-----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, RzADsO78mbIPBHQo2Sjsygk74Hau1g6bUrVxN/Tc+Vxs275rAYDUAhK+1y4CWISV lBQHDAwkYoKvmE9dISkiaA== 0000950153-98-000252.txt : 19980323 0000950153-98-000252.hdr.sgml : 19980323 ACCESSION NUMBER: 0000950153-98-000252 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980319 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OUTDOOR SYSTEMS INC CENTRAL INDEX KEY: 0000874534 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 860736400 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13275 FILM NUMBER: 98569245 BUSINESS ADDRESS: STREET 1: 2502 N BLACK CANYON HWY CITY: PHOENIX STATE: AZ ZIP: 85009 BUSINESS PHONE: 6022469569 MAIL ADDRESS: STREET 1: 2502 N BLACK CANYON HWY CITY: PHOENIX STATE: AZ ZIP: 85009 10-K405 1 10-K405 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM 10-K ------------------------ FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-13275 OUTDOOR SYSTEMS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 86-0736400 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION) IDENTIFICATION NO.) 2502 N. BLACK CANYON HIGHWAY PHOENIX, ARIZONA 85009 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(602) 246-9569 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $.01 par value New York Stock Exchange 9 3/8% Senior Subordinated Notes due 2006 New York Stock Exchange Guarantees of 9 3/8% Senior Subordinated Notes due 2006 New York Stock Exchange 8 7/8% Senior Subordinated Notes due 2007 New York Stock Exchange Guarantees of 8 7/8% Senior Subordinated Notes due 2007 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of Common Stock on March 13, 1998 as reported by the New York Stock Exchange, was approximately $2,747.7 million. The number of shares of the Registrant's Common Stock outstanding at March 13, 1998 was 121,123,367. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive proxy statement for the Registrant's Annual Meeting of Stockholders to be held on May 21, 1998 are incorporated by reference herein. ================================================================================ 2 CONTENTS
PAGE ---- PART I ITEM 1. BUSINESS GENERAL..................................................... 1 INDUSTRY OVERVIEW........................................... 1 BUSINESS STRATEGY........................................... 2 MARKETS..................................................... 3 INVENTORY................................................... 4 EMPLOYEES................................................... 5 SALES AND SERVICE........................................... 5 CUSTOMERS................................................... 5 PRODUCTION.................................................. 6 COMPETITION................................................. 7 GOVERNMENT REGULATION....................................... 7 ITEM 2. PROPERTIES.................................................. 9 ITEM 3. LEGAL PROCEEDINGS........................................... 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 9 ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY........................... 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...................................... 11 ITEM 6. SELECTED FINANCIAL DATA..................................... 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................ 13 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.................................................... 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 19 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................................. 43 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 43 ITEM 11. EXECUTIVE COMPENSATION...................................... 43 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................... 43 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...................................................... 43
3 PART I. ITEM 1. BUSINESS GENERAL Outdoor Systems, Inc. (the "Company") is the largest out-of-home media company in North America, operating, as of December 31, 1997, approximately 98,300 bulletin, poster, mall and transit advertising display faces in 90 metropolitan markets in the United States and 13 metropolitan markets in Canada and approximately 125,000 subway advertising display faces in New York City. The Company has operations in 50 of the 50 largest United States markets and 13 of the 15 largest Canadian markets. Since going public in April of 1996, the Company has effected four three-for-two stock splits of the Common Stock. All applicable information in this report, including the Consolidated Financial Statements and the Notes thereto, have been adjusted to reflect these stock splits on a retroactive basis for all periods presented. INDUSTRY OVERVIEW The outdoor advertising industry has experienced increased advertiser interest and revenue growth in recent years. Outdoor advertising generated total revenues of approximately $2.1 billion in 1997, or approximately 1.1% of the total advertising expenditures in the United States, while the out-of-home advertising industry, consisting of transit and in-store advertising displays in addition to outdoor advertising, generated revenues in excess of $4.0 billion in 1997, according to estimates by the Outdoor Advertising Association of America ("OAAA"). Outdoor advertising's 1997 revenues represent growth of approximately 8.8% over estimated total revenues for 1996, which compares favorably to the growth of total U.S. advertising expenditures of approximately 6.6% during the same period. Advertisers purchase outdoor advertising for a number of reasons. Outdoor advertising offers repetitive impact and a relatively low cost per-thousand-impressions, a commonly used media measurement, as compared to television, radio, newspaper, magazine and direct mail marketing. Accordingly, because of its cost-effective nature, outdoor advertising is a good vehicle to build "mass market" support. In addition, outdoor advertising can be used to target a defined audience in a specific location and, therefore, can be relied upon by local businesses concentrating on a particular geographic area where customers have specific demographic characteristics. For instance, restaurants, motels, service stations and similar roadside businesses may use outdoor advertising to reach potential customers close to the point of sale and provide directional information. Other local businesses such as television and radio stations and consumer products companies may wish to appeal more broadly to customers and consumers in the local market. National brand name advertisers may use the medium to attract customers generally and build brand awareness. In all cases, outdoor advertising can be combined with other media such as radio and television to reinforce messages being provided to consumers. The outdoor advertising industry has experienced significant changes due to a number of factors. First, the entire "out-of-home" advertising category has expanded to include, in addition to traditional billboards and roadside displays, displays in shopping centers and malls, airports, stadiums, movie theaters and supermarkets, as well as on taxis, trains, buses and subways. Second, while the outdoor advertising industry has experienced a decline in the percentage of total revenues represented by its tobacco category, it has increased its visibility with and attractiveness to local advertisers as well as national retail, entertainment and consumer product-oriented companies. Third, the industry has benefited significantly from improvements in production technology, including the use of computer printing, vinyl advertising copy and improved lighting techniques, which have facilitated a more dynamic, colorful and creative use of the medium. This technological advance has permitted the outdoor advertising industry to respond more promptly and efficiently to the changing needs of its advertising customers and to increase its participation in multi-media campaigns. Lastly, the outdoor advertising industry has benefited from the growth in automobile travel time for business and leisure due to increased highway congestion and continued demographic shifts of residences and businesses from the cities to outlying suburbs. According to the Federal Highway Administration, it takes 14% more time to commute to work and the drivers and vehicles per household are growing at rates, three and six 1 4 times, respectively, of the population growth rate. The Company believes that the foregoing trends have resulted in increased consumer exposure to existing billboard structures at a time when other media have been fragmenting their audiences as the number of broadcast and cable networks and other narrowly targeted formats has increased. An expanding opportunity within the out-of-home advertising industry is transit advertising. Local governments are providing transit amenities to enhance their service and image to local transit users. To finance these transit amenities, municipalities issue contracts for advertising displays on bus shelters, subways and buses to private enterprises. Under these contracts, the private party constructs and maintains the amenities, which it can use for advertising displays. The primary benefits of privatizing transit advertising are the avoidance of capital expenditures by the municipality, the prospect of additional revenue for the municipality from a portion of the advertising revenue, the consistent quality that a coordinated transit program can provide and the benefits of regular cleaning and maintenance undertaken by private enterprises. The outdoor advertising industry is comprised of several large outdoor advertising and multi-media companies with operations in multiple markets, as well as many smaller and local companies operating a limited number of structures in a single or a few local markets. While the industry has experienced some consolidation within the past few years, the OAAA estimates that, as of December 31, 1997, there were approximately 600 companies in the outdoor advertising industry operating approximately 396,000 bulletin and poster display faces. The Company expects the trend of consolidation in the outdoor advertising industry to continue. BUSINESS STRATEGY The Company's primary objective is to be the leading provider of out-of-home advertising services in each of its major markets. The Company's successful operating strategy, focusing on superior sales and service, optimal management of its inventory, centralized administration, low overhead and strategic acquisitions, has enabled it to improve the historical operating results in each of its existing markets. Management intends to apply this strategy to each of its newly-acquired markets. - - Superior Sales and Service. The Company seeks to gain market share in each of its markets through an intensive focus on customer sales and service, quality displays and competitive pricing. The Company has recruited and trained a skilled sales force that is motivated by a program of commission-based compensation and supported by a network of experienced local managers who operate under a centrally coordinated marketing plan. Each of the Company's markets has a general manager who is actively engaged in sales. In addition, the Company seeks to attract and retain advertisers through creative advertising layouts, timely installation and rotation of displays and rapid response to customer needs. - - National Sales Force. The Company's markets generally possess demographic characteristics that are attractive to national advertisers, allowing the Company to combine several of its markets into single contracts so that advertisers with national and regional campaigns can simplify their purchasing process while presenting their messages in multiple markets. The Company seeks to gain national market share by providing advertisers easy access to all of the Company's markets through one of its four national sales offices. - - Optimal Inventory Management. The Company seeks to balance advertising rate growth with optimal occupancy of its displays in order to maximize revenues. The Company's variety of outdoor advertising displays in its geographically diverse markets permits flexibility in pricing and packaging its display inventory. - - Centralized Administration. The Company has consolidated substantially all of its administration, accounting, sales management and leasing management functions into its Phoenix headquarters and four regional offices. This centralization allows the Company to focus local efforts on customer service and sales and to exercise greater control over administrative costs and expenses. - - Strategic Acquisitions. The Company pursues strategic acquisitions in existing and new markets to achieve increased operating efficiencies, greater geographic diversification and increased market penetration. The Company is primarily interested in further expansion in the 50 largest United States and ten largest Canadian markets, because these markets typically generate greater outdoor market revenues, readily attract national advertisers, provide a better basis for regional advertising, attract quality management and offer opportunities to gain a larger market share from competitive media. 2 5 MARKETS The Company's markets generally possess demographic characteristics that are attractive to national advertisers, allowing the Company to combine several of its markets into single contracts so that advertisers with national and regional campaigns can simplify their purchasing process while presenting their messages in multiple markets. Each market also has unique local industries, businesses, sports franchises and special events that are frequent users of outdoor advertising. The following table sets forth certain information with respect to the Company's outdoor markets as of December 31, 1997:
MALL AND TOTAL MARKET 30-SHEET 8-SHEET AIRPORT DISPLAY MARKET RANK BULLETINS POSTERS POSTERS POSTERS TRANSIT FACES ------ ------ --------- -------- ------- -------- ------- ------- UNITED STATES: New York-New Jersey(1).............................. 1 864 2,979 262 264 2,710 7,079 Los Angeles......................................... 2 1,613 2,961 -- 473 2,912 7,959 Chicago............................................. 3 756 -- 640 162 -- 1,558 Philadelphia........................................ 4 23 -- -- 116 498 637 San Francisco....................................... 5 213 1,005 563 196 1,528 3,505 Boston.............................................. 6 -- -- -- 130 -- 130 Washington D.C...................................... 7 -- -- -- 195 -- 195 Dallas.............................................. 8 849 -- -- 127 -- 976 Detroit............................................. 9 656 1,342 91 138 1,000 3,227 Houston............................................. 10 1,047 -- -- 114 -- 1,161 Atlanta............................................. 11 933 1,679 -- 101 650 3,363 Seattle............................................. 12 -- -- -- 89 -- 89 Cleveland........................................... 13 70 -- -- 107 -- 177 Minneapolis......................................... 14 54 -- -- 155 -- 209 Miami-Ft. Lauderdale................................ 15 404 -- -- 168 -- 572 Tampa-St. Petersburg-Sarasota....................... 16 881 -- -- 116 -- 997 Phoenix............................................. 17.. 673 1,516 659 79 1,490 4,417 Sacramento-Stockton-Modesto......................... 18 446 1,271 -- 91 -- 1,808 Denver.............................................. 19 227 784 -- 156 5,266 6,433 St. Louis........................................... 20 466 833 1 10 -- 1,310 Pittsburgh.......................................... 21 -- -- -- 78 -- 78 Baltimore........................................... 22 -- -- -- 61 -- 61 San Diego........................................... 23 109 541 -- 106 680 1,436 Orlando............................................. 24 466 -- -- 93 -- 559 Portland, OR........................................ 25 17 -- -- 33 -- 50 Indianapolis........................................ 26 137 -- -- 59 -- 196 Hartford-New Haven.................................. 27 151 831 -- 25 -- 1,007 Cincinnati.......................................... 28 104 -- -- 60 -- 164 Salt Lake........................................... 29 61 -- -- 35 -- 96 Charlotte........................................... 30 145 -- -- 27 -- 172 Milwaukee........................................... 31 -- -- -- 32 -- 32 Raleigh-Durham...................................... 32 33 -- -- 20 -- 53 Nashville........................................... 33 248 -- -- 38 -- 286 Kansas City......................................... 34 242 840 -- 72 -- 1,154 Columbus, OH........................................ 35 104 -- -- 12 -- 116 San Antonio......................................... 36 85 -- -- 36 -- 121 Greenville, SC...................................... 37 -- -- -- 20 -- 20 Grand Rapids........................................ 38 56 568 -- 16 180 820 Norfolk............................................. 39 -- -- -- 57 -- 57 New Orleans......................................... 40 345 1,042 428 38 214 2,067 Memphis............................................. 41 77 -- -- 27 -- 104 Buffalo............................................. 42 116 -- -- 54 -- 170 Albuquerque......................................... 43 99 -- -- 27 -- 126 Providence.......................................... 44 -- -- -- 33 -- 33 Harrisburg.......................................... 45 -- -- -- 29 -- 29 Fresno.............................................. 46 125 892 -- 64 -- 1,081 Oklahoma City....................................... 47 -- -- -- 58 -- 58 Scranton............................................ 48 -- -- -- 10 -- 10 Louisville.......................................... 49 296 1,052 243 38 224 1,853 Winston-Salem....................................... 50 35 -- -- 16 -- 51 Birmingham.......................................... 51 154 -- -- 28 -- 182 West Palm Beach..................................... 52 219 -- -- 54 -- 273 Dayton.............................................. 53 123 -- -- 24 -- 147 Albany.............................................. 54 -- -- -- 107 -- 107 Jacksonville........................................ 55 178 -- -- 20 -- 198 Richmond, VA........................................ 56 -- -- -- 5 -- 5 Charleston, SC...................................... 57 181 -- -- 16 -- 197 Little Rock......................................... 58 -- -- -- 26 -- 26 Flint............................................... 59 86 423 32 21 -- 562 Tulsa............................................... 60 -- -- -- 6 -- 6 Wichita............................................. 61 -- -- -- 10 -- 10 Mobile.............................................. 62 -- -- -- 22 -- 22
3 6
MALL AND TOTAL MARKET 30-SHEET 8-SHEET AIRPORT DISPLAY MARKET RANK BULLETINS POSTERS POSTERS POSTERS TRANSIT FACES ------ ------ --------- -------- ------- -------- ------- ------- UNITED STATES (CONTINUED): Knoxville........................................... 63 78 -- -- 12 -- 90 Toledo.............................................. 64 -- -- -- 12 -- 12 Syracuse............................................ 65 -- -- -- 62 -- 62 Austin.............................................. 66 -- -- -- 6 -- 6 Green Bay........................................... 67 -- -- -- 14 -- 14 Las Vegas........................................... 68 156 -- -- 31 -- 187 Roanoke............................................. 70 49 -- -- 20 -- 69 Des Moines.......................................... 71 -- -- -- 28 -- 28 Honolulu............................................ 72 -- -- -- 551 -- 551 Rochester........................................... 73 -- -- -- 78 3,715 3,793 Shreveport.......................................... 74 41 -- -- 16 -- 57 Omaha............................................... 75 52 -- -- 15 -- 67 Tucson.............................................. 78 170 6 338 -- 10 524 Rio Grande.......................................... 82 316 -- -- -- -- 316 Columbia, SC........................................ 83 158 -- -- 24 -- 182 El Paso............................................. 84 81 -- -- -- -- 81 Chattanooga......................................... 85 63 -- -- 36 -- 99 Jackson, MS......................................... 87 76 -- -- 20 -- 96 Ft. Myers........................................... 96 108 -- -- 39 -- 147 Colorado Springs.................................... 99 62 -- -- -- -- 62 Ft. Wayne........................................... 106 69 -- -- -- -- 69 Tyler, TX........................................... 110 87 -- -- -- -- 87 Eugene.............................................. 123 77 382 -- -- -- 459 Bakersfield, CA..................................... 124 50 -- -- -- -- 50 Reno................................................ 126 104 -- -- -- -- 104 Columbus, GA........................................ 127 190 412 100 -- -- 702 Beaumont............................................ 135 110 -- -- -- -- 110 Midland-Odessa, TX.................................. 144 47 -- -- -- -- 47 Non-Metro Markets................................... N/A 12,439 175 -- 1,136 -- 13,750 ------ ------ ------ ----- ------ ------ UNITED STATES TOTAL(1)............................ 28,750 21,534 3,357 6,700 21,077 81,418 ------ ------ ------ ----- ------ ------ CANADA: Toronto............................................. 1 287 1,452 -- 47 3,557 5,343 Montreal............................................ 2 137 747 -- 75 1,823 2,782 Vancouver........................................... 3 2 -- -- 68 276 346 Ottawa.............................................. 4 19 172 -- -- 809 1,000 Edmonton............................................ 5 5 294 -- -- 548 847 Calgary............................................. 6 476 119 -- 38 648 1,281 Quebec City......................................... 7 193 327 -- 35 290 845 Winnipeg............................................ 8 109 246 -- -- 349 704 Hamilton............................................ 9 19 303 -- 80 598 1,000 London.............................................. 10 -- 53 -- -- -- 53 Kitchener........................................... 11 -- 72 -- -- -- 72 St. Catharines...................................... 12 7 91 -- -- -- 98 Halifax............................................. 13 17 169 -- 26 214 426 Other............................................... N/A 361 1,116 -- 81 480 2,038 ------ ------ ------ ----- ------ ------ CANADA TOTAL...................................... 1,632 5,161 0 450 9,592 16,835 ------ ------ ------ ----- ------ ------ TOTAL(1).......................................... 30,382(2) 26,695 3,357 7,150 30,669 98,253 ====== ====== ====== ===== ====== ======
- --------------- (1) Display faces do not include 125,000 subway advertising display faces in New York City. (2) Includes 141 wall murals and 51 "Spectacular" signs. INVENTORY The Company operates five standard types of outdoor advertising billboards and displays: - - Bulletins generally are 14 feet high and 48 feet wide (672 square feet). The advertising copy is either hand painted onto panels at the facilities of the outdoor advertising company in accordance with design specifications supplied by the advertiser, and then attached to the outdoor advertising structure, or is printed with computer-generated graphics on a single sheet of vinyl that is "wrapped" around the structure. On occasion, to attract more attention, some of the panels may extend beyond the linear edges of the display face and may include three-dimensional embellishments. Because of their greater impact and higher cost, bulletins are usually located on major highways. - - 30-sheet posters generally are 12 feet high by 25 feet wide (300 square feet) and are the most common type of billboard. Advertising copy for 30-sheet posters consists of lithographed or silk-screened paper sheets supplied by the advertiser that are pasted and applied like wallpaper to the face of the display, or single 4 7 sheets of vinyl with computer-generated advertising copy that are wrapped around the structure. 30-sheet posters are concentrated on major traffic arteries. - - Junior (8-sheet) posters usually are 6 feet high by 12 feet wide (72 square feet). Displays are prepared and mounted in the same manner as 30-sheet posters, except that vinyl sheets are not typically used on junior posters. Most junior posters, because of their smaller size, are concentrated on city streets and target pedestrian traffic. - - Mall and airport posters are displayed in backlighted cases. The displays are generally constructed, owned and maintained by the outdoor advertising company under a contract with a governmental entity or a shopping mall owner who receives a share of the advertising revenues. - - Transit displays include displays on bus shelters, subways and bus benches. Bus shelters and benches are usually constructed, owned and maintained by the outdoor advertising company under a contract with the municipality or transit authority which receives a share of the shelter's advertising revenues. Bus shelter displays are enclosed within glassed, backlighted cases on sides of a pedestrian shelter at an urban bus stop on city rights of way. Subway displays are located within subway stations and walkways as well as in subway trains. Advertisements appear on lithographed or silk-screened posters supplied in a single sheet by the advertiser. Transit displays are an attractive medium to advertisers using "vertical" advertising copy, such as magazines and movie posters, because the advertising copy is easily adapted for use in transit shelters, and because of the proximity of the display to consumers. Billboards generally are mounted on structures owned by the outdoor advertising company and located on sites that are either owned or leased by it or on which it has acquired a permanent easement. Billboard structures, bus shelters and benches are durable, have long useful lives and do not require substantial maintenance. When disassembled, they typically can be moved and relocated at new sites. EMPLOYEES The Company had approximately 1,360 and 1,490 employees at December 31, 1996 and 1997, respectively. SALES AND SERVICE The Company devotes considerable time and resources to recruiting, training and coordinating the activities of its sales force. Sales personnel are compensated primarily on a commission basis to maximize the incentive to perform. Arturo R. Moreno, President, Chief Executive Officer and a member of the Board of Directors, and Wally C. Kelly, Senior Vice President, are the Company's two principal officers responsible for day-to-day operations, and have an aggregate of approximately 44 years of experience in the outdoor advertising industry, virtually all of which has been spent in sales and management positions. CUSTOMERS Advertisers usually contract for outdoor displays through advertising agencies, which are responsible for the artistic design and written content of the advertising as well as the choice of media and the planning and implementation of the overall campaign. The Company pays commissions to the agencies for advertising contracts that are procured by or through those agencies. Advertising rates are based on a particular display's visual exposure (or number of "impressions" delivered) in relation to the demographics of the particular market and its location within that market. The number of "impressions" delivered by a display is measured by the number of vehicles passing the site during a defined period and is weighted to give effect to such factors as its proximity to other displays, the speed and viewing angle of approaching traffic, the national average of adults riding in vehicles and whether the display is illuminated. The number of impressions delivered by a display is verified by independent auditing companies. The size and geographic diversity of the Company's markets allows it to attract national advertisers by providing the opportunity to package displays in several of its markets in a single contract allowing a national advertiser to simplify the purchasing process and simultaneously present its message in several markets. 5 8 National advertisers generally seek wide exposure in major markets and therefore tend to make larger purchases. The Company competes for national advertisers primarily on the basis of price, availability and service. The Company also focuses its efforts on local sales. Local advertisers tend to have smaller advertising budgets and require greater assistance from the Company's production and creative personnel in designing and producing advertising copy. In local sales, the Company often expends more sales efforts on educating customers regarding the benefits of outdoor media and helping potential customers develop an advertising strategy using outdoor advertising. While price and availability are important competitive factors, service and customer relationships are also critical components of local sales. Tobacco revenues have historically accounted for a significant portion of outdoor advertising revenues. In the 1990s, due to a declining population of smokers, societal pressures, consolidation in the tobacco industry and price competition from generic brands, the leading tobacco companies substantially reduced their expenditures for outdoor advertising. Because tobacco advertisers often utilized some of the industry's prime inventory, the decline in tobacco-related advertising expenditures made this space available for other advertisers, including those that had not traditionally utilized outdoor advertising. As a result of this decline in tobacco-related advertising revenues and the increased use of outdoor advertising by other advertisers, the range of the Company's advertisers has become quite diverse, with no single category of advertisers accounting for more than 11.1% of net revenues in 1997. The following table illustrates the diversity of the Company's advertising base: NET REVENUES BY CATEGORY
PERCENTAGE OF NET REVENUES ------------ Retail/Consumer Products.................................... 11.1% Travel and Entertainment.................................... 8.5 Automotive.................................................. 8.0 Tobacco..................................................... 7.6 Media....................................................... 6.9 Restaurants................................................. 3.7 Health...................................................... 3.6 Liquor...................................................... 3.2 Banking..................................................... 2.6 Beer........................................................ 2.4 Realtors.................................................... 1.7 Beverages -- Soft Drinks.................................... 1.5 Hotels...................................................... 1.2 Miscellaneous............................................... 38.0 ----- Total............................................. 100.0% =====
PRODUCTION The Company possesses internal production facilities and staff to perform the full range of activities required to develop, create and install outdoor advertising. Production work includes creating the advertising copy design and layout, painting the design or coordinating its printing and installing the designs on its displays. The Company usually provides its full range of production services to local advertisers and to 6 9 advertisers that are not represented by advertising agencies, since national advertisers and advertisers represented by advertising agencies often use preprinted designs that require only installation. However, the Company's creative and production personnel frequently are involved in production activities even when advertisers are represented by agencies by developing new designs or adapting copy from other media for use on billboards. The Company's artists also assist in the development of marketing presentations, demonstrations and strategies to attract new advertisers. With the increased use of vinyl and pre-printed advertising copy furnished to the outdoor advertising company by the advertiser or its agency, outdoor advertising companies are becoming less responsible for labor-intensive production work since vinyl and pre-printed copy is typically produced by the advertiser or its agency and can be installed quickly. The Company believes that this trend over time will reduce operating expenses associated with production activities. COMPETITION The Company competes in each of its markets with other outdoor advertising operations as well as other media, including broadcast and cable television, radio, print and direct mail marketers. In addition, the Company also competes with a wide variety of "out-of-home" media, including advertising in shopping centers and malls, airports, stadiums, movie theaters and supermarkets, as well as on taxis, trains, buses and subways. Advertisers compare relative costs of available media and cost-per-thousand impressions, particularly when delivering a message to customers with distinct demographic characteristics. In competing with other media, outdoor advertising relies on its low cost per-thousand impressions and its ability to reach a broad segment of the population in a specific market or to target a particular geographic area or population with a particular set of demographic characteristics within that market. The outdoor advertising industry is highly fragmented, consisting of several large outdoor advertising and media companies with operations in multiple markets as well as smaller and local companies operating a limited number of structures in a single or a few local markets. Although some consolidation has occurred over the past few years, according to the OAAA, as of December 31, 1997, there were approximately 600 companies in the outdoor advertising industry operating approximately 396,000 bulletin and poster display faces. In several of its markets, the Company encounters direct competition from other major outdoor media companies. The Company believes that its strong emphasis on sales and customer service and its position as a major provider of advertising services in each of its markets enable it to compete effectively with the other outdoor advertising companies, as well as other media, within those markets. GOVERNMENT REGULATION U.S. Regulations. The outdoor advertising industry is subject to governmental regulation at the federal, state and local level. Federal law, principally the Highway Beautification Act of 1965, encourages states, by the threat of withholding 10% of the federal appropriations for the construction and improvement of highways within such states, to implement state legislation to prohibit billboards located within 660 feet of, or visible from, interstate and primary highways except in commercial or industrial areas where off-site signage is permitted provided it meets spacing and size restrictions. Most of the states have implemented regulations at least as restrictive as the Highway Beautification Act, prohibiting the removal of billboards from federally aided highways without compensation. The states and local jurisdictions have, in some cases, passed additional and more restrictive regulations on the construction, repair, upgrading, height, size and location of outdoor advertising structures adjacent to federally-aided highways and other thoroughfares. Such regulations, often in the form of municipal building, sign or zoning ordinances, specify minimum standards for the height, size and location of billboards. In some cases, the construction of new billboards or relocation of existing billboards is prohibited. Some jurisdictions also have restricted the ability to enlarge or upgrade existing billboards, such as converting from wood to steel or from nonilluminated to illuminated structures, and/or restrict the reconstruction of billboards which are substantially destroyed as a result of storms or other causes. From time to time governmental authorities order the removal of billboards by the exercise of eminent domain. Thus far, the Company believes it has been able 7 10 to obtain satisfactory compensation for any of its structures removed at the direction of governmental authorities, although there is no assurance that it will be able to continue to do so in the future. Amortization of billboards has also been adopted in varying forms in certain jurisdictions. In theory, amortization permits the billboard owner to operate its billboard as a non-conforming use for a specified period of time during which it is to recover its investment, after which it must remove or otherwise conform its billboard to the applicable regulations at its own cost without any compensation. Several municipalities in the Company's markets, including municipalities or townships in Denver, Houston, Jacksonville, Kansas City and St. Louis, currently have amortization ordinances or regulations. Ordinances requiring the removal of a billboard without compensation, whether through amortization or otherwise, are being challenged in various state and federal courts with conflicting results. In some cities, amortization ordinances or regulations are not being enforced or have been held unconstitutional. However, no assurance can be given as to the effect on the Company of the enforcement of existing laws or regulations, or of new laws and regulations that may be adopted in the future. In recent years, there have been efforts to restrict billboard advertising of certain products, including tobacco and alcohol. Congress has passed no legislation at the federal level except legislation requiring health hazard warnings similar to those on cigarette packages and print advertisements. In 1996, the Food and Drug Administration promulgated rules which, among other things, would limit certain types of outdoor advertising by tobacco companies. While certain of these regulations have been declared invalid by a lower court ruling, appeals are likely and there can be no assurance that further developments resulting in a validation or implementation of these or similar regulations will not occur. Outdoor advertising of tobacco products also may be affected by city or state regulations. For example, in 1995, the Court of Appeals for the Fourth Circuit upheld the validity of a Baltimore city ordinance restricting the placement of outdoor advertisements of cigarettes and alcohol in publicly visible locations, such as billboards, signboards and sides of buildings. Subsequently, the United States Supreme Court declined to review an appeal of the case. Restrictions similar to the Baltimore ordinance are also being contemplated or introduced in other states or municipalities around the country, including New Jersey, New York City, San Francisco, Chicago and Los Angeles. While Baltimore is not a municipality in which the Company conducts business, there can be no assurance that additional local or state governments will not enact similar ordinances or statutes to limit outdoor advertising of tobacco in the future in markets in which the Company operates. Certain states in which the Company operates have historically prohibited the outdoor advertising of distilled spirits. In California and Phoenix, Arizona, transit shelter advertising posters on public rights of way are prohibited from displaying tobacco and/or alcohol advertising. San Francisco has adopted an ordinance banning all tobacco and alcohol advertising on public property, but has "grandfathered" existing sales contracts through 2002. For each of the past three years, the California legislature has considered proposed legislation which would ban, or substantially limit, all outdoor advertising of tobacco. While that legislation has not been passed, the proponents have publicly stated they will continue to attempt to have such proposal enacted. It is uncertain whether additional legislation of this type will be enacted on the national level or in any of the markets in which the Company operates. It also has been reported that certain cigarette manufacturers who are defendants in numerous class action suits throughout the United States have reached agreement with Attorneys General of various states for an out of court settlement with respect to such suits that would, among other things, prohibit outdoor advertising by the tobacco industry. The settlement is subject to various conditions including approval and implementing legislation by the United States Congress. There can be no assurance as to the effect of this settlement agreement and potential legislation on the Company's business and on its net revenues and financial position. In addition, the states of Florida, Mississippi and Texas have entered into separate settlements of litigation with the tobacco industry. These settlements are not conditioned on federal government approval and provide for the elimination of all outdoor advertising of tobacco products. A reduction in billboard advertising by the tobacco industry would cause an immediate reduction in the Company's direct revenue from such advertisers and would simultaneously increase the available space on the existing inventory of billboards in the outdoor advertising industry. This could in turn result in a lowering of outdoor advertising rates in each of the 8 11 Company's outdoor advertising markets or limit the ability of industry participants to increase rates for some period of time. Any such consequence could have a material adverse effect on the Company. Canadian Regulations. Outdoor advertising in Canada is subject to regulation at the federal, provincial and municipal levels. These regulations may prohibit advertising of certain products on outdoor signs in certain locations. For example, in Ontario, billboards and posters advertising liquor may not be placed within 200 meters of a primary or secondary school. Additionally, Canadian federal legislation was enacted in April, 1997 which effectively prohibits substantially all outdoor tobacco advertising. While this legislation is being challenged, there can be no assurance that such challenge will be successful. In addition, the placement of outdoor billboards is primarily regulated at the provincial and local level. For example, Quebec regulates the placement of advertising adjacent to highways, as well as the language used on outdoor signs. General. To date, regulations in the Company's markets have not materially adversely affected its operations. However, the outdoor advertising industry is heavily regulated and at various times and in various markets can be expected to be subject to varying degrees of regulatory pressure affecting the operation of advertising displays. Accordingly, although the Company's experience to date is that the regulatory environment is not prohibitive, no assurance can be given that existing or future laws or regulations will not materially adversely affect the Company. ITEM 2. PROPERTIES Outdoor Advertising Sites. The Company owns parcels of real property that serve as sites for its outdoor displays. In addition, the Company possesses perpetual easements on parcels of real property owned by third parties on which it has placed outdoor displays. The majority of the Company's advertising display sites are leased. The Company's leases are for varying terms ranging from monthly or annual periods to terms of ten years or longer, and many provide for renewal options. There is no significant concentration of displays under any one lease or subject to negotiation with any one landlord. Office and Production Facilities. The Company's principal executive and administrative offices are located in Phoenix, Arizona, in a facility owned by the Company. A portion of this facility also is used for painting, poster prepasting and related production activities. Additionally, the Company owns the majority of the office and production facilities from which it operates in its United States and Canadian metropolitan markets. See also "Item 1 -- Business -- Markets." ITEM 3. LEGAL PROCEEDINGS The Company is party either as plaintiff or defendant to various actions, proceedings and pending claims, in the ordinary course of business. Litigation is subject to many uncertainties and it is possible that some of the legal actions, proceedings or claims referred to above could be decided against the Company. Although the ultimate amount for which the Company or its subsidiaries may be held liable with respect to matters where the Company is defendant is not ascertainable, the Company believes that any resulting liability will not materially affect the Company's financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 9 12 ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company are as follows:
YEARS WITH NAME AGE POSITION COMPANY ---- --- -------- ---------- William S. Levine.......... 66 Chairman of the Board and Director 18 Arthur R. Moreno........... 51 President, Chief Executive Officer and Director 14 Wally C. Kelly............. 41 Senior Vice President 14 Robert M. Reade............ 58 Vice President 6 Bill M. Beverage........... 47 Treasurer, Secretary and Chief Financial Officer 7
Mr. Levine, a founder and principal stockholder of the Company, has been Chairman of the Board and a director of the Company since its formation. Mr. Levine has 18 years of experience in the outdoor advertising industry. He is an owner and officer of numerous privately-owned firms and commercial real estate operations. Since 1990, Mr. Levine has dedicated a substantial portion of his time to the Company's affairs. Mr. Moreno has served as the Company's President and Chief Executive Officer and has been a director of the Company since April 1984. Mr. Moreno has 25 years of experience in the outdoor advertising industry. From 1981 to 1984, Mr. Moreno served as President and General Manager of Gannett Outdoor of New Jersey. From 1979 to 1981, he was President and General Manager of Gannett Outdoor of Kansas City (Missouri). From 1973 to 1981, Mr. Moreno worked in Phoenix as a Vice President of Sales for Gannett Outdoor and its predecessor company. Mr. Moreno is also a director of Ugly Duckling, Inc. Mr. Kelly has been the Company's Senior Vice President since 1984. Mr. Kelly has 19 years of experience in the outdoor advertising business. From 1979 to 1984, Mr. Kelly worked for Whiteco Metrocom, Inc. in Tucson (1979 to 1981) as Sales Manager and in Chicago as Vice President of National Sales (1982 to 1984). Mr. Reade has been Vice President of the Company since May 1997. He served as the Company's Director of Real Estate from April 1993 to May 1997 and was a consultant to the Company from 1992 to April 1993. Mr. Reade has 28 years of experience in the outdoor advertising industry. From 1987 to 1990, Mr. Reade served as President and Chief Operating Officer of a major convenience store chain and from 1985 to 1987 was Real Estate Manager of such chain. In 1985, Mr. Reade served as Vice President, Sales and Marketing for Gannett Outdoor Group in New York and from 1970 to 1985 he was General Manager for Gannett Outdoor and its predecessor company in Phoenix. Mr. Beverage has served as the Company's Controller since 1992, its Treasurer and Secretary since May 1993, and its Chief Financial Officer since October 1995. Mr. Beverage has 19 years of experience in the accounting departments of various outdoor advertising companies. From 1990 to 1992, he served as the Company's Atlanta real estate manager. From 1988 until 1990, he worked for Outdoor Today, Inc. in Atlanta (which was acquired by the Company in 1990) as a consultant and as its accounting manager. Prior to 1988, he worked for five years for Turner Outdoor Advertising in Atlanta and for four years for Creative Displays in Atlanta. From 1976 to 1979, he was an auditor for Arthur Young & Co. (now known as Ernst & Young). Executive officers of the Company are elected by the Board of Directors on an annual basis and serve at the discretion of the Board of Directors. 10 13 PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company effected the initial public offering of its Common Stock on April 24, 1996 at a price of $2.96 per share, as adjusted for all subsequent stock splits. The Company's Common Stock is currently traded on the New York Stock Exchange under the symbol "OSI". From April 24, 1996 to September 1, 1997, the Common Stock was quoted on the Nasdaq Stock Market under the symbol "OSIA". The following table sets forth, for the periods indicated, the high and low sales prices per share of the Common Stock as reported by the New York Stock Exchange or the Nasdaq Stock Market, as applicable.
