<PAGE>
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
METRO DISPLAY ADVERTISING, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
METRO DISPLAY ADVERTISING, INC.
15265 Alton Parkway
Irvine, California 92618
(714) 727-4444
January 5, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Metro Display Advertising, Inc. (the "Company"), to be held at the Fullerton
Senior Multi-Service Center, 340 West Commonwealth Avenue, Fullerton, California
92832, at 2:00 p.m. local time, on January 15, 1998.
The Board of Directors is submitting for your consideration, at the Annual
Meeting, a proposal to approve and adopt an Agreement and Plan of Merger, dated
as of September 8, 1997, by and among the Company, Eller Media Company ("Eller")
and EMS, Inc. ("EMS"), a wholly-owned subsidiary of Eller, as amended and
restated on January 5, 1998 (the "Agreement and Plan of Merger"), pursuant to
which EMS will be merged with and into the Company (the "Merger") and the
Company will become a wholly-owned subsidiary of Eller. The Notice of Annual
Meeting of Shareholders and Proxy Statement accompanying this letter more fully
describe the matters to be considered at the Annual Meeting. We urge you to read
the enclosed materials carefully.
THE COMPANY'S BOARD OF DIRECTORS HAS APPROVED THE AGREEMENT AND PLAN OF
MERGER AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE AGREEMENT AND PLAN OF
MERGER.
Approval of the Agreement and Plan of Merger requires the affirmative vote
of the holders of a majority of the outstanding shares of the Company's Common
Stock entitled to vote thereon.
At the Annual Meeting, you will also be asked to elect three directors to
serve on the Company's Board of Directors until the Merger is consummated or
until the next Annual Meeting and until their successors are elected and
qualified, and to ratify the selection of Peck & Lopez as the Company's
independent auditors for the fiscal year ending December 31, 1997.
Whether or not you plan to attend the Annual Meeting, we urge you to sign,
date and return the enclosed proxy in the envelope provided. The vote of each
shareholder is important. If you attend the Annual Meeting, you may vote your
shares in person, even if you have previously submitted a proxy.
Sincerely,
Scott A. Kraft
Chief Executive Officer and President
<PAGE>
METRO DISPLAY ADVERTISING, INC.
15265 Alton Parkway, Suite 100
Irvine, California 92618
(714) 727-4444
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 15, 1998
To the Shareholders:
Notice is hereby given that the Annual Meeting of Metro Display
Advertising, Inc., a California corporation (the "Company"), will be held at the
Fullerton Senior Multi-Service Center, 340 West Commonwealth Avenue, Fullerton,
California 92832, at 2:00 p.m. local time, on January 15, 1998, for the
following purposes:
1. Acquisition. To approve the Agreement and Plan of Merger, dated
September 8, 1997, by and among the Company, Eller Media Company, a Delaware
corporation ("Eller"), and EMS, Inc., a California corporation and wholly-owned
subsidiary of Eller ("EMS"), as amended and restated on January 5, 1998 (the
"Merger Agreement"), pursuant to which EMS will be merged with and into the
Company and the Company will become a wholly-owned subsidiary of Eller (the
"Merger"). If the Merger is consummated, each share of the Company's common
stock (the "Common Stock"), (other than shares as to which dissenters' rights
have been properly exercised) will be converted into the right to receive,
subject to certain reductions, $41,800,000 in cash divided by the number of
outstanding shares of Common Stock, which will be placed in escrow until the
resolution of certain litigation and other matters.
2. Election of Directors. To elect three persons to the Board of
Directors to serve until the Merger is completed or until the next Annual
Meeting of Shareholders and until their successors are elected and qualified.
3. Selection of Independent Auditors. To ratify the selection of Peck &
Lopez as the Company's independent auditors for the fiscal year ending December
31, 1997.
4. Other Business. To transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
Only shareholders of record at the close of business on December 1, 1997,
will be entitled to notice of and to vote at the Annual Meeting and any
adjournment thereof.
You are cordially invited to attend the Annual Meeting in person. However,
in order to ensure your representation at the meeting, please promptly complete,
date, sign and return the enclosed proxy as soon as possible in the return
envelope provided. A shareholder who executes and returns a proxy may revoke
such proxy at any time before it is voted at the Annual Meeting by following the
procedures set forth in the attached Proxy Statement.
By Order of the Board of Directors
__________________________________
William M. Slater
Secretary
January 5, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction......................................................................... 1
SUMMARY OF PROPOSED MERGER TRANSACTION............................................... 2
VOTING RIGHTS AND VOTE REQUIRED...................................................... 5
PROPOSAL ONE--THE MERGER............................................................. 6
General........................................................................ 6
Contingencies and Adjustments Affecting the Merger Consideration............... 6
Van Wagner Litigation and Disputes............................................. 8
Background of the Merger....................................................... 10
Reasons for the Merger......................................................... 12
Fairness of Merger Consideration............................................... 12
The Merger Agreement........................................................... 13
Stockholder Representatives.................................................... 16
Transfer of Assets of BSON and Distribution of BSON Stock...................... 17
Regulatory Approvals........................................................... 18
Dissenters' Rights............................................................. 18
Certain Federal Income Tax Considerations...................................... 19
Accounting Treatment........................................................... 21
BUSINESS OF THE COMPANY.............................................................. 21
General........................................................................ 21
Background/Prior Bankruptcy.................................................... 21
Outdoor Advertising............................................................ 23
Operations..................................................................... 23
Operations in Absence of Merger................................................ 25
Contracts with Municipalities.................................................. 26
Competition.................................................................... 27
Employees...................................................................... 28
Properties..................................................................... 28
BUSTOP SHELTERS OF NEVADA, INC. (BSON)............................................... 28
History........................................................................ 28
Operations..................................................................... 28
Post-Merger Operations......................................................... 29
Properties..................................................................... 29
BUSINESS OF ELLER AND EMS............................................................ 30
Eller.......................................................................... 30
EMS............................................................................ 31
SPECIAL CONSIDEATIONS REGARDING MERGER AND RELATED TRANSACTIONS...................... 31
No Fairness Opinion............................................................ 31
Merger Consideration in Escrow................................................. 32
Damages Escrow................................................................. 32
Van Wagner Escrow.............................................................. 32
Net Reductions................................................................. 32
Regulatory Approvals........................................................... 33
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Third Party Consents........................................................... 33
Risks Associated with BSON..................................................... 33
PROPOSAL TWO--ELECTION OF DIRECTORS.................................................. 37
Officers and Directors......................................................... 37
Board Committees and Meetings.................................................. 38
PROPOSAL THREE--RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS................. 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................................. 40
General........................................................................ 40
Results of Operations.......................................................... 40
Liquidity and Capital Resources................................................ 41
Comparison of nine-months ended September 30, 1997 and September 30, 1996...... 42
Liquidity and Capital Resources as of September 30, 1997....................... 43
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT....................................................................... 43
Change in Control.............................................................. 43
INTERESTS OF CERTAIN PERSONS; RELATED TRANSACTIONS................................... 44
Transfer of Assets to BSON and the Distribution of BSON Stock.................. 44
Litigation Responsibility Agreement............................................ 44
Interim Sales Representation Agreement......................................... 45
Consulting Agreement........................................................... 45
Credit Facility and Loans...................................................... 45
Employment Agreements.......................................................... 46
Bonuses........................................................................ 47
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.............................. 47
EXECUTIVE COMPENSATION............................................................... 48
Stock Option Plan.............................................................. 48
Stock Option Grants and Exercises.............................................. 49
Employment Agreements.......................................................... 49
Bonuses........................................................................ 50
Compensation of Directors...................................................... 50
Compensation Committee Interlocks and Insider Participation.................... 50
LITIGATION........................................................................... 50
Litigation with Van Wagner..................................................... 50
Litigation with Municipalities................................................. 50
Litigation with Busline Media.................................................. 51
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS............................. 51
AVAILABLE INFORMATION................................................................ 51
INDEPENDENT ACCOUNTANTS.............................................................. 52
OTHER MATTERS........................................................................ 52
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SUBMISSION OF SHAREHOLDER PROPOSALS.................................................. 52
INDEX TO FINANCIAL STATEMENTS........................................................ F-1
EXHIBITS
Amended and Restated Agreement and Plan of Merger by and among Eller Media
Company, EMS, Inc. and Metro Display Advertising, Inc. dated January 5, 1998;
and the Specific Performance Escrow Agreement, Van Wagner Escrow Agreement
and Damages Escrow and Disbursement Agreement related thereto Exhibit A
Chapter 13 of the California General Corporation Law Exhibit B
Form of Amended and Restated Articles of Incorportaion of BSON Exhibit C
Form of Amended and Restated Bylaws of BSON Exhibit D
Letter from Stinchfield & Co. dated September 19, 1997 Exhibit E
</TABLE>
<PAGE>
METRO DISPLAY ADVERTISING, INC.
15265 Alton Parkway, Suite 100
Irvine, California 92618
ANNUAL MEETING OF SHAREHOLDERS
JANUARY 15, 1998
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of Metro
Display Advertising, Inc., a California corporation (the "Company" or "Metro"),
in connection with the solicitation of proxies by the Board of Directors of the
Company (the "Board") for use at the Annual Meeting of Shareholders of the
Company to be held on Janaury 15, 1998, and at any adjournment thereof (the
"Annual Meeting").
A form of proxy is enclosed for your use. The shares represented by each
properly executed unrevoked proxy will be voted as directed by the shareholder
executing the proxy. If no direction is made, the shares represented by each
properly executed unrevoked proxy will be voted "FOR" the approval and adoption
of the amended and restated Agreement and Plan of Merger, "FOR" the election of
management's nominees for the Board of Directors, and "FOR" ratification of the
selection of Peck & Lopez as the Company's independent auditors for the fiscal
year ending December 31, 1997. With respect to any other item of business that
may come before the Annual Meeting, the proxy holders will vote the proxy in
accordance with their best judgment.
Any proxy given may be revoked at any time prior to the exercise thereof by
filing with William M. Slater, Secretary of the Company, an instrument revoking
such proxy or by the filing of a duly executed proxy bearing a later date. Any
shareholder present at the Annual Meeting who has given a proxy may withdraw it
and vote his or her shares in person if such shareholder so desires.
It is contemplated that the solicitation of proxies will be made primarily
by mail. Should it, however, appear desirable to do so in order to ensure
adequate representation of shares at the Annual Meeting, the officers, agents
and employees of the Company may communicate with shareholders, banks, brokerage
houses and others by telephone, telegraph, or in person to request that proxies
be furnished. All expenses incurred in connection with this solicitation will
be borne by the Company. In following up the original solicitation of proxies
by mail, the Company may make arrangements with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy material to the
beneficial owners of the shares eligible to vote at the Annual Meeting and will
reimburse them for their expenses in so doing. The Company has no present plans
to hire special employees or paid solicitors to assist in obtaining proxies, but
reserves the option of doing so if it should appear that a quorum otherwise
might not be obtained. This Proxy Statement and the accompanying form of proxy
are first being mailed to shareholders on or about January 5, 1998.
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<PAGE>
SUMMARY OF PROPOSED MERGER TRANSACTION
The following is a summary of certain information contained in this Proxy
Statement. This summary does not purport to be complete and is qualified in its
entirety by reference to the more detailed information contained elsewhere in
this Proxy Statement and the Exhibits hereto. Capitalized terms used and not
defined in the following summary will have the meanings ascribed to them
elsewhere in this Proxy Statement. Shareholders are urged to read this Proxy
Statement and the Exhibits hereto in their entirety.
THE ANNUAL MEETING
The annual meeting will be held on January 15, 1998 at 2:00 p.m. local
time, at the Fullerton Senior Multi-Service Center, 340 West Commonwealth
Avenue, Fullerton, California 92832 (the "Annual Meeting"). At the Annual
Meeting, the shareholders of the Company will be asked to consider and vote upon
(i) a proposal to approve and adopt the Merger Agreement, (ii) the election of
three directors to serve until the Merger is completed or until the next Annual
Meeting and until their successors have been elected and qualified, (iii) the
ratification of the selection of Peck & Lopez as the Company's independent
auditors for the fiscal year ending December 31, 1997, and (iv) such other
business as may properly come before the Annual Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE
Only holders of record of the shares of Common Stock at the close of
business on December 1, 1997 (the "Record Date") are entitled to notice of, and
to vote at, the Annual Meeting and any adjournment thereof.
VOTE REQUIRED
The affirmative vote of a majority of all shares of Common Stock
outstanding on the Record Date is required for approval and adoption of the
Merger Agreement. The affirmative vote of a majority of the shares voted at the
Annual Meeting is required for ratification of the selection of Peck & Lopez as
the Company's independent auditors for the fiscal year ending December 31, 1997.
A plurality of the votes represented and entitled to vote at the Annual
Meeting, either in person or by proxy, is required to elect three directors to
serve until the Merger is completed or until the next Annual Meeting and until
their successors have been elected and qualified. Shareholders may cumulate
their votes if at least one shareholder has given notice at the Annual Meeting
of his intention to do so. See "Voting Rights And Vote Required."
THE MERGER
The Company, Eller and EMS entered into the Agreement and Plan of Merger
dated September 8, 1997, as amended and restated on January 5, 1998 (the "Merger
Agreement"). The Merger Agreement provides that, subject to the approval of the
Merger Agreement by the shareholders of the Company and satisfaction of certain
other conditions, EMS will be merged with and into the Company, the separate
corporate existence of EMS will cease and the Company will continue as the
surviving corporation and wholly-owned subsidiary of Eller (the "Merger"). Upon
consummation of the Merger, each outstanding share of Common Stock of the
Company (other than those for which dissenters' rights have been asserted) will
be converted into the right to receive in cash, subject to the number of
dissenting shares and certain reductions, $41,800,000 divided by the number of
outstanding shares of Common Stock, which will be placed in escrow until the
resolution of certain contingencies, including certain pending litigation. See
"The Merger - Contingencies and Adjustments Affecting the Merger Consideration"
and "The Merger - The Merger Agreement - Distribution of the Consideration."
2
<PAGE>
Assuming that there are no dissenting shares and that all outstanding stock
options are exercised prior to the Closing of the Merger, a total of 970,030
shares of Common Stock will participate pro rata in the distribution of the
Merger Consideration. The Company is unable to predict the outcome of certain
contingencies that will affect the amount available for distribution. After
deducting approximately $2,200,000 in reductions known to Metro as of December
15, 1997, the Merger Consideration divided by 970,030 shares equals $40.82 per
share of Common Stock. It is expected that the actual amount of Merger
Consideration received per share will be lower than this amount. See
"Contingencies and Adjustments Affecting the Merger Consideration," "Special
Considerations Regarding Merger and Related Transactions - Net Reductions." The
rights of the shareholders to receive the Merger Consideration will be
nontransferable except by will and the laws of descent and distribution.
Shareholders should be especially mindful that although management believes
that the following is highly unlikely, it is possible that reductions to the
Merger Consideration could completely exhaust the Merger Consideration and, in
such case, the Metro shareholders would receive nothing. See "Contingencies and
Adjustments Affecting the Merger Consideration," "Special Considerations
Regarding Merger and Related Transactions - Net Reductions."
Promptly after the closing of the Merger and filing of the Merger Agreement
with the Secretary of State of California (such date, the "Closing Date"), a
letter of transmittal with instructions will be mailed to all holders of record
of shares of Common Stock at the close of business on the Closing Date for use
in the surrendering of their certificates representing shares of Common Stock.
See "The Merger - The Merger Agreement - Exchange of Stock Certificates."
THE DISTRIBUTION OF BSON STOCK
Prior to the Closing Date, and subject to approval and adoption of the
Merger Agreement by the Company's shareholders, the Company will transfer
certain assets to Bus Shelters of Nevada, Inc. ("BSON"), a Nevada corporation
and wholly-owned subsidiary of the Company, and will declare a pro rata dividend
on shares of Common Stock of the Company pursuant to which the Company will
distribute to the Company's shareholders, as a "spinoff," all shares of BSON so
that BSON will become a corporation that is separate and distinct from, and no
longer a subsidiary of, the Company (the "Distribution"). See "Interests of
Certain Persons; Related Transactions - Transfer of Assets to BSON and
Distribution of BSON Stock." It is contemplated that the Articles of
Incorporation of BSON will be amended to authorize, and the Board of BSON will
then issue, a sufficient number of shares of BSON common stock to provide for a
dividend on each share of Metro Common Stock of one share of BSON common stock.
The Articles of Incorporation of BSON, as they will be amended prior to the
Distribution, are attached hereto as Exhibit C. The stock of BSON will be
subject to various restrictions on transferability. See "Special Considerations
Regarding Merger and Related Transactions - Risks Associated With BSON -
Illiquid Stock of BSON."
THE EFFECTIVE DATE OF THE MERGER
The Merger will become effective upon the filing of the Merger Agreement
with the Secretary of State of the State of California (the Closing Date).
Subject to the terms and conditions of the Merger Agreement, the Merger is
expected to become effective shortly after the date of the Annual Meeting.
DISSENTERS' RIGHTS
If the Merger is consummated, holders of shares of Common Stock who do not
vote in favor of approval and adoption of the Merger Agreement and who otherwise
comply with the requirements of Sections 1300-1302 of the California General
Corporation Law will be entitled to statutory appraisal rights. See "The Merger
- - Dissenters' Rights."
3
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
On the Closing Date, each shareholder will recognize gain or loss for
federal tax purposes as of that date to the extent of the difference between the
holder's share of the Merger Consideration and the adjusted basis of the
holder's Common Stock. See "The Merger - Certain Federal Income Tax
Considerations."
4
<PAGE>
VOTING RIGHTS AND VOTE REQUIRED
The Board of Directors has fixed the close of business on December 1, 1997
(the "Record Date"), as the date for determining the shareholders entitled to
notice of and to vote at the Annual Meeting and any adjournment thereof. On the
Record Date, the Company had 970,030 shares of Common Stock outstanding. The
affirmative vote, in person or by proxy, of holders of a majority of all
outstanding shares of Common Stock on the Record Date is required to approve and
adopt the Merger Agreement. The affirmative vote of a majority of shares voting
at the Annual Meeting, either in person or by proxy, is required to ratify the
selection of Peck & Lopez as independent auditors of the Company for the fiscal
year ending December 31, 1997. A plurality of the shares voted at the Annual
Meeting, either in person or by proxy, is required to elect three directors to
serve until the Merger is completed or until the next Annual Meeting and until
their successors have been elected and qualified. Except as described in the
second paragraph below, each share outstanding on the Record Date is entitled to
one vote at the Annual Meeting.
As to proposals requiring the affirmative vote of at least a majority in
voting interest of shareholders present, abstentions on such a proposal will
have the effect of a negative vote on that proposal, but broker non-votes with
respect to such a proposal will not be considered as shares present and entitled
to vote at the Annual Meeting with respect to that proposal and therefore will
have no effect on the outcome of the vote.
Shareholders may exercise cumulative voting rights with respect to the
election of directors. Accordingly, if at least one shareholder has given
notice at the Annual Meeting, prior to the voting, of his or her intention to
cumulate his or her votes, all shareholders will be entitled to cumulate their
votes. Under cumulative voting, each shareholder may give one nominee a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which shareholder's shares are normally entitled, or may distribute
the shareholder's votes on the same principle among as many candidates as the
shareholder thinks fit. Unless proxy holders are otherwise instructed,
shareholders, by means of the accompanying proxy, will grant the proxy holders
discretionary authority to cumulate votes. Under cumulative voting, the three
candidates receiving the highest number of affirmative votes cast will be
elected directors of the Company.
5
<PAGE>
PROPOSAL ONE
------------
THE MERGER
GENERAL
At the Annual Meeting, the shareholders of the Company will be asked to
consider and to vote upon a proposal to approve and adopt an Agreement and Plan
of Merger dated September 8, 1997 by and among the Company, Eller Media Company,
a Delaware corporation ("Eller"), and EMS, Inc., a California corporation and
wholly-owned subsidiary of Eller ("EMS"), as amended and restated on
January 5, 1998, pursuant to which EMS will be merged with and into the
Company and the Company will become a wholly-owned subsidiary of Eller. At the
Closing Date, (a) each share of the Company's Common Stock (other than shares as
to which dissenters' rights have been properly exercised) will be converted into
the right to receive, subject to the number of dissenting shares and certain
reductions, $41,800,000 in cash divided by the number of outstanding shares of
Common Stock (in the aggregate, the "Merger Consideration"), which will be
placed in escrow until the resolution of certain contingencies, including
certain pending litigation (See "- Contingencies and Adjustments Affecting the
Merger Consideration" and "- The Merger Agreement - Distribution of the
Consideration"), and (b) each share of common stock of EMS automatically will be
converted into and become one share of common stock of the surviving corporation
in the Merger. A copy of the Merger Agreement is attached hereto as Exhibit A.
The Merger Consideration will be reduced to at least $39,600,000 because of
certain known adjustments to be made at the Closing. Of this amount, $5,000,000
will be deposited into a damages escrow (the "Damages Escrow"), up to an
additional $5,000,000 will be deposited into a Van Wagner escrow (the "Van
Wagner Escrow"), and the remainder will be deposited into a specific performance
escrow (the "Specific Performance Escrow"). The Damages Escrow will be
established for three years to reserve against breaches of the Merger Agreement
by the Company and loss of certain bus shelter contracts. See "- Contingencies
and Adjustments Affecting the Merger Consideration." The Specific Performance
Escrow will be established for up to five years to reserve against expenses and
damages resulting from certain pending litigation. See "- Contingencies and
Adjustments Affecting the Merger Consideration," " - Van Wagner Litigation and
Disputes." The Van Wagner Escrow will be established for an indefinite period
of time to reserve against expenses and damages resulting from certain pending
litigation following disbursement of the Specific Performance Escrow. See "-
Contingencies and Adjustments Affecting the Merger Consideration," " - Van
Wagner Litigation and Disputes."
Prior to the Closing, Metro will transfer certain assets to BSON and will
declare a pro rata dividend on the shares of Common Stock of Metro pursuant to
which Metro will distribute to Metro's shareholders, as a spinoff, all shares of
BSON. See "- Transfer of Assets to BSON and Distribution of BSON Stock."
The closing will take place on the seventh business day after all
conditions to closing have been satisfied or waived, unless mutually agreed
otherwise by Eller and the Company; provided, however, that Eller will have the
right to extend the closing to January 15, 1998 (such day, the "Closing"). See
"The Merger - The Merger Agreement - Conditions to Merger."
CONTINGENCIES AND ADJUSTMENTS AFFECTING THE MERGER CONSIDERATION
The $41,800,000 Merger Consideration is subject to the following
contingencies and adjustments:
(a) At the Closing, the aggregate amount of the Merger Consideration will
be reduced by an amount equal to the sum of (i) the Company's aggregate net
accounts receivable balance as of the Closing Date of the Merger, (ii) the
amount by which the Company's liabilities as of the Closing Date exceed
$2,343,741.64, (iii) any accounts receivable written off by the Company after
June 30, 1997 and through the Closing Date, (iv) amounts equal to the cost of
certain obligations incurred by the Company up until the Closing Date (the
aggregate amount of clauses (iv) and (vi) not to exceed $400,000), (v) the
amounts to be
6
<PAGE>
paid as bonuses to Metro's employees, (vi) an amount equal to the legal fees and
costs incurred by Metro through the Closing Date in the litigation with Van
Wagner Communications, Inc. ("Van Wagner"), Outdoor Systems, Inc. ("OSI") and
their affiliates (collectively, the "Van Wagner Group"), and (vii) the amounts
Metro is obligated to pay for federal and state taxes related to employee
bonuses and the exercise of any Metro stock options; and, subsequent to the
Closing, will be (i) further reduced by the costs and expenses incurred by
certain stockholder representatives, (ii) further reduced by any damages awarded
against the Company as a result of the Van Wagner litigation or payable in
settlement of such litigation and (iii) increased by the amount, if any,
recovered by the Company in connection with the Van Wagner litigation
(collectively, the "Net Reductions"). See "- Van Wagner Litigation and
Disputes;" and "- Stockholder Representatives."
(b) The Damages Escrow will be subject to reduction from time to time for
payments made by the escrow agent ("Escrow Agent") out of the Damages Escrow of
amounts owing to Eller for monetary damages, if any, suffered by Eller with
respect to (i) any breach of a representation or warranty by, or covenant or
agreement of, the Company set forth in the Merger Agreement, (ii) any litigation
pending against the Company as of the Closing date other than litigation between
the Company and the Van Wagner Group (iii) any undisclosed rights requiring the
issuance of capital stock of the Company, (iv) the loss of the ability to
utilize any net operating carry forwards of the Company resulting from the
transfer of assets from the Company to BSON, (v) fees under bus shelter
contracts resulting from the Merger and (vi) the termination of bus shelter
contracts ("Reserve Expenses"). See "- Van Wagner Litigation and Disputes," "-
Merger Agreement - Representations and Warranties" and "- Merger Agreement -
Covenants."
(c) Costs and expenses of the Van Wagner litigation incurred after the
Closing will be paid out of the Merger Consideration. At such time as Eller
receives evidence acceptable to Eller in its sole reasonable discretion that the
only remedy available to the Van Wagner Group in the Van Wagner litigation is
monetary damages (the "Condition"), the amounts in the Specific Performance
Escrow, but not the Damages Escrow or Van Wagner Escrow, will be distributed to
the Metro shareholders. See "- Van Wagner Litigation and Disputes," " - The
Merger Agreement - Distribution of the Consideration." The amount of the Van
Wagner Escrow will be $5,000,000, less the Merger Consideration adjustment for
costs and expenses of the Van Wagner litigation incurred by the Company through
the Closing Date. At the end of five years, if the Condition has not been
satisfied, the matter will be submitted to arbitration to determine (i) the
percentage likelihood that the court will rule that the Van Wagner Group is
entitled to remedies other than monetary damages only, multiplied by (ii) the
estimated amount of Eller's losses if remedies other than monetary damages were
available. This arbitration award would be paid to Eller, the Van Wagner Escrow
would remain in place and the Specific Performance Escrow would be distributed
to the Metro shareholders. Eller would then bear all future costs, expenses and
damages relating to the Van Wagner litigation, which sums would be paid first
out of the arbitration award given to Eller and then, if necessary, out of the
Van Wagner Escrow. Upon final resolution of the litigation and payment of all
expenses and damages relating thereto, the remainder of the Van Wagner Escrow
will be paid to the Metro shareholders.
(d) Assuming that there are no dissenting shares and that all outstanding
stock options are exercised prior to the Closing of the Merger, a total of
970,030 shares of Common Stock will participate pro rata in the distribution of
the Merger Consideration. The Company is unable to predict the outcome of
certain contingencies that will affect the amount available for distribution.
After deducting approximately $2,200,000 in Net Reductions known to Metro as of
December 15, 1997, the Merger Consideration divided by 970,030 shares would
equal $40.82 per share of Common Stock. It is expected that the actual amount
of Merger Consideration received per share will be lower than this amount. See
"- Contingencies and Adjustments Affecting the Merger Consideration," "Special
Considerations Regarding Merger and Related Transactions - Net Reductions." The
rights of the shareholders to receive the Merger Consideration will be
nontransferable except by will and the laws of descent and distribution.
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The Metro shareholders should be especially mindful that although
management believes that the following is highly unlikely, it is possible that
reductions to the Merger Consideration could completely exhaust the Merger
Consideration and, in such case, the Metro shareholders would receive nothing.
See "Contingencies and Adjustments Affecting the Merger Consideration," "Special
Considerations Regarding Merger and Related Transactions - Net Reductions."
(e) Certain persons designated as stockholder representatives will
represent the interests of the Metro shareholders after the Closing and until
all of the Merger Consideration has been properly distributed. They will manage
the conduct of the Van Wagner litigation, enter into escrow agreements regarding
the Specific Performance Escrow, Damages Escrow and Van Wagner Escrow, verify
claims made by Eller for payment out of any of the escrows, represent the
shareholders in any arbitration require or permitted by the Merger Agreement and
the exhibits thereto, and provide annual reports to the Metro shareholders
concerning the Van Wagner litigation and escrows. See "- Stockholder
Representatives."
(f) In the event that arbitration is required pursuant to paragraph (c)
above to estimate the losses to Eller if non-monetary damages are permitted in
the Van Wagner litigation, the arbitration will be conducted in Los Angeles,
California. Eller and the Stockholder Representatives will select a single
arbitrator. If they cannot agree on an arbitrator within 30 days, an arbitrator
will be selected according to the rules and regulations of the American
Arbitration Association governing commercial transactions. The arbitration
proceeding will be conducted within 90 days after the demand for arbitration.
Each party to the proceeding will submit all documents, lists of witnesses and a
written summary of the proposed testimony to the arbitrator at least 30 days
prior to the proceeding. An arbitrator's decision will be final. Neither party
may commence litigation subsequent to the arbitration concerning such matters,
except to enforce the arbitration award. The costs of arbitration will be paid
one-half by Eller and one-half out of the Specific Performance Escrow.
(g) Until distribution, the Merger Consideration, including the amounts in
the Damages Escrow and Van Wagner Escrow, will be deposited in interest-bearing
bank accounts and/or invested in United States Treasury obligations and/or other
obligations guaranteed by the United States Government or any agency thereof.
Interest received from such investments will be paid quarterly to the Metro
shareholders, except that after two years, interest on the Damages Escrow will
accrue and be paid out proportionally with any disbursements made from such
escrow either to the shareholders or to Eller upon claims for the loss of
certain bus shelter contracts.
VAN WAGNER LITIGATION AND DISPUTES
The Company is currently involved in litigation and disputes with certain
parties related to the Company's prior agreements with Van Wagner. Pursuant to
an agreement dated as of January 1, 1993 and subsequently amended (the "Sales
Representation Agreement"), the Company had engaged Van Wagner to act as its
exclusive sales representative through March 1999 for the rental by national and
regional advertisers of advertising space on the Company's bus stop shelters.
The Company retained the right to rent shelter space to all local advertisers.
The Company and Van Wagner also entered into a 15-year Joint Venture Agreement
in November 1994 for the purpose of seeking additional contracts and/or permits
from municipalities throughout the United States for bus shelter advertising and
of managing, developing and operating such shelters and the advertising space in
connection therewith. See Note 6 to the Notes to Consolidated Financial
Statements of Metro included in this Proxy Statement.
In April 1997, OSI, a direct competitor of Metro, acquired Van Wagner and
changed Van Wagner's name to Outdoor Systems of New York, Inc. ("OSI-NY").
Following this acquisition and the assertion by OSI-NY that it would assume and
continue Van Wagner's position as Metro's sales representative, the Company gave
notice that it was terminating the Sales Representation Agreement based upon
various alleged breaches and on Metro's conclusion that, because of OSI's
ownership and
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control, OSI-NY has a fundamental conflict of interest which disables it from
effectively representing Metro's interests. Metro's Board of Directors
concluded that OSI-NY could not reasonably be expected to act as Metro's
exclusive sales representative since such activities would be in conflict with
those of OSI-NY's parent company (OSI) and would jeopardize the confidentiality
of Metro's proprietary information and trade secrets. OSI and OSI-NY dispute
Metro's position on this matter and have asserted that OSI-NY is ready, willing
and able to perform its duties under the agreement and that Metro is refusing to
permit it to do so. Metro also asserted that the sale of Van Wagner to OSI
violated a provision of the agreement which prohibits Van Wagner from assigning
the agreement; OSI-NY contends that, notwithstanding the change of control of
Van Wagner, there has been no assignment since the same corporate entity would
continue to act as sales representative. OSI-NY also disputes Metro's other
asserted grounds for terminating the Sales Representation Agreement.
