6. Lessee agrees to discharge of record (either by payment or by filing of the necessary bond, or otherwise) any mechanics', materialmens', or other lien against any portion of the Building, the leased premises and/or the Lessor's interest therein, within twenty (20) days after notice by Lessor, which liens may arise out of any payment due for, or purported to be due for, any labor, services, materials, supplies or equipment alleged to have been furnished to or for the Lessee in, upon or about the leased premises. 7. The first sentence of Paragraph 3 of Article II of the Lease is hereby deleted in its entirety, and in its place is inserted the following: "Lessee hereby agrees to pay a base monthly rental (herein called "Base Rental") in the following sums for the following months: Period Base Rental ------ ----------- A. Months 1 through 20 following the commencement of the term hereof: $ 0.00 B. Months 21 through 52 following the commencement of the term hereof: $ 13,000.00 C. Months 53 through 120 following the commencement of the term hereof: $ 20,316.00 8. (a) The words "Twenty-five percent (25%) of such profit shall" inserted in the thirteenth (13th) line and the fifteenth (15th) line of Article IV, Paragraph 5 of the Lease are hereby deleted. (b) The following is hereby inserted at the end of Article IV, Paragraph 5, of the Lease: Notwithstanding the foregoing provisions of this Article IV, Paragraph 5, to the contrary, Lessee may retain any profit realized from any such sublease or subleases, so long as Lessee has subleased less than fifty percent (50%) of the net rentable area in the leased premises. If at any time Lessee has subleased fifty percent (50%) or more of the net rentable area in -3- the leased premises, then twenty-five percent (25%) of all profit (as defined above in this Article IV, Paragraph 5) realized by Lessee as a result of any sublease or subleases covering all or any portion of the leased premises shall be paid to Lessor as provided in the first grammatical paragraph of this Article IV, Paragraph 5. Twenty-five percent (25%) of any profits from any assignment of the Lease shall be payable to Lessor as provided in the first grammatical paragraph of this Article IV, Paragraph 5. 9. Paragraph 18 of Article V of the Lease, containing an Expansion Option provision and a Right of First Refusal provision, is hereby deleted in its entirety. 10. Except as expressly amended by this First Amendment, the Lease shall continue in full force and effect. Executed as of the date first above written. TOWER, LIMITED By: Post Oak Associates, Ltd., General Partner By: Gerald D. Hines Interests, Ltd., General Partner By: Hines Consolidated Investments, Inc., General Partner By: /s/ Louis S. Sklar ---------------------------- Louis S. Sklar, Vice President LESSOR METRO TRAFFIC CONTROL, INC. By: /s/ Greg F. Walsh, III ----------------------------- Name: Greg F. Walsh, III Title: Vice President LESSEE -4- EX-10.6 7 EXHIBIT 10.6 LEASE AMENDMENT NUMBER TWO BETWEEN TOWER, LIMITED, "LESSOR" AND METRO TRAFFIC CONTROL, INC., "LESSEE" DATED APRIL 23, 1991 THE STATE OF TEXAS ) COUNTY OF HARRIS ) WHEREAS, Tower, Limited hereinafter called "Lessor", and Metro Traffic Control, Inc., hereinafter called "Lessee", entered into a Lease Agreement dated April 15, 1988, covering approximately twelve thousand (12,000) square feet of Net Rentable Area located on Level 14 in the 2700 Post Oak Boulevard building at 2700 Post Oak Boulevard, Houston, Texas 77056; and WHEREAS, that Lease Agreement was subsequently amended in a First Amendment to Lease Agreement for the purpose of expanding the Leased Premises; and WHEREAS, Lessor and Lessee mutually desire to amend said Lease Agreement for the purpose of expanding the leased premises; and NOW, THEREFORE, Lessor and Lessee do hereby amend said Lease Agreement as follows: 1. Lessee hereby leases approximately 3,544 square feet of Net Rentable Area on Level 16 (Exhibit A) effective 5/1/91. 2. This expansion of the leased premises (the 3,544 square feet of Net Rentable Area on Level 16 only) shall have a term of approximately twenty-eight (28) months, expiring 8/31/93. 3. The Base Annual Rental for the expanded premises under this Amendment Two to Lease Agreement shall be $8.25 per square foot of Net Rentable Area. The Base Year for Operating Expense Escalations shall be 1990. 4. Lessee shall have none of those rights contained within the Lease Agreement to this space (the 3,544 square feet of Net Rentable Area on Level 16 only) beyond 8/31/93, except an option to lease a minimum of one-half of the floor at such time as Lessor again makes the floor available for Lease. Lessee's intent to exercise this option must be made known in writing to Lessor by 4/30/93. Should Lessee make Lessor aware its intent to exercise the option by 4/30/93, Lessor will have thirty (30) days within which to notify Lessee of the "Fair Market Value" of the space (see definition in Exhibit B), and an approximate time at which the space can be made available to Lessee. Lessee will then have five (5) business days to notify Lessor of its acceptance of the offer of space. Should Lessee fail to notify Lessor of its intent to exercise the option by 4/30/93, or should Lessee fail to notify Lessor of its acceptance of the offer of space within five (5) days of Lessor's notice of "Fair Market Value" and space availability, then Lessee shall have waived any right to the space beyond the term stated in this Amendment Two to Lease Agreement. 5. In the period of time between 8/31/93 and that time when the space is again available for lease, and providing there is previously built out space available in the building, Lessor will make an effort to provide Lessee with space to which Lessee can relocate at Lessee's sole expense. Should such space be available, and should Lessee elect to relocate to said space at its own expense, the rental rate for the relocation period shall be the same as per this Lease Amendment, plus any accrued Operating Expense Escalations. 6. Lessor agrees to clean the carpeting and repaint the premises covered under this Amendment to Lease Agreement (the 3,544 square feet of Net Rentable Area on Level 16 only) using building standard materials, and that such painting will be completed prior to Lessee's occupancy on May 1, 1991. 7. So long as Lessee is not in default of any condition of this Lease Agreement, as amended, Lessee shall have a Right of Refusal on a contiguous space of approximately 1,677 square feet of Net Rentable Area on Level 16 (shown as Right of Refusal space on Exhibit A) not previously encumbered by, or leased to, an existing tenant. Lessee shall have three (3) business days in which to exercise this right on all, but not part, of the space Lessor offers to a third party, when presented by Lessor with a bona fide offer from Lessor which has been accepted in writing by a third party. This right ceases if Lessee declines to exercise such right when presented by Lessor with a bona fide accepted offer to a third party for said space. Lessee shall not have the right to assign this Right of Refusal to any assignee or sublessee, nor may any assignee or sublessee exercise this right. The Base Rental Rate for such additional space leased, as well as term, provisions, and conditions, shall be the same offered and accepted in writing by the third party. EXCEPT as hereby expressly amended, Lessor and Lessee do hereby ratify and affirm all terms, conditions and covenants of said Lease Agreement. WITNESS the execution here this __ day of _______________,19__. TOWER, LIMITED METRO TRAFFIC CONTROL, INC. by: Post Oak Associates, Ltd., General Partner by: GDHI Limited Partnership, General Partner by: Hines Consolidated Investments, Inc., General Partner by: /s/ Louis S. Sklar by: /s/ Greg F. Walsh, III ------------------------------ ------------------------------ Louis S. Sklar, Vice President LESSOR LESSEE RM:AMEND:fr 42391met EXHIBIT "A" [Floor plan depicting leased premises and and right of refusal space.] LEVEL 16 GENSOURCE PLAZA EXHIBIT "B" Definition of Fair Market Value: As used in this lease the term "Market Base Rental" shall mean the rate charged for space of comparable size and condition in comparable first-class buildings in the Uptown Houston Area, taking into consideration the location, quality and age of the building, floor level, extent of leasehold improvements (existing or to be provided), rental abatements, lease takeover/assumptions, moving expenses and other concessions, term of lease, extent of services to be provided, distinction between "gross" and "net" lease, base year or amount allowed by Landlord for payment of building operating expenses (expense stop), and the time the particular rental rate under consideration became or is to become effective. EX-10.7 8 EXHIBIT 10.7 LEASE AMENDMENT NUMBER THREE BETWEEN TOWER, LIMITED, "LESSOR" AND METRO TRAFFIC CONTROL, INC., "LESSEE" DATED JANUARY 28, 1992 THE STATE OF TEXAS ) COUNTY OF HARRIS ) WHEREAS, Tower, Limited, hereinafter called "Lessor", and Metro Traffic Control, Inc., hereinafter called "Lessee", entered into a Lease Agreement dated April 15, 1988, covering approximately twelve thousand (12,000) square feet of Net Rentable Area located on Level 14 in Geosource Plaza at 2700 Post Oak Boulevard, Houston, Texas 77056; and WHEREAS, Lessor and Lessee entered into that certain First Amendment to Lease Agreement in order to increase the Net Rentable Area of the Leased Premises approximately 7,888 square feet of Net Rentable Area on Level 14 of the Building and to modify the Base Rental as well as certain other terms and provisions of the Lease. WHEREAS, Lessor and Lessee entered into that certain Lease Amendment Number Two for the purposes of expanding the Leased Premises approximately 3,544 square feet of Net Rentable Area on Level 16 of the Building. WHEREAS, Lessor and Lessee mutually desire to amend said Lease Agreement for the purpose of increasing the number of parking spaces to be leased by Lessee and the Basic Parking Charge Lessee agrees to pay each month for such parking spaces. NOW, THEREFORE, Lessor and Lessee do hereby amend said Lease Agreement as follows: 1. Lessee shall have the right to lease up to twenty (20) additional unassigned (unreserved) parking spaces at the rate of $25.00 per space per month and one (1) assigned (reserved) parking space on Level D of the Garage at the rate of $125.00 per month. EXCEPT as hereby expressly amended, Lessor and Lessee do hereby ratify and affirm all terms, conditions and covenants of said Lease Agreement. WITNESS the execution here this 29th day of January, 1992. TOWER, LIMITED METRO TRAFFIC CONTROL, INC. By: Post Oak Associates, Ltd., General Partner By: GDHI Limited Partnership, General Partner By: Hines Consolidated Investments, Inc., By: /s/ Louis S. Sklar By: /s/ Greg F. Walsh, III ---------------------- ------------------------ Louis S. Sklar, Vice President LESSOR LESSEE EX-10.8 9 EXHIBIT 10.8 SUBLEASE AGREEMENT BETWEEN TRANSCONTINENTAL GAS PIPE LINE CORPORATION, a Delaware corporation, as Landlord and METRO TRAFFIC CONTROL, INC. a Maryland corporation, as Tenant SUBLEASE AGREEMENT BETWEEN TRANSCONTINENTAL GAS PIPE LINE CORPORATION, a Delaware corporation, as Landlord and METRO TRAFFIC CONTROL, INC., a Maryland corporation, as Tenant TABLE OF CONTENTS Page No. ARTICLE I (Definitions) ........................................1 Section 1.01 Certain Definitions ..................................1 Section 1.02 Prime Lease Definitions ..............................4 ARTICLE II (Premises) ...........................................4 Section 2.01 Demise ...............................................4 Section 2.02 Prime Lease ..........................................6 Section 2.03 Condition of Demised Premises ........................6 Section 2.04 Disclaimer of Warranties .............................6 Section 2.05 Inapplicability of Deceptive Trade Practices Act .....7 ARTICLE III (Term) ...............................................8 Section 3.01 Term .................................................8 Section 3.02 Tenant's Additional Space ............................8 Section 3.03 Tenant's Right of First Refusal to Lease Other Space .........................................10 Section 3.04 Extension Option ....................................13 (i) ARTICLE IV (Leasehold Improvements) ............................15 Section 4.01 Landlord' s Obligations .............................15 Section 4.02 Tenant's Leasehold Improvements; Improvement Allowance ...........................................17 ARTICLE V (Basic Rent and Additional Rent) ....................20 Section 5.01 Basic Rent ..........................................20 Section 5.02 Calculation of NRA ..................................21 Section 5.03 Manner of Payment ...................................21 Section 5.04 Operating Expenses ..................................22 Section 5.05 Interest on Past Due Sums ...........................25 ARTICLE VI (Utilities and Services) ............................25 Section 6.01 Services to be Provided by Prime Landlord ...........25 Section 6.02 Electricity Capacity; Separate. Metering ............25 Section 6.03 Interruption of Services ............................27 Section 6.04 Costs of Special Leasehold Improvements After Commencement of Term ..........................28 Section 6.05 Building Directory and Signage ......................28 Section 6.06 Visitor Security ....................................29 ARTICLE VII (Garage Parking Spaces) .............................29 Section 7.01 Garage Parking Spaces ...............................29 Section 7.02 Parking Rent ........................................30 Section 7.03 Visitor Parking .....................................31 ARTICLE VIII (Use) ...............................................31 (ii) Section 8.01 Office Use ..........................................31 ARTICLE IX (Repairs and Maintenance) ...........................31 Section 9.01 Landlord Maintenance ................................31 Section 9.02 Tenant Maintenance ..................................32 Section 9.03 Damage Provisions ...................................33 ARTICLE X (Fire or Other Casualty) ............................33 Section 10.01 Casualty Damage .....................................33 Section 10.02 Waiver of Subrogation ...............................34 Section 10.03 Tenant Insurance ....................................35 ARTICLE XI (Alterations and Fixtures) ..........................35 Section 11.01 Alterations by Tenant ...............................35 Section 11.02 Trade Fixtures ......................................37 Section 11.03 Fixtures ............................................38 ARTICLE XII (Indemnity and Liability) ...........................38 Section 12.01 Indemnity; Tenant Insurance .........................39 Section 12.02 Landlord Indemnity ..................................39 ARTICLE XIII (Eminent Domain) ....................................40 Section 13.01 Taking ..............................................40 Section 13.02 Award ...............................................41 Section 13.03 Voluntary Dedication ................................41 ARTICLE XIV (Remedies and Defaults) .............................42 Section 14.01 Tenant Default; Landlord Remedies ...................42 (iii) ARTICLE XV (Bankruptcy) ........................................45 Section 15.01 Bankruptcy of Tenant ................................45 ARTICLE XVI (Compliance with Laws; Compliance with Prime Lease) ..............................................46 Section 16.01 Compliance with Laws ................................46 Section 16.02 Compliance with Prime Lease .........................46 ARTICLE XVII (Assignment and Subletting) .........................47 Section 17.01 Assignment and Subletting ...........................47 ARTICLE XVIII (Landlord's Access) .................................48 Section 18.01 Landlord Access .....................................48 ARTICLE XIX (Quiet Enjoyment) ...................................49 Section 19.01 Landlord Covenant of Quiet Enjoyment ................49 ARTICLE XX (Non-Waiver) ........................................49 Section 20.01 No Waiver ...........................................49 ARTICLE XXI (Holding Over) ......................................49 Section 21.01 Hold Over by Tenant .................................49 ARTICLE XXII (Notices) ...........................................50 Section 22.01 Notices; Addresses ..................................50 ARTICLE XXIII (Partial Invalidity) ................................51 Section 23.01 Severability ........................................51 ARTICLE XXIV (Landlord Transfers) ................................52 Section 24.01 Limitation of Liability .............................52 Section 24.02 Agreements Binding during Ownership .................52 (iv) ARTICLE XXV (Arbitration) .......................................53 Section 25.01 Arbitration .........................................53 ARTICLE XXVI (Miscellaneous) .....................................55 Section 26.01 Estoppel Certificates ...............................55 Section 26.02 Microwave Receivers .................................55 Section 26.03 Miscellaneous .......................................55 EXHIBIT A [Floor Plan Drawing of the Demised Premises] EXHIBIT B [Floor Plan Drawing of Johnson & Higgins Expansion Space] EXHIBIT C [Location of Reserved/Assigned Parking Spaces] EXHIBIT D [Tenant's Removable Fixtures] (v) THE STATE OF TEXAS ss. ss. COUNTY OF HARRIS ss. THIS SUBLEASE AGREEMENT dated January 5, 1996 (hereinafter called this "Lease"), made and entered into by and between TRANSCONTINENTAL GAS PIPE LINE CORPORATION, a Delaware corporation (hereinafter called "Landlord") and METRO TRAFFIC CONTROL, INC., a Maryland corporation (hereinafter called "Tenant"). WITNESSETH: ARTICLE I (Definitions) Section 1.01 Certain Definitions. Landlord and Tenant agree that the respective terms as used herein shall, unless context otherwise requires, have the following meanings: "Auxiliary. Garage" shall refer to any parking garage designated by Landlord located in the Galleria shopping center complex in Houston, Texas. "Building" shall refer to the office building (inclusive of all the bridge at the second level connecting the office building with the Garage) on the Project Site, all as more fully defined and described in the Prime Lease. "Demised Premises" shall refer to approximately 22,606 square feet of Net Rentable Area located on Floor 40 and approximately 5,610 square feet of Net Rentable Area located on Floor 39 in the Building as more particularly shown on Exhibit attached hereto, the Additional Space (as defined in Section 3.02) and any Expansion Space which becomes a part of the Demised Premises pursuant to Section 3.03. "Garage" shall refer to the multi-level parking facility on the Project Site, all as more fully defined and described in the Prime Lease. "Lease Year" shall mean each successive twelve (12) month period during the term of this Lease with the first Lease Year commencing on the Commencement Date and ending on December 31, 1996; provided, however, the final Lease Year shall commence on January 1, 2004 and end on the Expiration Date. "Net Rentable Area" shall have the same meaning as "Net Rentable Area" in the Prime Lease. "Person" shall refer to an individual, partnership, corporation, trust, unincorporated association or other entity. "Prime Landlord" shall refer to Transco Tower Limited, a Texas limited partnership, the current owner of the landlord' s interest in the Prime Lease, its successors and assigns. "Prime Lease" shall refer to that certain Lease Agreement dated October 5, 1981 by and between Post Oak/Alabama Partnership, a Texas general partnership, as the landlord, and Transcontinental Gas Pipe Line Corporation, a Delaware corporation, as the tenant, as amended by First Amendment to Lease Agreement dated December 29, 1981, Lease Amendment and Consent to License dated October 10, 1983, Third Amendment to Lease Agreement dated September 13, 1984, Fourth Amendment to Lease Agreement dated October 1, 1985, Fifth Amendment to Lease Agreement dated January 1, 1986, Sixth Amendment to the Lease dated April 22, 1986, and Seventh -2- Amendment to the Lease dated April 1, 1987, each such Amendment having been executed by Prime Landlord, as the landlord, and Transcontinental Gas Pipe Line Corporation, as the tenant. "Prime Rate" shall refer to the rate as announced from time to time by Texas Commerce Bank National Association, Houston, Texas, as its "prime rate", and thereafter entered as such in the minutes of its Loan and Discount Committee. "Project" shall refer to the Project Site, together with the Building, the Garage and other improvements now or hereafter erected thereon. "Project Site" shall refer to the tract of land described in Exhibit B to the Prime Lease. "Special Leasehold Improvements" shall refer to any of Tenant' s Leasehold Improvements (as defined in Article IV) or other leasehold improvements within the Demised Premises which are deemed by Prime Landlord to be "Special Leasehold Improvements" under the terms of the Prime Lease. "Tenant's Garage Share" shall mean a fraction, the numerator of which is the number of parking spaces leased by Tenant from time to time pursuant to Section 7.01 of this Lease and the denominator of which is the total number of parking spaces in the Garage. "Tenant's Share" shall mean a fraction, the numerator of which is the number of square feet of Net Rentable Area in the Demised Premises and the denominator of which is the greater of (i) 97% of the Net Rentable Area in the Building or (ii) the percentage of the Net Rentable Area in the Building which is occupied or under leases on which rentals are currently accruing during at least one-half of the calendar year or portion thereof involved. "TGPL Parking Area" shall refer to the "Tenant Parking Area" as defined and described in the Prime Lease. -3- Section 1.02 Prime Lease Definitions. Terms used herein which are defined in the Prime Lease, unless otherwise defined herein or unless the context otherwise requires, shall have the meaning ascribed to them in the Prime Lease and such terms are incorporated herein by reference. ARTICLE II (Premises) Section 2.01 Demise. Landlord sublets and subleases to Tenant, and Tenant hereby subleases from the Landlord all the Demised Premises. In conjunction with the subleasing of the Demised Premises, during the term of this Lease, Tenant shall have the following rights: (a) to the extent Landlord has such right under the Prime Lease and such right is transferable, the non-exclusive right to use the helicopter pad on the Building; (b) the right to use the parking spaces in the TGPL Parking Area leased to Tenant pursuant to Section 7.01 hereof; (c) to the extent permitted in the Prime Lease, the right in and to the easements and rights to use the Skybridges, the Driveways and the Park Area, which respective easements and rights shall be non-exclusive and in common with others as provided in and subject to the terms of the Prime Lease and the agreements referred to therein; and (d) subject to the terms of the following paragraph, the non-exclusive right (in common with Landlord's employees and all other Persons to whom Landlord grants a right of use) of (i) employees of Tenant to use Landlord's cafeteria, dining rooms (including executive dining rooms), lounges and meeting rooms located on Floor 5 of the Building and Landlord's 200-seat auditorium located on Floor 2 of the Building and (ii) those employees -4- of Tenant that are issued membership cards as provided below to use Landlord's health club facility located on floor 5 of the Building. The non-exclusive rights of Tenant's employees pursuant to subparagraph (c) are subject to the following: (1) Landlord shall have the right to establish and enforce rules and regulations regarding the use of such facilities including, without limitation, the nature of the use of such facilities and the times at which such facilities are available for use. (2) Use of Landlord's meeting rooms and auditorium shall be on an "as available" basis and must be reserved in advance in accordance with Landlord's reservation policies. (3) Landlord shall have the right to cease the operation of any or all of such facilities and in such event, the rights of Tenant and its employees with respect to such facilities shall terminate without affecting the Basic Rent or any other obligations of Tenant hereunder. (4) In the event Landlord is required by the Federal Energy Regulatory Commission or any other governmental agency to impose a fee or charge to third parties for use of any or all of such facilities and Landlord charges such fee to any third party subtenants of Landlord, as a condition precedent to Tenant's use of such facilities, Tenant shall pay a fee or charge for the use of such facilities in an amount established by Landlord as the standard rate for all third party users. (5) As a condition to use of such facilities, Landlord may require execution of an instrument by any Person using such facilities releasing Landlord from any and all liability associated with the use of such facility by such Person. -5- (6) With respect to Tenant's rights pursuant to subparagraph (c)(ii) above, Landlord shall issue a membership card to all employees of Tenant designated by Tenant permitting access to and use of such health club facility. Such cards shall be non-transferable and may be used only by the Person to whom such card is issued. Section 2.02 Prime Lease. This Lease is a sublease and is therefore subject and subordinate to the terms of the Prime Lease. In that connection, Tenant represents that it has been provided a copy of the Prime Lease (redacted to exclude the rental mounts therein) and represents that it has read and is familiar with the terms and provisions of the Prime Lease (except for the excluded rental mount provisions). Landlord shall not agree to any amendment of the Prime Lease if such amendment would materially adversely affect Tenant' s interest in the Demised Premises without the prior written consent of Tenant, which consent shall not be unreasonably withheld or delayed. Landlord represents to Tenant that Landlord has the full right, power and authority to enter into this Lease and that Landlord will use good faith efforts to obtain, within thirty (30) days from the date hereof, all consents required to this Lease. Section 2.03 Condition of Demised Premises. Tenant acknowledges and agrees that Tenant has inspected the Demised Premises and agrees to accept the Demised Premises in its present condition, "as is" and "with all faults" except as otherwise provided in Article IV hereof. Section 2.04 Disclaimer of Warranties. Tenant acknowledges that neither Landlord nor Prime Landlord has made any warranties to Tenant with respect to the quality of construction of any leasehold improvements or tenant finish within the Demised Premises or as to the condition of the Demised Premises, either express or implied, and that Landlord expressly disclaims any implied -6- warranty that the Demised Premises are or will be suitable for Tenant's intended commercial purposes. Section 2.05 Inapplicability of Deceptive Trade Practices Act. Each of Landlord and Tenant acknowledges, on its behalf and on behalf of its assigns and successors, that the Texas Deceptive Trade Practices - Consumer Protection Act, Subchapter E of Chapter 17 of the Texas Business and Consumer Code (the "DTPA"), save and except the provisions of Section 17.555 of the Texas Business and Commerce Code, is not applicable to the transaction contemplated under the terms of this Lease. Accordingly, the rights and remedies of Landlord and Tenant with respect to all acts or practices of the other, past, present or future, in connection with these transactions shall be governed by legal principles other than the DTPA. In connection with the foregoing, Tenant represents to Landlord that it is represented by legal counsel and is a business consumer (as defined in the DTPA) and that it seeks to lease the Demised Premises for commercial or business use. Landlord and Tenant each represent to the other than they have knowledge and experience in financial and business matters that enable it to evaluate the merits and risks of the transactions contemplated hereby. Further, Landlord and Tenant each further represent to the other that they are not in a significantly disparate bargaining position in relation to one another. Tenant represents to Landlord that it has assets of $5,000,000 or more. Landlord and Tenant each agrees, on its own behalf and on behalf of its assigns and successors, that all of the rights and remedies under the DTPA, save and except the provisions of Section 17.555 of the Texas Business and Commerce Code, are hereby waived and