1996 HIGH LOW ---- ------ ------ 2nd Quarter (from April 24, 1996)........................ $ 7.46 $ 2.96 3rd Quarter.............................................. 14.00 6.78 4th Quarter.............................................. 14.67 10.22
1997 HIGH LOW ---- ------ ------ 1st Quarter.............................................. $15.06 $ 9.67 2nd Quarter.............................................. 17.00 11.44 3rd Quarter.............................................. 18.08 15.42 4th Quarter.............................................. 26.29 17.25
On March 13, 1998, the last reported sales price of the Common Stock on the New York Stock Exchange was $29.875 per share. As of March 13, 1998, there were 64 shareholders of record of the Common Stock. The Company's Senior Credit Facility prohibits the payment of cash dividends and other distributions until certain financial ratios are achieved. 11 14 ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data presented below were derived from the audited consolidated financial statements of the Company for the five years ended December 31, 1997. The financial statements of the Company as of December 31, 1996 and 1997 and for the three years in the period ended December 31, 1997 together with the report of Deloitte & Touche LLP, independent auditors are included elsewhere herein. The data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements, including the Notes thereto, appearing elsewhere herein.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 1993 1994 1995 1996 1997 ----------- ----------- ----------- ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA(1): Net revenues(2)........................ $ 49,151 $ 52,077 $ 64,813 $ 173,116 $ 471,004 Operating Expenses: Direct advertising expenses.......... 23,721 24,433 30,462 87,593 237,175 General and administrative expenses........................... 2,777 3,357 4,096 13,458 28,563 Depreciation and amortization........ 10,421 9,165 9,970 22,555 75,327 Gain on the Atlanta and Denver Dispositions......................... -- 4,325 -- 7,344 -- Operating income....................... 12,232 19,447 20,285 56,854 129,939 Foreign currency translation (gain) loss................................. -- -- -- (171) 2,093 Interest expense....................... 11,894 16,393 17,199 32,489 87,150 Income (loss) before extraordinary item and change in accounting principle(3)......................... 111 1,333 2,768 14,336 22,211 Net income (loss)...................... (3,176) 1,333 2,768 (3,444) 15,438 Net income (loss) attributable to common stockholders.................. (5,748) (263) 307 (6,905) 15,438 Basic net income (loss) per share...... (.14) (.01) .01 (.10) .14 Diluted net income (loss) per share.... (.11) (.01) .01 (0.09) .13 Shares used in basic per share computations......................... 40,277,554 37,729,530 47,466,853 67,672,701 109,096,011 Shares used in diluted per share computations......................... 50,014,877 47,466,853 57,204,176 79,342,506 122,432,867 OTHER DATA: EBITDA(4).............................. $ 22,653 $ 24,287 $ 30,255 $ 72,065 $ 205,266 EBITDA margin(5)....................... 46.1% 46.6% 46.7% 41.6% 43.6% Capital expenditures................... $ 4,387 $ 4,924 $ 7,070 $ 9,046 $ 30,189 Number of advertising displays......... 10,800 11,900 12,700 61,600(6) 98,300(6) BALANCE SHEET DATA (AT END OF PERIOD): Working capital........................ $ 13,967 $ 15,022 $ 8,221 $ 36,142 $ 61,229 Total assets........................... 129,433 151,260 138,213 933,455 2,229,157 Total debt............................. 129,812 155,204 142,269 606,409 1,444,159 Common stockholders' equity (deficiency)......................... (28,811) (29,074) (28,767) 288,179 695,471
- --------------- (1) During 1996 and 1997, the Company completed certain acquisitions, including the Gannett Outdoor Acquisition and the Denver Disposition in 1996, and the Van Wagner Acquisition and the 3M Media Acquisition in 1997. In December 1994, the Company consummated the Atlanta Disposition. In addition, in 1993 the Company refinanced a substantial portion of its indebtedness with 10 3/4% Senior Notes due 2003 (the "10 3/4% Senior Notes"). Accordingly, operating results are not necessarily 12 15 comparable on a year-to-year basis. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 of the Consolidated Financial Statements. (2) Net revenues are gross revenues minus agency commissions, plus other income of $1.0 million, $0.4 million, $6.1 million and $15.3 million for the years ended December 31, 1994, 1995, 1996 and 1997, respectively. (3) Deferred financing costs of $3.3 million, $17.8 and $6.8 million associated with borrowings which were retired or redeemed were charged as an extraordinary loss during 1993, 1996 and 1997, respectively. (4) "EBITDA" is defined as operating income (loss) before depreciation and amortization expense and, in 1994 and 1996, before the gain on the Atlanta and Denver Dispositions, respectively. While EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with generally accepted accounting principles, or as a measure of profitability or liquidity, management understands that it is customarily used by certain investors as one measure to evaluate the financial performance of companies in the outdoor advertising industry. (5) "EBITDA margin" is EBITDA stated as a percentage of net revenues. (6) Does not include approximately 125,000 subway advertising display faces in New York City. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the consolidated results of operations of the Company for the three years ended December 31, 1997 and financial condition at December 31, 1997 should be read in conjunction with the Consolidated Financial Statements of the Company and the related notes included elsewhere herein. GENERAL The performance of an outdoor advertising business, such as the Company, is measured by its ability to generate EBITDA. EBITDA is defined as operating income (loss) before interest, taxes, depreciation and amortization expense and, with respect to 1996, before the gain on the Denver Disposition. Although EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles, the Company believes that EBITDA is accepted by the outdoor advertising industry as a generally recognized measure of performance and is used by analysts who report publicly on the performance of outdoor advertising companies. Nevertheless, this measure should not be considered in isolation or as a substitute for operating income, net income, net cash provided by operating activities or any other measure for determining the Company's operating performance or liquidity which is calculated in accordance with generally accepted accounting principles. Revenues are a function of both the occupancy of the Company's outdoor advertising display inventory (the amount of time that its display faces contain advertisements) and the rates that the Company charges for use of its display faces. Accordingly, the Company focuses its sales efforts on attaining an optimal "mix" of occupancy and rates in order to maximize revenues, and believes that there are opportunities for additional improvements to its occupancy and rate mix with respect to its entire inventory. Net revenues are gross revenues less commissions paid to advertising agencies that contract for the use of advertising display faces on behalf of advertisers plus other income arising from the Company's operations. Advertisers typically contract for advertising space through agencies, although in some cases the Company sells advertising space directly to local advertisers. Agency commissions are typically 15% of gross revenues on local sales and 16 2/3% of gross revenues on national sales. The Company measures its operating performance based upon percentages of net revenues rather than gross revenues. The Company's most significant operating expenses are direct advertising expenses and general and administrative expenses. Direct advertising expenses consist of rental payments to property owners for use of land on which advertising display faces are located, production expenses and selling expenses. Production expenses consist of salaries for operations personnel and real estate representatives, materials and supplies used in the preparation and display of advertising copy, annual permits, property taxes and other similar expenses. Selling expenses consist of salaries and commissions for salespeople, travel and entertainment 13 16 relating to sales, sales administration and other similar expenses. The Company's general and administrative expenses consist of expenses related to accounting, administrative functions, insurance, bad debts and other similar expenses. The Company had Federal income tax net operating loss carryforwards of approximately $47.1 million as of December 31, 1997, which will expire over a period of years beginning in 2003. Although realization is not assured, management believes, based on operating results in 1997 and its expectations for the future, that the taxable income of the Company will more likely than not be sufficient to utilize all of the $47.1 million of net operating loss carryforwards prior to their ultimate expiration in 2017. However, there can be no assurances that the Company will generate taxable income in the future. ACQUISITIONS 3M Media Acquisition. On August 15, 1997, the Company acquired the outdoor advertising operations of Minnesota Mining and Manufacturing Company ("3M") through the purchase of the capital stock of National Advertising Company, a subsidiary of 3M ("3M Media"), for approximately $1.0 billion in cash (the "3M Media Acquisition"). The 3M Media operations include approximately 29,900 advertising display faces consisting of 20,800 bulletins, 2,400 posters and 6,700 mall advertising display faces in 56 metropolitan markets and non-metropolitan locations in the United States (net of assets disposed of as described below). The Company financed the purchase price of the 3M Media Acquisition and the fees and expenses associated with the acquisition and the acquisition financing through (i) proceeds from the offering of 30,375,000 shares of common stock (the "1997 Common Stock Offering") to the public, completed on May 28, 1997, (ii) proceeds of an offering of $500 million aggregate principal amount of 8 7/8% Senior Subordinated Notes due 2007 (the "1997 Notes") completed on June 23, 1997 (the "1997 Notes Offering"), and (iii) borrowings under the Company's Senior Credit Facility which was amended to provide for a revolving credit facility and term loans of up to approximately $900 million. In connection and simultaneously with the 3M Media Acquisition, the Company sold to Lamar Advertising Company ("Lamar") and another outdoor advertising company certain outdoor advertising assets the Company acquired from 3M. The assets sold consisted of approximately 1,800 advertising displays in Atlanta, Denver, Detroit, Grand Rapids, Houston, New Orleans, Kansas City, Louisville, Phoenix and Sacramento. The selling price for such assets was approximately $116 million in cash. There was no gain or loss recognized on this sale. Van Wagner Acquisition. On May 22, 1997, the Company purchased all of the capital stock of Van Wagner for approximately $170.0 million in cash (the "Van Wagner Acquisition"). The Van Wagner operations include approximately 50 "Spectacular" signs in Times Square, 105 bulletins and 172 posters and eight wall murals in New York City, 372 bulletins and 16 wall murals in Los Angeles, four bulletins in San Francisco, and additional transit displays and transit management agreements in New York, Los Angeles, Northern California and Las Vegas. The Van Wagner operations have been integrated as an acquisition of advertising display inventory. Gannett Outdoor Acquisition. On August 22, 1996, the Company purchased substantially all of the assets of Gannett Outdoor (the "Gannett Outdoor Acquisition"), including the stock of certain indirect subsidiaries of Gannett Co., Inc. ("Gannett")related to the outdoor division, for approximately $700.0 million in cash. The Company acquired from Gannett a total of approximately 40,000 advertising display faces consisting of 4,100 bulletins, 20,400 posters and 15,500 transit advertising displays (the Company also acquired approximately 125,000 subway advertising display faces in New York City) in 15 metropolitan markets in the United States and seven metropolitan markets in Canada. The Company financed the acquisition through (i) its Senior Credit Facility, (ii) a Subordinated Credit Facility ("Bridge Loan") and (iii) the proceeds from the offering of 28,991,250 shares of Common Stock (the "1996 Common Stock Offering") to the public, completed on August 22, 1996, for which it received proceeds of approximately $283,135,000 net of underwriting discounts and commissions and offering expenses of approximately $13,133,000. In October 1996, the Company sold $250,000,000 of 9 3/8% Senior Subordinated 14 17 Notes due 2006 (the "1996 Notes"). The proceeds from this offering (the "1996 Notes Offering") were used to repay all borrowings under the Bridge Loan and to partially repay amounts outstanding under the Senior Credit Facility (see Note 5 to the Consolidated Financial Statements). Other Acquisitions. See Note 2 to the Consolidated Financial Statements for information concerning other acquisitions effected by the Company during 1996 and 1997. RESULTS OF OPERATIONS Operating results for the twelve months ended December 31, 1996 include the operations of the Gannett Outdoor Acquisition completed August 22, 1996. Operating results for the twelve months ended December 31, 1997 include the operations of the Van Wagner Acquisition completed May 22, 1997, the operations of the 3M Media Acquisition completed August 15, 1997, and the several other acquisitions completed during 1997 (the "Other 1997 Acquisitions") (see Note 2 to the Consolidated Financial Statements) (collectively, the "Acquisitions"). COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997 Gross revenues increased by 171.7% from $194.2 million in 1996 to $527.5 million in 1997. Gross revenues increased approximately 9.8% during 1997 compared to 1996 for markets where the Company operated both in 1997 and 1996. The balance of the increased revenues were a result of the 3M Media Acquisition, the Van Wagner Acquisition and the Other 1997 Acquisitions (collectively, the "1997 Acquisitions") (see Note 2 to the Consolidated Financial Statements). Agency commissions were 13.6% of gross revenues in 1997 compared to 14.0% in 1996. Agency commissions were lower in 1997 primarily as a result of slightly lower proportion of revenues generated through advertising agencies. Net revenues increased by 172.1% from $173.1 million in 1996 to $471.0 million in 1997, primarily as a result of the increase in gross revenues combined with an increase of other income from $6.1 million in 1996 to $15.3 million in 1997. Other income increased primarily due to the inclusion of license fee revenue from perpetual easements acquired in 1997 and the inclusion in 1997 of a full twelve months of revenues from a printing operation acquired in connection with the Gannett Outdoor Acquisition. Direct advertising expenses increased from $87.6 million in 1996 to $237.2 million in 1997. This was primarily a result of the 1997 Acquisitions. As a percentage of net revenues, direct advertising expenses were approximately 50.6% in 1996 and 50.4% in 1997. General and administrative expenses increased from $13.5 million in 1996 to $28.6 million in 1997. This was primarily a result of the 1997 Acquisitions. As a percentage of net revenues, general and administrative expenses decreased from 7.8% in 1996 to 6.1% in 1997 because of efficiencies realized from economies of scale. As a result of the above factors, EBITDA increased by 184.8% from $72.1 million in 1996 to $205.3 million in 1997. Depreciation and amortization expenses increased from $22.6 million in 1996 to $75.3 million in 1997, primarily due to the net increase in depreciation due to the 1997 Acquisitions which was offset in part by certain assets becoming fully depreciated during 1997. As a percentage of net revenues, depreciation and amortization expense increased from 13.0% in 1996 to 16.0% in 1997. Interest expense increased from $32.5 million in 1996 to $87.2 million in 1997, as a result of interest expense related to obligations incurred in connection with the 1997 Acquisitions. As a percentage of net revenues, interest expense decreased from 18.8% in 1996 to 18.5% in 1997, primarily due to the increase in net revenues. Income before taxes and extraordinary item was approximately $24.5 million in 1996 and $40.7 million in 1997. Included in 1996 income before taxes and extraordinary item was a $7.3 million gain on the Denver 15 18 Disposition. Disregarding the effect of this gain, income before taxes and extraordinary item increased from $17.2 million in 1996 to $40.7 million in 1997. The Company recorded an income tax provision of $10.2 million in 1996 and $18.5 million in 1997. The increase in the reported effective income tax rate for 1997 is due primarily to the inclusion of a full year of operations of the Company's Canadian subsidiary. The Company reported an extraordinary loss of $17.8 million, net of $9.8 million tax benefit, in 1996 and $6.8 million, net of $4.5 million tax benefit in 1997. Both of these extraordinary losses resulted primarily from, one time bridge loan commitment costs in connection with the Acquisitions and from a premium associated with the early redemption of the 10 3/4% Senior Notes. COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1996 Operating results for 1996 include the operations of the Gannett Outdoor Acquisition subsequent to August 23, 1996. Gross revenues increased by 160.0% from $74.7 million in 1995 to $194.2 million in 1996. Approximately 89.8% of this increase in gross revenues was attributable to the Gannett Outdoor Acquisition, with the remaining 10.2% of such increase in all other markets resulting primarily from increased inventory utilization. Agency commissions increased from $10.3 million in 1995 to $27.1 million in 1996 primarily as a result of the Gannett Outdoor Acquisition. As a percentage of gross revenues, agency commissions increased from 13.8% in 1995 to 14.0% in 1996 as a result of a slightly higher proportion of revenues generated through advertising agencies. Net revenues increased by 167.1% from $64.8 million in 1995 to $173.1 million in 1996, primarily as a result of the increase in gross revenues combined with an increase of other income from $0.4 million in 1995 to $6.1 million in 1996. Other income increased primarily due to the inclusion of license fee revenue from perpetual easements acquired in early 1996 and the inclusion of revenues from a printing operation acquired in connection with the Gannett Outdoor Acquisition. Direct advertising expenses increased from $30.5 million in 1995 to $87.6 million in 1996. Approximately 95.8% of this increase was attributable to the Gannett Outdoor Acquisition. As a percentage of net revenues, direct advertising expenses were approximately 47.0% in 1995 and 50.6% in 1996. General and administrative expenses increased from $4.1 million in 1995 to $13.5 million in 1996. Approximately 99.4% of this increase was due to the Gannett Outdoor Acquisition with the remaining increase primarily due to increased provisions for bad debts and increases in incentive and management compensation in 1996. As a percentage of net revenues, general and administrative expenses increased from 6.3% in 1995 to 7.8% in 1996. As a result of the above factors, EBITDA increased by 162.5% (138.2% before the gain on the Denver Disposition) from $30.3 million in 1995 to $79.4 million ($72.1 million before the gain on the Denver Disposition) in 1996. Depreciation and amortization expenses increased from $10.0 million in 1995 to $22.4 million in 1996, primarily due to the net increase in depreciation due to the Gannett Outdoor Acquisition which was offset in part by certain assets becoming fully depreciated during 1996. As a percentage of net revenues, depreciation and amortization expense decreased from 15.4% in 1995 to 12.9% in 1996. Interest expense increased from $17.2 million in 1995 to $32.5 million in 1996, as a result of interest expense related to obligations incurred in connection with the Gannett Outdoor Acquisition. As a percentage of net revenues, interest expense decreased from 26.5% in 1995 to 18.8% in 1996, primarily due to the increase in net revenues. Income before taxes and extraordinary item was approximately $3.1 million in 1995 and $24.5 million in 1996. Included in 1996 income before taxes and extraordinary item was a $7.3 million gain on the Denver 16 19 Disposition. Disregarding the effect on this gain, income before taxes and extraordinary item increased from $3.1 million in 1995 to $17.2 million in 1996. The Company recorded an income tax provision of $0.3 million in 1995 and $10.2 million in 1996. The low effective tax rate in 1995 is the result of reversing a $1.1 million valuation allowance for deferred income taxes. See Note 11 to the Consolidated Financial Statements. The Company reported an extraordinary loss of $17.8 million, net of $9.8 million tax benefit, in 1996. Approximately $11.2 million of this extraordinary loss is a result of the redemption of the 10.75% Senior Notes, $5.7 million results from one time financing fees in connection with the Gannett Outdoor Acquisition and $0.9 million results from the redemption of subordinated notes. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital was $36.1 million at December 31, 1996 and $61.2 million at December 31, 1997. The increase in working capital resulted primarily from working capital acquired in the 1997 Acquisitions, offset by an increase in current maturities relating to new debt associated with the 1997 Acquisitions. Net cash provided by operating activities increased by $41.1 million from $49.6 million during 1996 to $90.7 million during 1997, primarily due to increased net income resulting from the 1997 Acquisitions and the effect of a larger depreciation and amortization expense as a component of net income which were partially offset by changes in working capital accounts. Net cash used in investing activities increased from $754.1 million in 1996 to $1,293.8 million in 1997, primarily due to the 1997 Acquisitions. Net cash provided by financing activities increased from 714.6 million in 1996 to $1,197.3 million in 1997, primarily because of proceeds received from the 1997 Common Stock Offering, the 1997 Notes Offering and borrowings under the Senior Credit Facility, all used to finance the 1997 Acquisitions. The Company made approximately $30.2 million of capital expenditures during 1997, an increase from approximately $9.0 million during 1996. Currently, the Company has no material commitments for capital expenditures, although it anticipates ongoing capital expenditures in the ordinary course of business, other than for acquisitions, will be approximately $30.0 million to $32.0 million in each of the next two years. During 1997, the Company completed the 1997 Acquisitions. The Company financed the purchase price of the 1997 Acquisitions and the fees and expenses associated with the 1997 Acquisitions and the acquisition financing through (i) proceeds from the 1997 Common Stock Offering, (ii) proceeds from the 1997 Notes Offering, and (iii) borrowings under the Company's Senior Credit Facility. The Company believes that internally generated funds and available borrowings under the Senior Credit Facility will be sufficient to satisfy its operating cash requirements for at least the next twelve to twenty-four months. The Company may, however, require additional capital to consummate significant acquisitions in the future and there can be no assurance that such capital will be available. The Company recognizes the need to ensure that its operations will not be adversely impacted by Year 2000 software failures. The Company has identified all significant applications that will require modification to ensure Year 2000 compliance (" Year 2000 Compliance"). Internal and external resources are being used to make the required modifications and test Year 2000 Compliance. The Company plans on completing the testing process of all significant applications by December 31, 1998. In addition, the Company has communicated with others with whom it does significant business to determine their Year 2000 Compliance readiness and the extent to which the Company is vulnerable to any third party Year 2000 issues. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. The total cost to the Company of these Year 2000 Compliance activities has not been and is not anticipated to be material to its financial position or results of operations in any given year. These costs and the 17 20 date on which the Company plans to complete the Year 2000 modification and testing processes are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ from those plans. INFLATION Because a significant portion of the Company's costs are fixed, the Company does not believe that inflation has had or will have a material adverse effect on its operations. However, there can be no assurance that a high rate of inflation in the future will not have an adverse effect on the Company's operations. FORWARD-LOOKING STATEMENTS This report contains certain statements that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this report, the words "estimate", "expect", "anticipate", "believe" and similar expressions are intended to identify forward-looking statements. The Company cautions that reliance on any forward-looking statement involves risk and uncertainties, and that although the Company believes that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions also could be incorrect. The uncertainties in this regard include, but are not limited to, those identified in the risk factors discussed under "Risk Factors" in the Company's Prospectus dated July 24, 1997 included in the Company's Registration Statement on Form S-4 (Reg. No. 333-30957). ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable. 18 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report................................ 20 Consolidated Balance Sheets as of December 31, 1996 and 1997...................................................... 21 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997.......................... 22 Consolidated Statements of Common Stockholders' Equity (Deficiency) for the Years Ended December 31, 1995, 1996 and 1997.................................................. 23 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997.......................... 24 Notes to Consolidated Financial Statements.................. 25
19 22 INDEPENDENT AUDITORS' REPORT Board of Directors Outdoor Systems, Inc. Phoenix, Arizona We have audited the accompanying consolidated balance sheets of Outdoor Systems, Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1997, and the related consolidated statements of operations, common stockholders' equity (deficiency), and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Outdoor Systems, Inc. and subsidiaries at December 31, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Phoenix, Arizona February 3, 1998, except for the last paragraph of Note 5, for which the date is March 17, 1998. 20 23 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, ---------------------- 1996 1997 -------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 11,887 $ 5,897 Accounts receivable -- less allowance for doubtful accounts of $5,398 and $13,850......................... 56,975 119,745 Prepaid land leases....................................... 10,938 28,659 Other current assets, including amounts due from related parties of $385 and $298............................... 15,737 16,686 Deferred income taxes..................................... 1,637 5,914 -------- ---------- Total current assets.............................. 97,174 176,901 PROPERTY AND EQUIPMENT -- Net............................... 742,144 1,598,011 OTHER ASSETS................................................ 10,155 13,565 DEFERRED FINANCING COSTS -- Net............................. 24,151 40,520 GOODWILL -- Net............................................. 59,831 400,160 -------- ---------- TOTAL....................................................... $933,455 $2,229,157 ======== ========== LIABILITIES AND COMMON STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.......................................... $ 8,323 $ 11,454 Accrued interest.......................................... 7,056 8,940 Accrued expenses and other liabilities.................... 17,653 44,678 Current maturities of long-term debt...................... 28,000 50,600 -------- ---------- Total current liabilities......................... 61,032 115,672 LONG-TERM DEBT.............................................. 578,409 1,393,550 OTHER LONG-TERM OBLIGATIONS................................. 3,552 4,327 DEFERRED INCOME TAXES....................................... 2,283 20,137 -------- ---------- Total liabilities................................. 645,276 1,533,686 -------- ---------- COMMITMENTS AND CONTINGENCIES (Notes 2, 10 and 12) COMMON STOCKHOLDERS' EQUITY: Common stock, $.01 par value -- authorized, 200,000,000 shares; issued and outstanding, 90,350,170 and 121,123,367 shares..................................... 904 1,211 Additional paid-in capital................................ 316,486 709,730 Accumulated deficit....................................... (25,275) (9,837) Treasury stock at cost -- 25,819,997 shares............... (4,053) (4,053) Foreign currency translation adjustment................... 117 (1,580) -------- ---------- Total common stockholders' equity................. 288,179 695,471 -------- ---------- TOTAL....................................................... $933,455 $2,229,157 ======== ==========
See notes to consolidated financial statements. 21 24 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------------- 1995 1996 1997 ---------- ---------- ----------- REVENUES: Outdoor advertising..................................... $ 74,690 $ 194,183 $ 527,547 Less agency commissions................................. 10,294 27,136 71,798 ---------- ---------- ----------- Total........................................... 64,396 167,047 455,749 Lease, printing and other revenues...................... 417 6,069 15,255 ---------- ---------- ----------- Net revenues.................................... 64,813 173,116 471,004 ---------- ---------- ----------- OPERATING EXPENSES: Direct advertising -- including $139, $139 and $139 to related parties...................................... 30,462 87,593 237,175 General and administrative -- including $385, $450 and $450 to related parties.............................. 4,096 13,458 28,563 Depreciation and amortization........................... 9,970 22,555 75,327 ---------- ---------- ----------- Total operating expenses........................ 44,528 123,606 341,065 ---------- ---------- ----------- GAIN ON DENVER DISPOSITION................................ -- 7,344 -- ---------- ---------- ----------- OPERATING INCOME.......................................... 20,285 56,854 129,939 OTHER: Foreign currency translation (gain) loss................ -- (171) 2,093 Interest expense........................................ 17,199 32,489 87,150 ---------- ---------- ----------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS......... 3,086 24,536 40,696 INCOME TAXES.............................................. 318 10,200 18,485 ---------- ---------- ----------- INCOME BEFORE EXTRAORDINARY LOSS.......................... 2,768 14,336 22,211 EXTRAORDINARY LOSS........................................ -- (17,780) (6,773) ---------- ---------- ----------- NET (LOSS) INCOME......................................... 2,768 (3,444) 15,438 LESS STOCK DIVIDENDS, ACCRETIONS AND DISCOUNT ON REDEMPTIONS............................................. 2,461 3,461 -- ---------- ---------- ----------- NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS..... $ 307 $ (6,905) $ 15,438 ========== ========== =========== BASIC AND DILUTED INCOME (LOSS) PER SHARE (Note 1): Basic: Income before extraordinary loss........................ $ .01 $ .16 $ .20 Extraordinary loss...................................... -- (.26) (.06) ---------- ---------- ----------- Net income (loss)....................................... $ .01 $ (.10) $ .14 ========== ========== =========== Weighted average number of shares outstanding........... 47,466,853 67,672,701 109,096,011 ========== ========== =========== Diluted: Income before extraordinary loss........................ $ .01 $ .14 $ .18 Extraordinary loss...................................... -- (.23) (.05) ---------- ---------- ----------- Net income (loss)....................................... $ .01 $ (.09) $ .13 ========== ========== =========== Weighted average number of shares outstanding........... 57,204,176 79,342,506 122,432,867 ========== ========== ===========
See notes to consolidated financial statements. 22 25 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIENCY) (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, --------------------------------------- 1995 1996 1997 ---------- ---------- ----------- COMMON STOCK OUTSTANDING: Shares: Balance, beginning of year................................ 21,096,379 47,467,133 90,350,170 Stock splits.............................................. 26,370,754 -- Stock options exercised................................... -- 337,500 398,197 Initial public offering................................... -- 13,554,287 -- Secondary offering........................................ -- 28,991,250 30,375,000 ---------- ---------- ----------- Balance, end of year...................................... 47,467,133 90,350,170 121,123,367 ---------- ---------- ----------- COMMON STOCK OUTSTANDING: Amount: Balance, beginning of year................................ $ 21 $ 47 $ 904 Stock splits.............................................. 26 601 171 Initial public offering................................... -- 60 -- Secondary offering........................................ -- 196 136 ---------- ---------- ----------- Balance, end of year...................................... $ 47 $ 904 $ 1,211 ---------- ---------- ----------- ADDITIONAL PAID-IN CAPITAL: Balance, beginning of year................................ $ -- $ (43) 316,486 Stock splits.............................................. (43) (743) (171) Stock options exercised................................... -- -- 13 Tax benefit from stock options exercised.................. -- -- 1,979 Initial public offering................................... -- 36,617 Secondary offering........................................ -- 283,135 391,423 Common/preferred stock accretion.......................... -- (2,480) -- ---------- ---------- ----------- Balance, end of year...................................... $ (43) $ 316,486 709,730 ---------- ---------- ----------- ACCUMULATED DEFICIT: Balance, beginning of year................................ $ (25,025) $ (24,718) $ (25,275) Common/preferred stock accretion.......................... (1,507) (688) -- Dividend on exchangeable preferred stock.................. (82) -- -- Cash dividends............................................ (872) (293) Cancellation of put option on common stock................ -- 3,868 -- Net income (loss)......................................... 2,768 (3,444) 15,438 ---------- ---------- ----------- Balance, end of year...................................... $ (24,718) $ (25,275) $ (9,837) ---------- ---------- ----------- COMMON STOCK IN TREASURY: Amount Balance................................................... $ (4,053) $ (4,053) $ (4,053) ---------- ---------- ----------- FOREIGN CURRENCY TRANSLATION ADJUSTMENT:.................... Balance, beginning of year................................ $ -- $ -- $ 117 Unrealized foreign currency translation gain (loss)....... -- 117 (1,697) ---------- ---------- ----------- $ -- $ 117 $ (1,580) ========== ========== =========== TOTAL COMMON STOCKHOLDERS' EQUITY (DEFICIENCY).............. $ (28,767) $ 288,179 $ 695,471 ========== ========== ===========
See notes to consolidated financial statements. 23 26 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------ 1995 1996 1997 -------- --------- ----------- OPERATING ACTIVITIES: Net (loss) income......................................... $ 2,768 $ (3,444) $ 15,438 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Extraordinary loss...................................... -- 17,780 6,773 Gain on sale of land.................................... (417) -- -- Gain on disposals....................................... (7,344) -- Loss on foreign currency translation adjustment......... -- (171) 2,093 Deferred taxes.......................................... 90 8,121 12,181 Deferred financing fees................................. 821 1,389 5,469 Depreciation and amortization........................... 9,970 22,555 75,327 Allowance for doubtful accounts......................... 761 2,492 4,129 Other................................................... 363 3,664 727 Changes in net assets and liabilities -- net of effects from acquisitions and disposals: Accounts receivable..................................... 4,539 (767) (47,042) Prepaid expenses and other current assets............... 2,486 74 694 Accrued interest........................................ (84) 2,216 1,899 Accounts payable and other liabilities.................. (1,924) 3,023 12,999 -------- --------- ----------- Net cash provided by operating activities........... 19,373 49,588 90,687 -------- --------- ----------- INVESTING ACTIVITIES: Acquisition of 3M Media................................... -- -- (894,299) Acquisition of Gannett Outdoor, net of cash overdraft acquired................................................ -- (712,545) -- Capital expenditures...................................... (7,070) (9,046) (30,189) Proceeds from sale of land................................ 769 Other acquisitions........................................ -- (13,991) (337,715) Net proceeds from disposals............................... -- 3,049 -- Acquisition of perpetual land easements................... -- (21,525) (31,548) -------- --------- ----------- Net cash used in investing activities............... (6,301) (754,058) (1,293,751) -------- --------- ----------- FINANCING ACTIVITIES: Proceeds from issuance of long-term debt.................. 10,679 846,853 1,538,135 Tender for 10.75% notes................................... -- (128,205) -- Principal payments on debt and capital leases............. (23,977) (269,893) (699,311) Increase in deferred financing fees....................... (821) (37,483) (33,127) Cash dividends paid on preferred stock.................... (872) (293) -- Redemption of preferred and exchangeable preferred stock................................................... -- (16,369) -- Issuance of common stock.................................. -- 320,008 391,572 -------- --------- ----------- Net cash provided by (used in) financing activities.......................................... (14,991) 714,618 1,197,269 -------- --------- ----------- Effect of exchange rate changes on cash................... -- -- (195) -------- --------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (1,919) 10,148 (5,990) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 3,658 1,739 11,887 -------- --------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 1,739 $ 11,887 $ 5,897 ======== ========= =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for: Interest................................................ $ 16,162 $ 27,519 $ 82,974 ======== ========= =========== Income taxes............................................ $ 227 $ 275 $ 6,853 ======== ========= =========== SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: In conjunction with the large acquisitions (Gannett Outdoor (1996), 3M Media and Van Wagner (1997)), liabilities were assumed as follows: Fair value of assets acquired........................... $ -- $ 728,848 $ 1,105,981 Cash paid............................................... -- 707,980 1,081,520 -------- --------- ----------- Liabilities assumed and incurred and issuance of notes payable................................................. $ -- $ 20,868 $ 24,461 ======== ========= =========== Accretion of common and preferred stock................... $ 1,507 $ -- $ -- ======== ========= =========== Accrued dividends on exchangeable preferred stock......... $ 82 $ -- $ -- ======== ========= =========== Additional obligation on CSX transaction.................. $ -- $ 2,198 $ 523 ======== ========= =========== Write-off of deferred financing costs..................... $ -- $ 3,130 $ -- ======== ========= =========== Note receivable on Denver Disposition..................... $ -- $ 6,440 $ -- ======== ========= ===========
See notes to consolidated financial statements. 24 27 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization -- Outdoor Systems, Inc. was incorporated on February 22, 1980, and is engaged principally in the rental of advertising space on outdoor advertising structures in 90 metropolitan markets in the United States and 13 metropolitan markets in Canada. Principles of consolidation -- The consolidated financial statements include the accounts of Outdoor Systems, Inc. and its subsidiaries (collectively, the "Company"), including its Canadian subsidiary Mediacom, Inc. ("Mediacom"). All significant intercompany accounts and transactions have been eliminated in consolidation. Significant accounting policies are as follows: a. Cash and cash equivalents -- The Company considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. b. Property and equipment are recorded at cost. Normal maintenance and repair costs are expensed. Improvements which extend the life or usefulness of an asset are capitalized. Depreciation is computed principally on a straight-line method based upon the following useful lives: Buildings................................................... 25-32 years Advertising structures...................................... 5-20 years Vehicles.................................................... 3-5 years Furniture and fixtures...................................... 5 years Perpetual land easements.................................... 40 years
c. Deferred financing costs are amortized using the effective interest method over the terms of the related loans. d. Goodwill represents the excess purchase price over net assets acquired and is amortized over 30 years. Amortization expense was $47,000, $713,000 and $6,128,269 in 1995, 1996 and 1997, respectively. e. Revenue recognition -- The Company recognizes revenue from advertising contracts when billed, which is on a straight-line pro rata monthly basis in accordance with contract terms. Costs associated with providing service for specific contracts are expensed as incurred, although such contracts generally extend beyond one month. Other revenue represents license fees from perpetual land easements and revenues from a printing operation. f. Income (loss) per share -- Basic income (loss) per common share is computed based on the weighted average number of common shares outstanding during each period. Diluted income (loss) per share is computed based on the weighted average number of common and common equivalent shares outstanding during each year and includes shares issuable upon exercise of stock options except in those circumstances where such options would be anti-dilutive. g. Impairment of long-lived assets -- The Company reviews the carrying values of its long-lived assets and identifiable intangibles for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets to be held and used may not be recoverable. The adoption of SFAS No. 121 had no effect on the December 31, 1996 consolidated financial statements. h. Use of estimates -- The preparation of financial statements in conformity with generally accepted accounting principles necessarily 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 reported period. Actual results could differ from these estimates. 25 28 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) i. Stock-based compensation -- As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the Company uses the intrinsic value based method prescribed by the Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans because the exercise price has been equal to market price at date of grant. A summary of the pro forma effects on reported income from continuing operations and earnings per share for 1997 and 1996, as if the fair value based method of accounting defined in SFAS No. 123 had been applied is included in Note 9 to these consolidated financial statements. Such information is not presented for 1995 because no options were issued. j. New accounting pronouncements -- The Financial Accounting Standards Board recently issued SFAS No. 128, Earnings per Share ("SFAS No. 128"), SFAS No. 130, Reporting Comprehensive Income ("SFAS No. 130") and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 128 establishes new standards for computing and presenting earnings per share ("EPS"). The Company adopted SFAS No. 128 during the quarter ended December 31, 1997, accordingly, EPS has been restated for all periods presented. SFAS No. 130 and 131 are effective for fiscal years beginning after December 15, 1997. SFAS. No. 130 changes the reporting of certain items currently reported in the common stock equity section of the balance sheet. SFAS No. 131 requires that public companies report certain information about operating segments in their financial statements. It also establishes related disclosures about products and services, geographic areas, and major customers. The Company is currently evaluating what impact SFAS Nos. 130 and 131 will have on its financial statements. k. Stock splits -- Since going public in April of 1996, the Company has effected four three-for-two stock splits of the Common Stock. The consolidated financial statements and the notes thereto have been adjusted to reflect these stock splits on a retroactive basis for all periods presented. l. Reclassifications -- Certain reclassifications were made to the 1995 and 1996 financial statements to conform with the 1997 presentation. 2. OFFERINGS AND ACQUISITIONS COMPLETION OF INITIAL PUBLIC OFFERING On April 24, 1996, the Company completed its Initial Public Offering ("IPO") by selling 13,554,297 shares of its common stock. The Company received proceeds of approximately $36,677,000 net of underwriting discounts and commissions and offering expenses of approximately $3,517,000. GANNETT OUTDOOR ACQUISITION On August 22, 1996, the Company purchased substantially all of the billboard and transit advertising operations of the Outdoor Advertising Division of Gannett Co., Inc. (the "Gannett Outdoor Acquisition"), for approximately $712,545,000 ($707,980,000 before cash overdraft acquired of $4,565,000). The Company also acquired an option to acquire the Gannett Outdoor operations in Houston ("Gannett Houston"), which option was exercised on November 14, 1996 for $12,174,000. The Company financed the acquisition through borrowings under its Senior Credit Facility, a Subordinated Credit Facility ("Bridge Loan") and the 1996 Common Stock Offering for which it received proceeds of approximately $283,135,000 net of underwriting discounts and commissions and offering expenses of approximately $13,133,000. In October 1996, the Company sold $250,000,000 of 9 3/8% Senior Subordinated Notes due 2006 (the "1996 Notes"). The proceeds from the 1996 Notes Offering were used to repay all borrowings under the Bridge Loan and to partially repay amounts outstanding under the Senior Credit Facility (see Note 5). 26 29 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The acquisition was accounted for using the purchase method of accounting and the results of operations have been included in the consolidated financial statements subsequent to the date of acquisition. The acquisition resulted in goodwill of $60 million which represents the excess of the purchase price over the fair value of the assets which is amortized on a straight-line basis over 30 years. DENVER DISPOSITION In connection with the Gannett Outdoor Acquisition, on August 8, 1996, the Company sold substantially all of its existing billboard assets in Denver ("Denver Disposition") to an unrelated party for $2,760,000 in cash and a $6,440,000 9% promissory note due November 8, 2006, which is included in other assets. The Denver Disposition resulted in a gain of $7,344,000. OTHER 1996 ACQUISITIONS On May 22, 1996, the Company completed the acquisition of perpetual land easements located on real property and leased to independent outdoor advertising companies from CSX Realty Development Corporation ("CSX") for $21,525,000 in cash and certain future payments in an aggregate amount not to exceed $10,000,000 payable over a period of ten years beginning no later than the year 2006. The exact amount and timing of such payments is to be determined based upon the results of the Company's operation of the easements. The cost of the perpetual land easements is included in property and equipment and is amortized on a straight-line basis over 40 years. In April 1996, the Company acquired all of the stock of Decade Communications Group, Inc. (the "Bench Ad Acquisition"), which owned approximately 5,300 bus benches in the Denver metropolitan area for a purchase price of approximately $1,817,000. The acquisition was accounted for as a purchase and the results of operations of the Bench Ad Acquisition are included in these financial statements from the date of acquisition. UNAUDITED PRO FORMA INFORMATION The following table summarizes unaudited pro forma operating results for the Company for the two years ended December 31, 1996, assuming that the Gannett Outdoor Acquisition and other 1996 acquisitions and the Denver Disposition had occurred at the beginning of the applicable year and after giving effect to financing costs and purchase accounting adjustments.