The Sales Representation Agreement also provides that if Metro intends to
accept an offer from a third party to purchase all or a substantial part of
Metro's assets, Metro must give Van Wagner a right of first refusal to acquire
the assets on the same terms. Since this provision makes no reference to a sale
of stock or a merger, Metro believes that it does not apply to the proposed
merger transaction with Eller. Nevertheless, in order to avoid any dispute on
this point, Metro sent notice of the transaction to the Van Wagner Group on May
23, 1997 and attached the letter of understanding executed between Eller and
Metro. OSI did not respond to Metro's notice. The Sales Representation
Agreement requires that any exercise of the right of first refusal must occur
within 30 days of notice, or else Metro could proceed to contract with a third
party within 90 days thereafter on the same terms and conditions. On July 16,
1997, the Company sent notice to the Van Wagner Group of the failure to exercise
the right of first refusal and Metro's freedom to contract with Eller on the
terms set forth in the letter of understanding. To confirm that Metro was
contracting with Eller on the same terms as offered to the Van Wagner Group,
Metro sent a draft of the Merger Agreement to the Van Wagner Group on August 1,
1997. On August 15, 1997, the Van Wagner Group sent a letter to the Company
alleging that Metro was inconsistent as to whether the right of first refusal
applied to the transaction with Eller, that Metro indicated that it did not
intend to allow OSI-NY to exercise the right of first refusal and that OSI-NY
had only recently received the complete "Purchase Agreement." On September 8,
1997 (which is within 90 days of the termination of the right of Van Wagner to
exercise its right of first refusal), the Company entered into an Agreement and
Plan of Merger with Eller.
It is possible that OSI-NY will still seek to enforce the right of first
refusal. Metro's management believes that in the unlikely event that a court
were to uphold OSI-NY's right of first refusal, OSI-NY would then be required to
acquire Metro on the same terms as offered to Eller and the shareholders would
be in substantially the same position as they are currently. In the event of
such an acquisition by OSI-NY, Metro's management believes that the
consolidation of Metro into the Van Wagner Group would likely result in the
termination of the Van Wagner litigation, thereby requiring that the Specific
Performance Escrow be distributed pro rata to the Metro shareholders at that
time.
On June 12, 1997, the Company filed an action against Van Wagner, Richard
Schaps (the previous majority shareholder of Van Wagner), OSI and OSI-NY in the
U.S. Bankruptcy Court in the Central District of California (Orange County)
seeking damages, injunctive relief against the use of Metro's trade secrets or
proprietary information, and declaratory relief determining that the Sales
Representation Agreement is no longer binding upon Metro. On June 20, 1997,
OSI-NY filed an action against the Company in California Superior Court in
Orange County alleging breach of contract and seeking declaratory relief; this
state action was subsequently removed to the U.S. Bankruptcy Court and is likely
to be consolidated with the action brought by Metro.
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The Company filed a motion for a preliminary injunction to prevent OSI and
OSI-NY from interfering with the sale and merger of Metro. This motion was
denied by the Bankruptcy Court. Metro filed a First Amended Complaint in
December 1997. The Court has scheduled a status conference for April 6, 1998.
Metro will seek a Court determination that the Sales Representation
Agreement has been properly terminated. If and when a satisfactory final
determination is made on this issue (or if OSI-NY agrees that it has no right of
specific performance to act as sales representative), then all but the Van
Wagner Escrow, and the Damages Escrow if not yet distributed, will be released
from escrow and distributed pro rata to the Metro shareholders; see "The Merger
- - Contingencies and Adjustments Affecting the Merger Consideration." In this
event, the litigation would then involve primarily claims by the various parties
for monetary damages.
Metro believes that regardless of whether it has sufficient grounds to
terminate the Joint Venture Agreement, Metro can not be forced to perform any
activities thereunder or to engage in business with OSI-NY since the Joint
Venture Agreement is a partnership arrangement, and any partner has the right to
withdraw from a partnership; however, this would not necessarily be
determinative of the question of whether either party is entitled to monetary
damages under the Joint Venture Agreement.
Pursuant to the terms of the Van Wagner Escrow described under "The Merger
- - Contingencies and Adjustments Affecting the Merger Consideration," if there is
a determination prior to the fifth anniversary of the Merger that OSI-NY is
entitled to only monetary damages against Metro, then all funds except the Van
Wagner Escrow (initially $5,000,000), and the Damages Escrow if not yet
distributed, will be released from escrow and distributed pro rata to the Metro
shareholders. If such a determination is not made within five years after the
Closing of the Merger, then the impact upon Eller will be quantified by
arbitration as set forth in said description of the Van Wagner Escrow, and that
amount, together with the Van Wagner Escrow, would constitute the maximum
possible reduction of the Merger Consideration. The Company is unable to
predict how much, if any, of the funds held in the Van Wagner Escrow will
ultimately be released and distributed to the Metro shareholders.
BACKGROUND OF THE MERGER
Pursuant to the Sales Representation Agreement entered into between the
Company and Van Wagner in 1993, the Company had engaged Van Wagner to act as its
exclusive sales representative for the rental of its advertising space through
March 1999, subject to automatic extension for an additional five years if
certain performance criteria are met. In April 1997, OSI, a direct competitor
of the Company, acquired Van Wagner. Following that acquisition and the
assertion by OSI's affiliate that it would assume Van Wagner's position as the
Company's sales representative, the Company terminated the Sales Representation
Agreement on the grounds that there had been various material breaches of such
agreement, which termination and breaches are the subject of the pending
litigation described above, and notified OSI and its affiliates of such.
Without a sales representative, the Company re-evaluated its business position.
The outdoor advertising industry has experienced a trend of consolidation
over the past several years. Although the Company has been steadily growing its
business base for the past five years at an annual rate of approximately 15%,
the outdoor advertising industry, and particularly other bus stop shelter
advertising companies, are expanding at a much faster rate due primarily to
acquisitions and mergers within the industry. In order to keep pace and remain
competitive within the industry, the management gave primary consideration to
two alternatives: (1) a public offering of securities to acquire sufficient
capital to expand its business base, or (2) exploring the possibilities of a
merger or acquisition with a larger established company which desires to expand
its shelter operations.
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Due to the greater length of time and expense involved in conducting a
public offering, the Board of Directors decided to explore a potential merger or
acquisition. Management and the Board reviewed information and made analyses of
the established outdoor advertising companies that appeared to have sufficient
capital resources and a sound track record for expansion of bus stop shelter
operations through acquisitions and/or mergers. Although the Company has been
able to finance the development and construction of bus shelters, which have a
relatively low capital investment compared to the cost of full size billboards,
the Board recognized that a business engaged almost entirely in bus shelters is
at a disadvantage in attracting advertisers, and does not have the economies of
scale that an outdoor advertising company with nationwide billboard locations
would have. The Board felt that in the current economy, Metro could be an
attractive acquisition candidate for larger companies because of the synergy
possible from marketing a combination of bus shelters and billboard space in
offering display faces to advertisers.
In 1997, one of the three candidates identified by the Company, Eller,
expressed a genuine interest in a consolidation with the Company. Scott Kraft,
the President of the Company, recommended this offer to the Board of Directors
and subsequently conducted the initial negotiations of the transaction with
Eller. In the negotiations, Mr. Kraft pointed out to Eller that Metro already
has an infrastructure of municipal contracts, permits and bus shelters in place,
giving Eller an immediate base to build upon. He noted that a large investment
of time and money is required in order to obtain municipal contracts and permits
to build and operate bus shelters, and to obtain advertisers, and that Metro had
already expended funds to build its existing bus shelters and paid fees to local
governments for such contracts and permits. After further discussion and
Eller's due diligence review of the Company, including an evaluation of the
Company's bus shelter advertising marketing potential, Eller made an initial
offer to the Company in early 1997 of $41,800,000 for the purchase of 100% of
the Company's stock. On May 3, 1997, the Board of Directors of the Company
authorized management to enter into a letter of intent with Eller. Subsequent
negotiations between the Company and Eller involved, among other things, the
extent of the excluded assets, payment terms, the use of escrow accounts, and
ancillary agreements.
The initial Merger Agreement, in the form signed as of September 8, 1997,
was substantially similar to the basic terms of the amended and restated Merger
Agreement attached hereto as Exhibit A, except that under the initial Merger
Agreement, if the issue of specific performance in the Van Wagner litigation was
not resolved prior to the Closing, Eller would have delivered a promissory note
for the full amount of the Merger Consideration, backed by a bank letter of
credit, instead of the present arrangement under which Eller will be depositing
all cash in the escrow. In addition, the initial Merger Agreement provided that
if the issue of specific performance in the Van Wagner litigation was not
resolved within three years, stockholder representatives could require Eller to
either distribute the Merger Consideration except for a Van Wagner Escrow or
unwind the whole transaction, thereby returning Metro to the shareholders,
terminating any obligations of Eller to pay consideration to the Metro
shareholders and requiring Metro to pay to Eller any sums advanced to Metro
during the three year period. Also, $1,000,000 of the Merger Consideration
would have been distributed to BSON as a contribution to capital. For tax
purposes, Eller's delivery of a promissory note rather than cash would have
enabled the Metro shareholders to use installment sale treatment in recognizing
their gain, if any, on their shares of the Company; but the parties decided to
use cash instead of a promissory note and to eliminate the possible unwind and
the contribution to BSON in favor of the arbitration provisions and an increase
in shareholder consideration because such initial provisions would have entailed
issues under the securities laws that the parties felt would be burdensome and
would delay the Closing of the Merger. The respective Boards of Directors of
Eller and the Company have approved the Merger Agreement, subject to approval by
the Company's shareholders.
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REASONS FOR THE MERGER
The Board of Directors of the Company believes that the Merger is fair to
the shareholders of the Company and has approved the Merger Agreement and
recommended it for adoption by the shareholders of the Company. In determining
to approve the Merger Agreement and to recommend that the shareholders approve
and adopt the Merger Agreement, the Board of Directors considered a number of
things, including, without limitation, the following:
(a) Presentations from, and discussions of the terms and conditions of the
Merger with, senior executive officers of the Company and
representatives of its legal counsel and its accountants;
(b) Information with respect to the financial condition, results of
operations and business of the Company, on both a historical and
prospective basis, and current industry, economic and market
conditions;
(c) The absence of a public market for the Metro Common Stock and the fact
that no dividends are paid on the Common Stock;
(d) The consideration to be paid to the Company's shareholders in the
Merger and the payment terms;
(e) The exclusion of BSON and certain assets from the Merger, the
continuing ownership of BSON, as an independent corporation, by the
shareholders of the Company, and the execution of the Consulting
Agreement between BSON and Eller;
(f) In the past five months, no other unaffiliated party has made any firm
offer to the Company to acquire the Company and, since the
announcement of the Merger in principle, no party has expressed an
interest in acquiring the Company.
FAIRNESS OF MERGER CONSIDERATION
The Company's Board of Directors believes that the Merger is fair to and in
the best interest of the holders of Common Stock and thus recommends the Merger
Agreement to the shareholders based upon the following factors:
. The opinion of management that the Merger Consideration to be received
by the Company's shareholders in the Merger was, as of September 8,
1997, fair to the shareholders from a financial point of view;
. The Board of Directors regards the initial cash consideration of more
than $35 per share of Common Stock, subject to the various reductions
and contingencies described under "Contingencies and Adjustments
Affecting the Merger Consideration" above, and the other terms of the
Merger Agreement, as fair to Metro and its shareholders.
. Shareholders will have dissenters' rights so that any shareholder who
believes that the Merger Consideration is unfair or inadequate will,
by strictly complying with Sections 1300-1302 of the California
General Corporation Law, be entitled to a judicial determination of
the fair value of the shareholder's Common Stock. See "Dissenters'
Rights."
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THE MERGER AGREEMENT
Merger. The Merger Agreement provides that, on the Closing Date, EMS will
be merged with and into the Company. The separate corporate existence of EMS
will cease and the Company will continue as the surviving corporation (the
"Surviving Corporation"), as a wholly-owned subsidiary of Eller. The Articles
of Incorporation and the Bylaws of Metro will be the Articles of Incorporation
and Bylaws of the Surviving Corporation.
Consideration. On the Closing Date of the Merger, each share of Common
Stock, other than Common Stock in respect of which dissenters' rights have been
properly exercised, will be cancelled and extinguished and converted into the
right to receive, subject to certain adjustments and holdback provisions
described in "Contingencies and Adjustments Affecting the Merger Consideration"
above, cash in an amount equal to $41,800,000 divided by the number of
outstanding shares of Common Stock, which will be placed in escrow until the
resolution of certain litigation and other matters. See " - Distribution of the
Consideration." Each share of Common Stock held in treasury by Metro on the
Closing Date will be cancelled and extinguished. Each share of common stock of
EMS issued and outstanding immediately prior to the Closing Date automatically
will be converted into and become one share of common stock of the Surviving
Corporation.
The rights of shareholders to receive the Merger Consideration will be
nontransferable except by will and the laws of descent and distribution.
Distribution of the Consideration. Distribution of the Merger
Consideration is conditioned upon receipt by Eller of evidence that the only
remedy available to the Van Wagner Group in the litigation is monetary damages.
See " - Contingencies and Adjustments Affecting the Merger Consideration." In
such event, the Escrow Agent will distribute the Merger Consideration in the
Specific Performance Escrow to the Metro shareholders. Thereafter, upon a
final, non-appealable determination on damages in the Van Wagner litigation,
damages and any remaining litigation expenses will be paid from the Van Wagner
Escrow. Any amounts remaining in the Van Wagner Escrow after such payments will
be distributed to the existing Company shareholders (other than dissenting
shareholders). The length of time until satisfaction of the conditions
necessary for distribution is uncertain and may indefinitely delay distribution
of the Merger Consideration. Generally, however, the duration of such
litigation does not exceed two and one half years or, if there is an appeal, six
and one half years.
The Damages Escrow will be held in trust by the Escrow Agent, subject to
certain reductions, until the third anniversary of a Damages Escrow and
Disbursement Agreement to be entered into between Eller, EMS and the Company on
or prior to the Closing Date. See " - Contingencies and Adjustments Affecting
the Merger Consideration." As soon as practicable after such three-year period,
the Escrow Agent will distribute any funds remaining in the Damages Escrow, with
any undistributed interest accrued thereon, to the shareholders pro rata in
accordance with their respective ownership of Common Stock on the Closing Date.
Exchange of Stock Certificates. At the Closing Date, the stock transfer
books of the Company will be closed with respect to shares of the Common Stock
issued and outstanding immediately prior to the Closing Date and no transfers
will be made thereafter on the Company's stock transfer books.
As soon as practicable after the Closing Date, the Escrow Agent will mail
instructions to each shareholder of record regarding the surrender of Common
Stock certificates which are entitled to receive the Merger Consideration,
together with a letter of transmittal to be used for that purpose. The Escrow
Agent, after receiving from a shareholder a duly executed letter of transmittal,
together with certificates representing the shares being surrendered and any
other items specified in the letter of transmittal, will pay such shareholder,
by check, when such consideration may be disbursed, the Merger Consideration to
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which he, she or it is entitled. Any Merger Consideration not distributed by
the Escrow Agent within nine months following the date on which such
consideration may be disbursed will be returned to Eller, subject to the
continuing rights of holders of unsurrendered certificates.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES REPRESENTING SHARES OF
COMMON STOCK WITH THE ENCLOSED PROXY CARD.
Representations and Warranties. The Merger Agreement contains certain
representations and warranties by the Company, Eller and EMS regarding, among
other things, the absence of conflict between transactions contemplated by the
Merger Agreement and other agreements, documents or judgments; the absence of
pending litigation which would affect the Merger; and consents of governmental
authorities. In addition, under the Merger Agreement, the Company has made
representations regarding, among other things, its capitalization; material
contracts and bus shelter contracts; real property leases; licenses and permits;
title to, and encumbrances on, properties; and tangible personal property. It
is a condition precedent to the consummation of the Merger that the
representations and warranties be true and correct in all material respects as
of the Closing Date, other than for those given as of a particular date or those
relating to capitalization for which indemnification has been specifically
provided through the Damages Escrow.
Covenants. The Merger Agreement contains certain covenants by the Company,
Eller and EMS regarding, among other things; conducting Company business in the
ordinary course until the Closing, and requiring Eller's consent prior to
incurring additional obligations or undertaking significant transactions; the
Company transferring certain assets to BSON prior to the Merger; executing the
Litigation Responsibility Agreement and Consulting Agreement. See "Interests of
Certain Persons; Related Transactions - Litigation Responsibility Agreement;"
and "Interests of Certain Persons; Related Transactions - Consulting Agreement."
Conditions to Merger. The respective obligations of the Company, Eller and
EMS to consummate the Merger are subject to the satisfaction or waiver of, among
other things, the following conditions: (a) the approval and adoption of the
Merger Agreement by the shareholders of the Company; (b) the procurement of
necessary government and third-party approvals; (c) the absence of any action or
proceeding instituted to restrain or prohibit the Merger; (d) the execution of
the Damages Escrow Agreement, the Litigation Responsibility Agreement, and the
Consulting Agreement, and, if necessary, execution of the Van Wagner Escrow
Agreement; and (e) the representations and warranties are true and correct in
all material respects as of the Closing Date, other than for those given as of a
particular date or those for which indemnification has been specifically
provided through the Damages Escrow. In addition, the obligations of the
Company to consummate the Merger are further subject to receipt of a letter from
the Securities and Exchange Commission that the Distribution does not constitute
a sale or that the staff will not recommend enforcement action if the
Distribution is effected without registration; and delivery by Eller of the
Merger Consideration.
The respective obligations of Eller and EMS to consummate the Merger are
further subject to, among other things, the satisfaction of the following
conditions, on or prior to the Closing date: (a) all representations and
warranties of the Company are true and correct as of the Closing date, other
than for those given as of a particular date or those for which indemnification
has been specifically provided through the Damages Escrow; (b) all covenants of
the Company required to be performed or complied with prior to the Closing date
will have been performed or complied with as of the Closing date; (c) all
options and stock rights of the Company will have been exercised, unless
indemnification has been specifically provided through the Damages Escrow; (d)
the parties have procured the necessary government and third party approvals,
including municipality approvals for the transfer of certain bus shelter
contracts and the approval of a lessor for the transfer of a lease; (e) counsel
for the Company has given a legal opinion; (f) BSON will have undertaken in
writing to reimburse Eller for certain employee
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costs; and (g) Eller will have received a price adjustment schedule from the
Company detailing the expenses to be paid in reduction of the Merger
Consideration. In addition, the obligations of the Escrow Agent to distribute
the Merger Consideration are subject to the Company providing for or resolving
certain pending litigation and other matters. See " - Distribution of the
Merger Consideration."
There can be no assurance that all of the conditions to the obligations of
Eller and EMS to consummate the Merger will be satisfied. In such event, even
if the shareholders approve and adopt the Merger Agreement, it is possible that
the Merger would not be consummated and that the Merger Agreement would be
terminated.
Confidentiality; Press Releases. Eller and EMS, as one, and the Company,
as another, agree to keep non-public information regarding each other
confidential and agree that such party will only use such information regarding
the other in connection with the Merger and not disclose any of such information
other than (i) to such party's directors, officers, employees, representatives
and agents involved with the Merger transactions, (ii) to the extent such
information presently is or hereafter becomes available, on a non-confidential
basis, from a source other than the other party, and (iii) to the extent
disclosure is required by law, regulation or judicial order by any governmental
authority, in which case such party will advise the other of such requirement so
that a protective order may be sought. In addition, neither of such parties
will make any press release or public announcement in connection with the Merger
without the prior written consent of the other party or, if required by law,
without prior consultation with the other party.
Termination. The Merger Agreement may be terminated (a) at any time on or
prior to the Effective date by the mutual consent of the parties in writing; (b)
at any time prior to the Closing Date (i) by Eller and EMS giving written notice
to the Company if the Company has breached any material representation, warranty
or covenant in any material respect, for which indemnification has not been
provided through the Escrow Consideration, and the breach has continued without
cure for 30 days following notice from Eller or EMS, or if the Closing will not
have occurred on or before January 31, 1998 by reason of failure of any covenant
of the parties (unless the failure results primarily from a breach by Eller or
EMS); (ii) by the Company giving written notice to Eller and EMS if Eller or EMS
has breached any material representation, warranty or covenant in any material
respect and the breach has continued uncured for 30 days following notice from
the Company, or if the Closing will not have occurred on or before January 31,
1998 by reason of failure of any covenant of the parties (unless the failure
results primarily from a breach by the Company); or (c) at any time after the
Annual Meeting by any party in the event that the Merger Agreement fails to
receive the requisite shareholder approval.
Amendment. The parties may amend the Merger Agreement by agreement in
writing at any time prior to the Closing Date; provided that any amendment
subsequent to shareholder approval of the Merger Agreement will require approval
by the Board of Directors of each party and will not alter or change the amount
of Merger Consideration or any of the terms and conditions of the Merger
Agreement if such alteration or change would adversely affect the shareholders
of the Company.
Expenses. Whether or not the Merger is consummated, the parties will pay
their own respective legal, accounting, out-of-pocket and other expenses, except
that Eller and the Company will divide and share equally filing fees in
connection with government filings necessary to consummate the Merger. If the
Merger is consummated, the expenses of the Company will be paid by the
Disbursement Agent from the Merger Consideration.
Indemnification. The Company will indemnify Eller and its stockholders,
directors and officers against any and all liabilities and losses arising out of
or related to the execution, delivery or performance by Eller of the Interim
Sales Representation Agreement entered into by Eller and the
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Company dated as of May 27, 1997. See "Interests of Certain Persons; Related
Transactions - Interim Sales Representation Agreement."
STOCKHOLDER REPRESENTATIVES
From the Closing Date until the appropriate distribution of all of the
Merger Consideration, certain stockholder representatives (the "Stockholder
Representatives") will act on behalf of the Company's shareholders to oversee
the effectuation of the Merger Agreement terms and the resolution of the Van
Wagner litigation. By approving and adopting the Merger Agreement, the
shareholders of the Company will be deemed to have appointed the Stockholder
Representatives as each such shareholder's true and lawful attorney in fact and
agent, for such shareholder and in such shareholder's name, (i) to receive all
notices and communications directed to such shareholder under the Merger
Agreement, any exhibit thereto and any document executed in connection
therewith, (ii) to execute and deliver any and all documents required to be
executed and delivered by such shareholder pursuant to the Merger Agreement and
any exhibit thereto in order to effect the transactions contemplated thereby,
and (iii) execute and deliver all instruments and documents of every kind
incident to the foregoing with the same effect as such shareholder could do
personally.
The initial Stockholder Representatives will be Allan L. Ross, M.D., the
Company's current Chairman of the Board; Scott A. Kraft, the Company's current
President and Chief Executive Officer; and Robert C. Lamb, the Company's current
General Manager. The Stockholder Representatives will act pursuant to a
majority vote of the Stockholder Representatives. All actions of the
Stockholder Representatives will be valid and effective for all purposes if
signed by any two Stockholder Representatives.
The Stockholder Representatives will (i) manage the conduct of the Van
Wagner litigation, subject to consultation with Eller and Metro, (ii) approve
all costs, expenditures and settlements relating to the Van Wagner litigation
prior to payment, (iii) enter into the escrow agreements necessary, including
the Specific Performance Escrow, Damages Escrow and Van Wagner Escrow
substantially in accordance with the terms and conditions set forth in
"Contingencies and Adjustments Affecting the Merger Consideration" above, (iv)
verify claims made by Eller for payment out of the escrows, which claims are
subject to arbitration if disputed by the Stockholder Representatives and
unresolved with Eller, (v) manage any arbitration or any other dispute or matter
on behalf of the shareholders which is necessary for carrying out the terms and
provisions of the Merger Agreement and (vi) provide annual reports to the Metro
shareholders regarding the status of the Van Wagner litigation and the escrows.
The shareholders entitled to receive a majority of the Merger Consideration
may remove the Stockholder Representatives at any time. If a Stockholder
Representative should die, resign, refuse to serve, become incapacitated or be
removed by the shareholders, his successor will be Mark R. Boileau; and if he or
another Stockholder Representative should die, resign, refuse to serve, become
incapacitated or be removed by the shareholders, the next successor will be
Michael W. Slater. Thereafter, the shareholders entitled to receive a majority
of the Merger Consideration will appoint each successor within 21 days of the
death, resignation, refusal to serve, incapacitation or removal of a Stockholder
Representative. Such successor shall be either a shareholder or otherwise
acceptable to Eller. If the shareholders fail to appoint a successor within
such 21 day period, then Eller will have the right to appoint the successor from
among the shareholders. The appointment of a successor Stockholder
Representative according to any manner permitted above will be final and binding
upon all of the shareholders.
The Stockholder Representatives will not be liable for any error in
judgment, unless it is the result of their gross negligence or willful
misconduct.
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All expenses incurred by the Stockholder Representatives in connection with
their duties under the Merger Agreement and the exhibits thereto will be paid
out of the Merger Consideration and, by approving the Merger Agreement, the
Metro shareholders will agree to indemnify the Stockholder Representatives
against all claims, liabilities and costs for anything done or omitted by them
in the performance of the Merger Agreement or any exhibit thereto, except as a
result of their own gross negligence or willful misconduct.
TRANSFER OF ASSETS TO BSON AND DISTRIBUTION OF BSON STOCK
Prior to the Closing Date, and subject to approval and adoption of the
Merger Agreement by the Company's shareholders, the Company will transfer the
following assets to BSON: (a) the capital stock of Bay Area Transit Shelters,
Inc. ("BATS") owned by Metro; (b) Monterey/Salinas Transit Agreement by and
between Monterey/Salinas Transit and a joint venture consisting of Metro and
BATS; (c) Metro's pending lawsuits with the cities of Lake Forest, Laguna Hills
and Victorville regarding violations of First Amendment Rights, and any
financial settlements derived therefrom (See "Interests of Certain Persons;
Related Transactions - Litigation Responsibility Agreement"); (d) bus shelter
contracts with the City of North Las Vegas, the City of Las Vegas and Clark
County; (e) Regional Transportation commission, Joyce & Associates and BSON Bus
Wrap Agreement by and between Metro and Regional Transportation Commission; (f)
accounts receivable through the Closing Date; (g) Media Asia Agreement by and
between Metro and Media Asia; (h) lease for postage meter by and between Pitney
Bowes Credit Corporation and Metro; (i) lease for burglar alarm by and between
ADT and Metro; (j) certain vehicles, computers and software, and office
equipment and furniture; (k) the 536 bus shelters of Metro which are leased by
BSON. For further information regarding BSON, see "Bustop Shelters of Nevada,
Inc. (BSON)."
In addition, prior to the Closing Date, and subject to approval and
adoption of the Merger Agreement by the Company's shareholders, the Company will
declare a pro rata dividend on shares of Common Stock of the Company pursuant to
which the Company will distribute to the Company's shareholders shares of common
stock of BSON so that BSON will become a corporation separate and distinct from,
and no longer a subsidiary of, the Company. The shareholders of the Company
will become the shareholders of BSON. BSON currently has 2,500 shares of common
stock authorized, issued and outstanding. It is contemplated that prior to the
Distribution the Articles of Incorporation of BSON will be amended to authorize
1,500,000 shares of common stock and that the Board of BSON will then issue a
sufficient number of shares of BSON common stock to provide for a dividend on
each share of Metro Common Stock of one share of BSON common stock. The
Articles of Incorporation of BSON, as they will be amended prior to the
Distribution, are attached hereto as Exhibit C. The common stock of BSON is
subject to various restrictions on transferability. See "Special Considerations
Regarding Merger and Related Transactions - Risks Associated With BSON -
Illiquid Stock of BSON." BSON will not participate in the Merger, other than as
described in this Proxy Statement. Neither the transfer of assets nor the
Distribution are part of the Merger Consideration.
The current officers and directors of Metro are Allan L. Ross, M.D.,
Chairman of the Board and a director; Scott A. Kraft, President and Chief
Executive Officer; William M. Slater, Secretary and a director; and Mark R.
Boileau, director. Prior to the Distribution, and subject to shareholder
approval of the nominees for the Board Directors set forth in PROPOSAL TWO, it
is anticipated that Metro, as sole shareholder of BSON, will elect the directors
of Metro to be the directors of BSON and that the directors of BSON will appoint
the officers of Metro to be the officers of BSON. The Articles of Incorporation
and Bylaws of BSON, as they will be amended prior to the Distribution, are
attached hereto as Exhibits C and D.
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REGULATORY APPROVALS
The parties to the Merger will take appropriate action with respect to any
requisite approvals or other action of any court, administrative agency or
commission or other government authority or instrumentality, whose consent,
approval, order or authorization, or with whom registration, declaration or
filing of the Merger Agreement is required to consummate the Merger, subject to
the provisions of the Merger Agreement. The Merger Agreement provides that the
obligation of Eller and EMS to consummate the Merger is conditioned upon Eller
receiving any necessary approvals or orders from the United States Bankruptcy
Court for the Central District with respect to the Merger. Such approvals or
orders have not yet been sought.
DISSENTERS' RIGHTS
Pursuant to Chapter 13 of the California General Corporation Law ("GCL"),
holders of shares of Company Common Stock are entitled to rights of dissent and
appraisal of the value of their shares of Common Stock in connection with the
Merger. The failure of a dissenting shareholder to follow the appropriate
procedures may result in the termination or waiver of such dissenters' rights.
Pursuant to the terms of the Merger Agreement, if holders of Common Stock
of the Company have exercised dissenters' rights under Chapter 13 of the GCL in
connection with the Merger, any Dissenting Shares (as defined below) will not be
converted into the right to receive the Merger Consideration, but will become
entitled to such consideration as may be determined to be due with respect to
such Dissenting Shares pursuant to the laws of the State of California.
If the Merger is approved by the required vote of the shareholders and is
not abandoned or terminated, each shareholder who has not voted in favor of the
Merger and who follows the procedures set forth in Chapter 13 will be entitled
to have his shares of Common Stock purchased by the Company for cash at their
fair market value. The fair market value of shares of Common Stock will be
determined as of the date before the first announcement of the terms of the
proposed Merger, excluding any appreciation or depreciation in consequence of
the proposed Merger. The shares of Common Stock with respect to which holders
have perfected their purchase demand in accordance with Chapter 13 and have not
effectively withdrawn or lost such dissenters' rights are referred to in this
Proxy Statement as the "Dissenting Shares."
Within 10 days after approval of the Merger by the shareholders, the
Company must mail a notice of such approval (the "Approval Notice") to all
shareholders who have not voted in favor of approval and adoption of the Merger
Agreement, together with a statement of the price determined by the Company to
represent the fair market value of the applicable Dissenting Shares (determined
in accordance with the immediately preceding paragraph), a brief description of
the procedures to be followed in order for the shareholder to pursue his or her
dissenters' rights, including the date by which action must be taken, and a copy
of Sections 1300-1304 of the GCL. The statement of price by the Company
constitutes an offer by the Company to purchase all Dissenting Shares at the
stated amount. Only a holder of record of shares of Common Stock of the Company
on the Record Date (or his duly appointed representative) is entitled to assert
a purchase demand for the shares registered in that holder's name. The
Company's determination of the fair market value of the Dissenting Shares may be
more or less than the Merger Consideration.
A shareholder electing to exercise dissenters' rights must demand in
writing from the Company the purchase of his shares of Common Stock and payment
to the shareholder of their fair market value and must submit the certificate(s)
representing the Dissenting Shares to the Company for endorsement as Dissenting
Shares. A holder who elects to exercise dissenters' rights should mail or
deliver his or her written demand to the Company at 15265 Alton Parkway, Suite
100, Irvine, California 92618, directed
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to the attention of William M. Slater, Secretary. The demand should specify the
holder's name and mailing address, the number of shares of Common Stock owned by
such shareholder and state that such holder is demanding purchase of his shares
and payment of their fair market value, and must also contain a statement as to
what the shareholder claims to be the fair market value of such shares,
determined in accordance with the second preceding paragraph. Such statement of
the fair market value of the shares constitutes an offer by the shareholder to
sell the shares to the Company at that price. The demand must be received by
the Company not later than 30 days after the date the Approval Notice was mailed
to the shareholder. The certificate(s) representing the Dissenting Shares must
be submitted for endorsement within 30 days after the date of the Approval
Notice.