released, including specifically, without limitation, all rights and remedies resulting from or arising out of any and all acts or practices of the other party in connection with the transactions contemplated under -7- this Lease, regardless of whether such acts or practices occur before or after the execution of this Lease. ARTICLE III (Term) Section 3.01 Term. Subject to and upon the terms and conditions set forth herein, the term of this Lease shall commence on April 1, 1996 (the "Commencement Date") and, unless sooner terminated or extended to a later date in accordance with the terms and provisions hereof, the term of this Lease shall expire on March 29, 2004 (the "Expiration Date"). Section 3.02 Tenant's Additional Space. (a) Commencing on the first day of April, 1998, additional space in the Building as designated and determined in accordance with the provisions of this Section 3.02 (the "Additional Space") shall be added to and included in the Demised Premises. The Additional Space shall consist of 5,214 square feet of Net Rentable Area on the Expansion Floor (as hereinafter defined in Section 3.03). The Additional Space shall be located adjacent to the existing Demised Premises as set forth on Exhibit A attached hereto and incorporated herein for all purposes. (b) In addition, Tenant shall have the right to lease all or a portion of the Additional Space prior to April 1, 1998 by delivering written notice to Landlord of Tenant's desire to commence the term of all or a portion of the Additional Space. Landlord shall then notify Tenant in writing as to the date the Additional Space, or portion thereof, will be made available to Tenant, which date shall not be later than sixty (60) days after the date Tenant desires to commence the term of the Additional Space. -8- (c) The Available Date for the Additional Space (or any portion thereof) shall occur on the earlier to occur of the date specified by Landlord that the Additional Space is available as described in the immediately preceding paragraph or April 1, 1998. In either event, the term "Available Date" shall mean, with respect to the Additional Space (or any portion thereof), the date sixty (60) days after such space is delivered to Tenant in the condition specified in Section 4.01 hereof and further provided that Tenant shall be entitled to be paid an allowance for the construction of leasehold improvements in the Additional Space in an amount equal to the amount hereinafter set forth (the "Additional Improvement Allowance"). The Additional Improvement Allowance shall be equal to Sixteen and 50/100 Dollars ($16.50) per square foot of Net Rentable Area in the Additional Space if the Available Date is April 1, 1998. If the Available Date is prior to April 1, 1998, the Additional Improvement Allowance for the portion of the Additional Space leased prior to March 1, 1998 shall be increased by an amount equal to the product of $0.14 per square foot of Net Rentable Area in the Additional Space (or portion thereof) times the number of months (or portion thereof) from the Available Date until April 1, 1998, provided in no event shall the Additional Improvement Allowance exceed $20.00 per square foot of Net Rentable Area in the Additional Space. The Additional Improvement Allowance shall be paid, and the improvements in the Additional Space constructed, on the same terms and conditions as are contained in Section 4.02 with respect to the Tenant's Leasehold Improvements and the Improvement Allowance. (d) The Additional Space shall become a part of the Demised Premises as of the Available Date therefor, and all Basic Rent, Parking Rent and additional rent with respect thereto shall commence (and thereupon become a part of the Basic Rent, Parking Rent and additional rent). The Additional Space shall be governed by the same terms and conditions of this Lease as applicable -9- to the remainder of the Demised Premises, except that (1) the Basic Rent Rate for such Additional Space to be used for purposes of calculating the Basic Rent pursuant to Section 5.01 hereof shall be at the Rate set forth below, (2) the term of this Lease as to the Additional Space shall commence as above provided and shall continue for the balance of the Term of this Lease, and (3) except for the Additional Improvement Allowance, in no event shall any rental credit, allowance or other concession provided for in this Lease be applicable to the leasing of the Additional Space. Landlord and Tenant agree to execute an amendment to this Lease evidencing the leasing of such Additional Space and the exact Net Rentable Area contained in the Additional Space. (e) If the Available Date is April 1, 1998, then the Basic Rent for the Additional Space shall be as follows: Lease Year(s) Annual Basic Rent ------------- ----------------- Three (3) $6.05 per square foot of Net Rentable Area Four (4) through Six (6) $7.05 per square foot of Net Rentable Area Seven (7) through Last $8.05 per square foot of Net Rentable Area Lease Year If the Available Date is prior to April 1, 1998, then the annual Basic Rent shall be $6.05 per square foot of Net Rentable Area of Additional Space. (f) Notwithstanding anything to the contrary set forth in this Section 3.02, the Additional Space shall not, at Landlord's option, be leased to Tenant if, as of the Available Date, there exists an Event of Default by Tenant under this Lease. Section 3.03 Tenant's Right of First Refusal to Lease Other Space. Subject to the further provisions of this Lease and to the currently existing expansion rights of Johnson & Higgins of -10- Texas, Inc., Tenant is hereby granted the right of first refusal (the "Expansion Right") to expand the Demised Premises and to include and sublease space on the Expansion Floor (hereinafter defined) subject to and in accordance with the terms of this Section 3.03. Landlord represents and warrants that the only currently existing expansion rights of Johnson & Higgins of Texas, Inc. apply only to the space outlined on Exhibit B attached hereto and incorporated herein for all purposes. For purposes hereof, the following terms shall have the following definitions: "Expansion Floor" shall mean the thirty-ninth (39th) floor of the Building save and except the portion of the 39th floor to which Johnson & Higgins of Texas, Inc. has a currently existing expansion option (the "J&H Expansion Space"); provided, however, at such time as Johnson & Higgins of Texas, Inc. no longer has any expansion rights with respect to the J&H Expansion Space, the J&H Expansion Space shall become part of the Expansion Floor as such term is used in this Lease. "Offer" shall mean an offer or proposal by a third party (a "Prospective Subtenant") to sublease all or any portion of the Expansion Floor, which offer or proposal may be in the form of a letter of intent, written proposal, lease agreement or other binding or non-binding agreement evidencing the agreement or intent of a Prospective Subtenant to sublease all or a portion of the Expansion Floor. In the event Landlord receives an Offer which Landlord desires to accept, Landlord shall give written notice (the "Expansion Space Notice") to Tenant of the Basic Terms of the Offer. The "Basic Terms" shall include (i) all appropriate information regarding the portion of the Expansion Floor which is the subject of such Offer (the "Offered Space"), including the area, floor plan and condition thereof, (ii) the term of the sublease contemplated by the Offer and the commencement -11- and expiration dates thereof, (iii) the annual basic rent, tenant's share of operating expenses, parking rent and other rental amounts to be paid pursuant to the sublease contemplated by the Offer, (iv) any rental abatements, improvement allowances, relocation allowances and other tenant inducements contemplated by the Offer, (v) all renewal options and expansion rights contemplated by the Offer, and (vi) all other pertinent terms and conditions contained in the Offer which would normally be contained in a letter of intent or proposal letter; provided, however, Landlord shall not be obligated to include in the Expansion Space Notice the identity of the Prospective Subtenant or any guarantor of the Prospective Subtenant's obligations. Landlord shall provide Tenant with sufficient evidence of the Offer to allow Tenant to confirm the validity of the Offer, in its reasonable discretion. Tenant shall have a period of ten (10) business days after receipt of the Expansion Space Notice in which to exercise by written notice (the "Expansion Exercise Notice") its Expansion Right to sublease all (but not less than all) of the Offered Space on the terms and conditions set forth in the Expansion Space Notice. If Tenant fails to deliver the Expansion Exercise Notice exercising its Expansion Right within such ten (10) business days, it shall be conclusively deemed that Tenant has elected not to exercise its Expansion Right only as to that particular Offer. Tenant's Expansion Right pursuant to this Section 3.03 shall continue, subject only to any lease entered into by Landlord and the Prospective Subtenant pursuant to the terms of the Offer. Upon the termination of any such lease, the space covered thereby shall again become subject to the Expansion Right. If Tenant timely gives the Expansion Exercise Notice, Tenant shall be deemed to have elected to sublease the Offered Space on the terms and conditions set out in the Expansion Space Notice. In such event, Landlord and Tenant shall enter into an amendment to this Lease evidencing - 12- the sublease by Tenant of the Offered Space and the terms, covenants and conditions thereof as herein set out. Tenant' s Expansion Right shall be subject to the rights of tenants under leases of space on the Expansion Floor including, without limitation, renewal and extension options, expansion options, and rights of first refusal contained in such existing leases. Section 3.04 Extension Option. The "Prime Lease Renewal Option" shall mean the right and option by Landlord to renew and extend the term of the Prime Lease for the five (5) year period after the expiration of the initial term of the Prime Lease in accordance with the terms of Section 24.01 of the Prime Lease. Provided that Landlord has exercised the Prime Lease First Renewal Option with respect to the Demised Premises and the term of the Prime Lease is actually renewed and extended for the period contemplated by the Prime Lease First Renewal Option, Tenant shall have the option (the "Extension Option") to renew this Lease and extend the term of this Lease as to all (but not less than all) of the Demised Premises for a period of five (5) years (the "Extended Term") commencing on the expiration of the initial term of this Lease. Tenant may exercise the Extension Option by written notice thereof (the "Exercise Notice") to Landlord on or before that date (the "Exercise Date") which is thirty (30) days after delivery by Landlord or Tenant of the Renewal Information (as hereinafter defined), in which event the term of this Lease shall be extended for the Extended Term on the terms and conditions set out below. If Tenant is considering exercising the Extension Option, Tenant shall notify Landlord of such interest by delivering written notice (the "Notice of Interest") to Landlord on or before the date which is twelve (12) months prior to the expiration of the initial term of this Lease. Should Tenant timely give the Notice of Interest, then Landlord shall, within thirty (30) days thereafter, deliver to Tenant a notice advising Tenant of -13- (i) whether landlord has exercised the Prime Lease First Renewal Option and (ii) the Prime Lease Established Market Rate for the Demised Premises (the "Renewal Information"). Tenant shall then have until the Exercise Date in which to elect to exercise the Extension Option by giving the Exercise Notice; provided, however, Tenant shall not be permitted to exercise the Extension Option if, at the time of such exercise, there exists a monetary default or uncured nonmonetary default by Tenant under the terms of this Lease. If Landlord does not exercise the Prime Lease First Renewal Option or the Prime Lease is not actually renewed and extended for the period contemplated by the Prime Lease First Renewal Option, Tenant shall not be entitled to exercise the Extension Option and this Lease shall terminate on the expiration of the initial term. If Tenant falls to timely give either the Notice of Interest or Exercise Notice, Tenant shall be deemed to have elected not to exercise the Extension Option and this Lease shall terminate on the expiration of the initial term hereof. In the event that Tenant exercises the Extension Option, this Lease shall continue on all of the same terms and conditions except that (a) the Basic Rent payable during the Extended Term for the Demised Premises shall be an amount equal to the amount obtained by multiplying the Prime Lease Established Market Rate times the number of square feet of Net Rentable Area in the Demised Premises, (b) the leasehold improvements shall be provided in their then existing condition as of the commencement of the Extended Term and Landlord shall have no obligation to construct or install any improvements in the Demised Premises or provide any allowance therefor, (c) in no event shall Tenant be entitled to any rental abatement, credit or concession for the rentals due and payable during the Extended Term, (d) Tenant shall pay, as additional rent hereunder, a monthly Parking Rent for each Garage Parking Space provided by Landlord hereunder in an amount equal to the then standard rate in the Garage charged by Prime Landlord for reserved or unreserved (as applicable) -14- parking spaces, and (e) in no event shall Tenant be entitled to extend the term of this Lease beyond the Extended Term unless subsequently agreed to in writing by Landlord. For purposes of this Section 3.04, the term "Prime Lease Established Market Rate" shall mean the "Market Rate" (as defined in the Prime Lease) for the Demised Premises during the period covered by the Prime Lease First Renewal Option as agreed upon by Prime Landlord and Landlord or determined in accordance with he appraisal provisions of the Prime Lease, all as provided in Section 6.01 of the Prime Lease. In the event Tenant exercises the Extension Option, Landlord and Tenant agree to execute an amendment to this Lease evidencing the extension of the term of this Lease for the Extended Term and the terms, covenants and rentals to be paid as herein set out. Landlord shall not be under any obligation to Tenant to exercise the Prime Lease First Renewal Option and the election to exercise the Prime Lease First Renewal Option shall be within the sole discretion of the Landlord. Further, at the end of the initial term of the Prime Lease, Landlord may elect to execute a new lease (or renew and extend the term of the Prime Lease) covering space in the Building which may not include the Demised Premises and Landlord shall be entitled to do so and such election by Landlord shall not violate any obligation of Landlord to Tenant under this provision or elsewhere in this Sublease. ARTICLE IV (Leasehold Improvements) Section 4.01 Landlord' s Obligations. Except as hereinafter expressly provided, Landlord shall deliver and Tenant shall accept the Demised Premises in their present condition and Landlord -15- shall not be obligated to make any improvements or alterations thereto; provided, however, Landlord, at its expense (except as otherwise provided below), within ten (10) business days after receipt of Tenant's demolition plan for the Demised Premises, agrees to remove the following items from the Demised Premises to the extent requested to do so under Tenant's demolition plan delivered to Landlord: (a) Remove from the Demised Premises all furniture, carpeting and plants currently located therein; (b) Remove from the Demised Premises all existing demountable partitions and associated electrical and telephone wiring in such partitions. Landlord shall not be responsible for replacing any ceiling tiles damaged in connection with the removal of such partitions and associated wiring but shall stack the reusable ceiling tiles within the Demised Premises and such reusable ceiling tiles shall be available for use by Tenant in connection with the construction and installation of the Tenant's Leasehold Improvements (hereinbelow defined); and (c) Remove from the Demised Premises any HVAC equipment (including air handling and/or fan coil units), piping and controls not located within the Building's mechanical rooms on Floor 40 of the Building. All ductwork associated with such equipment shall not be removed by Landlord. Such HVAC equipment, piping, controls and ductwork shall be available for use by Tenant in connection with the construction and installation of the Tenant's Leasehold Improvements. All improvements removed by Landlord pursuant to the Tenant's demolition plan, or that remain within the Demised Premises after such demolition, shall remain the property of Landlord -16- and all such improvements shall remain upon and be surrendered with the Demised Premises at the termination of this Sublease. Section 4.02 Tenant's Leasehold Improvements: Improvement Allowance. Reference is here made to the fact that Tenant intends to construct and install leasehold improvements within the Demised Premises (the "Tenant's Leasehold Improvements"). All such construction and installation work shall constitute alterations to the Demised Premises and shall be subject to the provisions of this Lease and the Prime Lease relative to the alteration of the Demised Premises including, without limitation, the provisions of Section 11.01 hereof and Section 12.01 of the Prime Lease. Accordingly, all plans and specifications for such Tenant's Leasehold Improvements must be approved by Landlord and Prime Landlord prior to the installation or construction thereof. To the extent any further consent of Landlord is required, Landlord will provide such consent, or denial thereof, within thirty (30) days after receipt of the request therefore and the information necessary to evaluate such request. The approval by Landlord or Prime Landlord of such plans and specifications shall not constitute a representation or warranty by Landlord or Prime Landlord that the plans and specifications comply with applicable building codes, ordinances or regulations. Tenant shall be solely responsible for compliance with all building codes, ordinances and regulations and shall be solely responsible for obtaining all permits, authorizations, consents and approvals to the construction and installation of Tenant's Leasehold Improvements which may be required by applicable governmental authorities. Subject to the approval of the Tenant's Leasehold Improvements in accordance with the applicable sections of this Lease and the Prime Lease, Landlord shall provide to Tenant an allowance (the "Improvement Allowance") in the amount of up to Five Hundred Sixty-Four Thousand Three -17- Hundred Twenty and No/100 Dollars ($564,320.00) for the purpose of paying Improvements Costs to be disbursed as hereinafter provided. For purposes hereof, the term "Improvements Costs" shall mean (i) all costs and fees paid to governmental authorities to obtain the appropriate authorizations to construct and complete the Tenant's Leasehold Improvements, (ii) all amounts paid to Tenant's contractors for the construction and installation of the Tenant's Leasehold Improvements including all costs for materials furnished and labor performed, and the amount of all profit, overhead and general conditions paid to such contractor, (iii) all sales, use and similar taxes associated with the construction and installation of the Tenant's Leasehold Improvements, (iv) all testing and inspection fees relating to the Tenant's Leasehold Improvements paid to governmental authorities, (v) the fees and expenses of all architects and engineers in connection with providing construction drawings and designing the Tenant's Leasehold Improvements and inspection thereof during the construction and installation process, (vi) all expenses of relocating Tenant, including moving Tenant' s furniture and fixtures into the Demised Premises upon completion of the Tenant's Leasehold Improvements, (vii) all costs associated with installing all voice and data cabling (a) within the Demised Premises and (b) from Tenant's telephone switch or telephone equipment room located within the Demised Premises to the telephone demarcation room located on Basement Level B-l, (viii) all costs associated with relocating any demountable partitions (and associated electrical and telephone wiring) or costs associated with removing, replacing or relocating all existing ceiling tile, light fixtures, sprinkler heads, HVAC, electrical and plumbing improvements, and (ix) all costs associated with relocating the HVAC equipment, piping controls and ductwork described in Section 4.01(c) above. -l8- Landlord shall advance portions of the Improvement Allowance as the Tenant's Leasehold Improvements are constructed and the Improvements Costs related thereto are incurred by Tenant but only after Tenant shall have submitted a Request for Advance which shall (i) itemize all work performed through the date of the Request for Advance and (ii) contain a certification by Tenant and its architect that all work for which an advance of the Improvement Allowance is requested has been satisfactorily performed in accordance with the plans and specifications approved by Landlord and Prime Landlord and that all costs included in the Request for Advance are valid Improvements Costs. Landlord shall not be obligated to advance portions of the Improvement Allowance unless and until the Tenant's Leasehold Improvements comply with the plans and specifications approved by Landlord and Prime Landlord, comply with all applicable building codes, ordinances and regulations and any defects in the Tenant's Leasehold Improvements have been corrected to the satisfaction of Landlord and Prime Landlord. For each advance of Improvements Costs made to Tenant hereunder, Landlord, at its option, may retain a sum equal to ten percent (10%) thereof so that, for a period of thirty days after completion of Tenant's Leasehold Improvements, Landlord shall have in its possession a sum equal to ten percent (10%) of the cost of such Tenant' s Leasehold Improvements. In no event shall Landlord be obligated to disburse to Tenant in respect of such Improvements Costs an amount exceeding the Improvement Allowance. In the event the Improvements Costs exceed the Improvement Allowance, Tenant shall be solely responsible for such excess. The proceeds of the Improvement Allowance shall be used by Tenant solely to pay Improvements Costs and upon request by Landlord from time to time, Tenant shall provide to Landlord reasonable supporting evidence that the proceeds of the Improvement Allowance have been -19- expended by Tenant for Improvements Costs. Any portion of the Improvement Allowance not expended for Improvements Costs shall be applied to the payment of Basic Rent due under this Lease. ARTICLE V (Basic Rent and Additional Rent) Section 5.01 Basic Rent. Notwithstanding any provision herein to the contrary, it is specifically agreed and understood that Tenant shall not be obligated to pay (and shall not accrue any obligation to pay) any Basic Rent, Actual Operating Expenses or Management Fees (defined below) during the period of time commencing on the Commencement Date and ending on July 31, 1996 (the "Rental Abatement Period"). The foregoing sentence shall not affect Tenant's obligation to pay Tenant's Share of any other sums (other than Basic Rent, Actual Operating Expenses or Management Fees) due and payable hereunder by Tenant. After the Rental Abatement Period, as "Basic Rent" for this Lease and use of the Demised Premises, Tenant covenants and agrees to pay Landlord at its offices in Houston, Harris County, Texas, or such other address in Houston, Harris County, Texas, as Landlord may from time to time designate in writing, payable in advance in equal monthly installments, on the first day of each full calendar month commencing on August 1, 1996 in legal tender for the payment of public and private debts, without set-off or deduction except as specifically provided in this Lease, an amount for each Lease Year equal to the following: -20- Lease Year Annual Basic Rent Monthly Basic Rent ---------- ----------------- ------------------ One (1) through Three (3) $170,706.80 $ 14,225.57 Four (4) through Six (6) $198,922.80 $ 16,576.90 Seven (7) through Last $227,138.80 $ 18,928.23 Lease Year It is the agreement and intention of Landlord and Tenant that all Basic Rent herein provided to be paid by Tenant during the term hereof and any extensions or renewals shall be absolutely net to Landlord of all Actual Operating Expenses. Section 5.02 Calculation of NRA. The Basic Rent has been established based on 28,216 square feet of Net Rentable Area in the Demised Premises. Landlord and Tenant have agreed to the foregoing square footage specification for purposes of calculating the Basic Rent, regardless of whether the same should be more or less as a result of minor variations resulting from measurement of the Demised Premises or actual construction and completion of leasehold improvements for occupancy or otherwise. Section 5.03 Manner of Payment. All payments of Basic Rent and Parking Rent (defined below) and other amounts becoming due and payable from Tenant to Landlord under and in connection with this Lease may be made (and shall be deemed to have been timely and properly made) by delivering or mailing to Landlord or Landlord's assignee at the then applicable address provided for herein Tenant's check or draft in the amount of such payment, on or before the due date thereof under the term of this Lease; provided that if such check or draft shall not be paid and honored upon the presentation thereof duly endorsed and in due course the delivery or mailing of such check or draft shall not constitute payment by Tenant hereunder, and that acceptance of any -21- such check or draft by Landlord or Landlord's assignee shall be subject to payment thereof upon presentation in due course. Section 5.04 Operating Expenses. (a) "Actual Operating Expenses", as that term is used herein, shall mean "Actual Operating Expenses" as defined, calculated and determined in accordance with the terms of the Prime Lease except that, for purposes hereof, the "Management Fee" which is a component of the Actual Operating Expenses shall be equal to three percent (3%) of Tenant's Basic Rent for the Demised Premises plus three percent (3%) of Tenant's Share of Computed Operating Expenses, as defined below (but excluding any amounts included therein on account of the Management Fee). (b) "Tenant's Share of Forecast Operating Expenses", as that term is used herein, shall mean the Tenant's Share of Computed Operating Expenses as reasonably projected by Landlord for any calendar year (based on Prime Landlord's projection under the terms of the Prime Lease). The term "Computed Operating Expenses" shall mean, with respect to each calendar year, the Actual Operating Expenses for said year computed in accordance with the provisions of the Prime Lease, but excluding the Management Fee. The term "Tenant' s Share of Computed Operating Expenses" shall mean with respect to any calendar year, the sum of (i) the Computed Operating Expenses for such year, exclusive of the Computed Operating Expenses attributable to the Garage and the land on which the Garage is located, multiplied by Tenant' s Share, (ii) the Computed Operating Expenses for such year attributable to the Garage and the land on which the Garage is located multiplied by Tenant's Garage Share, and (iii) the Management Fee for such year. For each calendar year, the projected amount of Tenant's Share of Forecast Operating Expenses shall be presented by Landlord to Tenant within five (5) days after presentation to Landlord of the corresponding statement -22- presented to Landlord by Prime Landlord under the terms of the Prime Lease (or for the calendar year in which the term of this Lease commences, thirty (30) days prior to the Commencement Date). Commencing on August 1, 1996 and on the first day of each full calendar month thereafter, Tenant shall pay to Landlord one-twelfth (1/12th) of Tenant's Share of Forecast Operating Expenses for said calendar year. If Tenant's Share of Computed Operating Expenses for any calendar year is greater than Tenant' s Share of Forecast Operating Expenses, Tenant shall pay to Landlord within thirty (30) days after Tenant's receipt of the annual statements referred to in (c) below the amount of such excess. However, if Tenant's Share of Computed Operating Expenses for such calendar year is less than Tenant's Share of Forecast Operating Expenses, Landlord shall credit the amount of such overpayment against the next ensuing