1995 1996 --------- --------- (DOLLARS IN THOUSANDS) Consolidated net revenues................................... $314,386 $335,826 ======== ======== Income before extraordinary loss............................ $ 5,005 $ 14,173 ======== ======== Net income.................................................. $ 5,005 $ 13,329 ======== ======== Income attributable to common stockholders.................. $ 2,544 $ 9,868 ======== ======== Basic net income per share.................................. $ .03 $ .11 ======== ======== Diluted net income per share................................ $ .03 $ .10 ======== ========
27 30 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1997 ACQUISITIONS During 1997, the Company acquired outdoor advertising assets in the following locations for the following purchase prices (the "1997 Acquisitions"):
DATE ACQUIRED PURCHASE PRICE ------------- -------------- (IN THOUSANDS) Villepigue Outdoor - New York January 9 $ 27,261 Atlanta Bus Shelters - Atlanta January 10 6,401 Philbin & Coine, Inc. - Louisville January 22 830 Scadron Enterprises - Chicago February 14 24,528 Murad Communications - Toronto February 28 5,516 Reynolds Outdoor, LP - Dallas February 28 31,651 Ad Outdoor - Halifax March 6 845 Burlington Northern/Santa Fe perpetual easements - Western and Midwestern states March 26 30,213 3M Transit - Toronto March 31 2,823 Van Wagner - New York & Los Angeles May 22 187,221 Key One - Canada May 29 661 CSX perpetual easements - Atlanta May 31 1,335 May - Los Angeles June 5 1,026 Connell - Dallas June 5 1,011 3M Media* August 15 894,299 Sellex - Toronto August 29 859 Gleason - Atlanta August 31 2,729 Landex - Toronto September 12 1,438 MacDonald & MacDonald - Edmonton September 30 3,839 Gallop & Gallop - Alberta October 31 5,197 Eastern Ontario Billboard Corporation - Ontario November 28 314 Roberts Outdoor - Los Angeles November 14 5,095 Outdoor Media Group - Las Vegas December 1 28,470 ---------- $1,263,562 ==========
- --------------- * Net of proceeds received by the Company upon the simultaneous disposition of certain assets as described below. The 1997 Acquisitions have been accounted for using the purchase method of accounting and the results of operations have been included in the consolidated financial statements subsequent to the date of acquisition. The acquisitions resulted in goodwill of $346.5 million which represents the excess of the purchase price over the fair value of the assets which is amortized on a straight-line basis over 30 years. The Company is continuing its evaluation of the fair value of the 1997 acquisitions and further adjustments to the purchase prices may be made. As set forth in the table above, on August 15, 1997, the Company acquired the outdoor advertising operations of Minnesota Mining and Manufacturing Company ("3M") through the purchase of the capital stock of National Advertising Company, a subsidiary of 3M ("3M Media"), for approximately $1.0 billion in cash (the "3M Media Acquisition"). 28 31 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company financed the purchase price of the 3M Media Acquisition and the fees and expenses associated with the acquisition and the acquisition financing through (i) proceeds from the offering of 30,375,000 shares of common stock (the "1997 Common Stock Offering") to the public, completed on May 28, 1997, (ii) proceeds of an offering of $500 million aggregate principal amount of 8 7/8% Senior Subordinated Notes due 2007 completed on June 23, 1997 (the "1997 Notes Offering"), and (iii) borrowings under the Company's Senior Credit Facility which was amended to provide for a revolving credit facility and term loans of up to approximately $900 million. In connection and simultaneously with the 3M Media Acquisition, the Company sold to Lamar Advertising Company ("Lamar") and another outdoor advertising company certain outdoor advertising assets the Company acquired from 3M. The assets sold consisted of approximately 1,800 advertising displays in Atlanta, Denver, Detroit, Grand Rapids, Houston, New Orleans, Kansas City, Louisville, Phoenix and Sacramento. The selling price for such assets was approximately $116 million in cash, there was no gain or loss recognized on the sale. The other 1997 acquisitions were financed, primarily, utilizing cash flows from operations and borrowings under the company's senior credit facility. UNAUDITED PRO FORMA INFORMATION The following table summarizes unaudited pro forma operating results for the Company for the two years ended December 31, 1997, assuming that the 1997 Acquisitions had occurred at the beginning of the applicable year and after giving effect to financing costs and purchase accounting adjustments.
1996 1997 --------- --------- (DOLLARS IN THOUSANDS) Consolidated net revenues................................... $591,583 $605,894 ======== ======== Income before extraordinary loss............................ $ 12,308 $ 23,805 ======== ======== Net income (loss)........................................... $ (5,472) $ 23,805 ======== ======== Income (loss) attributable to common stockholders........... $ (8,933) $ 23,805 ======== ======== Basic net income per share.................................. $ (.09) $ .20 ======== ======== Diluted net income per share................................ $ (.08) $ .18 ======== ========
The pro forma amounts above include adjustments for the 1997 Acquisitions only and do not include pro forma adjustments for the Gannet Outdoor Acquisition which was completed on August 22, 1996. 3. PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31:
1996 1997 -------- ---------- (DOLLARS IN THOUSANDS) Advertising structures...................................... $736,731 $1,647,518 Perpetual land easements.................................... 24,428 54,607 Vehicles.................................................... 5,796 11,902 Furniture and fixtures...................................... 8,859 13,639 Buildings................................................... 15,934 19,084 Land........................................................ 15,881 22,093 Other....................................................... 8,963 8,575 -------- ---------- Total....................................................... 816,592 1,777,418 Less accumulated depreciation............................... 74,448 179,407 -------- ---------- Property and equipment -- net............................... $742,144 $1,598,011 ======== ==========
29 32 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Included in advertising structures are costs allocated to display leases totaling $163,704 and $528,819, at December 31, 1996 and 1997, respectively. The Company has granted a security interest in substantially all of its assets to lenders in connection with the Senior Credit Facility. 4. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities are comprised of the following at December 31:
1996 1997 --------- --------- (DOLLARS IN THOUSANDS) Accrued payroll, payroll taxes and severance................ $ 7,118 $ 7,466 Percentage lease payments................................... 2,206 1,990 Other liabilities assumed in Gannett acquisition............ 3,272 -- Other liabilities assumed in 1997 Acquisitions.............. -- 8,174 Customer deposits........................................... 958 7,388 Unearned revenue............................................ 796 3,233 Taxes....................................................... 422 5,696 Other....................................................... 2,881 10,731 ------- ------- $17,653 $44,678 ======= =======
5. LONG-TERM DEBT Long-term debt consists of the following at December 31:
1996 1997 -------- ---------- (DOLLARS IN THOUSANDS) Senior Credit Facility...................................... $356,348 $ 693,034 8 7/8% Senior Subordinated Notes............................ -- 496,124 9 3/8% Senior Subordinated Notes............................ 250,000 250,000 Other....................................................... 61 4,992 -------- ---------- Total....................................................... 606,409 1,444,150 Less current maturities..................................... 28,000 50,600 -------- ---------- Long-term debt -- net....................................... $578,409 $1,393,550 ======== ==========
SENIOR CREDIT FACILITY The Senior Credit Facility, dated August 15, 1997, consists of 1) a U.S. Dollar senior revolving line of credit facility of up to $350,000,000 including a $35,000,000 letter of credit subfacility ("United States Revolver"), and a Canadian Dollar ("C$") senior revolving line of credit facility ("Canadian Revolver") of up to C$69,625,000 including a C$7,000,000 letter of credit sub-facility; 2) a $450,000,000 Senior Secured U.S. Dollar Term Loan; and, 3) $50,000,000 Senior Secured Canadian Term Loan. Letters of credit with stated amounts totaling $28,958,000 have been issued for the Company's account at December 31, 1997. Availability under the Senior Credit Facility totaled approximately $178,008,000 at December 31, 1997. The commitment of the lenders under the United States Revolver will be reduced annually on December 31st of each year (commencing on December 31, 1999) through 2003 by $52,500,000 and by $87,500,000 on June 30, 2004. The commitment under the Canadian Revolver will be reduced annually on December 31st of each year (commencing on December 31, 1999) through 2003 by C$10,443,750 and by 30 33 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) C$17,406,250 on June 30, 2004. The United States Term Loan must be repaid in equal quarterly installments commencing on March 31, 1998, with annual amortization of $50,000,000 through 1999, $75,000,000 from 2000 through 2003 and $50,000,000 in equal installments on March 31 and June 30, 2004. The Canadian Term Loan must be repaid in equal quarterly installments commencing on March 31, 1998, with annual amortization of $1,000,000 through 2001, $8,000,000 during 2002, $15,000,000 during 2003 and $23,000,000 in equal installments on March 31 and June 30, 2004. The United States and Canadian Revolvers and United States and Canadian Term Loans bear interest at the ABR or C$ Prime Rate (as defined in the Senior Credit Facility's terms) (8.5% and 6.125%, respectively, at December 31, 1997) plus 0.0% to 1.125% or Eurodollar Rate or Applicable BA Discount Rate (as defined in the Senior Credit Facility's terms) (5.97% and 4.528%, respectively, at December 31, 1997) plus 0.75% to 2.125%, based on the Company's total leverage ratio. The Senior Credit Facility is secured by a first perfected lien on substantially all of the present and future assets of the Company and a pledge of the Company's equity interest in its subsidiaries provided that the Senior Credit Facility is only secured by 65% of the stock of Mediacom. The U.S. facilities are guaranteed by each of the Company's U.S. subsidiaries, and the Canadian facilities are guaranteed by the Company and each of the Company's U.S. subsidiaries. The Senior Credit Facility, among other things, places limitations on the Company's acquisitions, dispositions, asset swaps and stock repurchases, and requires the Company to comply with financial covenants concerning leverage, interest coverage, fixed charges and minimum cash flows. 9 3/8% AND 8 7/8% SENIOR SUBORDINATED NOTES In October 1996, the Company completed the sale of $250,000,000 of 9 3/8% Senior Subordinated Notes due 2006 (the "1996 Notes"). The net proceeds of the 1996 Notes were used to repay the Bridge Loan and to reduce amounts borrowed under the Senior Credit Facility and to pay related fees and expenses. In July 1997, the Company completed the sale of $500,000,000 of 8 7/8% Senior Subordinated Notes due 2007 (the "1997 Notes"). The net proceeds of the 1997 Notes were used in the 3M Media Acquisition. The 1996 Notes and 1997 Notes represent general unsecured obligations of the Company and are subordinated to all existing and future senior indebtedness of the Company and are senior to all subordinated indebtedness of the Company. Under the 1996 Notes and 1997 Notes, among other things, the Company is restricted in its ability to incur additional indebtedness, make certain investments, create liens, enter into transactions with affiliates, issue stock of a restricted subsidiary, enter into sale and leaseback transactions, merge or consolidate the Company, and transfer or sell assets. The Company is prohibited from paying cash dividends and distributions. OTHER In November 1997, the Company issued a note for $4,950,000 in connection with an acquisition in Los Angeles. The note bears interest at 10% per annum, payable monthly. The principal is due 2003. 31 34 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The annual maturities of long-term debt at December 31, 1997 are as follows:
(DOLLARS IN THOUSANDS) ---------------------- 1998........................................................ $ 50,600 1999........................................................ 50,584 2000........................................................ 75,593 2001........................................................ 84,307 2002........................................................ 120,903 Thereafter.................................................. 1,062,163 ---------- Total............................................. $1,444,150 ==========
At December 31, 1997, the percentage ownership and ordinary voting power by Designated Holders (as defined in the Senior Credit Facility) was less than required. On March 17, 1998, any Event of Default under the Senior Credit Facility resulting from this provision was waived, and the Senior Credit Facility was amended to permit percentage ownership and ordinary voting power by Designated Holders to be at a minimum level which is less than the current actual percentage ownership and ordinary voting power by Designated Holders. 6. EXTRAORDINARY LOSS ARISING FROM EARLY EXTINGUISHMENT OF DEBT The extraordinary loss arising from the early extinguishment of debt consisted of the following:
1996 1997 --------- --------- (DOLLARS IN THOUSANDS) Redemption of subordinated debt subsequent to IPO........... $ 1,415 Redemption of 10.75% Senior Notes: Tender offer.............................................. 13,542 Deferred debt costs....................................... 3,802 Bridge Redeemable Preferred Stock and Bridge Loan financing costs........................................... 8,856 11,288 ------- ------- Total....................................................... 27,615 11,288 Less related tax benefit.................................... (9,835) (4,515) ------- ------- Total extraordinary loss.......................... $17,780 $ 6,773 ======= =======
In connection with the IPO, the Company redeemed $6,583,000 principal amount of subordinated debt that had a carrying value of $6,099,000 for $7,514,000 in cash, resulting in an extraordinary loss of $1,415,000. In order to facilitate the financing of the Gannett Outdoor Acquisition, the Company purchased, pursuant to a tender offer (the "Debt Tender Offer"), all but $15,000 aggregate principal amount of its outstanding 10.75% Senior Notes due 2003 (the "10 3/4% Senior Notes"). The aggregate consideration paid by the Company in the Debt Tender Offer of $1,116.25 per $1,000 principal amount of 10 3/4% Senior Notes, plus expenses associated therewith, resulted in an extraordinary loss from debt extinguishment of $13,542,000. In connection with the Gannett Outdoor Acquisition, the Company entered into long-term bridge financing commitments for the Bridge Loan and redeemable preferred stock. Such commitment fees and bridge loan issuance costs aggregated $8,949,000. The commitment on the redeemable preferred stock was canceled at the date of the Gannett Outdoor Acquisition and the Bridge Loan was repaid with the net proceeds of the offering of the 1996 Notes resulting in an extraordinary loss of $8,856,000. In connection with the 3M Media Acquisition, the Company entered into a bridge loan financing commitment. Commitment fees aggregated $11,288,000. The bridge loan financing commitment was 32 35 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) cancelled in June 1997 after the Company completed the 1997 Notes Offering. No amounts were borrowed under the Bridge Loan. 7. FINANCIAL INSTRUMENTS The carrying values of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair values due to the short-term maturities of these instruments. The fair value of the 1996 Notes and 1997 Notes were approximately $260,937,500 and $533,750,000, respectively at December 31, 1997. The fair value of the notes was determined based upon quotations from an investment banker. The carrying amount of variable rate long-term debt instruments is estimated to approximate fair values as the underlying agreements have been recently negotiated and rates are tied to short-term indices. 8. OTHER EQUITY MATTERS At December 31, 1995, the Company's redeemable preferred stock totaled $13,649,000. During 1996, in connection with the IPO, the Company redeemed all of its outstanding preferred stock for approximately $16,369,000. In 1990, the Company issued common stock in connection with the financing of an acquisition under which the Company was required to redeem the common stock at a redemption price based upon the appraised value of the common stock as of the redemption date. Because this common stock was subject to redemption at the option of the holder, the Company accreted the stock to its estimated appraised value over the redemption period based upon annual estimates of value determined as a multiple of cash flow. Accretion was calculated on a straight-line basis and was charged directly to stockholders' deficit. At the date of the IPO, the common stock was sold by the holders and the related put options were terminated. Accordingly, amounts aggregating $3,868,000 were credited to paid-in capital. 9. STOCK OPTIONS The following is a summary of changes in outstanding options:
NUMBER OF EXERCISE SHARES PRICE ---------- ---------------- Outstanding at December 31, 1995....................... 10,071,459 $0.00 to $0.37 Granted................................................ 4,646,909 $2.96 Cancelled or expired................................... -- -- Exercised.............................................. (337,500) $0.37 ---------- Outstanding at December 31, 1996....................... 14,380,868 $0.00 to $2.96 ---------- Granted................................................ 116,625 $13.33 to $16.67 Cancelled or expired................................... (9,493) $2.96 to $13.33 Exercised.............................................. (398,197) $0.37 to $2.96 ---------- Outstanding at December 31, 1997....................... 14,089,803 $0.00 to $16.67 ---------- Exercisable at December 31, 1997....................... 10,362,864 $0.02 to $14.72 ==========
33 36 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes information concerning currently outstanding and exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------- ------------------------------ WEIGHTED AVERAGE RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------- ----------- ---------------- ---------------- ----------- ---------------- -- 558,894(1) N/A -- -- -- $ 0.02 7,795,589(2) N/A $ 0.02 7,795,589 $ 0.02 $ 0.37 1,544,622(2) N/A $ 0.37 1,544,622 $ 0.37 $ 2.96 4,078,572 9 $ 2.96 1,012,527 $ 2.96 $13.33 99,000 10 $13.33 -- $13.33 $14.72 10,126 10 $14.72 10,126 $14.72 $16.67 3,000 10 $16.67 -- $16.67 ---------- ---------- 14,089,803 10,362,864 ========== ==========
Notes: (1) These options have no exercise price, have no expiration date and are exercisable only upon termination. (2) These options are fully exercisable and have no expiration date. Had compensation cost for the Company's stock option plan been determined based upon the fair value at the grant date for awards under this plan consistent with the methodology prescribed in SFAS No. 123, the Company's net income (loss) and basic and diluted income (loss) per share for the years ended December 31, 1996 and 1997 would have been as follows:
DECEMBER 31, ---------------------- 1996 1997 --------- --------- (DOLLARS IN THOUSANDS) Net income (loss) attributable to common stockholders -- as reported.................................................. $(6,905) $15,438 Net income (loss) attributable to common stockholders -- pro forma..................................................... $(8,271) $15,302 Basic income (loss) per share -- as reported................ $ (.10) $ .14 Basic income (loss) per share -- pro forma.................. $ (.12) $ .14 Diluted income (loss) per share -- as reported.............. (.09) .13 Diluted income (loss) per share -- pro forma................ (.10) .12 ASSUMPTIONS: Expected dividend yield..................................... 0% 0% Expected stock price volatility............................. 62.0% 51.7% Risk-free interest rate..................................... 6.0% 5.7% Forfeiture rate............................................. 0% 0% Average expected life....................................... 3 years 3 years
10. BENEFIT PLANS The Company established an Incentive Plan (the "Plan") covering certain managers and key employees. Incentive Awards ("Awards") were made under the Plan in the form of shares of phantom stock based on the individual's performance. Awards were valued each year based upon the estimated value of the Company. The awards are vested at the date of grant and any increases in value vested over a four year period. For the years ended December 31, 1995, 1996 and 1997, the Company charged earnings for compensation expense of $304,000, $159,000 and $169,000, respectively. In connection with the IPO, effective January 1, 1996, the 34 37 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company ceased allocating amounts to the accounts maintained under the Incentive Plan. The Company offered to each current employee who is a participant in the Incentive Plan the alternative of having their account settled in cash, in shares of the common stock of the Company, or both, with actual distributions of cash or common stock subject to both vesting requirements and terms and conditions similar to those under which distributions would have been made under the Incentive Plan. To the extent participants elected to settle their accounts in common stock, the Company issued (subject to the vesting requirements and distribution terms and conditions) to such participants options to purchase common stock at the initial public offering price. The Company has a 401(k) savings plan under which it has the discretion of making contributions as a percentage of employee contributions. For the years ended December 31, 1995, 1996 and 1997, the Company's contributions to the 401(k) plan were $56,000, $63,000 and $75,700, respectively. 11. INCOME TAXES The provision (benefit) for income taxes is comprised of the following for the years ended December 31,
1995 1996 1997 ---- ------- ------- (DOLLARS IN THOUSANDS) Current: Federal................................................ $ 50 $ 108 $ 483 State -- including franchise taxes..................... 177 182 384 Foreign................................................ -- -- 4,084 ---- ------- ------- Total current............................................ 227 290 4,951 Deferred................................................. 91 9,910 13,534 ---- ------- ------- Total income tax provisions.............................. $318 $10,200 $18,485 ==== ======= =======
The Company has federal net operating loss carryforwards of approximately $47,066,000 as of December 31, 1997. These net operating loss carryforwards expire as follows: $1,131,000 (2003), $3,494,000 (2004), $4,308,000 (2005), $4,104,000 (2006), $1,193,000 (2007), $3,243,000 (2008), $58,000 (2009), $7,000 (2010), $22,220,000 (2011) and $7,308,000 (2017). Although realization is not assured, the Company believes, based on operating results in 1997, and its expectations for the future, that taxable income of the Company will more likely than not be sufficient to utilize all of the $47,066,000 net operating loss carryforwards prior to their ultimate expiration in the year 2017. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. 35 38 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Significant components of the Company's net deferred tax asset (liability) as of December 31 are as follows:
1996 1997 ------------------- ------------------- NON- NON- CURRENT CURRENT CURRENT CURRENT ------- -------- ------- -------- (DOLLARS IN THOUSANDS) Deferred tax assets: Financial statement expenses not currently deductible for income tax purposes..... $1,637 $ 435 $5,914 $ 140 Tax loss and other credit carryforwards... -- 13,059 -- 10,716 Deferred tax liabilities: Excess of tax over book depreciation...... -- (15,777) -- (26,425) Difference in book/tax basis of goodwill............................... -- -- -- (4,568) ------ -------- ------ -------- Total net asset (liability)....... $1,637 $ (2,283) $5,914 $(20,137) ====== ======== ====== ========
The following is a reconciliation of the reported effective income tax rates to the statutory rates:
1995 1996 1997 ---- ---- ---- Statutory rate.............................................. 34% 35% 35% Impact of adjustment to valuation allowance................. (34) -- -- State income taxes, franchise tax........................... 7 4 4 Other....................................................... 3 3 6 --- -- -- Reported rate............................................... 10% 42% 45% === == ==
12. COMMITMENTS AND OTHER LEASES The Company leases land and equipment under operating leases with various terms expiring at various dates. Certain of the land leases provide for periodic rental increases. At December 31, 1997, minimum annual rentals under all operating leases for the next five years are as follows:
(DOLLARS IN THOUSANDS) ---------------------- 1998........................................................ $106,585 1999........................................................ 68,775 2000........................................................ 48,292 2001........................................................ 38,712 2002........................................................ 27,622
Operating lease expense was $13,533,000, $29,790,000 and $90,196,391 for 1995, 1996 and 1997, respectively. 36 39 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) TRANSIT AGREEMENTS The Company has signed agreements which provide an exclusive right to sell advertising space in various airports, transit shelters and transit systems. Under the various agreements, the Company must make minimum guarantee payments for the next five years as follows:
(DOLLARS IN THOUSANDS) ---------------------- 1998........................................................ $10,530 1999........................................................ 2,721 2000........................................................ 2,424 2001........................................................ 2,050 2002........................................................ 1,943
LITIGATION The Company is party either as plaintiff or defendant to various actions, proceedings and pending claims, in the ordinary course of business. Litigation is subject to many uncertainties and it is possible that some of the legal actions, proceedings or claims referred to above could be decided against the Company. Although the ultimate amount for which the Company or its subsidiaries may be held liable with respect to matters where the Company is defendant is not ascertainable, the Company believes that any resulting liability should not materially affect the Company's financial position or results of operations. 13. FOREIGN OPERATIONS The assets and operations of the Company's Canadian subsidiary are included in these financial statements subsequent to August 22, 1996 and are as follows:
1996 1997 -------- ---------- (DOLLARS IN THOUSANDS) Net revenues: United States............................................. $150,970 $ 410,008 Canadian.................................................. 22,146 60,996 -------- ---------- Total net revenues.......................................... $173,116 $ 471,004 ======== ========== Income from operations: United States............................................. $ 52,150 $ 117,070 Canadian.................................................. 4,875 12,869 -------- ---------- Total income from operations................................ $ 57,025 $ 129,939 ======== ========== Assets: United States............................................. $800,184 $2,083,630 Canadian.................................................. 133,271 145,527 -------- ---------- Total assets................................................ $933,455 $2,229,157 ======== ==========
37 40 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. BASIC AND DILUTED INCOME (LOSS) PER SHARE The weighted average number of shares outstanding for 1995, 1996 and 1997 is as follows:
YEAR ENDED DECEMBER 31, ------------------------------------------ 1995 1996 1997 ----------- ----------- ------------ Basic weighted average number of shares outstanding at end of period............. 47,466,853 67,672,701 109,096,011 Dilutive effect of stock options(1)........ 9,737,323 11,669,805 13,336,856 ----------- ----------- ------------ Diluted weighted average number of shares outstanding.............................. 57,204,176 79,342,506 122,432,867 =========== =========== ============
- --------------- (1) Stock options were included in 1996 because the Company had net income before the extraordinary loss. 15. QUARTERLY DATA (UNAUDITED)
QUARTER --------------------------------------------------------- FIRST SECOND THIRD FOURTH ---------- ---------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1996: Net revenues......................... $16,945 $19,582 $ 41,769 $ 94,820 Operating income..................... 5,447 7,457 18,153 25,797 Net income (loss).................... 777 1,364 (7,220) 1,809 Basic net income (loss) per share.... .00 (.01) (.11) .02 Diluted net income (loss) per share............................. .00 (.01) (.10) .02 1997: Net revenues......................... $80,080 $99,564 $131,991 $159,369 Operating income..................... 17,113 26,967 37,528 48,331 Net (loss) income.................... 691 (413) 7,743 7,417 Basic net income (loss) per share.... .01 (.00) .06 .07 Diluted net income (loss) per share............................. .01 (.00) .06 .06
The third and fourth quarters of 1996 include the operating results from the Gannett Outdoor Acquisition and an extraordinary loss from the early extinguishment of debt of approximately $12.4 million and $4.5 million, respectively, net of tax. The second quarter of 1997 includes an extraordinary loss from the early extinguishment of debt of approximately $6.8 million, net of tax. The third and fourth quarters of 1997 include the operating results from the 3M Media Acquisition. 16. CONSOLIDATING FINANCIAL STATEMENTS The following represents consolidating condensed financial statements of Outdoor Systems, Inc. and its subsidiaries (the "Subsidiaries") which are presented because certain of the Subsidiaries have guaranteed the 1996 Notes and the 1997 Notes. The Subsidiaries included in the consolidating condensed financial statements presented below are all wholly-owned and constitute all of the Company's direct and indirect subsidiaries. The 1996 Notes and 1997 Notes are guaranteed by all of the Company's domestic subsidiaries (the "Guarantors"). The guarantees of the Guarantors of the 1996 Notes and 1997 Notes are full, unconditional, and joint and several. The only subsidiary which has not guaranteed the 1996 Notes and 1997 Notes (the "Non-Guarantor") is Mediacom, Inc., located in Canada. Separate financial statements of the 38 41 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Guarantors are not presented because management has determined that they would not be material to investors. There are no significant restrictions on the Company's ability to obtain funds from the Guarantors. The Company did not have any foreign subsidiaries prior to 1996. OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED BALANCE SHEET DECEMBER 31, 1996
THE SUBSIDIARY ELIMINATION COMPANY GUARANTORS NON-GUARANTOR ENTRIES CONSOLIDATED -------- ------------ -------------- ----------- ------------ CURRENT ASSETS: Cash and cash equivalents............ $ 9,566 $ 24 $ 2,297 $ -- $ 11,887 Accounts receivable -- net........... 45,775 185 11,015 -- 56,975 Prepaid land leases.................. 7,521 -- 3,417 -- 10,938 Other current assets................. 9,195 114 6,428 -- 15,737 Deferred income taxes................ 1,637 -- -- -- 1,637 -------- ------ -------- -------- -------- Total current assets......... 73,694 323 23,157 -- 97,174 PROPERTY AND EQUIPMENT -- Net.......... 622,675 9,355 110,114 -- 742,144 OTHER ASSETS........................... 10,116 39 -- -- 10,155 DEFERRED FINANCING COSTS............... 24,151 -- -- -- 24,151 GOODWILL -- Net........................ 59,831 -- -- -- 59,831 INVESTMENT IN SUBSIDIARY............... 46,118 -- -- (46,118) -- -------- ------ -------- -------- -------- TOTAL........................ $836,585 $9,717 $133,271 $(46,118) $933,455 ======== ====== ======== ======== ======== CURRENT LIABILITIES: Accounts payable..................... $ 6,686 $ 16 $ 1,621 $ -- $ 8,323 Accrued interest..................... 6,806 -- 250 -- 7,056 Accrued expenses and other liabilities....................... 13,094 514 4,045 -- 17,653 Current maturities of long-term debt.............................. 28,000 -- -- -- 28,000 -------- ------ -------- -------- -------- Total current liabilities.... 54,586 530 5,916 -- 61,032 LONG-TERM DEBT......................... 496,015 46 82,348 -- 578,409 OTHER LONG-TERM OBLIGATIONS............ 2,349 1,203 -- -- 3,552 DEFERRED INCOMES TAXES................. (4,544) -- 6,827 -- 2,283 -------- ------ -------- -------- -------- Total liabilities............ 548,406 1,779 95,091 -- 645,276 -------- ------ -------- -------- -------- COMMON STOCKHOLDERS' EQUITY............ 288,179 7,938 38,180 (46,118) 288,179 -------- ------ -------- -------- -------- Total........................ $836,585 $9,717 $133,271 $(46,118) $933,455 ======== ====== ======== ======== ========
39 42 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996
THE SUBSIDIARY NON- ELIMINATION COMPANY GUARANTORS GUARANTOR ENTRIES CONSOLIDATED -------- ------------ ---------- ----------- ------------ REVENUES: Outdoor advertising..................... $172,797 $744 $21,492 $ (850) $194,183 Less: Lease agency commissions.......... 24,322 27 2,787 -- 27,136 -------- ---- ------- ------- -------- Total........................... 148,475 717 18,705 (850) 167,047 Lease, printing and other revenues...... 1,778 -- 4,291 -- 6,069 -------- ---- ------- ------- -------- Net revenues.................... 150,253 717 22,996 (850) 173,116 -------- ---- ------- ------- -------- OPERATING EXPENSES: Direct advertising...................... 74,015 278 14,150 (850) 87,593 General and administrative.............. 11,768 71 1,619 -- 13,458 Depreciation and amortization........... 19,894 138 2,523 -- 22,555 -------- ---- ------- ------- -------- Total operating expenses........ 105,677 487 18,292 (850) 123,606 -------- ---- ------- ------- -------- GAIN ON ATLANTA AND DENVER DISPOSITIONS... 7,344 -- -- -- 7,344 -------- ---- ------- ------- -------- OPERATING INCOME.......................... 51,920 230 4,704 -- 56,854 OTHER: Foreign currency translation (gain) loss................................. -- -- (171) -- (171) Interest expense........................ 31,240 2 1,247 -- 32,489 -------- ---- ------- ------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS...................... 20,680 228 3,628 -- 24,536 INCOME TAXES.............................. 8,273 91 1,836 -- 10,200 -------- ---- ------- ------- -------- INCOME BEFORE EXTRAORDINARY LOSS.......... 12,407 137 1,792 -- 14,336 EXTRAORDINARY LOSS........................ (17,780) -- -- -- (17,780) -------- ---- ------- ------- -------- (LOSS) INCOME BEFORE INCOME FROM SUBSIDIARY.............................. (5,373) 137 1,792 -- (3,444) INCOME FROM SUBSIDIARY.................... 1,929 -- -- (1,929) -- -------- ---- ------- ------- -------- NET INCOME (LOSS)......................... (3,444) 137 1,792 (1,929) (3,444) LESS STOCK DIVIDENDS, ACCRETIONS AND DISCOUNT ON REDEMPTIONS................. 3,461 -- -- -- 3,461 -------- ---- ------- ------- -------- NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS............................ $ (6,905) $137 $ 1,792 $(1,929) $ (6,905) ======== ==== ======= ======= ========
40 43 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATING CONDENSED BALANCE SHEET DECEMBER 31, 1997
THE SUBSIDIARY ELIMINATION COMPANY GUARANTORS NON-GUARANTOR ENTRIES CONSOLIDATED ---------- ------------ -------------- ----------- ------------ CURRENT ASSETS Cash and cash equivalents..... $ 2,556 $ 1,234 $ 2,107 $ 5,897 Accounts receivable -- net.... 108,735 953 10,057 119,745 Prepaid land leases........... 25,518 3,141 28,659 Other current assets.......... 9,540 84 7,062 16,686 Deferred income taxes......... 5,914 5,914 ---------- ------- -------- -------- ---------- Total current assets.............. 152,263 2,271 22,367 176,901 PROPERTY AND EQUIPMENT -- Net... 1,460,397 14,454 123,160 1,598,011 OTHER ASSETS.................... 13,551 14 13,565 DEFERRED FINANCING COSTS........ 40,520 40,520 GOODWILL -- Net................. 405,695 (5,535) 400,160 INVESTMENT IN SUBSIDIARY........ 49,390 $(49,390) ---------- ------- -------- -------- ---------- TOTAL................. $2,121,816 $11,204 $145,527 $(49,390) $2,229,157 ========== ======= ======== ======== ========== CURRENT LIABILITIES Accounts payable.............. $ 8,501 $ 148 $ 2,805 $ 11,454 Accrued interest.............. 8,551 389 8,940 Accrued expenses and other liabilities................ 45,320 495 (1,137) 44,678 Current maturities of long-term debt............. 49,600 1,000 50,600 ---------- ------- -------- -------- ---------- Total current liabilities......... 111,972 643 3,057 $ -- 115,672 LONG-TERM DEBT: ................ 1,297,497 28 96,034 1,393,559 OTHER LONG-TERM OBLIGATIONS..... 4,318 4,318 DEFERRED INCOME TAXES........... 12,558 1,203 6,376 20,137 ---------- ------- -------- -------- ---------- Total liabilities..... 1,426,345 1,874 105,467 -- 1,533,686 ---------- ------- -------- -------- ---------- COMMON STOCKHOLDERS' EQUITY: ... 695,471 9,330 40,060 (49,390) 695,471 ---------- ------- -------- -------- ---------- TOTAL................. $2,121,816 $11,204 $145,527 $(49,390) $2,229,157 ========== ======= ======== ======== ==========
41 44 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997
THE SUBSIDIARY NON- ELIMINATION COMPANY GUARANTORS GUARANTOR ENTRIES CONSOLIDATED -------- ---------- --------- ----------- ------------ REVENUES: Outdoor advertising................... $466,497 $3,294 $62,060 $(4,304) $527,547 Less: Lease agency commissions........ 63,392 295 8,111 71,798 -------- ------ ------- ------- -------- Total.............................. 403,105 2,999 53,949 (4,304) 455,749 Lease, printing and other revenues.... 3,904 11,351 15,255 -------- ------ ------- ------- -------- Net revenues..................... 407,009 2,999 65,300 (4,304) 471,004 -------- ------ ------- ------- -------- OPERATING EXPENSES: Direct advertising.................... 200,335 1,336 39,808 (4,304) 237,175 General and administrative............ 23,904 159 4,500 28,563 Depreciation and amortization......... 65,717 1,487 8,123 75,327 -------- ------ ------- ------- -------- Total operating expenses...... 289,956 2,982 52,431 (4,304) 341,065 -------- ------ ------- ------- -------- OPERATING INCOME........................ 117,053 17 12,869 -- 129,939 OTHER: Foreign currency translation (gain) loss............................... 2,093 2,093 Interest Expense...................... 80,578 2 6,570 87,150 -------- ------ ------- ------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS.................... 36,475 15 4,206 -- 40,696 INCOME TAXES............................ 14,776 3,709 18,485 -------- ------ ------- ------- -------- INCOME BEFORE EXTRAORDINARY LOSS........ 21,699 15 497 -- 22,211 EXTRAORDINARY LOSS...................... (6,773) (6,773) -------- ------ ------- ------- -------- NET INCOME (LOSS) BEFORE INCOME FROM SUBSIDIARY............................ 14,926 15 497 -- 15,438 INCOME FROM SUBSIDIARY.................. 512 (512) -- -------- ------ ------- ------- -------- NET INCOME (LOSS)....................... $ 15,438 $ 15 $ 497 $ (512) $ 15,438 ======== ====== ======= ======= ========
42 45 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) The information regarding the directors of the Company is incorporated herein by reference to the information set forth in the table captioned "Director and Director Nominee Information" and under "Election of Directors" in the definitive proxy statement of the Registrant for the Registrant's annual meeting of stockholders to be held on May 21, 1998. (b) Pursuant to Form 10-K General Instruction G(3), the information regarding executive officers of the Company has been included in Part I of this Report under the caption "Executive Officers of the Company." ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is incorporated herein by reference to the information set forth under the captions "Executive Compensation" and "Compensation of Directors" in the definitive proxy statement of the Registrant for the Registrant's annual meeting of stockholders to be held on May 21, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is incorporated herein by reference to the information set forth in the table captioned "Beneficial Ownership of Common Stock" in the definitive proxy statement of the Registrant for the Registrant's annual meeting of stockholders to be held on May 21, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is incorporated herein by reference to the information set forth in the table captioned "Certain Transactions" in the definitive proxy statement of the Registrant for the Registrant's annual meeting of stockholders to be held on May 21, 1998. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are incorporated by reference in or are filed as a part of this report: 1. Financial statements (included under Item 8). 2. Financial statement schedules. S-1 Independent Auditors' Report on Schedule S-2 Schedule II -- Valuation and Qualifying Accounts 3. Exhibits. 43 46 The following exhibits are incorporated by reference in or filed as a part of this report: (b) Reports on Form 8-K. None
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 -- Fourth Amended and Restated Certificate of Incorporation (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K filed on June 4, 1997 (File No. 0-28256) and incorporated herein by reference). 3.2 -- Amended and Restated Bylaws (filed as Exhibit 3.2 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 4.1 -- Specimen Common Stock Certificate of the Registrant (filed as Exhibit 4.1 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement (Reg. No. 333-1582) and incorporated herein by reference). 4.2 -- Indenture (filed as Exhibit 4.2 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 4.3 -- Indenture dated October 15, 1996, (the "1996 Indenture"), by and among the Registrant, its United States subsidiaries and The Bank of New York, as trustee (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated October 9, 1996 and incorporated herein by reference). 4.4 -- Indenture dated as of June 23, 1997 (the "1997 Indenture") among the Registrant, its United States subsidiaries and The Bank of New York, as trustee, relating to the 8 7/8% Senior Subordinated Notes due 2007 (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-4 (Reg. No. 333-30957) and incorporated herein by reference). 4.5 -- First Supplemental Indenture to the 1996 Indenture, dated as of June 23, 1997, by and among the Registrant, the Guarantors named therein, the Additional Guarantors named therein and The Bank of New York, as trustee, relating to the 9 3/8% Senior Subordinated Notes due 2006 (filed as Exhibit 2.3 to the Registrant's Registration Statement on Form 8-A (File No. 001-13275) and incorporated herein by reference). 4.6 -- Second Supplemental Indenture to the 1996 Indenture, dated as of September 30, 1997, by and among the Registrant, the Guarantors named therein, the Additional Guarantors named therein and The Bank of New York, as trustee, relating to the 9 3/8% Senior Subordinated Notes due 2006 (filed as Exhibit 2.4 to the Registrant's Registration Statement on Form 8-A (File No. 001-13275) and incorporated herein by reference). 4.7 -- Third Supplemental Indenture to the 1996 Indenture dated January 22, 1998 among the Registrant, the Guarantors named therein, the Additional Guarantor named therein and The Bank of New York, as trustee, relating to the 9 3/8% Senior Subordinated Notes due 2006. 4.8 -- First Supplemental Indenture to the 1997 Indenture, dated as of September 30, 1997, by and among the Registrant, the Guarantors named therein, the Additional Guarantors named therein and The Bank of New York, as trustee, relating to the 8 7/8% Senior Subordinated Notes due 2007 (filed as Exhibit 2.7 to the Registrant's Registration Statement on Form 8-A (File No. 001-13275) and incorporated herein by reference). 4.9 -- Second Supplemental Indenture to the 1997 Indenture dated January 22, 1998 among the Registrant, the Guarantors named therein, the Additional Guarantor named therein and The Bank of New York, as trustee, relating to the 8 7/8% Senior Subordinated Notes due 2007. 9.1 -- Voting Agreement dated May 4, 1990, effective April 2, 1989, between William S. Levine and Rubin Sabin (filed as Exhibit 9.1 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 9.2 -- Irrevocable Proxy dated as of April 2, 1989, between William S. Levine and Rubin Sabin (filed as Exhibit 9.2 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference).