If the Company and the shareholder agree that the shares are Dissenting
Shares and agree upon the purchase price of the shares, the dissenting
shareholder is entitled to the agreed upon price with interest thereon at the
legal rate on judgements from the date of such agreement. Payment for the
Dissenting Shares must be made within 30 days after the later of the date of
such agreement or the date on which all statutory and contractual conditions to
the Merger are satisfied, and is subject to surrender to the Company of the
certificate(s) for the Dissenting Shares.
If the Company denies that the shares are Dissenting Shares, or if the
Company and the shareholder fail to agree upon the fair market value of the
shares, then within six months after the date the Approval Notice was mailed to
shareholders, any shareholder who has made a valid written purchase demand and
who has not voted in favor of approval and adoption of the Merger Agreement may
file a complaint in the Superior Court of Orange County (the "Court") requesting
a determination as to whether the shares are Dissenting Shares or as to the fair
market value of such holder's shares of Common Stock, or both, or may intervene
in any pending action brought by any other shareholder.
In a trial of the action, the Court will determine first whether the shares
are Dissenting Shares, if their status is an issue. If the fair market value of
the Dissenting Shares is an issue, the Court will determine, or appoint one or
more impartial appraisers to determine, the fair market value of the shares.
If any holder of shares of Common Stock who demands the purchase of his
shares under Chapter 13 of the GCL fails to perfect, or effectively withdraws or
loses his or her right to such purchase, the shares of such holder will be
converted into a right to receive the Merger Consideration multiplied by the
number of shares of Common Stock held by such person in accordance with the
Merger Agreement.
The foregoing summary does not purport to be a complete statement of the
provisions of Chapter 13 of the GCL and is qualified in its entirety by
reference to such Chapter, a copy of which is attached hereto as Exhibit B.
Shareholders who are considering dissenting should consult legal counsel.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General. The following is a summary of the material federal income tax
considerations of the Merger and the Distribution that are generally applicable
to holders of Common Stock. The discussion does not address all of the federal
income tax consequences that may be relevant to a holder in light of such
holder's particular circumstances or to holders subject to special rules, such
as certain financial institutions, insurance companies, dealers in securities,
foreign corporations, nonresident alien individuals and persons who do not hold
their Common Stock as a capital asset and persons who are subject to the
alternative minimum tax. Moreover, the effect of any applicable state, local or
foreign tax laws is not discussed.
The discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), including the Taxpayer Relief Act of 1997 (the "1997 Tax Act"),
Treasury regulations, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial decisions all in effect as of the date hereof, all
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of which are subject to change at any time, and any such change may be applied
retroactively in a manner that could adversely affect a holder of the Common
Stock. The Company has not sought and will not seek any rulings from the IRS
with respect to the positions of the Company discussed below. Consequently, the
IRS is not precluded from taking a different position concerning the tax
consequences of the Merger and the Distribution.
IN VIEW OF THE SUMMARY AND LIMITED NATURE OF THE DISCUSSION, PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE APPLICATION
OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR SITUATIONS AS WELL
AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
Merger Treated as a Sale of Common Stock. The Merger will be treated as a
sale of the holder's Common Stock to Eller in exchange for the holder's share of
the Merger Consideration (as it may be adjusted as of the Closing). The Merger
Consideration, although it will all likely be all held in escrow, will give rise
to the recognition of gain or loss to the extent of the difference between the
holder's share of the Merger Consideration and the adjusted basis of the
holder's Common Stock. After the holder's taxable year in which the gain or
loss on the Merger has been recognized, any subsequent downward adjustment to
the Merger Consideration (e.g., by withdrawals from the Damages Escrow or the
Van Wagner Escrow) would represent a capital loss to a holder to the extent of
the holder's share thereof in the holder's taxable year in which the adjustment
occurs.
Under the 1997 Tax Act, capital gains of an individual holder who has held
the Common Stock for more than one year, but not more than 18 months, will be
subject to a maximum federal income tax rate of 28% and, if the Common Stock has
been held by such holder for more than 18 months, a maximum rate of 20%.
Capital gains of a corporate holder are subject to tax at normal corporate
federal income tax rates.
The Code limits the deductibility of capital losses. For corporate
taxpayers, capital losses may be deducted only to the extent of capital gains;
and unused capital losses may, in general, be carried back three years and
carried forward five years. For individual taxpayers, capital losses are
deductible in each taxable year as an offset against capital gains and as an
ordinary deduction for up to an additional $3,000; and any unused capital losses
may be carried forward indefinitely.
Interest; Backup Withholding. Interest received out of the escrows will be
taxable as ordinary income to the recipient.
A holder receiving such interest may be subject to backup withholding at a
rate of 31% with respect to interest (and original issue discount) unless such
holder (i) is a corporation or other exempt recipient and, when required,
demonstrates that fact, or (ii) provides, when required, a correct taxpayer
identification number, certifies that backup withholding is not in effect and
otherwise complies with applicable requirements of the backup withholding rules.
Backup withholding is not an additional tax; any amounts so withheld are
creditable against the holder's federal income tax, provided the required
information is provided to the IRS.
The Distribution of BSON Stock. As a result of the application of either
section 311(b) of the Code or new section 355(e) of the Code, added by the Act,
Metro will be required to recognize gain on the Distribution to the extent of
the excess, if any, of the value of the BSON Stock over its adjusted basis.
Based on the appraisal of BSON made by Peck & Lopez and the determination of
Peck & Lopez of the adjusted basis of the BSON Stock prior to the Distribution,
little or no such excess should exist and, accordingly, little or no gain is
anticipated to be recognized.
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It is unclear whether the Distribution (a) will be subject to
nonrecognition treatment to the holders of Common Stock by reason of the
fulfillment of the requirements of section 355 of the Code or (b) subject to
treatment as taxable because such requirements have not been met. In the case
of (a), no gain or income would be recognized to the holder on the receipt of
BSON Stock; and the adjusted basis of the Common Stock at the time of the
Distribution would be apportioned between the holder's Common Stock and the BSON
Stock received in the Distribution, based on their relative fair market values.
Under case (b), in view of the determination of Peck & Lopez that Metro has no
accumulated earnings and profits and is not anticipated to have any current
earnings and profits through the Closing, the Distribution should not give rise
to dividend income to the holder. The holder would, however, be required to
reduce the adjusted basis of the holder's Common Stock to the extent of the
value of such BSON Stock received in the Distribution (and recognize gain if and
to the extent that the value of the BSON Stock exceeded the adjusted basis of
the holder's Common Stock). The adjusted basis of the BSON Stock to the holder
would be its value at that time.
In both case (a) and case (b), whichever is applicable, the adjusted basis
of the holder's Common Stock will be reduced for the purpose of computing gain
on the Merger.
In light of the fact that the Distribution is not likely to give rise to a
significant immediate tax cost to a holder, the uncertainty of the issue of
establishing the satisfaction of the strict requirements of section 355 of the
Code permitting nonrecognition treatment for certain spinoff transactions, and
the cost to Metro of attempting to do so, Metro does not intend to report the
Distribution as qualifying under case (a). It is therefore recommended that
each shareholder report the Distribution as falling under case (b).
ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method of accounting
whereby the purchase price will be allocated among the Company's assets and
liabilities based on the fair value of the assets acquired and liabilities
assumed.
BUSINESS OF THE COMPANY
GENERAL
The Company, a California corporation, was incorporated in 1984 and
subsequently reincorporated in 1987. On January 22, 1992, the Company
voluntarily entered into bankruptcy proceedings. On January 7, 1994, the
Company emerged from bankruptcy under entirely new management.
The Company is primarily in the business of renting advertising space on
panels located in bus stop shelters. Each bus stop shelter ("shelter") consists
of a covered bus stop bench and two advertising panels protected by acrylic.
The shelters are owned, installed and maintained by the Company and are
currently located in approximately 60 municipalities throughout Southern
California.
The Company also rents advertising space in shelters located in Clark
County, Nevada, including the City of Las Vegas, through BSON, its wholly-owned
subsidiary.
BACKGROUND/PRIOR BANKRUPTCY
The Company was incorporated in California in 1984 and subsequently
reincorporated in 1987. Until early in 1992, the Company was controlled and
managed by persons no longer associated with the Company ("Prior Management").
Under Prior Management, the Company was in the business of
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designing, manufacturing, selling, installing and maintaining shelters and
renting advertising space in such shelters. In particular, however, until the
end of December 1991, the Company's primary business and source of revenues was
the "sale" of shelters to unaffiliated investors. The shelters were "sold" to
investors by the Company, generally for $10,000 per shelter, and then were
"leased" back by the Company. The Company, in turn, agreed to install and
maintain the shelters on behalf of the owner/investors and to pay the
owner/investors a fixed monthly rental. Prior Management, however, was unable
to derive sufficient advertising revenues from the shelters it leased to make
the promised monthly rent payments to the owner/investors of the shelters. (As
of December 1991, the Company generated approximately $200,000 per month from
shelter advertising revenues, while its monthly obligation to its shelter
owner/investors was approximately $1,300,000.) Accordingly, the Company
attempted to cover the cash shortfall through increased sales of additional
shelters (many of which were never installed).
In 1991, the Securities and Exchange Commission (the "Commission")
commenced an investigation of Prior Management and the Company for the alleged
sale of unregistered securities and other possible causes of action. The
Commission alleged that the sale and leaseback of the shelters constituted an
unlawful sale of securities. In January 1992, the Commission obtained an
injunction in the United States District Court for the Central District of
California against Prior Management to prevent the sale of additional shelters.
In conjunction with the Commission's investigation, the Federal Bureau of
Investigation commenced an investigation of Prior Management.
On January 22, 1992, the Company and Continental Shelters, Inc., a
California corporation then owned and controlled by Prior Management, filed a
voluntary petition before the United States Bankruptcy Court for the Central
District of California (the "Bankruptcy Court") for relief under Chapter 11 of
Title 11 of the United States Code (the "Bankruptcy Code"). On January 29,
1992, Prior Management resigned as officers of the Company. On February 1,
1992, the Company entered into a Consent to Entry of Permanent Injunction with
the Commission which, in general, permanently restrained and enjoined the
Company and its officers from engaging in activities in violation of Section 5
of the Securities Act of 1933, as amended.
On November 24, 1993, the Bankruptcy Court entered an order confirming the
Company's Sixth Amended Joint Plan of Reorganization (the "Plan"), and on
January 7, 1994, the Company emerged from bankruptcy. The following is a
summary of some of the major aspects of the Plan:
(a) All of the capital stock of the Company outstanding prior to the
filing of the bankruptcy petition (i.e., the capital stock owned by
Prior Management and a small group of other investors) was cancelled.
(b) All of the "leases" with the owner/investors of the shelters were
cancelled, the Company acquired ownership of all of the "leased"
shelters, and the claims of the shelter owner/investors (approximately
$105,000,000 in the aggregate) were exchanged for a total of 820,578
shares of the Company's Common Stock.
(c) Prior to the bankruptcy petition, BSON operated as an independent
company that leased bus stop shelters from the Company. The Plan
stated that BSON owed the Company in excess of $2,500,000, that BSON
had minimal asset value, and that BSON's primary value would be as a
going concern owned by the Company. Accordingly, the Plan permitted
the Company to acquire 88% of the outstanding capital stock of BSON
from Prior Management in exchange for token consideration ($22.00).
The Company also obtained the right to acquire the remaining 12% of
BSON's outstanding capital stock from the other BSON stockholders in
exchange for 46,000 shares of Common Stock.
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The Company acquired the remaining 12% interest in BSON in November
1995 in exchange for 5,004 shares of Common Stock.
In addition to the foregoing, under the Plan (i) the Company's President
and most of the current members of the Board of Directors were appointed, (ii)
the Company's current credit facility with Dr. Allan Ross, a director of the
Company, was authorized and implemented, and (iii) a total of 242 additional
shares of Common Stock were issued to the Company's other creditors. All
currently issued and outstanding shares of Common Stock were issued pursuant to
the Plan. In accordance with the Plan, the Company also acquired the remaining
assets of Continental Shelters, Inc. (consisting primarily of shelters and
shelter parts) in exchange for token consideration ($85.00). Continental
Shelters, Inc. had been in the business of manufacturing and installing shelters
exclusively for the Company until the Company ceased ordering shelters from
Continental Shelters, Inc. in early 1992. Continental Shelters, Inc. no longer
conducts any business and has been dissolved as of June 13, 1996.
While Prior Management's focus was on the sale of shelters to
owner/investors, the Company's new management recognized that, if properly
operated, the sale of advertising space on bus stop shelter advertising panels
could be a viable and profitable business. Accordingly, new management changed
the Company's focus from the sale of shelters to (i) increasing advertising
revenues, (ii) decreasing the Company's operating costs, and (iii) converting
the Company's un-installed shelters into revenue generating assets.
OUTDOOR ADVERTISING
Historically, outdoor advertising has consisted primarily of large painted
billboards and a vast array of smaller billboards and placards. Recently,
legislation has been enacted throughout the United States to reduce the number
and size of outdoor billboards. Many municipalities throughout the United
States, including in particular Fountain Valley, Tustin, Mission Viejo, Lake
Forest, Newport Beach and other municipalities within the Company's current
target market area, have prohibited or severely limited the use of outdoor
billboards. As a result of the restrictive legislation, advertisers have been
looking for outdoor advertising alternatives to the billboard. One such
alternative is advertising on bus stop shelters.
While the use of billboards and other forms of outdoor advertising is being
prohibited or restricted in many localities, many municipalities actively
encourage private shelter owners and operators to install shelters in their
localities. As described below, because the shelter owners build, install,
maintain and insure bus stop shelters at their own cost, the municipalities that
allow such bus stop shelters to be installed by private companies are relieved
of the costs related to providing convenient and well-maintained bus stop
shelters for their residents. In addition to the money saved by obtaining bus
stop shelters from private companies at no cost to the municipalities, the
municipalities also profit by receiving a fee from the shelter owners and/or a
percentage of the advertising revenues generated by the shelters. As a result
of the restrictive legislation affecting traditional forms of outdoor
advertising and the benefits derived by municipalities from the installation of
bus stop shelters by private companies, advertising on bus stop shelters has
been rapidly increasing in recent years.
OPERATIONS
The Company's bus stop shelters are located at the bus stops established by
cities, counties, and other municipalities along the regular bus routes in such
municipalities and a small number are located at shopping malls and other
private locations. Each shelter contains two or four advertising panels. Some
of the shelters and advertising panels are illuminated at night. The Company
leases the space in each of the panels to advertisers for an amount of the rent
that varies depending on the location of the panel and on the rating of the
shelter. Each shelter is rated based on the municipality in which the shelter
is located, the location of the shelter within the municipality, and on its
visibility and the estimated number
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of patrons likely to pass the shelter. The higher rated shelters command higher
rental prices. In addition, advertising panels that are illuminated at night
are more attractive to advertisers and typically receive higher rentals. The
Company currently controls and operates more than 2,600 shelters in
approximately 60 municipalities in Southern California.
Advertising space is rented to national advertisers whose products are
nationally known (including such household names as Coca Cola, IBM, McDonald's,
AT&T, etc.) and to local advertisers. Local advertisers typically rent panels
at selected locations (i.e., near their place of business), whereas national
advertisers typically rent advertising space based on rating points. Under the
rating points system, a national advertiser will specify the minimum number of
rating points its advertisements must meet, without designating the location of
the advertisements. Accordingly, for national advertisers, provided that the
national advertiser's overall rating point requirements are satisfied, the
Company selects the shelters in which the posters will be placed. National
advertisers have the right to audit the placement of their advertisements to
confirm compliance with their rating point requirement. The Company keeps track
of the location of each advertisement and the rating of each shelter location
through its computer system. When necessary or desirable, the Company can, with
their permission, move a national advertiser's poster from one shelter to
another shelter, provided that the rating points requirements continue to be
met.
The advertising posters are provided to the Company by the advertiser at
the advertiser's cost. Other than placing the advertisements in the Company's
shelters, the Company is not otherwise involved in the form or content of the
advertisements. Occasionally, the Company will, however, assist smaller, local
advertisers with the development and preparation of advertising posters.
The Company is exploring additional means to increase per shelter
advertising revenues. One method for increasing per shelter revenues is to
increase the shelter's rating points, which can be accomplished by illuminating
the advertising panels. Accordingly, the Company is installing more lighted
panels in its shelters. Another potential method of increasing advertising
revenues is to rent advertising space on shelters in increments of days or even
hours and to charge a different price for the panel depending on the day or hour
of the day. For example, an advertising panel at a busy commercial intersection
could be rented for a certain price on weekends and holidays, for a higher price
during business days, and for an even higher price during the rush hours of such
business days. In addition, the advertisement could be changed to suit the
advertiser or the time period. For example, during business days the panel
could advertise a business product, while on weekends or evenings, the panel
could advertise recreational or leisure-time opportunities or products.
Because of the time required to change an advertising panel and the
employee expense related to changing panels, it is not currently practical or
cost effective to change panels daily or even hourly. In order to overcome this
limitation, the Company has developed and built an automatic, remote controlled
panel changer (the "Remote Panel Changer"). The Remote Panel Changer contains a
number of advertising posters that can be scrolled through the display area of
the panel by means of a small motor located in the panel. The motor can be
actuated to quickly scroll to any of the advertising posters contained on the
scroll at any time. Furthermore, the Remote Panel Changer can be controlled
from the Company's offices via a telephone line. The Company is currently field
testing seven of the Remote Panel Changers.
Marketing. In January 1993, the Company entered into a Sales
Representation Agreement, which was amended as of June 1994, with Van Wagner.
Pursuant to the Sales Representation Agreement, the Company appointed Van Wagner
as its exclusive representative for leasing advertising space to national and
regional advertisers. In exchange, Van Wagner received a variable percentage of
net sales generated by Van Wagner until 1995, when the Sales Representation
Agreement provided for a
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flat rate commission of 25% of net sales generated by Van Wagner. The Sales
Representation Agreement provided the Company with both a regional and national
sales force. The Sales Representation Agreement's term would have expired in
March 1999, subject to an automatic five-year renewal. The Company had the
right to not renew the Sales Representation Agreement if Van Wagner did not
generate certain levels of net sales. Van Wagner had 90 days to exercise a
right of first refusal to purchase the assets of the Company if the Company
desired to sell the assets to a third party.
In addition, as of November 18, 1994, the Company and Van Wagner entered
into a joint venture agreement (the "Joint Venture") for the purposes of (i)
seeking additional franchises and/or licenses for bus shelters from
municipalities throughout California and the United States (both through direct
negotiations and by purchasing franchises and/or licenses from competitors) and
(ii) managing, developing and operating all such bus stop shelters and selling
advertising space in connection therewith. The Joint Venture conducted business
under the name "VW-MDA Bus Shelter Co." The Company and Van Wagner each own an
equal one-half interest in all of the assets and property owned by the Joint
Venture. In January, 1995, the Joint Venture obtained a contract with the City
of La Habra in which the Joint Venture currently has 19 bus stop shelters. The
Joint Venture's joint venture agreement provided for a fifteen-year term,
subject to earlier termination.
In April 1997, OSI, a New York corporation and competitor of the Company,
announced that it was acquiring Van Wagner. The Company subsequently terminated
the Sales Representation Agreement and Joint Venture based on various alleged
breaches and on its conclusion that OSI and its affiliates had conflicts of
interest.
The termination of the Sales Agreement and other issues are the subject of
pending litigation. See "The Merger - Van Wagner Litigation and Disputes."
Due to the effective lack of a sales representative, the Company has
entered into an Interim Sales Representation Agreement dated May 27, 1997,
whereby the Company has engaged Eller as its representative for leasing
advertising space to national and regional advertisers. Pursuant to the
agreement, Eller has assigned a Sales Manager to provide exclusive sales and
marketing services to Metro and to report solely to, and be subject to the
direction and control of, Metro's chief executive officer. In exchange for
Eller's services, Metro has agreed to pay to Eller a 10% commission on the gross
amount of sales placed by Eller through an advertising agency and a 15%
commission on the gross amount of sales placed by Eller directly with the
advertiser and without an agency commission. The agreement will terminate upon
the consummation of the Merger, within 60 days of written notice that a
condition precedent to the Merger has failed and the Merger will not be
consummated, or in no event later than November 27, 1997. Pursuant to an
amendment to the Interim Sales Representation Agreement dated December 29, 1997,
the parties are continuing to perform under the terms of the agreement until the
earlier of a Closing of the Merger or March 31, 1998.
The Company also markets shelter advertising space to local advertisers
through an in-house salesperson.
OPERATIONS IN ABSENCE OF MERGER
Currently, the Company's advertising sales revenues are generated almost
exclusively by Eller under the Interim Sales Representation Agreement pursuant
to which Eller serves as the Company's sales representative. See "Interests of
Certain Persons; Related Transactions - Interim Sales Representation Agreement."
The Company has only one employee assisting in securing advertising sales. In
the absence of a Merger, it is likely that Eller, a competitor of the Company,
would terminate its representation of Metro. The Company would then have to
engage a new sales representative. The Company's previous sales representative,
Van Wagner, has been acquired by OSI, another competitor of
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the Company, and is therefore undesirable. See "- Van Wagner Litigation and
Disputes." The Company is not aware of other potential sales representatives as
prominent as Eller or OSI with which the Company could contract. Alternatively,
the Company could attempt to develop its own national sales force, but it is
believed that such an effort would require at least two years and the securing
of additional financing, which would not be readily available. Therefore, in
the absence of a Merger, the Company believes that initially it would experience
financial results substantially below those of previous years.
CONTRACTS WITH MUNICIPALITIES
The right to install and the obligation to maintain shelters in any
municipality is normally contained in a contract ("Municipal Contracts") entered
into between the municipality and the shelter advertising company or a permit
("Municipal Permits") granted by a municipality to a shelter advertising
company. Under a Municipal Contract, the shelter operator's rights and
obligations are defined by the written contract, whereas the municipality's
ordinances define the operator's rights and obligations under a Municipal
Permit.
Municipalities typically grant Municipal Contracts on the basis of
responses to requests for proposals ("RFPs") that are distributed by the
municipalities to competing shelter owners. The RFPs contain the minimum terms
pursuant to which a municipality is willing to grant a Municipal Contract. Each
competitor is required to submit its bid for the right to install and maintain
shelters in the municipality. Municipal Contracts then are awarded to the
bidder that submits the bid most suitable for the municipality. In considering
RFPs, municipalities evaluate, among other things, the fee that the shelter
operator is willing to pay the municipality, the shelter operator's ability to
maintain the shelter, the design and aesthetic appeal of the shelter proposed to
be installed, and the shelter operator's ability to rent the advertising panels.
The term of Municipal Contracts ordinarily is for a period of five years,
although the term can range from one to ten years. The contracts either grant a
shelter operator the exclusive right to install and maintain bus stop shelters
throughout the municipality or grant the operator rights to certain specified
locations. The Municipal Contracts require the shelter operator, at the
operator's cost and expense, to maintain and repair the shelters, to regularly
clean the shelters, to provide and maintain liability insurance, to include the
municipalities as a named insured on such insurance policy, and various other
terms ordinarily contained in government contracts, such as compliance with
equal opportunity laws and worker safety laws. All Municipal Contracts require
the shelter operator to pay the municipality a fee for the privilege of
maintaining shelters in the municipality. These fees are either fixed minimum
monthly payments, variable payments based on the gross advertising revenues
received by the shelter operator from the shelters located in the municipality,
or a combination of a fixed minimum payment and a percentage payment for
advertising revenues.
The Municipal Contracts usually require the bus stop shelter operator to
post a performance bond or to pledge a certificate of deposit to the
municipality in an amount sufficient to cover the expected cost of removing any
installed shelters should the shelter owners fail to do so upon the termination
of the Municipal Contracts. The bonds or certificates of deposit are required
to be returned to the shelter operator when the shelters are removed from the
municipalities. As of February 28, 1997, the Company had made cash bond
deposits or had pledged certificates of deposit to municipalities in an
aggregate amount of $637,200.
Municipal Permits are typically granted to bus stop shelter operators based
on a perceived need by the municipality for a shelter at a particular location
and other factors, such as the ability of the shelter operator to build and
maintain the shelter. Municipal Permits typically last only six months, but are
automatically renewed unless notice is given prior to such renewal. Each
Municipal Permit grants the shelter operator the right to install and maintain
one shelter at a specified location within the
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municipality. As of February 28, 1997, the Company held Municipal Permits in
approximately 12 municipalities in Southern California. The Company has held
permits in some municipalities for more than ten years and believes that it
generally will be able to continue to renew the Municipal Permits because of the
continuing need for shelters in these municipalities.
On November 15, 1995, the Company filed a complaint against the City of
Victorville as well as two of its City Council members and one member of the
staff. The Company alleges that the City of Victorville objected to certain
advertising by the UFCW Union relating to a labor dispute with a food
supermarket chain located within the City of Victorville. When the Company did
not remove this advertising at the request of the City of Victorville, the
Company claims that the City of Victorville retaliated by canceling the
Company's contract to operate the shelters. The Company has requested damages
in excess of $1,000,000 as well as punitive damages, attorneys' fees and court
costs. See "Legal Matters - Litigation with Municipalities."
The Company believes that if municipalities are allowed to regulate the
political content of the Company's advertising, then its business will be
adversely affected. The Company makes its advertising signs available to
national and local advertisers on a non-discriminatory basis in a fashion
similar to newspaper, magazine and broadcast advertising. Although the Company
has strived to work with municipalities to avoid advertising that is offensive
in nature, should the content of its advertising, especially advertising that is
political in nature, become regulated by the municipalities in which it places
bus stop shelters, the Company's ability to provide effective advertising may be
compromised.
The Company believes that advertising companies generally avoid placing
advertising in a media that may become the target of negative publicity. As a
result of the Company's litigation with Victorville, advertisers may choose to
use other advertising media to avoid being entangled in or associated with a
First Amendment conflict.
Furthermore, in entering bids to try to obtain the right to place
additional bus shelters, the Company must now disclose that for the first time
it has had a contract canceled by a municipality because Victorville is the
first municipality to ever have such a dispute with the Company. Unless the
Company is successful in overcoming the negative aspects of a contract
cancellation, the success of the Company's future bids for contracts may be
negatively impacted.
COMPETITION
The Company faces intense competition for both (i) Municipal Contracts and
Municipal Permits, and (ii) advertising to be placed in the installed shelters.
The Company's principal competitors for Municipal Contracts and Municipal
Permits in Southern California are Outdoor Systems Advertising, Inc. and Clear
Channel Communications, Inc. Both corporations have significantly greater
financial and marketing resources and name recognition than the Company. The
Company also competes for Municipal Contracts with many other smaller shelter
owner/operators.
The Company's reputation has been damaged by the ongoing litigation with
certain municipalities, principally the ongoing Victorville litigation, and
competitors of the Company using this factor against the Company in responding
to RFPs. The Company believes that it may, in fact, have recently lost certain
Municipal Contracts due to this situation. No assurance can be given that the
Company will be able to successfully compete for Municipal Contracts in the
future due to this currently ongoing litigation with municipalities.
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The advertising industry is highly competitive, and competition for
advertisers is intense. The Company competes not only with other shelter
owner/operators for advertising revenues, but also with all other forms of
advertising, including outdoor billboards, television, radio, and direct mail.
The Company's ability to compete effectively for national advertisers is
dependent on the abilities of Eller, the Company's national advertising
representative. See "- Operations - Marketing" above.
EMPLOYEES
As of September 10, 1997, the Company employed 26 full-time and part-time
persons. The Company believes that its employee relations are good.
PROPERTIES
The Company's principal executive offices are located at 15265 Alton
Parkway, Suite 100, Irvine, California, where it leases 4,169 square feet of
office space. The lease expires June 30, 1998. However, if the covenants under
the lease are met in a timely fashion, the Company has the option to extend the
lease term until June 30, 2003. The Company currently pays base rent of
approximately $3,174 per month plus its share of certain expenses related to the
operation of the business center in which the office is located.
The Company has also entered into a month-to-month real property lease for
1,903 square feet of storage space at 15273 Alton Parkway, Irvine, California,
which requires payments of approximately $950 per month.
The Company also leases 13,500 square feet of storage space at 16221
Construction Circle East, Irvine, California. Such lease expires October 31,
1998 and obligates the Company to make payments of $1,780 per month.
BUSTOP SHELTERS OF NEVADA, INC. (BSON)
HISTORY
The Company currently conducts business in Clark County, Nevada, including
the City of Las Vegas, through BSON, its wholly-owned subsidiary. BSON, a
Nevada corporation, was incorporated on April 28, 1987. Until March 1992, all
of the Company's capital stock was owned by Prior Management (88%) and by
certain others, including Dr. Ross, a director of the Company (12%). In March
1992, in connection with the Company's bankruptcy proceedings, the Company
acquired the 88% of the outstanding shares of capital stock of BSON then owned
by Prior Management. Also in connection with the Company's bankruptcy
proceedings, the Company obtained the right, exercisable at the Company's
option, to acquire the remaining outstanding shares of BSON in exchange for
46,000 shares of Common Stock. Subsequently, in November 1995, the Company was
able to renegotiate the terms of its acquisition of the remaining 12% of BSON
and completed such acquisition for 5,004 shares of Common Stock.
OPERATIONS
Pursuant to three Municipal Contracts, BSON has the right to install and
maintain bus stop shelters in the State of Nevada in (i) Clark County, (ii) the
City of Las Vegas, including on the "Las Vegas Strip," and (iii) the City of
North Las Vegas. As of February 28, 1997, BSON had installed 554 shelters in
Nevada. Other than 60 shelters owned by BSON, BSON leases its shelters from the
Company. Except for one other shelter operator in Clark County, the Company
believes that BSON
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currently is the exclusive provider of shelters in these three municipalities.
The Clark County agreement expires in February, 2001 and is renewable by BSON,
with the consent of Clark County, for two additional five-year periods. The
Municipal Contract with Las Vegas expired in July 1996, and the Company has
successfully negotiated a new contract with the City of Las Vegas to extend such
contract for an additional 15 years. The Municipal Contract with North Las
Vegas expires in February 2000.
BSON is managed by a general manager who reports to Scott Kraft, President
of both the Company and BSON. In addition, an operations manager and sales
manager assist in the operation of BSON and report to the President. As of
September 10, 1997, BSON employed 21 full time persons and one part time person.
Approximately 80% of BSON's advertising revenues were generated by Van
Wagner under the Company's Sales Representation Agreement with Van Wagner. The
in-house sales staff of BSON accounted for the remaining 20% of advertising
sales. Currently, Eller is providing BSON with sales representation and
generates approximately 80% of BSON's advertising revenues.
POST-MERGER OPERATIONS
Subject to shareholder approval of the Merger, and prior to consummation of
the Merger, the Company will transfer certain of its assets to BSON and will
distribute the stock of BSON pro rata to the shareholders of the Company. See
"The Merger - Transfer of Assets to BSON and Distribution of BSON Stock." BSON
will then operate as an independent company. See "The Merger - Transfer of
Assets to BSON and Distribution of BSON Stock." The BSON common stock is
subject to a right of first refusal and various restrictions on transferability.
