-----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, GbrQB5Us6wsApemkgM9ocnO5/6Ji2nsml5y3V6hsWYFYYs4tQ4EMRojS4lPa9k0d ENnSfC2G84rpHEF1SiLeRA== 0000950123-99-002904.txt : 19990413 0000950123-99-002904.hdr.sgml : 19990413 ACCESSION NUMBER: 0000950123-99-002904 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 DATE AS OF CHANGE: 19990412 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRI STATE OUTDOOR MEDIA GROUP INC CENTRAL INDEX KEY: 0001065983 STANDARD INDUSTRIAL CLASSIFICATION: 7310 IRS NUMBER: 481061763 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-59137 FILM NUMBER: 99583834 BUSINESS ADDRESS: STREET 1: PO BOX 1247 CITY: TIFTON STATE: GA ZIP: 31794 BUSINESS PHONE: 8008351188 MAIL ADDRESS: STREET 1: PO BOX 1247 CITY: TIFTON STATE: GA ZIP: 31794 10-K 1 TRI-STATE OUTDOOR MEDIA GROUP, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (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, 1998 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 333-59137 TRI-STATE OUTDOOR MEDIA GROUP, INC. (Exact name of registrant as specified in its charter) Kansas 481061763 (State or other jurisdiction I.R.S. Employer Identification No.) of incorporation or organization 3416 Highway 41 South, Tifton Georgia 31793 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (800) 732-8261 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934: 2 Title of Each Class 11% Senior Notes Due 2008 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. Yes |X| No |_| The aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 31, 1999: $0. The number of shares of the registrant's Common Stock outstanding as of March 31, 1999: 200 shares. 3 1998 Annual Report on Form 10-K TABLE OF CONTENTS PAGE ---- PART I Item 1 Business ......................................................... 1 General Development of Business .................................. 1 Business Strategy ................................................ 3 Inventory ........................................................ 4 Markets .......................................................... 6 Customers ........................................................ 6 Contracts ........................................................ 7 Local Market Operations .......................................... 8 Production ....................................................... 8 Competition Government Regulations ............................... 10 Employees ........................................................ 11 Item 2 Properties ....................................................... 12 Item 3 Legal Proceedings ................................................ 12 Item 4 Submission of Matters to a Vote of Security Holders .............. 12 PART II Item 5 Market for Registrant's Common Stock and Related Security Holder Matters ....................................... 13 Item 6 Selected Financial Data .......................................... 13 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations ........................... 16 Item 7A Quantitative and Qualitative Disclosures About Market Risk ....... 27 Item 8 Financial Statements ............................................. 28 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................... 28 PART III Item 10 Directors and Executive Officers of the Registrant ............... 28 Item 11 Executive Compensation ........................................... 29 Item 12 Security Ownership of Certain Beneficial Owners and Management ... 30 Item 13 Certain Relationships and Related Transactions ................... 32 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K .. 33 4 NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K of Tri-State Outdoor Media Group, Inc. ("Tri-State" or the "Company") contains forward-looking statements concerning, among other things, the Company's expected future revenues, operations and expenditures, competitors or potential competitors, acquisition activity, and the regulation of the outdoor advertising industry. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intent," "may," "plan," "predict," "project," "will" and similar terms and phases, including references to assumptions. These statements are contained in each Part of this Annual Report and in the documents incorporated by reference herein. These forward-looking statements represent the expectations of the Company's management as of the filing date of this Form 10-K. The Company's actual results could differ materially from those anticipated by the forward- looking statements due to a number of factors, including (i) risks and uncertainties relating to leverage; (ii) the need for additional funds; (iii) the integration of companies acquired by the Company and the Company's ability to recognize cost savings or operating efficiencies as a result of such acquisitions; (iv) the continued popularity of outdoor advertising as an advertising medium; (v) the regulation of the outdoor advertising industry and (vi) the risks and uncertainties described under the caption "Factors Affecting Future Operating Results" under Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations. PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS The Company is a leading highway directional outdoor advertising company. As of December 31, 1998, the Company operated 12,437 outdoor advertising displays, including 10,481 bulletins and 1,956 posters, in 29 states in the southern, eastern and central United States. Essentially all of the Company's billboards are located outside urban areas. The Company offers a full line of outdoor advertising services to its customers, including creative design, production, installation and maintenance of advertising displays. In 1998, over 95% of the Company's net revenues was generated by local businesses, including local franchisees of national chains, with no one customer accounting for as much as 2% of its net revenues. Highway directional billboards are usually located along interstate highways and primary and secondary roads and are used by local businesses to alert and direct motorists to the advertiser's place of business. Many of the Company's principal customers, which include motels and hotels, restaurants and gasoline retailers, depend on strategically located billboards as the only effective, cost-efficient means to reach their target customers. As a result, these advertisers will usually purchase a billboard display under long-term contracts and leave the original advertising copy in place for the duration of the contract. As of December 31, 1998, over 86% of the Company's bulletin advertising contracts had an original term of at least 18 months and 65% had an original term of at least 36 months. The Company believes that its large number of long-term contracts has generated more stable and predictable revenues, has reduced production, installation and maintenance costs and has leveraged its sales force, resulting in higher cash flow margins. Since 1993, the Company has continued to pursue an aggressive acquisition strategy, completing over 27 asset acquisitions. During this period, the Company completed both "new market" and "fill-in" acquisitions. New 5 market acquisitions are acquisitions of outdoor advertising assets not contiguous to the Company's existing markets. Fill-in acquisitions are generally acquisitions in or adjacent to the Company's existing markets that involve the purchase of outdoor advertising displays only, resulting in the elimination of virtually all personnel and related costs of the acquired businesses. On June 12, 1997, the Company acquired substantially all of the assets of Tri-State Systems, Inc. ("TSS") for a total acquisition cost of $32.0 million. In this new market acquisition, 1,838 display faces in Georgia, Alabama, Florida, Kentucky, Mississippi, South Carolina and Tennessee were acquired. During 1998, the Company completed 2 significant acquisitions: o Unisign Acquisition. On March 2, 1998, the Company acquired substantially all of the outdoor advertising assets of Unisign Corporation, Inc. and assumed certain capitalized leases for a total acquisition cost of $22.0 million. As a result of this new market acquisition, 1,421 display faces in Kentucky, West Virginia and Ohio were added to the Company's portfolio. o Western Acquisition. On September 18, 1998, the Company acquired substantially all of the outdoor advertising assets of Western Outdoor Advertising Co. for a total acquisition cost of $ 26.8 million. In this fill-in acquisition, the Company acquired 2,439 display faces in 19 states concentrated in Iowa, Texas, Nebraska, Missouri, Oklahoma and Kansas. The Company had existing operations in 11 of the 19 states served by Western. In addition to the 2 significant acquisitions discussed above, in 1998 the Company completed several smaller fill-in acquisitions totaling more than $5.3 million in total purchase price whereby the Company added 421 display faces to its inventory. Those in excess of $1 million are listed below.
Purchase Company Type Month Acquired Price States ------- ---- -------------- ----- ------ (dollars in thousands) John R. Leslie (trading as Leslie Fill-in July 1998 $3,006 GA Outdoor Advertising) Boone Company, Inc. Fill-in July 1998 $1,200 GA
On May 20, 1998, the Company sold $100,000,000 of 11% Senior Notes due 2008 ("Senior Notes") in a Rule 144A private placement (the "Note Offering"). The Company used a total of $67.4 million of the net proceeds to repay all borrowings under the Company's then existing senior bank credit facility and a bridge note facility. The Company originally incurred these borrowings in large part to finance the TSS and Unisign acquisitions. On November 5, 1998, the Company made a registered exchange offer ("Exchange Offer") to holders of the Senior Notes sold in the Note Offering for notes having the same terms (the "Exchange Notes"). The Exchange Offer was completed on December 8, 1998. On September 18, 1998, the Company entered into a new $19.25 million senior secured credit facility with First National Bank of Chicago ("First Chicago"). The Company used $16.0 million under the credit facility and a portion of the remaining proceeds from the Note Offering to finance the acquisition of Western. On March 1, 2 6 1999, the Company's credit facility with First Chicago was amended to revise certain payment dates and amounts, financial reporting requirements, restrictions on sale and leaseback transactions, and financial covenants. During 1998, the Company also acquired certain assets of three small outdoor companies for the aggregate purchase price of $1.1 million. Business Strategy The Company's strategy is to be a leading provider of highway directional outdoor advertising to local advertisers in non-urban markets. The Company entered this segment of the outdoor advertising business because it believes that non-urban businesses have been under-served by the major outdoor advertising companies. The Company's success depends upon its ability to implement the following key elements of its strategy: o Maximize Revenues through Rate and Occupancy Management. The Company's lease expense, which is the rent paid to land owners on which the Company's billboards are located, is generally lower for non-urban highway directional billboards. For this reason, when the Company seeks advertisers for its billboards, it can often refuse to reduce advertising rates to keep the billboards in use. The Company believes that by maintaining its advertising rates, it can maximize its revenues over the longer term. o Emphasize 36-Month Advertising Contracts. The Company believes that its large number of long-term contracts has generated more stable and predictable revenues, has reduced production, installation and maintenance costs and leveraged its sales force, resulting in higher cash flow margins. o Pursue Growth through Acquisitions. The Company believes that the non-urban highway directional market remains highly fragmented, providing numerous attractive acquisition opportunities. The Company believes that it can more easily identify, acquire and successfully integrate fill-in acquisitions because it is typically a major provider of outdoor advertising services in the areas in which it operates. With the addition of new market acquisitions, the Company's potential to identify and acquire new fill-in acquisitions increases as its area of coverage expands. o Capitalize on New Build Opportunities. The Company believes that the economics of building new advertising structures and faces compare favorably with the economics of purchasing structures through fill-in acquisitions. To develop new build opportunities, the Company actively monitors changes in local zoning restrictions and the availability of new land lease sites in each of its existing markets. Non-rural areas generally offer greater new build opportunities due to the higher rates of new development and changes in local zoning. o Control Costs and Quality through Centralization of Production and Vertical Integration. The Company seeks to control production costs and maintain consistent, high quality production standards by centralizing and vertically integrating essentially all of its production services related to billboards leased under 36-month contracts, thereby reducing its use of outside contractors. The Company also uses Scotchlite, a highly reflective and long-lasting vinyl on many of its rural billboards leased under long-term contracts which eliminates the need for electric lighting and reduces maintenance on these billboards. Approximately 26% of the Company's bulletins in service at December 31, 1998 used Scotchlite on the advertising copy. 3 7 Inventory The Company differentiates its inventory by the type of material used on its display faces. o The Company's bulletins range in size from 4 feet high by 6 feet wide to 20 feet high by 80 feet wide, with the majority ranging from 12 feet high by 24 feet wide to 10 feet high by 32 feet wide. To better serve its customers on a localized basis, the Company may customize the size and pricing of its bulletins to meet their budgets. As a result, many of the Company's bulletins are smaller than the standard-sized bulletins offered by its competitors, most of which are 10 1/2feet high by 36 feet wide or 14 feet high by 48 feet wide. At December 31, 1998, approximately 65% of the Company's bulletin advertising contracts provided for bulletins made from Scotchlite or non-reflective self-adhesive vinyl attached to pre-painted plywood panels. Substantially all of this vinyl advertising copy is produced at the Company's Tifton, Georgia-facility and shipped to the site. These vinyl display faces generally last between three and five years without replacement. Most of the Company's remaining billboards are hand-painted, in most cases by outside contractors either at the Company's divisional facilities or on-site. Hand-painted signs generally last between 12 and 18 months. A small number of the Company's bulletins are made from computer-generated graphics on a single sheet of vinyl that is wrapped around the billboard structure. These single sheet vinyl faces are produced by outside contractors and are usually sold under shorter-term contracts. Because of their greater impact and higher cost, bulletins are usually located on major highways. o 30-Sheet Posters, the most common type of billboard in the outdoor advertising industry, are 12 feet high by 25 feet wide. Advertising copy for 30-sheet posters usually consists of lithographed or silk-screened paper sheets that are pasted and applied like wallpaper to the face of the display. All of the lithographed and silk-screened paper sheets are prepared by outside parties, but in most cases are installed on billboards by the Company's divisional personnel. Thirty-sheet posters are primarily located on major traffic arteries. All display faces originally constructed by the Company as 30-sheet posters are generally maintained as such. If a bulletin display face is unoccupied, the Company may sell it as one or two poster displays on a short-term basis, pending the procurement of a long-term contract. o Junior (8-Sheet) Posters are 6 feet wide by 12 feet. Displays are typically prepared and mounted in the same manner as 30-sheet posters. The Company generally seeks to resell its 8-sheet posters as bulletins as soon as it procures a long-term contract for the space. Display faces generally are mounted on structures owned by the Company and located on sites that are leased. The Company also owns a small number of its sites. Billboard structures are made of wood, steel and other durable materials built to withstand variable climates, have long useful lives and do not require substantial maintenance. Virtually all of the Company's new billboard structures are made of steel. The Company expects its billboard structures to last at least 20 years without significant refurbishment. 4 8 The following tables sets forth certain information on the Company's operations in each of the states in its market areas.
As of December 31, 1998 30-Sheet 8-Sheet Junior State Display Faces Bulletins (1) Posters (1) Posters (1) - - ----- ------------- ------------- ----------- ----------- Georgia 1,849 1,809 40 0 Missouri 1,188 1,188 0 0 Kentucky 1,219 789 430 0 Oklahoma 1,064 1,064 0 0 Minnesota 942 486 456 0 Pennsylvania 731 480 251 0 Texas 721 721 0 0 New York 686 514 172 0 Iowa 685 685 0 0 Arkansas 675 675 0 0 South Carolina 669 285 0 384 Kansas 440 440 0 0 Nebraska 390 390 0 0 North Carolina 307 177 0 130 Florida 216 216 0 0 Alabama 173 173 0 0 West Virginia 153 116 37 0 Tennessee 90 90 0 0 Ohio 68 16 52 0 Illinois 61 61 0 0 South Dakota 37 37 0 0 Louisiana 35 35 0 0 Indiana 12 8 4 0 Other 26 26 0 0 ------ ------ ------ ------ Total: 12,437 10,481 1,442 514
(1) Each display face, including an unoccupied display face, is classified either as a bulletin or poster based on the last sale to an advertiser. Markets The Company operates through five divisions covering particular geographic regions. Certain of the Company's divisions operate in the same states but their coverage areas do not overlap. The following is a summary of the markets and plants associated with each division as of December 31, 1998. Southeast Division. The Southeast Division, based in Tifton, Georgia provides outdoor advertising services primarily in Georgia, Florida, North Carolina, South Carolina and Alabama. As of December 31, 1998, the 5 9 Southeast Division operated 2,704 bulletins with the majority varying in size from 10 1/2 feet by 36 feet to 14 feet by 48 feet, except in North Carolina and South Carolina where the typical size is 6 feet by 12 feet, and 554 posters, including 514 8-sheet posters. Midwest Division. The Midwest Division, based in Baxter Springs, Kansas, currently provides outdoor advertising services primarily in Arkansas, Kansas, Louisiana, Missouri, Oklahoma and Texas. As of December 31, 1998, the Midwest Division consisted of 3,555 bulletins varying in size from 8 feet by 20 feet to 14 feet by 48 feet. Northcentral Division. The Northcentral Division, based in Rochester, Minnesota, currently provides outdoor advertising services primarily in southern Minnesota (including Rochester), Iowa, Nebraska and South Dakota. As of December 31, 1998, the Northcentral Division operated 2,191 bulletins, varying in size with the majority being 12 feet by 50 feet, and 456 posters including 35 8-sheet posters. Mid-Atlantic Division. The Mid-Atlantic Division, based in Ivel, Kentucky, primarily consists of the business acquired in the Unisign acquisition on March 2, 1998 and provides outdoor advertising services primarily in West Virginia, eastern Kentucky, Tennessee, Illinois and southern Ohio. As of December 31, 1998, the Mid-Atlantic Division operated 1,040 bulletins, with the majority varying in size from 12 feet high by 24 feet wide to 20 feet high by 60 feet wide and 469 30-sheet posters. Northeast Division. The Northeast Division, based in Jamestown, New York, provides outdoor advertising services in western New York, northwestern Pennsylvania and Youngstown, Ohio. As of December 31, 1998, the Northeast Division operated 991 bulletins, with the majority varying in size from 6 feet wide by 12 feet high to 14 feet high by 48 feet wide, and 477 posters including 39 8-sheet posters. Customers For the year ended December 31, 1998, over 95% of the Company's net revenues were generated by local business, including local franchisees of national chains. The Company believes that its customer base of local advertisers offers several advantages over a more national customer base. In the case of local advertisers, the Company is more likely to deal directly with the customer without an advertising agency acting as an intermediary. The Company is also more likely to develop a long-term working relationship with a local advertiser which the Company believes gives it greater influence over the advertiser's purchasing decisions and helps it obtain contract renewals from the advertiser. Tobacco revenues have historically accounted for a significantly lower portion of the Company's outdoor advertising revenues than for the outdoor advertising industry as a whole. Tobacco advertisers have typically accounted for less than 2% of the Company's annual net revenues compared with an estimated 7% for the outdoor advertising industry as a whole in 1998, as reported by Competitive Media Reporting and Publishers Information Bureau Inc. Thus, the reduction by tobacco companies in their expenditures for outdoor advertising has had a less dramatic effect on the Company's inventories than on the outdoor advertising industry as a whole. See "Governmental Regulation". The Company's customers are engaged in a wide range of businesses, as shown in the following table which sets forth an estimated breakdown of the businesses in which the Company's customers were engaged for the year ended December 31, 1998. 6 10
Percentage of Net Revenues for Year Ended December 31, 1998 Hotels and Motels ............................................. 25.2% Restaurants ................................................... 22.5% Retail ........................................................ 12.4% Automotive .................................................... 10.4% Gasoline Retailers and Other Services ......................... 8.3% Entertainment/Sports .......................................... 3.2% Hospitals ..................................................... 2.9% Financial Institutions .................................................. 2.1% Tobacco ....................................................... 0.2% All other ..................................................... 12.8% ----- Total .................................................... 100% -----
Contracts The Company emphasizes the use of advertising contracts with a term of 36 months. The Company believes that such contracts provide considerable stability with respect to both occupancy and advertising rates. Long-term contracts increase the predictability of net revenues and allow sales personnel time to devote greater attention to servicing their accounts and generating new customers. The Company believes that once its customers enter into 36-month contracts they tend to view their outdoor advertising expenses as a routine cost of doing business. As a result, the Company believes that such customers are more likely to renew their contracts. To encourage customers to sign 36-month contracts, the Company charges advertisers a lower monthly rate for 36-month contracts than that for shorter-term contracts. The Company also provides incentives to its sales force to sell longer-term contracts by currently paying commissions applicable to revenues for the entire term of the advertising contract. As of December 31, 1998, the future contract revenues associated with occupied bulletins was $29.3 million, of which $16.2 million is expected to be billed in 1999. Since posters are sold under short-term contracts, net revenues from poster contracts are not included in future contract revenue amounts. Local Market Operations The Company conducts its sales, marketing and site leasing operations through its five regional division offices, consistent with management's belief that decentralization of these operations is most responsive to local market demands while providing greater incentive to its regional employees. Each division has a general manager who oversees regional leasing and creative design and a sales manager. In addition, each division has limited facilities for the production of outdoor advertising. (See"--Production"). Management believes that by relying on regional personnel to study and assess local market conditions and to procure new site leases, it is better able to respond to changes in advertiser demand. 7 11 The decentralized approach is complemented by the Company's centralized administration and oversight that includes direct management of each division's sales, accounting and strategic planning. Division general managers report directly to the President. Division sales managers report directly to the Director of Marketing. Management encourages its sales force to maintain a hands-on approach to marketing within their local business communities. This mandates substantial customer and business contact, evaluation of sites and potential site locations, and an understanding of the prevailing business community. Since most small communities lack exposure to sophisticated advertising agencies, the Company satisfies this need with its design and production staff. Production The Company has internal production facilities and staff to perform a full range of activities required to construct and install outdoor advertising structures and display faces, to develop, create and install outdoor advertising and to maintain its outdoor advertising properties. Production work for display faces includes creating the advertising copy design and layout, painting the design or coordinating its printing, and installing the designs on display faces. The Company produces substantially all advertising on its bulletin display faces, especially since local advertisers generally are not represented by advertising agencies. The Company's bulletin display faces are panels to which advertising copy is attached. Bulletin display faces will be one of three types depending upon the length of the advertising contract: self-adhesive vinyl, hand-painted or vinyl wrap. Self-adhesive vinyl bulletins consist of vinyl letters and other advertising copy that contain an adhesive backing placed on pre-painted, roller-coated plywood sheets that are hung on the outdoor advertising structure. Where no illumination source exists on a structure, the self-adhesive vinyl copy may be coated with Scotchlite, which causes the advertising copy to be illuminated brightly by the headlights of passing vehicles. Self-adhesive vinyl bulletins are generally sold under contracts with a term of at least 36 months. Hand-painted bulletins contain advertising copy hand-painted on plywood sheets by an outside contractor either on-site or in-house at a Company facility. Hand-painted bulletins are generally sold under contracts with a term of 12 to 18 months. Vinyl wraps consist of vinyl sheets painted with computer-generated graphics or hand painted copy that is wrapped around rectangular plywood sheets attached to the outdoor advertising structure. Vinyl wraps are produced by outside contractors and are sold under short-term contracts. The Company also utilizes poster faces which are lithographed or silk-screened paper sheets produced by outside contractors pasted to the display face. The Company has facilities for the construction of new outdoor advertising structures in Baxter Springs, Kansas and Tifton, Georgia. During 1998, the Company phased out the production of display faces at the Baxter Springs, Kansas facility and consolidated its production facilities in Tifton, Georgia. The Company's new billboard structures have generally been constructed by outside contractors; however, the Company has increased its capability to build these structures by adding construction personnel at its Tifton facility. 8 12 The Company believes it has adequate capacity to meet the needs of its advertising production. Competition In most cases, the Company is a leading provider of outdoor advertising in the areas in which it operates. Most of the Company's customers are local businesses purchasing highway directional billboards under long-term contracts. The Company competes for these customers primarily with other outdoor advertising companies in the area, highway logo sign operators and companies that install commercial signs on an advertiser's property. To a lesser extent, the Company also competes with a number of other local competitors, including local newspapers, direct mail and other print media, as well as radio and television, especially in cases where the local advertiser seeks to attract local residents to its business. In competing for local highway directional advertisers, price, location and availability are important factors, as are service and customer relationships. The Company competes for non-highway directional customers principally through the sale of space on its posters. The Company competes for these customers against a full range of competitors, primarily including other outdoor advertisers, print media, radio and television, as well as a variety of other "out-of-home" media, including advertising in shopping centers and malls, airports, stadiums, movie theaters, supermarkets and buses. Advertisers compare relative costs of available media and cost-per-thousand impressions, particularly when delivering a message to customers from particular geographic areas. In competing with other media, outdoor advertising relies on its low cost-per-thousand impressions and its ability to target a particular geographic area. The outdoor advertising industry is highly fragmented, consisting of several large outdoor advertising and media companies with operations in multiple markets as well as small local companies operating a limited number of structures in a single or a few local markets. In several of its markets, the Company encounters direct competition from other major outdoor media companies, including Outdoor Systems, Inc., Chancellor Media Corp. and Lamar Advertising Co., each of which has a larger national network and greater resources than the Company. The Company believes that its emphasis on local highway directional advertisers and its position as a major provider of advertising services in each of the areas in which it operates enable it to compete effectively with the other outdoor media operators, as well as other media. The Company also competes with other outdoor advertising companies for sites on which to build new structures. Government Regulations The outdoor advertising industry is subject to governmental regulation at the federal, state and local levels. Federal law, principally the Highway Beautification Act, encourages states, by the threat of withholding federal appropriations for the construction and improvement of highways within such states, to implement legislation to restrict billboards located within 660 feet of, or visible from, interstate and primary highways except in commercial or industrial areas. The Highway Beautification Act, and the various state statutes implementing it, require the payment of just compensation whenever government authorities require legally erected and maintained billboards to be removed from federally-aided highways. All the states in which the Company operates require the owner of a billboard to obtain a state or local permit before erecting the structure. All the states have implemented regulations at least as restrictive as the Highway Beautification Act, including limitations on the construction of new billboards adjacent to federally-aided highways and the removal at the owner's expense and without any compensation of any illegal signs on such highways. In addition, a number of states and localities, including all the principal states in which the Company 9 13 operates, have passed additional and more restrictive regulations, often in the form of municipal building, sign or zoning ordinances, on the construction, repair, upgrading, height, lighting, size and location of, and, in some instances, content of, advertising copy being displayed on outdoor advertising structures adjacent to federally-aided highways and other thoroughfares. For instance, Maine, Vermont, Hawaii and Alaska ban billboards on a state-wide basis. Common restrictions in the states in which the Company operates generally include requirements that billboards be at least 500 feet apart. Most outdoor advertisers, including the Company, operate a significant number of billboards that do not conform with current state or local regulations governing the height, size or location of billboards. A non-conforming billboard is one that was lawfully erected; but due to either a change in zoning laws or the enactment of zoning laws where none previously existed, the billboard is no longer in compliance. However, the owner of a non-conforming billboard is still legally permitted to own, operate and maintain the billboard for the rest of its life. Typically, most laws provide that in the event a non-conforming billboard is damaged, including damage caused by natural events such as tornados or hurricanes, the owner is not permitted to repair the structure if either the cost of doing so exceeds 50% of the cost of building a new billboard structure or the physical damage to the structure exceeds 50% of the structure. In recent years, the number of non-conforming billboards lost by the Company in this fashion has been nominal. An outdoor advertising company that holds a permit for a non-conforming structure has the exclusive right to maintain and operate that structure, and is free to transfer the permit to another