installment(s) of Tenant's Share of Forecast Operating Expenses except that with respect to any overpayment attributable to the last Lease Year, Landlord shall pay to Tenant within thirty (30) days after Tenant's receipt of such statement the amount of such overpayment; provided, however, to the extent Landlord receives cash from Prime Landlord for any overpayment of Operating Expenses related to the Demised Premises, Landlord shall pay such amount to Tenant (up to the amount of the overpayment) instead of crediting the amount of such overpayment as described above. (c) Within twenty (20) days after receipt by Landlord of the corresponding statement delivered to Landlord by Prime Landlord under the terms of the Prime Lease, Landlord shall deliver to Tenant a written statement itemized in reasonable detail showing Computed Operating Expenses for the calendar year in question. The annual statements by Landlord shall include said statement -23- of Computed Operating Expenses and a comparison of Tenant's Share of Forecast Operating Expenses with Tenant's Share of Computed Operating Expenses. (d) With respect to the calendar years in which the term of this Lease commences and expires, Tenant's Share of Computed Operating Expenses referred to in this Section 5.04 shall be calculated by the following formula: Days after August 1, 1996 Tenant's Share of Adjusted Tenant's Share or prior to Termination x Computed Operating = Share of Computed - ------------------------- Expenses Operating Expenses 365 (e) Subject to the express exclusion from Actual Operating Expenses hereinabove provided, but controlling over any other provision herein to the contrary, it is agreed that in the event all of the Building is not fully occupied (or leased under leases on which rentals are currently accruing) during any calendar year or in the event all of the Building is not provided with building standard services during calendar year, an adjustment shall be made in computing Tenant's Share of Forecast Operating Expenses and Actual Operating Expenses for such year so that Tenant's Share of Forecast Operating Expenses and Actual Operating Expenses shall be computed for such year as though the greater of 97% of the Building or the percentage thereof actually occupied (or leased under leases on which rentals are currently accruing) had been fully occupied (or leased under leases on which rentals are currently accruing) during such year and as though 97% of the Building or the percentage thereof actually provided with building standard services had been provided with building standard services during such year. As provided in the Prime Lease, any space in the Building rented by Gerald D. Hines Interests under lease agreement of even date with the Prime -24- Lease shall be considered occupied and provided with building standard services for all the period involved for the purposes of this subsection (e). (f) All amounts payable by Tenant to Landlord under this Section 5.04 shall constitute additional rent. Section 5.05 Interest on Past Due Sums. All past due rent and other sums due Landlord hereunder shall bear interest from the last day provided herein for Tenant to cure any default in timely paying such sums at the lesser of (i) the maximum lawful rate or (ii) a varying annual rate equal to the sum of the Prime Rate plus five percent (5%). ARTICLE VI (Utilities and Services) Section 6.01 Services to be Provided by Prime Landlord. Tenant shall be entitled to all of the services to be provided to the Demised Premises by Prime Landlord under the terms of Section 7.01 of the Prime Lease and Item 15 of Section 6.05(a) of the Prime Lease. Landlord shall not be liable or responsible for the failure of Prime Landlord to provide such services; provided, however, Landlord agrees to use due diligence to cause Prime Landlord to furnish such services in accordance with and subject to the terms of the Prime Lease. Section 6.02 Electricity Capacity: Separate Metering. Landlord shall provide all electrical distribution equipment, including without limitation the bus ducts, feeders, transformers and panelboards that are currently located in the Demised Premises in their current "as is" conditions (the "Electrical Equipment"). Any modifications to the Electrical Equipment deemed necessary by Tenant shall be paid from the Improvement Allowance. In the event that the final construction plans -25- and specifications indicate (i) that the total connected high voltage (480/277v) electrical load is in excess of 2 watts per square foot of Net Rentable Area, or (ii) the total connected low voltage (208/120v) electrical load is in excess of 4 watts per square foot of Net Rentable Area, or if there is any item of electrical equipment which singly consumes more than .5 kilowatts per hour at rated capacity or requires a voltage of more than 120 volts, single phase, then Tenant shall install a separate meter on each of the electrical panels in excess of the above described wattage and Tenant shall pay for the actual electrical use, if any, in excess of 2 watts per square foot of Net Rentable Area for high voltage, 4 watts per square foot of Net Rentable Area for low voltage and in excess of .5 kilowatts per hour at rated capacity or 120 volts, single phase (as invoiced therefor by Landlord). The extent to which Tenant's consumption of electricity (or other energy) exceeds the amount stated in the foregoing sentence (and therefore, requires the installation of a separated meter or meters) shall be conclusively determined by Prime Landlord's Electrical Engineer for the Building. If separate metering is required, such separate meter or meters shall be installed in accordance with the specifications therefor prepared by Prime Landlord's Electrical Engineer for the Building and the costs of installing such separate meter or meters, the associated wiring and cables shall be paid from the Improvement Allowance. Landlord and its agents may enter the Demised Premises from time to time in order to read such separate meters in connection with preparing an invoice to Tenant for the electrical (or other energy) costs indicated thereon. If Landlord is ever obligated, under the terms of Section 7.02 of the Prime Lease, to separately meter or "check" meter the premises covered by the Prime Lease, Landlord and Tenant agree that the Demised Premises shall be separately metered or "check" metered in a manner similar to the premises covered by the Prime Lease. In such event, Tenant shall pay (i) the cost of installing -26- all separate and/or "check" meters and all associated wiring and cables, and (ii) the cost of such separately metered or "check" metered utility service directly to the utility or public authority providing such service or to Prime Landlord, as applicable, in accordance with the terms of the Prime Lease. Section 6.03 Interruption of Services. Temporary failure by Prime Landlord to any extent to furnish the above referred to services, or any temporary cessation thereof, resulting from causes beyond the reasonable control of Prime Landlord shall not be construed as an eviction or constructive eviction of Tenant nor cause or result in any abatement of rent nor relieve Tenant from fulfillment of any covenant or agreement herein contained, unless and until an eviction or constructive eviction or abatement of rent or release of Landlord with respect to the Demised Premises occurs under the terms of the Prime Lease. Should any of the equipment or machinery serving the Demised Premises break down or for any cause cease to function properly, Landlord shall use reasonable diligence to cause Prime Landlord to repair the same in accordance with the terms of the Prime Lease after receipt of notice from Tenant, but Tenant shall have no claim against Landlord on account of any interruptions in service occasioned by or resulting therefrom. Notwithstanding the foregoing, in the event of a cessation in the above referred to services that prevents Tenant from being able to use the Demised Premises for the conduct of Tenant's business, in Landlord's and Tenant's reasonable judgment, and such cessation of services was not the result of an act mission of Tenant (a "Substantial Interruption"), and Landlord or Prime Landlord has not commenced, within thirty (30) days after cessation of the services causing the Substantial Interruption, and diligently pursued, repair of the services causing the Substantial Interruption and the Substantial Interruption has continued for ninety (90) consecutive days, then Tenant shall have -27- the right to terminate this Lease and upon Landlord's receipt of written notice of termination from Tenant, this Lease shall terminate and neither party shall have any further liability hereunder except as otherwise expressly provided for herein. As long as Landlord or Prime Landlord has commenced the repair of the service causing the Substantial Interruption within the time period required above, and is diligently pursuing same, Tenant shall have no right to terminate this Lease pursuant to this Section 6.03. If a Substantial Interruption continues after seven (7) days, Tenant shall be entitled to an abatement of Basic Rent, Actual Operating Expenses or Management Fees attributable to the portion of the Demised Premises affected by the Substantial Interruption for the period commencing seven (7) days after the Substantial Interruption until repaired. Section 6.04 Costs of Special Leasehold Improvements After Commencement of Term. From time to time after the Commencement Date and during the term of this Lease, Tenant will pay to Landlord (in addition to all Basic Rent and other amounts payable by Tenant hereunder), in each instance within ten (10) days after receipt of reasonably itemized statements from Landlord therefor (not more frequently than once each month), all actual, direct, and unreimbursed (on account of warranty, insurance or otherwise) costs, if any, incurred by Landlord or Prime Landlord in operating, maintaining and repairing any Special Leasehold Improvements. Section 6.05 Building Directory and Signage. Landlord shall provide, at Landlord's cost and expense, identification in the building directory board for the name of the Tenant. In addition, Landlord shall provide, at Landlord's cost and expense, identification on the subtenant directory board located on Floor 2 of the Building for the name of the Tenant and eight (8) spaces for the names of corporate officers and/or affiliated companies of Tenant. Such identification shall be in compliance with the requirements of the Prime Lease. Any signage requested by Tenant for the -28- Demised Premises shall comply with the terms of the Prime Lease and shall be paid for from the Improvement Allowance. Section 6.06 Visitor Security. All visitors to the Demised Premises shall register with employees of the Landlord and be issued security badges on the second (2nd) floor of the Building prior to being allowed access to the elevator lobby serving the Demised Premises. ARTICLE VII (Garage Parking Spaces) Section 7.01 Garage Parking Spaces. During the Lease term, Landlord agrees to furnish to Tenant and Tenant agrees to pay the Parking Rent (defined below) for five (5) reserved/assigned spaces and eighty (80) unreserved/unassigned spaces (the "Garage Parking Spaces") for the parking of automobiles in the TGPL Parking Area of the Garage by Tenant's employees. The location of the five (5) reserved/assigned spaces shall be as set forth on Exhibit C attached hereto. Notwithstanding anything to the contrary contained herein, Landlord shall have the option, at any time, to relocate twenty-eight (28) of the unreserved Garage Parking Spaces to any portion of the Auxiliary Garage as designated by Landlord. Should Tenant lease any additional space other than the Additional Space, additional parking spaces will be provided at the Prevailing Rate (defined below) at the same ratio of parking spaces to Net Rentable Area as is provided above. Landlord shall have the right to control assignment of spaces within the TGPL Parking Area, as well as access to such area by gates operated by an electronic system, or in such other manner as Landlord shall decide. Landlord agrees that it will issue parking stickers or tags, each of which will authorize parking of a car on which the sticker or tag is displayed in the TGPL Parking Area of the -29- Garage. Tenant covenants and agrees to use its best efforts and reasonable diligence to maintain and enforce parking within the designated areas by its employees. The driver of the car with the sticker shall have the responsibility for parking his car, and Landlord shall not be obligated to furnish personnel to perform the parking service. The driver of the car with the sticker shall have so-called "in-and-out" privileges for purposes of leaving the Garage and returning to same, at any time and from time to time, without payment of any additional fees or charges to Landlord other than the Parking Rent (defined below). Tenant and Landlord shall not be liable or responsible for any loss of or to any car or vehicle or equipment or other property therein or damage to property or equipment or other property therein or damage to property or injuries (fatal or non-fatal) to persons occurring within the Garage, unless such loss, damage or injury be proximately caused by the negligence of Tenant or Tenant's employees or representatives or Landlord or Landlord's employees or representatives, as applicable. Section 7.02 Parking Rent. Tenant shall pay to Landlord a monthly parking rent (the "Parking Rent") equal to (i) for the five reserved and fifty-two of the unreserved spaces: Parking Rent for Lease Year Each Garage Parking Space ---------- ------------------------- One (1) through Three (3) -0- Four (4) through Five (5) $20.00 Six (6) through Last Lease Year The greater of $40.00 or the Prevailing Rate (defined below); and (ii) for twenty-eight of the unreserved Garage Parking Spaces the amount of $40.00 plus applicable sales taxes for each space. For purposes hereof, the "Prevailing Rate" shall be the rate charged by Prime Landlord for reserved/assigned and unreserved/unassigned parking spaces, as applicable, in the Garage, which -30- rate may fluctuate from time to time. Parking Rent shall be paid in the manner provided in Section 5.03 hereof. Fifteen (15) additional unreserved parking spaces shall be provided for the Additional Space upon the same terms and conditions contained herein. Section 7.03 Visitor Parking. Landlord shall not be obligated to provide parking for Tenant' s invitees and visitors and the parking spaces leased to Tenant pursuant to Section 7.01 above shall not be used for such purpose. Visitor parking is available in designated portions of the Garage subject to payment of the short term parking rates from time to time applicable in the Garage. ARTICLE VIII (Use) Section 8.01 Office Use. Tenant shall have the right to use the Demised Premises for business office purposes and any other use consented to in writing by the Prime Landlord and for no other purpose or use without prior written consent of Landlord. For the purposes of the foregoing sentence, the term "business office purposes" shall mean business offices and also: storage space for office supplies, records, equipment and furnishings and other materials useful or convenient in connection with any other of the uses herein authorized, facilities for accounting and business machines and computers and other electronic and communications equipment used in Tenant's business, and conference room. ARTICLE IX (Repairs and Maintenance) Section 9.01 Landlord Maintenance. Landlord shall not be required to make any repairs to or perform any maintenance to the Building, Garage or Demised Premises; provided, however, -31- Landlord agrees to use due diligence to cause Prime Landlord to perform its repair and maintenance obligations in accordance with and subject to the terms of the Prime Lease. Section 9.02 Tenant Maintenance. Tenant covenants and agrees that it will not injure the Demised Premises but will take the same care thereof which a reasonably prudent person would take of his own property, and upon termination of this Lease, Tenant will surrender and deliver up the Demised Premises to Landlord in the same condition in which they existed at the commencement of this Lease, except for ordinary wear and tear, repairs and maintenance assumed by Prime Landlord under the terms of the Prime Lease, and damage arising from fire, casualty, Act of God or unavoidable accident. Tenant agrees, at its sole cost and expense, to repair or replace any part of the Building or Garage damaged as a proximate result of negligent or wrongful acts or omissions of Tenant or Tenant's agents, employees, or representatives or Tenant's sublessees; provided, however, that if Tenant should fail or refuse to make such repairs or replacements with reasonable promptness after written notice from Landlord or Prime Landlord (having due regard to the nature of the required repairs or replacements and the effect of delay in making same and the appearance of the Building or danger of injury to or interferences with other tenants and occupants of the Building), then Landlord or Prime Landlord may, at their option but without any obligation to do so, enter the Demised Premises and make such repairs or replacements, and Tenant shall repay to Landlord or Prime Landlord the reasonable cost thereof on demand. Landlord or Prime Landlord shall further have the right (but without any obligation to do so) to enter the Demised Premises at all reasonable hours for the purpose of inspecting the same, provided that such inspection does not unreasonably interfere with the operation of Tenant's business. -32- Section 9.03 Damage Provisions. Notwithstanding the foregoing provisions hereof, however, this Article IX shall not apply in the case of damage or destruction by an Insurable Risk under insurance to be maintained by Prime Landlord on the Building as set out in Section 11.03 of the Prime Lease (as to which Article X hereof shall apply). ARTICLE X (Fire or Other Casualty) Section 10.01 Casualty Damage. If at any time or times during the term of this Lease, the Building, the Garage or the Demised Premises should be destroyed or damaged by any cause, then in such event (i) if the Prime Lease is terminated pursuant to the provisions thereof as a result of such damage or destruction, this Lease shall be terminated in all respects effective as of the date of such termination of the Prime Lease, and any unused prepaid rent shall be refunded to Tenant; or (ii) if the Prime Lease is not terminated pursuant to the provisions of the Prime Lease as a result of such damage or destruction, then this Lease shall continue in full force and effect, provided, however, that during the period of repair and reconstruction of the Demised Premises by Prime Landlord under the terms of the Prime Lease all rental sums shall abate in the same proportion that rent for the Demised Premises abates under the terms of the Prime Lease. If the Prime Lease is not terminated as set forth above, in the event the Demised Premises are substantially destroyed so that Tenant cannot continue to use the Demised Premises to operate its business, Landlord shall have ninety (90) days (or, with respect to the portion of the Demised Premises being 5,610 square feet of Net Rentable Area located on Floor 39 of the Building and used for broadcasting purposes (the "Broadcasting Premises"), forty-five (45) days) after Landlord is notified of such destruction to notify Tenant of the time table for -33- reconstruction of the Demised Premises. If Landlord does not agree to repair, or is not able to repair, (i) the Demised Premises within 180 days from the date Landlord is notified of such destruction or (ii) the Broadcasting Premises within ninety (90) days from the date Landlord is notified of such destruction, in the event of the occurrence of the event described in (i), Tenant shall have the option to terminate this Lease as to all of the Demised Premises, or in the event of the occurrence of the event described in (ii), Tenant shall have the option to terminate this Lease as to the Broadcasting Premises only. In connection with the foregoing, the Prime Lease provides that, in certain instances, Prime Landlord may provide, during the period of repair and reconstruction of the Demised Premises by Prime Landlord, "reasonably adequate and suitable substitute space in Houston, Texas" as determined in accordance with the terms of the Prime Lease. If such reasonably adequate and suitable substitute space is provided by Prime Landlord, Landlord shall provide to Tenant during the period of repair and reconstruction of the Demised Premises by Landlord, a portion of such reasonably adequate and suitable substitute space comparable to the Demised Premises. In such event, all rental sums payable hereunder by Tenant during the period while such substitute space is provided by Landlord shall be abated or suspended only in the same proportion that rental sums for the Demised Premises are abated or suspended in accordance with the terms of the Prime Lease, but in any event Tenant shall not be required to pay rent for such substitute space in excess of the rent which it would have paid for the Demised Premises while occupying such substitute space had such damage or destruction not occurred and any additional rent for or cost of supplying such substitute space and preparing the same for occupancy by Tenant shall be borne by Prime Landlord in accordance with the terms of the Prime Lease. -34- Section 10.02 Waiver of Subrogation. In the event either Landlord or Tenant sustains a loss by reason of (i) an Insurable Risk, or (ii) other risk which is covered by insurance maintained by the party suffering such loss, and such fire or other casualty is caused, in whole or in part, by acts or omissions of the other party or his or its agents, employees or representatives, then the party incurring such loss agrees to look solely to the fire and extended coverage insurance proceeds (if any), and such party shall have no right of action against the other party to this Lease or the agents, employees or representatives of such other party, and no third party (including any insurance carrier) shall have any such right by way of assignment, subrogation or otherwise. If the inclusion in this Lease of this Section 10.02 results in an increase in the insurance premium of either party or Prime Landlord, then the other party, within ten (10) days after written request, will either pay the amount of such increase or be deemed to have waived the benefits of this Section insofar only as to the insurance carrier on such particular insurance policy. Section 10.03 Tenant Insurance. Tenant covenants and agrees to maintain in full force and effect insurance against Insurable Risks in amounts equal to not less than eighty percent (80%) of the insurable value of the insurable portions of its Special Leasehold Improvements. Additionally, Tenant shall pay (to the extent only Prime Landlord or Landlord can reasonably demonstrate the same) all increase in premiums in insurance carried by Prime Landlord or Landlord payable on account of Special Leasehold Improvements. ARTICLE XI (Alterations and Fixtures) -35- Section 11.01 Alterations by Tenant. Except as specifically provided herein, Tenant shall not make any alterations in or additions to the Building, without the prior written consent of Prime Landlord and Landlord in each instance. Landlord shall not unreasonably withhold its consent; however, Landlord shall not be obligated to grant its consent unless and until Prime Landlord's consent is obtained and any withholding of Landlord's consent resulting from the inability or failure to obtain Prime Landlord's consent shall be deemed to be reasonable. The following provisions shall apply with respect to all alterations or additions made by Tenant in the Demised Premises: (a) Such alterations shall be constructed and completed in a good and workmanlike manner at Tenant's sole cost and expense and at Tenant's risk, and shall be made in such manner as not to unreasonably interfere with the use and enjoyment of other space in the Building by other tenants and occupants, and so as not to unreasonably interfere with any work then being done by Prime Landlord or Landlord in or on the Building. Tenant shall be solely responsible for constructing and installing any such alterations or additions in compliance with all building codes, ordinances and regulations and for obtaining all permits, authorizations, consents and approvals required by applicable governmental authorities. (b) Such work shall not structurally damage the Building; will be performed in strict accordance with the plans and specifications theretofore submitted to Prime Landlord and Landlord by Tenant and approved by Prime Landlord and Landlord (Landlord agreeing not unreasonably to withhold such approval); will be in general conformity and harmony with the architecture of the Building and will not decrease the value of the Building, and will not alter the exterior appearance of the Building. -36- (c) Tenant shall pay all bills for labor and materials which might be the foundation for assertion of any claim or any mechanic's or materialman's lien or other encumbrance upon any interest of the Prime Landlord or Landlord in the Demised Premises. All materialmen, contractors, artisans, mechanics, laborers and other parties hereafter contracting with Tenant for the furnishing of any labor, services, materials, supplies or equipment with respect to any portion of the Demised premises are hereby charged with notice that they must look solely to Tenant for payment for same. (d) Tenant will carry and maintain, or cause to be carried and maintained by its contractors appropriate (as determined by Prime Landlord) workmen's compensation and public liability and property damage insurance policies covering all such alterations and additions and certified copies of all such policies or certificates thereof shall be delivered to Prime Landlord and Landlord prior to commencement of such work and provide that each such policy shall not be canceled, except upon ten days' prior written notice to Prime Landlord and Landlord. (e) Tenant will provide accurate as-built drawings of the Demised Premises as altered pursuant to this Section 11.01, within sixty (60) days following completion of the alterations. Section 11.02 Trade Fixtures. Tenant may remove its trade fixtures, equipment, furniture and furnishings, including also its signs purchased and installed at its own cost and expense, at any time or times, provided: (a) Such removal must be made at or prior to the termination of this Lease and must be performed in such manner as to minimize to the extent reasonably possible any -37- interference with or disturbance of other tenants or occupants of the Building or any work then being performed by Prime Landlord or Landlord in or on the Building; (b) Tenant is not in default in performance or observance of any obligation or covenant of this Lease at the time of such removal; and (c) Such removal may be and is effected without substantial damage to the Demised Premises or the Building, and Tenant promptly repairs all damage caused by such removal and pays all cost of clearing and removal of debris caused by or resulting from such removal and/or repair work. Landlord and Tenant hereby agree that the fixtures, equipment and property listed on Exhibit D entitled "Tenant's Removable Fixtures", which is attached hereto and incorporated by reference herein, shall be deemed to be removable trade fixtures which Tenant shall have a right to remove upon compliance with the provisions of paragraphs (a), (b) and (c) of this Section 11.02; of the enumeration of certain fixtures, equipment and property on said Exhibit D shall not be deemed to exclude other fixtures, equipment and property from constituting removable trade fixtures if same would be otherwise so considered under the applicable provisions of this Lease. Section 11.03. Fixtures. All fixtures and equipment of every description which are not removable and removed by Tenant in accordance with Section 11.02, and any alteration or additions to the Demised Premises, including those made with the written consent of Landlord and Prime Landlord in accordance with Section 11.01 of this Article, and any other article incorporated in or permanently affixed to the floor, wall or ceiling (or above said ceiling, below said floor or behind said wall) of the Demised Premises, shall become the property of Prime Landlord and shall be and remain upon and be surrendered with the Demised Premises as a part thereof at the termination of -38- this Lease, Tenant hereby waiving all rights to any payment or compensation therefor. In the event Landlord requests that Tenant remove any of Tenant's removable fixtures, equipment or property (as defined in