See "Special Considerations Regarding Merger and Related Transactions - Risks
Associated With BSON - Illiquid Stock of BSON." Prior to the Distribution, and
subject to shareholder approval of the nominees for the Board Directors set
forth in PROPOSAL TWO, it is anticipated that the Company, as sole shareholder
of BSON, will elect the directors of the Company to be the directors of BSON and
that the directors of BSON will appoint the officers of the Company to be the
officers of BSON. The current officers and directors of the Company are Allan
L. Ross, M.D., Chairman of the Board and a director; Scott A. Kraft, President
and Chief Executive Officer; William M. Slater, Secretary and a director; and
Mark R. Boileau, director. It is contemplated that the Articles of
Incorporation and Bylaws of BSON will be amended prior to the Distribution. The
Articles of Incorporation and Bylaws of BSON as they will be amended are
attached hereto as Exhibits C and D.
Upon consummation of the Merger and termination of the sales representation
obligations of Eller to the Company and BSON, BSON initially will rely solely on
its in-house sales staff to generate advertising sales.
Pro forma financial statements of BSON and Metro are attached hereto in the
Financial Statements.
PROPERTIES
BSON has entered into a real property lease for approximately 3,820 square
feet of office and warehouse in Las Vegas, Nevada. This lease commenced on
March 1, 1995 and ends on February 29, 2000, and BSON has an option to extend
the term of the lease for five years. BSON currently pays base rent of $1,910
per month plus real property taxes, utilities insurance expenses, a share of
common area expenses and maintenance, repairs and alternations. This lease also
provides for cost of living increases of up to 3% a year beginning in the third
year of the lease.
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BSON's headquarters are located at 5425 South Valley View, Suite 103, Las
Vegas, Nevada 89118, (702) 893-6456.
BUSINESS OF ELLER AND EMS
ELLER
Eller is a holding company and conducts all of its operations through its
subsidiaries, which collectively operate under the name "Eller Media Company."
Eller is also a subsidiary of Clear Channel Communications, Inc. ("Clear
Channel"), which is a diversified media company that currently owns or programs
112 radio stations and 18 television stations in 28 domestic markets, as well as
owns substantial equity interests in other significant domestic and
international broadcasting companies.
Eller is one of the largest outdoor advertising companies in the United
States based on its total U.S. advertising display inventory of approximately
50,000 display faces. Eller provides outdoor advertising services in 15 major
metropolitan markets located in five operating regions: California, Texas, the
Midwest, the Southeast and the Southwest. Eller currently has both outdoor
advertising and broadcasting assets in twelve domestic markets. The markets in
which Eller operates represent approximately 22% of the total U.S. population.
Eller operates the following types of outdoor advertising billboards and
displays:
(a) Bulletins generally are 14 feet high by 48 feet wide (672 square feet
wide) or 20 feet high by 60 feet wide (1,200 square feet) and consist
of panels on which advertising copy is displayed. Bulletin
advertising copy is either printed with computer-generated graphics on
a single sheet of vinyl that is "wrapped" around the structure, or is
hand painted and attached to the outdoor advertising structure.
Bulletins also include "wallscapes" that are painted on vinyl surfaces
or directly in the sides of buildings, typically four stories or less.
Because of their greater impact and higher cost, bulletins are usually
located on major highways and freeways. In addition, wallscapes are
located on major freeways, commuter and tourist routes and in downtown
business districts.
(b) Premier Panels(TM) generally are 12 feet high by 25 feet wide (300
square feet) and have vinyl wrapped around the display face. Premier
Panels(TM) are built on superior 30-sheet poster locations that
deliver a "bulletin-like" display. Eller also offers unique Premier
Plus(TM) panels, 25 feet high by 25 feet wide (625 square feet), that
consist of two stacked 30-sheet posters which are converted into one
larger individual display face.
(c) 30-sheet posters generally are 12 feet high by 25 feet wide (300
square feet) and are the most common type of billboard. Advertising
copy for 30-sheet posters consists of lithographed or silk-screened
paper sheets supplied by the advertiser that are pasted and applied
like wallpaper to the face of the display. Thirty-sheet posters are
typically concentrated on major surface arteries.
(d) 8-sheet posters usually are 6 feet high by 12 feet wide (72 square
feet). displays are prepared and mounted in the same manner as 30--
sheet posters. Most 8-sheet posters, because of their smaller size,
are concentrated on city streets targeting pedestrian traffic.
(e) Transit displays are lithographed or silk-screened paper sheets
located on bus and commuter train exteriors, commuter rail terminals,
interior train cars, bus shelters and
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subway platforms. Eller's transit customers include the San Francisco
Bay Area Rapid Transit (BART) and the Metropolitan Rail (METRA) in
Chicago.
Billboards generally are mounted on structures owned by the outdoor
advertising company and located on sites that are either owned or leased by it
or on which it has acquired a permanent easement. Bus shelters are usually
constructed, owned and maintained by the outdoor service provider under revenue-
sharing arrangements with an municipality or transit authority. Eller owns or
has permanent easements on relatively few parcels of real property that serve as
the sites for its outdoor displays. Eller's remaining approximately 18,43
billboard sites are leased.
Eller also maintains a fully-staffed sales and marketing office in New York
which services national outdoor advertising accounts and supports Eller's local
sales force in each market. Eller has a diversified customer base in its
outdoor advertising segment of over 3,000 advertisers and advertising agency
clients. The size and geographic diversity of Eller's markets allow it to
attract national advertisers, often by packaging displays in several of its
markets in a single contract to allow a national advertiser to simplify its
purchasing process and present its message in several markets. National
advertisers generally seek wide exposure in major markets and therefore tend to
make larger purchases. Eller competes for national advertisers primarily on the
basis of price, location of displays, availability and service.
As of December 31, 1996, Eller employed approximately 973 people in its
outdoor advertising segment, of whom, approximately 192 were primarily engaged
in sales and marketing, 588 were engaged in painting, bill positing and
construction and maintenance of displays and the balance were employed in
financial, public affairs, real estate, administrative and other capacities.
Eller was incorporated in Delaware in 1995 and its principal executive
office is located at 2850 E. Camelback Road, Suite 300, Phoenix, Arizona 85016,
(602) 381-5702.
EMS
EMS is a wholly-owned subsidiary of Eller and was incorporated in
California on August 29, 1997 for the purpose of effectuating the Merger. On
the Closing Date, EMS will merge with and into the Company and its separate
corporate existence will cease. The principal executive office of EMS is
located at 2850 E. Camelback Road, Suite 300, Phoenix, Arizona 85016, (602) 381-
5702.
SPECIAL CONSIDERATIONS REGARDING MERGER AND RELATED TRANSACTIONS
NO FAIRNESS OPINION
The Merger Agreement contemplates that shareholders will exchange their
Company Common Stock for cash consideration. The Board of Directors has
determined that the Merger Consideration is fair to the shareholders of the
Company. The Board of Directors did not consult with a financial advisor or
investment banker with respect to the adequacy of the Merger Consideration, nor
did it receive any professional opinion concerning the fairness of such
consideration. The absence of a public market for Company Common Stock causes
difficulty in valuing the Company. There can be no assurance that a
professional or market valuation of the Company would not determine the Merger
Consideration to be inadequate or unfair to the shareholders of the Company.
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MERGER CONSIDERATION IN ESCROW
Pursuant to the Merger Agreement, Eller will deliver the Merger
Consideration in cash to the Escrow Agent on the Closing Date. The Escrow Agent
will disburse the Merger Consideration in the Specific Performance Escrow, if
any, to the Company's shareholders only after the Stockholder Representatives
have delivered written evidence acceptable to Eller in its sole reasonable
discretion that the only remedy available to the Van Wagner Group is monetary
damages. See "The Merger -Contingencies and Adjustments Affecting the Merger
Consideration." It can take years before litigation is resolved, and any
subsequent use of the appeals process can further lengthen the time until such a
resolution. There can be no assurance that the Condition will be satisfied at
any time in the near future. Furthermore, until such time, the Merger
Consideration will be used to pay the costs, expenses and, ultimately, any
damages resulting from the Van Wagner litigation. There can be no assurance of
how much, if any, of the Merger Consideration in the Specific Performance Escrow
will remain for disbursement when the Condition is satisfied. In addition,
after the Closing Date of the Merger, the shareholders will be entitled to
receive the Merger Consideration only and will not share in any appreciation in
the value of the Surviving Corporation.
DAMAGES ESCROW
The Escrow Agent will hold $5,000,000 of the Merger Consideration for a
period of three years as a separate escrow called the Damages Escrow. Out of
the Damages Escrow, the Escrow Agent will disburse to Eller, from time to time,
any amounts owing to Eller for monetary damages, if any, suffered by Eller with
respect to (i) any breach of a representation or warranty by, or covenant or
agreement of, the Company set forth in the Merger Agreement, (ii) any litigation
pending against the Company as of the Closing date other than litigation between
the Company and the Van Wagner Group (iii) any undisclosed rights requiring the
issuance of capital stock of the Company, (iv) the loss of the ability to
utilize any net operating carry forwards of the Company resulting from the
transfer of assets from the Company to BSON, (v) fees under bus shelter
contracts resulting from the Merger or (vi) the termination of bus shelter
contracts. Only after the third anniversary of an Escrow and Disbursement
Agreement to be entered into between Eller, EMS and the Company on or prior to
the Closing Date, and after payment of any sums then owing to Eller, will the
Escrow Agent distribute the remaining funds of the Damages Escrow, if any, pro
rata to the shareholders. There can be no assurance as to how much, if any, of
the Damages Escrow will remain for distribution to the shareholders after
payments to Eller.
VAN WAGNER ESCROW
The Escrow Agent will hold up to $5,000,000 of the Merger Consideration in
a separate escrow called the Van Wagner Escrow. The Van Wagner Escrow will
consist of an amount equal to the sum of $5,000,000, less the Merger
Consideration adjustment for legal fees and costs incurred by the Company in
connection with the litigation with the Van Wagner Group through the Closing
Date. Upon a final, non-appealable determination on damages in the litigation
with the Van Wagner Group, the Escrow Agent will pay such damages and any
remaining litigation expenses out of the Van Wagner Escrow and subsequently
distribute any amounts remaining in the Van Wagner Escrow pro rata to the
shareholders. There can be no assurance that, after payments of any damages and
litigation expenses, any of the Van Wagner Escrow will remain for distribution
to the shareholders.
NET REDUCTIONS
At the Closing, the aggregate amount of the Merger Consideration will be
reduced by an amount equal to the sum of (i) the Company's aggregate net
accounts receivable balance as of the Closing Date of the Merger, (ii) the
amount by which the Company's liabilities as of the Closing Date exceed
$2,343,741.64, (iii) any accounts receivable written off by the Company after
June 30, 1997 and through
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the Closing Date, (iv) amounts equal to the cost of certain obligations incurred
by the Company up until the Closing Date (the aggregate amount of clauses (iv)
and (vi) not to exceed $400,000), (v) the amounts to be paid as bonuses to
Metro's employees, (vi) an amount equal to the legal fees and costs incurred by
Metro through the Closing Date, (vi) the amounts Metro is obligated to pay for
federal and state taxes related to employee bonuses and the exercise of any
Metro stock options; and, subsequent to the Closing, will be (i) further reduced
by the costs and expenses incurred by the Stockholder Representatives, (ii)
further reduced by any damages awarded against the Company as a result of the
Van Wagner litigation or payable in settlement of such litigation and (iii)
increased by the amount, if any, recovered by the Company in connection with the
Van Wagner litigation (all such reductions and increases together called the Net
Reductions). Since the Net Reductions are not capped or limited, there can be
no assurance, after accounting for all Net Reductions, how much, if any, of the
Merger Consideration will remain for distribution to the shareholders.
REGULATORY APPROVALS
The Merger Agreement provides that the obligation of Eller and EMS to
consummate the Merger is conditioned upon Eller receiving appropriate approvals
or orders from the United States Bankruptcy Court for the Central District with
respect to the Merger. There can be no assurance that the court will approve or
take any other required action with respect to the Merger, and if approval is
received or action is taken, that such approval or action will not be
conditioned upon matters that would cause the parties to abandon the Merger. In
addition, there can be no assurance that an action will not be brought
challenging such approval or action, or if such a challenge is made, with
respect to the result thereof.
THIRD PARTY CONSENTS
The Merger Agreement provides that as a condition to closing certain
municipalities and Hanano-Hanano, a landlord leasing certain property to the
Company, will each have given its respective consent to the transfer of the
respective bus shelter contract or lease, as the case may be, from the Company
to Eller in accordance with the terms of the Merger. There can be no assurance
that such third parties will promptly consent, or consent at all, to the
transfer of its respective contract or lease, or take any other required action
with respect to the Merger, and if consent is received or action is taken, that
such consent or action will not be conditioned upon matters that would cause the
parties to abandon the Merger. In addition, if certain municipalities fail to
renew or terminate bus shelter contracts prior to the third anniversary from the
date of the Damages Escrow and Disbursement Agreement to be entered into between
the parties, then, subject to offsetting such lost advertising space with the
addition of new advertising space, Eller is entitled to distributions of certain
fixed amounts out of the Damages Escrow. There can be no assurance that such
municipalities will renew or continue the bus shelter contracts with the
Surviving Corporation, or that any additional advertising space will be obtained
by the Surviving Corporation so as to offset any such lost advertising space.
RISKS ASSOCIATED WITH BSON
Limited Operating History; Smaller Operations. Subject to shareholder
approval of the Merger, prior to the Closing Date, the Company will distribute
the capital stock of BSON to its shareholders as a dividend on the Common Stock.
Thereafter, BSON will operate as an independent company. BSON has a limited
history of independent operations. Prior to becoming a wholly-owned subsidiary
of the Company in 1995, BSON operated as an independent company which leased bus
stop shelters from the Company. At the time of the Company's bankruptcy, BSON
owed the Company in excess of $2,000,000.
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BSON does not have a recent independent operating history. There can be no
assurance that BSON will operate profitably, if at all, as an independent
company. BSON has substantially less assets and resources than the Company
currently has. BSON has installed and maintains, and subsequent to the Merger
will own, only approximately 21 percent of the shelters currently owned by the
Company. BSON currently operates in only three counties in Nevada, which
represents a significantly smaller market than Southern California. In
addition, the Merger requires the termination of all contracts between the
Company and Van Wagner. During fiscal 1996, through an advertising and
marketing agreement, Van Wagner effected sales on behalf of the Company which
accounted for 80 percent of the Company's advertising revenues, with the
remaining 20 percent being effected by in-house staff. As an independent
company, BSON initially will rely completely on sales effected by in-house
staff. There can be no assurance that the in-house sales force will effectively
generate advertising revenues, if at all.
Moreover, it is anticipated that the management of the Company will become
the management of BSON. The management of the Company has focused most of its
resources and time into developing bus stop shelter advertising in Southern
California. There can no assurance that management will be able to effectively
apply its experience and skills to the Nevada market or any other market into
which BSON expands.
Need for Additional Funding. BSON currently operates as a subsidiary of
Metro. BSON has historically received certain funding from Metro. Although
BSON will receive certain assets from Metro prior to the Merger, it will not
receive any cash or monetary consideration for working capital from Metro or
from the Merger. After the spinoff of BSON and the consummation of the Merger,
BSON will have sufficient capital to fund its initial operations, but it is
anticipated that BSON will require additional funding for its near-term capital
needs. BSON does not currently have a source of financing in place and there
can be no assurance that financing will be available on terms acceptable to
BSON, or that BSON will be able to obtain financing at all. If BSON is not able
to obtain financing on acceptable terms, or at all, its ability to operate the
bus stop shelters and generate advertising revenues will be materially adversely
affected.
Concentration of Operations. Currently, all of BSON's operations are
located in Nevada, and BSON derives 100 percent of its revenues from shelters in
the Las Vegas area. Subsequent to the Merger, and accounting for the addition
of any revenues from its association with BATS in Northern California, BSON's
results of operations will remain substantially dependent upon the general
economic conditions of Nevada, and of Las Vegas in particular.
Issuance of Stock. Subject to shareholder approval of the Merger
Agreement, the Articles of Incorporation of BSON will be amended. The Articles
of Incorporation of BSON, as to be amended, are attached hereto as Exhibit C.
The Amended Articles of Incorporation of BSON will authorize the issuance of up
to 1,500,000 shares of common stock. The issuance of additional common stock of
BSON could have a substantial dilutive effect on existing shareholders.
Pursuant to an employment agreement entered into by and between BSON and Scott
Kraft dated September 29, 1997, Mr. Kraft will receive a stock option to
purchase 35,000 shares of BSON common stock at $3.10 per share, which option is
exercisable at any time within twelve months following the expiration of such
employment contract. Other than upon exercise of Mr. Kraft's stock option, BSON
does not currently intend to issue additional common stock or additional
preferred stock.
No Market for Stock. There has never been and there does not now exist any
public market for the Common Stock of BSON. The capital stock of BSON is not
listed on any securities exchange or quoted or traded on any over-the-counter
market. No broker maintains a position in or deals in any shares of BSON, and
no bid or asked prices are quoted for any shares of BSON in any newspaper,
electronic bulletin board or other medium. Furthermore, the BSON common stock
will be subject to
34
<PAGE>
substantial transfer restrictions, ensuring that a public market for BSON common
stock will not develop. See "- Illiquid Stock of BSON."
Illiquid Stock of BSON. Pursuant to the Distribution, shareholders will
receive common stock of BSON. A public market for the stock of BSON does not
exist and there are restrictions on the transferability of the stock to prevent
a public market from developing prior to the time such securities are registered
under the Securities Act. Prior to the time BSON becomes a reporting company
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Articles of Incorporation of BSON will not permit a transfer of BSON common
stock, except for (a) transfers to BSON; (b) transfers to existing BSON
shareholders; (c) transfers by gift, bequest or operation of the laws of
descent; (d) transfers to an entity unaffiliated with BSON pursuant to a merger,
consolidation, stock for stock exchange, or similar transaction involving BSON;
(e) transfers by a partnership to its partners; (f) transfers which would be
exempt from the registration requirements of Section 5 of the Securities Act by
virtue of the exemption provided by Section 4(2) of the Securities Act if the
transferor were the issuer of the BSON common stock, provided that the
transferee is an "accredited investor" within the meaning of Rule 501(a) under
the Securities Act; or (g) transfers pursuant to an effective registration under
the Securities Act simultaneous with a registration of the BSON Common Stock
under Section 12 of the Exchange Act. The transfers described in (b), (c), (e)
and (f) will be permitted only if the BSON Common Stock in the hands of the
transferee remain subject to the same restrictions on transfer as they were when
held by the transferor. In addition, the transfers described in (b) and (f)
will be further subject to the right of first refusal described below. The
foregoing restrictions will expire as to all holders on the date BSON becomes a
reporting company.
Right of First Refusal. The common stock of BSON will be subject to a
right of first refusal. Before any shareholder ("selling shareholder") can sell
or transfer any shares of BSON common stock (other than pursuant to a
transaction described under items (a), (c), (d) or (e) of "Illiquid Stock of
BSON" above), the selling shareholder must give a written offer to the Company
stating the number of shares to be sold or transferred and the price, terms and
conditions of the proposed sale or transfer. The Company will then have the
right to purchase all or any number of the shares offered at the price and on
the terms as stated in the offer. If the Company does not elect to purchase
such shares, the selling shareholder may sell or transfer such shares to the
third party at the price and on the terms of the original offer, subject to the
restrictions referred to above. The stock certificates evidencing the BSON
common stock will bear legends conspicuously noting that the shares are subject
to such restrictions.
No SEC Registration. BSON does not currently contemplate the registration
of its stock. Even if BSON registered its stock, there can be no assurance that
a public market will ever develop, or if developed, that it will continue. In
addition, BSON does not currently contemplate a public offering of its stock.
In the event BSON does desire to engage in a public offering of its stock, the
ability of BSON to complete a public offering will depend upon its then current
financial condition and results of operations and market conditions at the time
such an offering is planned. Many of the factors which will influence BSON's
ability to conduct a public offering are outside of the control of BSON. BSON
may have difficulty in obtaining registration of its common stock for a public
offering in certain states where the securities or "blue sky" laws provide wide
discretion to state securities regulators to review the "merits" of an offering.
The failure to obtain registration of an initial public offering in one or more
states may make it more difficult or impossible for holders to sell their stock
if they should desire to do so. In addition, there are substantial restrictions
on the sale or transfer of such common stock imposed by federal and state
securities laws. There can be no assurance that holders will be able to sell
their BSON stock at any price, if at all. Even if a public offering of BSON
common stock occurs, there can be no assurance that a liquid public market will
result.
35
<PAGE>
BSON Not a Reporting Company. Because BSON's total assets are expected to
have a value of less than $10,000,000, BSON will not be required to register
under Section 12 of the Exchange Act. The Company has registered under Section
12 of the Exchange Act and, therefore, is obligated to file annual, quarterly
and periodic reports with the Securities and Exchange Commission ("SEC").
Although BSON will not be required to file reports with the SEC subsequent to
the Distribution, BSON intends to distribute annual reports to its shareholders.
Value of Stock. As a result of the distribution of BSON common stock, the
shareholders of the Company will directly own the common stock of BSON.
Although a valuation of BSON as an independent company is being done for
purposes of determining tax obligations, such valuation will be based on
numerous assumptions and conditions. Furthermore, the valuation of BSON as a
company is not necessarily indicative of the value of BSON's common stock.
There is no prediction as to the present or future value, if any, of BSON common
stock.
Litigation Responsibility Agreement. As a condition precedent to the
Merger, Metro and BSON will enter into a Litigation Responsibility Agreement
pursuant to which Metro will assign to BSON, and BSON will assume from Metro,
Metro's rights and obligations under three lawsuits currently pending against
certain municipalities. In the event a counterclaim or cross-claim is asserted
in one of the assigned lawsuits, Metro has the option to assume the rights and
obligations under such lawsuit whereupon BSON will relinquish all rights and
obligations under such lawsuit. There can be no assurance that counterclaims or
cross-claims will not be asserted or that, if asserted, such claims will not
result in obligations which have a material adverse effect on the operations of
BSON. Further, if a counterclaim or cross-claim is asserted, there can be no
assurance that Eller will not exercise its option to assume the rights and
obligations of such lawsuit and succeed to monetary damages, if any, recovered
in such lawsuit.
Consulting Agreement. As an inducement to the Company to enter into the
Merger Agreement, Eller will enter into a Consulting Agreement with BSON on or
prior to Closing, pursuant to which BSON will provide Eller with such consulting
services as Eller from time to time will reasonably request in connection with
Eller's efforts to expand its bus shelter advertising business within the
greater Los Angeles metropolitan area, and in connection with procuring
contracts and permits for that purpose. In exchange, Eller will pay to BSON 50%
of gross revenues in excess of certain amounts, which payments do not begin
until March 31, 2002. There can be no assurance that the delayed compensation
for BSON's services will not have a material adverse effect on the operations of
BSON. In addition, there can be no assurance that Eller will not, prior to
paying its obligations under the Consulting Agreement, experience a decline in
its financial condition or business operations such that it will lack sufficient
financial resources to pay BSON for services provided.
36
<PAGE>
PROPOSAL TWO
------------
ELECTION OF DIRECTORS
The Company's Bylaws provide that the number of directors of the
Corporation will not be less than three nor more than five, the exact number of
directors being fixed at three. Directors are elected at each Annual Meeting
and hold office until their successors are elected and qualified.
The persons named below, all of whom are current members of the Company's
Board of Directors, have been nominated for election as directors at the Annual
Meeting to serve until consummation of the Merger or until the next Annual
Meeting of Shareholders and until their successors are duly elected and
qualified. Directors are elected by a plurality of the votes present in person
or represented by proxy and entitled to vote at the Annual Meeting. Shares
represented by executed proxies will be voted, if authority to do so is not
withheld, for the election of the three nominees named below.
In the event that any of the nominees should be unable to serve as a
director, it is intended that the proxyholders will vote for the election of
such substitute nominee, if any, as will be designated by the Board of
Directors. The Board of Directors has no reason to believe that any nominees
named below will be unable to serve if elected.
The Board of Directors recommends a vote FOR each of the named nominees.
The names of the nominees are:
Allan L. Ross, M.D. William M. Slater Mark R. Boileau
OFFICERS AND DIRECTORS
The following table sets forth the names of the officers of the Company and
the persons to be nominated by the Board of Directors for election as directors
of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Allan L. Ross, M.D. 48 Director and Chairman of the Board
Scott A. Kraft 38 Chief Executive Officer and President
William M. Slater 60 Director and Secretary
Mark R. Boileau 33 Director
</TABLE>
Allan L. Ross, M.D., has been the Chairman of the Board of Directors of the
Company since January 1994. Dr. Ross has been a practicing anesthesiologist at
the Sharp Chula Vista Medical Center since 1985 and has been Chairman of the
Department of Anesthesiology since 1987. From 1990 to 1992, Dr. Ross served as
the director of the surgical intensive care unit. Dr. Ross founded the cardiac
anesthesia program in 1987 and the obstetrical anesthesia program in 1992. Dr.
Ross is the founder of Anesthesiology Medical Consultants of San Diego, a
medical corporation of anesthesiologists serving the San Diego area, and has
served as President since its inception in 1991.
Scott A. Kraft has been the Chief Executive Officer and President of the
Company since January 1993 and its Chief Operating Officer since February 1992.
Prior to joining the Company, Mr. Kraft served as an engineer and manager at
Ferranti Aerospace from July 1987 to February 1992.
37
<PAGE>
William M. Slater has been a director of the Company since March 1994 and
Secretary of the Company since July 1994. Mr. Slater is also currently a
business analyst with Geneva, Inc. Mr. Slater was a real estate broker
associated with CB Commercial Real Estate Group, Inc. from December 1992 to
November 1996. From May 1989 to December 1992, he was a mortgage broker with
American Mortgage Bankers.
Mark R. Boileau has been a director of the Company since January 1994. Mr.
Boileau has been an engineering manager at Curtis PMC since October 1992. From
June 1987 to October 1992, he was an engineering manager at Marconi Dynamics.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1996, the Board of Directors held
five meetings and acted by unanimous written consent on four occasions. Each
director attended at least 75% of such meetings. The Board of Directors has not
appointed any committees.
38
<PAGE>
PROPOSAL THREE
--------------
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Peck & Lopez as the independent
auditors of the Company for the fiscal year ending December 31, 1997, subject to
ratification by the shareholders. A representative of Peck & Lopez will be
available at the Annual Meeting of Shareholders and will be given the
opportunity to make a statement, if desired, and to respond to appropriate
questions.
Shareholder ratification of the selection of Peck & Lopez as the Company's
independent auditors is not required by the Company's bylaws or otherwise.
However, the Company is submitting the selection of Peck & Lopez to the
shareholders for ratification as a matter of good corporate practice. If the
shareholders fail to ratify the selection, the Company will reconsider whether
or not to retain that firm. Even if the selection is ratified, the Company in
its discretion may direct the appointment of different independent auditors at
any time during the year if the Board of Directors determines that such a change
would be in the best interests of the Company and its shareholders.
The affirmative vote of the holders of a majority of the shares present or
represented at the Annual Meeting and entitled to vote will be required to
ratify the selection of Peck & Lopez. The Board of Directors recommends a vote
in favor of ratification of Peck & Lopez as the Company's independent
accountants.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto which begin on page F-1.
GENERAL
From January 22, 1992 until January 7, 1994, the Company was in bankruptcy.
In addition, since 1992, management of the Company has been implementing a
revised business plan.
During fiscal 1993, the Company's principal focus was on merely maintaining
the Company's existence, on resolving the various bankruptcy claims, and on
confirming the Company's plan of reorganization. During fiscal 1994, the
Company commenced its transition from a company operating under the supervision
of the Bankruptcy Court to a company operating pursuant to a revised business
plan. Accordingly, during fiscal 1994, the Company reduced its work force,
revised its marketing agreement with Van Wagner, entered into the Joint Venture
agreement with Van Wagner, and turned its focus to renting and maintaining the
advertising space available at the Company's shelters. Other than changing or
entering into agreements with Van Wagner, the Company continued the
implementation of its business plan throughout fiscal 1996. The Company
believes that the new business plan will, in the long turn, increase the
Company's revenues, reduce its overall operating costs, and increase the
Company's presence in additional geographic markets. Accordingly, the enclosed
financial statements may not necessarily be indicative of the Company's expected
on-going operating results under its revised business plan.
RESULTS OF OPERATIONS
Year ended December 31, 1996 compared to December 31, 1995
Revenues during fiscal 1995 and fiscal 1996 were derived from advertising
fees received by the Company from the rental of the advertising panels located
in the Company's installed shelters. Revenues for fiscal 1996 exceeded fiscal
1995 revenues by $134,058, or 2%, due to the implementation of management's new
business plan, which plan was adopted in 1992 and has been incrementally
implemented during fiscal 1995 and fiscal 1996. In accordance with the new
business plan, the Company's objectives were to increase (i) the number of
installed shelters, (ii) the occupancy rate for advertising in the panels of
each shelter, and (iii) the average rental rate paid per advertising panel. The
increased revenues in fiscal 1996 were the result of an increase in the per
panel rental rate during fiscal 1996 over fiscal 1995.
The Company's total costs of sales in fiscal 1996 increased by $52,677, or
1%, over 1995. Cost of sales as a percentage of revenues increased slightly
from 64% in fiscal 1995 to 66% in fiscal 1996. Advertising commissions
increased in fiscal 1996 as the result of increased advertising sales. Since
the Company pays commissions based on a percentage of advertising sales, such
commissions will increase as advertising sales increase. Gross profit percentage
for fiscal 1996 and 1995 remained stable at 34% of sales.
Installation and maintenance expenses for fiscal 1996 increased 20%
compared to the prior fiscal year due primarily to new bus shelter
installations. City advertising fees decreased by 19% in fiscal 1996, due to a
decrease in fees to cities on a percentage basis. In addition, the Company had
discovered certain overpayments in prior years to the city of Clark County,
which were taken as credits in the current year. Since the Company pays fees to
cities and municipalities for the right to maintain shelters in the cities and
municipalities, such fees will increase as advertising revenues increase.
40
<PAGE>
The Joint Venture obtained its first city contract in 1995. However, only
minimal revenues were received in fiscal 1995 as the shelter installations were
not completed until late in the year. Revenues for fiscal 1996 were also
minimal due to the lack of market recognition by advertising clients. On April
14, 1997, the Company learned that OSI, a competitor of the Company, had entered
into an agreement to acquire Van Wagner. The Company immediately notified such
parties that the acquisition would cause a termination of the Joint Venture. In
late May and early June of 1997, OSI indicated that Outdoor Systems, Inc.-New
York ("OSI-NY") intended to assume the obligations of Van Wagner under the Joint
Venture. On June 12, 1997, the Company filed a complaint in Bankruptcy Court
against Van Wagner, OSI, OSI-NY and Richard Schaps alleging, among other things,
breach of contract of the Joint Venture and seeking termination of the Joint
Venture. On June 20, 1997, OSI-NY filed a complaint against the Company in the
Superior Court of Orange County alleging a breach of contract and seeking
declaratory relief. The continued existence of the Joint Venture depends upon
the outcome of such pending litigation. See "The Merger - Van Wagner Litigation
and Disputes." The revenues generated from the Joint Venture during fiscal 1996
amounted to $87,538.
The Company's total operating expenses increased in fiscal 1996 by
$165,115. The primary reasons for this increase was an increase in professional
fees of $96,342 and an increase in wages and related expenses of $31,749.
In fiscal 1996, the Company incurred $224,407 of interest expense compared
to $180,301 in fiscal 1995. The increase in interest expense is primarily
attributable to an increase in debt.