owner. From time to time governmental authorities order the removal of billboards by the exercise of eminent domain. Thus far, the Company has been able to obtain satisfactory compensation for its structures removed at the direction of governmental authorities, although there is no assurance that it will be able to continue to do so in the future. In various jurisdictions and more typically in some urban metropolitan areas, ordinances authorizing the amortization of billboards have been adopted. Amortization permits the billboard owner to operate its billboard as a non-conforming use for a specified period of time until it has recouped its investment, after which it must remove or otherwise conform its billboard to the applicable regulations at its own cost without any compensation. Amortization and other regulations requiring the removal of billboards without compensation have been subject to vigorous litigation in state and federal courts and courts have reached differing conclusions as to the constitutionality of these regulations. Currently, none of the Company's existing inventory is subject to any amortization ordinance. In November 1998, 46 states and five territories agreed to accept a $206 billion settlement with the tobacco industry over public health costs connected with smoking. In this settlement tobacco companies, including Philip Morris Co., R.J. Reynolds Tobacco Co., a unit of RJR Nabisco Holdings Corp., Brown & Williamson Tobacco Corp., a unit of London-based British American Tobacco PLC and Lorillard Inc., a unit of Loews Corp and the Liggett Group unit of Brooke Group Ltd., agreed to restrictions on tobacco advertising and promotions among other provisions. In addition, the states of Mississippi, Florida, Texas and Minnesota previously entered into separate settlements of litigation with the tobacco industry. None of these settlements is conditioned on federal government approval and each bans all outdoor advertising of tobacco products by the tobacco companies. According to the Outdoor Advertising Association of America, Inc. ("OAAA"), tobacco product advertising accounted for approximately 7.0% of all outdoor billboard advertising revenues for 1998, compared to 7.3% for 1997, 8.0% for 1996 and 8.3% for 1995. The Company's tobacco advertising revenues for 1998 were less than 0.5% of its net annual advertising revenues. The pending elimination of billboard 10 14 advertising by the tobacco industry due to the settlements will immediately increase the available space on the existing inventory of billboards in the outdoor advertising industry. This could in turn result in a lowering of rates throughout the outdoor advertising industry or limit the ability of industry participants to increase rates for some period of time. If the industry is unable to replace the lost revenues from the elimination of outdoor advertising of tobacco products, the change could have a material adverse effect on the Company by forcing it to lower advertising rates or by inhibiting the Company from increasing advertising rates as a result of increased competition. See "Management's Discussion and Analysis". As a result of the pending elimination of outdoor advertising of tobacco products, the Company may suffer reduced revenues due to an anticipated surplus of inventory and price competition. See "Factors Affecting Future Operating Results". The outdoor advertising industry is heavily regulated and, at various times and in various markets, the Company can expect to be subject to varying degrees of regulatory pressure affecting the operation of advertising displays. Accordingly, although the Company's experience to date is that the regulatory environment has not adversely impacted the Company's business, no assurance can be given that existing or future laws or regulations will not materially adversely affect the Company at some time in the future. Employees At December 31, 1998, the Company employed 171 people, of whom 57 people were primarily engaged in sales and marketing, 84 people were engaged in painting, bill posting and construction and maintenance of displays, and the balance were employed in executive, financial, administrative and similar capacities. The Company is not a party to any collective bargaining agreement. ITEM 2. PROPERTIES The Company conducts its operations at the facilities set forth below: Square Leased/ Location Use Footage Owned - - -------- --- ------- ----- Tifton, Georgia Office; billboard structure 45,000 Owned construction; full display face production Baxter Springs, Kansas Office; billboard structure 14,000 Owned construction; limited display face production Jamestown, New York Office; limited display face 5,000 Leased production Rochester, Minnesota Office; limited display face 8,000 Leased production Ivel, Kentucky Office; limited display face 5,000 Leased production 11 15 As part of the Western acquisition, the Company also acquired Western's headquarters in Omaha, Nebraska, which Western initially used for offices and production of display faces. The Company subsequently sold the Omaha property on March 23, 1999. In addition, as of December 31, 1998, the Company owned 31 parcels of real property that serve or may serve as the sites for outdoor displays. The Company's remaining 8,894 advertising display sites are leased. The Company's site leases are for varying terms ranging from month-to-month, year-to-year or longer, and many provide for renewal options. Approximately 31% of these leases will expire prior to the end of 1999. Historically, the Company has had no difficulty renewing these leases. There is no significant concentration of displays under any one lease or subject to negotiation with any one landlord. The Company believes that an important part of its management activity is to manage its lease portfolio and negotiate suitable lease renewals and extensions. Through the use of double-sided structures and multiple displays on individual structures or individual sites, the Company averages approximately 1.5 display faces for every site it owns or leases. ITEM 3. LEGAL PROCEEDINGS The Company is involved in litigation from time to time in the ordinary course of business, including disputes involving advertising contracts, site leases, employment claims and construction matters. The Company is also involved in routine administrative and judicial proceedings regarding billboard permits, fees and compensation for condemnations. The Company is not a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on the Company. 12 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS In May 1998, the Company issued the Senior Notes. The Company believes the sale of the Senior Notes qualified as a transaction by an issuer not involving a public offering within the meaning of Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), based on the manner of offering (a negotiated sale to a limited number of "qualified institutional buyers" as defined in Rule 501 under the Securities Act) and a buyer's financial status, investment experience and investment intent, as represented to the Company. On December 8, 1998, the Company completed the Exchange Offer of Senior Notes for a like amount of Exchange Notes which have been registered under the Securities Act pursuant to a registration statement (the Senior Notes together with the Exchange Notes are collectively referred to hereinafter as the "Senior Notes"). As of December 31, 1998, no established public market exists for the Company's common stock. There is one holder of the Company's common stock, SGH Holdings, Inc. ("Holdings"). The Company's common stock has not been registered with the U.S. Securities Exchange Commission or other regulatory authority. The Company's Senior Notes and secured bank credit facility both contain covenants restricting the payments of dividends in the future. ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below for and as of the end of each of the years in the five year period ended December 31, 1998, are derived from the audited financial statements of the Company. The financial statements of the Company as of and for the years ended December 31, 1997 and 1998 have been audited by McGladrey & Pullen, LLP, independent auditors, as stated in their report which is included elsewhere herein. The financial statements of the Company as of and for the years ended December 31, 1995 and 1996 have been audited by McGrail Merkel Quinn & Associates, independent auditors, as stated in their report, included herein for December 31, 1996 and not included herein for December 31, 1995. The financial statements of the Company as of and for the year ended December 31, 1994 are unaudited. The data presented below should be read in conjunction with the audited financial statements and notes related thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. 13 17 STATEMENT OF OPERATIONS DATA:
Years Ended December 31, ----------------------------------------------------------------- (unaudited) 1994(1) 1995(1) 1996 1997(1) 1998 --------- --------- --------- --------- --------- (dollars in thousands, except per share amounts) Statement of Operations Data: Net revenues $ 4,096 $ 7,892 $ 8,021 $ 11,831 $ 20,958 --------- --------- --------- --------- --------- Operating expenses: Direct operating expenses 1,021 2,315 2,427 3,817 7,405 General and administrative 1,230 1,934 2,345 2,417 3,389 Depreciation and Amortization 1,429 2,713 2,648 4,699 9,958 --------- --------- --------- --------- --------- Total operating expenses 3,680 6,962 7,420 10,933 20,752 --------- --------- --------- --------- --------- Operating income 416 930 601 898 206 Gain (loss) on sale of assets -- 1,334 443 (143) Interest expense (880) (2,094) (1,941) (4,200) (10,417) Other income (expense) (164) (153) 2 -- 369 --------- --------- --------- --------- --------- Income (loss) before income tax benefit (628) 17 (895) (3,445) (9,842) Income tax benefit -- 8 324 1,424 2,274 --------- --------- --------- --------- --------- Income (loss) before extraordinary item $ (628) $ 25 $ (571) $ (2,021) $ (7,568) ========= ========= ========= ========= ========= Basic income (loss) from continuing operations per share $ (3,140) $ 125 $ (2,855) $ (10,105) $ (37,840) ========= ========= ========= ========= ========= Other Data: EBITDA(2) $ 1,845 $ 3,643 $ 3,249 $ 5,597 $ 10,164 EBITDA margin(2) 45.0% 46.2% 40.5% 47.3% 48.5% Cash flows from operating activities $ (170) $ 1,245 $ 1,476 $ 1,810 $ (526)
14 18 Cash flows from investing activities (616) (2,343) 1,165 (37,305) (64,531) Cash flows from financing activities (508) 1,132 (2,582) 35,494 64,998 Capital expenditures 1,301 1,083 1,655 2,334 8,093 Ratio of earnings to fixed charges(3) l.0x Number of displays(4) Bulletins 3,570 3,815 3,975 6,106 10,481 Posters 1,778 1,623 1,461 1,432 1,956 --------- --------- --------- --------- --------- Total displays 5,348 5,438 5,436 7,538 12,437 ========= ========= ========= ========= ========= Balance Sheet Data: Cash and cash equivalents $ 39 74 $ 133 $ 132 $ 73 Working capital (deficit) (879) (2,057) (195) 2,733 4,180 Total assets 17,579 19,214 17,128 54,106 121,496 Total debt (including current maturities) 19,724 19,798 19,474 57,998 116,241 Stockholder's equity (deficiency)> (3,268) (3,194) (2,863) (4,884) 1,600
- - --------------- (1) The Company has made acquisitions in 1997 and 1998 which affect the comparability of the information contained herein. (2) "EBITDA" is defined as operating income before depreciation and amortization. EBITDA represents a measure that management believes is customarily used to evaluate the financial performance of companies in the media industry. However, EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered an alternative to operating income as an indicator of the Company's operating performance or to net cash provided by (used in) operating activities as a measure of its liquidity. EBITDA margin is EBITDA stated as a percentage of net revenues. (3) For purposes of determining the ratio of earnings to fixed charges, earnings are defined as income before income taxes plus fixed charges. Fixed charges consist of interest expense (including amortization of deferred debt issuance costs) and the portion of rental expense that is deemed 15 19 representative of the interest factor. Earnings were insufficient to cover fixed charges by $628,000 in 1994, $895,000 in 1996, $3.4 million in 1997, and $9.8 million in 1998. (4) All display faces, including unoccupied display faces, are classified based on the last sale to an advertiser as either a bulletin or poster. For 1995, the table does not reflect display faces located in and around Watertown, New York that were acquired in November 1995 and disposed of in January 1996. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the results of operations of the Company for the three years ended December 31, 1998 and financial condition at December 31, 1998 should be read in conjunction with the Financial Statements of the Company and the related notes included elsewhere herein. General The Company was formed in 1986, and since then net revenues and EBITDA have grown primarily through the acquisition of outdoor advertising businesses and individual display faces in specific markets and the construction of new display faces in existing markets. Net revenues are a function of the number of display faces operated by the Company, the occupancy levels of the Company's display faces and the rates that the Company charges for their use. The Company focuses its sales efforts on selling 36-month contracts to maximize both the occupancy of its display inventory and its sales force efficiency. The Company believes that it has opportunities to improve its occupancy levels and rates for a number of reasons, including the recent expansion of the Company's sales force, benefits derived from the application of the Company's existing incentive compensation-based sales strategy in its newly acquired operations and general economic conditions in its new markets. Operating results are affected by general economic conditions, as well as trends in the advertising industry. The Company's net revenues are gross revenues net of withheld commissions retained by advertising agencies that contract for the use of advertising displays on behalf of their advertisers and other miscellaneous credits. Agency commissions are typically 15% of gross revenues per contract. The Company enters into agreements with advertising agencies on a customer-by-customer basis. Because of the Company's reliance on local advertisers, many of which do not employ agencies, the Company believes that it depends less on the placement of advertising through agencies than most other major outdoor advertising companies and that its agency commission levels are lower than industry averages. In 1998, direct sales to local advertisers represented over 95% of the Company's net revenues. Direct operating expenses consist of sales, production and lease expense. Selling expense primarily consists of compensation to the Company's sales force, travel and entertainment related to sales, and outside commissions other than to advertising agencies. Commissions to the Company's sales force are based on the total advertising contract value and are paid upon contract receipt. The total advertising contract value is the monthly billing multiplied by the number of months in the contract. Production expense mainly consists of illumination expense, maintenance of billboard structures, the cost of purchasing and applying poster advertisements and the cost of producing display faces for shorter term contracts. The cost of producing advertising display faces for longer-term contracts is capitalized and depreciated over the life of the contract. The Company believes that its illumination 16 20 expense is generally lower than industry averages because it produces a significant number of bulletins (26% of the Company's bulletins as of December 31, 1998) using Scotchlite, which requires no illumination and many of the remaining displays are not illuminated. The Company's illumination expense was 3.2% of net revenues in 1997 and 3.7% in 1998. Lease expense consists mainly of rental payments to owners of the land underlying billboard structures. Lease costs are generally lower in the non-urban segment of the outdoor advertising market because landlords in rural areas generally have fewer alternative uses for their properties, many of which are located in agricultural areas. The Company's site lease expense was 13.8% of net revenues in 1997 and 14.3% in 1998. General and administrative expenses include salaries, bonuses and other compensation, permit fees, utilities, supplies, professional fees, rent for its executive offices and facilities and travel. Acquisitions The Company's display faces grew from 2,556 faces at December 31, 1993 to 12,437 faces at December 31, 1998 primarily as a result of acquisitions. The Company's acquisitions can be classified into two categories: new market acquisitions and fill-in acquisitions. New market acquisitions are acquisitions outside of the Company's then existing markets, while fill-in acquisitions are generally small acquisitions in the Company's existing markets that involve the purchase of advertising displays only, resulting in the elimination of all personnel and related costs. From January 1, 1996 to December 31, 1998, the Company completed two new market acquisitions, TSS and Unisign, and nine fill-in acquisitions, including Western. Western, although a significant acquisition, was treated as a fill-in acquisition with faces incorporated into the Company's existing Midwest and Northcentral Divisions. The Company achieves operating leverage through both new market and fill-in acquisitions by spreading acquired contract revenues over relatively fixed general and administrative costs. With new market acquisitions, the Company eliminates duplicative management personnel, thereby reducing compensation expense, and generally integrates the art and accounting functions into the Company's existing structure. The Company is able to capitalize on the efficiencies resulting from its acquisitions. The Company's corporate office, established in 1995, provides the billing and collection functions for all of the Company's divisions, as well as cash management, payable functions and strategic marketing directions. In the TSS acquisition, the Company was able to reduce certain annual executive costs, including approximately $259,000 of chief executive officer compensation and directors' fees. Similarly, annual cost savings realized through the integration of the Unisign business included $297,000 from the elimination of prior management's compensation and $77,000 from eliminating Unisign's accounting functions and realigning general and administrative personnel (including the elimination of local artists). In conjunction with the Western acquisition, the annual cost savings expected to be realized through the integration of the Western business includes $70,000 from the elimination of prior management's compensation, $183,000 from eliminating accounting, artists and other clerical functions and $30,000 of facility costs. In response to the growth through acquisitions and in anticipation of future growth, the Company created a new position of Director of Marketing and hired additional accounting and clerical personnel in the corporate office in Tifton. The estimated annual cost of these additional personnel is $215,000. In addition to growth through acquisitions, the Company seeks opportunities for growth through the development of newly built outdoor advertising structures. The Company actively monitors changes in local zoning restrictions and the availability of new land lease sites in each of its existing markets so as to develop new build opportunities. The Company built 102 structures and 294 display faces in 1998. The Company's decision to develop these leases is driven by the economic impact of building new sites versus the acquisition of existing outdoor advertising displays. If management believes that there is excess inventory in a market, the Company will 17 21 continue to acquire structures and maximize rate and occupancy levels in order to bring up overall rates in the market before developing its own site leases. Management will only build new structures in markets where the economics of building a new structure compares favorably to purchasing structures through fill-in acquisitions. As the Company continues to penetrate local advertising markets, the Company can enhance revenue growth rates through the control of a meaningful amount of local inventory and the ability to offer advertisers an expanded network buy. The Company's policy is to enter into asset purchase agreements under which the Company will acquire the structures and faces of a company, obtain a non-compete agreement from the sellers, and take on no additional operations. The Company is able to integrate the new billboards into its infrastructure spreading its fixed cost base over a larger amount of billboards and to further leverage its sales force within the local market. Product Mix; Regional Operations The following table sets forth information on the bulletins and posters operated by each of the Company's divisions at the dates indicated. The Company did not acquire its Mid-Atlantic Division until March 1998.
December 31, --------------------------------------------- 1996 1997 1998 ---- ---- ---- Divisions Bulletins Posters Bulletins Posters Bulletins Posters - - --------- --------- ------- --------- ------- --------- ------- Southeast 312 533 2,362(1) 519 2,704 554 Midwest 2,284 -- 2,308 -- 3,555 -- Northcentral 476 485 513 463 2,191 456 Mid-Atlantic (2) -- -- -- -- 1,040 469 Northeast 903 443 923 450 991 477 ------ ------ ------ ------ ------ ------ Total 3,975 1,461 6,106 1,432 10,481 1,956 ------ ------ ------ ------ ------ ------
(1) Increase reflects primarily the TSS acquisition. (2) Reflects the acquisition of Unisign. The Company derived over 72% , 75% and 81% of its net revenues from the sale of advertising on bulletins in 1996, 1997 and 1998, respectively, and the balance from the sale of advertising on posters. Because of this large percentage of bulletin revenues and the long-term nature of its bulletin contracts, the Company's net revenues have experienced little seasonality, historically varying less than 2% per quarter. However, poster revenues are typically lower during the first quarter, reflecting seasonal patterns in advertising spending. The Company emphasizes the sale of long-term (36-month) contracts for its bulletins. In the Northeast and Midwest Divisions which have been operated by current management for 5 years or more, over 80% of all bulletin advertising contracts in effect on December 31, 1998 had an original term of at least 36 months. Because of the acquisition of the shorter-term contracts of TSS and Unisign, at December 31, 1998 approximately 65% of the Company's bulletin advertising contracts had an original term of 36 months or more. As the advertising contracts assumed by the Company in the TSS and Unisign acquisitions expire, the Company is seeking to sell 36-month contracts for these bulletins. As a result, the Company believes that the percentage of bulletins subject to 36-month contracts will increase over time in these markets. The average monthly rate per display varies in each region in which the Company operates, primarily as a result of the average size and location of displays in each division. In the Midwest and Northeast Divisions, the majority vary in size from 6 feet high by 12 feet wide to 14 feet high by 48 feet wide. In addition, the Company's displays in these divisions are located primarily along secondary roads, rather than along interstate highways or 18 22 primary roads. Both the smaller size and location of the signs result in lower rates. In the Northcentral Division, the Company's displays are substantially larger and are located along primary roads and interstate highways. The average rates for displays in this division are the highest of all the Company's divisions. In the Southeast Division, the average display size increased as result of the TSS acquisition. In addition, the TSS displays were located to a greater extent along interstate highways. The TSS acquisition resulted in higher average rates in the Southeast division. Results of Operations The following table sets forth the specified components of expense for the Company expressed as a percentage of net revenues for the last three years.
Year Ended December 31, ------------------------- 1996 1997 1998 ----- ----- ----- Net revenues 100.0% 100.0% 100.0% Direct operating expenses 30.3 32.3 35.3 General and administrative 29.2 20.4 16.2 Depreciation and amortization 33.0 39.7 47.5 ----- ----- ----- Total operating expenses 92.5 92.4 99.0 ----- ----- ----- Operating income 7.5 7.6 1.0 ----- ----- ----- Interest expense (24.2) (35.5) (49.7) Other income (expense) 5.5 (1.2) 1.8 ----- ----- ----- Total other income (expense) (18.7) (36.7) (47.9) ----- ----- ----- Income (loss) before income tax benefit (11.2) (29.1) (46.9) Income tax benefit 4.1 12.0 10.8 ----- ----- ----- Net income (loss) before extraordinary loss on early extinguishment of debt (7.1)% (17.1)% (36.1)% ===== ===== ===== Other Data: EBITDA 40.5% 47.3% 48.5% ===== ===== =====
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997 Net revenues. Net revenues increased 77.1% to $21.0 million for the year ended December 31, 1998 from $11.8 million for the year ended December 31, 1997. Most of this increase was the result of the acquisition of Western, completed in September 1998, Unisign, completed in March 1998, and TSS, completed in June 1997. These acquisitions accounted for approximately $8.6 million of the period-to-period revenue growth. Direct operating expenses. Direct operating expenses (which include sales, lease and production expense) increased to $7.4 million for the year ending December 31, 1998 from $3.8 for the comparable period in 1997. Most of this increase was the result of the acquisition of Western, completed in September 1998, Unisign, completed in March 1998, and TSS, completed in June 1997. Sales expense decreased as a percentage of net sales from 8.2% in the year ending December 31, 1997 to 8.1% in 1998, due to increased operating leverage in the sales force. Site lease expense increased as a percentage of net revenues from 13.8% in the year ending December 31, 1997 to 14.3% in 1998, due to higher lease cost assumed in the TSS acquisition, reflecting the higher costs of TSS' interstate highway locations. Production expense increased as a percentage of net revenues from 10.0% in the year ending December 31, 1997 to 12.2% in 1998, due to production costs associated with the shorter-term contracts assumed in the TSS and Unisign acquisitions. 19 23 General and administrative expenses. General and administrative expenses increased by 40.2% to $3.4 million for the year ending December 31, 1998 from $2.4 million in 1997, but decreased as a percentage of net revenues to 16.2% from 20.4%, respectively. The decrease in general and administrative expense as a percentage of net revenues was due to increased operating leverage provided by higher net revenues from the Western, Unisign and TSS acquisitions over relatively fixed general and administrative expenses. In addition, the Company was able to reduce Unisign's and TSS' general and administrative expenses through a reduction of executive compensation, and the elimination of the general manager and art and accounting personnel. Depreciation and amortization expense. Depreciation and amortization expense increased to $10.0 million for the year ending December 31, 1998 from $4.7 million in 1997 due primarily to the Western, Unisign and TSS acquisitions. Interest expense. Interest expense increased to $9.9 million for the year ending December 31, 1998 from $4.2 million for the comparable period in 1997. This increase was primarily the result of additional debt incurred in connection with the financing of the Western, Unisign and TSS acquisitions. Income taxes. The Company recorded a $3.4 million income tax benefit for the year ending December 31, 1998 resulting from the increase in interest expense, depreciation, and amortization, and write-off of finance and loan costs on early extinguishment of debt. Extraordinary Loss. Effective May 20, 1998, the proceeds from the Senior Notes were used for the early extinguishment of the outstanding debt related to the prior credit facility. Accordingly, the Company recorded an extraordinary loss of $3.5 million related to the early retirement of debt ($2.1 million, net of income taxes of $1.4 million). The extraordinary loss was comprised of deferred financing fees of $3.1 million and a $400,000 unrealized loss resulting from the early extinguishment of the interest rate swap agreements used to change the fixed/variable interest rate mix of the debt portfolio to reduce the Company's aggregate risk to movements in interest rates. The fair market value to the swap agreements were not previously recognized in the financial statements since they were accounted for as a hedge. With the extinguishment of the debt, the swap agreements were no longer hedge transactions and therefore the related unrealized loss can no longer be deferred. In September 1998, these agreements were settled in full. Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996 Net revenues. Net revenues increased 47.5% to $11.8 million for the year ended December 31, 1997 from $8.0 million for the year ended December 31, 1996. Most of this increase was the result of the acquisition of TSS, completed in June 1997. This acquisition accounted for approximately $3.4 million of the year-over-year revenue growth. Direct operating expenses. Direct operating expenses (which include sales, lease and production expense) increased to $3.8 million for 1997 from $2.4 million for the prior year. Most of this increase was the result of the TSS acquisition. Sales expense decreased as a percentage of net revenues to 8.2% in 1997 from 8.9% in 1996, due to increased operating leverage in the sales force and minimal selling expense required for acquired contracts until they are resold. Site lease expense increased as a percentage of net revenues to 13.8% in 1997 from 12.6% in 1996, due to higher lease costs assumed in the TSS acquisition, reflecting the higher costs of TSS's interstate highway locations. Production expense increased as a percentage of net revenues to 10.0% in 1997 from 8.6% in 1996, due to production costs associated with the shorter-term contracts assumed in the TSS acquisition. 