Section 11.02) located in or about the Demised Premises or the Building at the termination of this Lease, Tenant shall remove same at its sole risk, cost and expense, and upon Tenant's failure to remove same, Landlord or Prime Landlord may remove same at Tenant's expense. ARTICLE XII (Indemnity and Liability) Section 12.01 Indemnity; Tenant Insurance. Tenant agrees to indemnify and save Landlord harmless from all claims of any nature whatsoever which may be asserted against Landlord (including costs and expenses of investigating and defending against such claims) arising (or alleged to arise) from any act or omission of Tenant or of Tenant's agents, employees, representatives or invitees which causes any injury (fatal or non-fatal) or damage to any person or the property of any person occurring during the term (or any extension) of this Lease in or about the Demised Premises or in or about the Building or Garage. At all times while Tenant is using or occupying any part of the Demised Premises under this Lease or any extension hereof, Tenant will carry and maintain public liability and property damage insurance with limits of not less than $500,000.00 for injury (fatal or non-fatal) to or death of any one person, $5,000,000.00 for injury to or death of more than one person in any one occurrence, and $1,000,000.00 for damage to or destruction of property for any one occurrence. Tenant shall not be responsible or liable to Landlord for any loss or damage to -39- the extent occasioned or caused by the acts or omissions of Landlord or its agents, employees or representatives. Section 12.02 Landlord Indemnity. Landlord agrees to indemnify and save Tenant harmless from all claims of any nature whatsoever which may be asserted against Tenant (including costs and expenses of investigating and defending against such claims) arising from any act or omission of Landlord or Landlord's agents, employees or representatives, which causes any injury (fatal or non-fatal) or damage to any person or the property of any person occurring during the term (or any extension) of this Lease in or about the Demised Premises or in or about the Building or Garage. Landlord shall not be responsible or liable to Tenant for any loss or damage that may be occasioned or caused by the acts or omissions of persons other than Landlord or its agents, employees or representatives. ARTICLE XIII (Eminent Domain) Section 13.01 Taking. If there shall be taken during the term of this Lease by eminent domain or condemnation proceedings or for public or quasi-public use any portion of the Demised Premises, then this Lease shall terminate as to the portion of the Demised Premises so taken; and, subject to the provisions set out hereinafter, this Lease shall continue, unabated in full force and effect as to those portions of the Demised Premises not so taken, but Basic Rent, as same may have been adjusted, attributable to such portion of the Demised Premises shall abate and shall no longer be payable or accrue as to the portion of the Demised Premises so taken, from and after the date of taking possession thereof by the condemning authority or condemnor. If only a part of the Demised Premises should be so taken, then (i) if the Prime Lease is terminated pursuant to the provisions -40- thereof as a result of such taking, this Lease shall be terminated in its entirety (and no rent will thereafter accrue or be payable by Tenant hereunder) as of the date of such taking of possession by said condemning authority or condemnor; or (ii) if the Prime Lease is not terminated pursuant to the provisions of the Prime Lease as a result of such taking, then this Lease shall continue in full force and effect subject to the following provisions hereof regarding abatement of rent. If a portion only of the Demised Premises shall be so taken or condemned and this Lease is not terminated as to the remainder of the Demised Premises, the Basic Rent accruing hereunder with respect to the remainder of the Demised Premises not taken by said condemnor shall be abated or reduced partially in the same proportion that rent for the Demised Premises abates under the terms of the Prime Lease, pending completion by Prime Landlord of the work of restoring such remainder of the Demised Premises to an architectural unit as provided in the Prime Lease. If all the Demised Premises should be taken by eminent domain or condemnation proceedings or for public or quasi-public use, then this Lease shall terminate in its entirety. In each event in which this Lease is terminated, in part or in its entirety, under this Section 13.01, all unused prepaid rent (or the appropriate portion thereof in the case of partial termination) theretofore paid by Tenant to Landlord shall promptly be refunded to Tenant. Section 13.02 Award. All sums awarded or agreed upon between Prime Landlord and the condemning authority for the taking of all or any portion of the Demised Premises or of all or any portion of the Building or Garage or any part of the Project Site, whether as damages or as compensation, will be the property of Prime Landlord. Tenant shall have the right, however, to appear and file its claim for damages in such proceedings, to participate in any and all hearings, trials and appeals thereon, and to receive the share of any condemnation award adjudged to be owing to -41- Tenant for the taking of Tenant's trade fixtures or equipment or for Tenant's loss of business or for the value of the leasehold estate under this Lease, to the extent such sums shall not operate as a credit against or to reduce the sums to be the property of Prime Landlord under the terms of the Prime Lease. Section 13.03 Voluntary Dedication. For the purposes of this Article, a transfer of property for public use, made in lieu of an order or judgment of condemnation, following the commencement of an action or proceeding for taking of property under a power of eminent domain or negotiations therefor, shall be deemed to be an eminent domain or condemnation proceeding taking. ARTICLE XIV (Remedies and Defaults) Section 14.01 Tenant Default; Landlord Remedies. If (a) Tenant should fail to pay any rent or other charges payable hereunder and such failure to pay should continue and remain unremedied for a period of ten (10) days after notice thereof given by Landlord to Tenant, or (b) except as provided in subparagraph (c) below, Tenant should fail to perform or observe any other covenant, term, provision or condition of this Lease and such failure to perform should continue and remain unremedied for a period of twenty (20) days (or such additional reasonable time as may be required for failure to perform which, by their nature, cannot be cured in twenty (20) days) after written notice thereof given by Landlord to Tenant or (c) any event occurs as a result of any act or omission of Tenant or its agents, employees or contractors which with the passage of time or giving of notice or both would constitute a default under the Prime Lease and Tenant fails to cure such event within five (5) days prior to the expiration of the time period provided in the Prime Lease for the cure thereof, -42- provided that Landlord shall have given to Tenant a copy of the notice of default (if any) received by Landlord from Prime Landlord under the terms of the Prime Lease, then on expiration of the applicable aforementioned period in which to cure any such failure to pay or perform, Tenant shall be deemed to be in default hereunder and Landlord lawfully may, immediately or at any time thereafter, and without further demand or notice, enter into or upon the Demised Premises or any part thereof and repossess same and remove all persons and property therefrom, using such force as may be necessary (Tenant hereby waiving any claim by reason of such re-entry, repossession or removal or by issuance of any distress warrant or writ of sequestration) and without prejudice to any remedies which Landlord may have for arrears of rent or breach of covenant, and upon such re-entry, Tenant's right to possession of the Demised Premises and leasehold estate and options hereunder shall immediately cease and terminate. Notwithstanding such re-entry and termination of Tenant's rights of possession, Tenant agrees that Tenant shall remain liable for the rent due and to become due hereunder, and the same shall be paid by Tenant to Landlord on the regular days stipulated herein for payment of rent; however, if the Demised Premises be relet in whole or in part, Tenant shall be entitled to a credit in the net amount of the rent received by the Landlord as a result of such reletting (after deducting all reasonable costs incurred by Landlord in finding a new tenant and paying any brokerage fees or agent's commissions in connection therewith, in remodeling costs, attorney's fees and other costs and expenses incident to the aforesaid repossession of the Demised Premises and reletting of same); Tenant will remain obligated to pay the amount of any deficiency of the rent obtained on such reletting below the rent reserved, but if the rent obtained on such reletting is greater than the rent herein reserved, Tenant shall not be entitled to any portion of such excess. Landlord shall have the right to collect from Tenant amounts equal to said deficiencies and -43- damages provided for above by suits or proceedings brought from time to time on one or more occasions without Landlord being obligated to wait until the expiration of the term of this Lease. Tenant shall not be deemed in default under this Lease, and an event of default shall not be deemed to have occurred, until the expiration of the period described above during which Tenant shall have the opportunity to cure any failure to pay or perform hereunder. In the alternative, in the event of default by Tenant, Landlord may elect to accelerate all rent due hereunder and to treat the default of Tenant as an entire breach of this Lease, whereupon Tenant will immediately become liable, as damages for such entire breach, for an amount equal to the excess, if any, of (1) the total rent for the balance of the term then remaining, over (2) the fair market rental value of the Demised Premises for the balance of the term as of the time of default, such excess amount to be discounted at the rate of eight percent (8%) per annum to the then present value thereof, and such discounted amount shall thereupon bear interest at the lesser of the maximum lawful rate or a varying annual rate equal to the Prime Rate plus five percent (5%). In addition to the foregoing, Landlord will also have all other remedies provided by law or in equity for default by Tenant. In addition, Landlord shall have the right to take such action as Landlord deems appropriate to prevent a default from occurring under the terms of the Prime Lease as a result of any act or omission of Tenant or its agents, employees or contractors if Tenant fails to cure the same within the time period provided above. Tenant will pay on demand therefor Landlord's reasonable costs and expenses incurred in taking any action pursuant to the foregoing sentence and/or enforcing any of the remedies for default by Tenant, including reasonable attorney's fees, if this Lease is placed in the hands of attorneys for enforcement after actual default by Tenant, -44- or after wrongful or erroneous assertion by Tenant that Landlord is in default hereunder. Interest shall accrue on such amounts in accordance with the terms of Section 5.05 hereof. ARTICLE XV (Bankruptcy) Section 15.01 Bankruptcy of Tenant. Any adjudication by a federal court of competent jurisdiction that the Tenant is a bankrupt automatically shall terminate this Lease and all rights of the Tenant under this Lease, except as otherwise expressly limited by applicable law. If this Lease is terminated because of Tenant's bankruptcy, the Landlord shall have the right, in addition to all other remedies to which it may be entitled by law for default, to hold the Tenant liable for rental as such rental accrues, or, alternatively, for damages for the entire breach of the Lease, and interest and attorneys' fees as aforesaid. If (i) a receiver or similar functionary is appointed to take possession of all or substantially all of the assets of the Tenant, or (ii) the Tenant makes a general assignment for the benefit of creditors, or (iii) the leasehold estate under this Lease or any portion thereof shall be taken by execution or other process, or (iv) Tenant should become insolvent, or (v) a petition for reorganization or rearrangement or other relief is filed by or against the Tenant under the bankruptcy laws or any similar law, and if in these circumstances such appointment, assignment, reorganization or rearrangement or other proceeding continues for a period of thirty (30) days without being dismissed or stayed, then the Landlord shall have the right, at its election, to terminate this Lease either immediately or within a period of thirty (30) days after Landlord first becomes so entitled to terminate this Lease, and Landlord shall have the right, in addition to all other remedies to which it -45- may be entitled by law for default to hold Tenant liable for rental deficiencies and damages as same accrue or for the entire breach of this Lease and interest and attorneys fees as specified in Section 14.01 above. ARTICLE XVI (Compliance with Laws; Compliance with Prime Lease) Section 16.01 Compliance with Laws. Tenant will at its own cost and expense comply with (to the same extent that Landlord is obligated to comply with under the terms of the Prime Lease) all laws, ordinances, orders, rules and regulations (State, Federal, municipal or promulgated by other agencies or bodies having jurisdiction thereof) relating to the use, condition or occupancy of the Demised Premises; will install, remove or alter such of Tenant's fixtures, equipment and facilities in the Demised Premises as may be necessary so to comply; will not engage in any activity which would cause Prime Landlord's or Landlord's fire and extended coverage insurance to be canceled or the rate therefor to be increased over the rate which would have been charged had such activity not been engaged in by Tenant (or in such event, at Tenant's option, Tenant will pay the amount of any such increase). Section 16.02 Compliance with Prime Lease. With the exception of the obligation to pay Basic Rent pursuant to Section 6.01 of the Prime Lease and additional rent pursuant to Section 6.04 of the Prime Lease, Tenant hereby covenants and agrees to comply with and perform all obligations of the Landlord (as tenant) under the Prime Lease insofar as they apply to the Demised Premises, as fully and to the same extent as if Tenant were the tenant therein. Tenant shall neither do nor permit anything to be done which would cause a default in the Prime Lease, and Tenant shall indemnify and hold Landlord harmless from and against all claims of any kind whatsoever by reason -46- of any act or omission of Tenant, its agents, employees or contractors, which causes a default to occur under the terms of the Prime Lease. Tenant agrees that whenever the consent of Prime Landlord is required under the terms of the Prime Lease with respect to any action, Tenant shall obtain the consent of Landlord and of Prime Landlord prior to taking such action. Tenant agrees to promptly deliver to Landlord copies of any and all notices or other correspondence received by Tenant from Prime Landlord that might affect Landlord in any manner and further agrees to deliver the same in the manner most appropriate to insure that Landlord will be able to respond to any of such notices or other correspondence from Prime Landlord within any time period set forth in the Prime Lease. ARTICLE XVII (Assignment and Subletting) Section 17.01 Assignment and Subletting. Notwithstanding anything to the contrary elsewhere contained in this Lease, Tenant shall not sublet the Demised Premises or any part thereof, nor assign, encumber or otherwise dispose of this Lease or any interest herein, nor grant concessions or licenses for the occupancy of the Demised Premises, or any part thereof, without Landlord's prior written consent in each of the foregoing cases and in every instance thereof, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, Tenant shall have the right to assign or sublet this Lease to an Affiliate of Tenant or a purchaser of substantially all of the assets of Tenant without Landlord's consent, provided, however, the consent of the Prime Landlord shall still be required if required pursuant to the Prime Lease. Landlord agrees not to unreasonably withhold its consent to any requested sublease or assignment by Tenant and shall use reasonable efforts to obtain -47- the consent of the Prime Landlord. In the event Prime Landlord refuses consent (if such consent is required), Tenant shall not sublet or assign this Lease. Any attempt to sublease the Demised Premises or assign, encumber or otherwise dispose of this Lease in violation of the foregoing shall be void. Consent by Landlord to a particular assignment, sublease or other transaction shall not (i) release or relieve Tenant of any liability hereunder or (ii) be deemed a consent to any other sublease, assignment or other transaction. As used herein, the term Affiliate shall mean any entity owned and controlled by Tenant or any entity that owns and controls Tenant. ARTICLE XVIII (Landlord's Access) Section 18.01 Landlord Access. Landlord, Prime Landlord and their respective agents shall have the right to enter upon the Demised Premises (save and except the President's office and the equipment storage room except in the event of an emergency if required to make repairs or if required under the Prime Lease) at all reasonable hours and in a reasonable manner (and in emergencies at all times) (a) to examine the Demised Premises, (b) to show the Demised Premises to prospective purchasers, mortgagees or insurers, (c) to enter the Demised Premises for the purpose of making repairs, improvements, additions or alterations to the Demised Premises or the Building, to the extent required or authorized under the provisions of this Lease or the Prime Lease. Such entry shall not be used for any unlawful purpose. Prime Landlord and Landlord shall have the right to retain keys (and any other devices necessary to gain entrance to all portions of the Demised Premises) to all doors of the Demised Premises. -48- ARTICLE XIX (Quiet Enjoyment) Section 19.01 Landlord Covenant of Quiet Enjoyment. Landlord covenants and agrees, provided Tenant pays all rent and performs the terms and conditions of this Lease, to take all necessary steps to secure to Tenant and to maintain for the benefit of Tenant the quiet and peaceful possession of the Demised Premises and the Garage Parking Spaces leased by Tenant in the TGPL Parking Area pursuant to Section 7.01, for the respective terms hereof, without hindrance by Landlord or any other person lawfully claiming by, through or under Landlord. ARTICLE XX (Non-Waiver) Section 20.01 No Waiver. Neither payment of rent by Tenant, nor acceptance of rent by Landlord, nor failure by either party to complain of any action, non-action or default of the other party shall constitute a waiver of any aggrieved party's rights hereunder. Waiver by either party of any right for any default of the other party shall not constitute a waiver of any right for either a subsequent default of the same obligation or for any other default. ARTICLE XXI (Holding Over) Section 21.01 Hold Over by Tenant. If Tenant should remain in possession of the Demised Premises (or any portion thereof) after the termination or expiration of the term of this Lease without the execution of a new lease, provided the Prime Lease is then in effect, then Tenant shall be deemed to be occupying such Demised Premises as a tenant from month to month, subject to all the -49- covenants and obligation of this Lease and at a monthly rental rate equal to one hundred twenty-five percent (125%) of the Basic Rent and all other charges due from Tenant to Landlord hereunder which would have been applicable had the term of this Lease continued through the period of such holding over with respect to all of the space then being occupied by Tenant for the first 30 days of such hold-over period and one hundred fifty percent (150%) of said amounts as to space being occupied by Tenant thereafter. Tenant shall indemnify and hold Landlord harmless from any and all losses, liabilities, damages and attorney's fees which may be incurred or sustained by Landlord under the terms of the Prime Lease as a result of Tenant remaining in possession of the Demised Premises (or any portion thereof) after the expiration or termination of this Lease. ARTICLE XXII (Notices) Section 22.01 Notices; Addresses. Any notice or other communications to Landlord or Tenant required or permitted to be given under this Lease shall be effectively given only if in writing and sent by United States Registered or Certified Mail, postage prepaid, return receipt requested, addressed as follows: If to Landlord: Transcontinental Gas Pipe Line Company Attn: Vice President - Finance 2800 Post Oak Boulevard, Suite 2100 Houston, Texas 77056 -50- or if to Tenant: Prior to Commencement Date: Metro Traffic Control, Inc. Attn: Chief Financial Officer 2700 Post Oak Blvd., Suite 1400 Houston, Texas 77056 After the Commencement Date: Metro Traffic Control, Inc. Attn: Chief Financial Officer 2800 Post Oak Blvd., Suite 4000 Houston, Texas 77056 Either party shall have the right to change the address to which notices shall thereafter be sent by giving notice to the other party as aforesaid, but only one address shall be in effect at any given time for each of Landlord and Tenant hereunder. ARTICLE XXIII (Partial Invalidity) Section 23.01 Severability. If any term, covenant, condition or provision of this Lease, or the application thereof to any person or circumstance, shall ever be held to be invalid or unenforceable, then in each such event the remainder of this Lease or the application of such term, covenant, condition or provision to any other person or any other circumstance (other than those as to which it shall have been invalid or unenforceable) shall not be thereby affected, and each term, covenant, condition and provision hereof shall remain valid and enforceable to the fullest extent permitted by law. -51- ARTICLE XXIV (Landlord Transfers) Section 24.01 Limitation of Liability. Notwithstanding anything to the contrary contained in this Lease, Tenant specifically agrees that the exclusive remedies of Tenant for the failure of Landlord to perform any of its obligations under this Lease shall be limited to proceeding against the interest of Landlord under this Lease and the Prime Lease. Should Landlord fail to pay any sum required to be paid by Landlord hereunder, or fail to perform any obligation required to be performed by Landlord hereunder, any proceedings brought by Tenant against Landlord shall be limited to proceeding against Landlord's fights and interests under this Lease and the Prime Lease and no attachment, execution, or other writ or process shall be sought, issued, or levied upon any assets, properties, or funds of Landlord, or any partner of Landlord, its successors or assigns, other than against Landlord's interest under this Lease and the Prime Lease. Without limiting the generality of the foregoing, no deficiency or other monetary judgment shall ever be sought or obtained by Tenant against Landlord. Section 24.02 Agreements Binding during Ownership. The term "Landlord" as used in this Lease so far as covenants or obligations on the part of the Landlord are concerned shall be limited to mean and include only the owner or owners at the time in question of the interest of the tenant under the Prime Lease and in the event of any assignment by Landlord of its interest in the Prime Lease, the Landlord herein named (and in case of any subsequent assignment, the then transferor) shall from and after the effective date thereof be automatically freed and relieved from and after the date of such assignment of all liability and obligation as respects the performance of any covenants or obligations on the part of the Landlord contained in this Lease thereafter to be performed; -52- provided that any funds in the hands of such Landlord or the then transferor at the time of such transfer in which the Tenant has an interest shall be turned over to the transferee and any amount then due and payable to Tenant by Landlord or the then transferor under any provision of this Lease, shall be paid to the Tenant; and provided further that upon any such transfer, the transferee shall assume, subject to the limitations of this Section and Section 24.01, all of the terms, covenants and conditions in this Lease contained to be performed on the part of the Landlord, it being intended that the covenants and obligations contained in this Lease on the part of the Landlord shall, subject to aforesaid, be binding on the Landlord, its successors and assigns, only during and in respect to their respective successive period of ownership. In the event of any assignment or other transfer by Landlord pursuant to the provisions of this Article, Landlord shall be relieved of all liabilities or obligations under this Lease except as otherwise provided in this Section 24.02. ARTICLE XXV (Arbitration) Section 25.01 Arbitration. Except for any dispute regarding the determination of Market Rate (which shall be resolved in accordance with the applicable provisions of Section 3.05), either Landlord or Tenant may require that any dispute hereunder be submitted to arbitration as herein provided. In each case specified in this Lease in which it shall become necessary to resort to arbitration, such arbitration shall be determined as provided in this Article XXV. The party desiring such arbitration shall give written notice to the effect to the other party, specifying in said notice the name and address of the person designated to act as arbitrator on its behalf. Within fifteen (15) days after the service of such notice, the other party shall give written notice to the first party specifying -53- the name and address of the person designated to act as arbitrator on its behalf. If the second party fails to notify the first party of the appointment of its arbitrator, as aforesaid, within or by the time above specified, then the appointment of the second arbitrator shall be made in the same manner as hereinafter provided for the appointment of a third arbitrator in a case where two arbitrators are appointed hereunder and the parties are unable to agree upon such third appointment. The arbitrators so chosen shall meet within ten (10) days after the second arbitrator is appointed and if, within thirty (30) days after the second arbitrator is appointed, the said two arbitrators shall not agree upon the question in dispute, they shall themselves appoint a third arbitrator who shall be a competent and impartial person; and in the event of their being unable to agree upon such appointment within ten (10) days after the time aforesaid, the third arbitrator shall be selected by the parties themselves if they can agree thereon within a further period of fifteen (15) days. If the parties do not so agree, then either party, on behalf of both may request such appointment by the Presiding United States District Judge for the Southern District of Texas, Houston Division acting in his individual, non-judicial capacity to the extent he is willing to act in such capacity, or if he refuses to act in such capacity, then in his official judicial capacity. In the event of the failure, refusal or inability of any arbitrator to act, a new arbitrator shall be appointed in his stead, which appointment shall be made in the same manner as hereinbefore provided for the appointment of such arbitrator so failing, refusing or unable to act. The decision of the arbitrators so chosen shall be given within a period of thirty (30) days after the appointment of such third arbitrator. The decision in which any two arbitrators so appointed and acting hereunder concur shall in all cases be binding and conclusive upon the parties. Each party shall pay the fees and expenses of the one of the two original arbitrators appointed by such party, -54- or in whose stead, as above provided, such arbitrator was appointed, and the fees and expenses of the third arbitrator, if any, shall be borne equally by both parties. ARTICLE XXVI (Miscellaneous) Section 26.01 Estoppel Certificates. Assuming such facts are true, upon the request of any Mortgagee of Prime Landlord, Tenant will sign an instrument acknowledging that this Lease is in full force and effect; that rent has not been prepaid and certifying to such other true information regarding this Lease as such Mortgagee may reasonably request. Section 26.02 Microwave Receivers. Subject to the prior written consent of prime Landlord, Tenant, at Tenant's expense, shall