For the fiscal year ended December 31, 1996, the Company recorded a net
loss of $41,091 compared to a net income of $79,997 for fiscal 1995. This
represents a change of $121,088 in fiscal 1996 over fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company's current liabilities exceeded the
Company's current assets by $393,456. This represents an increase of $117,669
in fiscal 1996 over fiscal 1995. Approximately $412,155 of the current
liability consists of indebtedness owed to Dr. Ross under the Plan. On January
6, 1994, Dr. Allan Ross entered into a loan agreement with the Company (the
"Loan Agreement") pursuant to which Dr. Ross provided the Company with a line of
credit of up to $1,200,000 and made available to the Company irrevocable letters
of credit in an amount up to $300,000 (together, the "Credit Facility"). See
"Interests of Certain Persons; Related Transactions - Credit Facility and
Loans." Dr. Ross is a Director and principal shareholder of the Company. The
Company and Dr. Ross restructured this current liability in order to allow the
Company the opportunity to implement its new business plan. Under this
restructured agreement with Dr. Ross, the Company believes that it can fund the
remaining portion of its working capital deficit through borrowings under the
unused portion of its Credit Facility and through cash generated from
operations. However, no assurances can be given that the Company will be able
to continue to fund its current working capital deficit. Failure to satisfy its
vendors and other creditors could result in the loss of business with such
vendors/creditors, could cause a change in the terms the Company receives from
such vendors/creditors, and could result in the initiation of bankruptcy
proceedings against the Company.
During fiscal 1996, the Company had a positive cash flow from operating
activities of $880,621. This represents an increase of $245,555 in fiscal 1996
over fiscal 1995. This was primarily due to the increase in cash received from
advertising clients. In addition, the Company used a total of $561,967 to fund
its purchases of new property and equipment and for other investing activities.
41
<PAGE>
At December 31, 1996, the Company's outstanding accounts receivable
decreased the amount of accounts receivable outstanding as of December 31, 1995
by $388,055. The decrease is due to an increase in collections.
Pursuant to the Plan, the Company borrowed $800,000 under the Credit
Facility in January 1994. Under the Credit Facility, the Company was required
to make monthly payments of principal and interest and did not do so until the
Company restructured the Credit Facility effective September 1, 1995. Since
September 1, 1995, the Company has made all required payments of $20,000 per
month and is current under the terms of the Credit Facility. The current
balance as of December 31, 1996 was $317,935.
As of December 31, 1996, the Company had approximately 650 shelters in its
inventory. Accordingly, the Company's future capital expenditures related to
the installation of additional shelters is expected to be insignificant, and its
marginal cost of maintaining additional shelters is expected to be low. Because
the Company's marginal cost of installing and maintaining additional shelters is
low, the Company could increase its operating cash flow by installing additional
shelters (directly or through the Joint Venture) and by renting the space on
such additional shelters. Based on its currently pending RFPs and on increased
shelter installation in existing municipalities, the Company believes that it
will be able to increase its base of installed shelters during the current
fiscal year.
In connection with obtaining additional Municipal Contracts and Municipal
Permits, the Company is typically required to post a performance bond with the
municipality to guarantee the removal of the shelter upon the termination of the
Municipal Contract. Under the Credit Facility, the Company is entitled to
obtain up to $300,000 in irrevocable letters of credit to satisfy future bonding
requirements. The Company has funded all such bonding requirements to date with
operating capital, and as such all $300,000 is available for use for such
bonding. As of the date hereof, the Company believes that the letter of credit
portion of the Credit Facility is sufficient to satisfy the Company's needs for
at least 12 months.
COMPARISON OF NINE-MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
Sales for the nine-month period ended September 30, 1997 (the "Current
Period") decreased by $372,993, or 6%, in comparison to the nine-month period
ended September 30, 1996 (the "Prior Period"). This decrease in sales in the
Current Period is attributable to a significant decline in revenues during the
Current Quarter. As previously mentioned, the Company's litigation with Van
Wagner has affected national sales significantly, resulting in lower panel
occupancy.
Cost of sales decreased by $204,148 or 5% over the Prior Period primarily
due to decreases of $58,233, or 4% in City fees, and a decrease of $149,117, or
10% in advertising commissions and expenses.
The Company's gross profit percentage decreased from 28% in the Prior
Period to 26% in the Current Period. The decline of $168,845 or 10% is the
result of lower occupancy and decreases in national account sales.
An increase of $748,393 was incurred in operating expenses during the
Current Period principally due to increases in Professional fees of $284,765, an
increase in bad debts of $132,341 written off during the second quarter, and a
general increase in other operating expenses of $122,202.
Due to the significant increase in operating expenses coupled with a
decline in sales of $372,993 during the Current Period, the Company posted a
$996,156 net loss, before income taxes, during the Current Period compared to a
$78,918 net loss before taxes during the Prior Period.
42
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES AS OF SEPTEMBER 30, 1997
As of September 30, 1997, the Company's current liabilities exceeded its
current assets by $989,823. Approximately $670,000 of the current liabilities
consists of the current portion of indebtedness owed to Dr. Allan Ross, a
Director of the Company. The Company's working capital position worsened by
$527,169 during the Current Period, primarily the result of increases in
operating expenses of $748,393. Cash flows from operating activities decreased
by $754,379 over the Prior Period, principally due to the net loss of $996,156
for the Current Period. The Company utilized $480,000 against the credit line
facility during the Current Quarter to fund current operations. The Company
believes that it will be able to fund its current working capital needs from (1)
cash generated from operating activities and (2) draws against the credit line
facility.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of December 15, 1997,
with respect to the beneficial ownership of Common Stock of the Company by (i)
the Chief Executive Officer and each Named Executive Officer (as defined under
"Executive Compensation" below), (ii) each nominee for director of the Company,
(iii) all directors and executive officers of the Company as a group and (iv)
all those known to the Company to be beneficial owners of more than five percent
of the Company's voting securities.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (2)
---------------------------------
NAME AND ADDRESS OF NUMBER PERCENT
BENEFICIAL OWNER (1) ---------------- --------------
- --------------------------------
<S> <C> <C>
Scott A. Kraft................ 20,704(3) 2.1%
Allan L. Ross, M.D............ 140,584 14.9%
Mark R. Boileau............... 528 *
William M. Slater............. 5,456 *
All directors and executive
officers as a group........... 167,272(4) 17.4%
</TABLE>
________________
* Represents less than 1%
(1) The address for all persons listed is c/o Metro Display Advertising, Inc.
at 15265 Alton Parkway, Suite 100, Irvine, California 92168.
(2) Nature of beneficial ownership of securities is direct and arises from sole
voting power and sole investment power, subject to community property laws
where applicable.
(3) Includes 20,000 shares subject to options exercisable by Mr. Kraft within
60 days.
(4) Includes 20,000 shares subject to options exercisable within 60 days.
CHANGE IN CONTROL
Approval of Proposal 1 of this Proxy Statement will result in a change in
control of the Company as described in Proposal 1. See "The Merger - The Merger
Agreement."
43
<PAGE>
INTERESTS OF CERTAIN PERSONS; RELATED TRANSACTIONS
TRANSFER OF ASSETS TO BSON AND THE DISTRIBUTION OF BSON STOCK
Prior to the Closing, Metro will transfer certain assets to BSON and will
declare a pro rata dividend on the shares of Common Stock of Metro pursuant to
which Metro will distribute to Metro's shareholders, as a spinoff, all shares of
BSON. See "The Merger - Transfer of Assets to BSON and Distribution of BSON
Stock."
LITIGATION RESPONSIBILITY AGREEMENT
As a condition precedent to the Merger, the Company and BSON will enter
into a Litigation Responsibility Agreement pursuant to which the Company will
assign to BSON, and BSON will assume from the Company, the Company's rights and
obligations under lawsuits currently pending against the cities of Victorville
and Laguna Hills. See "Litigation - Litigation with Municipalities." Each of the
lawsuits concerns the required removal of advertising and a breach of
municipality obligations, and seeks monetary damages. In the event a
counterclaim or cross-claim is asserted in one of the assigned lawsuits, the
Company has the option to assume the rights and obligations under such lawsuit
whereupon BSON will relinquish all rights and obligations under such lawsuit.
44
<PAGE>
INTERIM SALES REPRESENTATION AGREEMENT
The Company and Eller entered into an Interim Sales Representation
Agreement effective as of May 27, 1997, pursuant to which the Company has
engaged Eller as its representative for leasing advertising space to national
and regional advertisers. Pursuant to the agreement, Eller has assigned a Sales
Manager to provide exclusive sales and marketing services to the Company and to
report solely to, and be subject to the direction and control of, the Company's
chief executive officer. In exchange for Eller's services, the Company has
agreed to pay to Eller a 10% commission on the gross amount of sales placed by
Eller through an advertising agency and a 15% commission on the gross amount of
sales placed by Eller directly with the advertiser and without an agency
commission. The agreement will terminate upon the consummation of the Merger,
within sixty days of written notice that a condition precedent to the Merger has
failed and the Merger will not be consummated, or in no event later than
November 27, 1997. Pursuant to an amendment to the Interim Sales Representation
Agreement dated December 29, 1997, the parties are continuing to perform under
the terms of the agreement until the earlier of a Closing of the Merger or March
31, 1998.
CONSULTING AGREEMENT
As an inducement to the Company to enter into the Merger Agreement, Eller
will enter into a Consulting Agreement with BSON on or prior to Closing,
pursuant to which BSON will provide Eller with such consulting services as Eller
from time to time will reasonably request in connection with Eller's efforts to
expand its bus shelter advertising business within the greater Los Angeles
metropolitan area, and in connection with procuring contracts and permits for
that purpose.
In compensation for providing such consulting services, Eller will pay to
BSON (a) on March 31, 2002 and March 31, 2005, a sum equal to 50% of an amount
determined as follows: 50% of the gross revenue actually received by Eller, any
subsidiaries and any affiliates during the immediately preceding calendar year
from the sale of advertising on bus shelter display faces operated by Eller in
the greater Los Angeles metropolitan area, minus $10,796,000.00, and (b) on
March 31, 2003 and March 31, 2004, a sum equal to 50% of an amount determined as
follows: the gross revenue actually received by Eller, any subsidiaries and any
affiliates during the immediately preceding calendar year from the sale of
advertising on bus shelter display faces operated by Eller in the greater Los
Angeles metropolitan area, minus $21,592,000. The Consulting Agreement will
terminate on March 31, 2004, subject to the final payment on March 31, 2005.
CREDIT FACILITY AND LOANS
On January 6, 1994, Dr. Allan Ross, a director of the Company, entered into
a loan agreement with the Company (the "Loan Agreement") pursuant to which Dr.
Ross provided the Company with a line of credit of up to $1,200,000 and made
available to the Company irrevocable letters of credit in an amount up to
$300,000 (together, the "Credit Facility"). The initial rate for monies
borrowed under the Loan Agreement was 8% per annum; the interest rate under the
Loan Agreement adjusts semi-annually on February 1 and August 1 to a rate that
is equal to 5% above the Federal Discount Rate in effect on the date of
adjustment. The Company is obligated to make equal monthly payments of
principal and interest, which is adjusted when additional amounts are borrowed
and/or the interest rate changes, such that the Company will fully repay the
outstanding balance of all amounts borrowed under the Loan Agreement by the end
of December 2000. In addition to the foregoing interest rate, the Company has
agreed to pay Dr. Ross, on each anniversary of the Loan Agreement, an amount
equal to 2% of the difference between the amount borrowed under the Credit
Facility and the Credit Facility limit. In consideration for entering into the
Loan Agreement, the Company agreed to grant Dr. Ross the opportunity, through
stock options or otherwise, to purchase 4% of the capital stock (40,000 shares)
of the Company for a total purchase price of $100.
45
<PAGE>
The amounts borrowed under the Loan Agreement are secured by a first lien
on all of the assets of the Company, including without limitation, all of the
capital stock of BSON owned by the Company, and all accounts receivable,
inventory, cash, contract rights and other tangible and intangible assets. The
Loan Agreement also contains certain negative covenants pursuant to which the
Company, among other things, is prohibited from declaring any dividend on its
Common Stock, from repurchasing or redeeming its shares, from incurring
additional indebtedness other than in the usual course of its business, from
further encumbering its assets, from selling its assets, or from expending more
than $300,000 for acquisition of fixed or capital assets during any year. A
breach of any of the foregoing covenants would cause all principal and interest
to be immediately due and payable. The Company borrowed $800,000 under its line
of credit. The Company had not made any of the monthly payments that it was
required to make pursuant to the Loan Agreement until September 1995 when the
Company and Dr. Ross restructured the Credit Facility. The Company and Dr. Ross
entered into a Loan Modification in September 1995 that required the Company to
pay Dr. Ross $360,000 which was treated as a reduction of principal, reduced the
Company's loan payments to $20,000 per month, increased the number of shares of
the Company's Common Stock that Dr. Ross would receive upon exercise of his
option from 40,000 to 80,000 and made the loan current as of September 1, 1995.
The Company has paid the $20,000 monthly payments since the date of such loan
modification. In late 1995, Dr. Ross exercised the options to purchase 80,000
shares of Common Stock of the Company.
The Board of Directors believes that the terms of the Loan Agreement are,
at this time, the most favorable terms that are reasonably available to the
Company. Ordinarily, credit facilities are extended to companies by
institutional lenders based on both the Company's prior operations and on the
amount of assets that can be used as collateral. Unfortunately, because (i) the
Company was in bankruptcy a few years ago, (ii) its business has changed
significantly (i.e., the Company no longer generates cash from the sale of bus
----
stop shelters to investors), and (iii) its inventory and other assets are not
preferred types of collateral, the Company does not believe that it could
currently obtain a similar loan from an unaffiliated lender. If the Company's
financial condition and credit worthiness improve and, as a result, additional
loan opportunities become available, the Company will evaluate replacing the
Loan Agreement with a credit facility from an unaffiliated lender.
The Company and Baron LLC, of which Dr. Ross is the managing partner and
majority owner, entered into a Memorandum of Understanding effective as of
January 1, 1994 pursuant to which the Company can accrue the $11,237.17 monthly
payments owed by the Company to Baron LLC. Such accrued amounts bear interest
at the same interest rate as the Credit Facility, and Baron LLC can demand at
any time that the accrued amounts be paid in full over 48 equal monthly payments
of principal and interest.
Upon consummation of the Merger, the Surviving Corporation, as a wholly-
owned subsidiary of Eller, will remain obligated under the loans described
above.
EMPLOYMENT AGREEMENTS
BSON and Scott A. Kraft entered into an employment agreement dated
September 29, 1997 pursuant to which Mr. Kraft will serve BSON as President and
Chief Executive Officer beginning on the date on which the Company completes the
Merger with Eller and EMS and concluding three years thereafter. Mr. Kraft will
receive as compensation a salary of $3,000 per week, with minimum increases in
accordance with the Consumer Price Index on January 1, 1999 and each year the
employment agreement is in effect. In addition, Mr. Kraft will receive a bonus
of $2,500 for any month in which the gross advertising revenue for such month
exceeds by 10% the gross advertising revenue for such month of the prior year,
and bonuses increasing from $40,000 to $70,000 (less any monthly bonuses paid)
for the years ending December 31, 1998 through December 31, 2001 for any such
calendar year in which the gross advertising revenue for the year exceeds by 10%
the gross advertising revenue for the
46
<PAGE>
preceding year. Mr. Kraft will also receive a stock option to purchase 35,000
shares of BSON common stock at an exercise price of $3.10 per share, which
option is exercisable at any time prior to twelve months following the
expiration of the employment contract. BSON will also provide certain benefits,
including $6,000 per month for disability insurance. BSON may terminate the
employment contract for cause. If BSON terminates the employment contract
without cause, Mr. Kraft will remain entitled to the compensation set forth in
the employment agreement for the remainder of the term or a minimum of one year.
BONUSES
After the Closing of the Merger, the Company intends to pay bonuses to
certain key employees of the Company, including the executive officers. The
Company has not yet determined the persons who will receive bonuses nor the
amounts of such bonuses, but the aggregate amount of all such bonuses will not
exceed $800,000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and persons who own
more than 10% of a registered class of the Company's equity securities, to file
with the SEC initial reports of the Company. Officers, directors and greater
than ten percent shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, to its
officers, directors and greater than 10% shareholders complied with all
applicable Section 16(a) filing requirements; except that Scott A. Kraft failed
to file a Form 4 with respect to the receipt of 20,000 stock options in December
1996 and he failed to file a subsequent Form 5 for such transaction; and Allan
L. Ross failed to file a Form 5 for the fiscal year ended December 31, 1995
relating to the failure to file a Form 4 for the exercise of 80,000 stock
options in 1995.
47
<PAGE>
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended December 31, 1996,
1995 and 1994, compensation awarded to, or earned by, the Company's Chief
Executive Officer and each of its other most highly compensated executive
officers earning at least $100,000 in salary and bonus at December 31, 1996 (the
"Named Executive Officers"):
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation (1) Awards
--------------------------------- ------------
Fiscal Year Securities
Name and Ended Underlying
Principal Position December 31, Salary Bonus Options
- ------------------------ ------------ -------- ------- ------------
<S> <C> <C> <C> <C>
Scott A. Kraft 1996 $115,103 0 0
President and Chief 1995 111,293 0 20,000
Executive Officer 1994 75,000 $25,000 0
</TABLE>
_____________
(1) The compensation described in this table does not include medical
insurance, retirement benefits and other benefits received by the foregoing
executive officer which are available generally to all employees of the
Company and certain perquisites and other personal benefits received by the
foregoing executive officer of the Company, the value of which did not
exceed the lesser of $50,000 or 10% of the executive officer's cash
compensation in the table.
STOCK OPTION PLAN
In February 1995, the Board of Directors approved and in April 1995, the
Company's shareholders ratified the Company's 1995 Incentive Stock Option Plan
(the "Option Plan"). The Option Plan provides for the grant of options to
officers, directors and other key employees of the Company to purchase up to an
aggregate of 200,000 shares of Common Stock. The Option Plan is to be
administered by the Stock Option Committee of the Board of Directors, which has
complete discretion to select the optionee and to establish the terms and
conditions of each option, subject to the provisions of the Option Plan. The
Stock Option Committee has not yet been appointed. Options granted under the
Option Plan may be "incentive stock options" as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified
options, and will be designated as such.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of the Company's Common Stock as of the date of grant
(110% of the fair market value if the grant is to an employee who owns more than
10% of the total combined voting power of all classes of capital stock of the
Company). The Code currently limits to $100,000 the aggregate value of Common
Stock that may be acquired in any one year pursuant to incentive stock options
under the Option Plan or any other option plan adopted by the Company. Non-
qualified options may be granted under the Option Plan at an exercise price less
than the fair market value of the Common Stock on the date of grant. Non-
qualified options also may be granted without regard to any restrictions on the
amount of Common Stock that may be acquired pursuant to such options in any one
year.
In general, upon termination of employment of an optionee, all options
granted to such person which were not exercisable on the date of such
termination would immediately terminate, and any options that are exercisable
would terminate 90 days (one year in the case of termination by reason of
disability) following termination of employment except in the event of
termination for cause. In the event of termination for cause, all unexercised
options would terminate 30 days after termination.
48
<PAGE>
Options may not be exercised more than ten years after the grant (five
years after the grant if the grant is an incentive stock option to any employee
who owns more than 10% of the total combined voting power of all classes of
capital stock of the Company). Options granted under the Option Plan are not
transferable and may be exercised only by the respective grantees during their
lifetime or by their heirs, executors or administrators in the event of death.
Under the Option Plan, shares subject to canceled or terminated options are
reserved for subsequently granted options. The number of options outstanding
and the exercise price thereof are subject to adjustment in the case of certain
transactions such as mergers, recapitalization, stock splits or stock dividends.
The Option Plan is effective for ten years, unless sooner terminated or
suspended.
STOCK OPTION GRANTS AND EXERCISES
No stock options were granted to Named Executive Officers in 1996.
AGGREGATED OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1996
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at
Held at Fiscal Year-End ($) Fiscal Year End ($)
------------------------------ ----------------------------
Shares Acquired Value
Name On Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ---------------- ------------ ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Scott A. Kraft 0 0 20,000 0 $(1) $0
President and Chief
Executive Officer
</TABLE>
(1) The exercise price of Mr. Kraft's stock options is $5.00 per share. There
currently is, however, no public trading market for the Company's Common
Stock. Information regarding any market value of the Company's Common
Stock is unavailable. The Company did not obtain a professional valuation
of the Common Stock for the Merger. The actual Merger Consideration
allocable to each share of Common Stock does not represent a market
valuation of the Common Stock because of the particularities involved in
the Merger, such as potential reductions and adjustments to the Cash
Consideration or Escrow Consideration, contribution of the Capital
Contribution, and exclusion of BSON and the assets to be transferred to
BSON.
EMPLOYMENT AGREEMENTS
Effective March 4, 1995, the Company entered into a three year employment
agreement with Scott Kraft. Pursuant to such agreement, Mr. Kraft is currently
serving as President and Chief Executive Officer of the Company at a salary of
$2,433 per week. In addition, Mr. Kraft received stock options to purchase
20,000 of Common Stock at $5.00 per share. Such options must be exercised
within twelve months of the expiration of the employment agreement. This
agreement will terminate upon consummation of the Merger. Mr. Kraft has agreed
to exercise his options prior to the Merger.
On September 29, 1997, BSON and Scott A. Kraft entered into an employment
agreement pursuant to which Mr. Kraft will serve BSON as President and Chief
Executive Officer beginning on the date on which the Company completes the
Merger with Eller and EMS and concluding three years thereafter. Mr. Kraft will
receive as compensation a salary of $3,000 per week, with minimum increases in
accordance with the Consumer Price Index on January 1, 1999 and each year the
employment agreement is in effect. In addition, Mr. Kraft will receive a bonus
of $2,500 for any month in which the gross advertising revenue for such month
exceeds by 10% the gross advertising revenue for such month of the prior year,
and bonuses increasing from $40,000 to $70,000 (less any monthly bonuses paid)
for the years ending December 31, 1998 through December 31, 2001 for any such
calendar year in which the gross advertising revenue for the year exceeds by 10%
the gross advertising revenue for the preceding year. Mr. Kraft will also
receive a stock option to purchase 35,000 shares of BSON common stock at an
exercise price of $3.10 per share, which option is exercisable at any time prior
to twelve
49
<PAGE>
months following the expiration of the employment contract. BSON will
also provide certain benefits, including $6,000 per month for disability
insurance. BSON may terminate the employment contract for cause. If BSON
terminates the employment contract without cause, Mr. Kraft will remain entitled
to the compensation set forth in the employment agreement for the remainder of
the term or a minimum of one year.
BONUSES
After the Closing of the Merger, the Company intends to pay bonuses to
certain key employees of the Company, including the executive officers. The
Company has not yet determined the persons who will receive bonuses nor the
amounts of such bonuses, but the aggregate amount of all such bonuses will not
exceed $800,000.
COMPENSATION OF DIRECTORS
The directors did not receive any compensation from the Company during the
past fiscal year, and directors are not currently compensated for services
rendered to the Company as directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1996, the Board of Directors had
no compensation committee and decided all matters of executive compensation as a
full Board of Directors. The members of the Board of Directors for the last
completed fiscal year were Allan L. Ross, M.D., William M. Slater and Mark R.
Boileau. There are no interlocks between the Company and other entities
involving the Company's executive officers and board members who served as
executive officers or board members of other entities.
LITIGATION
LITIGATION WITH VAN WAGNER
The Company's pending litigation with the Van Wagner Group is described in
"The Merger -Van Wagner Litigation and Disputes."
LITIGATION WITH MUNICIPALITIES
On November 15, 1995, the Company filed a complaint in the Eighth Judicial
District Court of Nevada against the City of Las Vegas. The Company had entered
into a contract with the City of Las Vegas in July 1985 pursuant to which the
Company was obligated to provide bus stop shelters. As such contract approached
its expiration date of July 1995, the Company and the City of Las Vegas
disagreed as to who would own the shelters upon expiration of such contract.
They agreed to extend the contract while the Company filed an action for
declaratory relief to determine their respective rights with respect to the
shelters. In September, 1996, the City and the Company agreed to a settlement
of their dispute, providing for the Company to retain ownership of the shelters
and the award of a new long-term contract.
On November 15, 1995, the Company filed a complaint against the City of
Victorville as well as two of its City Council members and one member of the
staff. The Company alleges that the City of Victorville objected to certain
advertising by the UFCW Union relating to a labor dispute with a food
supermarket chain located within the City of Victorville. When the Company did
not remove this advertising at the request of the City of Victorville, the
Company claims that the City of Victorville
50
<PAGE>
retaliated by canceling the Company's contract to operate the shelters. The
Company has requested damages in excess of $1,000,000 as well as punitive
damages, attorneys' fees and court costs.
In December 1995, the Company filed a complaint against the City of Laguna
Hills. The complaint alleges that (i) in January 1995, the City required the
Company to execute a Memorandum of Understanding that would prohibit certain
types of advertising and (ii) in September 1995, the City of Laguna Hills
decided to eliminate all bus stop shelters and require their removal. The
Company alleges that such actions violated its First Amendment rights and
deprived it of its civil rights. The Company seeks as relief from the court the
following: (i) a declaration that certain actions of the City of Laguna Hills
are unconstitutional, (ii) compensation for the elimination of the bus shelters,
(iii) an injunction against the enforcement of its decision to do away with the
bus shelters and against the Memorandum of Understanding limiting the content of
advertising and (iv) $250,000 in general damages, plus attorneys' fees and costs
accrued.
On or about May 23, 1996, the Company filed a complaint against the City of
Lake Forest. The complaint alleges that the City, first demanded that certain
advertising copies be removed by the multiple companies doing business in the
City and later decided to award an exclusive franchise to one of the Company's
competitors. The Company alleges that this action was taken in part to
retaliate due to the Company's refusal to remove certain advertising copies
which the City found objectionable and to obtain better content control overall.
The complaint seeks that the Company be given the right to continue to do
business in the City of Lake Forest. Furthermore, damages of at least
$1,000,000 are sought, as well as the recovery of attorney fees and court costs,
which have accrued.
LITIGATION WITH BUSLINE MEDIA
On June 27, 1996, via an order issued by the United States District Court
of Northern California approving a Settlement Plan between Busline Media and its
former shelter owners, the Company acquired a 25% interest in a newly formed
corporation, Bay Area Transit Shelters ("BATS"), with operations in Northern
California. The 25% ownership was in exchange for debt obligations to the
Company for cash and services rendered by the Company to the Busline Media
Receivership as delineated in the Settlement Plan approved by the court on June
20, 1996. The Company assigned its interest (200,000 shares of BATS stock) to
BSON on March 7, 1997. BSON, through an agreement with Bay Area Transit
Shelters, will operate and manage the affairs of the new corporation, expanding
its operations into this newly acquired advertising market.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
There currently is no public trading market for the Company's securities,
although the Company has approximately 1,195 holders of record of its Common
Stock.
The Company has not, to date, paid any cash dividends upon its Common
Stock. The Company has no current plans to pay dividends on its Common Stock
and intends to retain earnings, if any, for working capital purposes. Any
future determination as to the payment of dividends on the Common Stock will
depend upon the results of operations, capital requirements, the financial
condition of the Company and other relevant factors.
AVAILABLE INFORMATION
THE COMPANY IS PROVIDING HEREWITH A COPY OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO.
51
<PAGE>
INDEPENDENT ACCOUNTANTS
The financial statements of the Company as of December 31, 1996 included in
this Proxy Statement have been audited by Peck & Lopez, independent auditors, as
stated in their report appearing herein. The financial statements of the
Company for the years ended December 31, 1995 and 1994 included in this Proxy
Statement have been audited by Stinchfield & Co., independent auditors.
A representative of Peck & Lopez will be available at the Annual Meeting of
Shareholders and will be given the opportunity to make a statement, if desired,
and to respond to appropriate questions.
Effective as of December 10, 1996, the Company advised Stinchfield & Co.,
its prior certifying accountants, that it had decided to change accounting
firms. Stinchfield & Co.'s report dated April 12, 1996 does not contain an
adverse opinion or a disclaimer of opinion, and was not qualified as to
uncertainty, audit scope or accounting principles. The decision to change
accounting firms was made by the Company's Board of Directors. There have been
no disagreements with Stinchfield & Co. on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure
during the fiscal year ending December 31, 1995 or the subsequent interim period
preceding the dismissal of Stinchfield & Co., which disagreements, if not
resolved to the satisfaction of Stinchfield & Co., would have caused it to make
reference to the subject matter of the disagreement in connection with its
reports.
Effective as of December 10, 1996, the Company engaged Peck & Lopez as its
new certifying accountants. The Company has not, during the fiscal years ended
December 31, 1995 and December 31, 1996 or the subsequent interim period,
consulted with Peck & Lopez regarding the application of accounting principles
to a specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's financial statements.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those set forth above. However, if other matters come
before the Annual Meeting, it is the intention of the persons named in the
accompanying Proxy to vote the shares represented by the Proxy in accordance
with the recommendations of the Board of Directors on such matters, and the
discretionary authority to do so is included in the Proxy.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders are advised that any shareholder proposal, including
nominations to the Board of Directors, intended for consideration at next year's
Annual Meeting must be received by the Company no later than September 7, 1998,
to be included in the proxy material for next year's Annual Meeting. It is
recommended that shareholders submitting proposals direct them to the Secretary,
Metro Display Advertising, Inc., 15265 Alton Parkway, Irvine, California 92168,
and utilize certified mail, return-receipt requested in order to ensure timely
delivery. If the Merger is consummated, the Company's Annual Meeting of
Shareholders for 1998 will not occur, other than as a subsidiary of Eller.
52
<PAGE>
THE SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN PROMPTLY THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
William M. Slater
Secretary
January 5, 1998
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Annual Financial Data of the Company
Report of Peck & Lopez......................................................... F-1
Report of Stinchfield & Co..................................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1995...................... F-3
Consolidated Statements of Operations for Years Ended
December 31, 1996 and 1995.............................................. F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996 and 1995........................................ F-5
Consolidated Statements of Cash Flows for Years Ended
December 31, 1996 and 1995.............................................. F-6
Notes to Consolidated Financial Statements..................................... F-8
Interim Financial Data of the Company
Condensed Consolidated Balance Sheets at September 30,
1997 (Unaudited) and December 31, 1996.................................. F-17
Condensed Consolidated Statements of Operations for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited)........................... F-18
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited)........................... F-19
Notes to Condensed Consolidated Financial Statements (Unaudited)............... F-20
Annual Financial Data of BSON
Report of Peck & Lopez......................................................... F-21
Balance Sheets at December 31, 1996 and 1995................................... F-22
Statements of Income for the Years Ended December 31, 1996 and 1995............ F-23
Statements of Stockholders' Equity for the Years Ended
December 31, 1996 and 1995.............................................. F-24
Statements of Cash Flows for the Years Ended December 31, 1996 and 1995........ F-25
Notes to Financial Statements.................................................. F-27
Interim Financial Data of BSON
Condensed Balance Sheets at September 30, 1997 (Unaudited)
and December 31, 1996................................................... F-32
Condensed Statements of Operations for the Year Ended
December 31, 1996 and Nine Months Ended
September 30, 1997 and 1996 (Unaudited)................................. F-33
Condensed Statements of Cash Flows for the Year Ended
December 31, 1996 and Nine Months Ended
September 30, 1997 and 1996 (Unaudited)................................. F-34
Notes to Condensed Financial Statements (Unaudited)............................ F-35
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Pro Forma Condensed Financial Statements
Introduction............................................................................ F-36
Metro Display Advertising, Inc.
Pro Forma Condensed Balance Sheet as of September 30, 1997....................... F-37
Pro Forma Condensed Statement of Loss for the Year Ended December 31, 1996....... F-38
Pro Forma Condensed Statement of Loss for the Nine Months
Ended September 30, 1997.................................................. F-39
Bustop Shelters of Nevada, Inc.