20 24 General and administrative expenses. General and administrative expenses increased slightly to $2.4 million for 1997 from $2.3 million for 1996, but decreased sharply as a percentage of net revenues. The increase in administrative expenses was accounted for by a one-time expense of $250,000 relating to the relocation of the Company's personnel and offices to Tifton, Georgia. However, the overall decrease in general and administrative expenses as a percentage of net revenues was due to increased operating leverage provided by higher net revenues from the TSS acquisition over relatively fixed general and administrative expenses. In addition, the Company was able to reduce TSS' general and administrative expenses through a reduction of executive compensation and directors' fees, and the elimination of the general manager and accounting personnel. Depreciation and amortization expense. Depreciation and amortization expense increased to $4.7 million for 1997 from $2.6 million for 1996, due primarily to the TSS acquisition. Depreciation and amortization as a percentage of net revenues increased from 1996 to 1997 as a result of amortization related to the intangible assets acquired in the TSS acquisition. Interest expense. Interest expense increased to $4.2 million for 1997 from $1.9 million for 1996. This increase was the result of additional debt incurred in connection with the financing of the TSS acquisition. Income taxes. The Company recorded a $1.4 million income tax benefit for 1997 due to losses resulting from increased interest expense and depreciation and amortization. Liquidity and Capital Resources The Company has historically satisfied its cash requirements with cash from operations, revolving credit borrowings and other long-term debt financings and sales of assets. Its acquisitions have been financed primarily with borrowed funds. The Company financed its acquisition activity in 1994 through the combination of a $16.5 million credit facility (the "Original Credit Facility) with First Chicago, as agent for a syndicate of lenders, and an equity and subordinated debt investment of $3.9 million from Mesirow Capital Partners VI ("Mesirow VI"). In June 1997, the Original Credit Facility was amended and restated to increase the available credit to $45.0 million (the "Restated Credit Facility"). The Restated Credit Facility, together with an additional equity and subordinated debt investment of $9.0 million from Mesirow VI and Mesirow Capital Partners VII ("Mesirow VII") (Mesirow VI and Mesirow VII are hereunder collectively referred to as "Mesirow") were used to finance the TSS acquisition. In February 1998, the Restated Credit Facility was amended and restated in order to increase the available credit to $62.5 million (the "Senior Credit Facility"). Borrowings under the Senior Credit Facility, together with the proceeds of the Bridge Notes ($10.0 million) loaned by Holdings were used to finance the Unisign acquisition. A portion of the proceeds of the Senior Notes was used to repay all borrowings and accrued interest under the Senior Credit Facility which totaled $57.4 million at the time of repayment whereupon the Senior Credit Facility was terminated. A portion of the proceeds of the Senior Notes was used repay the Bridge Notes, including $232,000 of accrued interest. The Senior Credit Facility bore interest at rates specified in the agreement (with an aggregate effective interest rate at December 31, 1997 of 9.125%), was collateralized by substantially all of the assets of the Company, as well as by a pledge from Holdings of the Company's common stock, required the maintenance of certain financial covenants and matured in varying amounts through March 2006. The subordinated intercompany promissory notes payable to Holdings bore interest at rates ranging from 12% to 15% and were due and payable during 2003 and 2005. The $10.0 million loan from Holdings (which was made by Holdings on 21 25 March 2, 1998 with the proceeds of the Bridge Notes) bore interest at LIBOR plus 4.75% (10.4% at March 2, 1998) and was due on demand. In May 1998 the Company put in place a $3.0 million credit facility with First Chicago used principally to fund potential obligations on outstanding letters of credit. The facility was secured by certificates of deposit. This facility was terminated when the Company entered into the New Facility (as defined below). On September 18, 1998, the Company entered into a new $19.25 million senior secured credit facility (the "New Facility") with First Chicago. The Company used $16.0 million under the New Facility and a portion of the remaining proceeds from the Company's Note Offering to finance the $28.0 million acquisition of Western. On March 1, 1999, the New Facility was amended to revise certain payment dates and amounts, financial reporting requirements, restrictions on sale and leaseback transactions, and financial covenants. Net cash provided by operating activities decreased to ($.5) million for 1998 from $1.8 million for 1997 and increased to $1.8 million for 1997 from $1.5 million for 1996. Net cash provided by operating activities reflects the Company's net loss adjusted for non-cash items and net changes in working capital components. The Company had a working capital of $4.2 million as of December 31, 1998, working capital of $2.7 million as of December 31, 1997 and a deficit of $195,000 as of December 31, 1996. For the year ended December 31, 1998, the Company's net cash used in investing activities of $64.5 million included $52.6 million used for acquisitions, primarily Western and Unisign, and $8 million of capital expenditures. The Company's net cash used in investing activities of $37.3 million for the year ended December 31, 1997 included cash used for acquisitions of $34.8 million and capital expenditures of $2.3 million. For the year ended December 31, 1998, $65 million was provided by financing activities, primarily as a result of the offering of the Senior Notes net of repayment under existing credit facilities. For the year ended December 31, 1997, $35.5 million was provided by financing activities, primarily as a result of additional borrowings under the Company's various credit facilities and equity and debt investments in the Company by Holdings, which proceeds were loaned to the Company. For the year ended December 31, 1996, $2.6 million was used in financing activities, primarily relating to principal repayments of debt, with the proceeds from the sale of the Watertown assets. Capital expenditures are made to build new billboard structures and display faces, to upgrade the Company's existing display faces, to produce advertising display faces under contracts longer than 18 months and for other capital items. Capital expenditures were $8.1 million in 1998. The Company has funded one year of cash interest expense with the net proceeds of the offering of the Senior Notes. Following the disbursement of all of the funds in the escrow account in May 1999, a substantial portion of the Company's cash flow will be devoted to interest payments on the Senior Notes. The Company believes that its cash from operations and availability under its existing credit facilities will be sufficient to satisfy its cash requirements, including anticipated capital expenditures for the next year. However, in the event these cash sources are insufficient to satisfy its cash requirements, including future acquisitions, the Company may require additional debt or equity. There can be no assurance that additional debt or equity financing will be available on terms satisfactory to the Company, if at all, or that the Company will be able to incur such additional debt under the terms of the Senior Notes or New Facility. (See "Factors Affecting Future Operating Results --Highly Leveraged Capital Structure" -- "Elimination of Tobacco Advertising".) 22 26 Inflation In the last three years, inflation has not had a significant impact on the Company or its predecessors. Income Taxes At December 31, 1998, the Company had net operating loss carry forwards of approximately $ 20.3 million for federal and state income tax purposes, which expire in varying amounts from 2009 through 2018. During the year ended December 31, 1998, the Company recorded a valuation allowance of $1,460,000 on deferred tax assets of $7,660,000 to reduce the total to an amount that management believes will more likely than not be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry forwards are expected to be available to reduce taxable income. If the Company is unable to generate sufficient taxable income in the future, increases in the valuation allowance may be required through a charge to expense. FACTORS AFFECTING FUTURE OPERATING RESULTS Highly Leveraged Capital Structure The Company has been and will continue to be highly leveraged. The Company anticipates that it will incur additional debt to finance further acquisitions, working capital, other capital expenditures, debt service requirements or for other general purposes. The Company's large amount of debt could have the following effect: o Limit the Company's ability to obtain additional financing in the future. o Limit the Company's ability to compete with competitors who are not as highly leveraged. o Limits the Company's ability to capitalize on significant business opportunities and to react to changing market conditions, changes in the industry and economic downturns. A substantial portion of the Company's cash flow from operations must be used to pay principal and interest on the Company's debt and therefore will not be available for other purposes. The Company's ability to achieve profitable operations and to meet its debt service obligations will depend on its future operating performance and financial results which, in turn, will be subject, in part, to prevailing economic conditions and financial, business and other factors beyond the Company's control. Obstacles to Growth Strategy Strategic acquisitions have facilitated the Company's growth and have substantially increased its inventory of advertising display faces. One facet of the Company's operating strategy is to complete acquisitions in new and existing markets. While the Company believes that the non-urban segment of outdoor advertising industry is highly fragmented and that significant acquisition opportunities are available, the Company can give no assurance that it can find suitable acquisition candidates. The Company is likely to face competition from other outdoor advertising and media companies for acquisition opportunities. Many of these competitors have more capital and better access to financing than the Company. In addition, the prices sought by sellers of outdoor advertising display faces and companies have been rising and, if they continue to rise, the Company may find fewer acceptable acquisition 23 27 opportunities or be unsuccessful in completing its proposed acquisitions. The Company may require additional debt or equity financing for future acquisitions. If the Company needs additional funds it cannot make any assurances that such financing will be available to complete acquisitions or that it can complete acquisitions on terms acceptable to it if at all. Management of Growth and Expansion; Integration of Acquisitions The Company is undergoing substantial growth. This growth places significant demands on management and production, computer information, financial and other resources. To manage growth effectively, the Company must maintain a high level of operational quality and efficiency, continue to enhance operational, financial and management systems and expand, train and manage management and staff. The Company cannot make any assurances that it will be able to manage its growth effectively, attract and retain suitable management and other personnel, or be able to maintain its operational systems. Any failure to do so could have a material adverse effect on the Company. Dependence on Senior Management The Company's success depends upon the continued employment of its senior management. If the Company loses the services of any member of senior management and does not find a suitable replacement, the Company's business could be materially adversely affected. Economic Conditions; Advertising Trends The Company relies on sales of advertising space for its revenues. The Company's operating results, therefore, are affected by general economic conditions as well as trends in the advertising industry. A reduction in advertising expenditures available for the Company's displays could result from a general decline in economic conditions, a decline in economic conditions in the Company's markets or from significant users of the Company's displays reallocating their advertising expenditures to other available media. Competition The Company faces competition for advertising revenues from other outdoor advertising companies, highway logo sign operators and companies that install commercial signs on an advertiser's own property, as well as from other media such as radio, television, print and direct mail marketing. The Company also competes with a wide variety of other out-of-home advertising media, the range and diversity of which have increased substantially over the past several years, including advertising displays in shopping centers, malls, airports, stadiums, movie theaters, supermarkets and buses. Some of the Company's competitors are substantially larger, better capitalized and have greater access to resources. The Company can give no assurance that the outdoor advertising medium will be able to compete with other types of media or that it will be able to compete either within the outdoor advertising industry or with other media. Regulation of Outdoor Advertising Outdoor advertising displays are subject to governmental regulation at the federal, state and local levels. These regulations limit the size and location of billboards and, in limited circumstances, regulate the content of the advertising copy. Some governmental regulations restrict the construction of new billboards or the replacement, relocation, enlargement or upgrading of existing structures. Such regulations limit the Company's ability to expand 24 28 its operations in the affected markets. If the Company is unable to expand its operations in such areas or replace lost structures, then the Company's growth opportunities and potential results of operations could be affected. In addition, some jurisdictions have adopted "amortization" ordinances under which, after the expiration of a specified period of time, billboards must be removed at the owner's expense and without the payment of compensation. Ordinances requiring the removal of a billboard without compensation, whether through amortization or otherwise, are being challenged in various state and federal courts with conflicting results. Currently, none of the Company's existing inventory is subject to any amortization ordinance. The Company can give no assurance as to how additional laws and regulations that may be adopted in the future may affect it. Elimination of Tobacco Advertising In November 1998, 46 states and five territories agreed to accept a $206 billion settlement with the tobacco industry over public health costs connected with smoking. In this settlement, tobacco companies including Philip Morris Cos., R.J. Reynolds Tobacco Co., a unit of RJR Nabisco Holdings Corp., Brown & Williamson Tobacco Corp., a unit of London-based British American Tobacco PLC, and Lorillard Inc., a unit of Loews Corp and the Liggett Group unit of Brooke Group Ltd. agreed to restrictions on tobacco advertising and promotions among other provisions. In addition, the states of Mississippi, Florida, Texas and Minnesota previously entered into separate settlements of litigation with the tobacco industry. None of these settlements is conditioned on federal government approval and each bans all outdoor advertising of tobacco products by the tobacco companies. According to the OAAA, tobacco product advertising accounted for approximately 7.0% of all outdoor billboard advertising revenues for 1998, compared to 7.3% for 1997, 8.0% for 1996 and 8.3% for 1995. The pending elimination of billboard advertising by the tobacco industry due to the settlements will immediately increase the available space on the existing inventory of billboards in the outdoor advertising industry. This could in turn result in a lowering of rates throughout the outdoor advertising industry or limit the ability of industry participants to increase rates for some period of time. The Company expects tobacco related revenues for 1999 to be less than 0.5%. If the industry is unable to replace the lost revenues from the elimination of outdoor advertising of tobacco products, the change could have a material adverse effect on the Company by forcing it to lower advertising rates or by inhibiting it from increasing advertising rates as a result of increased competition. History of Net Losses The Company reported net losses for the years ended December 31, 1996, 1997 and 1998 of $571,000, $2.0 million and $ 9.7 million, respectively. The net losses primarily reflect high levels of depreciation and amortization charges relating to the depreciation of assets obtained in acquisitions, as well as high levels of interest expense relating to debt incurred to finance these acquisitions. Interest expense and depreciation and amortization charges will continue at high levels throughout 1999 and future years as a result of previously completed acquisitions. The Company expects to continue incurring substantial losses for at least the next two years, and it can give no assurance if or when it will have net income. Potential Losses from Natural Disasters A significant portion of the Company's structures are located in geographic regions of the United States that may experience floods, tornadoes and/or hurricanes during the year. The Company has determined that it is not economically feasible at this time to obtain insurance against losses from hurricanes or other weather-related casualties. The Company has not incurred any material losses in the past due to weather-related incidents. However, the Company can give no assurance that it will not suffer such losses in the future or that, in pursuing its acquisition strategy, it will not acquire companies or properties that are particularly susceptible to weather-related incidents. 25 29 Environmental Matters The Company is subject to various federal, state and local environmental laws and regulations as an owner, lessee or operator of various real properties and facilities Restrictions in Indenture on the Company's Operations The indenture for the Senior Notes contains certain financial covenants that may adversely affect the Company's ability to respond to changing economic and business conditions. These covenants could prohibit additional needed financing or prevent the Company from engaging in certain transactions that might further the Company's growth strategy or would otherwise be beneficial. A breach of any of these covenants could cause a default under the indenture or any future debt that the Company may incur. A significant portion of the Company's debt then may become immediately due and payable. It is unlikely that the Company could obtain sufficient funds to make these accelerated payments. Failure of Computer Systems to Recognize Year 2000 Many currently installed computer systems are not capable of distinguishing 21st century dates from 20th century dates because they were programmed using two digits rather than four digits to define the applicable year. As a result, at the turn of this century, computer systems and software used by many companies and organizations in a wide variety of industries will experience operating difficulties unless they are adequately modified or upgraded to process information related to the century change. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, collect revenues or engage in similar normal business activities. The Company recognizes the need to ensure that its operations will not be adversely impacted by Year 2000 software failures. The Company therefore, believes it has identified all significant internal information technology systems ("IT Systems"). Internal and external resources were utilized to make the required modifications and test Year 2000 compliance for these IT Systems as well as non-IT Systems (i.e., telephone, security, etc.) The Company believes it has achieved Year 2000 compliance readiness for its IT and non-IT Systems. In addition, the Company has communicated with others with whom it does significant business, primarily banks and suppliers of electricity, to determine their Year 2000 compliance readiness and the extent to which the Company is vulnerable to any third party Year 2000 issues. There can be no guarantee that the systems of other 26 30 companies on which the Company relies will be timely converted, or that a failure to convert by another company would not have a material adverse effect on the Company. Based on the results of its review of the Year 2000 issues to date, the Company does not believe that a contingency plan to handle Year 2000 problem is necessary at this time and has not developed such a plan. The Company will, however, continue to monitor the Year 2000 compliance program and evaluate the need for a contingency plan to handle the most reasonably likely worst case Year 2000 scenario which might be disruption in service from suppliers in a few isolated places. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk The Company carries certain floating rate debt and thus is exposed to the impact of interest rate changes. The information below summarizes the Company's market risk associated with debt obligations as of December 31, 1998. The information presented below should be read in conjunction with Note 5 of the Financial Statements. At December 31, 1998, the Company's indebtedness under its Credit Facility, representing approximately 12.2% of the Company's long-term debt, bears interest at variable rates. Accordingly, the Company's net loss and after tax cash flow are affected by changes in interest rates. A two percentage point change in interest rate would affect the Company's net loss by approximately $300,000. In the event of an adverse change in interest rates, management would likely take certain actions to further mitigate its exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, this analysis assumes no such actions. Further this analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment. Fluctuations in interest rates may also adversely affect the fair value of the Company's fixed rate borrowings. The fair value of debt with a fixed interest rate will increase as interest rates fall and the fair value will decrease as interest rates rise. The Company's fixed rate borrowings consist of $100 million aggregate amount of Senior Notes which bear interest at 11% per annum. ITEM 8. FINANCIAL STATEMENTS The response to this item 8 is submitted as a separate of the Report on Form 10-K commencing on page F-1. 27 31 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 Executive Officers and Directors The following table sets forth the names, ages (at December 31, 1998) and positions of the executive officers and directors of the Company:
Name Age Position - - ---- --- -------- Sheldon G. Hurst 50 President, Chief Executive Officer and Director Anthony LaMarca 44 Executive Vice President and Director A. Wayne Lamm 44 Vice President of Marketing and Director William G. McLendon 43 Chief Financial Officer, Secretary and Director Sean E. Callahan 29 Director John D'Ottavio 51 Director William P. Sutter, Jr. 41 Director
Sheldon G. Hurst founded and has served as President and Chief Executive Officer of the Company since 1986. Prior to founding the Company from 1972 to 1986, Mr. Hurst was vice president of Hurst Sign Company, a billboard construction company in Scranton, Pennsylvania owned by his father. During this period, he was responsible for designing and managing the construction of over 1,000 advertising displays for outdoor advertising companies. Anthony LaMarca, a co-founder of the Company, has served as the Company's Executive Vice President since 1986, with primary responsibilities in the sales and marketing of bulletins. A. Wayne Lamm has been Vice President of Marketing of the Company since September 1997. From September 1989 to July 1997, Mr. Lamm was the president and chief operating officer of Penn Advertising, one of the largest outdoor advertising companies in the Northeast. From November 1986 to September 1989, Mr. Lamm was the regional supervisor of the Buffalo, New York plant of Penn Advertising. From June 1984 to September 1986, he was the general manager and national director of sales at Naegele Outdoor Advertising. William G. McLendon joined the Company in October 1994 as Chief Financial Officer. From December 1993 to October 1994, Mr. McLendon was the chief financial officer of Naegele Outdoor Advertising. From 1991 to December 1993, he was a partner at Brush & Associates, an investment banking boutique specializing in outdoor advertising. From 1986 to 1990, Mr. McLendon was employed at Heller Financial and, from 1978 to 1986, Mr. McLendon worked at General Electric Capital Corp. 28 32 Sean E. Callahan has been a director of the Company since August 1998. Mr. Callahan has been associated with affiliates of Mesirow Financial Holdings, Inc. since May 1997. He is an Associate of Mesirow Private Equity Investments, Inc. From September 1991 to May 1997, Mr. Callahan was employed by Cushman & Wakefield, Inc., a national commercial real estate services firm. John D'Ottavio has been a director of the Company since December 1998. From 1984 to 1992 Mr. D'Ottavio was the President and Chief Executive Officer of Voice-Gram, Inc., a national voice mail service bureau. From 1993 to 1995 Mr. D'Ottavio was a consultant to small businesses specializing in assisting start-up companies. From 1995 to present Mr. D'Ottavio has been a Retirement Planning Specialist at Morgan Stanley Dean Witter. William P. Sutter, Jr. has been a director of the Company since October 1994. Since 1984, Mr. Sutter has been associated with affiliates of Mesirow Financial Holdings, Inc., a Chicago-based financial services firm. Mr. Sutter is a Senior Managing Director of Mesirow Private Equity Investments, Inc. and a vice president of Mesirow Financial Services, Inc. Mr. Sutter was a director of New West Eyeworks, Inc., an optical retail chain. Mesirow Financial Services, Inc. is the general partner of Mesirow, a holder of warrants in Holdings. See "Principal Stockholders". Pursuant to the Second Amended and Restated Stockholders Agreement dated as of February 27, 1998, the Company's Board of Directors (and each of its subsidiaries) shall be comprised of seven individuals, four of whom are designated by the executive employees of the Company owning a majority of the common stock held by such executives, and three of whom are designated by Mesirow (as of the date of this report, Mesirow has only designated two such individuals, William P. Sutter, Jr. and Sean E. Callahan). See "Certain Relationships and Related Transactions". Executive officers are appointed annually and serve at the discretion of the Board of Directors. Committees The Board of Directors has also appointed the following committees: a Compensation/Executive Committee whose members are Sheldon G. Hurst, William G. McLendon and William P. Sutter, Jr.; and the Audit Committee whose members are Sheldon G. Hurst, A. Wayne Lamm and William P. Sutter, Jr. 29 33 ITEM 11. EXECUTIVE COMPENSATION Summary Compensation: The following table provides certain summary information concerning the compensation incurred by the Company for its Chief Executive Officer and the other four most highly compensated executive officers for the years ended December 31, 1998, 1997 and 1996 (collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE Annual Compensation ------------------- Name and Principal Position Year Salary Bonus --------------------------- ---- ------ ----- Sheldon G. Hurst 1998 $157,775 $77,000 President and Chief 1997 $142,000 $52,000 Executive Officer 1996 $125,000 $ 0 William G. McLendon 1998 $150,000 $ 50,000 Chief Financial Officer 1997 $119,000 $ 52,000 and Secretary 1996 $104,000 $ 0 A. Wayne Lamm Vice President 1998 $112,666 $ 4,226 of Marketing and 1997 $ 36,000 $ 0 Director 1996
Compensation of Directors Directors of the Company receive no remuneration for their services as Directors. The Company reimburses directors for travel and lodging expenses, if any, occurred in connection with attendance at Board meetings. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT All of the Company's common stock is owned by Holdings,, a corporation incorporated in Delaware in 1994. The following table sets forth certain information with respect to the beneficial ownership of Holdings' common stock, par value $.0001 per share (the "Common Stock"), and Holdings' preferred stock, par value $.0001 per share (the "Preferred Stock"), as of December 31, 1998, (i) by each person who is known by the Company to own beneficially 5% percent or more of the outstanding shares of common stock, (ii) by each of the Company's directors, (iii) by each of the named executives, and (iv) by all current directors and officers of the Company as a group. Unless otherwise indicated, each of the stockholders has sole voting and investment power with respect to the shares beneficially owned. 30 34
Common Stock Preferred Stock ------------ --------------- Number of Percent of Number of Percent of Name and Address Shares Class (1) Shares Class(2) - - ---------------- ------ --------- ------ -------- Sheldon G. Hurst (3) 844.1(4) 82.7% 3416 Highway 41 South Tifton, Georgia 31793 Hurst Enterprises, L.P. (3) 844.1(4) 82.7 c/o 3416 Highway 41 South Tifton, Georgia 31793 William G. McLendon 110.0(4) 10.8 3416 Highway 41 South Tifton, Georgia 31793 A. Wayne Lamm 51.1(4)(5) 5.0 3416 Highway 41 South Tifton, Georgia 31793 Anthony LaMarca 20.4(4) 2.0 Mesirow Capital Partners VI (6) 716.0 41.2 7,308.0 46.7% 350 North Clark Street Chicago, Illinois 60610 Mesirow Capital Partners VII (7) 383.0 27.3 8,331.0 53.3 350 North Clark Street Chicago, Illinois 60610 William P. Sutter, Jr. (8) -- -- 350 North Clark Street Chicago, Illinois 60610 Sean E. Callahan (8) -- -- 350 North Clark Street Chicago, Illinois 60610 All directors and executive officers as a group (6 persons)(8) 1,025.6 100.0
- - -------------------------------- (1) Mesirow VI in 1994 was granted warrants to purchase 640 shares of Common Stock (the "1994 Warrants"), and in 1997 was granted warrants to purchase 76 shares of Common Stock (the "Mesirow VI 1997 Warrants"). Mesirow VII in 1997 was granted warrants to purchase 383 shares of Common Stock (the "Mesirow VII 1997 Warrants") (the Mesirow VI 1997 Warrants and the Mesirow VII 1997 Warrant are collectively referred to as the "1997 Warrants"). The 1994 Warrants and the 1997 Warrants are currently exercisable. Total outstanding Common Stock (on a fully diluted basis) consists of 1,020.4 shares rounded to the nearest tenth prior to any exercise of the 1994 Warrants the 1997 Warrants or Mr. Lamm's options. (2) Total outstanding Preferred Stock consists of 15,639 shares. 31 35 (3) All shares are owned by Hurst Enterprises, L.P., a Georgia limited partnership in which Mr. Hurst holds a 2% general partnership interest and a 96% limited partnership interest, and Sharon Hurst (the wife of Mr. Hurst) owns a 2% general partnership interest. (4) In the event of the exercise by Mesirow of the 1994 Warrants and/or the 1997 Warrants (the "Mesirow Exercise"), Holdings has agreed to issue certain Common Stock to A. Wayne Lamm to maintain the 2% of the Common Stock of Holdings purchased by A. Wayne Lamm from Holdings in 1997. Messrs. Hurst, McLendon, Lamm and LaMarca have agreed to transfer Common Stock among themselves in the event of the Mesirow Exercise and/or the exercise of the Lamm options in order to provide certain percentage ownership anti-dilution protection for Messrs. McLendon, Lamm and LaMarca. (5) Includes 5.2 shares subject to outstanding options to purchase Common Stock which are exercisable within the next 60 days. (6) Includes 640 shares of Common Stock subject to outstanding warrants to purchase Common Stock granted pursuant to the 1994 Warrants and 76 shares of Common Stock subject to outstanding warrants to purchase granted pursuant to the Mesirow VI 1997 Warrants. (7) Includes 383 shares of Common Stock subject to outstanding warrants to purchase granted pursuant to the Mesirow VII 1997 Warrants. (8) Mr. Sutter, a director of the Company, is a vice president of Mesirow Financial Services, Inc., which is the general partner of Mesirow VI and Mesirow VII. Mr. Sutter disclaims beneficial ownership of shares beneficially owned by Mesirow VI and Mesirow VII. Mr. Callahan a director of the Company has been associated with affiliates of Mesirow Financial Services, Inc. which is a general partner of Mesirow VI and Mesirow VII. Mr. Callahan disclaims beneficial ownership of shares beneficially owned by Mesirow VI and Mesirow VII. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to a certain Second Amended and Restated Stockholders Agreement dated as of February 27, 1998 between and among Holdings and Stockholders (as defined therein) (the "Stockholders Agreement"), the board of directors of the Holdings (and each of its subsidiaries, including the Company) is required to be comprised of seven individuals, four of whom are designated by the executive employees of the Holdings owning a majority of the common stock held by such executives, and three of whom are designated by Mesirow (as of March 31, 1999, Mesirow has designated two individuals, William P. Sutter, Jr. and Sean E. Callahan). The Stockholders Agreement provides that upon the occurrence of certain events (including the failure of Holdings to purchase from Mesirow the 1994 Warrant and/or 1997 Warrants pursuant to such agreements, or to redeem Mesirow's preferred stock pursuant to the certificate of incorporation of Holdings), Mesirow can cause the re-constitution of the board of directors of Holdings (and each of its subsidiaries, including the Company) to be comprised of five individuals, four of whom are designated by Mesirow and one of whom is designated by the executive employees of the Holdings owning a majority of the common stock held by such executives, in order to pursue the sale of the Holdings and its subsidiaries (or any assets or properties thereof). Sheldon G. Hurst and William G. McLendon jointly own 13 parcels of real property which are leased to the Company and on which the Company maintains billboards. The aggregate rent paid by the Company for these sites for 1998 was $17,875. The aggregate rent to be paid to Messrs. Hurst and McLendon over the life of these leases is $72,250. The leases are all for a term of five years. In addition, Mr. Hurst owns 29 parcels of real property which are leased to the Company principally on a one year basis (four leases are for terms of five years) and on which the Company maintains billboards. The aggregate rent paid by the Company for these sites for 1997 was $9,600. 32 36 Messrs. Hurst, McLendon and Anthony LaMarca jointly owned the building in Joplin, Missouri in which the Company maintained its corporate headquarters until June 1997, at which time the Company's corporate headquarters was relocated to Tifton, Georgia. The Joplin, Missouri building was sold by Messrs. Hurst, McLendon and LaMarca to a third party in September 1997. The lease was for a term of five years at a rate of $34,000 per year. The Company believes the terms of these lease arrangements are no less favorable to the Company than similar arm's-length arrangements with unrelated parties would be. Sheldon G. Hurst owns a six-seat, single engine airplane which is leased to the Company. The Company pays Mr. Hurst monthly lease payments equal to the total amount paid by Mr. Hurst monthly under the financing he obtained to acquire the airplane. Mr. Hurst borrowed $145,000 bearing interest at a rate per annum equal to 1.4% in excess of the prime rate. The borrowing is to be repaid in monthly installments over a ten-year period ending in 2007. The Company also pays all insurance (currently $2,100 per year) and maintenance costs for the airplane. William G. McLendon, as a shareholder of TSS, received $161,000 for his ownership in TSS in connection with the acquisition of the assets of TSS by the Company. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS The financial statements are listed under Part II, Item 8 of this Report. 2. FINANCIAL STATEMENT SCHEDULES The financial statement schedules are included under Part II, Item 8 of this Report. 3. EXHIBITS The exhibits are listed below under Part IV, Item 14(c) of this Report. (C) EXHIBITS 33 37 INDEX TO EXHIBITS EXHIBIT NO. Exhibit Number Description of Exhibit - - ------ ---------------------- *3.1 Restated Certificate of Incorporation of the Company certified by the Secretary of State of State of Kansas *3.2 By-Laws of the Company *4.1 Indenture dated as of May 15, 1998 relating to the Company's 11% Senior Notes due 2008 and the 11% Senior Series B Notes due 2008 *4.2 Form of Global Note *5.1 Opinion of St. John & Wayne, L.L.C., General Counsel of the Company *10.1 Asset Purchase Agreement, dated as of May 6, 1997, between the Company and Tri-State Systems, Inc. *10.2 Asset Purchase Agreement, dated as of February 13, 1998, between the Company and Unisign Corporation, Inc. *10.3 Registration Rights Agreement dated as of May 13, 1998 relating to the Company's 11% Senior Notes due 2008 *10.4 Pledge Agreement dated as of May 15, 1998 relating to the Company's 11% Senior Notes due 2008 *10.5 Tax Sharing Agreement dated as of May 20, 1998 relating to SGH Holdings, Inc. and the Company *10.6 Second Amended and Restated Stockholders Agreement, dated as of February 27, 1998 *10.7 Anti-Dilution Agreement, dated as of February 29, 1998 *10.8 Credit Agreement dated as of May 20, 1998 between the Company and The First National Bank of Chicago *10.9 Asset Purchase Agreement, dated as of September 4, 1998, by and between Tri-State Outdoor Media Group, Inc. and Western Outdoor Advertising Co. *10.10 Credit Agreement among Tri-State Outdoor Media Group, Inc., the Lending Institutions Party Thereto, as Lenders and The First National Bank of Chicago, as Agent, dated as of September 18, 1998 10.11 Asset Purchase Agreement dated as of June 12, 1998 by and between Tri-State Outdoor Media Group, Inc. and John R. Leslie, Sr., Trading as Leslie Outdoor Advertising. Filed herewith 10.12 Asset Purchase Agreement dated as of July 23, 1998 by and between Tri-State Outdoor Media Group, Inc. and Boone Company, Inc. Filed herewith 10.13 First Amendment to Credit Agreement dated as of March 1, 1999. Filed herewith 34 38 10.14 Amendment to Fee Letter dated as of March 1, 1999. Filed herewith 12.0 Computation of Ratio of Earnings to Fixed Charges. Filed herewith *25.1 Statement of Eligibility of Trustee on Form T-1 of IBJ Schroder Bank & Trust Company *25.2 Form of Letter of Transmittal *25.3 Form of Notice of Guaranteed Delivery *25.4 Form of Exchange Agency Agreement between the Company and IBJ Schroder Bank & Trust Company, as exchange agent 27.1 Financial Data Schedule. Filed herewith * Incorporated by reference in the Company's registration statement on Form S-4 (Registration Number 333-59137). SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRI-STATE OUTDOOR MEDIA GROUP, INC. By: /s/Sheldon G. Hurst Sheldon G. Hurst President and Chief Executive Officer Date: March 31, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/Sheldon G. Hurst Chief Executive Officer and Director March 31, 1999 ----------------- Sheldon G. Hurst /s/William G. McLendon Chief Financial Officer, Secretary Director and Principal Accounting Officer March 31, 1999 ------------------ William G. McLendon /s/Anthony LaMarca Executive Vice President and Director March 31, 1999 ------------------ Anthony LaMarca /s/A. Wayne Lamm Vice President of Marketing and Director March 31, 1999 ------------------ Wayne A. Lamm /s/William P. Sutter, Jr. Director March 31, 1999 ------------------------ William P. Sutter, Jr. /s/Sean E. Callahan Director March 31, 1999 ------------------- Sean E. Callahan /s/John D'Ottavio Director March 29, 1999 ------------------ John D'Ottavio