have the right to remove one (1) of Landlord's microwave dishes located on the south side of Floor 65 and replace it with a new microwave dish and Tenant shall pay to Landlord the amount that Landlord is obligated to pay Prime Landlord pursuant to Section 20.04(b) of the Prime Lease for the microwave dish to be maintained by Tenant. Such rental shall be payable at the same time and subject to the same provisions as set forth in the case of other rentals hereunder (but without adjustments). Section 26.03 Miscellaneous. The Section headings or titles appearing in this Lease are inserted and included solely for convenience and shall never be considered or given any effect in construing this agreement. All personal pronouns used in this agreement shall include the other genders whether used in the masculine or feminine or neuter gender, and the singular shall include the plural whenever and as often as may be appropriate. -55- The covenants and agreements herein contained shall inure to and be binding upon Landlord, its or their heirs, devisee, legal representatives, successors and assigns, and Tenant, its successors and assigns (but reference to Tenant's assigns is not intended to imply or grant any right on the part of Tenant to assign this Lease except as granted in Article XVII hereof) and any party succeeding to or acquiring any part of or interest in the interest of any party "Landlord" hereunder shall automatically take such interest subject to and be and become liable for all liability and indebtedness to Tenant of such party "Landlord" which has accrued or arisen under or as provided for in this Lease prior to such acquisition or succession, subject, of course, to any valid defenses or offsets which would have been available to such party "Landlord" and subject, also, to the other provisions of this Lease. This Lease contains the entire agreement of the parties hereto with respect to the subleasing of the Demised Premises and the rights of Tenant under this Lease, and this Lease supersedes all prior negotiations between Landlord and Tenant relating to the subject matter of this Lease. -56- This Lease is hereby executed and delivered effective as of the date and year first above written. METRO TRAFFIC CONTROL, INC. a Maryland corporation By: /s/Curtis M. Coleman -------------------------- Name: Curtis M. Coleman Title: Chief Financial Officer "Tenant" TRANSCONTINENTAL GAS PIPE LINE CORPORATION, a Delaware corporation By: /s/Cuba Wallingston, Jr. ----------------------------- Name: Cuba Wallingston, Jr. Title: Senior Vice President and General Manager "Landlord" -57- [Floor Plan Drawing of the Demised Premises] Exhibit A Floor 40 [Floor Plan Drawing of the Demised Premises] Exhibit A Floor 39 [Floor Plan Drawing of Johnson & Higgins Expansion Space] Exhibit B Exhibit C Transco Tower Garage Reserved Parking Spaces Tower Entrance Garage Level [Location of Reserved/Assigned Parking Spaces] [Logo} METRO NETWORKS [Tenant's Removable Fixtures] EX-10.9 10 EXHIBIT 10.9 [Logo: Transco Tower] LEASE AGREEMENT THE STATE OF TEXAS ss. COUNTY OF HARRIS ss. THIS LEASE AGREEMENT made and entered into on this the 18th day of April, 1988 between TRANSCO TOWER LIMITED, whose address for purposes hereof is 2100 Post Oak Tower, 5051 Westheimer, Houston, Texas 77056 prior to December 1, 1983 and thereafter 2600 Post Oak Boulevard, Houston, Texas 77056 (hereinafter called "Lessor"), and Metro Traffic Control, Inc. whose address for purposes hereof is 4828 Loop Central Drive, Suite 800, Houston, Texas 77081 prior to the commencement of the lease term and thereafter shall be the leased premises in the Building (hereinafter called "Lessee"); WITNESSETH: I. Leased 1. Subject to and upon the terms, provisions and conditions Premises hereinafter set forth, and each in consideration of the duties, covenants and obligations of the other hereunder, Lessor does hereby lease, demise and let to Lessee and Lessee does hereby lease and take from Lessor those certain premises (hereinafter sometimes called the "leased premises") in the building known as Transco Tower located at 2800 Post Oak Boulevard (hereinafter sometimes called the "Building") in the City of Houston, Harris County, Texas, such premises being more particularly described as follows: Approximately 772 square feet of Net Rentable Area located on Level 52. as reflected on the floor plan of such premises attached hereto and made a part hereof as Exhibit A and initialed for identification by both parties. Net The term "net rentable area", as used herein, shall refer to Rentable (i) in the case of a single tenant floor, all Rentable floor area Area measured from the inside surface of the inner glass or (with respect to the basements) exterior wall of the Building to the inside surface of the opposite outer wall excluding only the areas ("service areas") within the outside walls on the particular floor used for building stairs, fire towers, elevator shafts, flues, vents, stacks, vertical pipe shafts and vertical ducts, but including any such service areas which are for the specific use of the particular tenant such as special stairs or elevators, plus a proportionate part of the areas ("extra areas") used for building elevator, mechanical, electrical and plumbing rooms and the central plant serving the Building, the truck dock, the bridge connecting the Building with the Garage, fire control stations, and ground floor, basement, and 51st floor lobbies, and (ii) in the case of a floor to be occupied by more than one tenant, all floor areas within the demising walls (measured from the mid-point of the demising walls and in the case of exterior walls, measured as defined in (i) above), plus a proportionate part of areas ("common areas") devoted to lobbies, corridors, elevator foyers, restrooms, electrical, telephone and mechanical rooms, janitor closets, vending areas and other similar facilities for the use of all tenants on the particular floor plus a proportionate part of the extra areas. The Lessee's proportionate part of extra areas shall be based upon the ratio of the Lessee's net rentable area (excluding "extra areas") to the aggregate net rentable area (excluding "extra areas") of the Building. The Lessee's proportionate part of common areas shall be based upon the ratio of the Lessee's net rentable area (excluding "common" and "extra areas") to the aggregate net rentable area (excluding "common" and "extra areas") on such floor. No deductions shall be made in determining net rentable area for columns or projections necessary to the Building. The net rentable area in the leased premises has been calculated on the basis of the foregoing definition and is hereby stipulated for all purposes hereof to be 772 square feet, whether the same shall be more or less as a result of variations resulting from actual construction and completion of the leased premises for occupancy so long as such work is done substantially in accordance with the terms and provisions hereof. II. Term 1. (a) Subject to and upon the terms and conditions set forth herein, or in any exhibit or addendum hereto, this lease shall continue in force for a term of one hundred twenty (120) months beginning on the 1st day of August 1988, and ending on the 31st day of July 1998. (b) As more fully defined in Schedule 1 hereto, in the event the Leased Premises should not be ready for occupancy by the commencement date stated in Paragraph l(a) above for any reason, Lessor shall not be liable or responsible for any claims, damages or liabilities in connection therewith or by reason thereof, and the term of this lease shall commence at the time that the Leased Premises are ready for occupancy by Lessee. Should the term of this lease commence on a date other than that specified in Paragraph l(a) above of Article II, Lessor and Lessee will, at the request of either, execute a declaration specifying the beginning date of the term of this lease. In such event, rental under this lease shall not commence until said revised commencement date, and the stated term in this lease shall thereupon commence and the expiration date shall be extended so as to give effect to the full stated term. Use 2. The leased premises are to be used and occupied by Lessee solely for the purpose of office space. Base 3. Lessee hereby agrees to pay a base annual rental (herein Rental called "Base Rental") in the sum of Years 1 - 5 = $7,720.00 Years 6 - 10 = $11,580.00 (________________________) per year. The Lessee shall also pay, as additional rent, all such other sums of money as shall become due from and payable by Lessee to Lessor under this lease. The Lessor shall have the same remedies for default in the payment of additional rent as are available to Lessor in the case of a default in the payment of Base Rental. Such Base Rental together with Lessee's share of Forecast Operating Expenses (hereinafter defined) shall be due and payable in twelve (12) equal installments on the first day of each calendar month during the Initial term of this lease and any extensions or renewals thereof, and Lessee hereby agrees to so pay such rent to Lessor at Lessor's address as provided herein (or such other address as may be designated by Lessor from time to time) monthly in advance without demand. If the term of this lease commences on other than the first day of a month or terminates on other than the last day of a month, then the installments of Base Rental and additional rent for such month or months shall be prorated and the installment or installments so prorated shall be paid in advance. All past due installments of rent shall bear interest at the maximum non-usurious rate per annum from the due date until paid. Net Lease 4. This shall be a net lease and Base Rental shall be paid to Lessor absolutely net of all costs and expenses. The provisions for payment of Actual Operating Expenses by means of periodic payment of Lessee's Share of Forecast Operating Expenses and the Operating Expense Adjustment are intended to pass on to Lessee and reimburse Lessor for all costs and expenses of the nature described in Section 5 incurred in connection with ownership, management and operation of the Project and such additional facilities now and in subsequent years as may be determined by Lessor to be included within the Project. Operating 5. (a) Actual Operating Expenses as said term is used herein Expenses shall consist of all operating expenses of the Project (which term for purposes hereof means and includes the Building, Garage, Skybridge connecting the Building to other structures), Project Site (being the tract or tracts of land on which the Building and the Garage are located) and related amenities (whether located on the Project Site or adjacent property) which shall be computed on the accrual basis and shall consist of all costs by Lessor to maintain all facilities in operation during any year and such additional facilities in subsequent years as may be determined by Lessor to be necessary or generally beneficial for the Project. All operating expenses shall be determined in accordance with generally accepted accounting principles which shall be consistently applied. The term "operating expenses" as used herein shall mean all expenses, costs and disbursements (but not replacement of capital investment items except as specifically provided below nor specific costs especially billed to and paid by specific tenants) of every kind and nature which Lessor shall pay or become obligated to pay because of or in connection with the ownership, management and operation of the Project including but not limited to the following: (1) Wages and salaries and related expenses and benefits of all on-site and off-site employees engaged in the supervision, operation and maintenance, or access control, of the Project and personnel who may provide traffic control relating to ingress and egress to and from the Project to the adjacent public streets and the costs (based upon fair market rental rates) of a management office in the Project. (2) All supplies, tools, equipment and materials used in operation and maintenance of the Project. (3) Cost of all utilities for the Project including the cost of water and power, heating, lighting, air conditioning and ventilating for the Project (excluding those costs separately paid by specific tenants). (4) Cost of all maintenance and service agreements for the Project and the equipment therein, including, but not limited to, access control service, window cleaning, elevator maintenance, landscaping and janitorial services. (5) Cost of all insurance relating to the Project including, but not limited to, the cost of casualty and liability insurance and rental abatement insurance applicable to the Project and Lessor's personal property used in connection therewith. (6) All taxes and assessments and governmental charges with respect to the Project whether federal, state, county or municipal, and whether they be by taxing districts or authorities presently taxing the leased premises or by others, subsequently created or otherwise, and any other taxes and assessments attributable to the Project or its operation. It is agreed that Lessee shall be responsible for ad valorem taxes on its personal property and on the value of leasehold improvements to the extent that same exceed building standard allowances. (7) Cost of repairs and general maintenance of the Project (excluding repairs and general maintenance paid by proceeds of insurance or by Lessee or other third parties, and alterations attributable solely to preparation of space for occupancy by tenants of the Building other than Lessee). (8) Amortization (together with reasonable financing charges) of the cost of supplying and installation of capital investment items which are intended for the purpose of reducing operating costs or which may be required by governmental authority. All such costs shall be amortized over the reasonable life of the capital investment items with the reasonable life and amortization schedule being determined in accordance with generally accepted accounting principles and in no event to extend beyond the reasonable life of the Building. In the case of installations for the purpose of reducing operating costs, Lessor shall, upon request, provide a cost justification for its practicality. (9) Lessor's central accounting costs and audit fees attributable to the Project. (10) The cost of payment and performance of the Lessor's obligations with respect to all of the above expenses In connection with the park adjacent to the Project, the Skybridge connecting the Project to other structures and the driveways serving the Project. (11) A management cost recovery equal to three percent (3%) of Lessee's Base Rental and Basic Parking Charge plus three percent (3%) of Lessee's Share of Actual Operating Expenses (net of the management cost recovery). Notwithstanding the inclusion of the entire Garage in the definition of the Project above, operating expenses shall exclude such expenses attributable to the portion of the Garage reserved for parking by Transcontinental Gas Pipe Line Corporation under the terms of its lease. (b) "Lessee's Share of Forecast Operating Expenses", as that term is used herein, shall mean the Lessee's Share of Actual Operating Expenses as reasonably projected by Lessor for any calendar year. "Lessee's Share" as that term is used herein, shall mean (i) with respect to all operating expenses other than operating expenses of the garage, a fraction, the numerator of which is the number of net rentable square feet in the Leased Premises and the denominator of which is the greater of 95% of the net rentable area in the Building or the total net rentable area leased to and occupied by tenants of the Building, and (ii) with respect to operating expenses of the Garage, a fraction, the numerator of which is the number of net rentable square feet in the Leased Premises and the denominator of which is the greater of 95% of the net rentable area in the Building less the net rentable area leased to Transcontinental Gas Pipe Line Corporation or the total net rentable area leased in the Building less the net rentable area leased to Transcontinental Gas Pipe Line Corporation. For each calendar year, a statement of the projected amount of Lessee's Share of Forecast Operating Expenses shall be furnished by Lessor to Lessee no less than thirty (30) days prior to the beginning of said calendar year (or for the calendar year in which the term of this Lease commences, thirty (30) days prior to the first Rental Accrual Date). Concurrently with each installment payment of Base Rental, Lessee shall pay to Lessor one-twelfth (1/12th) of Lessee's Share of Forecast Operating Expenses for said calendar year. If Lessee's Share of Actual Operating Expenses for any calendar year is greater than payments theretofore made by Lessee on account of Lessee's Share of Forecast Operating Expenses, Lessee shall pay to Lessor within thirty (30) days after Lessee's receipt of the annual statements referred to in (c) below the amount of such excess. However, if Lessee's Share of Actual Operating Expenses for such calendar year is less than payments theretofore made by Lessee on account of Lessee's Share of Forecast Operating Expenses, Lessor shall pay to Lessee within thirty (30) days after Lessee's receipt of such statement the amount of such difference. Any sums payable by Lessee under this Section 5 shall be deemed additional rent. (c) Within one hundred fifty (150) days (or as seen thereafter as reasonably practicable) after the expiration of a calendar year all or any portion of which is within the term hereof, Lessor shall deliver to Lessee a written statement itemized in reasonable detail and certified to by Lessor, showing Actual Operating Expenses for the calendar year in question and a statement of Lessee's Share of Actual Operating Expenses. (d) Should the term of this lease begin or terminate as to any portion of the Leased Premises at any time other than the first day of a calendar year, Lessee's Share of Actual Operating Expenses referred to in this Section shall be prorated accordingly. Notwithstanding any other provision herein to the contrary, it is agreed that in the event the Building is not fully occupied during any year or in the event all of the Building is not provided with building standard services during any year, an adjustment shall be made in computing the Actual Operating Expenses for such year so that the Actual Operating Expenses shall be computed for such year as though the building had been fully occupied during such year. Lessee at its expense shall have the right at any reasonable time within 24 months after the end of a calendar year to audit Lessors books and records relating to operating expenses for any calendar year, or at Lessor's sole discretion, Lessor will provide such audit prepared by a certified public accountant. 6. Lessee hereby agrees to pay Lessor a security deposit of $0.00 ($0.00) payable on the date this lease is executed by Lessee. Upon the occurrence of any event of default by Lessee, Lessor may, from time to time, without prejudice to any other remedy, use the security deposit paid to Lessor by Lessee as herein provided to the extent necessary to make good any arrears of rent or any additional rent, or any other damage, injury, expense or liability caused to Lessor by such event of default, any remaining balance of such security deposit to be returned by Lessor to Lessee within a reasonable period of time after the termination of this lease. However, the security deposit shall not be considered an advance payment of rental or a measure of Lessors damages in case of default by Lessee. III. Services Lessor covenants and agrees with Lessee: To Be 1. To use reasonable efforts to cause public utilities to Furnished furnish the electricity, gas and water utilized in operating any By and all facilities serving the leased premises. Lessor 2. To provide (the cost of which is part of operating expenses of the Project) access control to the Building during weekends and after normal working hours during the week. Lessor shall not be liable to Lessee for losses due to theft or burglary, or for damages done by unauthorized persons on the Project or within the leased premises. 3. To furnish (the cost of which is part of operating expenses of the Project) Lessee while occupying the leased premises: (a) Hot and cold water at those points of supply provided for general use of other Lessees in the Building; central heat and air conditioning in season, at such temperatures and in such amounts as are considered by Lessor to be standard, but such service at times during week days other than normal business hours for the Building, on Saturday afternoons, Sundays and holidays to be furnished only upon the request of Lessee, who shall bear the entire cost thereof; routine maintenance and elected lighting service for all extra areas, service areas, and common areas of the Building in the manner and to the extent deemed by Lessor to be standard. (b) Janitor services on a five (5) day week basis; provided, however, if any of Lessee's floor coverings or other improvements are other than building standard, Lessee shall pay the additional cleaning cost attributable thereto plus fifteen percent (15%) for management cost recovery as additional rent. Lessee shall pay said additional rent upon presentation of a statement therefor by Lessor, and Lessee's failure to pay shall constitute default hereunder. (c) Electrical facilities to furnish sufficient power for typewriters, voice writers, calculating machines and other machines of similar low electrical consumption (total electrical power requirement not to exceed one watt per square foot of net rentable area); but not including electricity required for duplicating and electronic data processing equipment, special lighting in excess of building standard, and any other item of electrical equipment, the electrical power requirement of which (singly) is more than 0.5 kilowatts at rated capacity or requires a voltage other than 120 volts single phase; and provided that if the installation or operation of said electrical equipment requires additional air conditioning capacity above that provided by the building standard system, then the additional air conditioning installation and operating costs will be the obligation of Lessee. (d) All building standard fluorescent bulb replacement in all areas and all incandescent bulb replacement in public areas, toilet and rest room areas and stairwells. To the extent that the services described above require electricity, gas or water supplied by public utilities, Lessor's obligations shall require only that Lessor use reasonable efforts to cause the utilities to furnish the same and shall be subject to any curtailment of utilities supplied. Failure by Lessor to any extent to furnish the foregoing defined services, or any cessation thereof, shall not render Lessor liable in any respect for damages to either person or property, nor be construed as an eviction of Lessee, nor work an abatement of rent, nor relieve Lessee from fulfillment of any covenant or agreement hereof. Additionally, should any of the equipment or machinery used in connection with the Project break down, or for any cause cease to function properly, Lessee shall have no claim for rebate or abatement of rent or damages on account of an interruption in service occasioned thereby or resulting therefrom. 4. To furnish, at Lessee's cost, two (2) keys for each corridor door entering the leased premises. Additional keys will be furnished at a charge by Lessor on an order signed by Lessee or Lessee's authorized representative. All such keys shall remain the property of Lessor. No additional locks shall be allowed on any door of the leased premises without Lessor's permission, and Lessee shall not make, or permit to be made any duplicate keys, except those furnished by Lessor. Upon termination of this lease, Lessee shall surrender to Lessor all keys of the leased premises, and give Lessor the explanation of the combination of all locks for sales, safe cabinets and vault doors, if any, in the leased premises. 5. To provide and install, at Lessee's cost, all letters or numerals at the entrance to the leased premises. Lessor also agrees to provide and install, at Lessee's expense, a listing of Lessee's name and office number on the Building Directory Board. No signs, numerals, letters or other graphics shall be used or permitted on the exterior of, or which may be visible from outside the leased premises unless approved in writing by Lessor. 6. That Lessee shall, and may peacefully have, hold and enjoy the leased premises, subject to the other terms hereof, provided that Lessee pays the rental and other sums herein recited to be paid by Lessee and performs all of Lessee's covenants and agreements herein contained. It is understood and agreed that this covenant and any and all other covenants of Lessor contained in this lease shall be binding upon Lessor and its successors only with respect to breaches occurring during its and their respective ownerships of the Lessor's interest hereunder. 