44 47
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 9.3 -- Amended and Restated Voting Agreement dated as of August 17, 1993, entered into among the Registrant, William S. Levine and Gregory Riggle (filed as Exhibit 9.3 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 9.4 -- Stockholders' Agreement dated as of April 15, 1996, between William S. Levine, Arte Moreno and MK-Link Investments Limited Partnership (filed as Exhibit 9.4 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.1 -- Fourth Amended and Restated Credit Agreement, dated as of October 22, 1996, entered into among the Registrant, the several lenders from time to time parties thereto and CIBC Inc., as agent (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1996 and incorporated herein by reference). 10.2 -- Amended and Restated Securities Purchase Agreement dated as of August 17, 1993, entered into among the Registrant, TCW Special Placements Fund II and TCW Capital, as Investment Manager pursuant to an Investment Agreement dated as of June 30, 1987 (filed as Exhibit 10.2 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.3 -- Junior Subordinated Exchange Note dated effective as of January 1, 1992, issued by the Registrant to Rubin Sabin (filed as Exhibit 10.3 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.4 -- Intercreditor and Subordination Agreement dated as of May 4, 1990, among the Registrant, OS Advertising Company of Texas, Inc., Outdoor Today, Inc., National Westminster Bank USA, as Agent, Rubin Sabin and Elaine Sabin (filed as Exhibit 10.4 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.5 -- Amended and Restated Intercreditor and Subordination Agreement dated as of August 17, 1993, entered into between the Registrant, Gregory Riggle, CIBC Inc. and United States Trust Company of New York, as trustee (filed as Exhibit 10.5 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.6 -- Administrative Services Agreement dated as of June 1, 1993, between the Registrant and Camelback Services, Inc. (filed as Exhibit 10.6 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.7 -- Services Agreement dated as of May 1, 1993, between the Registrant, Williams Manufacturing, Inc. and J & L Industries, Inc. as amended by the First Amendment thereto dated April 15, 1996, to be effective as of July 1, 1995 (filed as Exhibit 10.7 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.8 -- Amended and Restated Incentive Plan dated effective as of January 1, 1988, adopted by the Registrant as amended to date (filed as Exhibit 10.8 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.9 -- Assets Purchase Agreement dated March 15, 1991, among the Registrant, Naegele Outdoor Advertising, Inc., OS Advertising Company of Georgia, Inc., and Morris Communications Corporation, as amended by the First Amendment to Assets Purchase Agreement dated as of December 23, 1991, among the Registrant, Naegele Outdoor Advertising, Inc., OS Advertising Company of Georgia, Inc., Morris Communications Corporation, and OS Advertising Company of Kentucky, Inc. (filed as Exhibit 10.17 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.10 -- Agreement and grant of Option dated as of April 3, 1989, between the Registrant and Arthur Moreno, as amended by the First Amendment to Agreement and Grant of Option dated as of January 1, 1991 (filed as Exhibit 10.23 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.10.1 -- Letter Agreement between Registrant and Arte Moreno regarding Agreement and Grant of Option dated as of April 3, 1989, and First Amendment to Agreement and Grant of Option dated as of January 1, 1991 (filed as Exhibit 10.10.1 to the Registrant's Amendment No. 3 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference).
45 48
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.11 -- Option Agreement dated as of January 1, 1991, between the Registrant and Wally Kelly (filed as Exhibit 10.24 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.12 -- Senior Note Intercreditor Agreement dated as of August 17, 1993, entered into among TCW Special Placements Fund II, TCW Capital, acting solely as investment manager pursuant to an Investment Management Agreement, the Registrant and United States Trust Company of New York as trustee (filed as Exhibit 10.26 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.13 -- Bank Intercreditor Agreement dated as of August 17, 1993, entered into among TCW Special Placements Fund II, TCW Capital acting solely as investment manager pursuant to an Investment Management Agreement, the Registrant and CIBC Inc. as agent (filed as Exhibit 10.26 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.14 -- Option Purchase Agreement among the Registrant and OS Advertising Company of Georgia, Inc. and Capitol Outdoor Acquisition Co., Inc. and Capitol Outdoor Leasing Co., Inc., dated as of July 27, 1994, as amended by the First Amendment to Option Purchase Agreement dated as of December 14, 1994 (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K dated December 19, 1994 and incorporated herein by reference). 10.15 -- Asset Purchase Agreement between the Registrant and Eller Outdoor Advertising Company of Atlanta, dated November 21, 1994 (filed as Exhibit 2 to the Registrant's Current Report on Form 8-K dated December 19, 1994 and incorporated herein by reference). 10.16 -- The Registrant's 1996 Omnibus Plan (filed as Exhibit 10.16 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.17 -- Form of Incentive Stock Option Grant to be awarded to each of Wally C. Kelly and Bill M. Beverage pursuant to the terms of the Registrant's 1996 Omnibus Plan (filed as Exhibit 10.17 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.18 -- Form of Stock Option Grant to be awarded to each of Arte Moreno, Wally C. Kelly and Bill M. Beverage pursuant to the terms of the Registrant's 1996 Omnibus Plan (filed as Exhibit 10.18 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.19 -- Form of Incentive Plan Settlement Participant Election Agreement to be entered into by each of Wally C. Kelly and Bill M. Beverage pursuant to the conversion of interests in the Incentive Plan (filed as Exhibit 10.19 to the Registrant's Amendment No. 3 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.20 -- Asset Purchase Agreement dated July 9, 1996, by and between the Registrant and Gannett Co., Inc., together with the Promissory Note and related Guaranty. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.21 -- Amendment No. 1 to Asset Purchase Agreement among Gannett Co., Inc., Combined Communications Corporation, Gannett Transit, Inc., Shelter Media Communications, Inc., Gannett International Communications, Inc., and the Registrant dated as of August 12, 1996 (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated August 27, 1996 and incorporated herein by reference). 10.22 -- Amendment No. 2 to Asset Purchase Agreement among Gannett Co., Inc., Combined Communications Corporation, Gannett Transit, Inc., Shelter Media Communications, Inc., Gannett International Communications, Inc., and the Registrant dated as of August 19, 1996 (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated August 27, 1996 and incorporated herein by reference).
46 49
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.23 -- Form of Option by Gannett Outdoor Co. of Texas, Inc., in favor of the Registrant together with the form of Asset Purchase Agreement by and between the Registrant and Gannett Outdoor Co. of Texas, Inc. (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.24 -- Senior Subordinated Credit Agreement dated July 9, 1996, by and among the Registrant, the guarantors named therein, the lenders named therein, and Canadian Imperial Bank of Commerce together with the forms of Bridge Note and Term Note. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.4 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.25 -- Form of Indenture by and among the Registrant, the subsidiary guarantors named therein, and a trustee to be selected by the Registrant (filed as Exhibit 99.5 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.26 -- First Supplemental Indenture dated as of August 22, 1996, by and between the Registrant and United States Trust Company of New York (filed as Exhibit 99.5 to the Registrant's Current Report on Form 8-K dated August 27, 1996 and incorporated herein by reference). 10.27 -- Securities Purchase Agreement dated July 9, 1996, by and between the Registrant and CIBC WG Argosy Merchant Fund 2, L.L.C. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.6 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.28 -- Form of Certificate of Designations of Senior Increasing Rate Cumulative Preferred Stock, Series A (filed as Exhibit 99.7 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.29 -- Form of Warrant Agreement by and between the Registrant and a Warrant Agent to be selected by the Registrant (filed as Exhibit 99.8 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.30 -- Form of Registration Rights Agreement by and among the Registrant, the guarantors names therein, and the holders name therein (filed as Exhibit 99.9 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.31 -- Form of Common Stock Registration Rights Agreement by and between the Registrant and CIBC WG Argosy Merchant Form 2, L.L.C. (filed as Exhibit 99.10 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.32 -- Underwriting Agreement dated August 19, 1996 by and among the Registrant and Alex. Brown & Sons Incorporated, CIBC Wood Gundy Securities Corp. and Donaldson, Lufkin & Jenrette Securities Corporation (filed as Exhibit 99.3 to the Registrant's Current Report on Form 8-K dated August 27, 1996 and incorporated herein by reference). 10.33 -- Asset Purchase Agreement between RailCom, Ltd. and the Registrant dated May 8, 1996 (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference). 10.34 -- Purchase and Sales Agreement Between CSX Realty Development Corporation, The Three Rivers Railway Company, The Atlantic Land and Improvement Company, Winston-Salem Southbound Railway Company, Gainesville Midland Railroad Company, and Richmond, Fredericksburg and Potomac Railway Company and RailCom, Ltd. dated January 23, 1996, as amended March 29, 1996, and May 21, 1996 (filed as Exhibit 2.2.1 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference). 10.35 -- Amendment to Purchase Agreement, dated March 29, 1996 (filed as Exhibit 2.2.2 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference).
47 50
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.36 -- Second Amendment to Purchase Agreement dated May 21, 1996 (filed as Exhibit 2.2.3 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference). 10.37 -- Grant of Easement and Agreement dated May 21, 1996 (filed as Exhibit 2.3 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference). 10.38 -- Assignment of License Agreements, dated May 21, 1996 (filed as Exhibit 2.4 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference). 10.39 -- Assignment and Assumption Agreement dated May 22, 1996 (filed as Exhibit 2.5 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference). 10.41 -- Underwriting Agreement dated October 9, 1996 by and among the Registrant, its United States subsidiaries, CIBC Wood Gundy Securities Corp. and Alex. Brown & Sons Incorporated (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated October 9, 1996 and incorporated herein by reference). 10.42 -- Agreement of Purchase and Sale dated April 30, 1997 by and between the Registrant and Minnesota Mining and Manufacturing Company. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.1 to the Registrant's Form S-3 Registration Statement (Reg. No. 333- 26407) and incorporated herein by reference). 10.43 -- Stock Purchase Agreement dated April 11, 1997 by and among the Registrant, Van Wagner Communications, Inc., Richard M. Schaps and Jason Perline. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.2 to the Registrant's Form S-3 Registration Statement (Reg. No. 333-26407) and incorporated herein by reference). 10.44 -- Signboard Easements Sale Agreement dated March 21, 1997 between the Registrant and the Burlington Northern and Santa Fe Railway Company. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.3 to the Registrant's Form S-3 Registration Statement (Reg. No. 333-26407) and incorporated herein by reference). 10.45 -- Asset Purchase Agreement dated as of February 24, 1997 by and between the Registrant and GRTP, Ltd. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.4 to the Registrant's Form S-3 Registration Statement (Reg. No. 333-26407) and incorporated herein by reference). 10.46 -- Joint Venture Asset Purchase Agreement dated as of February 28, 1997 by and between the Registrant and Reynolds/Tower Outdoor Sign Joint Venture. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.5 to the Registrant's Form S-3 Registration Statement (Reg. No. 333-26407) and incorporated herein by reference). 10.47 -- Joint Venture Asset Purchase Agreement dated as of February 28, 1997 by and between the Registrant and Reynolds/McCrary Joint Venture. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.6 to the Registrant's Form S-3 Registration Statement (Reg. No. 333- 26407) and incorporated herein by reference).
48 51
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.48 -- Joint Venture Asset Purchase Agreement dated as of February 28, 1997 by and between the Registrant and RV Outdoor Sign Joint Venture. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant Agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.7 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-26407) and incorporated herein by reference). 10.49 -- Asset Purchase Agreement dated as of January 21, 1997 by and among the Registrant and Scadron Enterprises, Robert B. Scadron, Jeffrey Scadron and Barry Scadron. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant Agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.8 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-26407) and incorporated herein by reference). 10.50 -- Asset Purchase Agreement dated as of December 27, 1996 by and among the Registrant, Villepigue Outdoor Advertising Corporation, Villepigue International Advertising, Inc., S.B. Properties, Inc., Third & Eighth Realty Corp. and Mobile Outdoor Media, Inc. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant Agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.9 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-26407) and incorporated herein by reference). 10.51 -- Amendment dated as of March 12, 1997 to the Fourth amended and Restated Credit Agreement dated as of October 22, 1996, among the Registrant, Mediacom Inc., the several banks and other financial institutions parties thereto and Canadian Imperial Bank of Commerce as administrative agent (filed as Exhibit 99.10 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-26407) and incorporated herein by reference). 10.52 -- Second Amendment dated as of May 9, 1997 to the Fourth Amended and Restated Credit Agreement dated as of October 22, 1996, as amended, among the Registrant, Mediacom Inc., the several banks and other financial institutions parties thereto and Canadian Imperial Bank of Commerce as administrative agent (filed as Exhibit 99.11 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-26407) and incorporated herein by reference). 10.53 -- Amendment No. 1 dated as of May 22, 1997 to Stock Purchase Agreement dated April 11, 1997 by and among Richard M. Schaps, Jason Perline, Van Wagner Communications, Inc. and the Registrant (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated May 28, 1997 and incorporated herein by reference). 10.54 -- Underwriting Agreement dated May 22, 1997 by and among the Registrant, the selling stockholders named therein, Alex. Brown & Sons Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, CIBC Wood Gundy Securities Corp., Montgomery Securities and Prudential Securities Corporation (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated May 28, 1997 and incorporated herein by reference). 10.55 -- Amendment No. 1 dated June 2, 1997 to Underwriting Agreement dated May 22, 1997 by and among the Registrant, the selling stockholders named therein, Alex. Brown & Sons Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, CIBC Wood Gundy Securities Corp., Montgomery Securities and Prudential Securities Corporation (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated June 4, 1997 and incorporated herein by reference). 10.56 -- Purchase Agreement dated June 17, 1997 among the Registrant, its United States subsidiaries, CIBC Wood Gundy Securities Corp., Alex. Brown & Sons Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation (filed as Exhibit 99.1 to the Registrant's Registration Statement on Form S-4 (Reg. No. 333-30957) and incorporated herein by reference). 10.57 -- Registration Rights Agreement dated June 17, 1997 among the Registrant, the Guarantors named therein, CIBC Wood Gundy Securities Corp., Alex. Brown & Sons Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation (filed as Exhibit 99.2 to the Registrant's Registration Statement on Form S-4 (Reg. No. 333-30957) and incorporated herein by reference).
49 52
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.58 -- Asset Purchase Agreement dated August 15, 1997, by and between the Registrant and The Lamar Corporation (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated August 29, 1997 and incorporated herein by reference). 10.59 -- Fifth Amended and Restated Credit Agreement, dated as of August 15, 1997, among the Registrant, Mediacom Inc., the several lenders parties thereto and Canadian Imperial Bank of Commerce, as agent (filed as Exhibit 99.3 to the Registrant's Current Report on Form 8-K dated August 29, 1997 and incorporated herein by reference). 10.60 -- 1966 Non-Employee Director Stock Option Plan (filed as Exhibit 99.3 to the Registrant's Registration Statement on Form S-8 (Reg. No. 333-38589) and incorporated herein by reference). 10.61 -- Stock Purchase Agreement dated November 7, 1997 among the Registrant, Salm Enterprises, Inc., Joslyn Stuart and Hillary Salm. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request. 10.62 -- Asset Purchase Agreement dated November 25, 1997 by and between the Registrant and Outdoor Media Group, Inc. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request. 21.1 -- Subsidiaries of the Registrant 23.1 -- Consent of Deloitte & Touche LLP 27 -- Financial Data Schedule
50 53 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona, on the 18th day of March 1998. OUTDOOR SYSTEMS, INC. By: /s/ WILLIAM S. LEVINE ------------------------------------ William S. Levine Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated. OUTDOOR SYSTEMS, INC. By: /s/ ARTURO R. MORENO Date: March 18, 1998 - -------------------------------------------- Arturo R. Moreno President and Director (Principal Executive Officer) By: /s/ WILLIAM S. LEVINE Date: March 18, 1998 - -------------------------------------------- William S. Levine Chairman and Director By: /s/ BILL M. BEVERAGE Date: March 18, 1998 - -------------------------------------------- Bill M. Beverage Secretary, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) By: /s/ BRIAN J. O'CONNOR Date: March 18, 1998 - -------------------------------------------- Brian J. O'Connor Director By: /s/ STEPHEN F. BUTTERFIELD Date: March 18, 1998 - -------------------------------------------- Stephen F. Butterfield Director
54 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Outdoor Systems, Inc. Phoenix, Arizona We have audited the consolidated financial statements of Outdoor Systems, Inc. as of December 31, 1996 and 1997, and for each of the three years in the period ended December 31, 1997, and have issued our report thereon dated February 3, 1998, except for the last paragraph of Note 5, for which the date is March 17, 1998; such consolidated financial statements and report are included elsewhere in this Form 10-K. Our audits also included the financial statement schedule of Outdoor Systems, Inc., listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Phoenix, Arizona March 17, 1998 S-1 55 OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 1995, 1996 AND 1997 (DOLLARS IN THOUSANDS)
ADDITIONS -------------------- BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END DESCRIPTION OF PERIOD EXPENSES OTHER DEDUCTIONS OF PERIOD ----------- ---------- ---------- ------ ---------- --------- 1995 Allowance for Doubtful Accounts.................... $1,016 $ 761 $ -- $ (767)(1) $ 1,010 ====== ====== ====== ======= ======= 1996 Allowance for Doubtful Accounts.................... $1,010 $2,492 $2,726(2) $ (830)(1) $ 5,398 ====== ====== ====== ======= ======= 1997 Allowance for Doubtful Accounts.................... $5,398 $4,129 $5,677(2) $(1,354)(1) $13,850 ====== ====== ====== ======= =======
- --------------- (1) Represents accounts receivable write-offs. (2) Amount represents reserve at date of acquisition related to accounts receivable in the working capital of companies acquired. S-2 56 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 -- Fourth Amended and Restated Certificate of Incorporation (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K filed on June 4, 1997 (File No. 0-28256) and incorporated herein by reference). 3.2 -- Amended and Restated Bylaws (filed as Exhibit 3.2 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 4.1 -- Specimen Common Stock Certificate of the Registrant (filed as Exhibit 4.1 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement (Reg. No. 333-1582) and incorporated herein by reference). 4.2 -- Indenture (filed as Exhibit 4.2 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 4.3 -- Indenture dated October 15, 1996, (the "1996 Indenture"), by and among the Registrant, its United States subsidiaries and The Bank of New York, as trustee (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated October 9, 1996 and incorporated herein by reference). 4.4 -- Indenture dated as of June 23, 1997 (the "1997 Indenture") among the Registrant, its United States subsidiaries and The Bank of New York, as trustee, relating to the 8 7/8% Senior Subordinated Notes due 2007 (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-4 (Reg. No. 333-30957) and incorporated herein by reference). 4.5 -- First Supplemental Indenture to the 1996 Indenture, dated as of June 23, 1997, by and among the Registrant, the Guarantors named therein, the Additional Guarantors named therein and The Bank of New York, as trustee, relating to the 9 3/8% Senior Subordinated Notes due 2006 (filed as Exhibit 2.3 to the Registrant's Registration Statement on Form 8-A (File No. 001-13275) and incorporated herein by reference). 4.6 -- Second Supplemental Indenture to the 1996 Indenture, dated as of September 30, 1997, by and among the Registrant, the Guarantors named therein, the Additional Guarantors named therein and The Bank of New York, as trustee, relating to the 9 3/8% Senior Subordinated Notes due 2006 (filed as Exhibit 2.4 to the Registrant's Registration Statement on Form 8-A (File No. 001-13275) and incorporated herein by reference). 4.7 -- Third Supplemental Indenture to the 1996 Indenture dated January 22, 1998 among the Registrant, the Guarantors named therein, the Additional Guarantor named therein and the Bank of New York, as trustee, relating to the 9 3/8% Senior Subordinated Notes due 2006. 4.8 -- First Supplemental Indenture to the 1997 Indenture, dated as of September 30, 1997, by and among the Registrant, the Guarantors named therein, the Additional Guarantors named therein and the Bank of New York, as trustee, relating to the 8 7/8% Senior Subordinated Notes due 2007 (filed as Exhibit 2.7 to the Registrant's Registration Statement on Form 8-A (File No. 001-13275) and incorporated herein by reference). 4.9 -- Second Supplemental Indenture to the 1997 Indenture dated January 22, 1998 among the Registrant, the Guarantors named therein, the Additional Guarantor named therein and the Bank of New York, as trustee, relating to the 8 7/8% Senior Subordinated Notes due 2007. 9.1 -- Voting Agreement dated May 4, 1990, effective April 2, 1989, between William S. Levine and Rubin Sabin (filed as Exhibit 9.1 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 9.2 -- Irrevocable Proxy dated as of April 2, 1989, between William S. Levine and Rubin Sabin (filed as Exhibit 9.2 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 9.3 -- Amended and Restated Voting Agreement dated as of August 17, 1993, entered into among the Registrant, William S. Levine and Gregory Riggle (filed as Exhibit 9.3 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference).
57
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 9.4 -- Stockholders' Agreement dated as of April 15, 1996, between William S. Levine, Arte Moreno and MK-Link Investments Limited Partnership (filed as Exhibit 9.4 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.1 -- Fourth Amended and Restated Credit Agreement, dated as of October 22, 1996, entered into among the Registrant, the several lenders from time to time parties thereto and CIBC Inc., as agent (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1996 and incorporated herein by reference). 10.2 -- Amended and Restated Securities Purchase Agreement dated as of August 17, 1993, entered into among the Registrant, TCW Special Placements Fund II and TCW Capital, as Investment Manager pursuant to an Investment Agreement dated as of June 30, 1987 (filed as Exhibit 10.2 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.3 -- Junior Subordinated Exchange Note dated effective as of January 1, 1992, issued by the Registrant to Rubin Sabin (filed as Exhibit 10.3 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.4 -- Intercreditor and Subordination Agreement dated as of May 4, 1990, among the Registrant, OS Advertising Company of Texas, Inc., Outdoor Today, Inc., National Westminster Bank USA, as Agent, Rubin Sabin and Elaine Sabin (filed as Exhibit 10.4 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.5 -- Amended and Restated Intercreditor and Subordination Agreement dated as of August 17, 1993, entered into between the Registrant, Gregory Riggle, CIBC Inc. and United States Trust Company of New York, as trustee (filed as Exhibit 10.5 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.6 -- Administrative Services Agreement dated as of June 1, 1993, between the Registrant and Camelback Services, Inc. (filed as Exhibit 10.6 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.7 -- Services Agreement dated as of May 1, 1993, between the Registrant, Williams Manufacturing, Inc. and J & L Industries, Inc. as amended by the First Amendment thereto dated April 15, 1996, to be effective as of July 1, 1995 (filed as Exhibit 10.7 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.8 -- Amended and Restated Incentive Plan dated effective as of January 1, 1988, adopted by the Registrant as amended to date (filed as Exhibit 10.8 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.9 -- Assets Purchase Agreement dated March 15, 1991, among the Registrant, Naegele Outdoor Advertising, Inc., OS Advertising Company of Georgia, Inc., and Morris Communications Corporation, as amended by the First Amendment to Assets Purchase Agreement dated as of December 23, 1991, among the Registrant, Naegele Outdoor Advertising, Inc., OS Advertising Company of Georgia, Inc., Morris Communications Corporation, and OS Advertising Company of Kentucky, Inc. (filed as Exhibit 10.17 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.10 -- Agreement and grant of Option dated as of April 3, 1989, between the Registrant and Arthur Moreno, as amended by the First Amendment to Agreement and Grant of Option dated as of January 1, 1991 (filed as Exhibit 10.23 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.10.1 -- Letter Agreement between Registrant and Arte Moreno regarding Agreement and Grant of Option dated as of April 3, 1989, and First Amendment to Agreement and Grant of Option dated as of January 1, 1991 (filed as Exhibit 10.10.1 to the Registrant's Amendment No. 3 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.11 -- Option Agreement dated as of January 1, 1991, between the Registrant and Wally Kelly (filed as Exhibit 10.24 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference).
58
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.12 -- Senior Note Intercreditor Agreement dated as of August 17, 1993, entered into among TCW Special Placements Fund II, TCW Capital, acting solely as investment manager pursuant to an Investment Management Agreement, the Registrant and United States Trust Company of New York as trustee (filed as Exhibit 10.26 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.13 -- Bank Intercreditor Agreement dated as of August 17, 1993, entered into among TCW Special Placements Fund II, TCW Capital acting solely as investment manager pursuant to an Investment Management Agreement, the Registrant and CIBC Inc. as agent (filed as Exhibit 10.26 to the Registrant's Form S-1 Registration Statement No. 33-64638 and incorporated herein by reference). 10.14 -- Option Purchase Agreement among the Registrant and OS Advertising Company of Georgia, Inc. and Capitol Outdoor Acquisition Co., Inc. and Capitol Outdoor Leasing Co., Inc., dated as of July 27, 1994, as amended by the First Amendment to Option Purchase Agreement dated as of December 14, 1994 (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K dated December 19, 1994 and incorporated herein by reference). 10.15 -- Asset Purchase Agreement between the Registrant and Eller Outdoor Advertising Company of Atlanta, dated November 21, 1994 (filed as Exhibit 2 to the Registrant's Current Report on Form 8-K dated December 19, 1994 and incorporated herein by reference). 10.16 -- The Registrant's 1996 Omnibus Plan (filed as Exhibit 10.16 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.17 -- Form of Incentive Stock Option Grant to be awarded to each of Wally C. Kelly and Bill M. Beverage pursuant to the terms of the Registrant's 1996 Omnibus Plan (filed as Exhibit 10.17 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.18 -- Form of Stock Option Grant to be awarded to each of Arte Moreno, Wally C. Kelly and Bill M. Beverage pursuant to the terms of the Registrant's 1996 Omnibus Plan (filed as Exhibit 10.18 to the Registrant's Amendment No. 2 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.19 -- Form of Incentive Plan Settlement Participant Election Agreement to be entered into by each of Wally C. Kelly and Bill M. Beverage pursuant to the conversion of interests in the Incentive Plan (filed as Exhibit 10.19 to the Registrant's Amendment No. 3 to Form S-1 Registration Statement No. 333-1582 and incorporated herein by reference). 10.20 -- Asset Purchase Agreement dated July 9, 1996, by and between the Registrant and Gannett Co., Inc., together with the Promissory Note and related Guaranty. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.21 -- Amendment No. 1 to Asset Purchase Agreement among Gannett Co., Inc., Combined Communications Corporation, Gannett Transit, Inc., Shelter Media Communications, Inc., Gannett International Communications, Inc., and the Registrant dated as of August 12, 1996 (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated August 27, 1996 and incorporated herein by reference). 10.22 -- Amendment No. 2 to Asset Purchase Agreement among Gannett Co., Inc., Combined Communications Corporation, Gannett Transit, Inc., Shelter Media Communications, Inc., Gannett International Communications, Inc., and the Registrant dated as of August 19, 1996 (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated August 27, 1996 and incorporated herein by reference). 10.23 -- Form of Option by Gannett Outdoor Co. of Texas, Inc., in favor of the Registrant together with the form of Asset Purchase Agreement by and between the Registrant and Gannett Outdoor Co. of Texas, Inc. (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference).