35 39 INDEX TO FINANCIAL STATEMENTS FINANCIAL STATEMENTS Independent Auditor's Report F-1 Balance sheets F-3 Statements of operations F-4 Statements of stockholder's equity (deficiency) F-5 Statements of cash flows F-6 Notes to financial statements F-8 40 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Tri-State Outdoor Media Group, Inc. Tifton, Georgia We have audited the accompanying balance sheets of Tri-State Outdoor Media Group, Inc. as of December 31, 1997 and 1998, and the related statements of operations, stockholder's equity (deficiency), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tri-State Outdoor Media Group, Inc. as of December 31, 1997 and 1998, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. MCGLADREY & PULLEN, LLP West Palm Beach, FL February 13, 1999, except as to paragraph 2 of Note 4 and paragraphs 6 and 8 of Note 5. F-1 41 TRI-STATE OUTDOOR MEDIA GROUP, INC. BALANCE SHEETS December 31, 1997 and 1998 (In thousands, except share and per share amounts)
ASSETS (Note 5) Current Assets Cash $ 132 $ 73 Restricted securities -- 5,401 Accounts receivable, net of allowance for doubtful accounts 1997 $186; 1998 $342 1,429 2,710 Supplies 316 465 Prepaid production costs 432 717 Prepaid site leases, current portion 1,012 1,044 Prepaid commissions, current portion 193 662 Other current assets 211 165 ------- -------- Total current assets 3,725 11,237 ------- -------- Property and Equipment, net (Note 2) 33,083 60,614 ------- -------- Other assets Intangible assets, net (Note 3) 14,421 42,690 Prepaid site leases and commissions, long-term portion 242 459 Deferred taxes (Note 7) 2,533 6,200 Other 102 296 ------- -------- 17,298 49,645 ------- -------- $54,106 $121,496 ======= ======== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY) Current Liabilities Current portion of long-term debt (Note 5) $ -- $ 3,402 Accounts payable 246 1,535 Accrued interest 504 1,510 Accrued expenses 18 268 Deferred revenue 99 317 Due to SGH Holdings, Inc. 125 25 ------- -------- Total current liabilities 992 7,057 Long-Term Debt, net of current portion (Note 5) 57,998 112,839 ------- -------- Total liabilities 58,990 119,896 ------- -------- Commitments and Contingencies (Note 8) Stockholder's Equity (Deficiency) Common stock, par value, $10 per share; authorized 10,000 shares; issued and outstanding 1997 and 1998; 200 shares 2 2 Paid-in capital 25 16,166 Accumulated deficit (4,911) (14,568) ------- -------- (4,884) 1,600 ------- -------- $54,106 $121,496 ======= ========
See Notes to Financial Statements. F-3 42 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Tri-State Outdoor Media Group, Inc. Tifton, Georgia We have audited the accompanying statements of operations, stockholder's equity (deficiency), and cash flows of Tri-State Outdoor Media Group, Inc. for the year ended December 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mistatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of its operations and its cash flows of Tri-State Outdoor Media Group, Inc. for the year ended December 31, 1996, in conformity with generally accepted accounting principles. McGRAIL, MERKEL, QUINN & ASSOCIATES Scranton, PA March 13, 1997 F-2 43 TRI-STATE OUTDOOR MEDIA GROUP, INC. STATEMENT OF OPERATIONS Years Ended December 31, 1996, 1997 and 1998 (in thousands, except share and per share amounts)
1996 1997 1998 --------- --------- --------- Net revenues $ 8,021 $ 11,831 $ 20,958 --------- --------- --------- Operating expenses: Direct operating expenses 2,427 3,817 7,405 General and administrative 2,345 2,417 3,389 Depreciation and amortization 2,648 4,699 9,958 --------- --------- --------- 7,420 10,933 20,752 --------- --------- --------- Operating income 601 898 206 --------- --------- --------- Other income (expense): Gain (loss) on sale of assets 443 (143) -- Interest expense (1,941) (4,200) (10,417) Other income 2 -- 369 --------- --------- --------- Total other income (expense) (1,496) (4,343) (10,048) Loss before income tax benefit and extraordinary loss on early extinquish- ment of debt (895) (3,445) (9,842) Income tax benefit (Note 7) 324 1,424 2,274 --------- --------- --------- Loss before extraordinary loss on early extinquish- ment of debt (571) (2,021) (7,568) Extraordinary loss on early extinguishment of debt, net of income taxes of $1,393 -- -- (2,089) --------- --------- --------- Net loss $ (571) $ (2,021) $ (9,657) ========= ========= ========= Basic loss per common share: Loss before extraordinary loss on early extinquish- ment of debt $ (2,855) $ (10,105) $ (37,840) Extraordinary loss on early extinguishment of debt -- -- (10,445) --------- --------- --------- Net loss $ (2,855) $ (10,105) $ (48,285) ========= ========= ========= Weighted common shares outstanding 200 200 200 ========= ========= =========
See Notes to Financial Statements. F-4 44 TRI-STATE OUTDOOR MEDIA GROUP, INC. STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY) YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (IN THOUSANDS)
Common Paid-in Accumulated Stock Capital Deficit Total -------- -------- -------- -------- Balance (deficit), January 1, 1996 $ 2 $ 25 $ (2,319) $ (2,292) Net loss -- -- (571) (571) -------- -------- -------- -------- Balance (deficit), December 31, 1996 2 25 (2,890) (2,863) Net loss -- -- (2,021) (2,021) -------- -------- -------- -------- Balance (deficit), December 31, 1997 2 25 (4,911) (4,884) Net loss -- -- (9,657) (9,657) Conversion of subordinated debt to paid-in capital -- 16,141 -- 16,141 -------- -------- -------- -------- Balance (deficit), December 31, 1998 $ 2 $ 16,166 $(14,568) $ 1,600 ======== ======== ======== ========
See Notes to Financial Statements. F-5 45 TRI-STATE OUTDOOR MEDIA GROUP, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (IN THOUSANDS)
1996 1997 1998 --------- --------- --------- OPERATING ACTIVITIES Net loss $ (571) $ (2,021) $ (9,657) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,648 4,699 9,958 Deferred income tax benefit (324) (1,424) (3,667) Loss on early extinguishment of debt -- -- 2,089 Loss (gain) on sale of assets (443) 143 -- Accrued interest added to principal 549 1,265 834 Accrued interest added to pledged securities -- -- (145) Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 67 (461) (882) Supplies and prepaid production costs 25 29 (434) Prepaid site leases (16) (568) 152 Prepaid commissions (97) (20) (651) Other assets (1) 219 (148) Increase (decrease) in: Accounts payable (84) (154) 1,289 Accrued expenses (293) 366 (316) Accrued interest -- -- 1,006 Deferred revenue 18 (263) 46 Deposits (2) -- -- --------- --------- --------- Net cash provided by (used in) operating activities 1,476 1,810 (526) --------- --------- --------- INVESTING ACTIVITIES Purchase of property and equipment (1,655) (2,334) (8,093) Proceeds from sale-and-leaseback transaction -- -- 1,389 Acquisitions (Note 4) (286) (34,835) (52,571) Proceeds from sale of assets 3,100 -- -- Purchase of short-term investments -- -- (28,654) Proceeds from sale/maturities of short-term investments -- -- 28,654 Purchase of pledged securities -- -- (10,484) Proceeds from pledged securities -- -- 5,228 Other acquisition costs (75) (101) -- Other 81 (35) -- --------- --------- --------- Net cash provided by (used in) investing activities 1,165 (37,305) (64,531) --------- --------- --------- FINANCING ACTIVITIES Proceeds from issuance of senior notes -- -- 100,000 Borrowings under long-term debt agreement 200 35,925 46,421 Proceeds from revolver borrowings 3,766 8,395 2,200 Payments on revolver borrowings (2,493) (6,433) (6,900) Principal payments on long-term debt (4,055) (881) (70,288) Increase (decrease) in due to SGH Holdings, Inc. -- 125 (100) Debt issuance costs -- (1,637) (6,335) --------- --------- --------- Net cash provided by (used in) financing activities (2,582) 35,494 64,998 --------- --------- --------- Net increase (decrease) in cash 59 (1) (59) CASH: Beginning 74 133 132 --------- --------- --------- Ending $ 133 $ 132 $ 73 ========= ========= =========
See Notes to Financial Statements. F-6 46 TRI-STATE OUTDOOR MEDIA GROUP, INC. STATEMENTS OF CASH FLOWS - (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (IN THOUSANDS)
1996 1997 1998 ---- ---- ---- SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest $ 1,663 $ 3,815 $ 9,411 ===== ===== ======== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Property and equipment acquired under capital leases $ -- $ -- $ 1,389 ====== ======= ======== Conversion of subordinated debentures to paid-in capital $ -- $ -- $ 16,141 ====== ========== ========
See Notes to Financial Statements. F-7 47 TRI-STATE OUTDOOR MEDIA GROUP, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business: The Company is an outdoor advertising company, operating advertising displays in the eastern and central regions of the United States. Most of the Company's advertising displays are located along interstate highways and primary and secondary roads outside of urban areas. The Company offers a full line of outdoor advertising services to its customers, including creative design, production, installation and maintenance of the displays. The Company primarily provides services to advertisers who wish to alert motorists and provide directions to that business. The Company is a 100%-owned subsidiary of SGH Holdings, Inc. ("Holdings"). Significant accounting policies Accounting estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and concentration of credit risk: The Company maintains cash with various financial institutions in accounts which, at times, may be in excess of the FDIC insurance limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash. Restricted securities: The restricted securities are primarily invested in U.S. treasuries which mature within one year and are principally used as security for the May 15, 1999 interest payment on the Senior Notes. Supplies: Supplies consist primarily of materials used in the construction of the signs. Prepaid production costs: The cost of producing display faces for shorter term contracts are recorded as prepaid production costs and are charged to production expense over the term of the related contracts on a straight line basis. Prepaid expenses: The Company prepays certain costs for land leases and sales commissions at the inception of the advertising contracts. These costs are deferred and charged to direct operating expenses on a straight-line basis over the period that coincides with the recognition of income. The portion of these costs associated with advertising revenue to be earned beyond one year of the balance sheet date has been classified as long-term assets. Property and equipment: Property and equipment is recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the respective assets. The estimated useful lives of assets are as follows: Years Building and improvements..................................... 15-30 Advertising structures........................................ 20 Advertising display faces..................................... 3 Vehicles and equipment........................................ 5 Depreciation expense for the years ended December 31, 1996, 1997 and 1998, amounted to $1,574,000, $2,343,000 and $3,964,000, respectively. F-8 48 TRI-STATE OUTDOOR MEDIA GROUP, INC. NOTES TO FINANCIAL STATEMENTS- (CONTINUED) Intangible assets and deferred costs: Intangible assets result from several acquisitions and include noncompete agreements, goodwill and the value of purchased contracts. Intangible assets are being amortized on a straight-line basis over the following lives: Years Goodwill............................................................ 15 Value of purchased contracts........................................ 1-3 Noncompete agreements............................................... 5 Costs incurred by the Company in securing financing agreements have been deferred and are being amortized over the term of the agreements using the effective interest method. Amortization expense for the years ended December 31, 1996, 1997 and 1998, amounted to $1,074,000, $2,356,000 and $5,994,000, respectively. Financial instruments: The Company utilizes derivative financial instruments to change the fixed/variable interest rate mix of the debt portfolio to reduce the Company's aggregate risk to movements in interest rates. The derivative instruments consist of interest rate swap agreements with banks. Gains and losses relating to qualified hedges are deferred and included in the measurement of the related transaction, when the hedged transaction occurs. The Company's policy is not to hold or issue derivative financial instruments for trading purposes. In September 1998, the Company settled all derivative financial instruments in full. Net revenues: Revenues from outdoor advertising contracts are recognized on a straight-line basis over the term of the contract and are net of agency commissions. Bulletin contracts are primarily 36-month terms whereas poster contracts are primarily 12 months or less. Impairment of long-lived assets: The Company continually evaluates whether events and circumstances have occurred that indicate the estimated useful life of long-lived assets may warrant revision or the remaining balance of long-lived assets may not be recoverable. In accordance with FASB Statement No. 121, Accounting for the Impairment losses of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Loss per common share: Loss per common share amounts are computed using the weighted average number of common shares outstanding. Income taxes: Deferred income taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company files a consolidated income tax return with Holdings. The consolidated group uses the separate return method for allocating the consolidated amount of current and deferred tax expense (benefit) to members of the group. F-9 49 TRI-STATE OUTDOOR MEDIA GROUP, INC. NOTES TO FINANCIAL STATEMENTS-(CONTINUED) NOTE 2. PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31, 1997 and 1998 (in thousands):
1997 1998 ------- ------- Land ........................................... $ 173 $ 288 Buildings and improvements ..................... 648 1,120 Structures and faces ........................... 39,887 70,044 Vehicles and equipment ......................... 1,109 1,831 ------- ------- 41,817 73,283 Less accumulated depreciation .................. 8,734 12,669 ------- ------- $33,083 $60,614 ======= =======
NOTE 3. INTANGIBLE ASSETS Intangible assets consist of the following at December 31, 1997 and 1998 (in thousands):
1997 1998 ------- ------- Goodwill ....................................... $11,732 $36,327 Debt issuance costs ............................ 2,335 5,347 Value of purchased contracts ................... 4,838 9,368 Noncompete agreements .......................... 414 1,018 ------- ------- 19,319 52,060 Less accumulated amortization .................. 4,898 9,370 ------- ------- $14,421 $42,690 ======= =======
NOTE 4. ACQUISITIONS 1998 The Unisign Acquisition: Effective March 2, 1998, the Company acquired substantially all the outdoor advertising assets of Unisign Corporation, Inc. ("Unisign") for a total acquisition price of approximately $22.0 million, including the assumption of certain capital leases aggregating approximately $727,000. Cash consideration paid was $21.1 million. As a result of this acquisition, the Company acquired display faces in Kentucky, West Virginia and Ohio. The Company entered into a purchase commitment with Unisign on March 2, 1998 for the construction of outdoor advertising structures for $1,250,000. At that time, the Company also provided a standby letter of credit agreement in the amount of $1,250,000 with Unisign originally expiring April 6, 2000. On March 1, 1999, the Company entered into an amendment to the original credit agreement ("Credit Agreement") with The First National Bank of Chicago and canceled the standby letter of credit agreement in the amount of $1,250,000. (See Note 5.) The Western acquisition: Effective September 18, 1998, the Company acquired substantially all the outdoor advertising assets of Western Outdoor Advertising ("Western") for a total acquisition price of approximately $26.8 million. As a result of this acquisition, the Company acquired display faces in 19 states. The Company entered into a Credit Facility and borrowed $16 million to finance this acquisition. (See Note 5.) Others: The Company purchased on June 26, 1998 certain assets of an outdoor advertising company with approximately 244 advertising displays located in Georgia. The purchase price was $3.0 million. On July 23, 1998, the Company purchased certain assets of an outdoor advertising company with approximately 50 advertising displays located in Georgia. The purchase price was $1.2 million. The Company entered into various other purchase agreements during the year aggregating $1.1 million. F-10 50 TRI-STATE OUTDOOR MEDIA GROUP, INC. NOTES TO FINANCIAL STATEMENTS-(CONTINUED) The assets acquired and liabilities assumed during 1998 in conjunction with the above acquisition were as follows (in thousands):
Unisign Western Others Total ------- ------- ------ ----- Current assets ................. $ 220 $ 360 $ 38 $ 618 Property and equipment and other long term assets ............. 9,105 11,657 2,639 23,401 Goodwill ....................... 10,185 12,194 2,210 24,589 Other intangible assets ........ 2,490 2,539 399 5,428 Assumed liabilities ............ (727) (163) (9) (899) Acquisition costs .............. (200) (189) (177) (566) -------- -------- -------- -------- $ 21,073 $ 26,398 $ 5,100 $ 52,571 ======== ======== ======== ========
1997 The Tri-State Systems Acquisition: In June 1997, the Company acquired substantially all the assets of Tri-State Systems, Inc. ("TSS") for a total acquisition cost of $32.0 million. As a result of the acquisition of TSS, the Company acquired display faces in Georgia, Alabama, Florida, Kentucky, Mississippi, South Carolina and Tennessee. Through this acquisition, the Company also acquired the bench advertising business of TSS, which involves the sale of advertising copy on benches located at bus stops and other locations. The bench advertising business of the Company is operated primarily in Georgia and Alabama, as well as Florida, Kentucky, Mississippi, South Carolina and Tennessee. Subsequent to the acquisition of TSS by the Company, the Company's Chief Financial Officer received $161,000 for his ownership interest in TSS. Sunbelt Outdoor Systems, Inc.: In September 1997, the Company acquired substantially all of the assets of Sunbelt Outdoor Systems, Inc. for a total acquisition cost of approximately $2.8 million. Others: The Company acquired assets from Supreme Outdoor, Inc. and Mid-American Advertising Company for a total acquisition cost of $333,000 and $400,000, respectively during 1997. The assets acquired and liabilities assumed during 1997 in conjunction with the above acquisitions were as follows (in thousands):
TSS Sunbelt Others Total -------- -------- -------- -------- Current assets ................. $ 1,060 $ 21 $ 13 $ 1,094 Property and equipment ......... 19,562 1,734 613 21,909 Goodwill ....................... 8,997 922 84 10,003 Other intangible assets ........ 2,345 104 33 2,482 Assumed liabilities ............ (616) (27) (10) (653) -------- -------- -------- -------- $ 31,348 $ 2,754 $ 733 $ 34,835 ======== ======== ======== ========
The acquisitions were financed by borrowings under the Company's bank credit facilities and promissory notes payable to Holdings. All of the foregoing acquisitions were accounted for as purchases, and the operations are included in the accompanying financial statements subsequent to the acquisitions. Unaudited pro forma results of operations for the years ended December 31, 1997 and 1998 as though these businesses had been acquired as of January 1, 1997, follows (in thousands, except per share amounts):
1997 1998 ---- ---- Revenue ............................................ $ 22,579 $ 24,918 Loss before extraordinary item ..................... (10,469) (10,800) Net loss ........................................... (10,469) (12,889) Loss per common share .............................. (52,345) (64,445)
F-11 51 TRI-STATE OUTDOOR MEDIA GROUP, INC. NOTES TO FINANCIAL STATEMENTS-(CONTINUED) NOTE 5. LONG-TERM DEBT Long-term debt at December 31, 1997 and 1998 consists of the following:
1997 1998 ---- ---- (in thousands) Senior Notes: The Senior Notes are unsecured and mature on March 15, 2008 the Senior Notes bear interest at 11%, payable semi-annually ............... $ -- $100,000 Credit Facility: The First National Bank of Chicago term loan Payable in six quarterly principal installments beginning March 31, 1999 and maturing September 30, 2000; interest payable quarterly as defined by the agreement; the credit facility provides for borrowings up to $14,000,000 ....................... -- 14,000 Revolving note provides for borrowings up to $4,000,000 until June 30, 1999; $3,000,000 until September 30, 1999; $2,000,000 until the facility termination date of September 30, 2000 Interest is payable quarterly on the outstanding balance. The outstanding balance of advances are payable in full on the Facility Termination Date ...................... -- 250 Senior Debt: The First National Bank of Chicago Senior term loan payable in 25 quarterly principal installments maturing June 30, 2004; interest payable quarterly as defined by the Agreement(A) ............................................................... 30,000 -- Senior term loan payable in 26 quarterly Principal installments maturing December 31, 2004; interest payable quarterly as defined by the agreement (A) .......................... 7,500 -- Revolving note provides for borrowing up to $7,500,000 until the facility termination date of June 30, 2004. Interest is payable quarterly on the outstanding balance. Aggregate revolving note will be reduced in unequal quarterly principal installments commencing June 30, 2000(A) ................................................ 4,950 -- Subordinated Debt: Promissory note payable to Holdings dated June 12, 1997. Interest accrues at a rate of 15% per annum compounded quarterly (including deferred accrued interest of $765,000 at December 31, 1997). Principal and accrued interest is due and payable on January 31, 2005(B) .................................. 9,765 --
F-12 52 TRI-STATE OUTDOOR MEDIA GROUP, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1997 1998 ---- ---- (in thousands) Promissory note payable to Holdings dated October 3, 1994. Interest accrues at a rate of 12% per annum (including deferred accrued interest $1,637,000 at December 31,1997). The principal and accrued interest is due and payable on October 4, 2003(B) ......................................................... 5,537 -- Obligations under capital leases ............................................... 246 1,991 -------- -------- 57,998 116,241 Less current portion of long-term debt ......................................... -- 3,402 -------- -------- Long-term debt, less current portion ........................................... $ 57,998 $112,839 ======== ========
- - --------------- (A) The Company used a portion of the net proceeds from the Senior Notes to repay all outstanding borrowings under the Senior Credit Facility, which was thereupon terminated. (B) All quarterly interest due on or prior to September 30, 1996 was deferred. For all quarterly payment dates subsequent to September 30, 1996, the Company is permitted to defer the payment of interest. If deferred, interest accrues at a rate of 15% per annum. In May 1998, Holdings, converted approximately $16.1 million in subordinated debt to paid-in capital. Senior Notes On May 20, 1998, the Company issued a $100 million aggregate principal amount of 11% Senior Notes (the "Senior Notes") pursuant to an indenture (the "Indenture") between the Company and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"). The Senior Notes mature on March 15, 2008 and are senior unsecured obligations of the Company ranking pari passu with all present and future indebtedness of the Company that by its terms is not subordinated to the obligations represented by the Senior Notes. Interest is payable semi-annually on each May 15 and November 15. The Company was required to purchase approximately $10.6 million of U.S. government securities and pledge them as security for the first two interest payments on the Senior Notes. The Company may at its option redeem the Senior Notes with the net proceeds of one or more equity offerings at a redemption price equal to 111% of the principal amount thereof, together with accrued interest, if any, to the date of redemption (subject to the rights of holders of record on the relevant record date to receive interest due on an Interest Payment Date); provided that, immediately after giving effect to any such redemption, at least 75% of the aggregate principal amount of the Securities issued under this Indenture remains outstanding. Any such redemption must be made within 90 days of the related equity offering. The Senior Notes may be redeemed at the option of the Company on or after May 15, 2003 at the redemption prices declining ratably from 105.5% of the principal amount on May 15, 2003 to 100.0% on and after May 15, 2006, plus in each case accrued and unpaid interest to the applicable redemption date. The Indenture restricts the Company from, among other things (i) incurring indebtedness; (ii) incurring liens or guaranteeing obligations; (iii) entering into mergers or consolidations or liquidating or dissolving; (iv) selling or otherwise disposing of property, business or assets; (v) with certain exceptions, making loans or investments; (vi) making optional payments or prepayments of indebtedness; (vii) limiting the ability of the Company to create liens upon its property, assets or revenues. F-13 53 TRI-STATE OUTDOOR MEDIA GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Upon a change of control of the Company, each holder of Senior Notes may require the Company to repurchase all or a portion of such holder's Senior Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. Credit Facility: The Company entered into an amendment to the original credit agreement ("Credit Agreement") with The First National Bank of Chicago originally dated September 20, 1998 on March 1, 1999. The amended Credit Agreement consists of a Term Loan A Facility for $14 million and a Revolving Note C Facility for $4 million with The First Bank of Chicago ("Revolver"). Proceeds from the Credit Agreement were used to finance the acquisition of Western. The Company was required to pay a fee of $385,000 at the loan closing date and will be required to pay an additional fee of $180,000 on June 30, 1999. In addition, if the loan has not been repaid in full by June 30, 1999 an additional fee of $180,000 will be payable September 30, 1999. Also, the Company will be required to issue warrants for 5% of the Company's common stock if the loan is not repaid by September 30, 1999. The exercise price of the warrants will be nominal. The loans are collateralized by a first perfected security interest in all of the assets of the Company as well as by a pledge from Holdings of its stock in the Company. In addition, the Company must maintain keyman life insurance on the president of the Company in the aggregate amount of $2,500,000. The insurance policies are assigned to The First National Bank of Chicago. The Credit Facility enables the Company to borrow funds at a rate equal to the alternative base rate, as defined by the Credit Facility, calculated on the number of days elapsed on the basis of a 360-day year. The Company also has the option of paying interest on loan advances at the Eurodollar Rate, as defined. On December 31, 1998, the effective interest rate was 8.93% on the term loan and 7.5% on the revolving note. Available borrowings under the Revolver are permanently reduced on the last day of the quarters ended June 30, 1999 and September 30, 1999 by $1 million, thereby reducing the availability to $2 million on September 30, 1999 until the facility termination date. The Credit Agreement contains certain affirmative covenants that must be complied with on a continuing basis. In addition, the Credit Agreement contains certain restrictive covenants which, among other things, restrict the Company from incurring additional debt and liens on assets, limits the amount of capital expenditures during any fiscal year, and prohibits the consolidation, merger or sale of assets, or issuance of common stock except as permitted by the Credit Agreement. The Credit Agreement also requires the Company to maintain certain financial ratios. As a result of the early extinguishment of the Senior Debt, the Company was required to record an extraordinary loss of $3.5 million including the estimated fair value of the interest rate swap agreements described below because they no longer met the criteria to be accounted for as a hedge. The Company recorded the related liability of $400,000 in May 1998. In September 1998, the Company settled the interest rate swap agreements for approximately $600,000. The change in fair value since May 1998 has been recorded as other expense in the accompanying statement of operations for the year ended December 31, 1998. F-14 54 TRI-STATE OUTDOOR MEDIA GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Maturities of long-term debt as of December 31, 1998 are as follows (in thousands):
Year Amount 1999 .................................................. $ 3,402 2000 .................................................. 11,452 2001 .................................................. 541 2002 .................................................. 236 2003 .................................................. 610 Thereafter ............................................ 100,000 -------- $116,241 ========
Lease Commitments: The Company leases certain outdoor advertising structures and equipment accounted for as capital leases. The leases provide for the lessee to pay insurance, taxes, maintenance and certain other operating costs of the leased property. These lease agreements contain renewal provisions. The following is a summary of future minimum payments under capitalized leases (in thousands of dollars):
Year Ending December 31, 1999 $ 694 2000 671 2001 689 2002 315 2003 661 -------------- Total minimum lease payments 3,030 Less amount representing interest (effective rates ranging from 14% to 18%) (1,039) -------------- Present value of minimum lease payments under capital lease $ 1,991 ==============