7. Unless otherwise stipulated herein, Lessor shall not be required to make any improvements to or repairs of any kind or character on the leased premises during the term of this lease, except such repairs as may be deemed necessary by Lessor for normal maintenance operations. The obligation of Lessor to maintain and repair the leased premises shall be limited to building standard items. Special leasehold improvements shall, at Lessee's written request, be maintained by Lessor at Lessee's expense, at a cost or charge equal to the costs incurred in such maintenance plus an additional charge to cover overhead. IV. Lessee covenants and agrees with Lessor:. Payments 1. To pay all rent and sums provided to be paid to Lessor By hereunder at the times and in the manner herein provided. Lessee Repairs 2. Subject to Article V, Paragraph 15 hereof, at its own By cost and expense, to repair or replace any damage or injury Lessee done to the Building, or any part thereof, caused by Lessee or Lessee's agents, Lessee contractors, employees, invitees, or visitors, provided, however, if Lessee fails to make such repairs or replacement promptly, Lessor may, at its option, make repairs or replacements, and Lessee shall repay the cost thereof to the Lessor on demand, subject to Article V, Paragraph 15. Care 3. Not to commit or allow any waste or damage to be Of committed on any portion of the leased premises and at the Leased termination of this lease, by lapse of time or otherwise, to Premises deliver up said leased Leased premises to Lessor in as good condition as at date of possession by Lessee, ordinary wear and tear excepted, and upon such termination of this lease, Lessor shall have the fight to re-enter and resume possession of the leased premises. Assignment 4. In the event Lessee should desire to assign this Or Agreement or sublet the leased premises or any or part thereof, Sublease Lessee shall give Lessor written notice of such desire (and the proposed effective date Sublease thereof) at least sixty (60) days in advance of the date on which Lessee desires to make such assignment or sublease. Lessor shall then have a period of thirty (30) days following receipt of such notice within which to notify Lessee in writing that Lessor elects either (i) to terminate this Agreement as to the space so affected as of the date so specified by Lessee in which event Lessee will be relieved of all further obligation hereunder as to such space, or (ii) to permit Lessee to assign this Agreement or sublet such space, subject, however, to written approval of the proposed assignee or sublessee by Lessor, and further subject to the requirement that Lessee enter into written agreements with Lessor, and with Assignee or Sublessee, that any profit realized by Lessee as a result of such assignment or sublease (meaning the consideration agreed upon between Lessee and Assignee or the difference between the rental rate agreed upon between Lessee and Sublessee and the rent then required to be paid under this Agreement multiplied by the number of months in the term of the sublease) shall, to the extent such profit is immediate, be due and payable by Lessee to Lessor upon the execution of an assignment or sublease, and, to the extent such profit is deferred, be payable to Lessor by Assignee or Sublessee as it accrues, or (iii) to refuse to consent to Lessee's assignment of this Agreement or sublease of such space and to continue this Agreement in full force and effect as to the entire leased premises. If Lessor should fail to notify Lessee in writing of such election within the stated thirty (30) day period, Lessor shall be deemed to have elected option (iii) above. No consent by Lessor to any assignment or sublease shall be deemed to be consent to a use not permitted under this Agreement, to any act in violation of this Agreement, or to any other or subsequent assignment or sublease, and no assignment or sublease by Lessee shall relieve Lessee of any obligation under this Agreement. Any attempted assignment or sublease by Lessee in violation of the terms and covenants of this paragraph shall be void. Use, 5. Not to permit the leased premises to be used for any Alterations, purpose other than that stated in the use clause hereof, or make Additions, or allow to be made any alterations or physical additions in or Improvements to the leased premises, or place signs on the leased premises which are visible from outside the leased premises, or improvements place safes, vaults or other heavy furniture or equipment within the leased premises, without first obtaining the written consent of Lessor. Any and all such alterations, physical additions, or improvements, when made to the leased premises by Lessee, shall at once become the property of Lessor and shall be surrendered to Lessor upon termination of this lease by lapse of time or otherwise; provided, however, this clause shall not apply to movable equipment or furniture owned by Lessee. Lessee agrees specifically that no food, soft drink or other vending machine or cooking equipment will be installed within the leased premises without the written consent of Lessor. Legal Use 6. Not to occupy or use, or permit any portion of the leased And Violations premises to be occupied or used for any business or purpose which Of Insurance is unlawful, disreputable or deemed to be extra-hazardous on Coverage account of fire, or permit anything to be done which would in any way increase the rate of fire or liability or any other coverage insurance coverage on said Building and/or its contents. Laws, 7. To comply with all laws, ordinances, rules and (state, Regulations federal, municipal and other agencies or bodies having any And Rules jurisdiction thereof) relating to the use, condition or occupancy Of The of the leased premises. Lessee will comply with the rules adopted Building and altered by Lessor from time to time for the safety, care and cleanliness of the leased premises and Building and Project and for preservation of good order therein, all of which will be sent by Lessor to Lessee in writing and shall be thereafter carried out and observed by Lessee. Entry For 8. To permit Lessor or its agents or representatives to Repair And enter into and upon any part of the leased premises at all Inspection reasonable hours to inspect the same, clean or make repairs, alterations or additions thereto, as Lessor may deem necessary or desirable, and Lessee shall not be entitled to any abatement or reduction of rent by reason thereof. Nuisance 9. To conduct its business and control its agents, employees, invites, and visitors in such manner as not to create any nuisance, or interfere with, annoy or disturb any other tenant or Lessor in its operation of the Building. Subordination 10. This lease is subject and subordinate to any lien To mortgage or deed of trust which may now or hereafter encumber the Mortgage Building of which the leased premises form a part and to all renewals, modifications, consolidations, replacements and extensions thereof. This clause shall be self-operative and no further instrument of subordination need be required by any mortgagee. In confirmation of such subordination, however, Lessee shall at Lessor's request execute promptly any appropriate certificate or instrument that Lessor may request. Lessee hereby constitutes and appoints Lessor the Lessor's attorney-in-fact to execute any such certificate or instrument for and on behalf of Lessee. In the event of the enforcement by the trustee or the beneficiary under any such mortgage or deed of trust of the remedies provided for by law or by such mortgage or deed of trust, Lessee will, upon request of any person or party succeeding to the interest of Lessor as a result of such enforcement, automatically become the Lessee of such successor in interest without change in the terms of other provisions of such lease; provided, however, that such successor in interest shall not be bound by (i) any payment of rent or additional rent for more than one month in advance except prepayments in the nature of security for the performance by Lessee of its obligations under this lease or (ii) any amendment or modification of this lease made without the written consent of such trustee or such beneficiary or such successor in interest. Upon request by such successor in interest, Lessee shall execute and deliver an instrument or instruments confirming the attornment herein provided for. Estoppel 11. At Lessor's request, Lessee will execute either an Certificate estoppel certificate addressed to Lessor's mortgagee or a three-party agreement among Lessor, Lessee and said mortgagee certifying to such facts (if true) and agreeing to such notice provisions and other matters as such mortgagee may reasonably require in connection with Lessor's financing. Lessee 12. Lessee shall comply with the Lessee improvement schedule Improvements attached hereto and made a part hereof as Schedule 2. After receipt of the approved tenant pricing letter described in said Schedule 2, Lessor will partition and prepare said leased premises in accordance therewith; however, Lessor shall not be required to install any partitions or improvements which are not in conformity with the plans and specifications for the Building or which are not approved by Lessor or Lessor's architect, and Lessor shall be required to bear the expense of installing only the items listed in Schedule 3 hereto and only to the extent that they do not exceed the respective allowances indicated in Schedule 3. All installations in excess thereof shall be for Lessee's account, and Lessee shall pay, as additional rent hereunder, to Lessor an amount equal to Lessor's actual cost therefor, including associated architectural and engineering fees, if any, plus a management cost recovery fee of fifteen percent (15%) to cover overhead within ten (10) days after being invoiced therefor. Additionally, Lessee shall pay all ad valorem taxes and increased insurance premiums that are payable on account of any of Lessee's improvements that are in addition to those items (or the quantities thereof) described on Schedule 3 hereto. Failure by Lessee to pay any sums described in this Paragraph or the Schedules hereto in full within ten (10) days after its receipt of an invoice therefor will constitute failure to pay rent when due and an event of default by Lessee hereunder, giving rise to all remedies available to Lessor under this lease and at law for nonpayment of rent. Lessee shall deliver to Lessor a copy of the "as-built" plans and specifications made in or to the leased premises. It is stipulated that time is of the essence in connection with Lessee's compliance with the terms of Schedule 2. Limitation 13. Lessee specifically agrees to look solely to Lessor's Of interest in the Building for the recovery of any judgment from Lessor's Lessor, it being agreed that Lessor (and its partners and Personal shareholders) shall never be personally liable for any such Liability judgment. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right that Lessee might otherwise have to obtain injuncttve relief liability against Lessor or Lessor's successors in interest, or any other action not involving the personal liability of Lessor to respond in monetary damages or from assets of Lessor or any partner of Lessor other than Lessor's interest in the Building or any suit or action in connection with enforcement or collection of amounts which may become owing or payable under insurance policies maintained by Lessor. Parking 14. Lessee shall at all times during the term of this lease agreement lease parking rights for 0 vehicles in the parking garage adjacent to the Building (the "Garage"). Lessee shall have the right to lease up to 2 additional parking spaces during the lease term at the then prevailing market rate for parking spaces in the Garage. No specific spaces in the Garage are to be assigned to Lessee, but Lessor will issue to Lessee the aforesaid number of parking stickers, each of which will authorize parking in the Garage of a vehicle on which the sticker is displayed, or Lessor will provide a reasonable alternative means of identifying and controlling vehicles authorized to park in the Garage. Lessor may designate the area or areas of the Garage within which each such vehicle may be parked, and Lessor may change such designations from time to time. Lessor may make, modify and enforce rules and regulations relating to the parking of vehicles in the Garage, and Lessee will abide by and cause its agents, employees and invitees to comply with such rules and regulations. Lessor may provide parking for visitors to the Building in an area designated by Lessor and in a capacity determined by Lessor to be appropriate for the Building. Lessor reserves the right to charge and collect a fee for parking in the visitor parking area in an amount determined by Lessor to be appropriate. Lessor, at its sole discretion, may change the designated area for the visitor parking and the fee to be charged for its use. As the Basic Parking Charge, Lessee covenants and agrees to pay Lessor during the initial term of this Lease, as additional rental hereunder, $50.00 for each of the parking rights leased hereunder, such sum to be payable monthly in advance on the first day of each and every calendar month during the lease term, and a pro rata portion of such sum shall be payable for the first and last partial calendar month of the term of this lease in the event the lease term commences on a date other than the first day of a calendar month. Lessee's obligation to pay the Basic Parking Charge shall be considered an obligation to pay rent for all purposes hereunder and shall be secured in like manner as is Lessee's obligation to pay rent. Default in payment of such Basic Parking Charge (after notice as hereinafter provided) shall be deemed a default in payment of rent. V. Lessor and Lessee mutually covenant and agree as follows: Condemnation 1. If the leased premises shall be taken or condemned for any public purpose to such an extent as to render the leased premises untenantable, this lease shall, at the option of either party, forthwith cease and terminate. All proceeds from any taking or condemnation of the leased premises shall belong to and be paid to Lessor. Damages 2. Lessor shall not be liable or responsible to Lessee for From any loss or damage to any property or person occasioned by Certain theft, fire, act of God, public enemy, injunction, riot, strike, Causes insurrection, war, court order, requisition or order of governmental body or authority, or any cause beyond Lessor's reasonable control, or for any damage or inconvenience which may arise through repair or alteration of any part of the Building, or failure to make any such repairs. Lien 3. In consideration of the mutual benefits arising under For this lease, Lessee hereby grants to Lessor a lien and security Rent interest on all property of Lessee now or hereafter placed in or upon the leased premises, and such property shall be and remain subject to such lien and security interest of Lessor for payment of all rent and other sums agreed to be paid by Lessee herein. The provisions of this paragraph relating to said lien and security interest shall constitute a security agreement under the Uniform Commercial Code so that Lessor shall have and may enforce a security interest on all property of Lessee now or hereafter placed in or on the leased premises, including but not limited to all fixtures, machinery, equipment, furnishings and other articles of personal property now or hereafter placed in or upon the leased premises by Lessee. Lessee agrees to execute as debtor such financing statement or statements as Lessor may now or hereafter reasonably request in order that such security interest or interests may be protected pursuant to said Code. Lessor may at its election at any time file a copy of this lease as a financing statement. Lessor, as secured party, shall be entitled to all of the rights and remedies afforded a secured party under said Code in addition to and cumulative of the Lessor's liens and rights provided by law or by the other terms and provisions of this lease. Lessor's 4. In the event of default by Lessee in any of the terms or Right covenants of this Lease or in the event the leased premises are To abandoned or vacated for thirty consecutive days by Lessee, Relet Lessor shall have the right, but not the obligation, to relet same for the remainder of the term provided for herein, and if the rent received through reletttng does not at least equal the rent provided for herein, Lessee shall pay and satisfy the deficiency between the amount of the rent so provided for and that received through reletting, including, but not limited to, the cost of reletting and related commissions, renovating, altering and decorating for a new occupant. Nothing herein shall be construed as in any way denying Lessor the right, in the event of abandonment of said premises or other breach of this Agreement by Lessee, to treat the same as an entire breach and at Lessors option to terminate this Agreement and/or immediately seek recovery for the entire breach of this Agreement and any and all damages which Lessor suffers thereby. Holding 5. In the event of holding over by Lessee after expiration Over or termination of this lease without the written consent of Lessor, Lessee shall pay as liquidated damages double the then existing base rental and additional rental. No holding over by Lessee after the term of this lease shall be construed to extend the lease; in the event of any unauthorized holding over, Lessee shall indemnify Lessor against all claims for damages by any other tenant to whom Lessor may have leased all or any part of the premises covered hereby effective upon the termination of this lease. Any holding over with the consent of Lessor in writing shall thereafter constitute this lease a lease from month to month. Fire 6. In the event of a fire in the leased premises, Lessee Clause shall immediately give notice thereof to Lessor. If the leased premises, through no fault or neglect of Lessee, its agents, employees, invitees or visitors, shall be partially destroyed by fire or other casualty so as to render the premises untenantable, the rental provided for herein shall abate thereafter until such time as the leased premises are made tenantable as determined by Lessor (but in no event shall Lessor's obligation exceed building standard improvements). In the event of the destruction of the leased premises without fault or neglect of Lessee, its agents, employees, invitees or visitors, or if from any cause the same shall be so damaged that Lessor shall decide not to rebuild, then Lessor or Lessee may terminate this lease and all rent owed up to the time of such damage, destruction or termination shall be paid by Lessee and thenceforth this lease shall cease and come to an end. Attorneys 7. In the event Lessee defaults in the performance of any of Fees the terms, covenants, agreements or conditions contained in this lease and Lessor places the enforcement of this lease, or any part thereof, or the collection of any rent due, or to become due hereunder or recovery of the possession of the leased premises in the hands of an attorney, or files suit upon the same, Lessee agrees to pay Lessor's reasonable attorney'S fees. Amendments 8. This Agreement may not be altered, changed or amended, except by an instrument in writing signed by both parties hereto. Assignment 9. Lessor shall have the right to transfer and assign, in By whole or in part, all its rights and obligations hereunder and in Lessor the Building and property referred to herein, and in such event and upon such transfer(any such transferee to have the benefit of, and be subject to, the provisions of Paragraphs 6 of Article III and Paragraph 13 of Article IV hereof) no further liability or obligation shall thereafter accrue against Lessor hereunder or under any agreement relating to this lease. Default 10. If default shall be made in the payment of any sum to be By paid by Lessee under this lease, and default shall continue for Lessee ten (10) days, or default shall be made in the performance of any of the other covenants or conditions which Lessee is required to observe and to perform, and such default shall continue for twenty (20) days, or if the interest of Lessee under this lease shall be levied on under execution or other legal process, or if any petition shall be filed by or against Lessee to declare Lessee a bankrupt or to delay, reduce or modify Lessor's debts or obligations, or if any petition shall be filed or other action taken to reorganize or modify Lessee's capital structure if Lessee be a corporation or other entity, or if Lessee be declared insolvent according to law, or if any assignment of Lessee's property shall be made for the benefit of creditors, or if a receiver or trustee is appointed for Lessee or its property, or if Lessee shall abandon or vacate the leased premises during the term of this lease or any renewals or extensions thereof, or if Lessee is a corporation and Lessee shall cease to exist as a corporation in good standing under the laws of the State of Texas or if Lessee is a partnership or other entity and shall be dissolved or otherwise liquidated, then Lessor may treat the occurrence of any one or more of the foregoing events as a breach of this lease (provided that no such levy, execution, legal process or petition filed against Lessee shall constitute a breach of this lease if Lessee shall vigorously contest the same by appropriate proceedings and shall remove or vacate the same within thirty (20) days from the date of its creation, service or filing) and thereupon, at Lessor's option, may have any one or more of the following described remedies in addition to all other rights and remedies available at law or in equity: (a) Lessor may terminate this lease and forthwith repossess the leased premises and be entitled to recover forthwith as damages a sum of money equal to the total of (i) the cost of recovering the leased premises, (ii) the unpaid rent earned at the time of termination, plus interest thereon at the maximum non-usurious rate per annum from the due date, (iii) the balance of the rent for the remainder of the term less the fair market rental value of the leased premises for said period and (iv) any other sum of money and damages owed by Lessee to Lessor. (b) Lessor may terminate Lessee's right of possession (but not the lease) and may repossess the leased premises by forcible entry or detainer suit or otherwise, without demand or notice of any kind to Lessee and without terminating this lease, in which event Lessor may, but shall be under no obligation to do so, relet the same for the account of Lessee for such rent and upon such terms as shall be satisfactory to Lessor. For the purpose of such reletting Lessor is authorized to decorate or to make any repairs, changes, alterations or additions in or to the leased premises that may be necessary or convenient, and (i) if Lessor shall fail or refuse to relet the leased premises, or (ii) if the same are relet and a sufficient sum shall not be realized from such reletting after paying the unpaid basic and additional rent due hereunder plus interest at the maximum non-usurious rate thereon, the cost of recovering possession, and all of the costs and expenses of such decorations, repairs, changes, alterations and additions and the expense of such reletting and of the collection of the rent accruing therefrom to satisfy the rent provided for in this lease to be paid, then Lessee shall pay to Lessor as damages a sum equal to the amount of the rental reserved in this lease for such period or periods, or if the leased premises have been relet, the Lessee shall satisfy and pay any such deficiency upon demand therefor from time to time and Lessee agrees that Lessor may file suit to recover any sums falling due under the terms of this Article V, Paragraph 10 (b) from time to time, and that no delivery to or recovery of any portion due Lessor hereunder shall be any defense in any action to recover any amount not theretofore reduced to judgment in favor of Lessor, nor shall such reletting be construed as an election on the part of Lessor to terminate this lease unless a written notice of such intention be given to Lessee by Lessor. Notwithstanding any such reletting without termination, Lessor may at any time thereafter elect to terminate this Lease for such previous breach. Non-Waiver 11. Failure of Lessor to declare any default immediately upon occurrence thereof, or delay in taking any action in connection therewith, shall not waive such default, but Lessor shall have the right to declare any such default at any time and take such action as might be lawful or authorized hereunder, either in law or in equity. Casualty 12. Lessor shall maintain fire and extended coverage Insurance insurance on the base building portion of the Building and on building standard improvements within the Lessee's premises. Said insurance shall be maintained with an insurance company authorized to do business in Texas, in amounts desired by Lessor and at the expense of Lessor and payments for losses thereunder shall be made solely to Lessor and Lessor's mortgagees. Lessee shall maintain at its expense fire and extended coverage insurance on all of its personal property, including removable trade fixtures, located in the leased premises and on all additions and improvements to the leased premises which exceed building standard. If the annual premiums to be paid by Lessor shall exceed the standard rates because Lessee's operations, contents of the leased premises, or improvements with respect to the leased premises beyond building standard, result in extra-hazardous exposure or increased costs, Lessee shall promptly pay the excess amount of the premium upon request by Lessor. Liability 13. Lessor shall at its expense, maintain a policy or Insurance policies of comprehensive general liability insurance with the premiums thereon fully paid on or before due date, issued by and binding upon some solvent insurance company, such insurance to afford minimum protection (such insurance to inure to the benefit of Lessor only, and not to Lessee) of not less than $300,000.00 In respect of personal injury or death in respect of any one occurrence and of not less than $100,000.00 for property damage in any one occurrence. Lessee shall at its expense, maintain a policy or policies of comprehensive general liability insurance with the premiums thereon fully paid on or before due date, issued by and binding upon some so1vent insurance company, such insurance to afford Lessee minimum protection of not less than $300,000.00 in respect of personal injury or death in respect of any one occurrence and of not less than $100,000.00 for property damage in any one occurrence. Lessee shall furnish to Lessor and maintain on deposit with Lessor, duplicate insurance policies or certificates of insurance evidencing Lessees compliance with the insurance provisions hereof. Hold 14. Lessor shall not be liable to Lessee, or to Lessee's Harmless agents, servants, employees, customers or invitees for any injury or damage to person or property caused by any act, omission or neglect of Lessee, its agents, servants, or employees, and Lessee agrees to indemnify and hold Lessor harmless from all liability and claims for any such damage or injury. Lessee shall not be liable to Lessor, or to Lessor's agents, servants, employees, customers or invitees for any damage to person or property caused by any act, omission or neglect of Lessor, its agents, servants or employees, and Lessor agrees to indemnify and hold Lessee harmless from all claims for such damage. Waiver 15. Anything in this lease to the contrary notwithstanding, Of Lessor and Lessee each hereby waive any and all rights of Subrogation recovery, claim, action or cause of action, against the other, Rights its agents, officers, or employees, for any loss or damage that may occur to the leased premises, or any improvements thereto, or said Building of which the leased premises are a part, or any improvements thereto, or any personal property of such party therein, by reason of fire, the elements, or any other cause which could be insured against under the terms of standard fire and extended coverage insurance policies referred to in Article V, Paragraph 12 hereof, regardless of cause or origin, including negligence of the other party hereto, its agents, officers or employees, and agrees that no insurer under such policies shall hold any right of subrogation against such other party. Name 16. Lessor may change the name of the Building at any time Of without notice to Lessee and Lessee shall not use the name of the Building Building for any purpose other than its mailing address. This lease shall be binding upon and inure to the benefit of the successors and assigns of Lessor, and shall be binding upon and inure to the benefit of Lessee, its successors, and, to the extent assignment may be approved by Lessor hereunder, Lessee's assigns. The pronouns of any gender shall include the other genders, and either the singular or the plural shall include the other. All rights and remedies of Lessor under this lease shall be cumulative and none shall exclude any other rights or remedies allowed by law; and this lease is a Texas contract, and all of the terms hereof shall be construed according to the laws of the State of Texas. PRIOR 17. Lessee, and its contractors, subcontractors, space ENTRY planners, suppliers, agents and other representatives shall be permitted to enter the Leased Premises at any time prior to the Commencement Date, at Lessee's risk, for the purpose of inspecting the Leased Premises and performing all work according to the terms and provisions of Article IV, Paragraph 6 of the Lease Agreement in connection with Lessee's occupancy thereof, including (without limitation) installation of any partition walls, ceilings, HVAC systems, high and low voltage electrical outlets and switches, computer systems, and any other fixtures, equipment, wall and floor coverings, furniture, draperies and other items of personal property constituting or to constitute the Leasehold Improvements. In connection therewith, Lessor hereby grants (at no cost) to Lessee and the other parties referred to in the preceding sentence access to and the right to use all loading docks, parking and elevator facilities (including freight elevators) and other areas in the Building and the Garage necessary for the construction and installation of the Leasehold Improvements. Lessor shall also in connection with the construction of Leasehold Improvements in the Leased Premises supply to the Leased Premises, at no cost to the Lessee, all power, water, gas, sewage, drainage and other utility services in the capacities currently available at the Building, without material reduction of such services to other tenants in the Building. No entry by Lessee, its agents, employees, contractors or invitees into the Leased Premises prior to the completion of Leasehold Improvements in such space shall cause the Commencement Date to occur, or obligate Lessee to pay Base Rental (or any portion thereof), or otherwise accelerate the date on which Base Rental shall first be payable with respect to such space hereunder, or obligate Lessee or any person which is entitled to have access to the Premises to pay any Basic Costs during such period provided, however the commencement date of this Lease shall be not later than June 1, 1988. Notwithstanding anything in this Article V, Paragraph 17 to the contrary, Lessee and such other parties shall not be entitled to perform work in the Leased Premises unless Lessee and such other parties are performing such work and related activities in the Leased Premises in accordance with the Building Rules and Regulations providing that such work and related activities do not interfere with or hinder Lessor's work, if any, in the Leased Premises. -13a- RENEWAL 18. As long as Lessee is not in default in the OPTION performance of its covenants under this Lease, Lessee is hereby granted the option to renew the term of this lease for one (1) successive period of five (5) years, such period ("Renewal Term") to commence at the expiration of the initial term of this lease. Lessee shall exercise its option to renew by delivering written notice of such election to Landlord at least twelve (12) months prior to the expiration of the initial term of this lease. Any such renewal of this lease shall be upon the same terms and conditions of this lease, except (a) the Base Rental during the Renewal Term shall be ninety percent (90%) of the prevailing Market Base Rental Rate (defined below) for similar space in