59
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.24 -- Senior Subordinated Credit Agreement dated July 9, 1996, by and among the Registrant, the guarantors named therein, the lenders named therein, and Canadian Imperial Bank of Commerce together with the forms of Bridge Note and Term Note. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.4 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.25 -- Form of Indenture by and among the Registrant, the subsidiary guarantors named therein, and a trustee to be selected by the Registrant (filed as Exhibit 99.5 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.26 -- First Supplemental Indenture dated as of August 22, 1996, by and between the Registrant and United States Trust Company of New York (filed as Exhibit 99.5 to the Registrant's Current Report on Form 8-K dated August 27, 1996 and incorporated herein by reference). 10.27 -- Securities Purchase Agreement dated July 9, 1996, by and between the Registrant and CIBC WG Argosy Merchant Fund 2, L.L.C. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.6 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.28 -- Form of Certificate of Designations of Senior Increasing Rate Cumulative Preferred Stock, Series A (filed as Exhibit 99.7 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.29 -- Form of Warrant Agreement by and between the Registrant and a Warrant Agent to be selected by the Registrant (filed as Exhibit 99.8 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.30 -- Form of Registration Rights Agreement by and among the Registrant, the guarantors names therein, and the holders name therein (filed as Exhibit 99.9 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.31 -- Form of Common Stock Registration Rights Agreement by and between the Registrant and CIBC WG Argosy Merchant Form 2, L.L.C. (filed as Exhibit 99.10 to the Registrant's Current Report on Form 8-K dated July 10, 1996 and incorporated herein by reference). 10.32 -- Underwriting Agreement dated August 19, 1996 by and among the Registrant and Alex. Brown & Sons Incorporated, CIBC Wood Gundy Securities Corp. and Donaldson, Lufkin & Jenrette Securities Corporation (filed as Exhibit 99.3 to the Registrant's Current Report on Form 8-K dated August 27, 1996 and incorporated herein by reference). 10.33 -- Asset Purchase Agreement between RailCom, Ltd. and the Registrant dated May 8, 1996 (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference). 10.34 -- Purchase and Sales Agreement Between CSX Realty Development Corporation, The Three Rivers Railway Company, The Atlantic Land and Improvement Company, Winston-Salem Southbound Railway Company, Gainesville Midland Railroad Company, and Richmond, Fredericksburg and Potomac Railway Company and RailCom, Ltd. dated January 23, 1996, as amended March 29, 1996, and May 21, 1996 (filed as Exhibit 2.2.1 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference). 10.35 -- Amendment to Purchase Agreement, dated March 29, 1996 (filed as Exhibit 2.2.2 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference). 10.36 -- Second Amendment to Purchase Agreement dated May 21, 1996 (filed as Exhibit 2.2.3 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference). 10.37 -- Grant of Easement and Agreement dated May 21, 1996 (filed as Exhibit 2.3 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference).
60
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.38 -- Assignment of License Agreements, dated May 21, 1996 (filed as Exhibit 2.4 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference). 10.39 -- Assignment and Assumption Agreement dated May 22, 1996 (filed as Exhibit 2.5 to the Registrant's Current Report on Form 8-K dated May 22, 1996 and incorporated herein by reference). 10.41 -- Underwriting Agreement dated October 9, 1996 by and among the Registrant, its United States subsidiaries, CIBC Wood Gundy Securities Corp. and Alex. Brown & Sons Incorporated (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated October 9, 1996 and incorporated herein by reference). 10.42 -- Agreement of Purchase and Sale dated April 30, 1997 by and between the Registrant and Minnesota Mining and Manufacturing Company. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.1 to the Registrant's Form S-3 Registration Statement (Reg. No. 333- 26407) and incorporated herein by reference). 10.43 -- Stock Purchase Agreement dated April 11, 1997 by and among the Registrant, Van Wagner Communications, Inc., Richard M. Schaps and Jason Perline. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.2 to the Registrant's Form S-3 Registration Statement (Reg. No. 333-26407) and incorporated herein by reference). 10.44 -- Signboard Easements Sale Agreement dated March 21, 1997 between the Registrant and the Burlington Northern and Santa Fe Railway Company. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.3 to the Registrant's Form S-3 Registration Statement (Reg. No. 333-26407) and incorporated herein by reference). 10.45 -- Asset Purchase Agreement dated as of February 24, 1997 by and between the Registrant and GRTP, Ltd. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.4 to the Registrant's Form S-3 Registration Statement (Reg. No. 333-26407) and incorporated herein by reference). 10.46 -- Joint Venture Asset Purchase Agreement dated as of February 28, 1997 by and between the Registrant and Reynolds/Tower Outdoor Sign Joint Venture. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.5 to the Registrant's Form S-3 Registration Statement (Reg. No. 333-26407) and incorporated herein by reference). 10.47 -- Joint Venture Asset Purchase Agreement dated as of February 28, 1997 by and between the Registrant and Reynolds/McCrary Joint Venture. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.6 to the Registrant's Form S-3 Registration Statement (Reg. No. 333- 26407) and incorporated herein by reference). 10.48 -- Joint Venture Asset Purchase Agreement dated as of February 28, 1997 by and between the Registrant and RV Outdoor Sign Joint Venture. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant Agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.7 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-26407) and incorporated herein by reference).
61
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.49 -- Asset Purchase Agreement dated as of January 21, 1997 by and among the Registrant and Scadron Enterprises, Robert B. Scadron, Jeffrey Scadron and Barry Scadron. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant Agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.8 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-26407) and incorporated herein by reference). 10.50 -- Asset Purchase Agreement dated as of December 27, 1996 by and among the Registrant, Villepigue Outdoor Advertising Corporation, Villepigue International Advertising, Inc., S.B. Properties, Inc., Third & Eighth Realty Corp. and Mobile Outdoor Media, Inc. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant Agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request (filed as Exhibit 99.9 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-26407) and incorporated herein by reference). 10.51 -- Amendment dated as of March 12, 1997 to the Fourth amended and Restated Credit Agreement dated as of October 22, 1996, among the Registrant, Mediacom Inc., the several banks and other financial institutions parties thereto and Canadian Imperial Bank of Commerce as administrative agent (filed as Exhibit 99.10 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-26407) and incorporated herein by reference). 10.52 -- Second Amendment dated as of May 9, 1997 to the Fourth Amended and Restated Credit Agreement dated as of October 22, 1996, as amended, among the Registrant, Mediacom Inc., the several banks and other financial institutions parties thereto and Canadian Imperial Bank of Commerce as administrative agent (filed as Exhibit 99.11 to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-26407) and incorporated herein by reference). 10.53 -- Amendment No. 1 dated as of May 22, 1997 to Stock Purchase Agreement dated April 11, 1997 by and among Richard M. Schaps, Jason Perline, Van Wagner Communications, Inc. and the Registrant (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated May 28, 1997 and incorporated herein by reference). 10.54 -- Underwriting Agreement dated May 22, 1997 by and among the Registrant, the selling stockholders named therein, Alex. Brown & Sons Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, CIBC Wood Gundy Securities Corp., Montgomery Securities and Prudential Securities Corporation (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated May 28, 1997 and incorporated herein by reference). 10.55 -- Amendment No. 1 dated June 2, 1997 to Underwriting Agreement dated May 22, 1997 by and among the Registrant, the selling stockholders named therein, Alex. Brown & Sons Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, CIBC Wood Gundy Securities Corp., Montgomery Securities and Prudential Securities Corporation (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated June 4, 1997 and incorporated herein by reference). 10.56 -- Purchase Agreement dated June 17, 1997 among the Registrant, its United States subsidiaries, CIBC Wood Gundy Securities Corp., Alex. Brown & Sons Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation (filed as Exhibit 99.1 to the Registrant's Registration Statement on Form S-4 (Reg. No. 333-30957) and incorporated herein by reference). 10.57 -- Registration Rights Agreement dated June 17, 1997 among the Registrant, the Guarantors named therein, CIBC Wood Gundy Securities Corp., Alex. Brown & Sons Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation (filed as Exhibit 99.2 to the Registrant's Registration Statement on Form S-4 (Reg. No. 333-30957) and incorporated herein by reference). 10.58 -- Asset Purchase Agreement dated August 15, 1997, by and between the Registrant and The Lamar Corporation (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated August 29, 1997 and incorporated herein by reference). 10.59 -- Fifth Amended and Restated Credit Agreement, dated as of August 15, 1997, among the Registrant, Mediacom Inc., the several lenders parties thereto and Canadian Imperial Bank of Commerce, as agent (filed as Exhibit 99.3 to the Registrant's Current Report on Form 8-K dated August 29, 1997 and incorporated herein by reference).
62
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.60 -- 1966 Non-Employee Director Stock Option Plan (filed as Exhibit 99.3 to the Registrant's Registration Statement on Form S-8 (Reg. No. 333-38589) and incorporated herein by reference). 10.61 -- Stock Purchase Agreement dated November 7, 1997 among the Registrant, Salm Enterprises, Inc., Joslyn Stuart and Hillary Salm. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request. 10.62 -- Asset Purchase Agreement dated November 25, 1997 by and between the Registrant and Outdoor Media Group, Inc. The Exhibit contains a list briefly identifying the contents of Schedules and Exhibits, some of which have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted Schedule or Exhibit to the Commission upon request. 21.1 -- Subsidiaries of the Registrant 23.1 -- Consent of Deloitte & Touche LLP 27 -- Financial Data Schedule
EX-4.7 2 EX-4.7 1 EXHIBIT 4.7 THIRD SUPPLEMENTAL INDENTURE TO THE 1996 INDENTURE THIRD SUPPLEMENTAL INDENTURE, dated as of January 22, 1998 (the "Third Supplemental Indenture"), to the 1996 Indenture (as defined below), among OUTDOOR SYSTEMS, INC., a Delaware corporation (the "Company"), the Guarantors (as defined in the 1996 Indenture), the subsidiary of the Company listed on Schedule A annexed hereto (the "Additional Guarantor") and THE BANK OF NEW YORK, a New York banking corporation, as trustee (together with any successor trustee appointed in accordance with the terms of the 1996 Indenture, the "Trustee"). W I T N E S S E T H: WHEREAS, the Company has issued its 9-3/8% Senior Subordinated Notes due 2006 (the "Securities") in the aggregate principal amount of $250,000,000 under and pursuant to the Indenture, dated as of October 15, 1996 among the Company, the Guarantors named therein and the Trustee, as amended and supplemented by the First Supplemental Indenture, dated as of June 23, 1997 by and among the Company, the Guarantors named therein, the Additional Guarantors named therein and the Trustee and the Second Supplemental Indenture, dated as of September 30, 1997 by and among the Company, the Guarantors named therein, the Additional Guarantors named therein and the Trustee (the "1996 Indenture"); and WHEREAS, the Additional Guarantor has become a Restricted Subsidiary and pursuant to Section 4.21 of the 1996 Indenture is obligated to enter into this Third Supplemental Indenture, and thereby become a Guarantor (as defined in the 1996 Indenture) as provided in Article X of the 1996 Indenture; and WHEREAS, pursuant to Section 8.01(4) of the 1996 Indenture, the Company, the Guarantors, the Additional Guarantor and the Trustee may enter into this Third Supplemental Indenture without the consent of any Holder; and WHEREAS, all consents and notices required to be obtained and given as conditions to the execution of this Third Supplemental Indenture pursuant to the 1996 Indenture and all other documents relating to the Securities have been obtained and given; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: ARTICLE I. AUTHORIZATION; DEFINITIONS Section 1.01. Third Supplemental Indenture. This Third Supplemental Indenture is supplemental to, and is entered into in accordance with Section 8.01 of, the 1996 Indenture, and except as modified, amended and supplemented by this Third Supplemental Indenture, the provisions of the 1996 Indenture are in all respects ratified and confirmed and shall remain in full force and effect. Section 1.02. Definitions. Unless the context shall otherwise require, all terms which are defined in Section 1.01 of the 1996 Indenture shall have the same meanings, respectively, in this Third Supplemental Indenture as such terms are given in said Section 1.01 of the 1996 Indenture. 2 ARTICLE II. ADDITIONAL GUARANTOR Section 2.01. Additional Guarantor. Pursuant to Section 10.04 of the 1996 Indenture, the Additional Guarantor (as defined in the Preamble of this Third Supplemental Indenture) hereby expressly assumes the obligations of, and otherwise agrees to perform all of the duties of, a Guarantor under the 1996 Indenture, subject to the terms and conditions thereof, as of the date set forth opposite the name of such Additional Guarantor on Schedule A hereto. ARTICLE III. Section 3.01. Effective Date. This Third Supplemental Indenture shall become effective upon execution and delivery hereof. Section 3.02. Counterparts. This Third Supplemental Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 3.03. Acceptance. The Trustee accepts the 1996 Indenture, as supplemented by this Third Supplemental Indenture, and agrees to perform the same upon the terms and conditions set forth therein as so supplemented. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Third Supplemental Indenture or the due execution by the Company, the Guarantors or the Additional Guarantor, or for or in respect of the recitals contained herein, all of which are made by the Company solely. Section 3.04. Successors and Assigns. All covenants and agreements in this Third Supplemental Indenture by the Company, the Guarantors, the Additional Guarantor or the Trustee shall bind its respective successors and assigns, whether so expressed or not. Section 3.05. Severability. In case any provision in this Third Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 3.06. Governing Law. This Third Supplemental Indenture shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to conflicts of laws provisions thereof. Section 3.07. Incorporation into 1996 Indenture. All provisions of this Third Supplemental Indenture shall be deemed to be incorporated in, and made a part of, the 1996 Indenture; and the 1996 Indenture, as amended and supplemented by this Third Supplemental Indenture, shall be read, taken and construed as one and the same instrument. -2- 3 IN WITNESS WHEREOF, the parties have caused this Third Supplemental Indenture to be duly executed, all as of the date first above written. OUTDOOR SYSTEMS, INC. By: /s/ William S. Levine ------------------------------------ Name: William S. Levine Title: Chairman of the Board ATTEST: /s/ Bill M. Beverage - ------------------------------------ Bill M. Beverage Secretary [SIGNATURES CONTINUED ON FOLLOWING PAGE] -3- 4 GUARANTORS: OUTDOOR SYSTEMS PAINTING, INC. OS ADVERTISING OF TEXAS PAINTING, INC. OS BASELINE, INC. DECADE COMMUNICATIONS GROUP, INC. BENCH ADVERTISING COMPANY OF COLORADO, INC. NEW YORK SUBWAYS ADVERTISING CO., INC. OS BUS, INC. OUTDOOR SYSTEMS (NEW YORK), INC. NATIONAL ADVERTISING COMPANY PACIFIC CONNECTION, INC. ATLANTA BUS SHELTERS BY: OUTDOOR SYSTEMS, INC., GENERAL PARTNER By: /s/ William S. Levine ----------------------------------- Name: William S. Levine Title: Chairman of the Board ATTEST: /s/ Bill M. Beverage - ------------------------------- Bill M. Beverage Secretary [SIGNATURES CONTINUED ON FOLLOWING PAGE] -4- 5 ADDITIONAL GUARANTOR: SALM ENTERPRISES, INC. By: /s/ William S. Levine ------------------------------------ Name: William S. Levine Title: Chairman of the Board ATTEST: /s/ Bill M. Beverage - ------------------------------------- Bill M. Beverage Secretary THE BANK OF NEW YORK, as Trustee By: /s/ Sandra Carreker ------------------------------------ Name: Sandra Carreker Title: Agent ATTEST: /s/ Deborah T. Daly - ------------------------------------- Name: Deborah T. Daly Title: Agent -5- 6 SCHEDULE A ADDITIONAL GUARANTOR Name Date - ---- ---- Salm Enterprises, Inc., a California corporation January 22, 1998 -6- EX-4.9 3 EX-4.9 1 EXHIBIT 4.9 SECOND SUPPLEMENTAL INDENTURE TO 1997 INDENTURE SECOND SUPPLEMENTAL INDENTURE, dated as of January 22, 1998 (the "Second Supplemental Indenture"), to the 1997 Indenture (as defined below), among OUTDOOR SYSTEMS, INC., a Delaware corporation (the "Company"), the Guarantors (as defined in the 1997 Indenture), the subsidiary of the Company listed on Schedule A annexed hereto (the "Additional Guarantor") and THE BANK OF NEW YORK, a New York banking corporation, as trustee (together with any successor trustee appointed in accordance with the terms of the 1997 Indenture, the "Trustee"). W I T N E S S E T H: WHEREAS, the Company has issued its 8-7/8% Senior Subordinated Notes due 2007 (the "Securities") in the aggregate principal amount of $500,000,000 under and pursuant to the Indenture, dated as of June 23, 1997, among the Company, the Guarantors named therein and the Trustee, as amended and supplemented by the First Supplemental Indenture dated September 30, 1997, among the Company, the Guarantors named therein, the Additional Guarantors named therein and the Trustee (the "1997 Indenture"); and WHEREAS, the Additional Guarantor has become a Restricted Subsidiary and pursuant to Section 4.21 of the 1997 Indenture is obligated to enter into this Second Supplemental Indenture, and thereby become a Guarantor (as defined in the 1997 Indenture) as provided in Article X of the 1997 Indenture; and WHEREAS, pursuant to Section 8.01(4) of the 1997 Indenture, the Company, the Guarantors, the Additional Guarantor and the Trustee may enter into this Second Supplemental Indenture without the consent of any Holder; and WHEREAS, all consents and notices required to be obtained and given as conditions to the execution of this Second Supplemental Indenture pursuant to the 1997 Indenture and all other documents relating to the Securities have been obtained and given; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: ARTICLE I. AUTHORIZATION; DEFINITIONS Section 1.01. Second Supplemental Indenture. This Second Supplemental Indenture is supplemental to, and is entered into in accordance with Section 8.01 of, the 1997 Indenture, and except as modified, amended and supplemented by this Second Supplemental Indenture, the provisions of the 1997 Indenture are in all respects ratified and confirmed and shall remain in full force and effect. Section 1.02. Definitions. Unless the context shall otherwise require, all terms which are defined in Section 1.01 of the 1997 Indenture shall have the same meanings, respectively, in this Second Supplemental Indenture as such terms are given in said Section 1.01 of the 1997 Indenture. 2 ARTICLE II. ADDITIONAL GUARANTOR Section 2.01. Additional Guarantor. Pursuant to Section 10.04 of the 1997 Indenture, the Additional Guarantor (as defined in the Preamble of this Second Supplemental Indenture) hereby expressly assumes the obligations of, and otherwise agrees to perform all of the duties of, a Guarantor under the 1997 Indenture, subject to the terms and conditions thereof, as of the date set forth opposite the name of such Additional Guarantor on Schedule A hereto. ARTICLE III. Section 3.01. Effective Date. This Second Supplemental Indenture shall become effective upon execution and delivery hereof. Section 3.02. Counterparts. This Second Supplemental Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 3.03. Acceptance. The Trustee accepts the 1997 Indenture, as supplemented by this Second Supplemental Indenture, and agrees to perform the same upon the terms and conditions set forth therein as so supplemented. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Second Supplemental Indenture or the due execution by the Company, the Guarantors or the Additional Guarantor, or for or in respect of the recitals contained herein, all of which are made by the Company solely. Section 3.04. Successors and Assigns. All covenants and agreements in this Second Supplemental Indenture by the Company, the Guarantors, the Additional Guarantor or the Trustee shall bind its respective successors and assigns, whether so expressed or not. Section 3.05. Severability. In case any provision in this Second Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 3.06. Governing Law. This Second Supplemental Indenture shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to conflicts of laws provisions thereof. Section 3.07. Incorporation into 1997 Indenture. All provisions of this Second Supplemental Indenture shall be deemed to be incorporated in, and made a part of, the 1997 Indenture; and the 1997 Indenture, as amended and supplemented by this Second Supplemental Indenture, shall be read, taken and construed as one and the same instrument. -2- 3 IN WITNESS WHEREOF, the parties have caused this Second Supplemental Indenture to be duly executed, all as of the date first above written. OUTDOOR SYSTEMS, INC. By: /s/ William S. Levine ------------------------------------- Name: William S. Levine Title: Chairman of the Board ATTEST: /s/ Bill M. Beverage - ------------------------------------- Bill M. Beverage Secretary [SIGNATURES CONTINUED ON FOLLOWING PAGE] -3- 4 GUARANTORS: OUTDOOR SYSTEMS PAINTING, INC. OS ADVERTISING OF TEXAS PAINTING, INC. OS BASELINE, INC. DECADE COMMUNICATIONS GROUP, INC. BENCH ADVERTISING COMPANY OF COLORADO, INC. NEW YORK SUBWAYS ADVERTISING CO., INC. OS BUS, INC. OUTDOOR SYSTEMS (NEW YORK), INC. NATIONAL ADVERTISING COMPANY PACIFIC CONNECTION, INC. ATLANTA BUS SHELTERS BY: OUTDOOR SYSTEMS, INC., GENERAL PARTNER By: /s/ William S. Levine ------------------------------------------ Name: William S. Levine Title: Chairman of the Board ATTEST: /s/ Bill M. Beverage - -------------------------------- Bill M. Beverage Secretary [SIGNATURES CONTINUED ON FOLLOWING PAGE] -4- 5 ADDITIONAL GUARANTOR: SALM ENTERPRISES, INC. By: /s/ William S. Levine ------------------------------------ Name: William S. Levine Title: Chairman of the Board ATTEST: /s/ Bill M. Beverage - ------------------------------------ Bill M. Beverage Secretary THE BANK OF NEW YORK, as Trustee By: /s/ Sandra Carreker ------------------------------------ Name: Sandra Carreker Title: Agent ATTEST: /s/ Deborah T. Daly - ------------------------------------ Name: Deborah T. Daly Title: Agent -5- 6 SCHEDULE A ADDITIONAL GUARANTOR Name Date - ---- ---- Salm Enterprises, Inc., a California corporation January 22, 1998 -6- EX-10.61 4 EX-10.61 1 EXHIBIT 10.61 STOCK PURCHASE AGREEMENT dated as of November 7, 1997 by and among OUTDOOR SYSTEMS, INC., SALM ENTERPRISES, INC., JOSLYN STUART, and HILLARY SALM 2 TABLE OF CONTENTS 1. DEFINITIONS............................................................1 2. PURCHASE AND SALE......................................................1 2.1 AGREEMENT TO PURCHASE AND SELL......................................1 2.2 CLOSING.............................................................1 2.3 PURCHASE PRICE......................................................2 2.4 ADJUSTMENT OF THE PURCHASE PRICE....................................2 2.5 TRANSACTIONS AT THE CLOSING.........................................4 3. REPRESENTATIONS AND WARRANTIES OF SELLER...............................4 3.1 ORGANIZATION AND GOOD STANDING......................................4 3.2 AUTHORITY; NO CONFLICT..............................................5 3.3 CAPITALIZATION......................................................5 3.4 FINANCIAL STATEMENTS................................................6 3.5 STRUCTURES..........................................................6 3.6 PERMITS.............................................................6 3.7 SITE LEASES.........................................................6 3.8 ADVERTISING CONTRACTS...............................................7 3.9 ABSENCE OF UNDISCLOSED LIABILITIES..................................7 3.10 OWNED REAL PROPERTY................................................7 3.11 TITLE, ENCUMBRANCES................................................7 3.12 TAXES..............................................................7 3.13 COMPLIANCE WITH LEGAL REQUIREMENTS.................................8 3.14 LEGAL PROCEEDINGS; ORDERS..........................................8 3.15 OTHER CONTRACTS....................................................8 3.16 INSURANCE..........................................................9 3.17 ENVIRONMENTAL MATTERS..............................................9 3.18 INTANGIBLE PROPERTY...............................................10 3.19 RELATIONSHIPS WITH AFFILIATES.....................................10 3.20 BROKERS OR FINDERS................................................10 3.21 LABOR MATTERS.....................................................10 3.22 EMPLOYEE BENEFIT MATTERS..........................................10 3.23 BOOKS AND RECORDS.................................................11 3.24 ABSENCE OF CHANGES................................................11 3.25 ASSETS NECESSARY FOR CONDUCT OF BUSINESS .........................11 3.26 HSR COMPLIANCE....................................................10 3.27 DISCLOSURE........................................................11 3A. REPRESENTATIONS AND WARRANTIES OF EACH SELLER......................11 3A.1 AUTHORITY OF SELLER; NO CONFLICT...................................12 3A.2 TITLE TO SHARES....................................................12 3A.3 BROKERS OR FINDERS.................................................12 -i- 3 4. REPRESENTATIONS AND WARRANTIES OF BUYER...............................12 4.1 ORGANIZATION AND GOOD STANDING.....................................13 4.2 AUTHORITY; NO CONFLICT.............................................13 4.3 CERTAIN PROCEEDINGS................................................13 4.4 BROKERS OR FINDERS.................................................13 4.5 INVESTMENT.........................................................13 5. COVENANTS OF SELLERS..................................................13 5.1 ACCESS AND INVESTIGATION...........................................13 5.2 OPERATION OF THE COMPANY...........................................14 5.3 NEGATIVE COVENANT..................................................14 5.4 REQUIRED APPROVALS AND CONSENTS ...................................15 5.5 BEST EFFORTS.......................................................15 5.6 NOTIFICATION.......................................................15 5.7 NO NEGOTIATION.....................................................15 5.8 ENCUMBRANCES AND SECURITY INTERESTS................................16 6. COVENANTS OF BUYER....................................................16 6.1 REQUIRED APPROVALS.................................................16 6.2 BEST EFFORTS.......................................................16 6.3 NOTIFICATION.......................................................16 6.4 TAX RETURNS........................................................16 6.5 LOAN...............................................................16 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE...................17 7.1 ACCURACY OF REPRESENTATIONS........................................17 7.2 SELLERS' PERFORMANCE...............................................17 7.3 ADDITIONAL DOCUMENTS...............................................17 7.4 NO PROCEEDINGS.....................................................17 7.5 NO PROHIBITION.....................................................17 8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS TO CLOSE.................18 8.1 ACCURACY OF REPRESENTATIONS........................................18 8.2 BUYER'S PERFORMANCE................................................18 8.3 ADDITIONAL DOCUMENTS...............................................18 8.4 NO PROCEEDINGS.....................................................18 8.5 NO PROHIBITION.....................................................19 -ii- 4 9. TERMINATION...........................................................19 9.1 TERMINATION EVENTS.................................................19 9.2 EFFECT OF TERMINATION..............................................19 9.3 RETENTION OF DEPOSIT...............................................19 10. INDEMNIFICATION; REMEDIES.............................................20 10.1 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS.................20 10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER...................20 10.3 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS...............20 10.4 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS.....................21 10.5 SURVIVAL/LIMITATIONS..............................................22 10.6 EXCLUSIVE REMEDY..................................................22 11. GENERAL PROVISIONS....................................................22 11.1 EXPENSES..........................................................22 11.2 PUBLIC ANNOUNCEMENTS..............................................22 11.3 NOTICES...........................................................23 11.4 FURTHER ASSURANCES................................................24 11.5 WAIVER............................................................25 11.6 ENTIRE AGREEMENT AND MODIFICATION.................................25 11.7 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS................25 11.8 SEVERABILITY......................................................25 11.9 POST-CLOSING ACCESS...............................................25 11.10 HEADINGS; CONSTRUCTION.............................................26 11.11 APPLICABLE LAW.....................................................26 11.12 INCORPORATION OF EXHIBITS AND SCHEDULES............................26 11.13 COUNTERPARTS.......................................................26 11.14 ARBITRATION........................................................26 -iii- 5 EXHIBITS Exhibit A - Definitions Exhibit B - Promissory Note Exhibit C - Letter of Credit Exhibit D - Opinion of Seller's Counsel Exhibit E - Opinion of Buyer's Counsel SCHEDULES Schedule 5.4 - Required Consents DISCLOSURE SCHEDULE Part 3.2 Part 3.8(b) Part 3.16 Part 3.5 Part 3.9 Part 3.18 Part 3.6 Part 3.11 Part 3.19 Part 3.7(a) Part 3.12 Part 3.21 Part 3.7(b) Part 3.14 Part 3.24 Part 3.8(a) Part 3.15 Part 3.26 -iv- 6 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement ("Agreement") is entered into as of November 7, 1997 by and among JOSLYN STUART, a resident of the state of California ("Stuart"), and HILLARY SALM, a resident of the state of California ("Salm," and together with Stuart, the "Sellers"), SALM ENTERPRISES, INC., a California corporation ("Company"), and OUTDOOR SYSTEMS, INC., a Delaware corporation ("Buyer"). (Buyer and Sellers are sometimes herein referred to individually as a "Party" and collectively as the "Parties.") RECITALS The Company is engaged in the business of owning and operating outdoor signs, billboards and otherwise providing outdoor advertising services (the "Business"). Sellers own all of the outstanding capital stock of the Company. Sellers desire to sell, and Buyer desires to purchase, all of the issued and outstanding capital stock of the Company, pursuant to the terms and conditions and subject to the limitations and exclusions contained in this Agreement. AGREEMENT The Parties, for and in consideration of the covenants and agreements herein set forth and intending to be legally bound, agree as follows: 1. DEFINITIONS For purposes of this Agreement, the terms listed on Exhibit A attached hereto have the meanings specified or referred to in Exhibit A. 2. PURCHASE AND SALE 2.1 AGREEMENT TO PURCHASE AND SELL. Subject to the terms and conditions of this Agreement, Sellers hereby agree to grant, sell, assign, transfer, convey and deliver to Buyer all right, title and interest in and to the Shares, free and clear of any Encumbrances or Security Interests, and Buyer hereby agrees to buy and acquire the Shares from Sellers. 2.2 CLOSING. The purchase and sale of the Shares (the "Closing") provided for in this Agreement will take place, subject to the satisfaction of the conditions in Sections 7 and 8 hereof, at the offices of Outdoor Systems, Inc., Phoenix, Arizona, commencing at 10:00 a.m. local time on or before November 14, 1997 or such later time and place as the Parties may agree in writing. 1 7 The effective time of the Closing shall be 11:59 p.m., Eastern Standard Time, on the Closing Date. 2.3 PURCHASE PRICE. In consideration for the transfer of the Shares to Buyer, Buyer shall pay, subject to the adjustment provisions of Section 2.4, Five Million Fifty Thousand Dollars ($5,050,000) (the "Purchase Price"), payable as follows: (a) Sellers acknowledge receipt on the date hereof of One Hundred Thousand Dollars ($100,000) as an earnest money deposit ("Earnest Money Deposit") from Buyer; (b) $4,950,000 shall be paid to Sellers in the form of an interest bearing promissory note substantially in the form of Exhibit B attached hereto ("Promissory Note"), which Promissory Note shall be secured for its entire term by a letter of credit substantially in the form of Exhibit C attached hereto ("Letter of Credit"); (c) Sellers and Buyer hereby acknowledge that the Purchase Price and the payment terms specified herein and as set forth in the Promissory Note were specifically negotiated to provide Sellers with a deferral of recognition of income pursuant to the installment sale provisions of the IRC for the 62 month term of the Promissory Note and to correspondingly provide the Sellers with interest income at the rate of 10% per annum on the principal sum of $4,950,000 for the 62 month term of the Promissory Note. For this reason Buyer agreed that there would be no right of prepayment, in whole or in part, of the principal sum due and owing under the Promissory Note. Buyer has agreed that if an Event of Default (as that term is defined in paragraph 2(a) of the Promissory Note) shall occur, the parties acknowledge that it would be impractical or extremely difficult to determine with reasonable certainty the actual damages which Sellers would sustain and have therefore agreed through negotiation that Buyer shall pay to Sellers the sum of One Thousand Five Hundred Dollars ($1,500) per day for each and every day from the date of the Event of Default through the Maturity Date (as that term is defined in the Promissory Note) of the Promissory Note, not as a penalty, but as and for liquidated damages resulting form the breach of the obligations of Buyer to pay the Purchase Price as specified in this Agreement and in accordance with the terms of the Promissory Note. Sellers: _______ _______ Buyer: _______ 2.4 ADJUSTMENT OF THE PURCHASE PRICE. The Purchase Price shall be subject to adjustment as follows: (a) The following items shall be prorated between Sellers and Buyer as of the Closing Date with respect to the Company: power and utility charges, real and personal property taxes, rents (including percentage rents) and security deposits under Site Leases and payments (including accounts receivable) and security deposits under Advertising Contracts. Prorations will be on a dollar-for-dollar basis based on the number of days of display before and after the Closing. Percentage rents shall be prorated as of the Closing Date. Any prorations not determined at the Closing shall be prorated on the basis of the most current information available at Closing. 2 8 (b) The Purchase Price shall be further adjusted ("Preliminary Adjustment") as follows: (i) to the extent that the Closing Date Net Working Capital is a positive amount, the Purchase Price shall be increased by a dollar amount equal to the positive balance; and (ii) to the extent that the Closing Date Net Working Capital is a negative amount, the Purchase Price shall be reduced by a dollar amount equal to the negative balance. (c) On the Closing Date, Sellers shall provide to Buyer a list of items and the prorations required by Section 2.4(a) and a Closing Date Balance Sheet together with a calculation of the Closing Date Net Working Capital and the Preliminary Adjustment to the Purchase Price. The Parties agree that the Company's financial statements shall be converted from a cash basis to GAAP in order to prepare the Closing Date Balance Sheet and the calculation of the Closing Date Net Working Capital and the Preliminary Adjustment. The Preliminary Adjustment to the Purchase Price shall be paid in cash to the appropriate party at Closing. Sellers agree to furnish Buyer with any documents or records in Sellers' possession that may be needed for Buyer to confirm the adjustments in this Section 2.4. (d) Within ninety (90) days after the Closing Date, Buyer will prepare and provide to Seller a final Closing Date Balance Sheet together with the final calculations of adjustments to the Purchase Price (the "Closing Date Adjustment"). On the 120th day after the Closing Date, all required refunds or payments under this Section 2.4 shall be made on the basis of the Closing Date Adjustment and shall be paid in cash to the appropriate party. (e) If any dispute arises over any amount to be refunded or paid under this Section 2.4, such refund or payment shall nonetheless be promptly made to the extent such amount is not in dispute. If any such dispute cannot be resolved by the Parties, it shall be submitted to a nationally recognized independent certified public accounting firm reasonably acceptable to Sellers and Buyer ("Accountant"), and the resolution of such dispute shall be made by the Accountant. The determination of the Accountant shall be final and binding upon the parties to this Agreement. Buyer and Sellers shall each pay one-half of the fees and expenses of the Accountant. Each Party shall otherwise bear its own costs and expenses associated with the resolution of such dispute, including the fees and expenses of their respective accountants and attorneys. 2.5 TRANSACTIONS AT THE CLOSING. The following transactions shall take place at the Closing: (a) Sellers shall deliver to Buyer (i) the original stock certificates representing the Shares, endorsed in blank or accompanied by duly executed assignment documents, (ii) duly 3 9 executed resignations of each of the officers and directors of the Company, (iii) the Payoff Letters (as defined in Section 7.3(c)), (iv) all minute books, corporate and stock records of the Company, (v) evidence satisfactory to Buyer of the release and termination of all Encumbrances and Security Interests (other than Permitted Liens) on the assets of the Company and the Shares, and (vi) all other instruments of transfer and all other related documents, if any, as may be necessary to evidence or perfect the sale, assignment, transfer, and conveyance to Buyer of good title to the Shares in accordance with this Agreement. (b) Buyer shall deliver to Sellers the Promissory Note and the Letter of Credit. (c) Buyer or Sellers, as appropriate, shall deliver to the other(s) the Preliminary Adjustment. (d) Buyer shall deliver to the Company the Loan (as hereinafter defined) and the Company shall repay the Shareholder Loan. (e) The Parties shall also deliver to each other the agreements, instruments, opinions, certificates, and other documents referred to or contemplated in this Agreement. 3. REPRESENTATIONS AND WARRANTIES OF SELLERS The Company and Sellers, jointly and severally, represent and warrant to Buyer as follows: 3.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with full power and authority to conduct the Business as it is now being conducted, to own or use its Assets, and to perform all its obligations. The Sellers have delivered to Buyer true and complete copies of the Company's Organizational Documents, as currently in effect. The Company is duly qualified and in good standing to do business in California and each other jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the lack of such qualification would not have a Material Adverse Effect. 4 10 3.2 AUTHORITY; NO CONFLICT. (a) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms. Upon the execution and delivery by the Company of any Closing Documents to be executed at Closing pursuant to this Agreement, such Closing Documents shall constitute the legal, valid, and binding obligations of the Company, enforceable against the Company in accordance with their respective terms. The Company has the absolute and unrestricted right, power and authority to execute and deliver this Agreement and the Closing Documents to which it is a Party and to perform its obligations thereunder. The execution, delivery and performance of this Agreement has been specifically authorized by the shareholders and directors of the Company. (b) Except as set forth in Part 3.2(b) of the Disclosure Schedule, neither the execution and delivery by the Company or the Sellers of this Agreement nor the consummation or performance by the Company or the Sellers of any of the Contemplated Transactions will: (i) conflict with, violate or result in a breach of (A) any provision of the Organizational Documents of the Company; (B) to the Company's and Sellers' knowledge any Legal Requirement or any Order to which the Company or any of its assets may be subject; or (C) to the Company's and Sellers' Knowledge, any Governmental Authorizations held by the Company; or (ii) (A) contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any material Contract to which the Company is a Party or any material interest or rights of the Company; or (B) result in the imposition or creation of any Encumbrance or Security Interest upon or with respect to any of the assets of the Company. (c) Except as set forth in Part 3.2(c) of the Disclosure Schedule, the Company is not and will not be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. 3.3 CAPITALIZATION. The Company has authorized capital stock consisting of One Hundred Thousand (100,000) shares of common stock, no par value, of which Two Thousand Five Hundred (2,500) shares are issued and outstanding. All of the issued and outstanding shares ("Shares") have been duly authorized, are validly issued, fully paid, and nonassessable, and are held beneficially and of record by Sellers as set forth in Part 3.3 of the Disclosure Schedule. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require the Company to issue, sell, or otherwise cause to become outstanding any of its capital stock. There 5 11 are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Company. 