Assets recorded under capital leases are included in property and equipment as follows (in thousands of dollars): 1997 1998 ------- ------- Structures $ 261 $ 2,049 Equipment -- 79 ------- ------- 261 2,128 Accumulated amortization (7) (59) ------- ------- $ 254 $ 2,069 ======= ======= Interim Financing: In conjunction with the Unisign acquisition, the Company borrowed $10 million from Holdings. This borrowing was subordinate to the Company's senior debt and bore interest at LIBOR plus 4.75% (10.4% at March 2, 1998). The note was due on demand and was repaid with a portion of the proceeds from the Senior Notes. F-15 55 TRI-STATE OUTDOOR MEDIA GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Interest Swaps Agreements: The Company used interest rate swap agreements to change the fixed/variable interest rate mix of the debt portfolio to reduce the Company's aggregate risk to movements in interest rates. Amounts paid or received under interest rate swap agreements were accrued as interest rates changed and were recognized over the life of the swap agreements as an adjustment to interest expense. The related amounts payable to, or receivable from, the counterparties were included in accrued interest expense. The fair value of the swap agreements noted below were not recognized in the financial statements since they are accounted for as a hedge. The criteria required to be met for hedge accounting is that, first, the item to be hedged exposes the Company to interest rate risk and, second, the interest rate swap agreements reduces that exposure and is designated a hedge. A summary of interest rate swaps is as follows: The first interest rate swap had a notional amount of $15,000,000, matured May 17, 1999 (with an additional one year option at the Bank's discretion) and had a fixed rate of 9.13%. During 1997, the Company incurred $56,000 related to this agreement and increased interest expense accordingly. The second interest rate swap had a notional amount of $15,000,000, matured May 16, 2000 and had a fixed rate of 9.13%. During 1997, the Company incurred $56,000 related to this agreement and increased interest expense accordingly. Prior to June 1997, the Company had an interest rate swap with a notional amount of $12,000,000, a term of two years commencing November 20, 1995 and a fixed rate of 8.995%. Also, the swaps had an interest rate collar with a notional amount of $10,000,000, a term of one year commencing November 20, 1997 and would have provided a cap of 10.625% and a floor of 8.975%. As mentioned above, these agreements were settled in September 1998. NOTE 6. RELATED PARTY TRANSACTIONS The Company leased its corporate headquarters in Joplin, Missouri from the President, Chief Financial Officer and Vice President of the Company, who jointly owned the building. The Company moved its headquarters to Tifton, Georgia in 1997 and no longer leases the building in Missouri. The Company also leases certain other assets from the President and Chief Financial Officer. The rent expense paid to related parties for the years ended December 31, 1996, 1997 and 1998 in the aggregate totaled approximately $80,000, $60,000 and $41,000, respectively. Also, see Note 5 for a description of subordinated promissory notes payable to Holdings. F-16 56 TRI-STATE OUTDOOR MEDIA GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7. INCOME TAXES The income tax benefit consists of the following for the years ended December 31, 1996, 1997 and 1998 (in thousands):
1996 1997 1998 ------ ------ ------ Current: Federal .......................... $ -- $ -- $ -- State ............................ -- -- -- Deferred benefit: Federal .......................... 269 1,218 1,949 State ............................ 55 206 325 ------ ------ ------ $ 324 $1,424 $2,274 ====== ====== ======
A reconciliation of income tax benefit at statutory rates to the income tax benefit reported in the statements of operations is as follows (in thousands):
1996 1997 1998 ------- ------- ------- Tax benefit at statutory rate ............... $ 304 $ 1,171 $ 3,311 State tax benefit, net of federal taxes ..... 55 206 325 Nondeductible expenses ...................... (21) (11) (25) Increase in valuation allowance ............. -- -- (1,460) Other ....................................... (14) 58 123 ------- ------- ------- Income tax benefit .......................... $ 324 $ 1,424 $ 2,274 ======= ======= =======
At December 31, 1998, the Company has net operating loss carryforwards of approximately $20,330,000 for federal and state income tax purposes, which expire in varying amounts during the years ending 2009 through 2018. The Company is required to record a valuation allowance when it is "more likely than not that some portion or all of the deferred tax assets will not be realized." The Company has assessed its earnings history and anticipated earnings, the expiration dates of carryforwards and other factors and has determined that valuation allowances reflected above should be established against the deferred tax assets as of December 31, 1998. During the year ended December 31, 1998, the Company recorded a valuation allowance of $1,460,000 on the deferred tax assets to reduce the total to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. If the Company is unable to generate sufficient taxable income in the future, increases in the valuation allowance may be required through a charge to expense. There was no other activity in the valuation allowance account during 1996 1997 or 1998. Temporary differences between the financial statement carrying amounts and tax bases of assets that give rise to significant portions of the deferred tax assets relate to the following as of December 31, 1997 and 1998 (in thousands):
1997 1998 ------ ------ Deferred tax assets: Net operating loss carryforwards ................ $2,344 $7,925 Amortization ..................................... 15 893 Allowance for uncollectible accounts ............. 73 133 Property and equipment ........................... 101 -- ------ ------ 2,533 8,951 Less valuation allowance ......................... -- 1,460 ------ ------ 2,533 7,491 Deferred tax liabilities: Property and equipment ........................... -- (1,291) ------ ------ $2,533 $6,200 ====== ======
F-17 57 TRI-STATE OUTDOOR MEDIA GROUP, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) NOTE 8. COMMITMENTS Operating leases: Noncancelable operating leases for display sites expire in various years through 2041. These leases generally contain renewal options for a period of years equal to the initial term of the leases. Thereafter, the leases generally are renewable on a year to year basis unless terminated by either party at least 30 days prior to the anniversary date. Rental expenses for all site leases were $1,008,000, $1,632,000 and $3,146,000 for the years ended December 31, 1996, 1997, and 1998, respectively. Future minimum rentals for site leases at December 31, 1998 are as follows (in thousands): Year Amounts 1999...............................................................$ 1,913 2000............................................................... 1,684 2001............................................................... 1,525 2002............................................................... 1,302 2003............................................................... 1,024 Thereafter......................................................... 5,668 ---------- Total minimum lease payments required.......... $ 13,116 ========== Zoning regulations: In some of the localities in which the Company operates, outdoor advertising is subject to restrictive zoning regulations. Although the Company believes the existence of those regulations continue to be a factor in the operation of the Company's business such regulations have not had a significant effect on the results of operations. NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: The carrying amounts approximate fair values as of December 31, 1997 and 1998 for cash, restricted securities, accounts receivable and accounts payable because of the short-term maturities of those instruments. The Company does not believe it is practical to estimate the fair value of the letter of credit (Note 4) and does not believe exposure to loss is likely. 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. The fair values of the Senior Notes equal their carrying value based on quoted market prices. The fair value of the interest rate instruments are the estimated amounts that the Company would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates and the current creditworthiness of the counterparties. At December 31, 1997, the Company estimates it would have paid $400,000. NOTE 10. SALE LEASEBACK TRANSACTION In September 1998, the Company entered into six sale-leaseback transactions aggregating $1.3 million whereby the Company sold advertising displays in the Southeast. There was no significant gains (losses) resulting from these transactions. The related leases are being accounted for as capital leases. The assets were leased back from the purchaser for a period of 5 years. The leases contain renewal options at lease termination. The minimum lease payments required by the leases over the next five years are included in Note 5. The sale-leaseback agreements contain financial penalties which would be triggered if the Company were to terminate any of the leases early. F-18 58 INDEX TO EXHIBITS EXHIBIT Exhibit Number Description of Exhibit - - ------ ---------------------- *3.1 Restated Certificate of Incorporation of the Company certified by the Secretary of State of State of Kansas *3.2 By-Laws of the Company *4.1 Indenture dated as of May 15, 1998 relating to the Company's 11% Senior Notes due 2008 and the 11% Senior Series B Notes due 2008 *4.2 Form of Global Note *5.1 Opinion of St. John & Wayne, L.L.C., General Counsel of the Company *10.1 Asset Purchase Agreement, dated as of May 6, 1997, between the Company and Tri-State Systems, Inc. *10.2 Asset Purchase Agreement, dated as of February 13, 1998, between the Company and Unisign Corporation, Inc. *10.3 Registration Rights Agreement dated as of May 13, 1998 relating to the Company's 11% Senior Notes due 2008 *10.4 Pledge Agreement dated as of May 15, 1998 relating to the Company's 11% Senior Notes due 2008 *10.5 Tax Sharing Agreement dated as of May 20, 1998 relating to SGH Holdings, Inc. and the Company *10.6 Second Amended and Restated Stockholders Agreement, dated as of February 27, 1998 *10.7 Anti-Dilution Agreement, dated as of February 29, 1998 *10.8 Credit Agreement dated as of May 20, 1998 between the Company and The First National Bank of Chicago *10.9 Asset Purchase Agreement, dated as of September 4, 1998, by and between Tri-State Outdoor Media Group, Inc. and Western Outdoor Advertising Co. *10.10 Credit Agreement among Tri-State Outdoor Media Group, Inc., the Lending Institutions Party Thereto, as Lenders and The First National Bank of Chicago, as Agent, dated as of September 18, 1998 10.11 Asset Purchase Agreement dated as of June 12, 1998 by and between Tri-State Outdoor Media Group, Inc. and John R. Leslie, Sr., Trading as Leslie Outdoor Advertising. Filed herewith 10.12 Asset Purchase Agreement dated as of July 23, 1998 by and between Tri-State Outdoor Media Group, Inc. and Boone Company, Inc. Filed herewith 10.13 First Amendment to Credit Agreement dated as of March 1, 1999. Filed herewith 59 10.14 Amendment to Fee Letter dated as of March 1, 1999. Filed herewith 12.0 Computation of Ratio of Earnings to Fixed Charges. Filed herewith *25.1 Statement of Eligibility of Trustee on Form T-1 of IBJ Schroder Bank & Trust Company *25.2 Form of Letter of Transmittal *25.3 Form of Notice of Guaranteed Delivery *25.4 Form of Exchange Agency Agreement between the Company and IBJ Schroder Bank & Trust Company, as exchange agent 27.1 Financial Data Schedule. Filed herewith * Incorporated by reference in the Company's registration statement on Form S-4 (Registration Number 333-59137). EX-10.11 2 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.11 ================================================================================ ASSET PURCHASE AGREEMENT dated as of June 26, 1998 by and between TRI-STATE OUTDOOR MEDIA GROUP, INC. and JOHN R. LESLIE, SR., TRADING AS LESLIE OUTDOOR ADVERTISING ================================================================================ 2 INDEX 1.DEFINITIONS .........................................................1 2.PURCHASE AND SALE OF THE ASSETS; CLOSING ............................1 2.1Agreement to Purchase and Sell .....................................1 2.2 Purchased Assets ..................................................1 2.3Agreement to Assume Certain Liabilities ............................3 2.4Excluded Liabilities ...............................................3 2.5Closing ............................................................4 2.6Purchase Price. ..................................................4 2.7Transactions at the Closing ........................................4 2.8Third Party Consents. ............................................4 3. REPRESENTATIONS AND WARRANTIES OF SELLER ..........................5 3.1Organization and Good Standing .....................................5 3.2Authority; No Conflict .............................................5 3.3Solvency. .........................................................6 3.4Books and Records ..................................................6 3.5Structures. .......................................................6 3.6Permits. ..........................................................6 3.7Site Leases and Advertising Contracts ..............................6 3.8Omitted ............................................................7 3.9Title, Encumbrances ................................................7 3.10Financial Statements ..............................................7 3.11Taxes. ...........................................................8 3.12Compliance with Legal Requirements ................................8 3.13Legal Proceedings; Orders .........................................8 3.14Other Contracts. .................................................8 3.15Insurance .........................................................8 3.16Environmental Matters. ...........................................8 3.17Intangible Property. .............................................9 3.18Relationships with Affiliates .....................................9 3.19Brokers or Finders. .............................................9 3.20Employee Benefits Matters ........................................9 3.21Bulk Sales .......................................................10 3.22Employees; Labor Matters. ......................................10 3.23Indebtedness, Encumbrances and Security Interests. .............10 3.24HSR ..............................................................11 3.25Billboard Income .................................................11 3.26Phoenix Contract .................................................11 3.27Disclosure .......................................................11 4.REPRESENTATIONS AND WARRANTIES OF BUYER ...........................11 4.1Organization and Good Standing ..................................11 i 3 4.2Authority; No Conflict ............................................11 4.3Certain Proceedings. ............................................12 4.4Brokers or Finders. .............................................12 5.COVENANTS OF SELLER ................................................12 5.1Access and Investigation. .......................................12 5.2Due Diligence .....................................................12 5.3Operation of the Purchased Assets .................................12 5.4Best Efforts. ...................................................13 5.5Negative Covenant .................................................13 5.6Required Approvals and Consents. ................................13 5.7Notification. ...................................................13 5.8No Negotiation ....................................................13 5.9Tax Clearance. ..................................................13 6.COVENANTS OF BUYER ................................................14 6.1Required Approvals ...............................................14 6.2Best Efforts ......................................................14 6.3Notification ......................................................14 7.CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE ................14 7.1Accuracy of Representations. .....................................14 7.2Seller's Performance. ...........................................14 7.3Consents. ........................................................14 7.4Additional Documents ..............................................15 7.5No Proceedings ....................................................15 7.6No Prohibition ....................................................15 7.7No Material Adverse Change ........................................15 7.8Due Diligence .....................................................15 7.9Satisfaction of Indebtedness. ...................................15 8.CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE ...............16 8.1Accuracy of Representations .......................................16 8.2Buyer's Performance. .............................................16 8.3Additional Documents ..............................................16 8.4No Proceedings ....................................................16 8.5No Prohibition ....................................................16 9.TERMINATION ........................................................17 9.1Termination Events ................................................17 9.2Effect of Termination .............................................17 10.INDEMNIFICATION; REMEDIES .........................................18 10.1Indemnification and Payment of Damagesby Seller and the Indemnifying Stockholders ............................................18 10.2Indemnification and Payment of Damages by Buyer ..................18 10.3Procedure for Indemnification -- Third Party Claims ..............18 10.4Procedure for Indemnification -- Other Claim .....................19 ii 4 10.5Survival/Limitations. ..........................................19 11.NON-COMPETITION AND NON-SOLICITATION ..............................20 11.1Non-Competition. ................................................20 11.2Non-Solicitation. ...............................................20 11.3Enforcement. ...................................................20 11.4Survival. .......................................................20 12.POST-CLOSING ESCROW FUND ..........................................21 12.1Escrow Amount. .................................................21 12.2Claims. ........................................................21 12.3Payment Date .....................................................22 12.4Escrow Agent Held Harmless. ....................................22 12.5Reliance on Notices. ...........................................22 12.6Disputes. .......................................................22 12.7Waiver of Conflict ...............................................22 12.8No Limitation of Rights or Obligations ...........................22 12.9Survival. .......................................................22 13.GENERAL PROVISIONS ................................................23 13.1Expenses. ......................................................23 13.2Headings; Construction ...........................................23 13.3Public Announcements; Confidentiality ............................23 13.4Availability of Equitable Remedies. ............................23 13.5Notices ..........................................................23 13.6Further Assurances. .............................................25 13.7Waiver. ........................................................25 13.8Entire Agreement and Modification. .............................25 13.9Assignments, Successors, and No Third-Party Rights. ............25 13.10 Severability. ................................................26 13.11Risk of Loss. .................................................26 13.12Post-Closing Access. ..........................................26 13.13Applicable Law and Venue. ......................................26 13.14Counterparts. .................................................26 14.ARBITRATION .......................................................27 14.2Arbitration Procedure ............................................27 14.3Jurisdiction .....................................................27 14.4Expenses .........................................................27 14.5Survival .........................................................27 iii 5 EXHIBITS Exhibit A - Definitions Exhibit B - Bill of Sale, Assignment and Assumption Agreement Exhibit C - Areas of Non-Competition Exhibit D - Seller's Compliance Certificate Exhibit E - Opinion of Seller's Counsel Exhibit F - Buyer's Compliance Certificate Exhibit G - Opinion of Buyer's Counsel SCHEDULES Schedule 2.2(a) - Structures Schedule 2.2(b) - Site Leases Schedule 2.2(c) - Advertising Contracts Schedule 2.2(d) - Permits Schedule 2.3 - Phoenix Contract Schedule 3.10 - Financial Statements DISCLOSURE SCHEDULE Part 3.2(b) Part 3.9(b) Part 3.20 Part 3.2(c) Part 3.12 Part 3.22 Part 3.5 Part 3.13 Part 3.23 Part 3.6 Part 3.14 Part 3.7 Part 3.16 6 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement ("Agreement") is entered into as of 6-26-98, 1998, by and between TRI-STATE OUTDOOR MEDIA GROUP, INC., a Kansas corporation ("Buyer"), and JOHN R. LESLIE, SR., TRADING AS LESLIE OUTDOOR ADVERTISING ("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 (the "Business") in the following counties in Georgia: Baldwin, Butts, Bleckley, Dodge, Emanuel, Hancock, Houston, Jefferson, Johnson, Jones, Laurens, Lamar, Monroe, Pulaski, Putnam, Treutlen, Twiggs, Washington and Wilkinson (the "Territory"). 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 in and to the Purchased Assets, free and clear of any Encumbrances, Security Interests or indebtedness, 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. 1 7 2.2 Purchased Assets. The Purchased Assets are those assets of Seller used in the Business listed below: (a) 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 Seller has any rights (including at least 106 structures and 246 sign faces) (collectively, the "Structures"), including, without limitation, all of the Structures listed on Schedule 2.2(a); (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 billboard displays and other out-of-home advertising structures (including, without limitation, the Structures) on land, buildings and other real property owned by third parties, and all rights therein (collectively, the "Site Leases"), including, without limitation, those Site Leases listed on Schedule 2.2(b); (c) all of the rights under existing and pending sales and advertising contracts associated with the Business, all rights to the advertising copy displayed on the Structures as of the Closing Date, all other rights to collect and receive income from the use of the Structures and security deposits, if any, with respect thereto (collectively, the "Advertising Contracts"), including, without limitation, all of the Advertising Contracts listed on Schedule 2.2(c); (d) all state and local licenses or permits/tags which Seller has or has an interest in with respect to the Business and all other Governmental Authorizations that are required for the operation of the Business (collectively, the "Permits"), including, without limitation, all of the Permits listed on Schedule 2.2(d); (e) all accounts receivable, prepaid items and other assets of Seller as of the Closing Date used in the Business that would be reflected as current assets on a balance sheet of Seller as of the Closing Date prepared in a manner consistent with Section 3.10(a), but excluding cash and cash equivalents; (f) all pertinent Books and Records; (g) the Intangible Property; and (h) 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. 2 8 Notwithstanding the foregoing, the Purchased Assets shall not include the following assets owned by Seller: (i) The land and improvements located at 102 Admiralty Way, Milledgeville, Georgia; and (ii) One (1) billboard structure located at 911 South Elbert Street, Milledgeville, Georgia, to be used only for on-premises advertising purposes in connection with Seller's restaurant business. 2.3 Agreement to Assume Certain Liabilities. At the Closing, Buyer shall assume and agree to discharge and perform only those liabilities and obligations that are attributable to events occurring on or after the Closing Date pursuant (1) to the Site Leases, Advertising Contracts and Permits listed on Schedules 2.2(b), 2.2(c) and 2.2(d), respectively, and (2) the May 28, 1998 contract between Seller and Phoenix Structures & Service, Inc., a copy of which is annexed hereto as Schedule 2.3 (the "Phoenix Contract") (the "Assumed Liabilities"), but to the extent and only to the extent that: (a) Such obligations are performable on or after the Closing Date; (b) Such obligations are attributable to periods arising on or after the Closing Date; and (c) With respect to the Phoenix Contrct, Buyer's liability shall not exceed $200,000.00 in the aggregate, except as may be permitted under the provision entitled "Subsurface Clause". The assumption by Buyer of any Assumed Liabilities shall not be deemed to modify or amend Seller's representations and warranties contained herein or in any way impair Buyer's right to rely upon such representations and warranties or to obtain indemnification pursuant to Article 10 hereof for any breach of such representations and warranties. 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 for Taxes arising prior to or as a result of 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; 3 9 (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; (e) Any other liabilities of Seller, whether absolute or contingent, that are attributable to or arise from facts, events, or conditions that occurred or came into existence prior to the Closing (except to the extent that Buyer shall assume the Assumed Liabilities as set forth in Section 2.3), whether or not such liabilities are asserted or claimed prior to the Closing or thereafter. 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 on the date which is twenty-one (21) days after the full execution of this Agreement, or such earlier or later time and place as the Parties may agree in writing. 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 Three Million Six Thousand One Hundred Dollars ($3,006,100.00). 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/or deliver to Buyer: (i) the Bill of Sale; (ii) Required Consents; (iii) satisfactory evidence of the release of any Encumbrances or Security Interests on the Purchased Assets; (iv) all applicable Tax Clearances; and (v) other instruments of transfer, and all other related documents as may be necessary to effect the sale and assignment of the Purchased Assets in accordance with the terms hereof. Seller shall also deliver to Buyer all Books and Records with respect to the Purchased Assets, including the originals of the Advertising Contracts, Site Leases and Permits. (b) Buyer shall deliver the Purchase Price at the Closing, as follows: (i) $ 2,906,100.00 (subject to any required adjustments) shall be delivered to an account or accounts designated by Seller by wire transfer of immediately available funds; and (ii) the $ 100,000.00 Escrow Amount (as described in Section 12.1) shall be delivered to the Escrow Agent by wire transfer of immediately available funds to be held in accordance with the provisions of Section 12 of this Agreement. (c) Buyer shall enter into (as applicable) and deliver to Seller: (i) the Bill of Sale, and (ii) other assumption agreements, instruments and other documents as may be reasonably 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, Permit 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 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 benefits to Buyer, including any sublease or 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. 4 10 3. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as follows: 3.1 Organization and Good Standing. Seller is an individual with full power and authority to conduct the Business as it is now being conducted, to own or use the Purchased Assets, and to perform all its obligations. 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. (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: 5 11 (i) conflict with, violate or result in a breach of (A) any Order or Legal Requirement to which Seller, the Business or any of the Purchased Assets may be subject; or (B) any Governmental Authorization held by Seller or that otherwise relates to the 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 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) with respect to the Purchased Assets. 3.4 Books and Records. The 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. Buyer shall have full access to the Books and Records (and the right to make copies of same) prior to, at and after the Closing, and this provision shall survive the Closing. 3.5 Structures. Seller owns all of the Structures. Except as set forth in Part 3.5 of the Disclosure Schedule, each Structure (a) has a written Site Lease and is located entirely on property covered by a Site Lease, (b) complies in all material respects with the terms of the Permits and applicable Legal Requirements pertaining to it, (c) is in condition to accept faces and in adequate condition and repair for its current use, and (d) is not currently the subject of any dispute with any lessor, any lessee or owner of adjacent property or any other Person. 3.6 Permits. Except as set forth in Part 3.6 of the Disclosure Schedule, (a) the Permits constitute all necessary licenses, permits, registrations and approvals necessary pursuant to all applicable Legal Requirements to install, operate and maintain the Structures for off-premises advertising, (b) Seller is in material compliance with the terms of the Permits; (c) each Permit is in full force and effect and Seller is not aware of any fact or event which constitutes a material violation of any Permit, and (d) 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 all Advertising Contracts and the Site Leases to which Seller is a party or by which Seller or any of the Purchased Assets is bound, and all Site Leases and Advertising Contracts are listed on Schedules 2.2(b) and 2.2(c), respectively. 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, (x) to the Knowledge of Seller, no default by Seller or any other Person has occurred under the Site Leases or Advertising Contracts and (y) to the Knowledge of Seller, 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 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. Except as set forth in Part 3.7 of the Disclosure Schedule, Seller has not received any written notice of default, termination or non-renewal under any Site Lease or Advertising Contract. On the Closing Date, all Site Lease rents and other charges and all liabilities with respect to the Purchased Assets obligations shall be paid in full through the calendar month in which the Closing occurs. 6 12 3.8 Omitted. 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. (b) Except as set forth in Part 3.9(b) of the Disclosure Schedule, none of the Structures or Site Leases 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, reasonings or other adverse claims affecting the structures or Site Leases. 3.10 Financial Statements. (a) Seller has delivered to Buyer certain financial statements with respect to the Business,copies of which are annexed hereto as Schedule 3.10. The Financial Statements have been prepared using generally accepted accounting principles consistently applied during the periods covered thereby and are (i) complete and correct in all material respects, and (ii) present fairly in all material respects the financial condition of the Business at the dates of said statements and the results of the operations of the Business and cash flows for the periods covered thereby. There has been no Material Adverse Change in the financial condition of the Business or Purchased Assets since June 13, 1998. (b) As of the date hereof and as of the Closing Date, Seller had and will have no liabilities with respect to the Business or the Purchased Assets (which liabilities, when taken individually or in the aggregate are material) of any nature, whether accrued, absolute, contingent or otherwise, asserted or unasserted, known or unknown (including, without limitation, liabilities as guarantor or otherwise with respect to obligations of others, or liabilities for Taxes due or then accrued or to become due or contingent or potential liabilities relating to activities of Seller with respect to the Business prior to the date hereof or the Closing, as the case may be, regardless of whether claims in respect thereof had been asserted as of such date), except (i) liabilities reflected in the Financial Statements or the notes thereto, or (ii) liabilities incurred in the Ordinary Course of Business since June 13, 1998. 7 13 (c) At Closing Seller shall deliver to Buyer an unaudited balance sheet as at the date immediately preceding the Closing Date and an income statement for the partial fiscal year then ended, certified by Seller. 