Pro Forma Condensed Balance Sheet as of September 30, 1997....................... F-40
Pro Forma Condensed Statement of Income for the Year Ended December 31, 1996..... F-41
Pro Forma Condensed Statement of Loss for the Nine Months
Ended September 30, 1997.................................................. F-42
Notes to Pro Forma Condensed Financial Statements....................................... F-43
</TABLE>
<PAGE>
[LETTERHEAD OF PECK & LOPEZ]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Metro Display Advertising, Inc.
We have audited the accompanying consolidated balance sheets of Metro Display
Advertising, Inc., and subsidiary as of December 31, 1996 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended. The consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audits. The financial statements
of Metro Display Advertising, Inc. and subsidiary as of December 31, 1995, were
audited by other auditors whose report dated April 15, 1996, expressed an
unqualified opinion on those statements.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Metro Display
Advertising, Inc. and the subsidiary as of December 31, 1996, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Peck & Lopez
Certified Public Accountants
Newport Beach, CA
May 20, 1997
F-1
<PAGE>
[LETTERHEAD OF STINCHFIELD & CO.]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Metro Display Advertising, Inc.
We have audited the accompanying consolidated balance sheets of Metro Display
Advertising, Inc., (a California corporation) and subsidiary as of December 31,
1995 and 1994, and the related consolidated statements of income, stockholder's
equity, and cash flows for the years then ended. The consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Metro Display
Advertising, Inc. and the subsidiary as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
STINCHFIELD & CO.
Certified Public Accountants
/s/ STINCHFIELD & CO.
Laguna Niguel, CA
April 12, 1996
F-2
<PAGE>
METRO DISPLAY ADVERTISING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31,
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 74,947 $ 225,524
Accounts receivable, net of allowances
of $143,539 and $117,775 (Note 1) 989,804 1,377,859
Prepaid expenses and other assets (Note 7) 226,844 39,330
Deferred taxes - current portion (Note 5) 196,000 235,000
----------- -----------
TOTAL CURRENT ASSETS 1,487,595 1,877,713
----------- -----------
PROPERTY AND EQUIPMENT: (Note 1 and 4)
Office furniture and equipment 343,472 282,230
Leasehold improvements 24,280 24,280
Machinery and equipment 82,588 70,500
Vehicles 463,470 397,305
Bus stop shelters 7,892,783 7,813,534
----------- -----------
8,806,593 8,587,849
Less: accumulated depreciation (2,633,934) (1,821,408)
----------- -----------
6,172,659 6,766,441
----------- -----------
OTHER ASSETS:
Performance bond deposits (Note 3) 734,722 694,722
Deferred taxes - less current portion (Note 5) 3,052,000 2,924,000
Other assets (Note 2 and 6) 186,528 102,033
----------- -----------
3,973,250 3,720,755
----------- -----------
$11,633,504 $12,364,909
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4) $ 693,065 $ 751,622
Accounts payable and other accrued liabilities 269,746 372,237
Due to municipalities 596,052 757,569
Due to joint venture (Note 6) 87,538 -
Accrued payroll and related taxes 77,781 57,954
Advanced payments 226,067 214,118
----------- -----------
TOTAL CURRENT LIABILITIES 1,950,249 2,153,500
LONG TERM DEBT - LESS CURRENT PORTION (Note 4) 833,785 1,320,848
COMMITMENTS AND CONTINGENCIES (Note 7 and 8)
STOCKHOLDERS' EQUITY:
Preferred stock, 1,000,000 shares authorized,
no par value, no shares issued
Common stock, 5,000,000 shares authorized,
no par value, 823,030 shares issued 9,504,532 9,504,532
Accumulated deficit (655,062) (613,971)
----------- -----------
8,849,470 8,890,561
----------- -----------
$11,633,504 $12,364,909
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
METRO DISPLAY ADVERTISING, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
------------ ------------
<S> <C> <C>
REVENUES: $7,571,268 $7,437,210
COST OF SALES:
City fees (Note 7) 1,455,660 1,805,548
Advertising commissions and expenses 2,192,772 2,101,507
Installation and maintenance 1,099,513 913,700
Other costs 198,675 73,188
---------- ----------
TOTAL COST OF SALES 4,946,620 4,893,943
---------- ----------
GROSS PROFIT 2,624,648 2,543,267
---------- ----------
OPERATING EXPENSES:
Wages and related expenses 589,873 558,124
Professional fees 163,425 67,083
Bad debts 62,814 72,500
Office expenses 218,769 192,314
Depreciation (Note 1) 923,299 911,332
Other operating expenses 501,685 493,397
---------- ----------
TOTAL OPERATING EXPENSES 2,459,865 2,294,750
---------- ----------
INCOME FROM OPERATIONS 164,783 248,517
---------- ----------
OTHER INCOME (EXPENSE):
Gain (Loss) on sale of assets (73,897) 2,060
Investment loss (27,882) -
Interest income 20,638 11,033
Other income 11,474 45,688
Interest expense (224,407) (180,301)
---------- ----------
TOTAL OTHER INCOME (EXPENSE) (294,074) (121,520)
INCOME (LOSS) BEFORE TAXES (129,291) 126,997
PROVISION (BENEFIT) FOR INCOME TAXES (NOTE 5) (88,200) 47,000
---------- ----------
NET INCOME (LOSS) $ (41,091) $ 79,997
========== ==========
NET INCOME (LOSS) PER SHARE $ (0.04) $ 0.09
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 983,030 906,364
========== ==========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
METRO DISPLAY ADVERTISING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 and 1995
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
========== =========== ==========
<S> <C> <C> <C>
Balance at January 1, 1995 $4,027,358 $(693,968) $3,333,390
Net Income - 79,997 79,997
Exchange for Minority Interest 19,139 - 19,139
Stock Options (Note 9) 79,880 - 79,880
Deferred tax adjustment (Note 5) 5,378,155 - 5,378,155
---------- --------- ----------
Balance at January 1, 1996 $9,504,532 $(613,971) $8,890,561
Net Income - (41,091) (41,091)
---------- --------- ----------
Balance at December 31, 1996 $9,504,532 $(655,062) $8,849,470
========== ========= ==========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
METRO DISPLAY ADVERTISING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 7,919,931 $ 7,044,080
Cash paid to suppliers and employees (6,841,155) (6,280,225)
Interest received 20,638 11,798
Interest paid (217,993) (139,787)
Franchise tax paid (800) (800)
----------- -----------
Net cash provided by operating activities 880,621 635,066
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 158,646 -
Purchase of property and equipment (570,063) (361,251)
Performance bond deposits (71,500) (25,000)
Investment in joint venture (20,000) -
Proceeds from joint venture 87,538 -
Loans made (72,052) -
----------- -----------
Net cash used in investing activities (487,431) (386,251)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans - 360,000
Payments on notes payable (543,767) (504,559)
----------- -----------
Net cash used in financing activities (543,767) (144,559)
----------- -----------
NET INCREASE IN CASH (150,577) 104,256
CASH AT BEGINNING OF YEAR 225,524 121,268
----------- -----------
CASH AT END OF YEAR $ 74,947 $ 225,524
=========== ===========
SUPPLEMENTAL DISCLOSURE SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Purchase of vehicle in exchange for debt $ 30,000 $ -
=========== ===========
Issuance of common stock options in exchange
for loan and debt service costs $ - $ 79,880
=========== ===========
Increased deferred tax asset due to a change
in tax attributes (Note 5) $ - $ 3,205,200
=========== ===========
Decrease deferred tax liability due to a
change in tax attributes (Note 5) $ - $ 2,172,155
=========== ===========
Exchange of minority interest for common stock
of parent $ - $ 19,139
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
METRO DISPLAY ADVERTISING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL SCHEDULE
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
---------- ----------
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
NET INCOME (LOSS) $ (41,091) $ 79,997
ADJUSTMENTS TO RECONCILE TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Depreciation 923,299 911,332
(Gain) loss on sale of assets 73,897 (2,060)
Investment loss in joint venture 27,882 -
(Increase) decrease in accounts receivable 388,055 (370,568)
(Increase) in other receivables (19,029) -
Decrease (increase) in other assets (150,810) 44,373
(Decrease) increase accounts payable &
accrued liabilities (282,444) (155,237)
Increase in advance payments 11,949 4,250
(Increase) decrease in deferred tax (89,000) 46,200
Increase in accrued interest 6,413 41,279
Bonds paid to cities 31,500 35,500
---------- ----------
Net cash provided by operating activities $ 880,621 $ 635,066
========== ==========
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
METRO DISPLAY ADVERTISING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Metro Display Advertising, Inc., "the Company", incorporated in
California in 1984. The Company has agreements with municipalities
to install and maintain bus stop shelters and benches. Revenue is
generated by renting advertising space on the installed shelters.
The shelters are owned, installed and maintained by the Company and
are currently located in approximately 63 municipalities throughout
Southern California. The Company also rents advertising space in
shelters located in Clark County, Nevada, including the City of Las
Vegas, through its wholly owned subsidiary.
Advertising sales for the Company's shelters are effected primarily
by a national outdoor advertising agency under an advertising and
marketing agreement dated January 1993. The marketing agreement
provides the Company with both regional and national advertisers.
The marketing agreement term expires March 1999, subject to an
automatic five-year renewal. Approximately 80 percent of the
Company's sales are generated through this marketing and sales
agreement.
The Company and its wholly owned subsidiary Continental Shelters,
Inc., a California Corporation, files a consolidated voluntary
petition for relief under Chapter 11 of Title 11 of the United
State Code on January 22, 1992. Continental Shelters, Inc., in the
business of manufacturing and installing bus stop shelters
exclusively for the Company, ceased operations February of 1992.
All assets and liabilities of the subsidiary were transferred to
the Company. On November 19, 1993, the Bankruptcy Court confirmed
the Company's plan of reorganization, effective January 7, 1994.
The accounting for the bankruptcy and the forgiveness of debt and
adjustment to assets were recorded on a fresh start reporting basis
for the year ending December 31, 1993.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements present the consolidated
accounts of the Company and its wholly-owned subsidiary, Bustop
Shelters of Nevada, Inc., a Nevada Corporation. All significant
inter-company transactions and balances have been eliminated.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were assumed in
preparing the financial statements.
REVENUE RECOGNITION
The Company's revenue is derived primarily from providing
advertising services under contract arrangements. The Company
prepares its financial statements on the accrual basis of
accounting in accordance with generally accepted accounting
principles. Advertising revenue is recognized when earned, and
expenses are recorded when incurred.
F-8
<PAGE>
METRO DISPLAY ADVERTISING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company has adopted the allowance for doubtful accounts method of
accounting for losses from uncollectible accounts. Under this method,
an allowance is provided based on historical experience and
management's evaluation of outstanding accounts receivable at the end
of each year.
PROPERTY AND EQUIPMENT
Property and equipment were re-stated at their estimated fair market
value at January 7, 1994, the effective date of the Company's plan of
reorganization, in accordance with fresh-start reporting. For years
ended December 31, 1995 and 1996, property and equipment are
depreciated over the remaining estimated useful lives, generally one
to seven years, of the related assets using the straight-line method.
The bus stop shelters are depreciated over ten years, using the
straight-line method.
NET INCOME PER SHARE
Net income per common and common share equivalent share is computed on
the basis of the weighted average number of common shares outstanding
and dilutive common equivalent shares. Common stock equivalent shares
include dilutive stock options.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, investments,
and trade accounts receivable. Investments that potentially subject
the Company to credit risk include investments in joint ventures and
partnerships. Future changes in economic conditions may make the
investments less valuable. A majority of the Company's trade
receivables are derived from sales generated by a national outdoor
advertising agency to whom payments are made. The national outdoor
advertising agency then remits collections to the Company on a monthly
basis. Amounts due from the national outdoor agency accounted for 70
percent and 72 percent of accounts receivables at December 31, 1996
and 1995 respectively. The company performs ongoing credit evaluations
of its customers' financial condition and limits its exposure to
accounting losses by limiting the amount of credit extended whenever
deemed necessary and generally does not require collateral. Reserves
are maintained for potential credit losses, and such losses have been
within management's expectations.
The carrying amounts reported on the balance sheet for cash,
investments, and trade accounts receivable approximate fair value.
INCOME TAXES
Effective January 1, 1993, the Company adopted statement of Financial
Accounting Standards No. 109, the objective of accounting for income
taxes is to recognize the amount of current and deferred taxes payable
(or refundable) at the date of the financial statements as measured by
the provision of the enacted tax laws.
Deferred income taxes have been provided for the future tax effects of
temporary differences between financial reporting and tax basis of
assets, liabilities, and operating loss carryforwards.
F-9
<PAGE>
METRO DISPLAY ADVERTISING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
RECLASSIFICATIONS
Certain reclassifications to the year-end 1995 income statement have
been made to conform to classifications adopted in 1996. These
classifications have no effect on net income.
LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), Accounting for the
impairment for Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. The adoption of SFAS 121 did not have a material impact on
the results of operations or financial position of the Company.
NOTE 2 - OTHER ASSETS
The Company entered into an agreement with Busline Media to provide
administrative services and support. Busline Media is a sole
proprietorship that became subject to a receivership by order of the
United States District Court on or about July 1993. As part of this
agreement, the Company agreed to make operating expense advances to
Busline Media. As of December 31, 1996, the Company advanced $156,410
to Busline Media. On June 20, 1996, the plan was approved, a new
corporation called Bay Area Transit Shelters, Inc. ("BATS"), was
formed.
The Company is expected to receive 25 percent of the new issue common
stock of BATS in exchange for services and the amount owed. The stock
will be issued May 1997.
NOTE 3 - PERFORMANCE BOND DEPOSITS
The Company, under terms of its agreements with various municipalities,
is required to maintain either cash bond deposits or certificates of
deposit pledged to municipalities, which guarantee the removal of
shelters. The bond deposits are required for the duration of the
agreements, generally five to ten years.
NOTE 4 - LONG TERM DEBT
The long term debt at December 31, 1996, consists of the following:
<TABLE>
<CAPTION>
Current Long Term Total
------- --------- --------
<S> <C> <C> <C>
Notes payable to bank, secured by
vehicle, payable in monthly
installments of $944, including
interest at 8 percent maturing
October 1999. $ 9,378 $ 19,224 $ 28,602
Note payable to National Display
Advertising, Inc., secured by 124
bus stop shelters, payable in
monthly installments of $8,067,
including interest at 10%,
maturing January 1997. 7,992 0 7,992
</TABLE>
F-10
<PAGE>
METRO DISPLAY ADVERTISING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 4 - LONG TERM DEBT, CONTINUED
<TABLE>
<CAPTION>
Current Long Term Total
-------- --------- ---------
<S> <C> <C> <C>
Unsecured note payable to National
Display Advertising, Inc. payable in
monthly installments of $12,000,
including interest at 7 percent
maturing November 1997. See Note 7
for contingent liability relating to
this loan. $119,361 $ 0 $ 119,361
Line of credit provided by a related
party. See Note 9 and 10. 201,022 116,913 317,935
Note payable secured by corporate
assets. Interest only at 10 percent
for four years, thereafter monthly
installments of $9,130, maturing
September, 2003. See Note 9 and 10. 0 326,351 326,351
Settlement of a loan guarantee,
payable in monthly installments of
$3,000, discounted at 7% maturing
December, 1997. 33,913 0 33,913
Trade and other miscellaneous
obligations, payable in monthly
installments of $1,689, discounted
at 7 percent, maturing, January, 1998. 19,486 1,679 21,165
Trade obligations due to a related
party payable in monthly installments
of $11,237, discounted at 7 percent
through January 1998. See Note 10
for additional information. 211,133 312,438 523,571
Obligations to municipalities, payable
in monthly installments of $7,944,
discounted at 7 percent, maturing 1998
and 1999. 90,780 57,180 147,960
-------- -------- ----------
$693,065 $833,785 $1,526,850
======== ======== ==========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
<S> <C>
1998 $281,922
1999 118,530
2000 184,562
2001 82,260
2002 and after 166,511
--------
$833,785
========
</TABLE>
F-11
<PAGE>
METRO DISPLAY ADVERTISING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 5 - INCOME TAXES
Under SFAS 109, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes and operating loss carryforwards.
The tax effects of significant items composing the Company's net
deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax liabilities:
Difference between book and tax basis property $ (260,995) $ (311,913)
----------- -----------
Deferred tax assets:
Doubtful accounts allowance not currently
deductible 54,847 36,648
Shareholder interest not currently deductible 28,214 46,268
Federal net operating loss carryforward 4,062,155 4,060,815
State net operating loss carryforward 564,332 508,957
Other 16,207 34,985
----------- -----------
4,725,755 4,687,673
----------- -----------
Valuation allowance (1,216,760) (1,216,760)
----------- -----------
Net deferred tax asset $ 3,248,000 $ 3,159,000
=========== ===========
Reflected in the consolidated balance sheets as:
Current deferred asset-net $ 196,000 $ 235,000
Noncurrent deferred asset-net 3,052,000 2,924,000
----------- -----------
Net deferred tax asset $ 3,248,000 $ 3,159,000
=========== ===========
</TABLE>
The income tax components of the provision (benefit) for income taxes
consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
----------- ----------
<S> <C> <C>
Current:
State $ 800 $ 800
Deferred:
Federal (28,500) 38,000
State (60,500) 8,200
-------- -------
$(89,000) $46,200
-------- -------
$(88,200) $47,000
======== =======
</TABLE>
The (benefit) provision for income taxes differs from the amount
computed by applying the statutory federal rate to pretax income
as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
----------- ----------
<S> <C> <C>
Expected income tax (benefit) provision at
The U.S. federal statutory rate (35)% 35 %
Adjust inter-company activity (31)% -
(Benefit) provision for state income taxes,
net of federal effect (6)% 6 %
Other 4 % (4)%
-------- -------
(Benefit) provision for income tax (68)% 37 %
======== =======
</TABLE>
F-12
<PAGE>
METRO DISPLAY ADVERTISING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 5 - INCOME TAXES, CONTINUED
The Company has a federal net operating loss carryforward of
approximately $12 million and a state net operating loss carryforward
of approximately $6 million. The federal net operating loss
carryforward expires beginning 2004 through 2009 and the state net
operating loss carryforwards expires beginning 2000 through 2004.
Due to additional information regarding the bankruptcy and treatment
of the leasehold creditors, the Company, on the advice of counsel, is
applying Internal Revenue Code Section 108 and 382. Based upon the
rule of Section 108, the exchange of stock for debt by the
corporation does not result in any recognition of income for the
Company, therefore there is no reduction in tax attributes from that
exchange. Section 382 requires the Company to reduce it's net
operating loss carryforwards by 50 percent. This resulted in an
increase to deferred tax asset of $3,205,200 and a decrease to
deferred tax liability of $2,172,955 providing a total tax benefit of
$5,378,155 to common stock for year ended December 31, 1995.
NOTE 6 - JOINT VENTURE AND PARTNERSHIP
On November 18, 1994, the Company and a national outdoor advertising
agency entered into a joint venture agreement (the "Joint Venture")
for the purpose of seeking additional franchises and/or licenses for
bus shelters advertising from municipalities throughout the United
States, and to manage, develop, and operate all such bus stop
shelters and sell advertising space in connection therewith. The
national outdoor advertising agency made an initial capital
contribution of $30,000 to the Joint Venture while the Company will
contribute all fabricated shelters and shelter parts needed by the
Joint Venture. Under a separate marketing agreement, the agency also
provides sales support for the Company.
The Joint Venture agreement provides for a fifteen-year term, subject
to earlier termination by mutual consent of the parties, a default in
the performance of obligations under the joint venture agreement
which is not cured within the time to cure such default or the
insolvency of one of the parties. The Joint Venture will include all
new agreements with municipalities and will also include the
assignment of the Company's agreement with the city of La Habra to
the extent that such city permits the assignment of such contract.
All other territories under pre-existing contracts that the Company
has entered into shall remain outside of the Joint Venture. The
investment value at December 31, 1996 is $4,051. The amount due to
the joint venture at December 31, 1996 is $87,538 for revenue
collected on behalf of the joint venture.
In October 1996, the Company entered into a partnership, which is
primarily involved in operating, maintaining, and managing aircraft
transportation used by each partner. The investment represents a 50
percent ownership in the partnership. The investment value in the
partnership - income tax basis at December 31, 1996 is $26,067.
The Company uses the equity method of accounting for joint venture
and partnership investments.
F-13
<PAGE>
METRO DISPLAY ADVERTISING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 7 - COMMITMENTS
The future minimum rental payments required by operating leases that
have non-cancelable lease terms beyond the balance sheet date are as
follows:
<TABLE>
<CAPTION>
Fiscal year ended
-----------------
<S> <C>
1997 $ 92,478
1998 42,654
1999 23,604
2000 3,934
--------
Total $162,670
========
</TABLE>
The Company's lease for the office in Irvine, California expires June
30, 1998. The subsidiary's lease for an office in Las Vegas, Nevada
expires February 29, 2000. The Company also rents storage space on a
month-to-month basis.
Rent expense was approximately $101,708 and $95,410 for the years
ended December 31, 1996 and 1995 respectively.
The Company had entered into an agreement, pursuant to the terms of a
settlement and compromise in the plan of reorganization, with
National Display Advertising, Inc. Under the terms of the settlement,
the debt will increase by at most $500,000 if $250,000 is not paid
against principal on or before January 1998. The Company is currently
making payments and expects to have the loan paid off prior to its
maturity date to avoid any further liability. See Note 4 for loan
balance.
MUNICIPAL CONTRACTS
The Company and its subsidiary have contracts with various
municipalities in southern California and Nevada for the installation
and maintenance of bus shelters. Many of these contracts provide
exclusive rights to operate advertising bus shelters, while others
allow other bus shelter companies to share the area.
The municipalities receive a guarantee fee and/or a percentage of the
advertising revenue depending on the respective agreement. The
contracts extend three to ten years, with options to renew upon
approval by both parties. The guaranteed payments for the next five
years, according to current contracts, are approximately $1,410,000
per year. The guaranteed payments, included in city fees, for year
ended December 31, 1996, were approximately $1,400,000. Included in
prepaid expenses and other assets are overpayments of $113,046 to
Clark County for payments made for the periods 1994 through 1996.
NOTE 8 - CONTINGENCIES
The Company was the plaintiff in an action filed against the City of
Las Vegas, filed November 15, 1995. The Company provided shelters
located in the City pursuant to a contract entered into July 3, 1985.
As the contract approached its expiration, the City asserted the
contract provided for the City's retention and ownership of the
shelters. The Company asserted the shelters remained property of the
Company, and could be removed by the Company in the event the
contract was not renewed. The matter was resolved through
negotiations that resulted in the signing of a long-term contract. A
stipulation order dismissing the case without prejudice was filed on
September 20, 1996.
F-14
<PAGE>
METRO DISPLAY ADVERTISING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTES 8 - CONTINGENCIES, CONTINUED
On December 20, 1995, the Company filed a complaint against the City
of Laguna Hills. The complaint involves the Company's bus shelters
located in the City of Laguna Hills. The lawsuit was commenced as a
result of action taken by the City on or about September 12, 1995,
to eliminate all bus shelters within the City. As a result of this
decision, the City has made demand that the Company remove all of
its shelters immediately.
On May 23, 1996, the Company filed a complaint against the City of
Lake Forest. The complaint was based on the decision by the City of
Lake Forest to terminate the Company's operations within the City
and to grant an exclusive franchise to a competitor of the Company.
On November 15, 1995, the Company filed a complaint against the City
of Victorville, two of its City Council members and one member of
the staff. This dispute arose as a result of efforts by the City of
Victorville to have the Company's bus shelters removed after a
dispute regarding the Company's display of advertising by the
U.F.C.W. Union. The City officials strongly objected to the Union's
advertisement and placed pressure on the Company to remove such
advertising.
The Company presently believes that the resolution of these matters
will not have a material adverse effect on its financial condition
as reported in the accompanying financial statements.
NOTE 9 - STOCK OPTION PLANS
In February 1995, the Board of Directors approved and in April 1995,
the Company's shareholders ratified the Company's 1995 Incentive
Stock Option Plan (the "Option Plan"). The Option Plan provides for
the grant of options to officers, directors and other key employees
of the Company to purchase up to an aggregate of 200,000 shares of
Common Stock. The Option Plan is to be administered by the Stock
Option committee of the Board of Directors, which has complete
discretion to select the optionee and to establish the terms and
conditions of each option, subject to the provisions of the Option
Plan.
As of December 31, 1996, the board of directors of the Company
authorized the President to be eligible to participate in an
incentive stock option plan. Under the Plan, the Company has offered
the President an option to purchase 20,000 shares of common stock
for a price of $5 per share. This option expires December 31, 1999
one year after expiration of his employment contract.
In 1994, as part of an exclusive sales representation agreement, a
national outdoor advertising agency received an option to purchase
20,000 shares of new issue common stock at $21 per share. The option
expires January 1, 1998.
In 1994, as part of the terms of acquiring a line of credit, a
related party received an option to purchase 40,000 shares of new
issue common stock for a total purchase price of $100. On September
1, 1995, the original loan agreement was modified, increasing the
option to include a total of 80,000 shares of new issue common
stock. A discount of $40,000 was recorded for the additional 40,000
stock options to be amortized over the life of the loan. See Note 10
for additional details of the credit line.
F-15
<PAGE>
METRO DISPLAY ADVERTISING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 9 - STOCK OPTION PLANS, CONTINUED
As part of the terms of acquiring a $360,000 loan, a related party
received an option to purchase 40,000 shares of new issue common stock
for a total price of $100. A discount of $39,880 was recorded for the
40,000 stock options to be amortized over the life of the loan. The
option expires December 31, 1998.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company had an unsecured debt of $523,571, discounted at 7
percent, payable to a corporate stockholder in 48 equal installments.
The Company has not made the scheduled payments on the stockholder's
unsecured debt as required by the agreement. The Company modified the
loan agreement on April 11, 1996 to allow the Company to either accrue
or pay the stated monthly amount. Accrued payments will accrue
interest at the 8 percent, adjusted on February 1, and August 1, each
year, to 5 percent above the Federal Discount Rate. Stockholder can
demand payments, start at any time, to be paid over 48 equal
installments. Total interest payments were $67,423 for the year ended
December 31, 1996.
The same stockholder has provided a credit line to finance the
implementation of the bankruptcy plan. On January 7, 1994, the
effective date of the plan, $1,200,000 was made available, secured by
all the assets of the Company, subordinate only to holders of secured
debt. Interest is at an initial rate of 8 percent, adjusted on
February 1 and August 1, each year, to 5 percent above the Federal
Discount Rate. On September 1, 1995, the Company modified the terms of
its original agreement and repayment terms. Principal and interest are
payable in monthly installments of $20,000, due on the first day of
each month, until paid in full. The amount utilized at December 31,
1996 was $317,935. Total payments made including interest and
principal were $240,000 for the year ended December 31, 1996.
As part of the loan modification dated September 1, 1995, the same
stockholder loaned the Company $360,000, secured by all the assets of
the Company payable interest only at 10 percent for four years,
thereafter, monthly installments of $9,130 until paid in full. Total
interest payments were $36,000 for the year ended December 31, 1996.
NOTE 11 - SUBSEQUENT EVENT
Subsequent to year-end, the Company signed a memorandum of
understanding with a buyer for the sale of all of the Company's stock.
The transaction is subject to stockholder ratification and completion
of due diligence procedures to be performed by the buyer.
F-16
<PAGE>
METRO DISPLAY ADVERTISING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
(unaudited)
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 74,947 $ (5,254)
Accounts Receivable, net of allowance 989,604 991,788
Prepaid expenses 226,844 11,704
Deferred taxes-current portion 196,000 196,000
----------- -----------
TOTAL CURRENT ASSETS 1,487,595 1,194,238
PROPERTY AND EQUIPMENT, net 6,172,659 5,659,278
OTHER ASSETS
Performance bond deposits 734,722 734,722
Deferred taxes - less current portion 3,052,000 3,052,000
Other assets 186,528 263,906
----------- -----------
TOTAL OTHER ASSETS 3,973,250 4,050,628
----------- -----------
$11,833,504 $10,904,144
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $ 693,065 $ 865,079
Accounts payable and accrued liabilities 1,031,117 1,168,982
Advance payments 226,067 150,000
----------- -----------
TOTAL CURRENT LIABILITIES 1,950,249 2,184,051
LONG-TERM DEBT, net of current portion 833,785 866,459
SHAREHOLDERS' EQUITY
Preferred stock, 1,000,000 shares authorized,
no par value, no shares issued
Common stock, 5,000,000 shares authorized,
no par value, 943,030 shares issued 9,504,532 9,504,832
Accumulated deficit (655,062) (1,651,218)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 8,849,470 7,853,614
----------- -----------
$11,633,504 $10,804,144
=========== ===========
</TABLE>
See accompanying Notes to condensed Financial Statements
F-17
<PAGE>
METRO DISPLAY ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1997
------------ -------------
<S> <C> <C>
SALES $5,819,975 $5,446,982
COST OF SALES
City fees 1,566,425 1,508,192
Advertising commissions and expenses 1,489,241 1,340,124
Installation and maintenance 1,010,378 1,072,935
Other costs 142,439 83,084
---------- ----------
TOTAL COSTS OF SALES 4,208,483 4,004,335
GROSS PROFIT 1,611,492 1,442,647
---------- ----------
OPERATING EXPENSES
Sales and administration 1,014,621 1,680,186
Depreciation 714,840 705,657
Interest expense 105,223 92,778
Other expense (income) (144,274) (39,818)
---------- ----------
TOTAL OPERATING EXPENSES 1,690,410 2,438,803
---------- ----------
NET INCOME (LOSS) $ (78,918) $ (996,156)
========== ==========
COMMON SHARES OUTSTANDING 906,364 990,030
NET INCOME (LOSS) PER SHARE (0.09) (1.01)
========== ==========
</TABLE>
See accompanying Notes to Condensed Financial Statements
F-18
<PAGE>
METRO DISPLAY ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1997
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Loss) $ (78,918) $(996,156)
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 714,840 705,657
Changes in operating assets and liabilities:
Accounts receivable (248,127) (1,984)
Prepaid expenses and other 27,607 215,140
Deposits and other - -
Accounts payable and accrued expenses 344,348 61,798
Loss on sale of assets (20,916) -
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 738,834 (15,545)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (354,678) (192,276)
Advances to joint venture (40,570) (77,378)
Performance bond deposits (36,500) -
--------- ---------
NET CASH PROVIDED FROM INVESTING ACTIVITIES (431,748) (269,654)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal reductions of long term debt (398,410) (275,302)
Loan proceeds - 480,000
Proceeds from stock options granted - 300
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (398,410) 204,998
NET INCREASE (DECREASE) IN CASH (91,324) (80,201)
Beginning of period 225,524 74,947
--------- ---------
CASH, End of period $ 134,200 $ (5,264)
========= =========
</TABLE>
See accompanying Notes to Condensed Financial Statements
F-19
<PAGE>
METRO DISPLAY ADVERTISING, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Introduction.
The accompanying condensed consolidated financial statements of Metro
Display Advertising, Inc. (the "Company") have been prepared without audit
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the consolidated financial statements and related footnotes
included in the Company's latest Annual Report on Form 10-KSB. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company as of
September 30, 1997, and the statements of its operation and its cash flows for
the three month periods ended September 30, 1997 and 1996 have been included.
The results of operations for interim periods are not necessarily indicative of
the results, which may be realized for the full year.
F-20
<PAGE>
[LETTERHEAD OF PECK & LOPEZ]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Bustop Shelters of Nevada, Inc.