3.4 FINANCIAL STATEMENTS. (a) Attached hereto as Part 3.4 of the Disclosure Schedule are the following financial statements of the Company (collectively, the "Financial Statements"): (i) unaudited balance sheet and statement of income as of and for the fiscal years ended December 31, 1995, and December 31, 1996, and (ii) unaudited balance sheets and statement of income (the "Most Recent Financial Statements") as of and for the nine (9) months ended September 30, 1997 (the "Most Recent Fiscal Month End") for the Company. The Financial Statements have been prepared on a cash basis applied on a consistent basis through the periods covered thereby and present fairly the financial condition of the Company as of such dates and the results of operations of the Company for such periods. 3.5 STRUCTURES. Part 3.5 of the Disclosure Schedule lists all of the Structures and each of such Structures is in condition to accept faces and in adequate condition and repair for its current use. 3.6 PERMITS. Part 3.6 of the Disclosure Schedule lists all Permits held by the Company. The Permits constitute all material licenses, permits, registrations and approvals necessary to operate the Structures. Company is in material compliance with the terms of the Permits. Company has not received written notice that any Governmental Body issuing any Permit intends to cancel, terminate, modify or amend any Permit. 3.7 SITE LEASES. (a) Part 3.7(a) of the Disclosure Schedule contains a list of all Site Leases. Seller has delivered or made available to Buyer true and complete copies of the Site Leases. The Site Leases are in full force and effect, and are binding upon the Parties thereto. (b) Except as set forth in Part 3.7(b) of the Disclosure Schedule or as would not have a Material Adverse Effect (a) no default by Company, or to the Company's and Sellers' Knowledge, any other Party has occurred under the Site Leases, and (b) no event, occurrence or condition exists which (with or without notice or lapse of time or the happening of any further event or condition) would become a default by Company thereunder or would entitle any other Party to terminate a Site Lease, to make a claim or set-off against Company or otherwise to amend such Site Lease or prevent such Site Lease from being renewed (if renewable) in accordance with its terms. Except as set forth in Part 3.7(b) of the Disclosure Schedule, the Company has not received any written notice of default, termination or non-renewal under any Site Lease. 6 12 3.8 ADVERTISING CONTRACTS. (a) Part 3.8(a) of the Disclosure Schedule contains a list of all material Advertising Contracts as of the date hereof. Seller has delivered to Buyer true and complete copies of the Advertising Contracts. (b) Except as set forth in Part 3.8(b) of the Disclosure Schedule, all sales made to advertisers have been made pursuant to Advertising Contracts. The Advertising Contracts are in full force and effect, and are binding upon the parties thereto. Except as set forth in Part 3.8(b) of the Disclosure Schedule or as would not have a Material Adverse Effect (a) no default by Company or, to the Company's and Sellers' Knowledge, any other Party has occurred under the Advertising Contracts, and (b) no event, occurrence or condition exists which (with or without notice or lapse of time or the happening of any further event or condition) would become a default by Company thereunder or would entitle any other Party to terminate an Advertising Contract, to make a claim or set-off against Company or otherwise to amend such Advertising Contract. 3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities and obligations (a) incurred since the Most Recent Fiscal Month End in the Ordinary Course of Business, (b) disclosed in Part 3.9 of the Disclosure Schedule or specifically identified as an undisclosed liability or obligation on any other section of the Disclosure Schedule, or (c) provided for in the Most Recent Financial Statements, the Company has no liabilities or obligations of any kind whatsoever (whether direct, indirect, accrued or contingent) in excess of $25,000 and there is no existing condition or situation which could reasonably be expected to result in any such liabilities or obligations ("Undisclosed Liabilities"). 3.10 OWNED REAL PROPERTY. The Company does not own any Real Property. 3.11 TITLE, ENCUMBRANCES. Except as set forth on Part 3.11 of the Disclosure Schedule, (i) Company owns or has good title to all of its assets, and (ii) all of such assets are owned by Company free and clear of all Encumbrances or Security Interests except for Permitted Liens. 3.12 TAXES. (a) Except as set forth on Part 3.12(a) of the Disclosure Schedule, the Company has (i) correctly prepared and timely filed all Tax Returns required to be filed by it in respect of any Taxes, (ii) timely and properly paid all Taxes that are due and payable, (iii) established on its books and records reserves that are adequate for the payment of all Taxes not yet due and payable, and (iv) complied in all material respect with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and has timely and properly withheld from employee wages and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under all applicable Legal Requirements. 7 13 (b) Except as set forth Part 3.12(b) of the Disclosure Schedule, no deficiency for any Taxes has been proposed, asserted or assessed against the Company which has not been resolved and paid in full. The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to an Tax assessment or deficiency. (c) No Tax Returns with respect to the Company for taxable periods ended on or after December 31, 1990 have been audited, and no Tax Returns of the Company are currently the subject of audit. The Company has delivered or made available to the Buyer correct and complete copies of all Tax Returns filed by the Company since December 31, 1990. (d) The Company is not a party to any Tax allocation or sharing agreement and is not liable for the Taxes of any other Person. (e) The Company has not been a member of an affiliated group within the meaning of IRC Section1504. 3.13 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company has complied in all respects with all Legal Requirements applicable to the Company, except for such noncompliances that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Except as disclosed in Part 3.13 of the Disclosure Schedule, the Company has not been Threatened in writing to be charged with or given written notice of any violation of (which has not been cured), with respect to any violation of Legal Requirements applicable to the Company. 3.14 LEGAL PROCEEDINGS; ORDERS. Except as set forth in Part 3.14 of the Disclosure Schedule, there is no Proceeding pending or, to the Knowledge of the Company and Sellers, Threatened against the Company and there is no Order to which the Company is subject. 3.15 OTHER CONTRACTS. (a) Except as disclosed in Part 3.15(a) of the Disclosure Schedule the Company is not a Party to or bound by (i) any promissory note or any agreement evidencing indebtedness for money borrowed; (ii) any joint venture, partnership or Other Contract involving a sharing of profits, losses, costs or liabilities by the Company with any other person; (iii) any Other Contract containing covenants that in any way purport to restrict the business activity of the Company with respect to the Business; (iv) any power of attorney of the Company that is currently effective and outstanding; (v) any written warranty, guaranty or other similar undertaking with respect to contractual performance extended by the Company; and (vi) any lease for Real Property that is not a Site Lease; (vii) any Other Contract obligating the Company for payments in excess of Five Thousand Dollars ($5,000) per year which is not cancelable by the Company without penalty within a thirty (30) day period ("Material Other Contracts"). The Company has delivered or made available to Buyer true and complete copies of such Material Other Contracts. 8 14 (b) The Material Other Contracts are in full force and effect, and are binding upon the Parties thereto. Except as set forth in Part 3.15(b) of the Disclosure Schedule and except as would not have a Material Adverse Effect, (a) no default by Company or, to the Company's and Sellers' Knowledge, any other Party has occurred under the Material Other Contracts, and (b) no event, occurrence or condition exists which (with or without notice or lapse of time or the happening of any further event or condition) would become a default by Company thereunder or would entitle any other Party to terminate a Material Other Contract, to make a claim or set-off against Company or otherwise to amend such Material Other Contract. 3.16 INSURANCE. Company maintains in full force and effect policies of fire and other casualty, liability, title and other forms of insurance covering its assets and the Business, and the operation thereof, of the types and with the amounts of coverage as are consistent with industry standards for outdoor advertising businesses comparable to the Business. All such policies are in full force and effect, all premiums with respect thereto have been paid, and no written notice of cancellation or termination has been received by the Company, or to the Knowledge of the Company and Sellers, Threatened to be given, with respect to any such policy. Part 3.16 of the Disclosure Schedule lists any claims pending or for which coverage is disputed under any such insurance policy. 3.17 ENVIRONMENTAL MATTERS. Except as set forth in Part 3.17 of the Disclosure Schedule: (a) To the Knowledge of the Company and Sellers, the Company is, and at all times has been, in material compliance with, and has not been and is not in material violation of or liable under, any Environmental Law. There are no pending, or to the Knowledge of the Company and Sellers, Threatened claims or Encumbrances resulting from any Environmental, Health, and Safety Liabilities or arising under or pursuant to any Environmental Law. (b) Neither the Company nor the Sellers has Knowledge of, nor has the Company received, any citation, directive, inquiry, notice, Order, summons, warning, or other communication that relates to any alleged actual or potential liability with respect to Hazardous Materials. (c) The Company has delivered to Buyer true and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed or initiated by the Company or Sellers pertaining to Hazardous Materials or Hazardous Activities in, on, or under the properties owned or leased by the Company. 3.18 INTANGIBLE PROPERTY. Except as set forth in Part 3.18 of the Disclosure Schedule, Company uses no Intangible Property in connection with the operation of the Business except for the Permits, the Books and Records, the trade names "Salm Enterprises" and "Roberts Outdoor Advertising" and licenses for commonly available software programs under which Company is the licensee. 9 15 3.19 RELATIONSHIPS WITH AFFILIATES. Except as set forth on Part 3.19 of the Disclosure Schedule, (a) Company is not a Party to any contract with any of the Sellers or their Affiliates or immediate family members or any other Affiliate of Company, and (b) neither of the Sellers nor any of their Affiliates or immediate family members or any other Affiliate of Company is the owner (of record or as a beneficial owner) of an equity interest or any other financial or profit interest in, a Person that has business dealings or a material financial interest in any transaction with Company. 3.20 BROKERS OR FINDERS. Company has not incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement that will not be paid by Sellers at Closing from the Purchase Price. 3.21 LABOR MATTERS. (a) Except as set forth on Part 3.21(a) of the Disclosure Schedule, (i) the Company is not a party to or bound by, and its employees are not covered by, any labor or collective bargaining agreement; (ii) there are no pending or, to the Company and Sellers' Knowledge, Threatened strikes, work stoppages, slowdowns, lockouts, unfair labor practice charges or complaints, grievances or arbitrations arising out of a collective bargaining agreement, or other labor disputes against the Company, and during the past three (3) years, there has not been any such action or proceeding; (iii) there are no pending or, to the Company and Sellers' Knowledge, Threatened complaints, charges or claims against the Company with any Governmental Body regarding the employment or termination of employment by the Company of any individual; (iv) except as previously provided to the Buyer, the Company has no written personnel policies applicable to employees; and (v) no union organization campaign is presently in progress. (b) Part 3.21(b) of the Disclosure Schedule lists the names of all present employees of the Company, the total compensation payable to each, and accrued sick, personal and vacation days for each (or pay in lieu thereof). 3.22 EMPLOYEE BENEFIT MATTERS. Company does not maintain and has never maintained any Employee Benefit Plan. As used in this Section 3.22, the term "Company" shall be deemed to include any other corporation, trade, business or other entity, other than Company, which would, together with the Company, now or in the past constitute a single employer within the meaning of IRC Section 414. 3.23 BOOKS AND RECORDS. The books of account, and other Books and Records of Company are complete and correct in all material respects and have been maintained in accordance with sound business practices. The Company has provided Buyer with a true and complete set of the Company's Organizational Documents and Minute Books. 10 16 3.24 ABSENCE OF CHANGES. Since the Most Recent Fiscal Month End and except as set forth on Part 3.24 of the Disclosure Schedule, there has not been: (i) Any Material Adverse Change; (i) Any change in the shares of capital stock of the Company that are authorized or in those that are issued and outstanding, or any grant of options, warrants, or other rights or convertible or exchangeable securities calling for the issuance thereof; (iii) Any declaration, setting aside or payment of any dividend in respect of the Shares or any other distribution by the Company; (iv) Any change in the method of accounting or accounting practices of Company; or (v) Any transaction by the Company outside the Ordinary Course of Business. 3.25 ASSETS NECESSARY FOR CONDUCT OF BUSINESS. After giving effect to the transfer of the Retained Assets, the Company shall own all the assets and have all the rights necessary for the conduct of the Business as presently conducted. 3.26 HSR COMPLIANCE. Neither Company nor any of Sellers is a person (or included in a person), that has total assets of $10 million or more or annual net sales of $10 million or more, within the meaning of, and as determined in accordance with, the HSR Act. Sellers have consulted with Sellers' counsel in determining and making such representation. 3.27 DISCLOSURE. No representation or warranty of Sellers or Company in this Agreement and no statement in the Disclosure Schedule misstates or omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading. 3A. REPRESENTATIONS AND WARRANTIES OF EACH SELLER Each of the Sellers, severally and not jointly, represents and warrants to Buyer as follows with respect to herself: 3A.1 AUTHORITY OF SELLER; NO CONFLICT. (a) This Agreement constitutes the legal, valid, and binding obligation of the Seller, enforceable against Seller in accordance with its terms. Upon the execution and delivery by the Seller of any Closing Documents to be executed at Closing pursuant to this Agreement, such Closing Documents will constitute the legal, valid, and binding obligations of the Seller, 11 17 enforceable against Seller in accordance with their respective terms. The Seller has the absolute and unrestricted right, power and authority to execute and deliver this Agreement and the Closing Documents to which she is a Party, to transfer the Shares to Buyer, and to perform her obligations hereunder and thereunder. (b) Except as set forth in Part 3A.2 of the Disclosure Schedule, neither the execution and delivery by the Seller of this Agreement and the Closing Documents nor the consummation or performance by the Seller of any of the Contemplated Transactions will: (i) conflict with, violate or result in a breach of any Legal Requirement or any Order to which the Seller may be subject; or (ii) (A) contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Contract to which Seller is a party or any interest or rights of Seller in or to the Shares; or (B) result in the imposition or creation of any Encumbrance or Security Interest upon or with respect to any of the Shares. (c) Except as set forth in Part 3A.2 of the Disclosure Schedule, the Seller is not and will not be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or any of the Closing Documents or the consummation or performance of any of the Contemplated Transactions. 3A.2 TITLE TO SHARES. Seller has, and will have at the Closing Date, good title to the Shares to be conveyed by Seller as provided in Section 2.1 above, free and clear of any Security Interest or Encumbrances. 3A.3 BROKERS OR FINDERS. Seller has not incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement that will not be paid by the Seller at Closing. 4. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Sellers as follows: 4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. 4.2 AUTHORITY; NO CONFLICT. (a) This Agreement has been duly and validly executed and delivered by Buyer and constitutes the legal, valid, and binding obligation of Buyer, enforceable against Buyer in 12 18 accordance with its terms. Upon the execution and delivery by Buyer of the Closing Documents to which Buyer is a party, such Closing Documents will constitute the legal, valid, and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms. Buyer has the absolute and unrestricted right, power, and authority to execute and deliver this Agreement and the Closing Documents and to perform its obligations thereunder. (b) Neither the execution and delivery of this Agreement by Buyer nor the consummation or performance of any of the Contemplated Transactions by Buyer will conflict with, violate or result in a breach of (i) any provision of Buyer's Organizational Documents, (ii) any Legal Requirement or Order to which Buyer may be subject; or (iii) any material Contract to which Buyer is a party or by which Buyer may be bound. Buyer is not and will not be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. 4.3 CERTAIN PROCEEDINGS. There is no Proceeding pending or, to Buyer's Knowledge, Threatened that challenges, or may have the effect of preventing, or otherwise interfering with any of the Contemplated Transactions. 4.4 BROKERS OR FINDERS. Buyer has not incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement that will not be paid by the Buyer. 4.5 INVESTMENT. The Buyer is an Accredited Investor. 5. COVENANTS OF SELLERS 5.1 ACCESS AND INVESTIGATION. Between the date of this Agreement and the Closing Date, Sellers will, and will cause the Company and its Representatives to, afford Buyer and its Representatives reasonable access during normal business hours to the Company's personnel, properties, Books and Records, and other documents and data, and furnish Buyer and its Representatives with copies of the same. 5.2 OPERATION OF THE COMPANY. Except as otherwise set forth in Schedule 5.2, between the date of this Agreement and the Closing Date, the Company will: (a) operate only in the Ordinary Course of Business; (b) use it Best Efforts to maintain the Business, and maintain the relations and good will with advertisers, landlords, employees, suppliers, distributors, customers and others associated with the operation of the Company; 13 19 (c) confer on a regular and frequent basis with Buyer and its Representatives to discuss operational matters and the general status of ongoing operations; and (d) promptly notify Buyer of any material changes in the Business, or the properties, assets, condition (financial or other), results of operations or prospects of the Company. 5.3 NEGATIVE COVENANT. Except for any repayment of the Shareholder Loan pursuant to Section 6.5 herein or the transfer of the Retained Assets on or prior to Closing, and as otherwise expressly permitted by this Agreement, between the date of this Agreement and the Closing Date, Sellers will not: (a) take, and will not permit the Company to take, any action with respect to the Business that is not in the Ordinary Course of Business; (b) (i) amend or propose to amend the Company's charter or bylaws; or (ii) split, combine or reclassify its outstanding capital stock or declare, set aside or pay any dividend or distribution payable in cash, stock, property or other; (c) (i) authorize the issuance of, or issue, sell, grant, pledge or dispose of, or agree to issue, sell, grant, pledge or dispose of, any additional shares of, or any options, warrants, or rights of any kind to acquire any shares of, the capital stock of the Company of any class or any debt or equity securities convertible into or exchangeable for such capital stock, (ii) sell (including, without limitation, by sale-leaseback), pledge, dispose of or encumber any assets of the Company or interest therein, or dispositions of inventory in the Ordinary Course of Business or (iii) redeem, purchase, acquire or offer to purchase or acquire any shares of its capital stock; (d) acquire all or any substantial part of the business and properties or capital stock of any Person, whether by merger, purchase of assets, or otherwise; (e) enter into or amend any employment, severance, bonus, special pay arrangement with respect to termination of employment or other similar arrangements or agreements with any directors, officers or key employees; (f) adopt, enter into or amend any Employee Benefit Plan except (i) as required to comply with changes in applicable law occurring after the date hereof and (ii) with respect to all plans, other than in the Ordinary Course of Business; (g) incur any indebtedness for money borrowed or guarantee any such indebtedness or issue or sell any debt securities or make any loans or advances, or make any capital expenditures; 14 20 (h) grant any general or limited power of attorney, proxy or other similar delegation of authority, waive, toll or extend any statute of limitations or compromise or settle any litigation, arbitration or other disputed matter; and (i) agree in writing, or otherwise, to take any of the foregoing actions or any other action which would make any representation or warranty of Sellers or the Company contained in this Agreement untrue or incorrect in any material respect as of the Closing Date. 5.4 REQUIRED APPROVALS AND CONSENTS. As promptly as practicable after the date of this Agreement, Sellers will make, and will cause the Company to make, any filings required by Legal Requirements to be made by Sellers or Company in order to consummate the Contemplated Transactions and will obtain or cause the Company to obtain those Consents identified on Schedule 5.4 hereof ("Required Consents"). 5.5 BEST EFFORTS. Between the date of this Agreement and the Closing Date, Sellers will use their, and will cause Company to use its, Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied. 5.6 NOTIFICATION. Between the date of this Agreement and the Closing Date, Seller will promptly notify Buyer in writing if Sellers, or either of them, become aware of any fact or condition that causes or constitutes a material breach of any of Sellers' representations and warranties as of the date of this Agreement, or if Sellers become aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a material breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. During the same period, Sellers will promptly notify Buyer of the occurrence of any material breach of any covenant of Sellers or the Company in this Section 5 or of the occurrence of any event that may make the satisfaction of the conditions in Section 7 impossible or unlikely. 5.7 NO NEGOTIATION. Until the earlier of the Closing or such time, if any, as this Agreement is terminated pursuant to Section 9, neither Sellers nor any of their Affiliates will, nor will they permit their respective Representatives to, directly or indirectly solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or consider the merits of any unsolicited inquiries or proposals from, any Person (other than Buyer or its Representatives) relating to or affecting any transaction involving the sale of the Shares or the Business. 5.8 ENCUMBRANCES AND SECURITY INTERESTS. On or before Closing, Sellers agree to pay, or cause the Company to pay, and satisfy all amounts constituting indebtedness of the Company for money borrowed or owed other than liabilities included in the Closing Date Net Working Capital and to obtain at or prior to Closing and deliver to Buyer at the Closing releases of all Encumbrances and Security Interest on the assets of the Company or the Shares, other than Permitted Liens. 15 21 6. COVENANTS OF BUYER 6.1 REQUIRED APPROVALS. As promptly as practicable after the date of this Agreement, Buyer will make all filings required by Legal Requirements, to be made by it to consummate the Contemplated Transactions. 6.2 BEST EFFORTS. Between the date of this Agreement and the Closing Date, Buyer will use its Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied. 6.3 NOTIFICATION. Between the date of this Agreement and the Closing Date, Buyer will promptly notify Seller in writing if Buyer becomes aware of any fact or condition that causes or constitutes a breach of any of Buyer's representations and warranties as of the date of this Agreement, or if Buyer becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. During the same period, Buyer will promptly notify Seller of the occurrence of any breach of any covenant of Buyer in this Section 6 or of the occurrence of any event that may make the satisfaction of the conditions in Section 8 impossible or unlikely. 6.4 TAX RETURNS. After the Closing, Sellers shall have the exclusive authority and obligation to prepare and file, or cause to be prepared and filed, all income Tax Returns of the Company for, or with respect to, income Taxes for all taxable periods ended or prior to the Closing; provided, however, that the Tax Returns with respect to the income of the Company that relate to the taxable year or other taxable period which includes the Closing Date shall, to the extent permitted by applicable law, be prepared by treating all items on such Tax Returns in a manner consistent with the past practices of the Company with respect to such items. 6.5 LOAN. At the Closing, Buyer shall loan to Company the sum of Two Hundred Thousand Dollars ($200,000) (the "Loan"). Buyer agrees that the Company shall use the Loan to repay at Closing certain loans from the Sellers in the outstanding principal amount of approximately $200,000 ("Shareholder Loan"). The calculation of the Closing Date Net Working Capital shall be made after giving effect to the repayment of the Shareholder Loan and shall exclude the Loan. 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE Buyer's obligation to purchase the Shares and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part): 16 22 7.1 ACCURACY OF REPRESENTATIONS. Sellers' representations and warranties in this Agreement must have been accurate in all material respects as of the date of this Agreement, and must be accurate in all material respects as of the Closing Date as if made on the Closing Date, and Buyer shall have received a certificate of Sellers, dated as of the Closing Date, as to such accuracy. 7.2 SELLERS' PERFORMANCE. The covenants and obligations that Sellers are required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been performed and complied with in all material respects, including, without limitation, the obtaining of the Required Consents, and Buyer shall have received a certificate of Sellers, dated as of the Closing Date, as to such compliance. 7.3 ADDITIONAL DOCUMENTS. Each of the following documents must have been delivered to Buyer: (a) a favorable opinion of counsel to Sellers and the Company dated the Closing Date, to the effect set forth on Exhibit D; (b) the deliveries required from Seller in Section 2.5; (c) documents or records, including payoff letters with respect to any of the shareholder loans or bank debt in a form and substance reasonably acceptable to Buyer as may be requested by Buyer (the "Payoff Loans"); and (d) such other documents as Buyer may reasonably request for the purpose of (i) evidencing the satisfaction of any condition referred to in this Section 7, or (ii) otherwise facilitating the consummation or performance of any of the Contemplated Transactions. 7.4 NO PROCEEDINGS. Since the date of this Agreement, there must not have been commenced and pending or Threatened any Proceeding (i) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions, (ii) that prevents, makes illegal, or otherwise materially interferes with any of the Contemplated Transactions or seeks to do any of the foregoing, or (iii) that involves any material claim against Sellers, or either of them, or the Company. 7.5 NO PROHIBITION. There must not be in effect any Legal Requirement or any injunction or other Order that prohibits or restricts the consummation of the Contemplated Transactions. 8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS TO CLOSE Sellers' obligations to sell the Shares and Sellers' obligations to take the other actions required to be taken by Sellers at the Closing are subject to the satisfaction, at or prior to the 17 23 Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part): 8.1 ACCURACY OF REPRESENTATIONS. Buyer's representations and warranties in this Agreement must have been accurate in all material respects as of the date of this Agreement and must be accurate in all material respects as of the Closing Date as if made on the Closing Date, and Seller shall have received a certificate of an executive officer of Buyer, dated as of the Closing Date, as to such accuracy. 8.2 BUYER'S PERFORMANCE. The covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been performed and complied with in all material respects, and Seller shall have received a certificate of an executive officer of Buyer, dated as of the Closing Date, as to such compliance. 8.3 ADDITIONAL DOCUMENTS. Buyer must have caused the following documents to be delivered to Seller: (a) a favorable opinion of counsel to Buyer dated the Closing Date, to the effect set forth in Exhibit E; (b) the deliveries required from Buyer in Section 2.5; and (c) such other documents as Seller may reasonably request for the purpose of (i) evidencing the satisfaction of any condition referred to in this Section 8, or (ii) otherwise facilitating the consummation of any of the Contemplated Transactions. 8.4 NO PROCEEDINGS. Since the date of this Agreement, there must not have been commenced and pending or Threatened any Proceeding (i) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions, or (ii) that prevents, makes illegal, or otherwise materially interferes with any of the Contemplated Transactions or seeks to do any of the foregoing. 8.5 NO PROHIBITION. There must not be in effect any Legal Requirement or any injunction or other Order that prohibits or restricts the consummation of the Contemplated Transactions. 9. TERMINATION 9.1 TERMINATION EVENTS. This Agreement may, by notice given prior to or at the Closing, be terminated: (a) by mutual written consent of Buyer and Sellers; 18 24 (b) (i) by Buyer if any of the conditions in Section 7 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through Buyer's breach of its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date; or (ii) by Sellers, if any of the conditions in Section 8 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the breach by Sellers or the Company of their respective obligations under this Agreement) and Sellers have not waived such condition on or before the Closing Date; or (c) by Buyer, on the one hand, or Sellers, on the other hand, if the Closing has not occurred (other than through the breach by the other Party seeking to terminate this Agreement of its obligations under this Agreement) on or before November 14, 1997, or such later date as the Parties may agree upon in writing. 9.2 EFFECT OF TERMINATION. Each Party's right of termination under Section 9.1 is in addition to any other rights it may have under this Agreement. If this Agreement is terminated pursuant to Section 9.1, all further obligations of the Parties under this Agreement will terminate, except that the obligations in Section 11.1 will survive; provided, however, that if this Agreement is terminated by a Party because of the breach of the Agreement by the other Party or because one or more of the conditions to the terminating Party's obligations under this Agreement is not satisfied as a result of the other Party's breach of its obligations under this Agreement, the terminating Party's right to pursue all legal and equitable remedies, separately or simultaneously, (including specific performance) will survive such termination unimpaired. The Parties acknowledge and agree that the failure of Sellers to meet the conditions to Closing in Section 7.1 hereof because of an event or events occurring in the ordinary course of business after the date hereof and not within the control of Sellers shall not be deemed a breach of this Agreement by Sellers. 9.3 RETENTION OF DEPOSIT. If this Agreement terminates or expires for any reason other than a breach by Sellers in the performance of a Sellers' obligation under this Agreement, the Earnest Money Deposit shall be retained by Sellers as liquidated damages, and all parties shall be relieved of and released from any further liability hereunder except for those obligations specifically designated to survive termination or expiration of this Agreement. Sellers and Buyer agree that the Earnest Money Deposit is a fair and reasonable amount to be retained by Sellers as agreed and liquidated damages in light of Sellers' removal of the Shares from the market and the costs incurred by Sellers and shall not constitute a penalty or a forfeiture. 19 25 10. INDEMNIFICATION; REMEDIES 10.1 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS. (a) The Sellers, jointly and severally, will indemnify and hold harmless Buyer, its stockholders, controlling Persons, and Affiliates (collectively, the "Seller Indemnified Persons") for, and will pay to the Seller Indemnified Persons the amount of, any loss, liability, claim, damage, expense (including reasonable costs of investigation and defense and reasonable attorneys' fees), whether or not involving a third-party claim (collectively, "Damages"), arising, directly or indirectly, from or in connection with: (i) any breach of any representation or warranty made by Sellers, or either of them in this Agreement, the Disclosure Schedule, or any other certificate or document delivered by Sellers, or either of them, pursuant to this Agreement; and (ii) any breach by Sellers, or either of them, of any covenant or obligation of Sellers, or either of them, in this Agreement or any certificate or document delivered by Seller pursuant to this Agreement. 10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will indemnify and hold harmless Sellers (collectively, the "Buyer Indemnified Persons") for, and will pay to the Buyer Indemnified Persons the amount of any Damages arising, directly or indirectly, from or in connection with: (a) any breach of any representation or warranty made by Buyer in this Agreement or in any certificate or document delivered by Buyer pursuant to this Agreement; or (b) any breach by Buyer of any covenant or obligation of Buyer in this Agreement or in any certificate or document delivered by Buyer pursuant to this Agreement. 10.3 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS. (a) Promptly after receipt by an Indemnified Person under Section 10.1 or 10.2, of notice of any claim against it, such Indemnified Person will, if a claim is to be made against an Indemnifying Party under such Section, give notice to the Indemnifying Party of the commencement of such claim, but the failure to notify the Indemnifying Party will not relieve the Indemnifying Party of any liability that it may have to any Indemnified Person, except to the extent that the Indemnifying Party demonstrates that the defense of such action is prejudiced by the Indemnifying Party's failure to give such notice. (b) If any claim referred to in Section 10.3(a) is brought against an Indemnified Person and such Indemnified Person gives notice to the Indemnifying Party of the commencement of a proceeding with respect to such claim (a "Proceeding"), the Indemnifying Party will be entitled to participate in such Proceeding and, to the extent that it wishes (unless (i) the 20 26 Indemnifying Party is also a party to such Proceeding and the Indemnified Person determines in good faith that joint representation would be inappropriate, or (ii) the Indemnifying Party fails to provide reasonable assurance to the Indemnified Person of its financial capacity to defend such Proceeding and provide indemnification with respect to such Proceeding), to assume the defense of such Proceeding with counsel satisfactory to the Indemnified Person and, after notice from the Indemnifying Party to the Indemnified Person of its election to assume the defense of such Proceeding, the Indemnifying Party will not, as long as it diligently conducts such defense, be liable to the Indemnified Person under this Section 10 for any fees of other counsel (other than in the circumstances provided in subclause (i) above) or any other expenses with respect to the defense of such Proceeding, other than reasonable costs of investigation. If the Indemnifying Party assumes the defense of a claim, (i) no compromise or settlement of any such claim may be effected by the Indemnifying Party without the Indemnified Person's consent unless (A) there is no finding or admission of any violation of Legal Requirements or any violation of the rights of any Indemnified Person, and (B) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party; and (ii) the Indemnified Person will have no liability with respect to any compromise or settlement of such claims effected without its consent. Subject to Section 10.3(c), if notice is given to an Indemnifying Party of any claim and the Indemnifying Party does not, within twenty (20) days after the Indemnified Person's notice is given, give notice to the Indemnified Person of its election to assume the defense of such claim, the Indemnifying Party will be bound by any determination made in such Proceeding or any compromise or settlement effected by the Indemnified Person and will be liable for all expenses if it wrongfully failed to assume such defense. (c) Notwithstanding the foregoing, if an Indemnified Person determines in good faith that there is a reasonable probability that a claim may adversely affect it or its affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnified Person may, by notice to the Indemnifying Party, assume the exclusive right to defend, compromise, or settle such claim, but the Indemnifying Party will not be bound by any determination of a claim so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld) or delayed. 10.4 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS. A claim for indemnification for any matter not involving a third-party claim shall be asserted by written notice to the Indemnifying Party from whom indemnification is sought. 10.5 SURVIVAL/LIMITATIONS. (a) The Parties hereto agree that (i) the representations and warranties contained in Sections 3A.1(a), 3A.2, 3.1, 3.2(a), 3.3, 3.11, 3.12, 3.26, 4.1 and 4.2(a) shall survive for the applicable statutes of limitation with respect to the subject matter thereof, and (ii) all other representations and warranties shall survive for one (1) year following the Closing Date. Any claim with respect to a breach of representations and warranties must be made in a writing to the Indemnifying Party within the survival period specified for such representations and warranties. 21 27 (b) The obligation of Sellers to indemnify the Seller Indemnified Persons for Damages pursuant to Section 10.1 hereof arising from a breach of the representations and warranties described in Section 10.5(a)(i) or from fraud shall not exceed in the aggregate the Purchase Price. The obligation of Sellers to indemnify the Seller Indemnified Persons for Damages pursuant to Section 10.1 hereof arising from a breach of representations and warranties described in Section 10.5(a)(ii) shall not exceed in the aggregate One Million Dollars ($1,000,000). Notwithstanding the foregoing, Sellers shall have no obligation to indemnify the Seller Indemnified Persons hereunder unless Damages in the aggregate exceed Fifty Thousand Dollars ($50,000) (the "Floor") and then only for the amount of all Damages in excess of the Floor. (c) The amount of Damages with respect to which indemnification is required hereunder shall be reduced by the amount of insurance proceeds, if any, received with respect thereto by the Indemnified Person making a claim for such Damages. 10.6 EXCLUSIVE REMEDY. The indemnification provisions in this Section 10 are the exclusive remedy of the Parties for any breach of a representation, warranty or covenant contained herein. 11. GENERAL PROVISIONS 11.1 EXPENSES. Except as otherwise expressly provided in this Agreement, each Party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of agents, representatives, brokers or finders, counsel, and accountants. In the event of termination of this Agreement, the obligation of each Party to pay its own expenses will be subject to any rights of such Party arising from a breach of this Agreement by another Party. Any sales and other transfer Taxes arising out of the Contemplated Transactions shall be borne by Buyer. 11.2 PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY. Any public announcement or similar publicity with respect to this Agreement or the Contemplated Transactions will be issued, if at all, at such time and in such manner as Buyer and Seller agree in writing, provided that the Parties shall reasonably cooperate in such announcements, and provided further that nothing contained herein shall prevent any Party from at any time furnishing information required by a Governmental Body. Unless consented to by Buyer and Seller in advance or required by Legal Requirements, prior to the Closing, each Party shall, and shall cause their respective Representatives to, keep this Agreement strictly confidential and may not make any disclosure of this Agreement to any Person. 11.3 NOTICES. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt 22 28 requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a Party may designate by notice to the other Parties): If to Sellers, to: Joslyn Stuart c/o Berg and Berg 6001 Annie Oakley Road Hidden Hills, California 91302 Attention: Ronald S. Berg, Esq. Telephone No.: (818) 888-1999 Facsimile No.: (818) 888-8899 and Hillary Salm c/o Berg and Berg 6001 Annie Oakley Road Hidden Hills, California 91302 Attention: Ronald S. Berg, Esq. Telephone No.: (818) 888-1999 Facsimile No.: (818) 888-8899 With a copy to: Ronald S. Berg, Esq. Berg and Berg 6001 Annie Oakley Road Hidden Hills, CA 91302 Telephone No.: (818) 888-1999 Facsimile No.: (818) 888-8899 If to Buyer, to: Outdoor Systems, Inc. 2502 North Black Canyon Highway Phoenix, Arizona 85009 Telephone No.: (602) 246-9569 Facsimile No.: (602) 433-2482 Attention: William S. Levine 23 29 and William S. Levine 1702 E. Highland Avenue, Suite 310 Phoenix, Arizona 85016 Telephone No.: (602) 248-8181 Facsimile No.: (602) 248-0884 With a copy to: Powell, Goldstein, Frazer & Murphy LLP Sixteenth Floor 191 Peachtree Street, N.E. Atlanta, GA 30303 Attention: William B. Shearer, Jr., Esq. Telephone No.: (404) 572-6600 Facsimile No.: (404) 572-6999 11.4 FURTHER ASSURANCES. (a) The Parties and the Company agree (i) to furnish upon request to each other such further information, (ii) to execute and deliver to each other such other documents, and (iii) to do such other acts and things, all as the other Party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Article 10). (b) In the event and for so long as any Party actively is contesting or defending against any Proceeding or other claim or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, circumstance, occurrence, action, failure to act, or transaction on or prior to the Closing Date involving Sellers or the Company, including, without limitation, the renewal of that certain lease for the 8373 Melrose Avenue, West Hollywood, California ("Melrose Lease"), each of the other Parties will reasonably cooperate with the contesting or defending Party and his or its counsel in the contest or defense, make available his or its personnel, and provide such testimony and access to his or its books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Article 10). In addition, Buyer agrees to indemnify and hold harmless each of the Sellers in connection with any Proceeding arising from Buyer's efforts to renew the Melrose Lease, or Sellers' assistance in connection therewith pursuant to Section 11.4(b) (unless Buyer is entitled to indemnification therefor under Article 10). 