3.11 Taxes. With respect to the Purchased Assets and the 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 or may have become due pursuant to those Tax Returns or otherwise, or pursuant to any assessment received by Seller. (b) No unpaid Taxes create an Encumbrance 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. Except as set forth in Part 3.12 of the Disclosure Schedule, (a) Seller has complied with all Legal Requirements applicable to Seller's ownership or use of the Purchased Assets and operation of the Business, and (b) Seller has not received any notice (written or oral) of any violation or failure to comply with any Legal Requirements relating to the Business, the Purchased Assets or their use or operation which violation or failure has not been cured. 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 or affecting any of the Purchased Assets and there is no Order to which Seller or the Purchased Assets is subject. 3.14 Other Contracts. Neither the Business nor the Purchased Assets is bound by any Other Contract, except (a) as disclosed in Part 3.14 of the Disclosure Schedule, and (b) the Phoenix Contract. 3.15 Insurance. Seller maintains (and shall through and including the Closing Date maintain) in full force and effect policies of fire and other casualty, liability, title and other forms of insurance covering the Purchased 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. 8 14 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: (a) Seller is, and has been, in compliance with all Environmental Laws; (b) Seller has timely filed all reports, obtained all required approvals and permits relating to the Business, and generated and maintained all data, documentation and records under any applicable Environmental Laws; (c) to the Knowledge of Seller, there has not been any Release of Hazardous Materials at or in the vicinity of any real property covered by a Site Lease or on which a Structure is located or in areas for which Seller would have responsibility under Environmental Laws; (d) 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 produced by, or resulting from, its Business, operations or processes; and (e) Seller has delivered to Buyer true and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed or accessible by Seller pertaining to Hazardous Materials in, on, or under the properties included in the Purchased Assets. 3.17 Intangible Property. Seller uses no Intangible Property in connection with the operation of the Purchased Assets except for the Permits, the Books and Records, the trade name "Leslie Outdoor Advertising" and licenses for commonly available software programs under which Seller is the licensee. 15 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 a Related Person of Seller relating to the Purchased Assets. Neither Seller nor any Related Persons of Seller 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. Seller has not, in the three (3) years immediately preceding the date hereof, entered into any agreement with or engaged in any transaction with Affiliates of Seller or a Related Person of Seller for the provision of any services or the purchase, sale or other transfer of assets. 3.19 Brokers or Finders. Seller and its shareholders, directors, and Representatives 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 Employee Benefits Matters Except as disclosed on Part 3.20 of the Disclosure Schedule, with respect to the Business: (a) Seller does not maintain and has never maintained an "employee benefit pension plan" within the meaning of ERISA Section 3(2), that is or was subject to Title IV of ERISA. (b) Seller does not have and has not ever had, any past, present or future obligation or liability to contribute any "multiemployer plan," as defined in ERISA Section 3(37). (c) Seller does not have any written or oral employee benefit plans, contracts, agreements, incentives or arrangements, including without limitation, pension and profit sharing plans, savings plans, incentive compensation, medical, life, dental or disability plans or severance agreements. For purposes of this Section 3.20, the term "Seller" shall be deemed to include any other corporation, trade, business or other entity, other than Seller, which would, together with Seller, now or in the past constitute a single employer within the meaning of Section 414 of the IRC. 9 16 3.21 Bulk Sales. Neither the sale by Seller to Buyer of the Purchased Assets nor the transfer by Seller to Buyer of the Assumed Liabilities as contemplated in this Agreement constitutes a "bulk sale" (as that term is defined by the Uniform Commercial Code), and the completion of the transactions contemplated in this Agreement shall not subject Buyer to any (i) claims relating to or liabilities resulting from the operations or obligations of Seller, or (ii) liabilities or obligations with respect to state or local sales, transfer or similar taxes, all of which liabilities and obligations shall be the sole responsibility of Seller. 3.22 Employees; Labor Matters. All employees of the Business are employees at will. Except as disclosed on Part 3.22 of the Disclosure Schedule, no employee, agent or consultant of Seller is a party to any agreement governing such employee's agent's or consultant's employment or engagement, as the case may be, with Seller. As of the date hereof Seller employs (and as of the Closing Date Seller shall employ) less than fifty (50) employees. Seller has made no warranty, representation or agreement, either in writing or orally, to any employee of Seller that Buyer intends to employ such employee on or after the Closing Date. Seller consents to Buyer communicating with the employees, consultants and independent contractors of Seller on or prior to the Closing Date, and Seller shall cooperate in connection therewith. Seller is not a party to any collective bargaining agreement with respect to any of its employees nor are any employees of Seller covered by any collective bargaining agreement. No labor organization or group of employees has made a demand for recognition, has filed a petition seeking a representation proceeding or given Seller notice of any intention to hold an election of a collective bargaining organization. There are no known writs, actions, claims or legal, administrative, arbitration or other proceedings or governmental investigations pending or Threatened or involving or alleging civil rights violations, unfair labor investigations practice claims, back pay orders or other similar claims or proceedings. Seller is in material compliance with all federal, state and local laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practice; there is no unfair labor practice complaint against Seller pending before the National Labor Relations Board; there is no labor strike, dispute, slowdown, or stoppage pending or threatened against or involving the employees of Seller; no grievance or any arbitration proceeding is pending or threatened against Seller and no claim therefor exists. 3.23 Indebtedness, Encumbrances and Security Interests. Except as set forth on Part 3.23 of the Disclosure Schedule, all of the Purchased Assets are owned by Seller free and clear of and Encumbrance, Security Interest or indebtedness. All such Encumbrances, Security Interests and indebtedness shall be satisfied and discharged at or before the Closing. 10 17 3.24 HSR. The Contemplated Transactions are not subject to the reporting requirements under the HSR Act. 3.25 Billboard Income. The net monthly billings on Advertising Contracts with an original term of at least six (6) months in effect as of the date hereof and on the Closing Date are, and on the Closing Date shall be, not less than $49,500.00 (such amount to include not more than $5,000.00 in poster contract billings). 3.26 Phoenix Contract. Seller has delivered to Buyer a true and complete copy of the Phoenix Contract The Phoenix Contract is in full force and effect, and is binding upon the parties thereto. Except as set forth in Part 3.7 of the Disclosure Schedule, (x) no default by Seller or any other Person has occurred under the Phoenix Contract 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 default by Seller thereunder or would entitle any other party to terminate the Phoenix Contract, to make a claim or set-off against Seller or otherwise to amend the Phoenix Contract. Except as set forth in Part 3.7 of the Disclosure Schedule, Seller has not received any written notice of default or under the Phoenix Contract. 3.27 Disclosure. No representation or warranty of Seller in this Agreement and no statement in the Disclosure Schedule contains an untrue statement of material fact 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. 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 Kansas. 4.2 Authority; No Conflict 11 18 (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. 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 and no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any Proceeding. 19 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. 5. COVENANTS OF SELLER 5.1 Access and Investigation. Between the date of this Agreement and the Closing Date, Seller will, and will 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 Business, and furnish Buyer and its Representatives with copies of the same. In addition to the foregoing, Seller (without additional consideration therefor to be paid to Seller, but with any reasonable out-of-pocket expenses payable to non-Affiliates incurred by Seller to be paid by Buyer), shall, at all reasonable times before the Closing if called upon by Buyer, use reasonable efforts to cooperate with and assist Buyer in the preparation of financial statements by Buyer which may include the operation of the Purchased Assets prior to the Closing Date. 5.2 Due Diligence. Buyer shall have the right, and Seller shall afford access to Buyer and its Representatives, at all reasonable times upon advance notice to perform due diligence on the Purchased Assets. 5.3 Operation of the Purchased Assets. Between the date of this Agreement and the Closing Date, Seller will: 12 20 (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 associated Purchased Assets; (c) not enter into any new Advertising Contract or Site Lease not in the Ordinary Course of Business; and (d) not bill any party for payments (or accept any payments) under any Advertising Contract for any period after the end of the calendar month in which the Closing Date occurs, and if Seller receives any such payments it shall promptly pay the same to Buyer. 5.4 Best Efforts. Between the date of this Agreement and the Closing Date, Seller will use its Best Efforts to cause the conditions in Section 7 to be satisfied. 5.5 Negative Covenant. Except as otherwise expressly permitted by this Agreement, between the date of this Agreement and the Closing Date, Seller will operate the Business consistent in all material respects with past practice, except as otherwise provided in this Agreement. 5.6 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 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. 5.7 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 breach of any of Seller's representations and warranties as of the date of this Agreement, or if Seller 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, Seller will promptly notify Buyer of the occurrence of any breach of any covenant of Seller in this Section 5 or of the occurrence of any event that may make the satisfaction of the condition in Section 7 impossible or unlikely. 5.8 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. 5.9 Tax Clearance. Seller shall obtain certificates of clearances for Taxes ("Tax Clearances") from the State of Georgia, and applicable local jurisdictions (if any), certifying as to the payment by or on behalf of Seller of all Taxes due on or prior to the Closing Date (including, without limitation, in connection with the Contemplated Transactions). 13 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 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 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. 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 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 an executive officer of Seller in the form of Exhibit F annexed hereto, 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 Buyer shall have received a certificate of an executive officer of Seller in the form of Exhibit D annexed hereto, dated as of the Closing Date, as to such compliance. 7.3 Consents. Each of the Consents required pursuant to Section 3.2(c) shall have been obtained and shall be in full force and effect. 14 22 7.4 Additional Documents. Each of the following documents must have been delivered to Buyer: (a) an opinion of Joel Burns dated the Closing Date in the form of Exhibit E annexed hereto, (b) the deliveries required from Seller in Section 2.7; (c) resolutions of all the shareholders and directors of Seller confirming the authorization of the execution and delivery of this Agreement and the Contemplated Transactions; 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. 7.5 No Proceedings. Since the date of this Agreement, there must not have been commenced and pending or Threatened by any Person 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. 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. 7.7 No Material Adverse Change. There shall not have been a Material Adverse Change since the date hereof. 7.8 Due Diligence. On or before the date which is ten (10) days after the full execution of this Agreement, Buyer's due diligence investigation and review of the Purchased Assets and the Assumed Liabilities shall not reveal any fact or circumstance not acceptable to Buyer in Buyer's sole and absolute discretion. 7.9 Satisfaction of Indebtedness. At or prior to the Closing, Seller shall have repaid in full all outstanding indebtedness of Seller to the extent affecting the Purchased Assets and shall cause all Security Interests affecting the Purchased Assets to be extinguished. 15 23 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE Seller's obligation to sell the Purchased Assets and Seller's obligation 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 in all material respects as of the date of this Agreement and must be accurate in all material respects in all 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 in the form of Exhibit F annexed hereto, 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 in the form of Exhibit F annexed hereto, 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 St. John & Wayne, L.L.C., dated the Closing Date in the form of Exhibit G annexed hereto; (b) the deliveries required from Buyer in Section 2.7; (c) resolutions of all the directors of Buyer confirming the authorization of the execution and delivery of this Agreement and the Contemplated Transactions; and (d) 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. 16 24 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 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 in writing such condition on or before the Closing Date (in which case the Deposit shall be immediately returned to Buyer); or (ii) by Seller 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 failure of Seller to comply with its obligations under this Agreement) and Seller has not waived in writing 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 July 31, 1998, or such later date as the Parties may agree upon. 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 and the Deposit shall be immediately returned to Buyer, except that the obligations in Sections 13.1 and 13.3 will survive; provided, however, if (a) Seller shall default in its obligations under this Agreement to consummate the Contemplated Transactions (other than as a result of Buyer's default under this Agreement), and Seller shall fail to cure such default within fourteen (14) days after receipt of written notice of default from Buyer, then Buyer shall have the right to pursue any or all legal and equitable remedies, separately or simultaneously (including, without limitation, (1) the right to terminate this Agreement and receive the return of the Deposit, or (2) specific performance), which will survive the termination unimpaired, and the obligations in Sections 13.1 and 13.3 will survive; and (b) Buyer shall default in its obligations under this Agreement to consummate the Contemplated Transactions (other than as a result of Seller's default under this Agreement), and Buyer shall fail to cure such default within fourteen (14) days after receipt of written notice of default from Seller, then Buyer shall pay to Seller, as Seller's sole remedy (in lieu of any and all remedies), the sum of $5,000.00, which sum shall constitute the agreed and liquidated damages for such termination and/or failure to close by Buyer, and the obligations in Sections 13.1 and 13.3 will survive. The remedies set forth in this Section 9.2 apply only to the failure of Buyer or Seller to consummate the Contemplated Transactions, and not with respect to any obligations specified herein that survive the Closing or termination of this Agreement. 17 25 10. INDEMNIFICATION; REMEDIES 10.1 Indemnification and Payment of Damages by Seller and the Indemnifying Stockholders. Seller and the Indemnifying Stockholders will, jointly and severally, indemnify and hold harmless Buyer and 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 (whether absolute or contingent), 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 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 breach by Seller of any covenant or obligation of Seller in this Agreement or an certificate or document delivered by Seller pursuant to this Agreement; (c) the failure of Seller to satisfy and discharge any Excluded Liabilities; (d) any default by Seller under any Site Lease, Advertising Contract or Permit or the Phoenix Contract which occurred or accrued prior to the Closing; (e) the failure of Seller to comply with bulk sales or other similar laws in any applicable jurisdiction; and (f) facts, events or conditions that occurred or came into existence prior to the Closing (except to the extent that Buyer shall have assumed the same as set forth in Section 2.3), whether or not such Damages are asserted or claimed prior to the Closing or thereafter. 10.2 Indemnification and Payment of Damages by Buyer. Buyer will indemnify 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 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) the failure to pay Assumed Liabilities after the Closing. 10.3 Procedure for Indemnification -- Third Party Claims. 18 26 (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 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 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 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 ten (10) 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. (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 Claim. 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. The Parties hereto agree that (i) the covenants and agreements contained in this Agreement and any document delivered pursuant hereto and the representations and warranties contained in this Agreement shall survive until ninety (90) days after the expiration of all applicable statutes of limitation with respect to the subject matter thereof, and (ii) any indemnification claim for a breach of the foregoing must be made in writing in accordance with the provisions of this Article 10 within the applicable survival period for the underlying representation, warranty or covenant. The expiration of the applicable survival period will not extinguish an indemnification claim properly made prior to such expiration in accordance with this Article 10. 19 27 11. NON-COMPETITION AND NON-SOLICITATION. 11.1 Non-Competition. Seller and John R. Leslie, Jr. each hereby agrees that for a period of ten (10) years after the Closing Date, such Person will not, without the prior written consent of Buyer, directly or indirectly, engage or participate in, be employed by or assist in any manner or in any capacity, or have any interest in or make any loan to any person, firm, corporation or business which engages in, outdoor advertising activities (including the ownership and/or operation of outdoor signs and billboards) in those areas identified on Exhibit C annexed hereto; provided, however, the foregoing shall not prevent any such entity or Person from owning beneficially or of record up to one percent (1%) of the outstanding securities of a publicly-held corporation which engages in competitive activities. 11.2 Non-Solicitation. For a period of ten (10) years after the Closing Date, Seller and John R. Leslie, Jr. each agree that he or it will (i) not solicit, recruit or hire, or attempt to solicit, recruit or hire, directly or indirectly, any of the employees of Buyer or its Affiliates; (ii) refrain from soliciting, or attempting to solicit, directly or indirectly, any business from any customer of Buyer, or actively pursue prospective customers, with whom Buyer had material contact at any time during the previous ten (10) years for purposes of providing outdoor (including, without limitation, out-of-home advertising) products or services of the type offered or provided by Buyer (Buyer's customers to include customers of Seller); and (iii) refrain from soliciting, or attempting to solicit, directly or indirectly, any real estate location used by Buyer from any land owner (or its successor or assigns) who leases to Buyer (including without limitation land owners under the Site Leases), or actively pursue prospective land owners with whom Buyer or Seller had material contact during the previous ten (10) years. 11.3 Enforcement. Seller and John R. Leslie, Jr. acknowledge that a breach of the covenants in this Section 11 would cause irreparable harm to Buyer and its Affiliates for which there is not adequate remedy at law. Seller and John R. Leslie, Jr. consent to the issuance of an injunction in favor of Buyer and its Affiliates enjoining the breach of this provision. Notwithstanding the foregoing, in addition to any equitable remedies available to Buyer, Buyer shall be entitled to any and all remedies at law, including, without limitation, injunctive relief, monetary damages, an accounting for profits and/or the imposition of a constructive trust. In the event that any court of competent jurisdiction should construe any geographical limitation, the scope, or the time period contained in this restrictive covenant to be too broad, so as to be unenforceable, it is the intention of the parties that the court should modify the covenant(s) to provide that the restrictions as herein contained shall apply and be enforceable to the maximum extent permitted by law for such restrictions, and further upon such determination, to enforce the covenant as so modified. 11.4 Survival. This provision shall survive the Closing. 20 28 12. POST-CLOSING ESCROW FUND. 12.1 Escrow Amount. At the Closing hereof, the sum of One Hundred Thousand Dollars ($100,000.00) (the "Escrow Amount") shall be deposited in an interest bearing escrow account reasonably acceptable to Buyer and Seller (the "Escrow Fund") with St. John & Wayne, L.L.C. (the "Escrow Agent"). The Escrow Fund shall be held by the Escrow Agent for a period not to exceed one (1) year from the Closing Date (the "Escrow Period"), subject to the terms hereof. 12.2 Claims. In the event that, at any time during the Escrow Period, Buyer shall claim that Seller has breached any of its representations, warranties or covenants hereunder, or any claim is made against Buyer by a creditor of Seller with respect to a liability of Seller or the Business accruing prior to the Closing Date or if Buyer shall incur any Damages, it shall provide notice thereof to Seller, with a copy to the Escrow Agent, such notice to set forth with particularity the specifics of any such claim, and Seller shall have the right to cure same, or to dispute or contest any such claim. In the event that Seller does not dispute or contest any such claim or fails to cure same within thirty (30) days after receipt of Buyer's notice (or such longer period not to exceed ninety (90) days in the case of a Damage which cannot with due diligence be cured within thirty (30) days and the continuance of which for the period required for cure will not subject any of the Seller Indemnified Persons to the risk of civil or criminal liability or the imposition of any Encumbrance on the Purchased Assets, provided Seller commences the cure within such initial thirty (30) day period and thereafter diligently prosecutes the cure), Buyer may thereafter furnish to the Escrow Agent a duly executed and notarized affidavit setting forth the specifics of any such claim, including, without limitation, the amount thereof and basis therefor, the date of the notice thereof to Seller and a certification that Seller has not disputed or contested same or has failed to cure same within the time provided for herein. Unless Seller has paid to Buyer the amount of such claim within ten (10) days after receipt by Escrow Agent of the certification of Buyer, the Escrow Agent shall on the tenth (10th) day after receipt promptly deliver to Buyer from the Escrow Fund, a check in the amount of any such claim. In the event, however, that Seller shall elect to dispute or contest any such claim, it shall be required, within thirty (30) days of Buyer's initial notice hereunder, to provide notice thereof to Buyer, with a copy to the Escrow Agent, which notice shall set forth with particularity the specifics of any such dispute or contest as between the parties hereto or their successors or representatives. In the event of any such dispute or contest, Buyer and Seller hereby agree that any such dispute or contest shall be settled by arbitration in accordance with the provisions of Article 14 of this Agreement. The Escrow Agent shall retain the portion of the Escrow Fund covered by any such dispute until its receipt of a certified copy of any such arbitration decision or award in favor of Buyer, at which time it shall promptly deliver to Buyer from the Escrow Fund a check in the amount of any such judgment or award. 21 29 12.3 Payment Date. One the six (6) month anniversary of the Closing Date (the "First Payment Date"), the Escrow Agent shall pay to Seller from the Escrow Fund the sum of FIFTY THOUSAND DOLLARS ($50,000.00), reduced by any amounts due to Buyer pursuant to the terms of this Agreement and any amounts which are the subject of an Unresolved Claim (as hereinafter defined). On the one (1) year anniversary of the Closing Date (the "Second Payment Date"), the Escrow Agent shall pay to Seller the balance of the Escrow Fund (plus accrued interest), reduced by any amounts due to Buyer pursuant to the terms of this Agreement and any amounts which are the subject of an Unresolved Claim. The term "Unresolved Claim" shall mean any claim which may be made against the Escrow Fund in accordance with this Section 12, until such time as such claim has been paid in full or otherwise fully settled, compromised or adjusted by the parties and the Escrow Agent. 12.4 Escrow Agent Held Harmless. The parties to this Agreement acknowledge and agree that the Escrow Agent shall not be liable for any error or judgment or for any mistake of fact, law or for anything which it may do or refrain from doing in connection herewith, except its own gross negligence or willful misconduct. Seller and Buyer agree to indemnify, hold harmless and defend the Escrow Agent from any loss, damage, claim, liability, judgment, expense (including attorneys' fees and disbursements) or other charge incurred or sustained by it by reason of any act or omission performed or omitted hereunder, but this indemnity shall not be applicable to any loss, liability, damage, claim, judgment, expense or other charge resulting from the gross negligence or willful misconduct of the Escrow Agent. 12.5 Reliance on Notices. The Escrow Agent shall have the right to rely conclusively upon the notices delivered hereunder, and shall be under no obligation to ascertain the authenticity of such notices, nor to determine the factual accuracy thereof. 12.6 Disputes. The Escrow Agent is acting as a stakeholder only with respect to the Escrow Fund. If there is any dispute as to whether the Escrow Agent is obligated to deliver the Escrow Fund (or any portion thereof) and/or to whom it should be delivered, the Escrow Agent shall not make any delivery, but in such event the Escrow Agent shall hold the Escrow Fund until receipt by the Escrow Agent of an authorization in writing signed by all parties having an interest in such dispute, directing the disposition of same, or in the absence of such authorization the Escrow Agent shall hold the Escrow Fund until the final determination of the rights of the parties in an appropriate proceeding. If such written authorization is not given, or proceedings for such determination are not begun within a reasonable period of time and diligently continued, the Escrow Agent shall have the right, at any time thereafter, to commence an action or proceeding, at the sole cost and expense of Seller and Buyer, in the nature of interpleader in any court having jurisdiction thereof, and to deposit the Escrow Fund with such court, and thereupon, be discharged from any and all further liability hereunder. 12.7 Waiver of Conflict. Seller acknowledges that the Escrow Agent is a law firm which represents Buyer, and the Escrow Agent shall be entitled to represent Buyer in any and all matters arising, directly or indirectly, out of this Agreement and the Contemplated Transactions, including, without limitation, the disposition of the Escrow Fund. 12.8 No Limitation of Rights or Obligations. The provisions of this Section 12 (including the amount of the Escrow Fund) shall not limit Buyer's rights nor Seller's obligations under this Agreement (including, without limitation, Section 10). 12.9 Survival. The provisions of this Section 12 shall survive the Closing. 22 30 13. GENERAL PROVISIONS 13.1 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. Each Party hereto shall indemnify the other for its failure to pay any brokerage or finders' fees or agents' commission or similar payment incurred by such Party or its Representatives in connection with this Agreement. 13.2 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. 13.3 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. All confidential information and documents made available to the Buyer by Seller or its Representatives with respect to the Business shall be kept in strict confidence, and not made available to any third party other than absolutely necessary for the purposes of concluding the Contemplated Transactions. In the event the Contemplated Transactions for any reason are not concluded, all documents or documents compiled from information supplied or obtained hereunder, and copies thereof, shall be returned to Seller and the Confidential Information obtained shall in no way be used by the Buyer or communicated to any third party, except as required by law or court order. This representation shall survive the termination of this Agreement. 13.4 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 (except as otherwise expressly provided in this Agreement) 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. 23 31 24 32 13.5 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 receipt), provided that a copy is mailed by certified 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: John R. Leslie, Sr. P.O. Box 1149 Milledgeville, Georgia 31061 Telephone No.: (912) 453-8593 Facsimile No.: (912) 454-4054 With a copy to: Joel Burns 200 North Jefferson St. Milledgewille, GA 31061 Attention: _____________, Esq. Telephone No.: (912) 452-3061 Facsimile No.: (912) 453-7569 Internet No.: www.besttalk.com/@/Burnsjoeld If to Buyer, to: Tri-State Outdoor Media Group, Inc. P.O. Box 1247 3416 Highway 41 South Tifton, Georgia 31793 Attention: Sheldon G. Hurst, President Telephone No.: (912) 382-2980 Facsimile No.: (912) 386-0203 With a copy to: St. John & Wayne, L.L.C. Two Penn Plaza East Newark, New Jersey 07105 Attention: David C. Freinberg, Esq. Telephone No.: (973) 491-3600 Facsimile No.: (973) 491-3555 Notices given by an attorney for a Party shall be deemed to be a notice given by such Party. 13.6 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. 13.7 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. 13.8 Entire Agreement and Modification. This Agreement supersedes all prior agreements between the Parties with respect to its subject matter (including, without limitation, a certain letter of intent signed by Buyer on June 11, 1998 and Seller on June 10, 1998) 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. 13.9 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 (provided that Buyer shall remain liable for the obligations of such assignee under this Agreement). 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. 25 33 13.10 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. 13.11 Risk of Loss. Except as otherwise expressly provided in this Agreement, material risk of loss or damage to the Purchased Assets from any cause whatsoever prior to the Closing shall be borne by Seller, and after the Closing shall be borne by Buyer. 13.12 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 six (6) 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 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, Buyer, at its expense, may make such copies thereof as it may reasonably desire. In addition to the foregoing, Seller (without additional consideration therefor to be paid to Seller, but with any reasonable out-of-pocket expenses payable to non-Affiliates incurred by Seller to be paid by Buyer), shall, at all reasonable times after the Closing if called upon by Buyer, use reasonable efforts to cooperate with and assist Buyer in the preparation of financial statements by Buyer which may include the operation of the Business prior to the Closing Date. Nothing contained in this Section 13.12 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. This provision shall survive the Closing. 