We have audited the accompanying balance sheets of Bustop Shelters of Nevada
Inc., as of December 31, 1996 and 1995, and the related statements of income,
stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 1996. The financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with genrally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated 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 Bustop Shelters of Nevada, Inc.
as of December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Peck & Lopez
Certified Public Accountants
/s/ Peck & Lopez
Newport Beach, CA
May 20, 1997
F-21
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
1996 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 16,173 $ 31,025
Accounts receivable, net of allowances
of $67,300 and $62,425 249,055 250,148
Prepaid expenses and other assets 131,472 6,307
Deferred taxes 17,000 -
----------- ----------
TOTAL CURRENT ASSETS 413,700 287,480
----------- ----------
PROPERTY AND EQUIPMENT:
Office furniture and equipment 37,224 18,735
Leasehold improvements 21,068 21,068
Machinery and equipment 29,688 15,967
Vehicles 68,687 35,644
Bus stop shelters 676,240 334,520
----------- ----------
Less: accumulated depreciation 832,907 425,934
(181,838) (119,932)
----------- ----------
651,069 306,002
----------- ----------
OTHER ASSETS:
Performance bond deposits 129,022 129,022
Other assets 67,317 87,186
----------- ----------
196,339 216,208
----------- ----------
$ 1,261,108 $ 809,690
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 81,757 $ 70,070
Due to municipalities 109,078 -
Accrued payroll and related taxes 24,172 16,571
Advanced payments 47,136 28,858
Due to parent - 390,390
Deferred taxes - 105,800
----------- ----------
TOTAL CURRENT LIABILITIES 262,143 611,689
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, no par value, 2500 shares authorized
issued and outstanding 10,000 10,000
Additional paid-in capital 838,545 -
Retained earnings 150,420 188,001
----------- ----------
998,965 198,001
----------- ----------
$ 1,261,108 $ 809,690
=========== ==========
</TABLE>
See notes to financial statements
F-22
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
ASSETS
Years Ended December 31,
1996 1995
---------- ----------
<S> <C> <C>
REVENUES: $ 2,320,593 $ 2,005,210
COST OF SALES:
City fees 598,281 611,019
Shelter lease fees 431,640 431,640
Advertising commissions and expenses 461,145 424,790
Installation and maintenance 295,921 119,445
Other costs 18,850 3,628
----------- ----------
TOTAL COST OF SALES 1,805,837 1,590,522
----------- ----------
GROSS PROFIT 514,756 414,688
----------- ----------
OPERATING EXPENSES:
Wages and related expenses 153,999 133,018
Bad debts 41,924 39,800
Office expenses 79,436 54,408
Depreciation and amortization 103,166 56,400
Other operating expenses 203,836 114,787
----------- ----------
TOTAL OPERATING EXPENSES 582,361 398,413
----------- ----------
INCOME FROM OPERATIONS (67,605) 16,275
----------- ----------
OTHER INCOME (EXPENSE):
Investment income 6,067 -
Interest income 4,575 3,275
Other income 629 13,737
Interest expense (47) (270)
----------- ----------
TOTAL OTHER INCOME (EXPENSE) 11,224 16,742
----------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES (56,381) 33,017
PROVISION FOR INCOME TAXES (18,800) 11,800
----------- ----------
NET INCOME $ (37,581) $ 21,217
=========== ==========
</TABLE>
See notes to financial statements
F-23
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 2,500 $ 10,000 $ - $ 166,784 $ 176,784
Net Income 21,217 21,217
------- -------- ---------- ---------- ----------
Balance, January 1, 1996 2,500 $ 10,000 $ - $ 188,001 $ 198,001
Additional paid-in capital 838,545 838,545
Net Income (37,581) (37,581)
------- -------- ---------- ---------- ----------
Balance, December 31, 1996 2,500 $ 10,000 $ 838,545 $ 150,420 $ 998,965
======= ======== ========== ========== ==========
</TABLE>
See notes to financial statements
F-24
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 2,298,669 $ 1,934,197
Cash paid to suppliers and employees (1,891,076) (1,796,574)
Interest received 4,575 3,275
Interest paid (47) (270)
----------- -----------
Net cash provided by operating activities 412,121 140,628
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (406,973) (136,212)
Investment in partnership (20,000) -
Payments made on loans from parent (127,500) -
Loans from parent 127,500 -
----------- -----------
Net cash used in investing activities (426,973) (136,212)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable - (3,325)
----------- -----------
Net cash used in financing activities - (3,325)
----------- -----------
NET INCREASE (DECREASE) IN CASH (14,852) 1,091
CASH AT BEGINNING OF YEAR 31,025 29,934
----------- -----------
CASH AT END OF YEAR $ 16,173 $ 31,025
=========== ===========
SUPPLEMENTAL DISCLOSURE SCHEDULE OF
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt to parent contributed to capital $ 734,545 $ -
Current year tax liability due to parent
contributed to capital 104,000 -
----------- -----------
$ 838,545 $ -
=========== ===========
</TABLE>
See Notes to financial statements
F-25
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
STATEMENTS OF CASH FLOWS - SUPPLEMENTAL SCHEDULE
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
----------- ------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
NET INCOME (LOSS) $ (37,581) $ 21,217
ADJUSTMENTS TO RECONCILE TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Depreciation and amortization 103,166 56,400
Investment income (6,067) -
Decrease (increase) in accounts receivable 1,093 (38,020)
Decrease (increase) in other assets (120,489) 3,338
(Decrease) increased accounts payable &
accrued liabilities 128,366 (10,087)
(Decrease) increase in advance payments 18,278 (6,930)
(Decrease) increase in deferred taxes (122,800) 11,800
(Decrease) increase in due to parent 344,155 102,910
Tax liability due to parent contributed to capital 104,000 -
---------- ----------
Net cash provided by operating activities $ 412,121 $ 140,628
========== ==========
</TABLE>
See notes to financial statements
F-26
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Bustop Shelters of Nevada, Inc., "the Company", incorporated in
Nevada in 1987. The Company is a wholly owned subsidiary of Metro
Display Advertising, Inc. "the Parent". The Company has agreements
with municipalities to install and maintain bus stop shelters and
benches. Revenue is generated by renting advertising space on the
installed shelters. The Company rents advertising space in shelters
located in Clark County, the City of Las Vegas and City of North Las
Vegas.
Advertising sales for the Company's shelters are effected primarily by
in-house sales representatives. In addition, a national outdoor
advertising agency, under advertising and marketing agreements dated
January 1993, produces sales of advertising space. The marketing
agreement provides the Company with both regional and national
advertisers. The marketing agreement term expires March 1999, subject
to an automatic five-year renewal. The amount of revenue generated
from this agreement is immaterial in relation to total revenues.
The Company's activities are tied to the Las Vegas area. Accordingly,
the Company's customers are all located in this same geographic area
and the Company is at risk to changes in the economic climate of the
region.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses. Actual
results could vary from the estimates that were assumed in preparing
the financial statements.
REVENUE RECOGNITION
The Company's revenue is derived primarily from providing advertising
services under contract arrangements. The company prepares its
financial statements on the accrual basis of accounting in accordance
with generally accepted accounting principles. Advertising revenue is
recognized when earned, and expenses are recorded when incurred.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company has adopted the allowance for doubtful accounts method of
accounting for losses from uncollectible accounts. Under this method,
an allowance is provided based on historical experience and
management's evaluation of outstanding accounts receivable at the end
of each year.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment are
depreciated over the estimated useful lives, generally one to seven
years of the related assets using the straight-line method. The bus
stop shelters are depreciated over ten years, using the straight-line
method.
F-27
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
NET INCOME PER SHARE
Net income per common share is computed on the basis of the weighted
average number of common shares outstanding.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, investments,
and trade accounts receivable. Investments that potentially subject the
Company to credit risk include investment in partnership. Future
changes in economic conditions may make the investments less valuable.
The company performs ongoing credit evaluations of its customers'
financial condition and limits its exposure to accounting losses by
limiting the amount of credit extended whenever deemed necessary and
generally does not require collateral. Reserves are maintained for
potential credit losses, and such losses have been within management's
expectations.
The carrying amounts reported on the balance sheet for cash,
investments, and trade accounts receivable and current liabilities
approximate fair value.
INCOME TAXES
Effective January 1, 1993, the Company adopted statement of Financial
Accounting Standards No. 109, the objective of accounting for income
taxes is to recognize the amount of current and deferred taxes payable
(or refundable) at the date of the financial statements as measured by
the provision of the enacted tax laws.
Deferred income taxes have been provided for the future tax effects of
temporary differences between financial reporting and tax basis of
assets, liabilities, and operating loss carryforwards.
LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), Accounting for the
Impairment for Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. The adoption of SFAS 121 did not have a material impact on
the results of operations or financial position of the Company.
NOTE 2 - PREPAID EXPENSES
The Company's prepaid expenses consist principally of prepaid city
fees. These prepaid fees are the result of an audit conducted by Clark
County of Nevada. The period under review was for a three-year period
from 1994 to 1996, which resulted in a credit due to the company for
overpayments, made during this period. The amount included in prepaid
expenses and other assets at December 31, 1996, is $113,046.
F-28
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 3 - OTHER ASSETS
The Company, under terms of its agreements with three municipalities,
is required to maintain either cash bond deposits or certificates of
deposit pledged to municipalities, which guarantee the removal of
shelters. The bond deposits are required for the duration of the
agreements, generally five to ten years.
In October 1996, the Company entered into a partnership, which is
primarily involved in operating, maintaining, and managing aircraft
transportation used by each partner. The investment represents a 50
percent ownership in the partnership. The investment value in the
partnership - income tax basis at December 31, 1996 is $26,067. The
Company uses the equity method of accounting for partnership
investments.
NOTE 4 - INCOME TAXES
Under SFAS 109, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes and operating loss carryforwards.
The tax effects of significant items composing the Company's net
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Deferred tax liabilities:
Difference between book and
tax basis property $ (9,400) $ (151,100)
--------- ----------
Deferred tax assets:
Doubtful accounts allowance not
currently deductible 23,380 13,930
Federal net operating loss
carryforward - 25,570
Other 3,020 5,800
--------- ----------
26,400 45,300
--------- ----------
Net deferred tax asset (liability) $ 17,000 $ (105,800)
========= ==========
</TABLE>
The income tax components of the provision for income taxes consist of
the following:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Current $ 104,000 $ -
Deferred (122,800) 11,800
--------- ----------
$ (18,800) $ 11,800
========= ==========
</TABLE>
The Company files a consolidated income tax return with its Parent
company. The tax liability for the year ended December 31, 1996 will be
offset by the Parent's net operating loss carryforwards. The Company's
liability for taxes due to the Parent has been contributed to capital
by the parent. See Note 8.
F-29
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 5 - COMMITMENTS
The future minimum rental payments required by operating leases that
have noncancelable lease terms beyond the balance sheet date are as
follows:
<TABLE>
<CAPTION>
Fiscal year ended
-----------------
<S> <C>
1997 $ 38,178
1998 23,604
1999 23,604
2000 3,934
--------
Total $ 89,320
========
</TABLE>
The Company's lease for the office in Las Vegas, Nevada expires
February 29, 2000. The Company also rents storage space on a month-to-
month basis.
Rent expense was approximately $52,136 and $29,543 for the years ended
December 31, 1996 and 1995 respectively.
MUNICIPAL CONTRACTS
The Company has contracts with three municipalities in Nevada for the
installation and maintenance of bus shelters. Many of these contracts
provide exclusive rights to operate advertising bus shelters, while
others allow other bus shelter companies to share the area.
The municipalities receive a guarantee fee and/or a percentage of the
advertising revenue depending on the respective agreement. The
contracts extend three to ten years, with options to renew upon
approval by both parties. The guaranteed payments for the next five
years, according to current contracts, are approximately $620,000 per
year. The guaranteed payments, included in city fees, for year ended
December 31, 1996, were approximately $598,281 net of overpayments.
Included in prepaid expenses and other assets are overpayments of
$113,046 to Clark County for payments made for the periods 1994 through
1996. See Note 2.
NOTE 6 - CONTINGENCIES
The Company was the plaintiff in an acting filed against the City of
Las Vegas, filed November 15, 1995. The Company provided shelters
located in the City pursuant to a contract entered into July 3, 1985.
As the contract approached its expiration, the City asserted the
shelters remained property of the Company, and could be removed by the
Company in the event the contract was not renewed. The matter was
resolved through negotiations that resulted in the signing of a long-
term contract. A stipulation order dismissing the case without
prejudice was filed on September 20, 1996.
NOTE 7 - MINORITY INTEREST
In 1995, all of the Company's minority shareholders' exchanged 300
shares of common stock for 5004 shares of common stock of the Parent.
.
F-30
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company leases its bus stop shelters from its Parent. As a result,
the Company is dependent upon the Parent for its use of the
Parent's shelters, and for other assets to sustain its operations.
In 1996, the Parent restructured the Company's debt by forgiving all
debt owed to the Parent. The Parent treated this amount as additional
capital contribution and the Company recorded the transaction as
additional paid in capital. The total capital contribution amounted to
$838,545, $734,545 debt and $104,000 tax liability for the year ended
December 31, 1996.
F-31
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
(unaudited)
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 16,173 $ 14,837
Accounts Receivable, net of allowance 249,055 289,327
Prepaid expenses 131,472 7,104
Deferred taxes-current portion 17,000 17,000
------------ ------------
TOTAL CURRENT ASSETS 413,700 328,266
PROPERTY AND EQUIPMENT, net 651,069 699,127
OTHER ASSETS
Performance bond deposits 129,022 129,022
Other assets 67,317 82,708
------------ ------------
TOTAL OTHER ASSETS 196,339 191,728
------------ ------------
$1,261,108 $1,219,123
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 190,835 $ 193,764
Accrued liabilities 71,308 21,606
------------ ------------
TOTAL CURRENT LIABILITIES 262,143 215,370
SHAREHOLDERS' EQUITY
Common stock, 2,500 shares authorized,
no par value, 2,500 shares issued 10,000 10,000
Additional paid in capital 838,545 838,545
Retained earnings 150,420 155,208
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 998,955 1,003,753
------------ ------------
$1,261,108 $1,219,123
============ ============
</TABLE>
See accompanying Notes to condensed Financial Statements
F-32
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
Year ended Nine Months Ended
December 31, September 30,
1996 1996 1997
------------ ----------- -----------
<S> <C> <C> <C>
SALES $2,320,593 $1,728,411 $1,759,482
COST OF SALES
City fees 598,281 486,333 482,029
Shelter lease fees 431,640 323,730 --
Advertising commissions
and expenses 461,145 260,647 250,429
Installation and maintenance 295,921 277,397 423,375
Other costs 18,850 22,570 29,393
---------- ---------- ----------
TOTAL COST OF SALES 1,805,837 1,370,677 1,185,226
GROSS PROFIT 514,756 357,734 574,256
---------- ---------- ----------
OPERATING EXPENSES
Sales and administrative 479,195 300,997 507,894
Depreciation 103,166 46,418 70,549
Other expense(income) (11,224) (11,803) (8,975)
---------- ---------- ----------
TOTAL OPERATING EXPENSES 571,137 335,612 569,468
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (56,381) 22,122 4,788
---------- ---------- ----------
BENEFIT FOR INCOME TAXES (18,800) -- --
---------- ---------- ----------
NET INCOME (LOSS) $ (37,581) $ 22,122 $ 4,788
========== ========== ==========
</TABLE>
See accompanying Notes to Condensed Financial Statements
F-33
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Year ended Nine Months Ended
December 31, September 30,
1996 1996 1997
------------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 2,298,689 $ 1,724,034 $ 1,723,813
Cash paid to suppliers and employees (1,891,076) (1,457,457) (1,610,914)
Interest received 4,578 4,575 4,372
Interest paid (47) - -
------------- ----------- -----------
Net cash provided from operating
activities 412,121 271,152 117,271
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (406,973) (300,685) (118,607)
Investment in partnership (20,000) - -
Payments made on loans from parent (127,500) - -
Loans from payment 127,500 - -
------------- ----------- -----------
Net cash used in investing
activities (428,973) (300,685) (118,607)
CASH FLOWS FROM FINANCING ACTIVITIES - - -
------------- ----------- -----------
NET DECREASE IN CASH (14,852) (29,533) (1,336)
CASH AT BEGINNING OF YEAR 31,025 31,025 16,173
------------- ----------- -----------
CASH AT END OF YEAR $ 16,173 $ 1,492 $ 14,837
============= =========== ===========
SUPPLEMENTAL DISCLOSURE SCHEDULE OF
NON-CASH INVESTING AND FINANCING ACTIVITIES
Debt to parent contributed capital $ 734,545 $ - $ -
Current year tax liability due to
parent contributed to capital 104,000 - -
------------- ----------- -----------
$ 838,545 $ - $ -
============= =========== ===========
</TABLE>
See accompanying Notes to Condensed Financial Statements
F-34
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 1. Interim Financial Information
-----------------------------
The accompanying condensed financial statements of Bustop Shelters of
Nevada, Inc. for the nine-month periods ended September 30, 1996 and 1997 are
unaudited. In the opinion of management, all statements have been prepared on
the same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Bustop Shelters of Nevada, Inc. as of September 30,
1997, and the statement of its operations and its cash flows for the nine month
periods ended September 30, 1997 and 1996. The results of operation for interim
periods are not necessarily indicative of the results, which may be realized for
the full year.
F-35
<PAGE>
METRO DISPLAY ADVERTISING, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENTS
INTRODUCTION
------------
On September 8, 1997, Metro Display Advertising, Inc. (the "Company")
entered into an agreement and plan of merger (the "Merger Agreement") with Eller
Media Company, a Delaware Corporation ("Eller") and EMS, Inc. ("EMS") a
California corporation and wholly owned subsidiary of Eller. The Merger
Agreement provides that, subject to the approval of the Merger Agreement by the
shareholders of the Company and satisfaction of certain other conditions, EMS
will be merged with and into the Company, the separate corporate existence of
EMS will cease and the Company will continue as the surviving corporation and
wholly owned subsidiary of Eller. Upon consummation of the Merger Agreement,
each outstanding share of common stock of the Company will be converted into the
right to receive, subject to the number of shares and net reductions,
$35,800,000 divided by the number of outstanding shares of common stock, and a
pro rata share of an amount to be distributed from an escrow fund (initially
$5,000,000).
Prior to the closing date, and subject to approval and adoption of the
Merger Agreement by the Company's shareholders, the Company will transfer the
following assets to Bustop Shelters of Nevada, Inc., the capital stock of Bay
Area Transit Shelters, Inc. ("BATS") owned by the Company, Monterey/Salinas
Transit Agreement by and between Monterey/Salinas Transit and a joint venture
consisting of the Company and BATS, accounts receivable as of the closing date,
certain vehicles, computers and software, and office equipment and furniture,
and 536 bus shelters. In addition, prior to the closing date, and subject to
adoption of the Merger Agreement by the Company's shareholders, the Company will
declare a pro rata dividend on shares of Common Stock of the Company pursuant to
which the Company will distribute to the Company's shareholders shares of common
stock of Bustop Shelters of Nevada, Inc., so that Bustop Shelters of Nevada,
Inc. will become a corporation separate and distinct from, and no longer a
subsidiary of, the Company.
The accompanying unaudited pro forma condensed financial statements
illustrate the effects of the Merger Agreement on the Company and Bustop
Shelters of Nevada, Inc.'s financial position and results of operations. The pro
forma condensed balance sheet as of September 30, 1997 is based on the
historical balance sheets of the Company and Bustop Shelters of Nevada, Inc. and
assumes the Merger Agreement took place on January 1, 1996. The pro forma
statements of operations for the year ended December 31, 1996 and nine months
ended September 30, 1997 are based on the historical statements of operations of
the Company and Bustop Shelters of Nevada, Inc. for those periods. The pro forma
statements of operations assume the transaction took place on January 1, 1996.
The pro forma financial statements may not be indicative of the actual results
of the Merger Agreement.
The accompanying condensed pro forma financial statements should be read in
connection with the historical financial statements of the Company.
F-36
<PAGE>
METRO DISPLAY ADVERTISING, INC.
PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
(Excluded)
Consolidated Consolidation Bustop Pro Forma
Metro Display Eliminating & Shelters of Metro Display
ASSETS Advertising, Inc. Reclassification Nevada, Inc. Pro Forma Advertising, Inc.
9/30/97 Entries 9/30/97 Adjustments 9/30/97
----------------- ---------------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ -- 14,837 $ 14,837 $ --
Accounts receivable, net of allowances 991,788 289,327 (702,461) (1) --
Prepaid expenses and other assets 11,704 45,000 7,104 49,600
Deferred taxes-current portion 196,000 17,000 179,000
----------- ---------- -----------
TOTAL CURRENT ASSETS 1,199,492 328,268 228,600
PROPERTY AND EQUIPMENT, net 5,659,278 1,561 699,127 (1,060,832) (3) 3,900,880
OTHER ASSETS:
Performance bond deposits 734,722 129,022 605,700
Deferred taxes-less current portion 3,052,000 -- 3,052,000
Other assets 263,906 1,070,229 62,706 (1,205,007) (2) 66,422
----------- ---------- -----------
4,050,628 191,728 3,724,122
----------- ---------- -----------
$10,909,398 $1,219,123 $ 7,853,602
=========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 865,079 $ -- $ 865,079
Accounts payable 913,005 45,000 193,764 764,241
Overdraft 5,254 14,837 -- 20,091
Accrued liabilities 255,977 21,606 234,371
Advanced payments 150,000 -- 150,000
----------- ---------- -----------
TOTAL CURRENT LIABILITIES 2,189,315 215,370 2,033,782
LONG TERM DEBT, net of current portion 866,469 -- 866,469
STOCKHOLDERS' EQUITY:
Preferred stock -- -- --
Common stock & additional paid in capital 9,504,832 848,545 848,545 9,504,832
Accumulated earnings (deficit) (1,651,218) 223,245 155,208 (2,968,300) (4,551,481)
----------- ---------- -----------
7,853,614 1,003,753 4,953,351
----------- ---------- -----------
$10,909,398 $1,219,123 $ 7,853,602
=========== ========== ===========
</TABLE>
See accompanying notes to pro forma financial statements
F-37
<PAGE>
METRO DISPLAY ADVERTISING, INC.
PRO FORMA CONDENSED STATEMENT OF LOSS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
(Excluded)
Historical Historical
Consolidated Consolidation Bustop Pro Forma
Metro Display Eliminating & Shelters of Metro Display
Advertising, Inc. Reclassification Nevada, Inc. Pro Forma Advertising, Inc.
12/31/96 Entries 12/31/96 Adjustments 12/31/96
----------------- ---------------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C>
REVENUES: $7,571,268 431,640 $2,320,593 (431,640) (4) $5,250,675
COST OF SALES:
City fees 1,455,660 598,281 857,379
Advertising commissions and expenses 2,192,772 461,145 1,731,627
Installation and maintenance 1,099,513 295,921 803,592
Shelter lease fees - 431,640 431,640 -
Other costs 198,675 18,850 179,825
---------- ---------- -----------
TOTAL COST OF SALES 4,946,620 1,805,837 3,572,423
---------- ---------- -----------
GROSS PROFIT 2,624,648 514,756 1,578,252
---------- ---------- -----------
OPERATING EXPENSES:
Sales and administrative 1,536,566 41,260 479,195 1,098,631
Depreciation 923,299 1,170 103,166 (207,576) (3) 613,727
Interest expense 224,407 47 47 224,407
Other expense (income) 69,667 (1,339) (11,271) 79,599
---------- ---------- -----------
TOTAL OPERATING EXPENSES 2,753,939 571,137 2,016,364
---------- ---------- -----------
LOSS FROM OPERATIONS (129,291) (56,381) (338,112)
---------- ---------- -----------
PROVISION (BENEFIT) FOR INCOME TAXES (88,200) (18,800) (48,900) (5) (118,300)
---------- ---------- -----------
NET LOSS $ (41,091) $ (37,581) $ (219,812)
========== ========== ===========
</TABLE>
See accompanying notes to pro forma financial statements
F-38
<PAGE>
METRO DISPLAY ADVERTISING, INC.
PRO FORMA CONDENSED STATEMENT OF LOSS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
(Excluded)
Consolidated Consolidation Bustop Pro Forma
Metro Display Eliminating & Shelters of Metro Display
Advertising, Inc. Reclassification Nevada Pro Forma Advertising, Inc
9/30/97 Entries 9/30/97 Adjustments 9/30/97
---------------- ---------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES: $5,446,982 $1,759,482 $3,687,500
COST OF SALES:
City fees 1,508,192 482,029 1,026,163
Advertising commissions and expenses 1,340,124 250,429 1,089,695
Installation and maintenance 1,072,935 423,375 649,560
Other costs 83,084 29,393 53,691
---------- ---------- ----------
TOTAL COST OF SALES 4,004,335 1,185,226 2,819,109
---------- ---------- ----------
GROSS PROFIT 1,442,647 574,256 868,391
---------- ---------- ----------
OPERATING EXPENSES:
Sales and administrative 1,680,186 507,894 1,172,292
Depreciation 705,657 10,597 70,549 (155,682)(3) 490,023
Interest expense 92,778 -- 92,778
Other expense (income) (39,818) (8,975) (30,843)
---------- ---------- ----------
TOTAL OPERATING EXPENSES 2,438,803 569,468 1,724,250
---------- ---------- ----------
LOSS FROM OPERATIONS (996,156) 4,788 (855,859)
---------- ---------- ----------
PROVISION (BENEFIT) FOR INCOME TAXES -- -- --
---------- ---------- ----------
NET LOSS $ (996,156) $ 4,788 $ (855,859)
========== ========== ==========
</TABLE>
See accompanying notes to pro forma financial statements
F-39
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Pro Forma
Bustop Bustop
Shelters of Shelters of
Nevada, Inc.. Pro Forma Nevada, Inc.
ASSETS 9/30/97 Adjustments 9/30/97
------------ ----------- ------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 14,837 $ 14,837
Accounts receivable, net of allowances 289,327 702,461(1) 991,788
Prepaid expenses and other assets 7,104 7,104
Deferred taxes - current portion 17,000 17,000
---------- -----------
TOTAL CURRENT ASSETS 328,268 1,030,729
PROPERTY AND EQUIPMENT, NET 699,127 1,060,832(3) 1,759,959
OTHER ASSETS:
Performance bond deposits 129,022 129,022
Other assets 62,706 165,723(2) 228,429
---------- ----------
191,728 357,451
---------- ----------
$1,219,123 $3,148,139
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 193,764 $ 193,764
Accrued liabilities 21,606 21,606
---------- ----------
TOTAL CURRENT LIABILITIES 215,370 215,370
STOCKHOLDERS' EQUITY:
Common stock & additional paid in capital 848,545 1,909,534 2,758,079
Retained earnings 155,208 19,482 174,690
---------- ----------
1,003,753 2,932,769
---------- ----------
$1,219,123 $3,148,139
========== ==========
</TABLE>
See accompanying notes to pro forma financial statements
F-40
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Historical Pro Forma
Bustop Bustop
Shelters of Shelters of
Nevada, Inc. Pro Forma Nevada, Inc.
12/31/96 Adjustments 12/31/96
------------ ----------- ------------
<S> <C> <C> <C>
REVENUES: $ 2,320,593 $ 2,320,593
COST OF SALES:
City fees 598,281 598,281
Advertising commissions and expenses 461,145 461,145
Shelter lease fees 431,640 (431,640)(4) -
Installation and maintenance 295,921 295,921
Other costs 18,850 18,850
----------- -----------
TOTAL COST OF SALES 1,805,837 1,374,197
----------- -----------
GROSS PROFIT 514,756 946,396
----------- -----------
OPERATING EXPENSES:
Sales and administrative 479,195 479,195
Depreciation 103,166 207,576 (3) 310,742
Interest expense 47 47
Other expense (income) (11,271) (11,271)
----------- -----------
TOTAL OPERATING EXPENSES 571,137 778,713
----------- -----------
INCOME (LOSS) FROM OPERATIONS (56,381) 167,683
----------- -----------
PROVISION (BENEFIT) FOR INCOME TAXES (18,800) 48,900 30,100
----------- -----------
NET INCOME (LOSS) $ (37,581) $ 137,583
=========== ===========
NET INCOME PER SHARE 0.14
===========
WEIGHTED AVERAGE SHARES OUTSTANDING 970,030
===========
</TABLE>
See accompanying notes to pro forma financial statements.
F-41
<PAGE>
BUSTOP SHELTERS OF NEVADA, INC.
PRO FORMA CONDENSED STATEMENT OF LOSS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Pro Forma
Bustop Bustop
Shelters of Shelters of
Nevada, Inc. Pro Forma Nevada, Inc.
9/30/97 Adjustments 9/30/97
------------- --------------- --------------
<S> <C> <C> <C>
REVENUES: $ 1,759,482 $ 1,759,482
COST OF SALES:
City fees 482,029 482,029
Advertising commissions and expenses 250,429 250,429
Installation and maintenance 423,375 423,375
Other costs 29,393 29,393
------------- -------------
TOTAL COST OF SALES 1,185,226 1,185,226
------------- -------------
GROSS PROFIT 574,256 574,256
------------- -------------
OPERATING EXPENSES:
Sales and administrative 507,894 507,894
Depreciation 70,549 155,682 (3) 226,231
Interest expense - -
Other expense (income) (8,975) (8,975)
------------- -------------
TOTAL OPERATING EXPENSES 569,468 725,150
INCOME (LOSS) FROM OPERATIONS 4,788 (150,894)
------------- -------------
PROVISION (BENEFIT) FOR INCOME TAXES - -
------------- -------------
NET INCOME (LOSS) $ 4,788 $ (150,894)
============= =============
NET INCOME (LOSS) PER SHARE (0.16)
=============
WEIGHTED AVERAGE SHARES OUTSTANDING 970,030
=============
</TABLE>
See accompanying notes to pro forma financial statements
F-42
<PAGE>
METRO DISPLAY ADVERTISING, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
NOTE A - The pro forma adjustments to the condensed financial statements are
as follows:
(1) To record the transfer of accounts recievable to Bustop Shelters
of Nevada, Inc.
<TABLE>
<S> <C>
Accounts Receivable (as of September 30, 1997) $ 702,461
==========
(2) to record the transfer of the BATS investment, the joint venture
agreement and investment of Bustop Shelters of Nevada, Inc.
BATS investment $ 109,659
BATS joint venture 56,064
----------
165,723
----------
Investment in Bustop Shelters of Nevada, Inc. 1,039,284
----------
$1,205,007
==========
(3) To record the transfer of certain vehicles, furniture and fixtures, equipment and
536 bus shelters.
Property, at historical cost $1,739,358
Accumulated Depreciation, as January 1, 1996 (315,268)
----------
1,424,090
Depreciation expense for the year ended 12/31/96 207,576
Depreciation expense for the nine months ended 9/30/97 155,682
----------
Property, net $1,060,832
==========
</TABLE>
(4) To record the elimination of inter-company lease shelter fees from
Metro Display Advertising, Inc. to Bustop Shelters of Nevada, Inc.
(5) To record tax adjustments related to the pro forma income
adjustments.
NOTE B - Each shareholder of Metro Display Advertising, Inc. will receive one
share of Bustop Shelters of Nevada, Inc. common stock for each share
of Metro Display Advertising, Inc. common share held.