the Uptown Houston Area at the time the Renewal Term commences, but in no event less than the Base Rental that Lessee is paying under the terms of this lease, (b) Lessee shall have no option to renew this lease beyond the expiration of said renewal term, (c) Lessee shall not have the right to assign its renewal right to any sublessee of the leased premises or assignee of the Lease, nor may any such sublessee or assignee exercise such renewal rights, and (d) the leasehold improvements will be provided in their then existing condition (on an "as is" basis) at the time the Renewal Term commences. As used in this Lease, the term "Market Base Rental Rate" shall mean the average of the annual rental rates then being charged in the Uptown Houston Area for space comparable to the space for which the Market Base Rental Rate is being determined (taking into consideration use, location and/or floor level within the applicable building, definition of net rentable area, leasehold improvements provided, quality, age and location of the applicable building, rental concessions (such as abatements or lease assumptions) and the time the particular rate under consideration became effective). It is agreed that bona fide written offers to lease the relevant space made to Lessor by third parties (at arm's-length) may be used by Lessor as an indication of Market Base Rental Rate. -13b- CROSS 19. A default under the Lease between Tower, Limited, DEFAULT Lessor, and Metro Traffic Control, Inc., Lessee, dated April 15, 1988, by Lessee shall constitute an event of default under the terms of Article V, Paragraph 10 hereof, entitling Lessor to all of its remedies as provided in said Article V, Paragraph 10. In the event Lessee leases less than 12,000 square feet of Net Rentable Area in the building known as Geosource Plaza, located at 2700 Post Oak Blvd., Houston, Texas 77056, Lessor shall have the option to terminate this Lease. -13c- ANTENNA 20. Lessor hereby agrees that Lessee, at Lessee's sole cost AGREEMENT and expense, may install, operate, and maintain three (3) antennae on Level 65 of the building provided the following conditions are met: a. At any such time, giving sixty (60) day prior notice, Lessee shall submit for Lessor's approval (which approval may be given or withheld in Lessor's sole discretion) an 8 1/2 inch by 11 inch engineer's scale drawing and specifications describing in detail the type of antenna and antenna equipment Lessee desires to install; b. Lessee shall pay Lessor in addition to the base rental stated in Article II, paragraph 3 of this Lease $350.00 per month for (each) antenna installed; c. Such antenna must be installed so as to meet or exceed Lessor's requirements for wind load, safety and aesthetics; d. Lessee's contractor for the installation of such antenna shall be approved by Lessor prior to any entry into the Building for such installation, which approval may be given or withheld in Lessor's sole discretion and conditioned on such contractor agreeing to indemnify Lessor and maintain insurance in a manner satisfactory to Lessor. e. Such antenna may not interfere with the operation of any existing antenna, microwave systems, or other communication equipment existing in the Building at the time of installation of such antenna. f. Notwithstanding anything in this lease to the contrary, Lessee's rights under this paragraph 20 are in all respects subject and subordinate to the prior rights of Transcontinental Gas Pipeline Company ("Transco") with respect to the 65th floor under its lease with Lessor in the Building. In connection therewith, Transco's approval to the placement of such antenna must be obtained. g. Should Lease be denied the right to install, operate and maintain such antenna by Lessor, or as a result of the prior rights of Transco, then Lessee has the right to terminate the lease in Transco Tower, upon giving Lessor thirty (30) days notice. -13d- IN TESTIMONY WHEREOF, the parties hereto have executed this lease as of the date aforesaid. LESSOR: LESSEE: TRANSCO TOWER LIMITED By: Post Oak/Alabama, General Partner By: Post Oak Associates II, Ltd., General Partner By: Gerald D. Hines Interests, Ltd., General Partner By: /s/ Greg F. Walsh, III By: Hines Consolidated Investments, Inc., ---------------------------- General Partner Greg F. Walsh, III /s/Louis S. Sklar, Vice President By:--------------------------------- Louis S. Sklar, Vice President SCHEDULE 1 TERM-SUBSTANTIAL COMPLETION The term shall commence upon the first to occur of (i) Substantial Completion of the leased premises, (ii) occupancy of the leased premises by Lessee or (iii) the date the leased premises would have been substantially complete had not any Lessee delays as defined in Part IV of Schedule 2 hereof occurred (the first of such date being herein called the "Term Commencement Date"), and, except as otherwise provided herein or in any exhibit or addendum hereto, shall continue in full force for a period of one hundred twenty (120) months thereafter (the last day of the term of this lease being herein referred to as the "Term Expiration Date"). The parties estimate that the Term Commencement Date will occur on or about June 1, 1988 (the "Scheduled Term Commencement Date"). If the leased premises are not Substantially Complete by the Scheduled Term Commencement Date for any reason, Lessor shall not be liable for any claims, damages or liabilities in connection therewith or by reason thereof, but the Term Commencement Date shall be determined as provided above. If Substantial Completion occurs prior to the Scheduled Term Commencement Date, Lessee shall take occupancy at that time and the Term shall commence. In either circumstance the Term Expiration Date shall be determined as provided above to provide for the lease being effective for its full term of months. Lessor shall provide Lessee with as much notice as circumstances allow of the date when Lessor expects to achieve Substantial Completion, based upon the progress of the work. Should the Term Commencement Date be a date other than the Scheduled Term Commencement Date, either Lessor or Lessee, at the request of the other, shall execute a declaration specifying the Term Commencement Date. Lessee's obligation to pay Base Rental and its other obligations for payment under this Lease shall commence upon the Term Commencement Date (except as expressly otherwise provided herein with respect to obligations arising earlier). "Substantial Completion" shall mean (and the leased premises shall be deemed "Substantially Complete") when (i) installation of all tenant improvements to be performed by the Lessor or the Lessor's contractors has occurred, (ii) Lessee has access to the elevator lobby on the floor where the leased premises are located, and (iii) Building services are ready to be furnished to the leased premises (or could be furnished to the leased premises if all the tenant improvements were completed). Substantial Completion shall be deemed to have occurred notwithstanding a requirement to complete "punchlist" or similar corrective work. The existence of construction work in other portions of the Building or the Project shall not affect the determination of the date of Substantial Completion of the leased premises. SCHEDULE 2 CONSTRUCTION OF INITIAL LEASEHOLD IMPROVEMENTS PART I. SCHEDULE OF CRITICAL DATES Set forth below is a schedule of certain critical dates relating to Lessor's and Lessee's respective obligations with respect to construction of the leasehold improvements for the leased premises. These dates and the respective obligations of Lessor and Lessee are more fully described in Part II below. The purpose of the following schedule is to make certain that the Bid Acceptance Date occurs, and thereby Lessor is released by Lessee to commence construction of Lessor's Work (defined below), not later than April 29, 1988 (herein called the "Target Bid Acceptance Date"). Due Date Responsible Party A. Space Plan April 22, 1988 Lessee Delivery Date B. Lessor Within seven (7) days after Lessor Lessor Review Date receives the Lessee Space Plan C. Space Plan Within seven (7) days after Lessor Lessor Revision Date meets with Lessee pursuant to Paragraph 2 of Part II and Lessee submits Lessee's Instructions. D. Working Within twenty-eight (28) days after Lessor Drawings Lessor receives the mutually Delivery Date approved Lessee Space Plan E. Working Within seven (7) days after Lessor Lessee Drawings submits to Lessee the Lessee Approval Date Working Drawings F. Bid Date Within twenty-eight (28) days after Lessor Lessee approves the Lessee Working Drawings and submits Lessee's Instructions G. Bid Acceptance Within seven (7) days after Lessor Lessee Date submits to Lessee the Tenant Construction Agreement All references to days mean calendar days, not working or business days. If Lessee delivers the Lessee Space Plan prior to the Space Plan Delivery Date, the Lessee Space Plan nevertheless shall be deemed delivered on the Space Plan Delivery Date for purposes of the foregoing schedule. PART II. LESSOR AND LESSEE PRE-CONSTRUCTION OBLIGATIONS 1. Lessee will deliver to Lessor no later than the Space Plan Delivery Date (described in Part I above) a detailed space plan containing the information described in Part V below, together with other relevant information and written instructions relating thereto which are required by Lessor to prepare the Lessee Working Drawings (defined below) for any and all improvements desired by Lessee in the leased premises (said space plan and other information and instructions being called the "Lessee Space Plan"). 2. Lessor will review the Lessee Space Plan to confirm that it conforms to the requirements listed in Part V below, and Lessor shall report any non-conformity to Lessee, on or before the Lessor Review Date (described in Part I above). Additionally, on or before the Lessor Review Date, Lessor shall meet with Lessee and advise Lessee informally of estimated potential costs and time delays associated with (i) work in excess of the quantities of Building standard items shown in Schedule 3 hereto; or (ii) improvements that are not Building Standard Improvements (the matters described in (i) and (ii) being called "Lessee Extra Work"). 3. In the event the Lessee Space Plan does not conform to the requirements of Part V below, or Lessee determines to make revisions to the Lessee Space Plan, Lessee will deliver a corrected Lessee Space Plan to Lessor no later than the Space Plan Revision Date (described in Part I above). Also, on or before the Space Plan Revision Date, Lessee shall advise (by so marking on the Lessee Space Plan and summarizing same in an accompanying memorandum) Lessor in writing (hereinafter called "Lessee's Instructions") of what will constitute the Outside Contract Items (as those terms are defined in Part IV below) 4. After Lessor has received the final, mutually approved Lessee Space Plan, Lessor shall promptly cause working drawings (herein called "Lessee Working Drawings") of the improvements to the leased premises shown on the Lessee Space Plan to be prepared and shall deliver to Lessee the Lessee Working Drawings no later than the Working Drawings Delivery Date (described in Part I above) or such later date as may be reasonable in light of the complexity of Lessee's leasehold improvements or the nature of Lessee Extra Work. 5. In the event the Lessee Working Drawings vary in design from the Lessee Space Plan due to the fault of the Lessor or the architect engaged by the Lessor to prepare the Lessee Working Drawings, and if Lessee promptly gives Lessor written notice thereof at least prior to the Working Drawings Approval Date (described in Part I above), Lessor at its expense promptly shall correct the Lessee Working Drawings. Otherwise, Lessee shall deliver to Lessor written approval of the Lessee Working Drawings no later than the Working Drawings Approval Date (described in Part I above), and by said approval Lessee shall acknowledge that said drawings correctly depict the proper layout and design for any and all improvements desired by the Lessee for the leased premises. 6. Upon receipt of Lessee's Instructions and Lessee's approval of the Lessee Working Drawings, Lessor agrees to submit for pricing by its contractors and subcontractors the Lessor's Work. Lessor then shall furnish to Lessee a Tenant Construction Agreement, which shall cover the Lessor's Work and shall contain the results of said pricing, on or before the Bid Date (described in Part I above) or such later date as may be reasonable in light of the complexity of Lessee's leasehold improvements or the nature of Lessee Extra Work. 7. Lessee agrees to promptly review the Tenant Construction Agreement and to deliver the Tenant Construction Agreement to Lessor, approved and executed by Lessee, on or before the Bid Acceptance Date (described in Part I above). Such delivery shall constitute Lessee's release of Lessor to commence construction of the Lessor's Work. PART III. CERTAIN PROVISIONS RELATING TO CONSTRUCTION 1. Upon approval of the Tenant Construction Agreement Lessor agrees to use diligence to attempt to install the Lessor's Work within the time specified in the Tenant Construction Agreement. Lessee shall pay all costs incurred in connection with Lessee Extra Work, including the costs of the materials and labor therefor and associated architectural and engineering fees, if any, plus an additional charge equal to the Applicable Amount (defined below). 2. Lessee may make changes in the work to be done on or for its leasehold improvements both before and during construction of the same, provided, however, that no changes may be made within 30 days prior to the Scheduled Substantial Completion Date for the Lessor's Work. However, Lessee shall be responsible for all costs relating thereto (plus the Applicable Amount), which costs shall include those resulting from any delays incurred by Lessor as a result of the changes. 3. As contemplated by Schedule 1, unless Lessee occupies the leased premises prior thereto, Lessee shall not be required to pay rent and the term of this lease shall not commence until Lessee's leasehold improvements are substantially completed, unless such substantial completion is delayed beyond the date Building standard improvements in the quantities described in Schedule 3 would have been completed and unless delays are caused by Lessee. The following are examples of such delays which shall be referred to as Lessee Delays: A. If Lessee's leasehold improvements involve Lessee Extra Work which requires more time to complete than is required for Building Standard Improvements; B. Failure by Lessee or its architects, engineers, space planners or others employed by Lessee to timely comply with the provisions of Part III above (but only if the failure results in Lessee's leasehold improvements being substantially completed later than they would have been substantially completed absent said failure); C. If Lessee makes changes either before or during construction of its leasehold improvements as described in Paragraph 2 of this Part III (but only if the changes result in Lessee's leasehold improvements being substantially completed later than they would have been substantially completed absent said changes). 4. Any failure of Lessee to use best efforts, in good faith, to comply with the requirements of this Schedule 2 shall constitute a default by Lessee, giving Lessor all of the remedies described in Section V of the lease, notwithstanding any provision hereof to the contrary. 5. Lessor shall pay and be responsible for the architectural and engineering fees incurred in preparing those portions of the Lessee Working Drawings which relate to the Building standard improvements to the leased premises. All other architectural and engineering fees incurred in connection with the preparation of the Lessee Working Drawings or changes thereto or in making any improvements to the leased premises shall be paid by Lessee upon receipt of an invoice therefor. 6. As used in this lease, the term "Applicable Amount" shall mean fifteen percent (15%) of the "Special Improvements Costs". The term "Special Improvements Costs" shall mean all costs incurred by Lessor (including architectural and engineering fees and any contractors' fees and fees for general conditions) in installing Lessee's leasehold improvements less and except the costs incurred for installing that portion of said leasehold improvements which constitute Building Standard Improvements to the extent that the same do not exceed the respective quantity allowances indicated in Schedule 3. PART IV. OUTSIDE CONTRACTOR With the written approval of Lessor, Lessee may elect to use a contractor (the "Outside Contractor") other than Lessor to install certain portions of the improvements shown on the Lessee Working Drawings. As used herein, "Outside Contract Items" means all work to be performed by the Outside Contractor and thereby not included in Lessor's Work. "Lessor's Work" means the work Lessor is requested to bid on by the Lessee's Instructions, or if Lessee is not using an Outside Contractor, all work shown on the Lessee Working Drawings; provided, however, the Lessor's Work, as designated by Lessee, must be such that it can be substantially completed in full prior to the Outside Contractor commencing the Outside Contract Items; provided further, however, if the Lessor's Work does not include all of the leasehold improvements for the leased premises, Lessor may refuse to bid on (and thereby Lessor shall not be required to perform) all or any part of the Lessor's Work as so designated by Lessee. If Lessee so elects to use the Outside Contractor, then Lessee, in the Lessee's Instructions shall notify Lessor what items shown on the Lessee Working Drawings will constitute the Outside Contract Items (which Lessor's bid shall not cover and Lessor shall not be required to bid on or install the Outside Contract Items) and the Lessor's Work. If Lessee so elects to use the Outside Contractor, then the following shall apply: (1) Lessee shall obtain (in sufficient time to allow timely commencement of construction of its leasehold improvements and so as not to interfere with the orderly construction of the Building but in any event prior to the Bid Date), the prior written consent of Lessor as to the Outside Contractor to be used by Lessee and of the scope of the work to be performed by the Outside Contractor. Examples of when Lessor's consent may be refused include Lessee's use of any contractor which may be expected to cause a delay in the completion of the Building or otherwise unreasonably interfere with said completion. (2) The Outside Contractor shall: (i) conduct its work in such a manner so as not to unreasonably interfere with any other construction occurring on or in the Building or the leased premises; (ii) comply with all rules and regulations relating to the construction activities in or on the Building, as may be reasonably promulgated from time to time by Lessor, any contractor or subcontractor Lessor selects to perform the Lessor's Work (hereinafter called the "General Contractor"), or the base Building contractor, (iii) maintain such insurance and bonds in force and effect as may be reasonably requested by Lessor or as required by applicable law (but in any event said insurance shall be in amounts at least equal to those required of the General Contractor and the base Building contractor and said bonds shall be in amounts equal to the full value or cost of the work being done by the Outside Contractor); and (iv) be responsible for reaching agreement with Lessor, the General Contractor and the base Building contractor as to the terms and conditions for all contractor items relating to conducting its work, including but not limited to those matters (including costs to be paid by the Outside Contractor) relating to hoisting, systems interfacing, use of temporary utilities, storage of materials and access to the leased premises. As a condition precedent to Lessor's approving the Outside Contractor under Paragraph (1) above, Lessee and the Outside Contractor shall deliver to Lessor such assurances or instruments to evidence the Outside Contractor's compliance or agreement to comply with the provisions of this Paragraph (2) as may be reasonably requested by Lessor. (3) Lessee shall indemnify and hold harmless Lessor, the General Contractor and the base Building contractor from and against any and all losses, damages, costs (including costs of suit and attorney's fees), liabilities, or causes of action arising out of or relating to the work of the Outside Contractor, including but not limited to mechanics', materialmen's or other liens or claims (and all costs or expenses associated therewith) asserted, filed or arising out of any such work and all damages arising from defective work of the Outside Contractor. All materialmen, contractors, artisans, mechanics, laborers and other parties hereafter contracting with Lessee for the furnishing of any labor, services, materials, supplies or equipment with respect to any portion of the leased premises are hereby charged with notice that they must look solely to Lessee for payment for same. Without limiting the generality of the foregoing, Lessee shall repair or cause to be repaired at its expense all damage caused by the Outside Contractor, its subcontractors or their employees. (4) Without Lessor's consent, the Outside Contractor shall not have access to the leased premises, nor be allowed to commence work therein, until Lessee acknowledges in writing that the substantial completion of the Lessor's Work has occurred, Lessor and Lessee have documented any minor deficiencies or incomplete items, if any, in the Lessor's Work, and Lessor releases the leased premises to Lessee. PART V. MINIMUM INFORMATION REQUIRED OF LESSEE SPACE PLAN Floor Plans (not less than 1/8 inch scale) indicating: 1. Location and type of all partitions. 2. Location and types of all doors - indicate hardware and provide keying schedule. 3. Location and type of glass partitions, windows and doors indicate framing if not building standard 4. Location of telephone equipment room accompanied by a signed approval of the telephone company. 5. Indicate critical dimensions necessary for construction. 6. Location of all building standard electrical items - outlets, switches, telephone outlets. (Building standard lighting will be determined by building architect). 7. Location and type of all non-building standard electrical items including lighting. 8. Location and type of equipment that will require special electrical requirements. Provide manufacturers specifications for use and operation. 9. Location, weight per square foot and description of any exceptionally heavy equipment or filing system exceeding 50 psf live load. 10. Requirements for special air conditioning or ventilation. 11. Type and color of floor covering. 12. Location, type and color of wall covering. 13. Location, type and color of building standard and non-building standard paint or finishes. 14. Location and type of plumbing. 15. Location and type of kitchen equipment. Details (not less than 1/4 inch scale) Showing: 1. All millwork with verified dimensions and dimensions of all equipment to be built-in. 2. Corridor entrances. 3. Bracing or support of special walls, glass partitions, etc. if desired. If not included with the space plan the building architect will design, at Lessee's expense, all support or bracing required. SCHEDULE 3 BUILDING STANDARD ALLOWANCES Lessee shall have allowances in the quantities provided below for the Building Standard Improvements ("Building Standard Improvements") identified as building standard in Lessor's plans and specifications for the Building and listed as follows: 1. Building Standard air-conditioning throughout the leased premises. 2. Building Standard ceiling throughout the leased premises. 3. Building Standard parabolic light fixtures as required, not to exceed one per seventy-five (75) square foot of net rentable area (NRA). 4. One (1) linear foot of Building Standard partitioning per twelve (12) square feet of net rentable area (NRA). 5. One (1) Building Standard door, door frame and latch set per three hundred (300) square feet of net rentable area (NRA). 6. One (1) Building Standard telephone wall outlet per two hundred ten (210) square feet of net rentable area (NRA). 7. One (1) Building Standard electrical wall outlet per one-hundred twenty (120) square feet of net rentable area (NRA). 8. One (1) wall toggle switch per door allowed. 9. Building Standard carpet throughout the leased premises. 10. Building Standard architectural blinds on all window openings on exterior perimeter of the leased premises. 11. Building Standard sprinkling for initial partition layout, which shall be pursuant to the National Fire Protection Association standard for the installation of sprinkler systems for light hazard occupancy. If Lessee does not use all quantities allowed under (3) through (9) above, Lessee shall receive a credit (against the cost of any non-standard items) therefor to the extent Lessor actually receives a credit from its contractors or suppliers for the Building. Any credit for Building Standard carpet shall not exceed $10.00 per square yard of net usable area. Notwithstanding anything herein to the contrary, Lessor shall demise the Leased Premises at no cost to Lessee. Lessor shall provide: 1. A Building Standard Door 2. Building Standard Paint 3. Building Standard Carpet 4. Building Standard Lighting, Electrical & Mechanical. TRANSCO TOWER TYPICAL FLOORPLAN LEVEL 2 EXHIBIT "A" [A graphic image of a floorplan appears here in the printed material.] Approx. 772 sf Net Rentable Area TRANSCO TOWER BUILDING RULES AND REGULATIONS 1. Sidewalks, doorways, skyways, vestibules, halls, stairways and other similar areas shall not be obstructed by tenants or used by any tenant for any purpose other than ingress and egress to and from the leased premises and for going from one part of the building to another part of the building. 2. Plumbing fixtures and appliances shall be used only for the purpose for which designated, and no sweeping, rubbish, rags, or other unsuitable material including toxic or flammable products shall be thrown or placed therein. Damage resulting to any such fixtures or appliances from misuse by a tenant shall be paid by him, and Landlord shall not in any case be responsible therefor. 3. No sign, advertisements or notices shall be painted or affixed on or to any windows or doors or other part of the building visible from the exterior or any common area or public areas of the building. No part of the building may be defaced by tenants. 4. Landlord will provide and maintain an alphabetical directory board for all tenants of the Building, in the first floor (main lobby) of the Building, the size, design and location to be subject to Landlord's review and consent, and no other directory shall be allowed. 5. No tenant shall place any additional lock or locks on any door in its leased area without Landlord's written consent. Keys to the locks on the doors in each tenant's leased area shall be furnished to each tenant per the lease agreement. Additional keys can only be obtained through the Gerald D. Hines Interests management office. 6. All tenants will refer all contractors, contractors' representatives and installation technicians tendering any service to them to Land- lord for Landlord's supervision, approval and control before the performance of any contractual services. This provision shall apply to all work performed in the building, including, but not limited to, installations of telephones, telegraph equipment, electrical devices and attachments, and any and all installations of every nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment and any other physical portion of the building. 7. After initial occupancy, movement in or out of the building of furniture or office equipment, or dispatch or receipt of tenants of any bulky material, merchandise or material which requires use of elevators shall be restricted to the use of freight elevators only. Absolutely no carts or dollies are allowed through the main entrances or on passenger elevators. All non-hand carried items must be delivered via the appropriate loading dock and freight elevator. Deliveries requiring multiple hoists, such as the movement of quantities of furniture or office equipment shall be under the supervision of Landlord and in the manner agreed between the tenant and Landlord by prearrangement before performance. Such prearrangement initiated by a tenant will include after hours scheduling by Landlord, and subject to his decision and control, as to the exact time, method, and routing of movement and as to limitations for safety or other concern which may prohibit any article, equipment or any other item from being brought into the building. The tenants are to assume all risks as to the damage to articles moved and injury to persons or public engaged or not engaged in such movement, including equipment, property and personnel of Landlord if damaged or injured as a result of an act in connection with carrying out this service for a tenant from time of entering property to completion of work; and Landlord shall not be liable for an act of any persons engaged in, or any damage or loss of any of said property or persons resulting from any act in connection with such service performed for a tenant. 