13.13 Applicable Law and Venue. This Agreement is made in and shall be governed by and construed and enforced in accordance with the laws of the State of Georgia. Seller and Buyer hereby consent to the personal jurisdiction of the courts of Georgia in Tift County for all matters relating to or arising from this Agreement. 26 34 13.14 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. 14. ARBITRATION 14.1 In the event that any contest or dispute set forth in Article 12 of this Agreement is to be settled by arbitration, the Party invoking the arbitration procedure (the "First Party") shall give a notice ("Arbitration Notice") to the other Party, and shall in such Arbitration Notice appoint an arbitrator on its behalf. Within fifteen (15) days after its receipt of such Arbitration Notice, the other Party by notice to the First Party shall appoint an arbitrator on its behalf; and if the second arbitrator shall not be so appointed within such fifteen (15) days, the First Party shall appoint the second arbitrator. The two arbitrators appointed pursuant to the above shall try to appoint the third arbitrator. If, within twenty (20) days after the appointment of the second arbitrator, they have not agreed upon the appointment of a third arbitrator, then either Party may apply to the presiding judge of appropriate jurisdiction in Tift County, Georgia (the "Court") for the appointment of such third arbitrator and the other Party shall not raise any question as to the Court's full power and jurisdiction to entertain the application and make the appointment. Each arbitrator shall have at least ten (10) years' experience in a calling pertaining to the matter in dispute. The third arbitrator is herein called the "Umpire", and the date on which the Umpire is appointed is referred to as the "Appointment Date". 14.2 Arbitration Procedure. As soon as practicable after the Appointment Date, the matter in dispute shall be arbitrated by the Parties in accordance with the commercial rules then in force of the American Arbitration Association ("AAA"). The resolution of the dispute shall be determined by the decision of majority of the three (3) arbitrators, shall constitute an "award" within the meaning in the applicable rules of the AAA and applicable law, and judgment may be entered thereon in any court of competent jurisdiction. 14.3 Jurisdiction. Buyer and Seller hereby submit to the in personam jurisdiction of the AAA in the State of Georgia and agree that any process in any arbitration proceeding hereunder may be personally served upon Buyer or Seller within or outside of the State of Georgia. The arbitration shall be conducted at a location in Tifton, Georgia mutually acceptable to Buyer and Seller. 14.4 Expenses. Each Party shall pay its own fees and expenses relating to the arbitration (including, without limitation, the fees and expense of its counsel, its arbitrator and any experts or witnesses retained by it). Each Party shall pay one-half (1/2) of its fees and expenses of the Umpire and of the AAA. 14.5 Survival. The provisions of this Section 14 shall survive the Closing. 27 35 IN WITNESS WHEREOF, the Parties have executed, seated and delivered this Agreement as of the date first written above. BUYER: TRI-STATE OUTDOOR MEDIA GROUP, INC. By: /s/ Ronnie B. May Title: Manager Acquisition Department-6/26/98 SELLER: /s/ John R. Leslie, Sr. ----------------------- John R. Leslie, Sr. /s/ John R. Leslie, Jr. ----------------------- John R. Leslie, Jr. (As to Article 11 only) ESCROW AGENT: ST. JOHN & WAYNE, L.L.C. (As to Sections 2.7(b)(ii) and 12 only) By: /s/ David C. Freinberg ----------------------- Name: David C. Freinberg Title: Member EX-10.12 3 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.12 ================================================================================ ASSET PURCHASE AGREEMENT dated as of July 23, 1998 by and between TRI-STATE OUTDOOR MEDIA GROUP, INC., AND BOONE COMPANY, INC. ================================================================================ 2 INDEX 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.........................4 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 Omitted...................................................7 3.9 Title, Encumbrances.......................................7 3.10 Financial Statements......................................7 3.11 Taxes.....................................................8 3.12 Compliance with Legal Requirements........................8 3.13 Legal Proceedings; Orders.................................8 3.14 Other Contracts...........................................8 3.15 Insurance.................................................8 3.16 Environmental Matters.....................................8 3.17 Intangible Property.......................................9 3.18 Relationships with Affiliates.............................9 3.19 Brokers or Finders........................................9 3.20 Employee Benefits Matters.................................9 3.21 Bulk Sales...............................................10 3.22 Employees; Labor Matters.................................10 3.23 Indebtedness, Encumbrances and Security Interests........10 3.24 Omitted..................................................11 3.25 Billboard Income.........................................11 3.26 Disclosure...............................................11 4. REPRESENTATIONS AND WARRANTIES OF BUYER.........................11 4.1 Organization and Good Standing...........................11 4.2 Authority; No Conflict...................................11 4.3 Certain Proceedings......................................11 i 3 4.4 Brokers or Finders......................................12 5. COVENANTS OF SELLER.............................................12 5.1 Access and Investigation................................12 5.2 Due Diligence...........................................12 5.3 Operation of the Purchased Assets.......................12 5.4 Best Efforts............................................12 5.5 Negative Covenant.......................................13 5.6 Required Approvals and Consents.........................13 5.7 Notification............................................13 5.8 No Negotiation..........................................13 5.9 Tax Clearance...........................................13 5.10 Maintenance of Permits..................................13 6. COVENANTS OF BUYER..............................................14 6.1 Required Approvals......................................14 6.2 Best Efforts............................................14 6.3 Notification............................................14 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.............15 7.1 Accuracy of Representations.............................15 7.2 Seller's Performance....................................15 7.3 Consent................................................... 7.4 Additional Documents....................................15 7.5 No Proceedings..........................................15 7.6 No Prohibition..........................................16 7.7 No Material Adverse Change..............................16 7.8 Due Diligence...........................................16 7.9 Satisfaction of Indebtedness............................16 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE............16 8.1 Accuracy of Representations.............................16 8.2 Buyer's Performance.....................................16 8.3 Additional Documents....................................16 8.4 No Proceedings..........................................17 8.5 No Prohibition..........................................17 9. TERMINATION.....................................................17 9.1 Termination Events......................................17 9.2 Effect of Termination...................................17 10. IDENTIFICATION; REMEDIES........................................18 10.1 Indemnification and Payment of Damages by Seller and the Indemnifying Stockholders..................18 10.2 Indemnification and Payment of Damages by Buyer...........18 10.3 Procedure for Indemnification Third Party Claims..........19 10.4 Procedure for Indemnification Other Claim.................20 10.5 Survival/Limitations......................................20 ii 4 11. NON-COMPETITION AND NON-SOLICITATION..........................20 11. Non-Competition...........................................20 11.2 Non-Solicitation..........................................20 11.3 Enforcement...............................................20 11.4 Survival..................................................21 12. OMITTED.........................................................21 13. GENERAL PROVISIONS..............................................21 13.1 Expenses................................................21 13.2 Headings; Construction..................................21 13.3 Public Announcements; Confidentiality...................21 13.4 Availability of Equitable Remedies......................22 13.5 Notices.................................................22 13.6 Further Assurances......................................23 13.7 Waiver..................................................23 13.8 Entire Agreement and Modification.......................23 13.9 Assignments, Successors, and No Third-Party Rights......23 13.10 Severability............................................24 13.11 Risk of Loss............................................24 13.12 Post-Closing Access.....................................24 13.13 Applicable Law and Venue................................24 13.14 Counterparts............................................24 14. OMITTED.........................................................24 iii 5 EXHIBITS Exhibit A - Definitions Exhibit B - Bill of Sale, Assignment and Assumption Agreement Exhibit C - Areas of Non-Competition Exhibit D - Parcel Lease Exhibit E - Seller's Compliance Certificate Exhibit F - Opinion of Seller's Counsel Exhibit G - Buyer's Compliance Certificate Exhibit H - Opinion of Buyer's Counsel SCHEDULES Schedule 2.2(a) - Structures Schedule 2.2(b) - Site Leases Schedule 2.2(c) - Advertising Contracts Schedule 2.2(d) - Permits Schedule 3. 1 0 - Financial Statements DISCLOSURE SCHEDULE Part 3.2(b) Part 3.9(b) Part 3.20 Part 3.2(c) Part 3.12 Part 3.22 Part 3.5 Part 3.13 Part 3.23 Part 3.6 Part 3.14 Part 3.7 Part 3.16 6 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement ("Agreement") is entered into as of July 23, 1998, by and between TRI-STATE OUTDOOR MEDIA GROUP, INC., a Kansas corporation ("Buyer"), and BOONE COMPANY, INC., a Georgia 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 (the "Business") in Lowndes County, Georgia (the "Territory"). 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 in and to the Purchased Assets, free and clear of any Encumbrances or Security Interests, 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 those assets of Seller used in the Business listed below: 1 7 (a) 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 Seller has any rights (including at least 13 structures and 50 sign faces) (collectively, the "Structures"), including, without limitation, all of tile Structures listed on Schedule 2.2(a); (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 billboard displays and other out-of-home advertising structures (including, without limitation, the Structures) on land, buildings and other real property owned by third parties, and all rights therein (collectively, the "Site Leases"), including, without limitation, those Site Leases listed on Schedule 2.2(b): (c) all of the rights under existing and pending sales and advertising contracts associated with the Business, all rights to the advertising copy displayed on the Structures as of the Closing Date, all other rights to collect and receive income from the use of the Structures and security deposits, if any, with respect thereto (collectively, the "Advertising Contracts"), including, without limitation, all of the Advertising Contracts listed on Schedule 2.2(k); (d) subject to the provisions of Section 5.10, all state and local licenses or permits/tags which Seller has or has an interest in with respect to the Business and all other Governmental Authorizations that are required for the operation of the Business (collectively, the "Permits"), including, without limitation, all of the Permits listed on Schedule 2.2(d); (e) all accounts receivable, prepaid items and other assets of the Business as of the Closing Date that would be reflected as current assets on a balance sheet of the Business as of the Closing Date prepared in a manner consistent with Section 3. 10(a), but excluding cash and cash equivalents; (f) all pertinent Books and Records; (g) the Intangible Property (it being understood that as to Seller's trade name "Boone Company, Inc.", Buyer shall be entitled to use such name in connection with its operation of the Purchased Assets and Seller shall be entitled to retain the use of this name as its corporate name and in connection with the operation by Seller of those businesses conducted by it which does not constitute part of the Business); and (h) 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. 2.3 Agreement to Assume Certain Liabilities. At the Closing, Buyer shall assume and agree to discharge and perform only those liabilities and obligations that are set forth on Schedule 2.3 or arise or are attributable to events occurring on or after the Closing Date pursuant to the Site Leases and the Advertising Contracts listed on Schedules 2.2(b) and 2.2(c), respectively (the "Assumed Liabilities"), but to the extent and only to the extent that: 2 8 (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. The assumption by Buyer of any Assumed Liabilities shall not be deemed to modify or amend Seller's representations and warranties contained herein or in any way impair Buyer's right to rely upon such representations and warranties or to obtain indemnification pursuant to Article 10 hereof for any breach of such representations and warranties. 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 for Taxes arising prior to or as a result of 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; (e) Any liabilities of Seller with respect to any other business of Seller; and (f) Any other liabilities of Seller, whether absolute or contingent, that are attributable to or arise from facts, events, or conditions that occurred or came into existence prior to the Closing (except to the extent that Buyer shall assume the Assumed Liabilities as set forth in Section 2.3), whether or not such liabilities are asserted or claimed prior to the Closing or thereafter. 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 Coleman, Talley, Newbern, Kurrie, Preston & Holland, L.L.P., 910 North Patterson Street, Valdosta, Georgia 31601 on the date which is twenty-one (21) days after the full execution of this Agreement, or such earlier or later time and place as the Parties may agree in writing. The effective time of the Closing shall be 12: 01 a.m., Eastern Standard Time, on the Closing Date. 3 9 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 One Million Two Hundred Thousand Dollars ($1,200,000.00). 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/or deliver to Buyer: (i) the Bill of Sale, Assignment and Assumption Agreement; (ii) a lease or leases covering each of the thirteen (13) structures described in Section 2.2(a) in the form of Exhibit D annexed hereto (the "Parcel Leases") (which Parcel Lease(s) shall provide for a term of twenty (20) years, annual rental payments per Structure of $4,000.00 for each of years one through seven and $5,000.00 for each of years eight through twenty, and the right of Buyer to remove any Structure from the leased property) and dan appropriate memorandum of lease; (iii) Required Consents; (iv) satisfactory evidence of the release of any Encumbrances or Security Interests on the Purchased Assets; (v) all applicable Tax Clearances; and (vi) other instruments of transfer, and all other related documents as may be necessary to effect the sale and assignment of the Purchased Assets in accordance with the terms hereof. Seller shall also deliver to Buyer all Books and Records with respect to the Purchased Assets, including the originals of the Advertising Contracts, Site Leases and Permits. 10 (b) Buyer shall deliver the Purchase Price at the Closing to an account or accounts designated by Seller by wire transfer of immediately available funds. (c) Buyer shall enter into (as applicable) and deliver to Seller: (i) the Bill of Sale, (ii) the Parcel Lease and a memorandum of lease, and (iii) other assumption agreements, instruments and other documents as may be reasonably 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, Permit 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 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 benefits to Buyer, including any sublease or 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 4 11 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 the State of Georgia, with full power and authority to conduct the Business as it is now being conducted, to own or use the Purchased Assets, and to perform all its obligations. 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 property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where such failure to be qualified would not have a Material Adverse Effect on Seller or the Business. Seller has no subsidiaries. 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 Indemnifying Stockholders are all the shareholders, beneficially and of record, of Seller. The execution, delivery and performance of this Agreement has been specifically authorized by all the shareholders and directors 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) any Order or Legal Requirement to which Seller, the Business or any of the Purchased Assets may be subject; or (C) any Governmental Authorization held by Seller or that otherwise relates to the 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 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. 5 12 (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 (any such Consents set forth on Part 3.2(c) of the Disclosed Schedule are referred to as "Required Consents"). 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) with respect to the Purchased Assets. 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. Buyer shall have full access to the Books and Records (and the right to make copies of same) prior to, at and after the Closing, and this provision shall survive the Closing. 3.5 Structures. Seller owns all of the Structures. Except as set forth in Part 3.5 of the Disclosure Schedule, each Structure (a) has a written Site Lease and is located entirely on property covered by a Site Lease, (b) complies in all material respects with the terms of the Permits and applicable Legal Requirements pertaining to it, (c) is in condition to accept faces and in adequate condition and repair for its current use, and (d) is not currently the subject of any dispute with any lessor, any lessee or owner of adjacent property or any other Person. 3.6 Permits. Except as set forth in Part 3.6 of the Disclosure Schedule, (a) the Permits constitute all necessary licenses, permits, registrations and approvals necessary pursuant to all applicable Legal Requirements to install, operate and maintain the Structures for off-premises advertising, (b) Seller is in material compliance with the terms of the Permits; (c) each Permit is in full force and effect and Seller is not aware of any fact or event which constitutes a material violation of any Permit, and (d) Seller has not received written notice that any Governmental Body issuing any Permit intends to cancel, terminate, modify or amend any Permit. 6 13 3.7 Site Leases and Advertising Contracts. Seller has delivered to Buyer true and complete copies of all Advertising Contracts and the Site Leases to which Seller is a party or by which Seller or any of the Purchased Assets is bound, and all Site Leases and Advertising Contracts are listed on Schedules 2.2(b) and 2.2(c), respectively. 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, (x) to the Knowledge of Seller, no default by Seller or any other Person has occurred under the Site Leases or Advertising Contracts and (y) to the Knowledge of Seller, no event, occurrence or condition exists which (with or without notice or lapse of time or the happening of any future event or condition) would become a 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. Except as set forth in Part 3.7 of the Disclosure Schedule, Seller has not received any written notice of default, termination or non-renewal under any Site Lease or Advertising Contract. On the Closing Date, all Site Lease rents and other charges and all liabilities with respect to the Purchased Assets obligations shall be paid in full through the calendar month in which the Closing occurs. 3.8 Omitted. 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. (b) Except as set forth in Part 3.9(b) of the Disclosure Schedule none of the Structures or Site Leases are 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, reasonings or other adverse claims affecting the structures or Site Leases. 3.10 Financial Statements. 7 14 (a) Seller has delivered to Buyer certain financial statements with respect to Seller, copies of which are annexed hereto as Schedule 3. 10. The Financial Statements have been prepared using accounting methods consistently applied during the periods covered thereby and are (i) complete and correct in all material respects, and (ii) present fairly in all material respects the financial condition of the Seller at the dates of said statements and the results of the operations of the Seller and cash flows for the periods covered thereby. There has been no Material Adverse Change in the financial condition of the Business, Seller or Purchased Assets since June 29, 1998. (b) As of the date hereof and as of the Closing Date, Seller had and will have no liabilities with respect to the Business or the Purchased Assets (which liabilities, when taken individually or in the aggregate are material) of any nature, whether accrued, absolute, contingent or otherwise, asserted or unasserted, known or unknown (including, without limitation, liabilities as guarantor or otherwise with respect to obligations of others, or liabilities for Taxes due or then accrued or to become due or contingent or potential liabilities relating to activities of Seller with respect to the Business prior to the date hereof or the Closing, as the case may be, regardless of whether claims in respect thereof had been asserted as of such date), except (i) liabilities reflected in the Financial Statements or the notes thereto, (ii) Advertising Contracts, or (iii) liabilities incurred in the Ordinary Course of Business since June 29, 1998. 3.11 Taxes. With respect to the Purchased Assets and the 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 or may have become due pursuant to those Tax Returns or otherwise, or pursuant to any assessment received by Seller. (b) No unpaid Taxes create an Encumbrance on the Purchased Assets, except for ad valorem taxes on the Structures. Seller has provided to Buyer a copy of the 1997 ad valorem tax bill on the Structures, wherein the total taxes for 1997 was $816.66. (c) Buyer shall not be liable for any Taxes of Seller as a result of the Contemplated Transactions. 3.12 Compliance with Legal Requirements. Except as set forth in Part 3.12 of the Disclosure Schedule, (a) Seller has complied with all Legal Requirements applicable to Seller's ownership or use of the Purchased Assets and operation of the Business, and (b) Seller has not received any notice (written or oral) of any violation or failure to comply with any Legal Requirements relating to the Business, the Purchased Assets or their use or operation which violation or failure has not been cured. 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 or affecting any of the Purchased Assets and there is no Order to which Seller or the Purchased Assets is subject. 3.14 Other Contracts. Seller is not a party to or bound by any Other Contract, except as disclosed in Part 3.14 of the Disclosure Schedule. 3.15 Insurance. Seller maintains (and shall through and including the Closing Date maintain) in full force and effect policies of fire and other casualty, liability, title and other forms of insurance covering the Purchased 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. 3.16 Environmental Matters. Except as set forth in Part 3.16 of the Disclosure Schedule with respect to the Purchased Assets and the Real Property and the use or operation thereof. (a) Seller is, and has been, in compliance with all Environmental Laws; (b) Seller has timely filed all reports, obtained all required approvals and permits relating to the Business, and generated and maintained all data, documentation and records under any applicable Environmental Laws; (c) 8 15 to the Knowledge of Seller, there has not been any Release of Hazardous Materials at or in the vicinity of any real property covered by a Site Lease or a Parcel Lease or on which a Structure is located) or in areas for which Seller would have responsibility under Environmental Laws; (d) 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 produced by, or resulting from, its Business, operations or processes; and (e) Seller has delivered to Buyer true and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed or accessible by Seller pertaining to Hazardous Materials in, on, or under the properties included in the Purchased Assets. 3.17 Intangible Property. Seller uses no Intangible Property in connection with the operation of the Purchased Assets except for the Permits, the Books and Records, the trade name "Boone Company, Inc." and licenses for commonly available software programs under which Seller is the licensee. 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 a Related Person of Seller relating to the Purchased Assets or the Business associated therewith. Neither Seller nor any Related Persons of Seller 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 an transaction with Seller involving the Purchased Assets or the Business associated therewith. Seller has not, in the three (3) years immediately preceding the date hereof, entered into any agreement with or engaged in any transaction with Affiliates of Seller or a Related Person of Seller for the provision of any services or the purchase, sale or other transfer of assets. 3.19 Brokers or Finders. Seller and its shareholders, directors, and Representatives 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 Employee Benefits Matters. Except as disclosed on Part 3.20 of the Disclosure Schedule, with respect to Seller: (a) Seller does not maintain and has never maintained an "employee benefit pension plan" within the meaning of ERISA Section 3(2), that is or was subject to Title IV of ERISA. (b) Seller does not have and has not ever had, any past, present or future obligation or liability to contribute any "multi-employer plan," as defined in ERISA Section 3(37). (c) Seller does not have any written or oral employee benefit plans, contracts, agreements, incentives or arrangements, including without limitation, pension and profit sharing plans, savings plans, incentive compensation, medical, life, dental or disability plans or severance agreements. 9 16 For purposes of this Section 3.20, the term "Seller" shall be deemed to include any other corporation, trade, business or other entity, other than Seller, which would, together with Seller, now or in the past constitute a single employer within the meaning of Section 414 of the IRC. 3.21 Bulk Sales. Neither the sale by Seller to Buyer of the Purchased Assets nor the transfer by Seller to Buyer of the Assumed Liabilities as contemplated in this Agreement constitutes a "bulk sale" (as that term is defined by the Uniform Commercial Code), and the completion of the transactions contemplated in this Agreement shall not subject Buyer to any (i) claims relating to or liabilities resulting from the operations or obligations of Seller, or (ii) liabilities or obligations with respect to Taxes, all of which liabilities and obligations shall be the sole responsibility of Seller. 3.22 Employees: Labor Matters. All employees of Seller are employees at will. Except as disclosed on Part 3.22 of the Disclosure Schedule, no employee, agent or consultant of Seller is a party to any agreement governing such employee's agent's or consultant's employment or engagement, as the case may be, with Seller. As of the date hereof Seller employs (and as of the Closing Date Seller shall employ) less than fifty (50) employees. Seller has made no warranty, representation or agreement, either in writing or orally, to any employee of Seller that Buyer intends to employ such employee on or after the Closing Date. Seller consents to Buyer communicating with the employees, consultants and independent contractors of Seller on or prior to the Closing Date, and Seller shall cooperate in connection therewith. Seller is not a party to any collective bargaining agreement with respect to any of its employees nor are any employees of Seller covered by any collective bargaining agreement. No labor organization or group of employees has made a demand for recognition, has filed a petition seeking a representation proceeding or given Seller notice of any intention to hold an election of a collective bargaining organization. There are no known writs, actions, claims or legal, administrative, arbitration or other proceedings or governmental investigations pending or Threatened or involving or alleging civil rights violations, unfair labor investigations practice claims, back pay orders or other similar claims or proceedings. Seller is in material compliance with all federal, state and local laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practice; there is no unfair labor practice complaint against Seller pending before the National Labor Relations Board; there is no labor strike, dispute, slowdown, or stoppage pending or threatened against or involving the employees of Seller; no grievance or any arbitration proceeding is pending or threatened against Seller and no claim therefor exists. 3.23 Indebtedness, Encumbrances and Security Interests. Except as set forth on Part 3.23 of the Disclosure Schedule, all of the Purchased Assets are owned by Seller free and clear of all Encumbrances and Security Interests. Set forth on Part 3.23 of the Disclosure Schedule attached hereto is a list of all Encumbrances, Security Interests and all indebtedness of the Seller, including the respective names and addresses of the obligors and obligees, amount of the indebtedness and security for the indebtedness, and the secured parties, debtor and collateral with respect to any Security Interests, as applicable, if any. All such Encumbrances, Security Interests and indebtedness shall be satisfied and discharged at or before the Closing. There are no mortgages or other liens (except for real property taxes not yet due and payable) affecting the real property covered by the Parcel Leases. 10 17 3.24 Omitted. 3.25 Billboard Income. The net monthly billings on Advertising Contracts with an original term of at least twelve (12) months in effect as of the date hereof and on the Closing date are, and on the Closing Date shall be, not less than $ 18,640.00 (exclusive of poster contract billings). 3.26 Disclosure. No representation or warranty of Seller in this Agreement and no statement in the Disclosure Schedule contains an untrue statement of material fact 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. 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 Kansas. 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. 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 and no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any Proceeding. 11 18 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. 5. COVENANTS OF SELLER 1. 5.1 Access and Investigation. Between the date of this Agreement and the Closing Date, Seller will, and will 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 Business, and furnish Buyer and its Representatives with copies of the same. In addition to the foregoing, Seller (without additional consideration therefor to be paid to Seller, but with any reasonable out-of-pocket expenses payable to non-Affiliates incurred by Seller to be paid by Buyer), shall, at all reasonable times before the Closing if called upon by Buyer, use reasonable efforts to cooperate with and assist Buyer in the preparation of financial statements by Buyer which may include the operation of the Business prior to the Closing Date. 5.2 Due Diligence. Buyer shall have the right, and Seller shall afford access to Buyer and its Representatives, at all reasonable times upon advance notice to perform due diligence on the Purchased Assets. 5.3 Operation of the Purchased Assets. Between the date of this Agreement and the Closing Date, Seller will: (a) operate the Business 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 associated Business; (c) not enter into any new Advertising Contract or Site Lease not in the Ordinary Course of Business; and (d) not bill any party for payments (or accept any payments) under any Advertising Contract for any period after the end of the calendar month in which the Closing Date occurs, and if Seller receives any such payments it shall promptly pay the same to Buyer. 5.4 Best Efforts. Between the date of this Agreement and the Closing Date, Seller will use its Best Efforts to cause the conditions in Section 7 to be satisfied. 12 19 5.5 Negative Covenant. Except as otherwise expressly permitted by this Agreement, between the date of this Agreement and the Closing Date, Seller will operate the Business consistent in all material respects with past practice, except as otherwise provided in this Agreement. 