11.5 WAIVER. Neither the failure nor any delay by any Party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such 24 30 right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. 11.6 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all prior agreements between the Parties with respect to its subject matter and constitutes (along with the documents referred to in, or executed in connection with, this Agreement) a complete and exclusive statement of the terms of the agreement between the Parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the Party to be charged with the amendment. 11.7 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. No Party may assign any of its rights under this Agreement without the prior consent of the other Party; provided, however, that Buyer may assign its rights and obligations hereunder to an Affiliate of Buyer or as security for Buyer's lender(s) in connection with Buyer's Financing Arrangements; provided, further, however, that no such assignment shall relieve Buyer of its obligations hereunder. This Agreement will apply to, be binding in all respects upon, and inure to the benefit of the Parties, their successors, and their permitted assigns. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the Parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. 11.8 SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 11.9 POST-CLOSING ACCESS. Buyer agrees that all Books and Records delivered to Buyer by Sellers pursuant to this Agreement shall be maintained open for inspection by Sellers at any time during regular business hours upon reasonable notice for a period of six (6) years (or for such longer period as may be required by applicable Legal Requirements) following the Closing and that, during such period, Sellers, at their expense, may make such copies thereof as it may reasonably desire (subject in each case to Sellers' obligations to maintain the confidentiality of such Books and Records). Nothing contained in this Section 11.9 shall obligate any Party hereto to make available any books and records if to do so would violate the terms of any Contract or Legal Requirement to which it is a Party or to which it or its assets are subject. 11.10 HEADINGS; CONSTRUCTION. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 11.11 APPLICABLE LAW. This Agreement shall be governed and controlled as to validity, enforcement, interpretations, construction, effect and in all other respects by the internal laws of 26 31 the State of California. The Parties hereto agree to submit exclusively to jurisdiction any federal or state court located in the State of California any dispute or controversy arising out of or relating to this Agreement. 11.12 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. 11.13 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. 11.14 ARBITRATION. Except as otherwise expressly provided in this Agreement, the Parties have agreed to settle all disputes by arbitration in a location in the City of Los Angeles mutually acceptable to the Parties before a single arbitrator pursuant to the rules of the American Arbitration Association. Arbitration may be commenced at any time by either of the Sellers or the Company on the one hand or the Buyer on the other by giving written notice to each other that such dispute has been referred to arbitration under this Section 11.14. The arbitrator shall be selected by the joint agreement of the Parties, but if they do not so agree within twenty (20) days after the date of receipt of the notice referred to above, the selection shall be made pursuant to the rules from the panels of arbitrators maintained by such Association. Any award rendered by the arbitrator shall be conclusive and binding upon the parties hereto, except as otherwise provided for under California law; provided, however, that any such award shall be accompanied by a written opinion of the arbitrator giving the reason for the award. This provision for arbitration shall be specifically enforceable by the parties and the decision of the arbitrator in accordance herewith shall be final and binding and there shall be no right of appeal therefrom. The arbitrator shall assess, as part of his award to the prevailing party, all or such part as the arbitrator deems proper of the arbitration expenses of the prevailing party (including reasonable attorneys' fees) and of the arbitrator against the party that is unsuccessful in such claim, defense or objection. The arbitrator shall submit his award in writing to the Parties hereto. Nothing contained in this Section 11.14 shall prevent the Parties from settling any dispute by mutual agreement at any time. 26 32 IN WITNESS WHEREOF, the Parties have executed, sealed and delivered this Agreement as of the date first written above. BUYER: OUTDOOR SYSTEMS, INC. By: /s/ William S. Levine ---------------------------------------- Title: Chairman of the Board ------------------------------------- SELLERS: /s/ Joslyn Stuart ------------------------------------------- JOSLYN STUART /s/ Hillary Salm ------------------------------------------- HILLARY SALM COMPANY SALM ENTERPRISES, INC. By: /s/ Joslyn Stuart ---------------------------------------- Title: President ------------------------------------- 33 EXHIBIT A DEFINITIONS "ACCREDITED INVESTOR" -- as defined in Regulation D promulgated under the Securities Act. "ADVERTISING CONTRACTS" -- all rights under existing and pending sales and advertising contracts associated with the Structures, including all rights to the advertising copy displayed on the Structures. "AFFILIATES" -- when used with reference to a specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the specified Person. For purposes of this definition of Affiliate, "control" means the possession, directly or indirectly, of the power to direct or to cause the direction of management and policies of the Person in question, whether through the ownership of voting securities or by contract or otherwise. "BEST EFFORTS" -- the efforts that a prudent Person desirous of achieving a result would use in similar circumstances. "BOOKS AND RECORDS" -- All of Company's books and records. "BUYER" -- as defined in the first paragraph of this Agreement. "CLOSING" -- as defined in Section 2.2. "CLOSING DATE" -- the date and time as of which the Closing actually takes place. "CLOSING DATE BALANCE SHEET" - the balance sheet of the Company as of the Closing Date prepared in accordance with GAAP. "CLOSING DATE NET WORKING CAPITAL" - the net working capital of the Company without any of the Retained Assets as of the Closing, computed in accordance with GAAP after giving effect to the Proration. "CLOSING DOCUMENTS" -- any documents to be executed at Closing pursuant to this Agreement. "CONSENT" -- any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization). A-1 34 "CONTEMPLATED TRANSACTIONS" -- all of the transactions contemplated by this Agreement, including: (c) the purchase of the Shares by Buyer from Sellers, and (b) the performance by Buyer and the Sellers of their respective covenants and obligations under this Agreement. "CONTRACT" -- any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding. "DAMAGES" -- as defined in Section 10.1. "DISCLOSURE SCHEDULE" -- the disclosure schedule, delivered by Seller to Buyer concurrently with the execution and delivery of this Agreement. "EMPLOYEE BENEFIT PLAN" -- any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "EMPLOYEE PENSION BENEFIT PLAN" -- has the meaning set forth in ERISA Section 3(2). "EMPLOYEE WELFARE BENEFIT PLAN" -- has the meaning set forth in ERISA Section 3(1). "ENCUMBRANCE" -- any charge, claim, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, transfer, receipt of income, or exercise of any other attribute of ownership. "ENVIRONMENT" -- soil, land surface or subsurface strata, surface waters, groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource. "ENVIRONMENTAL LAW" -- any Legal Requirement pertaining to environmental discharges, Release, emissions or spills or the manufacture, sale, processing, handling, transportation, storage or disposal of any Hazardous Materials, or relating to any environmental processes or condition, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act ("RCRA"), the Endangered Species Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Hazardous Materials Transportation Act, the Surface Mining Control and Reclamation Act, the Emergency Planning and Community Right to Know Act, the Safe Drinking Water Act, the Toxic Substances Control Act, the Coastal Zone Management Act, the National Environmental Policy Act, the Noise Control Act. As used in this Agreement, Environmental Laws shall mean any of such laws or regulations as the same exist now or at the Closing Date. A-2 35 "ERISA" -- the Employee Retirement Income Security Act of 1974 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "FINANCIAL STATEMENTS" -- as defined in Section 3.4. "GAAP" -- United States generally accepted accounting principles as in effect from time to time. "GOVERNMENTAL AUTHORIZATION" -- any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. "GOVERNMENTAL BODY" -- any federal, state, local, municipal, foreign, or other government; or governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal). "HAZARDOUS MATERIALS" -- any waste or other substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law, and specifically including petroleum and all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials. "HSR ACT" -- the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any regulations and rules promulgated thereunder. "INDEMNIFIED PERSON" -- any of the Seller Indemnified Persons or the Buyer Indemnified Persons, as the context requires. "INDEMNIFYING PARTY" -- the Buyer, the Company or the Sellers, as the context requires. "INTANGIBLE PROPERTY" -- All right, title and interest in and to the goodwill and other intangible property (except for the Company's corporate or trade names and trade logos) used in connection with the Business, all licenses, permits and authorizations pertaining to the Business or the right to own and operate the Business and all right, title and interest in and to (i) any intellectual property used in connection with the Business, and (ii) all records and data relating specifically to the Business. "IRC" -- the Internal Revenue Code of 1986, as amended from time to time, or any successor law, and regulations issued by the IRS pursuant to the Internal Revenue Code or any successor law. "IRS" -- the United States Internal Revenue Service and, to the extent relevant, the United States Department of the Treasury. A-3 36 "KNOWLEDGE" -- a Person will be deemed to have "Knowledge" of a particular fact or other matter only if such Person is actually aware of such fact or other matter without making any independent inquiry or investigation. A Person (other than an individual) will be deemed to have "Knowledge" of a particular fact or other matter if any individual who is serving as a director, officer, partner, executor, or trustee of such Person (or in any similar capacity) has Knowledge of such fact or other matter. "LEGAL REQUIREMENT" -- any federal, state, local, municipal, foreign, international, multinational, or other administrative Order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty. "LETTER OF CREDIT" - as defined in Section 2.3(b) hereof. "LOAN" - as defined in Section 6.5 hereof. "MATERIAL ADVERSE CHANGE" -- a change that will probably cause a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" - a material adverse effect on the Company or its operations or conditions, financial or otherwise, taken as a whole. "MOST RECENT FINANCIAL STATEMENTS" -- as defined in Section 3.4. "MOST RECENT FISCAL MONTH END" -- as defined in Section 3.4. "MULTIEMPLOYER PLAN" -- as defined in ERISA Section 3(37). "ORDER" -- any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator. "ORDINARY COURSE OF BUSINESS" -- an action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" if such action is consistent with the past custom and practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person (including with respect to quantity and frequency). "ORGANIZATIONAL DOCUMENTS" -- (a) the articles or certificate of incorporation and the bylaws of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (d) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person; and (e) any amendment to any of the foregoing. A-4 37 "OTHER CONTRACT" -- any Contract (other than a Site Lease or Advertising Contract) relating to or affecting the Company (i) under which the Company has or may acquire any rights, (ii) under which the Company has or may become subject to any obligation or liability, or (iii) by which the Company or the Business is or may become bound. "PARTY" -- as defined in the first paragraph of this Agreement. "PARTIES" -- as defined in the first paragraph of this Agreement. "PERMITS" -- all state and local licenses or permits/tags and other Governmental Authorizations that are required for the operation of the Business, including the Structures. "PERMITTED LIENS" -- liens for taxes not yet delinquent, and with respect to real property, installments of special assessments not yet delinquent, recorded easements, covenants and other restrictions, and utility easements, building restrictions, zoning restrictions and other easements and restrictions which do not impair the current use of the parcel of real property. "PERSON" -- any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body. "PROCEEDING" -- any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. "PROMISSORY NOTE" - as defined in Section 2.3(b). "PRORATION" - the proration of all the Company's revenues and expenses without the Retained Assets as of the Closing Date. Revenues and expenses will be recognized according to GAAP and on the number of days of postings before and after the Closing Date. For purposes of this definition, one month shall be deemed to have thirty (30) days and one year shall be deemed to have three hundred and sixty (360) days. "PURCHASE PRICE" -- as defined in Section 2.3. "REAL PROPERTY" -- real property and any rights therein, and all buildings, facilities, structures, fixtures, leasehold and other improvements located thereon. "RELEASE" -- any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping, or other releasing into the Environment, whether intentional or unintentional. A-5 38 "REPRESENTATIVE" -- with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "RETAINED ASSETS" -- the furniture and equipment listed in Schedule A.1, the trade names "Salem Enterprises" and "Roberts Outdoor Advertising" as well as any cash of the Company in the bank on the close of business the day immediately preceding the Closing. "SECURITIES ACT" -- the Securities Act of 1933, as amended. "SECURITY INTEREST" -- any mortgage, pledge, lien, encumbrance, charge or other security interest or option or right of any third party with respect thereto. "SHARES" -- as described in Section 3.3. "SHAREHOLDER LOAN" - as defined in Section 6.5 hereof. "SITE LEASES" -- all leases and all other grants of the right to place, construct, own, operate or maintain the Structures on land, buildings and other real property owned by third parties. "STRUCTURES" -- all of the billboard displays, and other out-of-home advertising structures, together with all components, fixtures, parts, appurtenances, and equipment attached to or made a part thereof that are existing, under construction or for which Company has any rights. "TAX" -- shall mean all tax (including income tax, capital gains tax, value added tax, sales tax, property tax, transfer tax or intangibles tax), levy assessment, tariff, duty, deficiency or other fee and any related charge or amount (including fine, penalty and interest) imposed, assessed or collected by or under the authority of any Governmental Body. "TAX RETURN" -- any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "THREATENED" -- a claim, Proceeding or dispute will be deemed to have been "THREATENED" if any demand or statement has been made or any notice has been given that would lead a prudent Person to conclude that such a claim, Proceeding or dispute is likely to be asserted, commenced, taken, or otherwise pursued in the future. A-6 EX-10.62 5 EX-10.62 1 Exhibit 10.62 ASSET PURCHASE AGREEMENT dated as of November 25, 1997 by and between OUTDOOR SYSTEMS, INC. AND OUTDOOR MEDIA GROUP, INC. 2 TABLE OF CONTENTS 1. DEFINITIONS.................................................. 1 2. PURCHASE AND SALE OF THE ASSETS; CLOSING..................... 1 2.1 AGREEMENT TO PURCHASE AND SELL.......................... 1 2.2 PURCHASED ASSETS........................................ 1 2.3 AGREEMENT TO ASSUME CERTAIN LIABILITIES................. 2 2.4 EXCLUDED LIABILITIES.................................... 3 2.5 CLOSING................................................. 3 2.6 PURCHASE PRICE.......................................... 3 2.7 TRANSACTIONS AT THE CLOSING............................. 4 2.8 THIRD PARTY CONSENTS.................................... 4 3. REPRESENTATIONS AND WARRANTIES OF SELLER..................... 5 3.1 ORGANIZATION AND GOOD STANDING.......................... 5 3.2 AUTHORITY; NO CONFLICT.................................. 5 3.3 SOLVENCY................................................ 6 3.4 BOOKS AND RECORDS....................................... 6 3.5 STRUCTURES.............................................. 6 3.6 PERMITS................................................. 6 3.7 SITE LEASES AND ADVERTISING CONTRACTS................... 6 3.8 RESERVED................................................ 7 3.9 TITLE, ENCUMBRANCES..................................... 7 3.10 NO UNDISCLOSED LIABILITIES.............................. 7 3.11 TAXES................................................... 7 3.12 COMPLIANCE WITH LEGAL REQUIREMENTS...................... 7 3.13 LEGAL PROCEEDINGS; ORDERS............................... 7 3.14 OTHER CONTRACTS......................................... 8 3.15 INSURANCE............................................... 8 3.16 ENVIRONMENTAL MATTERS................................... 8 3.18 RELATIONSHIPS WITH AFFILIATES........................... 8 3.19 BROKERS OR FINDERS...................................... 8 3.20 RESERVED................................................ 8 3.21 HSR COMPLIANCE.......................................... 8 3.22 DISCLOSURE.............................................. 8 4. REPRESENTATIONS AND WARRANTIES OF BUYER...................... 9 4.1 ORGANIZATION AND GOOD STANDING.......................... 9 4.2 AUTHORITY; NO CONFLICT.................................. 9 4.3 CERTAIN PROCEEDINGS..................................... 9 4.4 BROKERS OR FINDERS...................................... 9 4.5 HSR COMPLIANCE.......................................... 9 4.6 DUE DILIGENCE; RELIANCE ON BUYER'S EXPERTS.............. 10 4.7 DISCLOSURE.............................................. 10 5. COVENANTS OF SELLER.......................................... 10 5.1 ACCESS AND INVESTIGATION................................ 10 5.2 DUE DILIGENCE........................................... 10 5.3 OPERATION OF THE PURCHASED ASSETS....................... 10 5.4 NEGATIVE COVENANT....................................... 10 5.5 REQUIRED APPROVALS...................................... 10
3 5.6 NOTIFICATION............................................ 11 5.7 NO NEGOTIATION.......................................... 11 5.8 TAX CLEARANCE........................................... 11 5.8 RESTRICTION COVENANTS................................... 11 6. COVENANTS OF BUYER........................................... 12 6.1 REQUIRED APPROVALS...................................... 12 6.2 BEST EFFORTS............................................ 12 6.3 IMPRINTS................................................ 12 6.4 NOTIFICATION............................................ 12 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.......... 13 7.1 ACCURACY OF REPRESENTATIONS............................. 13 7.2 SELLER'S PERFORMANCE.................................... 13 7.3 CONSENTS................................................ 13 7.4 ADDITIONAL DOCUMENTS.................................... 13 7.5 NO PROCEEDINGS.......................................... 13 7.6 NO PROHIBITION.......................................... 14 7.7 NO MATERIAL ADVERSE CHANGE.............................. 14 7.8 DUE DILIGENCE........................................... 14 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE......... 14 8.1 ACCURACY OF REPRESENTATIONS............................. 14 8.2 BUYER'S PERFORMANCE..................................... 14 8.3 ADDITIONAL DOCUMENTS.................................... 14 8.4 NO PROCEEDINGS.......................................... 15 8.5 NO PROHIBITION.......................................... 15 9. TERMINATION.................................................. 15 9.1 TERMINATION EVENTS...................................... 15 9.2 EFFECT OF TERMINATION................................... 15 10. INDEMNIFICATION; REMEDIES.................................... 16 10.1 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER....... 16 10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER........ 16 10.3 PROCEDURE FOR INDEMNIFICATION - THIRD PARTY CLAIMS..... 16 10.4 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS.......... 17 10.5 SURVIVAL/LIMITATIONS................................... 17 11. GENERAL PROVISIONS........................................... 18 11.1 EXPENSES............................................... 18 11.2 HEADINGS; CONSTRUCTION................................. 18 11.3 PUBLIC ANNOUNCEMENTS................................... 18 11.4 AVAILABILITY OF EQUITABLE REMEDIES..................... 18 11.5 NOTICES................................................ 18 11.6 FURTHER ASSURANCES..................................... 20 11.7 WAIVER................................................. 20 11.8 ENTIRE AGREEMENT AND MODIFICATION...................... 20 11.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS..... 20 11.10 ACCOUNTS RECEIVABLE.................................... 20 11.11 SEVERABILITY........................................... 20 11.12 RISK OF LOSS........................................... 20 11.13 POST-CLOSING ACCESS.................................... 20
4 11.14 APPLICABLE LAW......................................... 21 11.15 COUNTERPARTS........................................... 21
5 EXHIBITS Exhibit A - Definitions Exhibit B - Bill of Sale, Assignment and Assumption Agreement Exhibit C - Non-Competition Agreement 6 SCHEDULES Schedule 2.2(a)(1) and (2) - Billboard Displays/Structures Schedule 2.2(b) - Site Leases Schedule 2.2(c) - Advertising Contracts Schedule 2.2(d) - Permits Schedule 2.2(x) - Excluded Assets 7 DISCLOSURE SCHEDULE Part 3.2(b) Part 3.10 Part 3.2(c) Part 3.11(a) Part 3.5 Part 3.13 Part 3.6 Part 3.14 Part 3.7 Part 3.16 Part 3.9(b) Part 3.18 8 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement ("Agreement") is entered into as of November 25, 1997, by and between OUTDOOR SYSTEMS, INC., a Delaware corporation ("Buyer"), and OUTDOOR MEDIA GROUP, INC., a California corporation ("Seller"). (Buyer and Seller are sometimes herein referred to individually as a "Party" and collectively as the "Parties".) RECITALS Seller is engaged in the business of owning and operating outdoor signs and billboards and otherwise providing outdoor advertising services and related and unrelated services, including, without limitation: (i) owning and operating outdoor signs and billboards and otherwise providing outdoor advertising services in the state of Nevada; and (ii) owning and operating two certain billboard structures and otherwise providing outdoor advertising services with respect to these two certain billboard structures listed on Schedule 2.2(a)(2) hereto in the metropolitan Los Angeles area. The business described in subclauses (i) and (ii) hereof shall be referred to herein as the "Purchased Business." Seller desires to sell and assign certain outdoor advertising assets to Buyer, and Buyer desires to purchase such assets and to assume certain liabilities associated with such assets, pursuant to the terms, conditions, limitations and exclusions contained in this Agreement. AGREEMENT The Parties, intending to be legally bound, agree as follows: 1. DEFINITIONS For purposes of this Agreement, the terms listed on Exhibit A attached hereto have the meanings specified or referred to in Exhibit A. 2. PURCHASE AND SALE OF THE ASSETS; CLOSING 2.1 AGREEMENT TO PURCHASE AND SELL. Subject to the terms and conditions of this Agreement, Seller hereby agrees to grant, sell, assign, transfer, convey and deliver all right, title and interest of Seller in and to the Purchased Assets, free and clear of any liens, title claims, Encumbrances or Security Interests (except as otherwise specifically permitted pursuant to the provisions of this Agreement), and Buyer hereby agrees to buy and acquire the Purchased Assets from Seller, and to assume the Assumed Liabilities upon the terms and conditions set forth in this Agreement. 2.2 PURCHASED ASSETS. The Purchased Assets are the following assets of Seller: (a) All of the billboard displays and other out-of-home advertising structures located in the State of Nevada, including, but not limited to, those set forth and described in Schedule 2.2(a)(1) attached hereto, and the two in Los Angeles, California, set forth and described in Schedule 2.2(a)(2) attached hereto, together with all components, fixtures, parts, appurtenances, 9 and equipment attached to or made a part thereof that are existing, under construction or for which Seller has any rights (collectively, the "Structures"); (b) All leases, licenses, easements, other rights of ingress or egress, and all other grants of the right to place, construct, own, operate or maintain the Structures on land, buildings and other real property owned by third parties, and all rights therein (collectively, the "Site Leases"), including those Site Leases listed on Schedule 2.2(b); (c) All rights under existing and pending sales and advertising contracts associated with the Structures, and all rights to the advertising copy displayed on the Structures as of the Closing Date (collectively, the "Advertising Contracts"), including those Advertising Contracts listed on Schedule 2.2(c) attached hereto; (d) All state and local licenses or permits/tags which Seller has with respect to the Structures and, to the extent assignable, all other Governmental Authorizations that are required for the operation of the Structures, (collectively, the "Permits"), including those Permits listed on Schedule 2.2(d); (e) All prepaid expenses relating to the Purchased Assets in existence as of the Closing; (f) All pertinent Books and Records; (g) All tangible personal property, including furniture, vehicles, equipment, computer hardware and software, owned by Seller relating to the Purchased Assets and listed in Schedule 2.2(g); (h) All Intangible Property used in connection with the Purchased Assets; and (i) All options, rights of first refusal and other rights to purchase or acquire outdoor advertising assets, including new builds, site leases and outdoor advertising structures, in the State of Nevada, including Seller's right of first refusal under that certain Seiler Agreement; (j) All rights (including any benefits arising therefrom), causes of action, claims and demands of whatever nature (whether or not liquidated) of Seller relating to the Purchased Assets, including, without limitation, condemnation rights and proceeds, and all rights against suppliers under warranties covering any of the Purchased Assets. Notwithstanding the foregoing, the Purchased Assets shall not include the assets listed on Schedule 2.2(x) (collectively, "Excluded Assets"). 2.3 AGREEMENT TO ASSUME CERTAIN LIABILITIES. At the Closing, Buyer shall assume and agree to discharge and perform all liabilities and obligations that are attributable to events occurring on or after the Closing Date pursuant to the Site Leases and the Advertising Contracts (the "Assumed Liabilities") but to the extent and only to the extent that: 2 10 (a) Such obligations are performable on or after the Closing Date; and (b) Such obligations are attributable to periods arising on or after the Closing Date. 2.4 EXCLUDED LIABILITIES. All claims against and liabilities and obligations of Seller not specifically assumed by Buyer pursuant to Section 2.3, including, without limitation, the following claims against and liabilities of Seller (the "Excluded Liabilities"), are excluded, and shall not be assumed or discharged by Buyer, and shall be discharged in full when due by Seller: (a) Any liabilities to the extent not attributable to the Purchased Assets; (b) Any liability of Seller for Taxes arising prior to or from the sale of the Purchased Assets under this Agreement; (c) Any liabilities for or related to indebtedness of Seller to banks, financial institutions, or other Persons; (d) Any liabilities of Seller for or with respect to any employees of Seller, including, without limitation, any liabilities pursuant to any compensation, collective bargaining, pension, retirement, severance, termination, or other benefit plan, agreement or arrangement; and (e) Any other liabilities of Seller that are attributable to or arise from facts, events, or conditions that occurred or came into existence prior to the Closing. 2.5 CLOSING. The purchase and sale of the Purchased Assets (the "Closing") provided for in this Agreement will take place at the offices of Buyer in Phoenix, Arizona at 10:00 a.m. on December 1, 1997 or such later time and place as the Parties may agree. The effective time of the Closing shall be 12:01 a.m., Eastern Standard Time, on the Closing Date. 2.6 PURCHASE PRICE. In consideration for the Purchased Assets, Buyer shall assume the Assumed Liabilities, and pay an amount (the "Purchase Price") equal to Twenty Eight Million, Four Hundred Thousand Dollars ($28,400,000). The Purchase Price shall be subject to adjustment as follows: (a) The following items shall be prorated between Seller and Buyer as of the Closing Date with respect to the Purchased Assets: power and utility charges, real and personal property taxes, rents (including percentage rents) and security deposits under Site Leases and accounts receivable (including credits) and security deposits under Advertising Contracts. The prorations of revenue and other items shall be based on a thirty (30) day month, prorated as of the Closing Date. Percentage rents shall be prorated as of the Closing Date. Any prorations not determined at the Closing shall be prorated on the basis of the most current information available at Closing. On the Closing Date, Seller shall provide to Buyer a list of items and the prorations required by this Section 2.6(a) ("Preliminary Adjustment") and the Purchase Price shall 3 11 be adjusted accordingly. Seller agree to furnish Buyer with any documents or records in Seller's possession that may be needed for Buyer to confirm the adjustment and prorations in this Section 2.6(a). (b) Within ninety (90) days after the Closing Date, Buyer will prepare and provide to Seller the final calculations of adjustments to the Purchase Price (the "Closing Date Adjustment"). On the 120th day after the Closing Date, all required refunds or payments under this Section 2.6, shall be made on the basis of the Closing Date Adjustment. (c) The parties agree to cooperate with each other in determining and reaching an agreement in writing on the allocation of the Purchase Price among the Purchased Assets on or prior to Closing. 2.7 TRANSACTIONS AT THE CLOSING. The following transactions shall take place at the Closing: (a) Seller shall enter into (as applicable) and deliver to Buyer: (i) the Bill of Sale, Assignment and Assumption Agreement, (ii) Non-Competition Agreements with each of Jon M. Gunderson and Charles Gunderson (iii) all applicable Tax Clearances, (iv) evidence of the release of the lien of the Union Bank of California and appropriate termination statements and (v) other instruments of transfer, evidence of required consents and all other related documents as may be necessary to evidence or perfect the sale, assignment, transfer, and conveyance of good title to all of the Purchased Assets, in each case free and clear of all Security Interests and Encumbrances, except the Permitted Liens. Seller shall also deliver to Buyer all Books and Records, including the originals of the Advertising Contracts and Site Leases. (b) Buyer shall deliver to Seller the Purchase Price, as adjusted pursuant to Section 2.6, by wire transfer of immediately available funds. (c) Buyer shall enter into (as applicable) and deliver to Seller: (i) the Bill of Sale, Assignment and Assumption Agreement, and (ii) other assumption agreements, instruments and other documents as may be necessary to evidence the assumption by Buyer of the Assumed Liabilities. (d) The Parties shall also deliver to each other the agreements, instruments, opinions, certificates, and other documents referred to in this Agreement. 2.8 THIRD PARTY CONSENTS. To the extent that Seller's rights under any Advertising Contract, Site Lease or other interest in the Purchased Assets may not be assigned without the consent of a third party and such consent has not been obtained, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful, and Seller and Buyer, to the maximum extent permitted by law and any terms of or limitations relating to such asset, shall (at Buyer's cost) use their Best Efforts to obtain for Buyer the benefits thereunder and shall cooperate to the maximum extent permitted by law and any terms of or limitations relating to such asset in any reasonable arrangement designed to provide such 4 12 benefits to Buyer, including any sublease, subcontract or similar arrangement, and if Buyer has obtained such benefits, Buyer shall discharge Seller's obligations thereunder arising from and after the Closing Date, except for those obligations arising because of Seller's breach. 3. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as follows: 3.1 ORGANIZATION AND GOOD STANDING. Seller is a corporation duly organized, validly existing and in good standing under the laws of its incorporation, with full power and authority to conduct its business as it is now being conducted, to own or use the Purchased Assets, and to perform all its obligations in connection with the Purchased Assets. Seller has delivered to Buyer true and complete copies of its Organizational Documents, as currently in effect. Seller is duly qualified to do business and in good standing in each jurisdiction in which the Purchased Assets are owned, leased or operated by it, except where such failure to be qualified would not have a Material Adverse Effect on the Purchased Assets or the Purchased Business. 3.2 AUTHORITY; NO CONFLICT. (a) This Agreement constitutes the legal, valid, and binding obligation of Seller, enforceable against it in accordance with its terms. Upon the execution and delivery by Seller of any documents to be executed at Closing pursuant to this Agreement (collectively, the "Closing Documents"), such Closing Documents will constitute the legal, valid, and binding obligations of Seller, as applicable, enforceable against it in accordance with its terms. Seller has the absolute and unrestricted right, power and authority to execute and deliver this Agreement and the Closing Documents to which it is a party and to perform its obligations thereunder. The execution, delivery and performance of this Agreement has been specifically authorized by the Directors and shareholders of Seller. Part 3.2(a) of the Disclosure Schedule contains a complete list of all of the holders of the outstanding capital stock of Seller. (b) Except as set forth in Part 3.2(b) of the Disclosure Schedule, neither the execution and delivery by Seller of this Agreement nor the consummation or performance by Seller of any of the Contemplated Transactions will: (i) conflict with, violate or result in a breach of (A) any provision of the Organizational Documents of Seller; (B) to Seller's Knowledge, any Legal Requirement or any Order to which Seller, the Purchased Business, or any of the Purchased Assets may be subject; or (C) to Seller's Knowledge, any Governmental Authorization held by Seller or that otherwise relates to the Purchased Business or the Purchased Assets; or (ii) (A) contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any material Contract to which Seller is a party or any material interest or rights of Seller 5 13 in or to the Purchased Assets; or (B) result in the imposition or creation of any Encumbrance upon or with respect to any of the Purchased Assets. (c) Except as set forth in Part 3.2(c) of the Disclosure Schedule, Seller is not and will not be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. 3.3 SOLVENCY. By consummating the transactions contemplated hereby, Seller does not intend to hinder, delay or defraud any of Seller's present or future creditors. Before giving effect to the transactions contemplated hereby, Seller has been paying its debts as they become due in the Ordinary Course of Business and, after giving effect to the transactions contemplated hereby, Seller will have paid or discharged all of its debts (or made adequate provision for the payment thereof). 3.4 BOOKS AND RECORDS. The books of account, and other Books and Records of Seller maintained in connection with the Purchased Assets, are complete and correct in all material respects and have been maintained in accordance with sound business practices. 3.5 STRUCTURES. Seller owns all of the Structures. Except as set forth in Part 3.5 of the Disclosure Schedule, to Seller's Knowledge, each Structure (i) is located entirely on property covered by a Site Lease, (ii) complies in all material respects with the terms of the Permits pertaining to it and (iii) is in condition to accept faces and in adequate condition and repair for its current use. 3.6 PERMITS. Except as set forth in Part 3.6, the Permits constitute all material licenses, permits, registrations and approvals necessary to operate the Purchased Assets. Seller is in material compliance with the terms of the Permits. Seller is not aware of any fact or event which constitutes a material violation of any Permit, and Seller has not received written notice that any Governmental Body issuing any Permit intends to cancel, terminate, modify or amend any Permit. 3.7 SITE LEASES AND ADVERTISING CONTRACTS. Seller has delivered to Buyer true and complete copies of the Advertising Contracts and the Site Leases. Except as set forth on Part 3.7 of the Disclosure Schedule, all sales made to advertisers in connection with the Structures have been made pursuant to Advertising Contracts. The Site Leases and the Advertising Contracts are in full force and effect, and are binding upon the parties thereto. Except as set forth in Part 3.7 of the Disclosure Schedule, to the Knowledge of Seller, (x) no default by Seller or any other party has occurred under the Site Leases or Advertising Contracts, and (y) no event, occurrence or condition exists which (with or without notice or lapse of time or the happening of any further event or condition) would become a material default by Seller thereunder or would entitle any other party to terminate a Site Lease or Advertising Contract, to make a claim or set-off against Seller or otherwise to amend such Site Lease or Advertising Contract or prevent such Site Lease or Advertising Contract from being renewed in accordance with its terms. Seller has not received any written notice of default, termination or non-renewal under any Site Lease or Advertising Contract. 6 14 3.8 RESERVED. 3.9 TITLE, ENCUMBRANCES. (a) Seller has good title to all of the Purchased Assets. There are no existing agreements, options, commitments or rights with, of or to any Person to acquire any of the Purchased Assets or any interest therein except for this Agreement. All of the Purchased Assets are owned by Seller free and clear of all Encumbrances and Security Interests except for Permitted Liens. (b) Except as set forth in Part 3.9(b) of the Disclosure Schedule, none of the Structures or Site Leases are or will be, to the Knowledge of Seller, subject to zoning, use, or building code restrictions that will prohibit the continued effective ownership, leasing or other use of such assets as currently owned and used by Seller. Seller has not received any notice of pending or Threatened claims, Proceedings, planned public improvements, annexations, special assessments, rezonings or other adverse claims affecting the Site Leases. 3.10 NO UNDISCLOSED LIABILITIES. Except as set forth in Part 3.10 of the Disclosure Schedule, Seller has no material liabilities or obligations of any nature relating to the Purchased Assets or the Purchased Business. 3.11 TAXES. With respect to the Purchased Assets and the Purchased Business: (a) Seller has filed or caused to be filed all Tax Returns that are or were required to be filed by Seller, pursuant to applicable Legal Requirements. Seller has paid, or made provision for the payment of, all Taxes that have become due pursuant to those Tax Returns or otherwise, or pursuant to any assessment received by Seller, except such Taxes, if any, as are listed in Part 3.11(a) of the Disclosure Schedule and are being contested in good faith. (b) No unpaid Taxes create an Encumbrance (other than Permitted Liens) on the Purchased Assets. (c) Buyer shall not be liable for any Taxes of Seller as a result of the Contemplated Transactions. 3.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Seller has complied with all Legal Requirements applicable to Seller's ownership or use of the Purchased Assets, except for noncompliances or failures that, individually or in the aggregate, would not be reasonably expected to have a Material Adverse Effect. 3.13 LEGAL PROCEEDINGS; ORDERS. Except as set forth in Part 3.13 of the Disclosure Schedule, there is no Proceeding pending or, to the Knowledge of Seller, Threatened against Seller and affecting any of the Purchased Assets and there is no Order to which Seller or the Purchased Assets are subject. 7 15 3.14 OTHER CONTRACTS There are no Other Contracts relating to or binding upon the Purchased Assets or the Purchased Business, except as disclosed in Part 3.14 of the Disclosure Schedule. 3.15 INSURANCE. Seller maintains in full force and effect policies of fire and other casualty, liability, title and other forms of insurance covering the Purchased Assets and the operation thereof, of the types and with the amounts of coverage as are consistent with industry standards for outdoor advertising businesses comparable to the Purchased Business. 