8. Landlord shall have the power to prescribe the weight and position of safes and other heavy equipment, which shall in all cases, to distribute weight, stand on supporting devices approved by Landlord. All damages done to the building by taking in or putting out any property of a tenant, or done by a tenant's property while in the building, shall be repaired at the expense of such tenant. 9. A tenant shall notify the building manager when safes or other heavy equipment are to be taken in or out of the building, and the moving shall be done under the supervision of the building manager, after written permit from Landlord. Persons employed to move such property must be acceptable to Landlord. 10. Corridor doors, when not in use, shall be kept closed. 11. Each tenant shall cooperate with Landlord's employees in keeping its leased area neat and clean. No tenant shall employ any person for the purpose of such cleaning other than the building's cleaning and maintenance personnel without prior approval by Landlord. Landlord shall be in no way responsible to the tenants, their agents, employees, or invitees for any loss of property from the Premises or public areas or for any damages to any property thereon from any cause whatsoever. 12. To insure orderly operation of the building, no ice, mineral or water, towels, newspapers, etc. shall be delivered to any leased area except by persons appointed or approved by Landlord in writing. 13. Should a Tenant require telegraphic, telephonic, annunciator or other communication service, Landlord will direct the electricians where and how wires are to be introduced and placed and none shall be introduced or placed except as Landlord shall approve, which approval will not be unreasonably withheld. Electric current shall not be used for power or heating without Landlord's prior written permission. 14. Tenants shall not make or permit any improper noises in the building or otherwise interfere in any way with other tenants or persons having business with them. 15. Nothing shall be swept or thrown into the corridors, halls, elevator shafts or stairways. No birds or animals (except seeing eye dogs) shall be brought into or kept in, on or about any tenant's area. 16. No machinery of any kind other than normal office equipment shall be operated by any tenant on its leased area without the prior written consent of Landlord, nor shall any tenant use, or keep in the building, any flammable or explosive fluid or substance, except in accordance with local fire codes and procedures approved by Landlord. 17. No portion of any tenant's lease area shall at any time be used or occupied as sleeping or lodging quarters. 18. Landlord will not be responsible for lost or stolen personal property, money or jewelry from tenant's leased area or public areas regardless of whether such loss occurs when area is locked against entry or not. 19. Tenant will not tamper with or attempt to adjust temperature control thermostats in the Premises. 20. Landlord reserves the right to rescind any of these rules and regulations and to make such other and further rules and regulations as in its judgment shall, from time to time, be needful for the safety, protection, care and cleanliness of the building, the operation thereof, the preservation of good order therein and the protection and comfort of the tenants and their agents, employees and invitees, which rules and regulations, when made and written notice thereof is given to a tenant, shall be binding upon it in like manner as if originally herein prescribed. ANTENNA 20(a). Lessor hereby grants Lessee the right to install on AGREEMENT level 65 of the Building three (3) antenna subject to Lessor's approval of the antenna equipment to be installed in the Leased Premises and/or on level 65 and an 8 1/2" by 11" engineer's scale drawing and specifications describing in adequate detail the type of antenna and antenna equipment which Lessee desires to install. Such approved list of equipment, engineer's drawing, and specifications shall be attached hereto and made a part hereof as Exhibit C and Exhibit D respectively and initialed for identification by both parties. Such antenna will be installed so as to meet or exceed building requirements for windload, safety, and aesthetic purposes. Lessee agrees that it will bear the expense of installation and maintenance of the same. The construction, installation and maintenance of Lessee's antenna will be in all respects subject to the approval of the Lessor (which approval will not be unreasonably withheld or delayed). Lessor shall have the right to approve all plans for the installation of Lessee's antenna, the contractor which shall install said antenna, and the roof access thereto, none of which approvals shall be unreasonably withheld, delayed or conditioned. In any one instance should Lessee's antenna be determined to have caused direct interference with a pre-existing Lessee's antenna or other communication equipment, Lessee shall have a reasonable period to cure the problem or be cause to remove Lessee's antenna. Lessee shall pay to Lessor in addition to the Base Rental stated in Article II, Paragraph 3 of this lease ________ per month for the right to install Lessee's antenna on level 65 of the Building. SCHEDULE 1 TERM-SUBSTANTIAL COMPLETION The term shall commence upon the first to occur of (i) Substantial Completion of the leased premises, (ii) occupancy of the leased premises by Lessee or (iii) the date the leased premises would have been substantially complete had not any Lessee delays as defined in Part IV of Schedule 2 hereof occurred (the first of such date being herein called the "Term Commencement Date"), and, except as otherwise provided herein or in any exhibit or addendum hereto, shall continue in full force for a period of one hundred twenty (120) months thereafter (the last day of the term of this lease being herein referred to as the "Term Expiration Date"). The parties estimate that the Term Commencement Date will occur on or about June 1, 1988 (the "Scheduled Term Commencement Date"). If the leased premises are not Substantially Complete by the Scheduled Term Commencement Date for any reason, Lessor shall not be liable for any claims, damages or liabilities in connection therewith or by reason thereof, but the Term Commencement Date shall be determined as provided above. If Substantial Completion occurs prior to the Scheduled Term Commencement Date, Lessee shall take occupancy at that time and the Term shall commence. In either circumstance the Term Expiration Date shall be determined as provided above to provide for the lease being effective for its full term of months. Lessor shall provide Lessee with as much notice as circumstances allow of the date when Lessor expects to achieve Substantial Completion, based upon the progress of the work. Should the Term Commencement Date be a date other than the Scheduled Term Commencement Date, either Lessor or Lessee, at the request of the other, shall execute a declaration specifying the Term Commencement Date. Lessee's obligation to pay Base Rental and its other obligations for payment under this Lease shall commence upon the Term Commencement Date (except as expressly otherwise provided herein with respect to obligations arising earlier). "Substantial Completion" shall mean (and the leased premises shall be deemed "Substantially Complete") when (i) installation of all tenant improvements to be performed by the Lessor or the Lessor's contractors has occurred, (ii) Lessee has access to the elevator lobby on the floor where the leased premises are located, and (iii) Building services are ready to be furnished to the leased premises (or could be furnished to the leased premises if all the tenant improvements were completed). Substantial Completion shall be deemed to have occurred notwithstanding a requirement to complete "punchlist" or similar corrective work. The existence of construction work in other portions of the Building or the Project shall not affect the determination of the date of Substantial Completion of the leased premises. SCHEDULE 2 CONSTRUCTION OF INITIAL LEASEHOLD IMPROVEMENTS PART I. SCHEDULE OF CRITICAL DATES Set forth below is a schedule of certain critical dates relating to Lessor's and Lessee's respective obligations with respect to construction of the leasehold improvements for the leased premises. These dates and the respective obligations of Lessor and Lessee are more fully described in Part II below. The purpose of the following schedule is to make certain that the Bid Acceptance Date occurs, and thereby Lessor is released by Lessee to commence construction of Lessor's Work (defined below), not later than April 29, 1988 (herein called the "Target Bid Acceptance Date"). Due Date Responsible Party A. Space Plan April 22, 1988 Lessee Delivery Date B. Lessor Within seven (7) days after Lessor Lessor Review Date receives the Lessee Space Plan C. Space Plan Within seven (7) days after Lessor Lessor Revision Date meets with Lessee pursuant to Paragraph 2 of Part II and Lessee submits Lessee's Instructions. D. Working Within twenty-eight (28) days after Lessor Drawings Lessor receives the mutually Delivery Date approved Lessee Space Plan E. Working Within seven (7) days after Lessor Lessee Drawings submits to Lessee the Lessee Approval Date Working Drawings F. Bid Date Within twenty-eight (28) days after Lessor Lessee approves the Lessee Working Drawings and submits Lessee's Instructions G. Bid Acceptance Within seven (7) days after Lessor Lessee Date submits to Lessee the Tenant Construction Agreement All references to days mean calendar days, not working or business days. If Lessee delivers the Lessee Space Plan prior to the Space Plan Delivery Date, the Lessee Space Plan nevertheless shall be deemed delivered on the Space Plan Delivery Date for purposes of the foregoing schedule. PART II. LESSOR AND LESSEE PRE-CONSTRUCTION OBLIGATIONS 1. Lessee will deliver to Lessor no later than the Space Plan Delivery Date (described in Part I above) a detailed space plan containing the information described in Part V below, together with other relevant information and written instructions relating thereto which are required by Lessor to prepare the Lessee Working Drawings (defined below) for any and all improvements desired by Lessee in the leased premises (said space plan and other information and instructions being called the "Lessee Space Plan"). 2. Lessor will review the Lessee Space Plan to confirm that it conforms to the requirements listed in Part V below, and Lessor shall report any non-conformity to Lessee, on or before the Lessor Review Date (described in Part I above). Additionally, on or before the Lessor Review Date, Lessor shall meet with Lessee and advise Lessee informally of estimated potential costs and time delays associated with (i) work in excess of the quantities of Building standard items shown in Schedule 3 hereto; or (ii) improvements that are not Building Standard Improvements (the matters described in (i) and (ii) being called "Lessee Extra Work"). 3. In the event the Lessee Space Plan does not conform to the requirements of Part V below, or Lessee determines to make revisions to the Lessee Space Plan, Lessee will deliver a corrected Lessee Space Plan to Lessor no later than the Space Plan Revision Date (described in Part I above). Also, on or before the Space Plan Revision Date, Lessee shall advise (by so marking on the Lessee Space Plan and summarizing same in an accompanying memorandum) Lessor in writing (hereinafter called "Lessee's Instructions") of what will constitute the Outside Contract Items (as those terms are defined in Part IV below) 4. After Lessor has received the final, mutually approved Lessee Space Plan, Lessor shall promptly cause working drawings (herein called "Lessee Working Drawings") of the improvements to the leased premises shown on the Lessee Space Plan to be prepared and shall deliver to Lessee the Lessee Working Drawings no later than the Working Drawings Delivery Date (described in Part I above) or such later date as may be reasonable in light of the complexity of Lessee's leasehold improvements or the nature of Lessee Extra Work. 5. In the event the Lessee Working Drawings vary in design from the Lessee Space Plan due to the fault of the Lessor or the architect engaged by the Lessor to prepare the Lessee Working Drawings, and if Lessee promptly gives Lessor written notice thereof at least prior to the Working Drawings Approval Date (described in Part I above), Lessor at its expense promptly shall correct the Lessee Working Drawings. Otherwise, Lessee shall deliver to Lessor written approval of the Lessee Working Drawings no later than the Working Drawings Approval Date (described in Part I above), and by said approval Lessee shall acknowledge that said drawings correctly depict the proper layout and design for any and all improvements desired by the Lessee for the leased premises. 6. Upon receipt of Lessee's Instructions and Lessee's approval of the Lessee Working Drawings, Lessor agrees to submit for pricing by its contractors and subcontractors the Lessor's Work. Lessor then shall furnish to Lessee a Tenant Construction Agreement, which shall cover the Lessor's Work and shall contain the results of said pricing, on or before the Bid Date (described in Part I above) or such later date as may be reasonable in light of the complexity of Lessee's leasehold improvements or the nature of Lessee Extra Work. 7. Lessee agrees to promptly review the Tenant Construction Agreement and to deliver the Tenant Construction Agreement to Lessor, approved and executed by Lessee, on or before the Bid Acceptance Date (described in Part I above). Such delivery shall constitute Lessee's release of Lessor to commence construction of the Lessor's Work. PART III. CERTAIN PROVISIONS RELATING TO CONSTRUCTION 1. Upon approval of the Tenant Construction Agreement Lessor agrees to use diligence to attempt to install the Lessor's Work within the time specified in the Tenant Construction Agreement. Lessee shall pay all costs incurred in connection with Lessee Extra Work, including the costs of the materials and labor therefor and associated architectural and engineering fees, if any, plus an additional charge equal to the Applicable Amount (defined below). 2. Lessee may make changes in the work to be done on or for its leasehold improvements both before and during construction of the same, provided, however, that no changes may be made within 30 days prior to the Scheduled Substantial Completion Date for the Lessor's Work. However, Lessee shall be responsible for all costs relating thereto (plus the Applicable Amount), which costs shall include those resulting from any delays incurred by Lessor as a result of the changes. 3. As contemplated by Schedule 1, unless Lessee occupies the leased premises prior thereto, Lessee shall not be required to pay rent and the term of this lease shall not commence until Lessee's leasehold improvements are substantially completed, unless such substantial completion is delayed beyond the date Building standard improvements in the quantities described in Schedule 3 would have been completed and unless delays are caused by Lessee. The following are examples of such delays which shall be referred to as Lessee Delays: A. If Lessee's leasehold improvements involve Lessee Extra Work which requires more time to complete than is required for Building Standard Improvements; B. Failure by Lessee or its architects, engineers, space planners or others employed by Lessee to timely comply with the provisions of Part III above (but only if the failure results in Lessee's leasehold improvements being substantially completed later than they would have been substantially completed absent said failure); C. If Lessee makes changes either before or during construction of its leasehold improvements as described in Paragraph 2 of this Part Ill (but only if the changes result in Lessee's leasehold improvements being substantially completed later than they would have been substantially completed absent said changes). 4. Any failure of Lessee to use best efforts, in good faith, to comply with the requirements of this Schedule 2 shall constitute a default by Lessee, giving Lessor all of the remedies described in Section V of the lease, notwithstanding any provision hereof to the contrary. 5. Lessor shall pay and be responsible for the architectural and engineering fees incurred in preparing those portions of the Lessee Working Drawings which relate to the Building standard improvements to the leased premises. All other architectural and engineering fees incurred in connection with the preparation of the Lessee Working Drawings or changes thereto or in making any improvements to the leased premises shall be paid by Lessee upon receipt of an invoice therefor. 6. As used in this lease, the term "Applicable Amount" shall mean fifteen percent (15%) of the "Special Improvements Costs". The term "Special Improvements Costs" shall mean all costs incurred by Lessor (including architectural and engineering fees and any contractors' fees and fees for general conditions) in installing Lessee's leasehold improvements less and except the costs incurred for installing that portion of said leasehold improvements which constitute Building Standard Improvements to the extent that the same do not exceed the respective quantity allowances indicated in Schedule 3. PART IV. OUTSIDE CONTRACTOR With the written approval of Lessor, Lessee may elect to use a contractor (the "Outside Contractor") other than Lessor to install certain portions of the improvements shown on the Lessee Working Drawings. As used herein, "Outside Contract Items" means all work to be performed by the Outside Contractor and thereby not included in Lessor's Work. "Lessor's Work" means the work Lessor is requested to bid on by the Lessee's Instructions, or if Lessee is not using an Outside Contractor, all work shown on the Lessee Working Drawings; provided, however, the Lessor's Work, as designated by Lessee, must be such that it can be substantially completed in full prior to the Outside Contractor commencing the Outside Contract Items; provided further, however, if the Lessor's Work does not include all of the leasehold improvements for the leased premises, Lessor may refuse to bid on (and thereby Lessor shall not be required to perform) all or any part of the Lessor's Work as so designated by Lessee. If Lessee so elects to use the Outside Contractor, then Lessee, in the Lessee's Instructions shall notify Lessor what items shown on the Lessee Working Drawings will constitute the Outside Contract Items (which Lessor's bid shall not cover and Lessor shall not be required to bid on or install the Outside Contract Items) and the Lessor's Work. If Lessee so elects to use the Outside Contractor, then the following shall apply: (1) Lessee shall obtain (in sufficient time to allow timely commencement of construction of its leasehold improvements and so as not to interfere with the orderly construction of the Building but in any event prior to the Bid Date), the prior written consent of Lessor as to the Outside Contractor to be used by Lessee and of the scope of the work to be performed by the Outside Contractor. Examples of when Lessor's consent may be refused include Lessee's use of any contractor which may be expected to cause a delay in the completion of the Building or otherwise unreasonably interfere with said completion. EX-10.10 11 EXIHIBIT 10.10 LEASE AMENDMENT NUMBER ONE BETWEEN TRANSCO TOWER, LIMITED, "LESSOR" AND METRO TRAFFIC CONTROL, INC., "LESSEE" DATED OCTOBER 19, 1988 THE STATE OF TEXAS ss. COUNTY OF HARRIS ss. WHEREAS, TRANSCO TOWER, LIMITED, hereinafter called "Lessor", and METRO TRAFFIC CONTROL, INC., hereinafter called "Lessee", entered into a Lease Agreement dated April 18, 1988, covering approximately seven hundred seventy-two (772) square feet of Net Rentable Area located on Level 52 in Transco Tower at 2800 Post Oak Boulevard, Houston, Texas 77056; and WHEREAS, Lessor and Lessee mutually desire to amend said Lease Agreement as set forth below: NOW, THEREFORE, Lessor and Lessee do hereby amend said Lease Agreement as follows: 1. The terms used herein shall have the same meanings as defined in the Lease, unless otherwise defined herein, and all terms defined herein are hereby incorporated into the Lease for all pertinent purposes, unless otherwise stated. 2. The term of the Lease as stated in Article II, Paragraph 1. (a) of the Lease is hereby amended to continue in force for a term of nine (9) years nine (9) months and fourteen (14) days beginning on the 1st day of November, 1988 and ending on the 14th day of August, 1998. 3. The Base Rental stated in Article II, Paragraph 3 is hereby increased for years 1 thru 5 from $7,720.00 per year to $8,521.00 per year and for years 6 thru 10 from $11,580.00 per year to $12,381.00 per year. The purpose for the increased Base Rental is to amortize at an annual percentage rate of ten percent (10%) $5,000.00 attributable to the cost of a fan coil unit installed in the Leased Premises. 4. Except as expressly amended by the First Amendment, the Lease shall continue in full force and effect. EXCEPT as hereby expressly amended, Lessor and Lessee do hereby ratify and affirm all of the terms, conditions and covenants of said Lease Agreement. WITNESS the execution here this ____ day of ____________________, 19__. TRANSCO TOWER, LIMITED METRO TRAFFIC CONTROL, INC. By: Post Oak/Alabama, General Partner By: Post Oak Associates II, Ltd., General Partner By: Gerald D. Hines Interests, Ltd. General Partner By: Hines Consolidated Investments, Inc., General Partner By: /s/ Louis S. Sklar By: /s/ Greg F. Walsh, III ------------------------------ ------------------------------ Louis S. Sklar, Vice President LESSOR LESSEE EX-10.11 12 EXHIBIT 10.11 LEASE AMENDMENT NUMBER TWO BETWEEN TRANSCO TOWER, LIMITED, "LESSOR" AND METRO TRAFFIC CONTROL, INC., "LESSEE" DATED JANUARY 29, 1992 THE STATE OF TEXAS ) COUNTY OF HARRIS ) WHEREAS, Transco Tower, Limited, hereinafter called "Lessor", and Metro Traffic Control, Inc., hereinafter called "Lessee", entered into a Lease Agreement dated April 18, 1988, covering approximately seven hundred seventy-two (772) square feet of Net Rentable Area located on Level 52 in Transco Tower at 2800 Post Oak Boulevard, Houston, Texas 77056; and WHEREAS, Lessor and Lessee entered into that certain Lease Amendment Number One dated October 19, 1988, in order to modify the term of the Lease and to increase the Base Rental to amortize the cost of one (1) fan coil unit installed in the Leased Premises. WHEREAS, Lessor and Lessee mutually desire to amend said Lease Agreement as set forth below: NOW, THEREFORE, Lessor and Lessee do hereby amend said Lease Agreement as follows: 1. The terms used herein shall have the same meanings as defined in the Lease, unless otherwise defined herein, and all terms defined herein are hereby incorporated into the Lease for all pertinent purposes, unless otherwise stated. 2. The Leased Premises is hereby expanded by 827 net rentable square feet (the "Expansion Space") as shown in Exhibit "A" attached hereto and made a part hereof for all purposes. The Leased Premises shall be comprised of 1,599 square feet of Net Rentable Area. 3. The Base Rental stated in Article II, Paragraph 3 is hereby increased from $8,521.00 per year to $17,618.00 per year commencing upon the first to occur of (i) substantial completion of the Expansion Space or (ii) occupancy of the Leased Premises by the Lessee thru October 31, 1993 and from $12,381.00 per year to $25,613.00 per year commencing on November 1, 1993 thru August 14, 1998. 4. Lessor at Lessor's expense shall build out the Expansion Space with Building Standard Improvements including the removal of the existing demising wall in accordance with final working drawings approved by Lessee and Lessor. EXCEPT as hereby expressly amended, Lessor and Lessee do hereby ratify and affirm all terms, conditions and covenants of said Lease Agreement. WITNESS the execution here this 29th day of January, 1992. TRANSCO TOWER, LIMITED METRO TRAFFIC CONTROL, INC. By: Post Oak/Alabama, General Partner By: Post Oak Associates II, Ltd., General Partner By: GDHI Limited Partnership, General Partner By: Hines Consolidated Investments, Inc., General Partner By: /s/ Louis S. Sklar By: /s/ Greg F. Walsh, III ------------------------- ------------------------- Louis S. Sklar, Vice President LESSOR LESSEE [Floor plan of net rentable area.] LEVEL 52 TRANSCO TOWER EXHIBIT A EX-10.12 13 EXHIBIT 10.12 LEASE AMENDMENT NUMBER THREE BETWEEN TRANSCO TOWER, LIMITED, "LESSOR" AND METRO TRAFFIC CONTROL, INC., "LESSEE" DATED MAY 28, 1992 THE STATE OF TEXAS ) COUNTY OF HARRIS ) WHEREAS, Transco Tower, Limited, hereinafter called "Lessor", and Metro Traffic Control, Inc., hereinafter called "Lessee", entered into a Lease Agreement dated April 18, 1988, covering approximately seven hundred seventy-two (772) square feet of Net Rentable Area located on Level 52 in Transco Tower at 2800 Post Oak Boulevard, Houston, Texas 77056; and WHEREAS, Lessor and Lessee entered into that certain Lease Amendment Number One dated October 19, 1988, in order to modify the term of the Lease and to increase the Base Rental to amortize the cost of one (1) fan coil unit installed in the Leased Premises. WHEREAS, Lessor and Lessee entered into that certain Lease Amendment Number Two dated January 29, 1992 in order to expand the Leased Premises by 827 net rentable square feet thereby increasing the total area of the Leased Premises to 1,599 square feet of Net Rentable Area. WHEREAS, Lessor and Lessee mutually desire to amend said Lease Agreement as set forth below: NOW, THEREFORE, Lessor and Lessee do hereby amend said Lease Agreement as follows: 1. The terms used herein shall have the same meanings as defined in the Lease, unless otherwise defined herein, and all terms defined herein are hereby incorporated into the Lease for all pertinent purposes, unless otherwise stated. 2. Lessor shall provide an above building standard allowance of up to $3,861.00. 3. The Base Rental stated in Article II, Paragraph 3 of the Lease Agreement as amended in Amendment Number Two is hereby increased from $17,618.00 per year to $18,461.00 per year commencing on July 15, 1992 thru October 31, 1993 and from $25,613.00 per year to $26,456.00 per year commencing on November 1, 1993 thru August 14, 1998. The increased base rental is to amortize said allowance described in paragraph 2 herein at an annual compounded interest rate of ten percent (10%) per annum. 4. Lessee acknowledges that a separate electrical meter shall be installed in the Leased Premises for the purpose of monitoring Lessee's electrical useage. The cost of such electrical meter is included in the allowance described in paragraph 2 herein. Lessee hereby agrees to pay for the electricity which exceeds one watt per square foot as specified in Article III, Paragraph 3(c) of the Lease Agreement upon receipt of Lessor's invoice. EXCEPT as hereby expressly amended, Lessor and Lessee do hereby ratify and affirm all terms, conditions and covenants of said Lease Agreement. WITNESS the execution here this ____ day of ___________,19__. TRANSCO TOWER, LIMITED METRO TRAFFIC CONTROL, INC. By: Post Oak/Alabama, General Partner By: Post Oak Associates II, Ltd., General Partner By: GDHI Limited Partnership, General Partner By: Hines Consolidated Investments, Inc., General Partner By: /s/ Louis S. Sklar By: /s/ Greg F. Walsh, III ------------------------- ------------------------- Louis S. Sklar, Vice President LESSOR LESSEE MJM:AMEND:fr 42092met EX-27 14 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED FINANCIAL STATEMENTS FOR DECEMBER 31, 1995 UNAUDITED FINANCIAL STATEMENTS FOR MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS 3-MOS DEC-31-1995 DEC-31-1996 JAN-01-1995 JAN-01-1996 DEC-31-1995 MAR-31-1996 3,049,946 3,450,031 0 0 12,662,716 12,909,159 0 0 399,606 643,858 21,710,726 22,468,531 9,212,472 9,801,660 (4,234,972) (4,597,497) 42,436,614 47,755,420 13,810,242 14,830,606 21,877,156 25,136,306 0 0 0 0 3,015 3,615 4,023,811 4,023,811 42,436,614 47,755,411 72,432,951 23,030,197 72,432,951 23,030,197 41,285,973 12,468,213 0 0 1,123,073 292,810 0 0 1,260,185 322,109 4,345,729 1,611,676 1,036,352 502,948 3,309,377 1,108,728 0 0 0 0 0 0 3,309,377 1,108,728 0 0 0 0
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