5.6 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 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. 5.7 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 breach of any of Seller's representations and warranties as of the date of this Agreement, or if Seller 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, Seller will promptly notify Buyer of the occurrence of any 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. 5.8 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. 5.9 Tax Clearance. Seller shall obtain certificates of clearances for Taxes ("Tax Clearances") from the state of Georgia and applicable local jurisdictions (if any), certifying as to the payment by or on behalf of Seller of all Taxes due on or prior to the Closing Date (including, without limitation, in connection with the Contemplated Transactions). 5.10 Maintenance of Permits. From and after the Closing, Seller shall maintain the Permits in its name in good standing at all times. Seller's obligation to so maintain the Permits shall include, without limitation, the following obligations on the part of Seller: 13 20 (a) Seller shall pay all periodic fees payable to any Governmental Body with respect to the Permits on or before the due date hereof, and Buyer shall reimburse Seller therefor within thirty (30) days after Seller delivers to Buyer an invoice therefor; provided that Seller shall provide evidence of its payment of such fees within five (5) days. (b) Seller shall comply with all Legal Requirements applicable to the maintenance of the Permits. (c) Seller shall not withdraw, modify, amend or otherwise alter any Permit. (d) Seller shall not sell, transfer, assign or otherwise hypothecate any of the Permits, or any interest therein, without the prior written consent of Buyer, which consent may be withheld (reasonably or unreasonably) by Buyer in its sole discretion. (e) Seller, upon receipt by it, shall immediately deliver to Buyer copies of all notices or correspondence received with respect to any Permit (including, without limitation, notice of any Order or Proceeding). (f) If Seller shall default in its obligations under this Section 5.10, Buyer, at its option, may elect to cause Seller to assign any one or more Permits to Buyer, in which case Seller shall execute and deliver to Buyer such instruments of transfer as requested by Buyer. (g) If Buyer shall incur any expense as a result of any default by Seller in its obligations under this Section 5.10, Buyer shall be entitled to offset any such expense against rental payments under the Parcel Leases. The provisions of this Section 5.10 shall survive the Closing until the expiration of the Parcel Leases at which time the Permits shall be the sole property of Seller. 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 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 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. 14 21 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 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 an executive officer of Seller in the form of Exhibit E annexed hereto, 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 Buyer shall have received a certificate of an executive officer of Seller in the form of Exhibit E annexed hereto, dated as of the Closing Date, as to such compliance. 7.3 Consents. Each of the Consents required pursuant to Section 3.2(c) shall have been obtained and shall be in full force and effect. 7.4 Additional Documents. Each of the following documents must have been delivered to Buyer: (a) an opinion of Coleman, Talley, Newbern, Kurrie, Preston & Holland, L.L.P., counsel to Seller, dated as of the Closing Date in the form of Exhibit F annexed hereto, (b) the deliveries required from Seller in Section 2.7; (c) resolutions of all the shareholders and directors of Seller confirming the authorization of the execution and delivery of this Agreement and the Contemplated Transactions; 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. 7.5 No Proceedings. Since the date of this Agreement, there must not have been commenced and pending or Threatened by any Person 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. 15 22 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. 7.7 No Material Adverse Change. There shall not have been a Material Adverse Change since the date hereof. 7.8 Due Diligence. On or before the date which is ten (10) days after the full execution of this Agreement, Buyer's due diligence investigation and review of the Purchased Assets and the Assumed Liabilities shall not reveal any fact or circumstance not acceptable to Buyer in Buyer's sole and absolute discretion. 7.9 Satisfaction of Indebtedness. At or prior to the Closing, Seller shall have repaid in full all outstanding indebtedness of Seller to the extent affecting the Purchased Assets and shall cause all Security Interests affecting the Purchased Assets to be extinguished. 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE Seller's obligation to sell the Purchased Assets and Seller's obligation 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 in all material respects as of the date of this Agreement and must be accurate in all material respects in all 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 in the form of Exhibit G annexed hereto, 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 in the form of Exhibit G annexed hereto, 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: 16 23 (a) an opinion of St. John & Wayne, L.L.C., dated the Closing Date in the form of Exhibit H annexed hereto; (b) the deliveries required from Buyer in Section 2.7; (c) resolutions of all the directors of Buyer confirming the authorization of the execution and delivery of this Agreement and the Contemplated Transactions; and (d) 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 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 in writing such condition on or before the Closing Date; or (ii) by Seller 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 failure of Seller to comply with its obligations under this Agreement) and Seller has not waived in writing 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 August 1, 1998, or such later date as the Parties may agree upon. 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 13.1 and 13.3 will survive; provided, however, if (a) Seller shall default in its obligations under this Agreement to consummate the Contemplated Transactions (other than as a result of Buyer's default under this Agreement), and Seller shall fail to cure such default within fourteen (14) days after receipt of written notice of default from Buyer, then Buyer shall have the right to pursue any or all legal and equitable remedies, separately or simultaneously (including, without limitation, (1) the right to terminate this Agreement, or (2) specific performance), which will survive the termination unimpaired, and the obligations in Sections 13.1 and 13.3 will survive; and (b) Buyer shall default in its obligations under this Agreement to consummate the Contemplated Transactions (other than as a result of Seller's default under this Agreement), and Buyer shall fail to cure such default within fourteen (14) days after receipt of written notice of default from Seller, then Buyer shall pay to Seller, as Seller's sole remedy (in lieu of any and all remedies), the sum of $5,000.00 which sum shall constitute the agreed and liquidated damages for such termination and/or failure to close by Buyer, and the obligations in Sections 13.1 and 13.3 will survive. The remedies set forth in this Section 9.2 apply only to the failure of Buyer or Seller to consummate the Contemplated Transactions, and not with respect to any obligations specified herein that survive the Closing or termination of this Agreement. 17 24 10. INDEMNIFICATION; REMEDIES 10.1 Indemnification and Payment of Damages by Seller and the Indemnifying Stockholders. Seller and the Indemnifying Stockholders will, jointly and severally, indemnify and hold harmless Buyer and 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 (whether absolute or contingent), 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 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 breach by Seller of any covenant or obligation of Seller in this Agreement or an certificate or document delivered by Seller pursuant to this Agreement; (c) the failure of Seller to satisfy and discharge any Excluded Liabilities; (d) any default by Seller under any Site Lease, Advertising Contract or Permit which occurred or accrued prior to the Closing; (e) the failure of Seller to comply with bulk sales or other similar laws in any applicable jurisdiction; and (f) facts, events or conditions that occurred or came into existence prior to the Closing (except to the extent that Buyer shall have assumed the same as set forth in Section 2.3), whether or not such Damages are asserted or claimed prior to the Closing or thereafter. 10.2 Indemnification and Payment of Damages by Buyer. Buyer will indemnify 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: 18 25 (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; and (b) the failure to pay Assumed Liabilities after the Closing. 10.3 Procedure for Indemnification -- Third Party Claims. 19 26 (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 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 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 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 ten (10) 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. (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 Claim. 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. The Parties hereto agree that (i) the covenants and agreements contained in this Agreement and any document delivered pursuant hereto and the representations and warranties contained in this Agreement shall survive until ninety (90) days after the-expiration of all applicable statutes of limitation with respect to the subject matter thereof, and (ii) any indemnification claim for a breach of the foregoing must be made in writing in accordance with the provisions of this Article 10 within the applicable survival period for the underlying representation, warranty or covenant. The expiration of the applicable survival period will not extinguish an indemnification claim properly made prior to such expiration in accordance with this Article 10. 11. NON-COMPETITION AND NON-SOLICITATION. 11.1 Non-Competition. Seller, the Indemnifying Stockholders and Bowling D. Miller each hereby agrees that for a period of ten (10) years after the Closing Date, such Person will not, without the prior written consent of Buyer, directly or indirectly, engage or participate in, be employed by or assist in any manner or in any capacity, or have any interest in or make any loan to any person, firm, corporation or business which engages in outdoor advertising activities (including the ownership and/or operation of outdoor signs and billboards) in those areas described in Exhibit C annexed hereto; provided, however, the foregoing shall not prevent any such entity or person from owning beneficially or of record up to five percent (5%) of the outstanding securities of a publicly-held corporation which engages in competitive activities. 11.2 Non-Solicitation. For a period of ten (10) years after the Closing Date, Seller, the Indemnifying Stockholders and Bowling D. Miller each agree that he or it will (i) not solicit, recruit or hire, or attempt to solicit, recruit or hire, directly or indirectly, any of the employees of Buyer or its Affiliates; (ii) refrain from soliciting, or attempting to solicit, directly or indirectly, any business from any customer of Buyer, or actively pursue prospective customers, with whom Buyer had material contact at any time during the previous five (5) years for purposes of providing outdoor (including, without limitation, out-of-home advertising) products or services of the type offered or provided by Buyer (Buyer's customers to include customers of Seller); and (iii) refrain from soliciting, or attempting to solicit, directly or indirectly, any real estate location used by Buyer from any land owner (or its successor or assigns) who leases to Buyer (including without limitation land owners under the Site Leases), or actively pursue prospective land owners with whom Buyer or Seller had material contact during the previous five (5) years. 11.3 Enforcement. Seller, the Indemnifying Stockholders and Bowling D. Miller acknowledge that a breach of the covenants in this Section 11 would cause irreparable harm to Buyer and its Affiliates for which there is not adequate remedy at law. Seller, the Indemnifying Stockholders and Bowling D. Miller consent to the issuance of an injunction in favor of Buyer and its Affiliates enjoining the breach of this provision. Notwithstanding the foregoing, in addition to any equitable remedies available to Buyer, Buyer shall be entitled to any and all remedies at law or equity, including, without limitation, injunctive relief, monetary damages, an accounting for profits and/or the imposition of a constructive trust. In the event that any court of competent jurisdiction should construe any geographical limitation, the scope, or the time period contained in this restrictive covenant to be too broad, so as to be unenforceable, it is the intention of the patties that the court should modify the covenant(s) to provide that the restrictions as herein contained shall apply and be enforceable to the maximum extent permitted by law for such restrictions, and further upon such determination, to enforce the covenant as so modified. 20 27 11.4 Survival. The provisions of this Section 11 shall survive the Closing; provided, however, if Buyer is in default under the Parcel Leases after any applicable cure period, and all the Parcel Leases shall be terminated by an appropriate court order for which all rights of appeal shall have lapsed, the provisions of this Section 11 shall terminate. 12. OMITTED. 13. GENERAL PROVISIONS 13.1 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. Each Party hereto shall indemnify the other for its failure to pay any brokerage or finders' fees or agents' commission or similar payment incurred by such Party or its Representatives in connection with this Agreement. 13.2 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. 21 28 13.3 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. All confidential information and documents made available to the Buyer by Seller or its Representatives with respect to the Business shall be kept in strict confidence, and not made available to any third party other than absolutely necessary for the purposes of concluding the Contemplated Transactions. In the event the Contemplated Transactions for any reason are not concluded, all documents or documents compiled from information supplied or obtained hereunder, and copies thereof, shall be returned to Seller and the Confidential Information obtained shall in no way be used by the Buyer or communicated to any third party, except as required by law or court order. This representation shall survive the termination of this Agreement. 13.4 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 (except as otherwise expressly provided in this Agreement) 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. 13.5 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 receipt), provided that a copy is mailed by certified 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): 22 29 If to Seller: Boone Company, Inc. 2102 Boone Dairy Road Valdosta, Georgia 31601 Attention: Bowling D. Miller, President Telephone No.: (912)333-0653 Facsimile No.: With a copy to: Coleman, Talley, Newbern, Kurrie, Preston & Holland, L.L.P. 910 North Patterson Street Valdosta, Georgia 31601 Attention: Thompson Kurrie, Jr., Esq. Telephone No.: (912)242-7562 Facsimile No.: (912)333-0885 If to Buyer, to: Tri-State Outdoor Media Group, Inc. P.O. Box 1247 3416 Highway 41 South Tifton, Georgia 31793 Attention: Sheldon G. Hurst, President Telephone No.: (912) 382-2980 Facsimile No.: (912) 386-0203 With a copy to: St. John & Wayne, L.L.C. Two Penn Plaza East Newark, New Jersey 07105 Attention: David C. Freinberg, Esq. Telephone No.: (973) 491-3600 Facsimile No.: (973) 491-3555 Notices given by an attorney for a Party shall be deemed to be a notice given by such Party. 13.6 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. 13.7 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. 13.8 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. 13.9 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 (provided that Buyer shall remain liable for the obligations of such assignee under this Agreement). 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. 23 30 13.10 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. 13.11 Risk of Loss. Except as otherwise expressly provided in this Agreement, material risk of loss or damage to the Purchased Assets from any cause whatsoever prior to the Closing shall be borne by Seller, and after the Closing shall be borne by Buyer. 13.12 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 three (3) 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 for a period of three (3) 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. In addition to the foregoing, Seller (without additional consideration therefor to be paid to Seller, but with any reasonable out-of-pocket expenses payable to non-Affiliates incurred by Seller to be paid by Buyer), shall, at all reasonable times after the Closing if called upon by Buyer, use reasonable efforts to cooperate with and assist Buyer in the preparation of financial statements by Buyer which may include the operation of the Business prior to the Closing Date. Nothing contained in this Section 13.12 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. This provision shall survive the Closing. 13.13 Applicable Law and Venue. This Agreement is made in and shall be governed by and construed and enforced in accordance with the laws of the State of Georgia. Seller and Buyer hereby consent to the personal jurisdiction of the courts of Georgia in Lowndes County for all matters relating to or arising from this Agreement. 13.14 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. 14. OMITTED 24 31 IN WITNESS WHEREOF, the Parties have executed, seated and delivered this Asset Purchase Agreement as of the date first written above. BUYER: TRI-STATE OUTDOOR MEDIA GROUP, INC. By: /s/ Anthony S. LaMarca ---------------------------- Name: Anthony S. LaMarca Title: Vice President SELLER: BOONE COMPANY, INC. By: /s/ Bowling D. Miller --------------------------- Name: Bowling D. Miller Title: President INDEMNIFYING STOCKHOLDERS: (As to Articles 10 and 11 only) /s/ Samuel J. Boone ------------------- Samuel J. Boone /s/ Cherylene B. Miller ----------------------- Cherylene B. Miller /s/ Alana B. Folsom ------------------- Alana B. Folsom /s/ Barry A. Boone ------------------ Barry A. Boone /s/ Bowling D. Miller --------------------- Bowling D. Miller EX-10.13 4 FIRST AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.13 FIRST AMENDMENT TO CREDIT AGREEMENT This Amendment (this "Amendment") is entered into as of March 1, 1999 by and among Tri-State Outdoor Media Group, Inc., a Kansas corporation (the "Borrower"), and The First National Bank of Chicago ("First Chicago"), individually and as agent (in such capacity, the "Agent"). RECITALS _ The Borrower, First Chicago as the sole Lender (the "Lender") and the Agent are party to that certain Credit Agreement dated as of September 18, 1998 (the "Credit Agreement"). Unless otherwise specified herein, capitalized terms used in this Amendment shall have the meanings ascribed to them in the Credit Agreement. _ The Borrower, the Lender and the Agent wish to amend the Credit Agreement on the terms and conditions set forth below. Now, therefore, in consideration of the mutual execution hereof and other good and valuable consideration, the parties hereto agree as follows: 1. Article I of the Credit Agreement is hereby amended by deleting the definitions of the terms "Pro Forma Debt Service" and "Pro Forma Debt Service Coverage Ratio". 2. Section 2.2.1 of the Credit Agreement is hereby amended by restating in its entirety the table set forth therein as follows: "Payment Date Amount March 31, 1999 $1,000,000 June 30, 1999 $1,000,000 September 30, 1999 $1,000,000 March 31, 2000 $2,500,000 June 30, 2000 $2,500,000 Facility Termination Date $6,000,000" 2 3. Section 2.5.2 of the Credit Agreement is hereby amended by relettering paragraphs (a) and (b) thereof as paragraphs (b) and (c), respectively, and inserting a new paragraph (a) therein as follows: "(a) The Aggregate Facility C Commitment shall be permanently reduced, ratably among the Lenders in proportion to their respective Facility C Commitments, on each of the Payment Dates set forth below to the amount set forth below opposite such Payment Date. Aggregate Facility C Payment Date Commitment June 30, 1999 $3,000,000 September 30, 1999 $2,000,000" 4. Section 6.1 of the Credit Agreement is hereby amended by restating in their entirety paragraphs (iii), (iv) and (v) thereof as follows: "(iii) Within 45 days after the close of each of the first three fiscal quarters in each of its fiscal years, for Holdings and its Subsidiaries and for the Borrower and its Subsidiaries, consolidated unaudited balance sheets as at the close of each such period and consolidated profit and loss and reconciliation of surplus statements and a statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter and a management summary, all certified by the chief financial officer of Holdings and the Borrower, respectively. (iv) Together with the financial statements required under Sections 6.1(i) and (iii), a Compliance Certificate showing the calculations necessary to determine compliance with this Agreement; provided, however, that any such Compliance Certificate need not show calculations covered by Compliance Certificates previously furnished by the Borrower pursuant to Section 6.1(v). (v) (a) within 35 days after the end of each month, other than any month on the last day of which a fiscal quarter ends, commencing with the month ending October 31, 1998 (x) for the Borrower and its Subsidiaries, a consolidated profit and loss statement and statement of cash flows for the period from the beginning of the then-current fiscal year to the end of such month, each certified by the Chief Financial Officer of the Borrower, and (y) a Compliance Certificate showing the calculations necessary to determine compliance with Section 6.19.4, and (b) within 15 days after the end of each month, commencing with the month ending February 28, 1999 (x) a statement of the Total Revenues of the Borrower and its Subsidiaries for such month and for the period from the beginning of the then-current fiscal year to the end of such month, in each case broken down by division and certified by the Chief Financial Officer of the Borrower, and (y) a Compliance Certificate showing the calculations necessary to determine compliance with Section 6.19.2." 3 5. Section 6.15 of the Credit Agreement is hereby restated in its entirety as follows: "6.15 Sale and Leaseback. The Borrower will not, nor will it permit any Subsidiary to, enter into any Sale and Leaseback Transactions, except (a) one or more Sale and Leaseback Transactions the proceeds of which may not exceed $1,000,000 in the aggregate with Courtesy Leasing, Inc. entered into prior to October 31, 1998 and pursuant to which the Borrower is not obligated to make payments for one year from the dates thereof, and (b) a Sale and Leaseback Transaction the proceeds of which may not exceed $750,000 with Courtesy Leasing, Inc. entered into prior to April 30, 1999 and pursuant to which the Borrower is not obligated to make payments prior to October 1, 1999." 6. Section 6.19.1 of the Credit Agreement is hereby amended by restating it in its entirety as follows: "6.19.1 Total Leverage Ratio. The Borrower shall maintain, on a consolidated basis for itself and the Subsidiaries, as of the end of each fiscal quarter ending on a date set forth below, a Total Leverage Ratio not exceeding the ratio set forth opposite such date: Maximum "Date Ratio 3/31/00 7.00:1.00 6/30/00 6.75:1.00 9/30/00 6.50:1.00" 7. Section 6.19.2 of the Credit Agreement is hereby amended by restating it in its entirety as follows: "Total Revenues. The Borrower will maintain Total Revenues of the Borrower and its Subsidiaries (a) for each month in the calendar year 1999 set forth below, equal to or greater than 97% of the amount set forth below opposite such month, and (b) for each rolling three-month period ending on the last day of each month in the calendar year 1999 set forth below, commencing with the three-month period ending March 31, 1999, equal to or greater than 93% of the amount set forth below opposite such month. Rolling Monthly Three-month Total Revenues Total Revenues January $2,027,000 February $2,104,000 March $2,176,000 $6,307,000 April $2,202,000 $6,482,000 May $2,238,000 $6,616,000 June $2,310,000 $6,750,000 July $2,310,000 $6,858,000 August $2,340,000 $6,960,000 September $2,334,000 $6,984,000 October $2,354,000 $7,028,000 November $2,384,000 $7,072,000 December $2,321,000 $7,059,000 For purposes of calculating compliance with the covenant set forth in this Section 6.19.2, the Borrower may include the excess, if any, of Total Revenues for any month over the amount set forth above opposite such month in the "Monthly Total Revenues" column in the calculation of Total Revenues during the immediately succeeding three-month period." 8. Section 6.19 of the Credit Agreement is hereby amended by adding a new Section 6.19.4 thereto as follows: "Section 6.19.4 Net Operating Cash Flow. The Borrower will maintain Net Operating Cash Flow (a) for each month in the calendar year 1999 set forth below, equal to or greater than 98% of the amount set forth below opposite such month, and (b) for each rolling three-month period ending on the last day of each month in the calendar year 1999 set forth below, commencing with the three-month period ending March 31, 1999, equal to or greater than 95% of the amount set forth below opposite such month. Monthly Rolling Net Three-month Operating Net Operating Cash Flow Cash Flow January $ 977,000 February $1,041,000 March $ 898,000 $2,916,000 April $1,120,000 $3,059,000 May $1,149,000 $3,167,000 June $1,007,000 $3,276,000 July $1,206,000 $3,362,000 August $1,230,000 $3,443,000 September $1,225,000 $3,661,000 October $1,241,000 $3,696,000 November $1,265,000 $3,731,000 December $1,215,000 $3,721,000 4 For purposes of calculating compliance with the covenant set forth in this Section 6.19.4, the Borrower may include the excess, if any, of Net Operating Cash Flow for any month over the amount set forth above opposite such month in the "Monthly Net Operating Cash Flow" column in the calculation of Net Operating Cash Flow during the immediately succeeding three-month period." 9. Exhibit "F" to the Credit Agreement is hereby restated in its entirety in the form of Schedule I attached hereto. 10. The parties hereto acknowledge that the Compliance Certificate required to be furnished by the Borrower pursuant to Section 6.1(iv) of the Credit Agreement showing covenant compliance calculations as of December 31, 1998 is not required to contain compliance calculations relating to Section 6.19.1 or 6.19.2 of the Credit Agreement. 11. The Borrower represents and warrants to the Lender and the Agent that: (a) The execution, delivery and performance by the Borrower of this Amendment and the Fee Letter Amendment (as defined below) have been duly authorized by all necessary corporate action and this Amendment and the Fee Letter Amendment are legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally. (b) The representations and warranties of the Borrower contained in Article V of the Credit Agreement, as amended by this Amendment, are true and correct on and as the date hereof except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty was true on and as of such earlier date. (c) After giving effect to this Amendment, there exists no Default or Unmatured Default. 12. This Amendment shall become effective as of the date hereof upon the execution and delivery hereof by the Borrower, the Lender and the Agent, and the Agent's receipt of the following: (a) a counterpart of this Amendment executed by the Borrower or a facsimile transmission thereof; (b) an executed copy of the Fee Letter Amendment in the form delivered by the Lender to the Borrower (the "Fee Letter Amendment") or a facsimile transmission thereof; and (c) a copy, certified by the Secretary or Assistant Secretary of the Borrower, of its Board of Directors' resolutions authorizing the execution and delivery of this Amendment and the Fee Letter Amendment. 5 13. Prior to March 11, 1999, the Borrower shall deliver to the Agent a copy of the resolutions referred to in paragraph 12(c) hereof executed by all of the Directors of the Borrower, and failure to deliver such resolutions by such date shall constitute an Event of Default. 14. Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or any Lender under the Credit Agreement or any Loan Document, nor constitute a waiver of any provision of the Credit Agreement or any Loan Document, except as specifically set forth herein. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of similar import shall mean and be a reference to the Credit Agreement as amended hereby. 15. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 16. This Amendment may be executed via facsimile transmission in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument. 6 IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and year first above written. TRI-STATE OUTDOOR MEDIA GROUP, INC. By: /s/ William G. McLendon ------------------------------- William G. McLendon Chief Financial Officer THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Agent By: /s/ Ronna Bury-Prince --------------------------- Ronna Bury-Prince Vice President EX-10.14 5 AMENDMENT TO FEE LETTER DATED MARCH 1, 1999 1 EXHIBIT 10.14 [Letterhead of FIRST CHICAGO The First National Bank of Chicago] March 1, 1999 Tri-State Outdoor Media Group, Inc. 3416 Highway 41 South Tifton, Georgia 31794 Attn: William McLendon Sheldon Hurst Re: Fee Letter Amendment Gentlemen: We refer to (i) the Credit Agreement, dated as of September 18, 1998 (the "Original Credit Agreement"), as amended by the First Amendment thereto, dated as of March 1, 1999 (the "First Amendment", the Original Credit Agreement, as amended by the First Amendment being hereinafter referred to as the "Credit Agreement"), among Tri-State Outdoor Media Group, Inc. (the "Borrower"), the Lenders party thereto and The First National Bank of Chicago ("First Chicago"), as Agent, and (ii) the Fee Letter, dated August 18, 1998 (the "Fee Letter"), by First Chicago to, and accepted and agreed to by, the Borrower. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Credit Agreement. The Borrower agrees to pay to First Chicago the following non-refundable fees, and the Borrower and First Chicago agree to add a new numbered paragraph 3 to the Fee Letter as follows: "3. Amendment Fee. A fee in the amount of $180,000, payable on the earlier of (i) June 30, 1999, and (ii) payment by the Borrower of the outstanding balance of Advances under the Facilities. In the event that the Credit Agreement is not terminated pursuant to Section 2.2.7 thereof prior to July 1, 1999, a fee in the amount of $180,000, payable on the earlier of September 30, 1999, and (ii) payment by the Borrower of the outstanding balance of Advances under the Facilities." The Borrower agrees not to disclose any of the terms of this letter to any person other than employees, attorneys or accountants of the Borrower, in each case, to whom it is necessary to disclose the information (and who, in each case, shall be made aware of this promise not to disclose) or as may be required by law or any court or regulatory agency having jurisdiction over the Borrower. Except as amended hereby, the Fee Letter shall remain in full force and effect and is hereby ratified and confirmed. 2 This letter may be executed via facsimile transmission in any number of counterparts and by the Borrower and First Chicago in separate counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument. Sincerely yours, THE FIRST NATIONAL BANK OF CHICAGO By /s/ Laurie W. Blazek ----------------------- Laurie W. Blazek Vice President ACCEPTED AND AGREED TO: TRI-STATE OUTDOOR MEDIA GROUP, INC. By /s/ William G. McLendon -------------------------- William G. McLendon Chief Financial Officer EX-12.0 6 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 Exhibit 12.0 TRI-STATE OUTDOOR MEDIA GROUP, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS)
Year Ended December 31 1996 1997 1998 ---- ---- ---- Loss before income taxes $ (895) $ (3,445) $ (9,842) Add Portion of rent expenses representative of the interest factor 385 571 1,049 Interest on indebtedness $1,941 $4,200 $10,417 -------- -------- -------- Income (loss) as adjusted $ 1,431 $ 1,326 $ 1,624 ======== ======== ======== Fixed charges Interest on indebtedness (1) 1,941 4,200 10,417 -------- -------- -------- Rent expenses: 1,156 1,713 3,146 -------- -------- -------- Portion or rent expenses representative of interest factor (2) 385 571 1,049 -------- -------- -------- Fixed charges (1)+(2) $ 2,326 $ 4,771 $ 11,466 ======== ======== ======== Ratio of earnings to fixed charges -- -- -- ======== ======== ========
EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 73 5,401 2,710 342 0 11,237 73,283 12,669 121,496 7,057 112,839 0 0 2 1,598 121,496 20,774 20,958 0 20,752 (369) 0 10,417 (9,842) (2,274) (7,568) 0 (2,089) 0 (9,657) (48.3) (48.3)
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