3.16 ENVIRONMENTAL MATTERS. Except as set forth in Part 3.16 of the Disclosure Schedule, with respect to the Purchased Assets and the use or operation thereof to Seller's Knowledge: (i) Seller is, and has been, in material compliance with all Environmental Laws; (ii) Seller has timely filed all material reports, obtained all material required approvals and permits relating to ownership and use of the Purchased Assets, and generated and maintained all material data, documentation and records under any applicable Environmental Laws relating to the Purchased Assets; (iii) to the Knowledge of Seller, there has not been any release of the Hazardous Materials at or in the vicinity of the Purchased Assets; (iv) Seller has not received any written notice from any Governmental Body or private or public entity advising it that it is or may be responsible for response costs with respect to a Release, a threatened Release or clean up of Hazardous Materials relating to the Purchased Assets; and (v) Seller has delivered to Buyer true and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed by Seller pertaining to Hazardous Materials in, on, or under the Purchased Assets. 3.17 RESERVED. 3.18 RELATIONSHIPS WITH AFFILIATES. Except as set forth on Part 3.18 of the Disclosure Schedule, Seller is not a party to any contract with any shareholder of Seller or any Affiliate of Seller or any of its shareholders relating to the Purchased Assets or the Purchased Business. Neither Seller nor any of its shareholders nor any Affiliate of Seller or any such shareholder is the owner (of record or as a beneficial owner) of an equity interest or any other financial or profit interest in, a Person (other than Seller) that has business dealings or a material financial interest in any transaction with Seller involving the Purchased Assets or the Purchased Business. 3.19 BROKERS OR FINDERS. Seller and its shareholders have not incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement. 3.20 RESERVED. 3.21 HSR COMPLIANCE. Effective as of the Closing, Seller shall be in compliance with Sellers' obligations pursuant to the HSR Act in connection with the Contemplated Transactions. 3.22 DISCLOSURE. To Seller's Knowledge, no representation or warranty of Seller in this Agreement and no statement in the Disclosure Schedule omits to state a material fact necessary to 8 16 make the statements herein or therein, in light of the circumstances in which they were made, not misleading. 4. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: 4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. 4.2 AUTHORITY; NO CONFLICT. (a) This Agreement constitutes the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. Upon the execution and delivery by Buyer of the Closing Documents to which Buyer is a party, such Closing Documents will constitute the legal, valid, and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms. Buyer has the absolute and unrestricted right, power, and authority to execute and deliver this Agreement and the Closing Documents and to perform its obligations under this Agreement and the Closing Documents to which Buyer is a party. (b) Neither the execution and delivery of this Agreement by Buyer nor the consummation or performance of any of the Contemplated Transactions by Buyer will give any Person the right to prevent, delay, or otherwise interfere with any of the Contemplated Transactions pursuant to (i) any provision of Buyer's Organizational Documents; (ii) any resolution adopted by the board of directors or the stockholders of Buyer; (iii) any Legal Requirement or Order to which Buyer may be subject; or (iv) any material Contract to which Buyer is a party or by which Buyer may be bound. Buyer is not and will not be required to obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. The execution, delivery and performance of this Agreement and the Contemplated Transactions have been specifically authorized by the Directors of Buyer. 4.3 CERTAIN PROCEEDINGS. There is no pending Proceeding that has been commenced against Buyer and that challenges, or may have the effect of preventing, making illegal, or otherwise interfering with, any of the Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been Threatened in writing and no event has occurred or circumstance exist that may give rise to or serve as a basis for the commencement of any Proceeding. 4.4 BROKERS OR FINDERS. Buyer has not incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement. 4.5 HSR COMPLIANCE. Effective as of the Closing, Buyer shall be in compliance with Buyer's obligations pursuant to the HSR Act in connection with the Contemplated Transactions. 9 17 4.6 DUE DILIGENCE; RELIANCE ON BUYER'S EXPERTS. Prior to Buyer's execution and delivery of this Agreement, Buyer has conducted such due diligence activities and investigations in connection with the Purchased Assets as Buyer deems reasonable or necessary and, in connection with such activities and investigations, Buyer has relied on its own financial, legal and other experts and advisors in arriving at Buyer's decision to execute, deliver and consummate this Agreement and the Contemplated Transactions. Buyer is not relying on any representations, warranties or covenants of Seller except as expressly set forth in this Agreement. 4.7 DISCLOSURE. To the Knowledge of Buyer, no representation or warranty of Buyer in this Agreement omits to state a material fact necessary to make the statements in this Agreement, in light of the circumstances in which they were made, not misleading. 5. COVENANTS OF SELLER 5.1 ACCESS AND INVESTIGATION. Prior to the date of this Agreement and until the Closing Date, Seller has, and will continue to, cause its Representatives to, afford Buyer and its Representatives reasonable access during normal business hours to Seller's personnel, properties, Books and Records, and other documents and data relating to the Purchased Assets and the Purchased Business, and furnish Buyer and its Representatives with copies of the same. 5.2 DUE DILIGENCE. Buyer shall have the right, and Seller shall continue to afford access to Buyer and its Representatives, at all reasonable times upon advance notice to perform due diligence on the Purchased Assets and the Purchased Business through and including Closing (the "Due Diligence Period"). 5.3 OPERATION OF THE PURCHASED ASSETS. Between the date of this Agreement and the Closing Date, Seller will: (a) operate the Purchased Assets only in the Ordinary Course of Business; (b) use its Best Efforts to maintain the Purchased Assets, and maintain the relations and good will with advertisers, landlords and others associated with the operation of the Purchased Assets; and (c) confer with Buyer concerning any new Advertising Contract, Site Lease or Other Contract which involves a term of more than three (3) months or payment of amounts in excess of $50,000. 5.4 NEGATIVE COVENANT. Except as otherwise expressly permitted by this Agreement, between the date of this Agreement and the Closing Date, Seller will operate the Purchased Assets consistent in all material respects with past practice, except as otherwise provided in this Agreement. 5.5 REQUIRED APPROVALS AND CONSENTS. As promptly as practicable after the date of this Agreement, Seller will make all filings required by Legal Requirements to be made by it in 10 18 order to consummate the Contemplated Transactions and use its Best Efforts to obtain such of the Consents identified in Section 3.2(c) for the transfer of the Purchased Assets. 5.6 NOTIFICATION. Between the date of this Agreement and the Closing Date, Seller will promptly notify Buyer in writing if Seller become aware of any fact or condition that causes or constitutes a material breach of any of Seller's representations and warranties as of the date of this Agreement, or if Seller become aware of the occurrence after the date of this Agreement and before the Closing Date of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a material breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. During the same period, Seller will promptly notify Buyer of the occurrence of any material breach of any covenant of Seller in this Section 5 or of the occurrence of any event that may make the satisfaction of the conditions in Section 7 impossible or unlikely. 5.7 NO NEGOTIATION. Until such time, if any, as this Agreement is terminated pursuant to Section 9, neither Seller nor any Affiliate will, nor will it permit its Representatives to, directly or indirectly solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or consider the merits of any unsolicited inquiries or proposals from, any Person (other than Buyer or its Representatives) relating to or affecting any transaction involving the sale of the Purchased Assets. 5.8 TAX CLEARANCE. Seller shall use its Best Efforts to obtain all certificates of clearances for Taxes ("Tax Clearances"), if any, required by the State of Nevada certifying as to the payment by or on behalf of Seller of all sales and business occupational Taxes due on or prior to a date not more than thirty (30) days after the Closing Date (it being agreed and understood that, notwithstanding the foregoing, if any Tax Clearances are not obtained by such date, Seller shall obtain such Tax Clearances as soon thereafter as reasonably possible and shall be responsible for, and shall discharge in full, all liabilities and obligations therefor). 5.9 RESTRICTIVE COVENANTS. (a) For a period of three (3) years after the date hereof, Seller agrees that, except with the prior written consent of Buyer, Seller will not, either directly or indirectly, on Seller's behalf or in the service or on behalf of others, engage in the business of owning and operating outdoor signs and billboards in the State of Nevada ("Competing Business") and Seller will not become financially interested in a Competing Business (other than as a holder of less than five percent (5%) of the outstanding voting securities of any entity whose voting securities are listed on a national securities exchange or quoted by the National Association of Securities Dealers, Inc. automated quotation system). (b) For a period of three (3) years after the date hereof, Seller agrees not to solicit, or attempt to solicit, directly or indirectly, on Seller's own behalf or in the service or on behalf of others, any business from any customer or actively pursued prospective customer of the Purchased Business with respect to out-of-home advertising in the State of Nevada. 11 19 (c) For a period of three (3) years after the date hereof, Seller agrees not to solicit, or attempt to solicit, directly or indirectly, on Seller's own behalf or in the service or on behalf of others, any Site Lease (including the two Site Leases located in Los Angeles, California) or any other real estate location in the State of Nevada used by the Seller from any land owner (or its or his successors or assigns) who leases to or who was actively pursued by the Seller. (d) Seller agrees that Seller will not for a period of three (3) years after the date hereof, without the prior written consent of Buyer, disclose or divulge to anyone any confidential knowledge or information of any type whatsoever relating to the Purchased Business (including without limitation, the identities of customers of and lessors who lease real property to the Purchased Business), pricing information, financial data or sales or marketing techniques. Seller agrees that trade secrets are protected by law and cannot be disclosed or used at anytime without the prior written consent of Buyer. The provisions of this paragraph shall not apply to information (i) that is publicly available through lawful means or lawfully disclosed from a third party who is not bound by a confidentiality obligation with respect thereto or (ii) that is required to be disclosed by law. The provisions of this paragraph as to trade secrets shall survive the term of this Agreement and remain in effect for so long as the trade secrets remain confidential. 5.10 BEST EFFORTS. Between the date of this Agreement and the Closing Date, Seller will, at Seller's cost, use its Best Efforts to cause the conditions in Section 7 to be satisfied. 6. COVENANTS OF BUYER 6.1 REQUIRED APPROVALS. As promptly as practicable after the date of this Agreement, Buyer will make all filings required by Legal Requirements to be made by it to consummate the Contemplated Transactions. 6.2 BEST EFFORTS. Between the date of this Agreement and the Closing Date, Buyer will, at Buyer's cost, use its Best Efforts to cause the conditions in Section 8 to be satisfied; provided that this Agreement will not require Buyer to dispose of or make any change in any portion of its business or to incur any other burden to obtain a Governmental Authorization. 6.3 IMPRINTS. No later than 150 days after the Closing, Buyer shall remove from all Structures included in the Purchased Assets all imprints used by Seller containing Seller's trade name; provided, however, until the earlier of (i) such removal or (ii) the expiration of such 150-day period, Buyer may display Seller's trade names on such Structures. 6.4 NOTIFICATION. Between the date of this Agreement and the Closing Date, Buyer will promptly notify Seller in writing if Buyer becomes aware of any fact or condition that causes or constitutes a breach of any of Buyer's representations and warranties as of the date of this Agreement, or if Buyer becomes aware of the occurrence after the date of this Agreement and before the Closing Date of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. During the same period, Buyer will promptly notify Seller of the occurrence of any 12 20 breach of any covenant of Buyer in this Section 6 or of the occurrence of any event that may make the satisfaction of the conditions in Section 8 impossible or unlikely. 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE Buyer's obligation to purchase the Purchased Assets and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part): 7.1 ACCURACY OF REPRESENTATIONS. Seller's representations and warranties in this Agreement must have been accurate as of the date of this Agreement, and must be accurate in all material respects as of the Closing Date as if made on the Closing Date and, unless the Contemplated Transactions are consummated simultaneously with the signing of this Agreement, Buyer shall have received a certificate of an executive officer of Seller, dated as of the Closing Date, as to such accuracy. 7.2 SELLER'S PERFORMANCE. The covenants and obligations that Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been performed and complied with in all material respects, and, unless the Contemplated Transactions are consummated simultaneously with the signing of this Agreement, Buyer shall have received a certificate of an executive officer of Seller, dated as of the Closing Date, as to such compliance. 7.3 CONSENTS. Each of the Consents required pursuant to Section 3.2 (c) must have been obtained and must be in full force and effect. 7.4 NON-COMPETITION AGREEMENTS. Seller shall deliver a Non-Competition Agreement executed by each of Jon M. Gunderson and Charles Gunderson. 7.5 ADDITIONAL DOCUMENTS. Each of the following documents must have been delivered to Buyer: (a) an opinion of Fisher & Associates dated the Closing Date, in form and substance reasonably satisfactory to Buyer; (b) the deliveries required from Seller in Section 2.7; and (c) such other documents as Seller is required to deliver pursuant to this Agreement. 7.5 NO PROCEEDINGS. Since the date of this Agreement, there must not have been commenced and pending or Threatened by any Person or any Proceeding (i) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions, (ii) that prevents, makes illegal, or otherwise materially interferes with any of the Contemplated Transactions or seeks to do any of the foregoing, or (iii) that involves any material claim against Seller. 13 21 7.6 NO PROHIBITION. There must not be in effect any Legal Requirement or any injunction or other Order that prohibits or restricts the consummation of the Contemplated Transactions, including, without limitation, HSR Act compliance. 7.7 NO MATERIAL ADVERSE CHANGE. There shall not have been a Material Adverse Change since the date hereof. 7.8 DUE DILIGENCE. Buyer's due diligence investigation and review with respect to the Purchased Assets, the Purchased Business and the Assumed Liabilities shall not reveal any fact or circumstance not disclosed to Seller in the Disclosure Schedule prior to the execution hereof which in Buyer's judgment, exercised in good faith, would cause or be likely to cause a Material Adverse Change to the value of the Purchased Assets. 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE Seller's obligation to sell the Purchased Assets and Seller's obligations to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part): 8.1 ACCURACY OF REPRESENTATIONS. Buyer's representations and warranties in this Agreement must have been accurate as of the date of this Agreement and must be accurate in all material respects as of the Closing Date as if made on the Closing Date, and, unless the Contemplated Transactions are consummated simultaneously with the signing of this Agreement, Seller shall have received a certificate of an executive officer of Buyer, dated as of the Closing Date, as to such accuracy. 8.2 BUYER'S PERFORMANCE. The covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been performed and complied with in all material respects, and, unless the Contemplated Transactions are consummated simultaneously with the signing of this Agreement, Seller shall have received a certificate of an executive officer of Buyer, dated as of the Closing Date, as to such compliance. 8.3 ADDITIONAL DOCUMENTS. Buyer must have caused the following documents to be delivered to Seller: (a) an opinion of Powell, Goldstein, Frazer & Murphy LLP, dated the Closing Date, in form and substance reasonably acceptable to Seller; (b) the deliveries required from Buyer in Section 2.7; and (c) such other documents as Buyer is required to deliver pursuant to this Agreement. 14 22 8.4 NO PROCEEDINGS. Since the date of this Agreement, there must not have been commenced and pending or Threatened any Proceeding (i) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions, or (ii) that prevents, makes illegal, or otherwise materially interferes with any of the Contemplated Transactions or seeks to do any of the foregoing. 8.5 NO PROHIBITION. There must not be in effect any Legal Requirement or any injunction or other Order that prohibits or restricts the consummation of the Contemplated Transactions. 9. TERMINATION 9.1 TERMINATION EVENTS. This Agreement may, by notice given prior to or at the Closing, be terminated: (a) by mutual consent of Buyer and Seller; (b) (i) by Buyer if any of the conditions in Section 7 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date; or (ii) by Seller, if any of the conditions in Section 8 has not been satisfied of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Seller to comply with its obligations under this Agreement) and Seller has not waived such condition on or before the Closing Date; or (c) by Buyer, on the one hand, or Seller, on the other hand, if the Closing has not occurred (other than through the failure of the other Party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before December 31, 1997. 9.2 EFFECT OF TERMINATION. Each Party's right of termination under Section 9.1 is in addition to any other rights it may have under this Agreement. If this Agreement is terminated pursuant to Section 9.1, all further obligations of the Parties under this Agreement will terminate, except that the obligations in Sections 11.1 and 11.2 will survive; provided, however, that if this Agreement is terminated by a Party because of the breach of the Agreement by the other Party or because one or more of the conditions to the terminating Party's obligations under this Agreement is not satisfied as a result of the other Party's failure to comply with its obligations under this Agreement, the terminating Party's right to pursue all legal and equitable remedies, separately or simultaneously, (including specific performance) will survive such termination unimpaired. 15 23 10. INDEMNIFICATION; REMEDIES 10.1 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER. Seller will indemnify, defend, protect and hold harmless Buyer, stockholders, controlling Persons, and Affiliates (collectively, the "Seller Indemnified Persons") for, and will pay to the Seller Indemnified Persons the amount of, any loss, liability, claim, damage, expense (including reasonable costs of investigation and defense and reasonable attorneys' fees), whether or not involving a third-party claim (collectively, "Damages"), arising, directly or indirectly, from or in connection with: (a) any material breach of any representation or warranty made by Seller in this Agreement, the Disclosure Schedule, or any other certificate or document delivered by Seller pursuant to this Agreement; (b) any material breach by Seller of any covenant or obligation of Seller in this Agreement or any certificate or document delivered by Seller pursuant to this Agreement; (c) the failure of Seller to satisfy and discharge any Excluded Liabilities, except only the Assumed Liabilities; and (d) the failure of Seller to comply with bulk sales or other similar laws in any applicable jurisdiction. 10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will indemnify, defend, protect and hold harmless Seller and its stockholders, controlling Persons, and Affiliates (collectively, the "Buyer Indemnified Persons") for, and will pay to the Buyer Indemnified Persons the amount of any Damages arising, directly or indirectly, from or in connection with: (a) any material breach of any representation or warranty made by Buyer in this Agreement or in any certificate or document delivered by Buyer pursuant to this Agreement; and (b) any material breach by Buyer of any covenant or obligation of Buyer in this Agreement; (c) the failure of Buyer to satisfy and discharge the Assumed Liabilities; and (d) the Purchased Assets which relate to acts or omissions occurring from and after the Closing. 10.3 PROCEDURE FOR INDEMNIFICATION - THIRD PARTY CLAIMS. (e) Promptly after receipt by an Indemnified Person under Section 10.1 or 10.2, of notice of any claim against it, such Indemnified Person will, if a claim is to be made against an Indemnifying Party under such Section, give notice to the Indemnifying Party of the commencement of such claim, but the failure to notify the Indemnifying Party will not relieve the 16 24 Indemnifying Party of any liability that it may have to any Indemnified Person, except to the extent that the Indemnifying Party demonstrates that the defense of such action is prejudiced by the Indemnifying Party's failure to give such notice. (f) If any claim referred to in Section 10.3(a) is brought against an Indemnified Person and it gives written notice to the Indemnifying Party of such claim, the Indemnifying Party may, at its option, assume the defense of such claim with counsel satisfactory to the Indemnified Person and, after written notice from the Indemnifying Party to the Indemnified Person of its election to assume the defense of such claim, the Indemnifying Party will not, as long as it diligently conducts such defense, be liable to the Indemnified Person under this Article 10 for any fees of other counsel or any other expenses with respect to the defense of such claim, subsequently incurred by the Indemnified Person in connection with the defense of such claim, other than reasonable costs of investigation. If the Indemnifying Party assumes the defense of a claim, (i) no compromise or settlement of such claims may be effected by the Indemnifying Party without the Indemnified Person's consent unless (A) there is no finding or admission of any violation of Legal Requirements or any violation of the rights of any Person, and (B) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party; and (ii) the Indemnified Person will have no liability with respect to any compromise or settlement of such claims effected without its consent. Subject to Section 10.3(c), if notice is given to an Indemnifying Party of any claim and the Indemnifying Party does not, within twenty days after the Indemnified Person's notice is given, give notice to the Indemnified Person of its election to assume the defense of such claim, the Indemnifying Party will be bound by any determination made in such Proceeding or any compromise or settlement effected by the Indemnified Person. (g) Notwithstanding the foregoing, if an Indemnified Person determines in good faith that there is a reasonable probability that a claim may adversely affect it or its affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnified Person may, by notice to the Indemnifying Party, assume the exclusive right to defend, compromise, or settle such claim, but the Indemnifying Party will not be bound by any determination of a claim so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld). 10.4 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS. A claim for indemnification for any matter not involving a third-party claim shall be asserted by written notice to the Indemnifying Party from whom indemnification is sought. 10.5 SURVIVAL/LIMITATIONS. (a) The parties hereto agree that (i) the covenants and agreements contained in the Agreement and any document delivered pursuant hereto and the representations and warranties contained in Sections 3.1, 3.2(a), 3.3, 3.9(a), 3.11, 3.16, 3.19, 3.21, 4.1, 4.2(a), 4.4 and 4.5 shall survive until 90 days after the expiration of all applicable statutes of limitation with respect to the subject matter thereof, and (ii) all other representations and warranties shall survive until the first anniversary following the Closing Date. 17 25 (b) Seller's obligation to indemnify the Seller Indemnified Persons for Damages pursuant to Section 10.1 is subject to the following limitations: (i) in no event shall such obligations exceed the Purchase Price; and (ii) Seller shall have no such obligation until Buyer has suffered Damages in excess of $250,000 and then only to the extent of the Damages in excess of such amount. 11. GENERAL PROVISIONS 11.1 EXPENSES. Each Party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of agents, representatives, brokers or finders, counsel, and accountants. In any action involving Buyer and Seller arising out of or otherwise relating to this Agreement, the prevailing party shall be entitled to recover from the other party, in addition to damages, injunctive or other relief, if any, all costs and expenses (whether or not allowable as "cost" items by law) reasonably incurred at, before and after trial or on appeal, or in any bankruptcy or arbitration proceeding, including, without limitation, attorneys' and witness (expert and otherwise) fees, deposition costs, copying charges and other expenses. 11.2 HEADINGS; CONSTRUCTION. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 11.3 PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY. Any public announcement or similar publicity with respect to this Agreement or the Contemplated Transactions will be issued, if at all, at such time and in such manner as Buyer and Seller agree in writing, provided that the parties shall reasonably cooperate in such announcements, and provided further that nothing contained herein shall prevent any party from at any time furnishing information required by a Governmental Body. Unless consented to by Buyer and Seller in advance or required by Legal Requirements, prior to the Closing, each Party shall, and shall cause their respective Representatives to, keep this Agreement strictly confidential and may not make any disclosure of this Agreement to any Person. 11.4 AVAILABILITY OF EQUITABLE REMEDIES. The Parties acknowledge and agree that (i) a breach of the provisions of this Agreement could not adequately be compensated by money damages, and (ii) any Party shall be entitled, either before or after the Closing, in addition to any other right or remedy available to it, to an injunction restraining such breach and to specific performance of this Agreement, and no bond or other security shall be required in connection therewith. 11.5 NOTICES. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written confirmation of 18 26 receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a Party may designate by notice to the other Parties): If to Seller, to: Outdoor Media Group, Inc. 26525 Jefferson Avenue Murrieta, California 92562 Attention: Mr. Jon M. Gunderson, President Telephone No.: (909) 667-2121 Facsimile No.: (909) 667-9194 With a copy to: Fisher & Associates 3501 Jamboree Road North Tower, Sixth Floor Newport Beach, California 92660-2960 Attention: Paul E. Fisher, Esq. Telephone No.: (714) 737-2800 Facsimile No.: (714) 737-2805 If to Buyer, to: Outdoor Systems, Inc. 2502 North Black Canyon Highway Phoenix, Arizona 85009 Telephone No.: (602) 246-9569 Facsimile No.: (602) 433-2482 Attention: Mr. William S. Levine and Mr. William S. Levine 1702 E. Highland Avenue, Suite 310 Phoenix, Arizona 85016 Telephone No.: (602) 248-8181 Facsimile No.: (602) 248-0884 With a copy to: Powell, Goldstein, Frazer & Murphy LLP 191 Peachtree Street, NE, 16th Floor Atlanta, Georgia 30303 Attention: William B. Shearer, Jr., Esq. Telephone No.: (404) 572-6600 Facsimile No.: (404) 572-6999 19 27 11.6 FURTHER ASSURANCES. The Parties agree (i) to furnish upon request to each other such further information, (ii) to execute and deliver to each other such other documents, and (iii) to do such other acts and things, all as the other Party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement. 11.7 WAIVER. Neither the failure nor any delay by any Party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. 11.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all prior agreements between the Parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the Parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the Party to be charged with the amendment. 11.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. No Party may assign any of its rights under this Agreement without the prior consent of the other Parties except that Buyer may assign any of its rights under this Agreement to any affiliate of Buyer. This Agreement will apply to, be binding in all respects upon, and inure to the benefit of the Parties, and their successors, by liquidation or otherwise, and their permitted assigns. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the Parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. 11.10 ACCOUNTS RECEIVABLE. Buyer agrees to forward to Seller any payments that Buyer may receive with respect to any accounts receivable of Seller relating to the Purchased Assets. 11.11 SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 11.12 RISK OF LOSS. Material risk of loss or damage to the Purchased Assets from any cause whatsoever (except loss or damage caused, in whole or in part, by Buyer) prior to the Closing shall be borne by Seller, and after the Closing shall be borne by Buyer. 11.13 POST-CLOSING ACCESS. Buyer agrees that all Books and Records delivered to Buyer by Seller pursuant to this Agreement shall be maintained open for inspection by Seller at any time during regular business hours upon reasonable notice for a period of two (2) years (or for such longer period as may be required by applicable Legal Requirements) following the Closing and that, during such period, Seller, at its expense, may make such copies thereof as it may reasonably desire. Seller agrees that all books and records relating to the Purchased Assets and retained by Seller shall be maintained open for inspection by Buyer at any time during regular business hours 20 28 for a period of two (2) years (or for such longer period as may be required by applicable Legal Requirements) following the Closing and that, during such period, Buyer, at its expense, may make such copies thereof as it may reasonably desire. Nothing contained in this Section 11.13 shall obligate any Party hereto to make available any books and records if to do so would violate the terms of any Contract or Legal Requirement to which it is a party or to which it or its assets are subject. 11.14 APPLICABLE LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. 11.15 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. 21 29 IN WITNESS WHEREOF, the Parties have executed, sealed and delivered this Agreement as of the date first written above. BUYER: OUTDOOR SYSTEMS, INC. By: /s/ William S. Levine ------------------------------------- Title: Chairman of the Board ---------------------------------- Attest: By: /s/ Bill M. Beverage ---------------------------- Secretary SELLER: OUTDOOR MEDIA GROUP, INC. By: /s/ Jon M. Gunderson ------------------------------------- Title: President ---------------------------------- Attest: By: /s/ Jon M. Gunderson ---------------------------- Secretary 22 30 EXHIBIT A DEFINITIONS "ADVERTISING CONTRACTS" -- as defined in Section 2.2(c). "AFFILIATES" -- when used with reference to a specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Specified Person. For purposes of this definition of Affiliate, "control" means the possession, directly or indirectly, of the power to direct or to cause the direction of management and policies of the Person in question, whether through the ownership of voting securities or by contract or otherwise. "ASSUMED LIABILITIES" -- as defined in Section 2.3. "BEST EFFORTS" -- the commercially reasonable efforts that a prudent Person desirous of achieving a result would use in similar circumstances. "BILL OF SALE" -- the Bill of Sale, Assignment and Assumption Agreement in the form of Exhibit B attached hereto. "BOOKS AND RECORDS" -- All of Seller's books and records relating to the Purchased Assets, including, without limitation, all Site Lease files, Advertising Contract files, Permit files, maintenance and other records for the Structures, logs, advertiser, customer and supplier lists. "BUYER" -- as defined in the first paragraph of this Agreement. "CLOSING" -- as defined in Section 2.5. "CLOSING DATE" -- the date and time as of which the Closing actually takes place. "CLOSING DOCUMENTS" -- as defined in Section 3.2(a). "CONFIDENTIAL INFORMATION" -- any information concerning the businesses and affairs of Seller that is not generally available to the public. "CONSENT" -- any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization). "CONTEMPLATED TRANSACTIONS" -- all of the transactions contemplated by this Agreement, including: (a) the purchase of the Purchased Assets by Buyer from Seller and assignment to and assumption by Buyer of the Assumed Liabilities, and (b) the performance by Buyer and Seller of their respective covenants and obligations under this Agreement. 31 "CONTRACT" -- any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding. "DAMAGES" -- as defined in Section 10.1. "DISCLOSURE SCHEDULE" -- the disclosure schedule, delivered by Seller to Buyer concurrently with the execution and delivery of this Agreement. "DUE DILIGENCE PERIOD" -- as defined in Section 5.2. "ENCUMBRANCE" -- any charge, claim, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, transfer, receipt of income, or exercise of any other attribute of ownership. "ENVIRONMENT" -- soil, land surface or subsurface strata, surface waters, groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource. "ENVIRONMENTAL LAW" -- any Legal Requirement pertaining to environmental discharges, Release, emissions or spills or the manufacture, sale, processing, handling, transportation, storage or disposal of any Hazardous Materials, or relating to any environmental processes or condition, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act ("RCRA"), the Endangered Species Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Hazardous Materials Transportation Act, the Surface Mining Control and Reclamation Act, the Emergency Planning and Community Right to Know Act, the Safe Drinking Water Act, the Toxic Substances Control Act, the Coastal Zone Management Act, the National Environmental Policy Act, the Noise Control Act. As used in this Agreement, Environmental Laws shall mean any of such laws or regulations as the same exist now or at the Closing Date. "EXCLUDED ASSETS" -- as defined in Section 2.2 and in Schedule 2.2(x). "EXCLUDED LIABILITIES" -- as defined in Section 2.4. "GOVERNMENTAL AUTHORIZATION" -- any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. "GOVERNMENTAL BODY" -- any federal, state, local, municipal, foreign, or other government; or governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal). "HAZARDOUS MATERIALS" -- any waste or other substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law, and specifically including petroleum and 32 all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials. "HSR ACT" -- the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any regulations and rules promulgated thereunder. "INDEMNIFIED PERSON" -- any of the Seller Indemnified Persons or the Buyer Indemnified Persons, as the context requires. "INDEMNIFYING PARTY" -- the Buyer or the Seller, as the context requires. "INTANGIBLE PROPERTY" -- All right, title and interest in and to the goodwill and other intangible property (except for Seller's corporate or trade names and trade logos) used exclusively in connection with the Purchased Assets, all licenses, permits and authorizations pertaining to the Purchased Assets or the right to own and operate the Purchased Assets and all right, title and interest in and to (i) any intellectual property used exclusively in connection with the Purchased Assets, and (ii) all records and data relating specifically to the Purchased Assets. "IRC" -- the Internal Revenue Code of 1986, as amended from time to time, or any successor law, and regulations issued by the IRS pursuant to the Internal Revenue Code or any successor law. "IRS" -- the United States Internal Revenue Service and, to the extent relevant, the United States Department of the Treasury. "KNOWLEDGE" -- a Person will be deemed to have "Knowledge" of a particular fact or other matter only if such Person is actually aware of such fact or other matter without making any independent inquiry or investigation. A Person (other than an individual) will be deemed to have "Knowledge" of a particular fact or other matter if any individual who is serving as a director, officer, partner, executor, or trustee of such Person (or in any similar capacity) has Knowledge of such fact or other matter. "LEGAL REQUIREMENT" -- any federal, state, local, municipal, foreign, international, multinational, or other administrative Order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty. "MATERIAL ADVERSE CHANGE" -- a change that will probably cause a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" -- a material adverse effect on the Purchased Business or the Purchased Assets, or operations or conditions (financial or otherwise) relating thereto, taken as a whole. "NON-COMPETITION AGREEMENT" - The Non-Competition Agreement in the form of Exhibit C between Buyer and the individual(s) named therein. 33 "ORDER" -- any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator. "ORDINARY COURSE OF BUSINESS" -- an action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" if such action is consistent with the past custom and practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person (including with respect to quantity and frequency). "ORGANIZATIONAL DOCUMENTS" -- (a) the articles or certificate of incorporation and the bylaws of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (d) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person; and (e) any amendment to any of the foregoing. "OTHER CONTRACT" -- any Contract (other than a Site Lease or Advertising Contract) relating to or affecting the Purchased Assets or the operation thereof (i) under which Seller has any rights as of the Closing, (ii) under which Seller has any obligation or liability as of the Closing, or (iii) by which Seller or any of the Purchased Assets is or may become bound as of the Closing. "PARTY" -- as defined in the first paragraph of this Agreement. "PERMITS" -- as defined in Section 2.2(d). "PERMITTED LIENS" -- liens for taxes not yet delinquent, mechanic's, materialmen's and similar liens which have arisen in the Ordinary Course of Business. "PERSON" -- any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body. "PROCEEDING" -- any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. "PURCHASE PRICE" -- as defined in Section 2.6. "PURCHASED ASSETS" -- as defined in Section 2.2. "RELEASE" -- any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping, or other releasing into the Environment, whether intentional or unintentional. 34 "REPRESENTATIVE" -- with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "SECURITY INTEREST" -- any mortgage, pledge, lien, encumbrance, charge or other security interest or option or right of any third party with respect thereto. "SELLER" -- as defined in the first paragraph of this Agreement. "SITE LEASES" -- as defined in Section 2.2(b). "STRUCTURES" -- as defined in Section 2.2(a). "TAX" -- shall mean all tax (including income tax, capital gains tax, value added tax, sales tax, property tax, transfer tax or intangibles tax), levy assessment, tariff, duty, deficiency or other fee and any related charge or amount (including fine, penalty and interest) imposed, assessed or collected by or under the authority of any Governmental Body. "TAX CLEARANCES" -- as defined in Section 5.9. "TAX RETURN" -- any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "THREATENED" -- a claim, Proceeding or dispute will be deemed to have been "THREATENED" if any demand or statement has been made or any notice has been given that would lead a prudent Person to conclude that such a claim, Proceeding or dispute is likely to be asserted, commenced, taken, or otherwise pursued in the future. 35 SCHEDULE 2.2(x) The sale of the Purchased Assets from Seller to Buyer pursuant to this Agreement includes only the Purchased Assets and does not include the Excluded Assets. The Excluded Assets include all assets, whether tangible or intangible, of Seller except for the Purchased Assets, including, without limitation, all structures, site leases, real property, contracts, permits, accounts receivable and prepaid expenses of all types, books and records, tangible personal property (including, without limitation, vehicles, stationery, supplies and telephone numbers), intangible property (including, without limitation, goodwill and the trade name "Outdoor Media Group") and all other rights of Seller not comprising the Purchased Assets. EX-21.1 6 EX-21.1 1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT
JURISDICTION OF INCORPORATION NAME OF SUBSIDIARY OR ORGANIZATION ------------------ ---------------- Outdoor Systems Painting, Inc............................... Arizona OS Baseline, Inc............................................ Arizona OS Advertising of Texas Painting, Inc....................... Texas Decade Communications Group, Inc............................ Colorado Bench Advertising Company of Colorado, Inc.................. Colorado New York Subways Advertising Co., Inc....................... Arizona Mediacom Inc................................................ Canada Salm Enterprises, Inc. ..................................... California OS Bus, Inc. ............................................... Georgia Outdoor Systems (New York), Inc. ........................... New York National Advertising Company................................ Delaware Pacific Connection, Inc. ................................... Delaware Atlanta Bus Shelters........................................ Georgia
EX-23.1 7 EX-23.1 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-05679, Registration Statement No. 333-38589 and Registration Statement No. 333-38591 of Outdoor Systems, Inc. on Form S-8 of our reports dated February 3, 1998, except for the last paragraph of Note 9, for which the date is March 17, 1998, appearing in this Annual Report on Form 10-K of Outdoor Systems, Inc. for the year ended December 31, 1997. DELOITTE & TOUCHE LLP Phoenix, Arizona March 19, 1998 EX-27 8 EX-27
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 5,897 0 119,745 0 0 176,901 1,598,011 0 2,229,157 115,672 0 0 0 1,211 0 2,229,157 0 471,004 0 0 341,065 0 87,150 40,696 18,485 22,211 0 (6,773) 0 15,438 0 .13
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