F-43
<PAGE>
EXHIBIT INDEX
A. Amended and Restated Agreement and Plan of Merger by and among
Eller Media Company, EMS, Inc. and Metro Display Advertising, Inc.
dated January 5, 1998; and the Specific Performance Escrow Agreement,
Van Wagner Escrow Agreement and Damages Escrow and Disbursement
Agreement related thereto
B. Chapter 13 of the California General Corporation Law
C. Form of Amended and Restated Articles of Incorporation of BSON
D. Form of Amended and Restated Bylaws of BSON
E. Letter from Stinchfield & Co. dated September 19, 1997
<PAGE>
METRO DISPLAY ADVERTISING, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, JANUARY 15, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF METRO DISPLAY ADVERTISING, INC.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders and Proxy Statement, each dated January 5, 1998, and does hereby
appoint Robert C. Lamb and Lawrence Bussman (the "Proxies"), and each of them,
with full power of substitution, as the proxy of the undersigned to represent
the undersigned and to vote all shares of Common Stock of Metro Display
Advertising, Inc. which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Shareholders, to be held on January 15, 1998,
at the Fullerton Senior Multi-Service Center, 340 West Commonwealth Avenue,
Fullerton, California 92832, and at any adjournments thereof.
1. Approve and adopt the Amended and Restated Agreement and Plan of
Merger dated January 5, 1998, by and among Metro Display
Advertising, Inc., Eller Media Company and EMS, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Election of Directors:
[ ] FOR all nominees as listed below (except as marked to the
contrary)
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write that nominee's name on the line that follows:
_______________________________________________________________________________
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
Allan L. Ross, M.D., William M. Slater, Mark R. Boileau
PROXIES NOT MARKED TO WITHHOLD AUTHORITY WILL BE VOTED FOR THE
ELECTION OF ALL NOMINEES WHOSE NAMES ARE NOT WRITTEN ON THE ABOVE
LINE.
3. Ratify the selection of Peck and Lopez as independent auditors for the
fiscal year ending December 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. At their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
<PAGE>
The shares represented hereby will be voted as directed. WHERE NO
DIRECTION IS MADE, THE SHARES WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
_____________________________ _____________________________
(Signature) (Signature, if held jointly)
Dated: _____________, 1998
Please sign exactly as your name or names appear hereon, and when signing as
attorney, executor, administrator, trustee or guardian, give your full title as
such. If the signatory is a corporation, sign the full corporate name by a duly
authorized officer.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE
YOU MAY ALSO FAX THIS PROXY CARD TO THE COMPANY AT
(714) 727-4444
<PAGE>
EXHIBIT A
Amended and Restated Agreement and Plan of Merger
by and among Eller Media Company, EMS, Inc.
and Metro Display Advertising, Inc. dated January 5, 1998;
and the Specific Performance Escrow Agreement, Van Wagner
Escrow Agreement, and Damages Escrow and Disbursement
Agreement related thereto
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ELLER MEDIA COMPANY,
EMS, INC.,
AND
METRO DISPLAY ADVERTISING, INC.
DATED AS OF JANUARY 5, 1998
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the
"Agreement"), dated as of January 5, 1998, is by and among Metro Display
Advertising, Inc., a California corporation ("Metro"), and Eller Media Company,
a Delaware corporation ( "Eller"), and EMS, Inc. ("EMS"), a California
corporation and wholly-owned subsidiary of Eller.
RECITALS
A. The respective Boards of Directors of Metro, Eller and EMS have
determined that it is in the best interests of their respective stockholders
that EMS merge with and into Metro (the "Merger"), in accordance with the Laws
of the State of California ("California Law"), as a result of which Metro will
be the surviving corporation in the Merger.
B. The respective Boards of Directors of Eller, Metro and EMS have
approved and adopted the Agreement and Plan of Merger dated September 8, 1997
entered into by the parties hereto (the "Original Agreement"), and have approved
the Merger and the other transactions contemplated thereby.
C. The parties now desire to amend and restate the Original
Agreement , on the terms and conditions herein set forth, which amendment and
restatement has also been approved by the respective Boards of Directors of
Metro, Eller and EMS.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the
indicated meanings, which meanings shall be applicable, except to the extent
otherwise indicated in a definition of a particular term, both to the singular
and plural forms of such term.
1.1 "Affiliate" shall have the meaning specified in Rule 12b-2 of the
---------
regulations promulgated under the Exchange Act.
1.2 "Affiliated Group" shall mean any group of corporations with
----------------
respect to which a consolidated tax return was, or was required to have been,
filed.
1.3 "Agreement" has the meaning specified in the first paragraph of
---------
this Agreement.
<PAGE>
1.4 "Agreement of Merger" shall mean that certain Agreement of Merger
-------------------
dated as of the Closing Date, substantially in the form of Exhibit A hereto.
1.5 "BATS" shall mean Bay Area Transit Shelter.
----
1.6 "BSON" shall mean Bustop Shelters of Nevada, Inc., a Nevada
----
corporation.
1.7 "Balance Sheet" shall mean the audited Balance Sheet of Metro as
-------------
of December 31, 1996.
1.8 "Balance Sheet Date" shall mean December 31, 1996.
------------------
1.9 "Bankruptcy and Equity Exceptions" shall mean applicable
--------------------------------
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
1.10 "Best Efforts" shall mean reasonable good faith efforts but
------------
shall in no event require the commencement of litigation against any third party
or the payment of any fees to any third party.
1.11 "Bus Shelter Contracts" shall mean all contracts, permits, or
---------------------
other rights in existence on the Closing Date authorizing Metro to construct bus
shelters and related outdoor advertising display faces and listed on Schedule
4.10.
1.12 "Business Day" shall mean any weekday on which commercial banks
------------
in New York City are open. Any action, notice or right which is to be exercised
or lapses on or by a given date which is not a Business Day may be taken, given
or exercised, and shall not lapse, until the end of the next Business Day.
1.13 "California Law" has the meaning specified in Recital A of this
--------------
Agreement.
1.14 "Cash Merger Consideration" has the meaning specified in Section
-------------------------
3.5(a) of this Agreement.
1.15 "Certificates" has the meaning specified in Section 3.9(a) of
------------
this Agreement.
1.16 "Closing" has the meaning specified in Section 2.1 of this
-------
Agreement.
1.17 "Closing Date" has the meaning specified in Section 2.1 of this
------------
Agreement.
1.18 "Commission" shall mean the Securities and Exchange Commission.
----------
2
<PAGE>
1.19 "Consulting Agreement" has the meaning specified in Section 6.8
--------------------
of this Agreement.
1.20 "Damages Escrow Agreement" shall have the meaning specified in
------------------------
Section 3.11 of this Agreement.
1.21 "Damages Escrow Fund" shall have the meaning specified in
-------------------
Section 3.11 of this Agreement.
1.22 "Damages Escrow Merger Consideration" shall have the meaning
-----------------------------------
specified in Section 3.5(a) of this Agreement.
1.23 "Disbursement Agent" shall mean the bank or trust company
------------------
designated by Metro to serve as the agent of Metro for disbursing the aggregate
Cash Merger Consideration.
1.24 "Disclosure Schedules" shall mean the schedules prepared and
--------------------
delivered by Metro to Eller and EMS setting forth the exceptions to the
representations and warranties contained in Article IV of this Agreement and
certain other information called for by this Agreement. Unless otherwise
specified, each reference in this Agreement to any numbered schedule is a
reference to that numbered schedule which is included in the Disclosure
Schedules.
1.25 "Dissenting Shares" shall mean Shares held by any Stockholder
-----------------
who becomes entitled to the payment of the fair value for such Shares under
California Law, if such laws provide for such payment in connection with the
Merger.
1.26 "Effective Date" has the meaning specified in Section 3.2 of
--------------
this Agreement.
1.27 "Eller" has the meaning specified in the first paragraph of this
-----
Agreement.
1.28 "EMS" has the meaning specified in the first paragraph of this
---
Agreement.
1.29 "Employee Bonuses" has the meaning specified in Section 3.6 of
----------------
this Agreement.
1.30 "Encumbrances" shall mean any lien, security interest, mortgage,
------------
deed of trust, pledge, hypothecation, easement or conditional sale or other
title retention agreement; provided, however, that Encumbrances shall not
-------- -------
include any Permitted Encumbrance.
1.31 "Environmental Laws" shall mean any federal state, or local law,
------------------
ordinance, regulation, order or permit pertaining to the environment, natural
resources or public health or safety as presently in effect.
1.32 "ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended.
3
<PAGE>
1.33 "Escrow Agent" shall have the meaning specified in Section 3.11.
------------
1.34 "Exchange Act" shall mean the Securities Exchange Act of 1934,
------------
as amended, and the rules and regulations promulgated thereunder.
1.35 "Excluded Assets" shall mean the assets of Metro listed on
---------------
Schedule 1.39 hereto.
1.36 "Financial Statements" shall mean (a) the audited consolidated
--------------------
Balance Sheet of Metro as of December 31, 1996, and the related audited
consolidated Statements of Earnings and Cash Flows of Metro for the year then
ended, certified by Peck & Lopez of Newport Beach, California; (b) the unaudited
consolidated Balance Sheet of Metro as of May 31, 1997, and as of the end of
each month thereafter that ends prior to the Closing Date (excluding only those
balance sheets not available after Metro has exercised its best efforts to
complete such balance sheets), adjusted to reflect the elimination of the
Excluded Assets, and all debt to or from BSON; and (c) the unaudited
consolidated Statements of Earnings and Cash Flows of Metro for the period from
January 1, 1997, through May 31, 1997 and for each month thereafter that ends
prior to the Closing Date (excluding only those statements of earnings and cash
flows not available after Metro has exercised its best efforts to complete such
balance sheets).
1.37 "Hazardous Materials" shall mean hazardous wastes as presently
-------------------
defined by the Resource Conservation and Recovery Act of 1976, 42 U.S.C. (S) 609
et seq., as amended, and regulations promulgated thereunder and hazardous
- -- ---
substances as presently defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., as amended
-- ---
("CERCLA" or "Superfund") and regulations promulgated thereunder, and shall also
mean every "hazardous material," "hazardous substance," "hazardous waste,"
"toxic substance," or petroleum or petroleum products, as defined or described
in every state, local or other federal Environmental Law which is or was
applicable to the operations of Metro and its Subsidiaries.
1.38 "Indebtedness" shall mean all obligations which arise from
------------
borrowed money or the deferred purchase price of property or services (other
than accounts payable arising in the ordinary course of business).
1.39 "Material Adverse Effect" shall mean a material adverse effect
-----------------------
on any portion of the business, operations, assets or financial condition of
Metro.
1.40 "Material Lease" or "Material Leases" has the meaning specified
-------------- ---------------
in Section 4.12 of this Agreement.
1.41 "Merger" has the meaning specified in Recital A of this
------
Agreement.
1.42 "Merger Consideration" shall mean the aggregate of the Cash
--------------------
Merger Consideration and the Damages Escrow Merger Consideration.
4
<PAGE>
1.43 "Metro" has the meaning specified in the first paragraph of this
-----
Agreement.
1.44 "Metro Common Stock" shall mean the Common Stock, no par value,
------------------
of Metro.
1.45 "Metro's Net Accounts Receivable Balance" shall mean Metro's
---------------------------------------
aggregate accounts receivable balance less the aggregate allowance for
uncollectible accounts, determined in accordance with generally accepted
accounting principles consistently applied, provided that in no case shall such
allowance exceed eight percent (8%) of such aggregate accounts receivable
balance.
1.46 "Metro Plans" has the meaning specified in Section 4.21 of this
-----------
Agreement.
1.47 "Metro SEC Documents" has the meaning specified in Section 4.8
-------------------
of this Agreement.
1.48 "Metro Stock Rights" shall mean the employee stock options of
------------------
Metro, and the warrants to acquire capital stock of Metro, existing on the date
of the Agreement and set forth on Schedule 4.2 hereto.
1.49 "Permitted Encumbrances" shall mean (a) Encumbrances imposed by
----------------------
any governmental authority for Taxes, assessments or charges not yet due and
payable or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of Metro in accordance with generally accepted accounting principles; (b)
carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like
Encumbrances arising in the ordinary course of business which are not overdue
for a period of more than 30 days or which are being contested in good faith and
by appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of Metro in accordance with generally accepted
accounting principles; (c) pledges or deposits in connection with worker's
compensation, unemployment insurance and other social security legislation; (d)
deposits to secure the performance of any or all of the following: bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business; (e) easements, rights-of-way,
restrictions and other similar encumbrances on real property incurred in the
ordinary course of business and encroachments (whether or not in the ordinary
course of business) which, in the aggregate, are not substantial in amount, and
which do not in any case materially detract from the value of the property
subject thereto or interfere with the ordinary conduct of the business thereon,
and (f) all the exceptions to title reflected on Schedule 4.16.
1.50 "Price Adjustment Schedule" has the meaning specified in Section
-------------------------
7.19 of this Agreement.
5
<PAGE>
1.51 "Requisite Stockholder Approval" shall mean the vote in favor of
------------------------------
this Agreement and the Merger by the holders of a majority of the Shares issued
and outstanding as of the record date set for the Stockholders Meeting.
1.52 "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, and the rules and regulations promulgated thereunder.
1.53 "Shares" shall mean all of the issued and outstanding shares of
------
Metro common stock, and for purposes of allocating the Merger Consideration
pursuant to Section 3.5 of this Agreement, "Shares" shall include all shares of
Metro capital stock subject to unexercised Metro Stock Rights less shares of
common stock withheld by Metro in satisfaction of the withholding taxes
applicable to the excess of the fair market value of the stock over the exercise
price in connection with the exercise of the Metro Stock Rights.
1.54 "Specific Performance Escrow Agreement" has the meaning
-------------------------------------
specified in Section 3.7(b) of this Agreement.
1.55 "Specific Performance Escrow Fund" has the meaning specified in
---------------------------------
Section 3.7(b) of this Agreement.
1.56 "Specific Performance Escrow Merger Consideration" has the
------------------------------------------------
meaning specified in Section 3.5(b) of this Agreement.
1.57 "Stockholders" shall mean the holders of Metro Common Stock
------------
immediately prior to the Merger.
1.58 "Stockholders' Meeting" has the meaning specified in Section 3.1
---------------------
of this Agreement.
1.59 "Stockholder Representatives" has the meaning specified in the
---------------------------
Damages Escrow Agreement attached hereto as Exhibit D.
1.60 "Subsidiary" shall mean each corporation, partnership or other
----------
entity, fifty percent (50%) or more of the outstanding voting shares of which,
or other voting interests or equity interests in the case of a partnership, are
owned or controlled directly or indirectly by another entity.
1.61 "Surviving Corporation" means Metro.
---------------------
1.62 "Tax Returns" means all returns, declarations, reports,
-----------
estimates, information returns and statements required to be filed in respect of
any Taxes.
1.63 "Taxes" means all taxes, charges, fees, imposts, levies or other
-----
assessments, including, without limitation, all net income, franchise, profits,
gross receipts, capital, sales, use, ad valorem, value added, transfer, transfer
gains, inventory, capital stock, license, withholding, payroll,
6
<PAGE>
employment, social security, unemployment, excise, severance, stamp, occupation,
real or personal property, and estimated taxes, water, rent and sewer service
charges, customs duties, fees, assessments and charges of any kind whatsoever,
together with any interest and any penalties, fines, additions to tax or
additional amounts thereon, imposed by any taxing authority (federal, state,
local or foreign) and shall include any transferee liability in respect of
Taxes.
1.64 "Van Wagner" shall mean Van Wagner Communications, Inc, and/or
----------
vw Martin Company, a California joint venture, comprised of Martin
Communications, Inc., and Van Wagner Communications, Inc., a New York
corporation and/or Van Wagner Communications, Inc.
1.65 "Van Wagner Agreements" shall mean all agreements of any kind
---------------------
between Metro and Van Wagner, including, but not limited to, all agreements
relating to sales, and marketing programs, joint ventures, options and rights of
first refusal.
1.66 "Van Wagner Escrow Merger Consideration" has the meaning
--------------------------------------
specified in Section 3.5(b) of this Agreement.
1.67 "Van Wagner Escrow Agreement" has the meaning specified in
---------------------------
Section 3.7(c) of this Agreement.
1.68 "Van Wagner Escrow Fund" has the meaning specified in Section
----------------------
3.7(c) of this Agreement.
1.69 "Van Wagner Group" has the meaning specified in Section 3.7(a)
----------------
of this Agreement.
1.70 "Van Wagner Litigation" has the meaning specified in Section
---------------------
3.7(a) of this Agreement..
ARTICLE II
----------
CLOSING DATE; CLOSING
---------------------
2.1 Time and Place. Except as hereinafter provided, the closing
--------------
hereunder (the "Closing") shall take place at the office of Troy & Gould, P.C.,
1801 Century Park East, Suite 1600, Los Angeles, CA 90067-2302, at 10:00 A.M.,
local time, on the seventh (7/th/) Business Day after all the conditions
precedent to the Closing shall have been satisfied or waived in writing, unless
otherwise mutually agreed to in writing by Eller, EMS and Metro. Subject to the
provisions of Section 9.4, failure to consummate the transactions contemplated
hereby on the date and time and at the place determined pursuant to this Section
2.1 shall not result in the termination of this Agreement and shall not relieve
a party of any obligation for breaching this Agreement. The date of the Closing
is referred to in this Agreement as the "Closing Date."
2.2 Proceedings and Deliveries Simultaneous. All proceedings to be
---------------------------------------
taken and all documents to be executed and delivered by all parties at the
Closing shall be deemed to have been
7
<PAGE>
taken and executed simultaneously and no proceedings shall be deemed taken nor
any documents executed or delivered until all have been taken, executed and
delivered.
ARTICLE III
-----------
THE MERGER
----------
3.1 Approval of the Merger. The Merger shall be submitted for
----------------------
adoption and approval to the Stockholders at a meeting to be duly held for this
purpose by Metro (the "Stockholders' Meeting"). Eller, EMS and Metro shall
coordinate and cooperate with respect to the timing of such Stockholders'
Meeting. The Board of Directors of Metro shall recommend that the Stockholders
approve this Agreement and the Merger.
3.2 The Merger; Effective Date. On the Closing Date, the parties
--------------------------
hereto will cause the Merger to be consummated by filing with the Secretary of
State of California the Agreement of Merger (the time of such filing being the
"Effective Date"). At the Effective Date, in accordance with this Agreement and
California Law, EMS shall be merged with and into Metro, the separate existence
of EMS (except as may be continued by operation of law) shall cease, and Metro
shall continue as the surviving corporation under the corporate name it
possesses immediately prior to the Effective Date. EMS and Metro are sometimes
referred to herein as the "Constituent Corporations," and Metro is sometimes
referred to herein as the "Surviving Corporation."
3.3 Effect of the Merger. At and after the Effective Date: (a) the
--------------------
Surviving Corporation shall possess all of the rights, privileges, powers and
franchises of a public as well as of a private nature of each of the Constituent
Corporations; (b) the Surviving Corporation shall be subject to all of the
restrictions, disabilities and duties of each of the Constituent Corporations;
(c) all property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, as well as stock subscriptions and
all other things in action or belonging to each of the Constituent Corporations,
shall be vested in the Surviving Corporation; (d) all property, rights,
privileges, powers and franchises, and all and every other interest of each of
the Constituent Corporations shall be thereafter the property of the Surviving
Corporation as they were of the Constituent Corporations, and the title to any
real estate vested by deed or otherwise, in either of the Constituent
Corporations, shall not revert or be in any way impaired; (e) all rights of
creditors and all liens upon any property of either of the Constituent
Corporations shall be preserved unimpaired; and (f) all debts, liabilities and
duties of the Constituent Corporations shall thenceforth attach to the Surviving
Corporation and may be enforced against it to the same extent as if said debts
and liabilities had been incurred by it.
3.4 Charter Documents; Directors; Officers. Upon the Effective Date,
--------------------------------------
the Articles of Incorporation and the Bylaws of Metro shall be the Articles of
Incorporation and Bylaws of the Surviving Corporation, as in effect immediately
prior to the Effective Date, until thereafter amended as provided therein and
under California Law, provided that, at the Effective Date the officers and
directors of EMS immediately prior to the Effective Date shall become the
officers and directors of the Surviving Corporation, until their successors are
elected and qualified.
8
<PAGE>
3.5 Merger Consideration. At the Effective Date, subject to the
--------------------
price adjustment provision of Section 3.6 below and the Van Wagner resolution
provisions of Section 3.7 below, Eller shall have available in cash Forty-One
Million Eight Hundred Thousand and No/100 Dollars ($41,800,000.00). By virtue
of the Merger and without any action on the part of any party hereto, the
Surviving Corporation, or any holder of Shares, at the Effective Date:
(a) Except for Dissenting Shares, each Share shall be canceled and
extinguished and become the right to receive (i) Thirty-Six Million Eight
Hundred Thousand and No/100 Dollars ($36,800,000.00), less any price
adjustment provided for in Section 3.6 below, divided by the number of
Shares (the "Cash Merger Consideration")and (ii) the aggregate amount to be
distributed from time to time to the Stockholders from the Damages Escrow
Fund (initially, Five Million and No/100 Dollars ($5,000,000.00)) pursuant
to the Damages Escrow Agreement, divided by the number of Shares (the
"Damages Escrow Merger Consideration").
(b) If Section 3.7(b) is applicable, this Section 3.5(b) shall replace
Section 3.5(a) above. Except for Dissenting Shares, each Share shall be
canceled and extinguished and become the right to receive (i) the aggregate
amount to the distributed from time to time to the Stockholders from the
Specific Performance Escrow Fund (initially, Thirty-Six Million Eight
Hundred Thousand and No/100 Dollars ($36,800,000.00), less the aggregate
Van Wagner Escrow Merger Consideration (defined below)) less any price
adjustment provided for in Section 3.6 below, divided by the number of
Shares (the "Specific Performance Escrow Merger Consideration"), (ii) the
aggregate Damages Escrow Merger Consideration, divided by the number of
Shares, and (iii) the aggregate amount to be distributed from time to time
to the Stockholders from the Van Wagner Escrow Fund (initially, Five
Million and No/100 dollars ($5,000,000.00) less the amount set forth in
Section 3.6(d) below) pursuant to the Van Wagner Escrow Agreement, divided
by the number of Shares (the "Van Wagner Escrow Merger Consideration").
(c) If Section 3.7(c) is applicable, this Section 3.5(c) shall replace
Section 3.5(a) above. Except for Dissenting Shares, each Share shall be
canceled and extinguished and become the right to receive (i) the Cash
Merger Consideration, less the aggregate Van Wagner Escrow Merger
Consideration, divided by the number of Shares, (ii) the aggregate Damages
Escrow Merger Consideration, divided by the number of Shares and (iii) the
aggregate Van Wagner Escrow Merger Consideration, divided by the number of
Shares.
(d) Each Share held in treasury by Metro shall be canceled and
retired, and no payment shall be made with respect thereto.
(e) Each share of EMS common stock issued and outstanding immediately
prior to the Effective Date shall be converted into and become one validly
issued, fully paid and nonassessable share of common stock of the Surviving
Corporation. Each stock certificate
9
<PAGE>
of EMS shall continue to evidence ownership of such shares of common stock
of the Surviving Corporation.
3.6 Price Adjustment. The aggregate amount of the Cash Merger
----------------
Consideration or the Specific Performance Escrow Fund, as applicable, shall be
reduced by the sum of (a) an amount equal to Metro's Net Accounts Receivable
Balance as of the Closing Date, plus (b) the amounts to be paid as bonuses to
Metro's employees (the "Employee Bonuses"); plus (c) the amounts Metro is
obligated to pay in the form of federal and state taxes, withholdings,
applicable FICA and medicare taxes, and all other applicable federal and state
employment taxes or withholdings, in connection with the Employee Bonuses and
the exercise of the Metro Stock Rights; plus (d) an amount equal to the legal
fees and costs incurred by Metro through the Closing Date in connection with the
Van Wagner Litigation; (e) plus an amount for other expenses relating to this
transaction and incurred by Metro through the Closing, provided, however, that
the aggregate of such other transaction expenses plus the amount of 3.6(d)
herein shall not exceed Four Hundred Thousand and No/100 Dollars ($400,000.00);
plus (f) any damages awarded against Metro as a result of the Van Wagner
Litigation, or payable pursuant to a settlement of the Van Wagner Litigation;
plus (g) any accounts receivable written off by Metro after June 30, 1997
through the Closing; plus (h) the amount by which (if at all) Metro's
liabilities as of the Closing Date, determined in accordance with generally
accepted accounting principals consistently applied, exceed Two Million Three
Hundred Forty-Three Thousand Seven Hundred Forty-One and 64/100 Dollars
($2,343,741.64). The aggregate amount of the Cash Merger Consideration shall be
increased by the amounts, if any, recovered by Metro for legal fees, costs
and/or damages in connection with the Van Wagner Litigation. From and after the
Closing Date, Eller shall cause Metro to pay the amounts set forth in Sections
3.6(b) through (f) above, and shall also cause Metro to pay the ongoing legal
fees and costs incurred by Metro in connection with the Van Wagner Litigation.
3.7 Van Wagner Resolution.
---------------------
(a) Cash Holdback. Eller shall pay the Cash Merger Consideration only
-------------
if, as of the Closing Date, (i) Stockholder Representatives have delivered
written evidence of the termination of the Van Wagner Agreements in form
and substance reasonably acceptable to Eller and (ii) Metro has resolved,
or provided for the resolution of, all pending and threatened litigation
(the "Van Wagner Litigation"), in a manner acceptable to Eller in its sole
reasonable discretion, between Metro and or any all of the following
(collectively, the "Van Wagner Group"): Van Wagner; Outdoor Systems, Inc.,
a New York corporation; Outdoor Systems - New York, Inc., a New York
corporation; and all affiliates of the foregoing. For purposes of this
Section 3.7(a), "a manner acceptable to Eller" includes providing evidence
acceptable to Eller in its sole reasonable discretion that the only remedy
available to the Van Wagner Group is monetary damages.
(b) Specific Performance Escrow. If the conditions 3.7(a) above have
----------------------------
not been satisfied, then Eller shall remain obligated to provide the
aggregate Merger Consideration on the Closing Date in accordance with the
procedures set forth in Sections 3.5(b), 3.6 and
10
<PAGE>
3.10, except that, in addition to funding the Damages Escrow Fund with the
aggregate Damages Escrow Merger Consideration, and funding the Van Wagner
Escrow Fund with the aggregate Van Wagner Escrow Merger Consideration, an
amount equal to the aggregate Specific Performance Escrow Consideration
shall be withheld from the aggregate Merger Consideration and held in
escrow (the " Specific Performance Escrow Fund") by the Escrow Agent
pursuant to the escrow agreement in the form attached hereto as Exhibit B
(the "Specific Performance Escrow Agreement").
(c) Van Wagner Damages Escrow. Notwithstanding anything to the
-------------------------
contrary herein, if the conditions set forth in Section 3.7(a) have been
satisfied, but there is no final, non-appealable determination on damages
in the Van Wagner Litigation, then Eller shall remain obligated to provide
the aggregate Merger Consideration on the Closing Date in accordance with
the procedures set forth in Sections 3.5(c), 3.6 and 3.9, except that, in
addition to funding the Damages Escrow Fund with the aggregate Damages
Escrow Merger Consideration, an amount equal to the aggregate Van Wagner
Escrow Merger Consideration shall be withheld from the aggregate Cash
Merger Consideration and held in escrow (the "Van Wagner Escrow Fund") by
the Escrow Agent pursuant to the escrow agreement in the form attached
hereto as Exhibit C (the "Van Wagner Escrow Agreement ").
3.8 Dissenting Shares. The holders of Dissenting Shares, if any,
-----------------
shall be entitled to payment for such Shares only to the extent permitted by and
in accordance with the provisions of California Law. Notwithstanding the
foregoing, if in accordance with such laws, any holder of Dissenting Shares
shall forfeit such right to payment of the fair value of such Shares, such
Shares shall thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Date, the right to receive the Merger
Consideration on the same terms as the holders of non-Dissenting Shares in
accordance with this Agreement.
3.9 Payment Mechanics; Exchange of Certificates. If the conditions
-------------------------------------------
set forth in Section 3.7(a) have been met, then the following provisions for
payment of the aggregate Merger Consideration and the exchange of certificates
shall apply (except as limited by Section 3.7(c)):
(a) As soon as practicable (and in no event later than five (5) days
after the Effective Date), the Disbursement Agent shall mail to each record
holder of certificates of Metro Common Stock (the "Certificates"), which
immediately prior to the Effective Date represented Shares, a letter of
transmittal and instructions for use in surrendering such Certificates and
receiving the Merger Consideration therefor.
(b) From and after the Effective Date, the Disbursement Agent shall
act as exchange agent in effecting the exchange of Certificates for the
Cash Merger Consideration. On or before the Closing Date, subject to
Section 3.7 above, Eller shall deliver to the Escrow Agent and Disbursement
Agent cash in an amount equal to the aggregate Merger Consideration. The
Disbursement Agent shall hold the aggregate Cash Merger Consideration, and
the Escrow Agent shall invest the aggregate Damages Escrow Merger
11
<PAGE>
Consideration and the aggregate Van Wagner Escrow Merger Consideration (if
applicable), in an interest bearing account, United States Treasury
obligations and/or other obligations guaranteed by the United States
Government or any agency thereof, as determined by Eller exercising
reasonable and prudent discretion and consistent with having the aggregate
Cash Merger Consideration available to make all distributions provided for
herein in a timely manner. Upon the surrender of each Certificate and the
payment by the Disbursement Agent of the Cash Merger Consideration, in
exchange therefor, less the Van Wagner Escrow Merger Consideration (if
applicable), such Certificate shall forthwith be canceled. Until so
surrendered and exchanged, each Certificate (other than Certificates
representing Dissenting Shares) shall represent solely the right to receive
the Merger Consideration multiplied by the number of Shares represented by
such Certificate. Upon the surrender and exchange of a Certificate, the
holder shall receive the Cash Merger Consideration into which the Shares
represented by such Certificate were converted, less the Van Wagner Escrow
Merger Consideration (if applicable), and shall retain a proportionate
interest in the Damages Escrow Merger Consideration, and the Van Wagner
Escrow Merger Consideration (if applicable). Interest on the aggregate Cash
Merger Consideration shall accrue and be paid to the Stockholders.
(c) Promptly following the date which is nine (9) months after the
Effective Date, the Disbursement Agent shall return to Eller all Cash
Merger Consideration (and interest accrued thereon) in its possession.
Thereafter, each holder of a Certificate representing a Share may surrender
such Certificate to Eller, request payment therefrom, and (subject to
applicable abandoned property, escheat and similar laws) receive the Cash
Merger Consideration.
(d) From and after the Effective Date, the stock transfer books of
Metro shall be closed and no transfer of Shares shall thereafter be made.
(e) All administrative expenses of the Disbursement Agent shall be
paid by Eller.
3.10 Payment Mechanics; Exchange of Certificates Pursuant to Section
---------------------------------------------------------------
3.7. If the conditions set forth in Section 3.7(a) have not been met, then the
- ---
following provisions for payment of the aggregate Merger Consideration and the
exchange of Certificates shall apply:
(a) As soon as practicable (and in no event later than five (5) days
after the Effective Date), the Disbursement Agent shall mail to each record
holder of Certificates, which immediately prior to the Effective Date
represented Shares, a letter of transmittal and instructions for use in
surrendering such Certificates.
(b) From and after the Effective Date, the Disbursement Agent shall
act as exchange agent to effect the exchange of Certificates. Upon receipt
of each Certificate, the Disbursement Agent shall cancel such Certificate.
Until so surrendered and exchanged, each Certificate (other than
Certificates representing Dissenting Shares) shall represent solely the
12
<PAGE>
right to receive the Merger Consideration multiplied by the number of
Shares represented by such Certificate. Upon the surrender and exchange of
a Certificate, the holder shall retain a proportionate interest in the
Specific Performance Merger Consideration, the Damages Escrow Merger
Consideration and the Van Wagner Escrow Merger Consideration. The
Disbursement Agent shall also act as the disbursement agent to effect the
quarterly distribution (commencing April 1, 1998), to Stockholders who have
surrendered their Certificates (other than those holding Dissenting
Shares), of the interest accruing on the aggregate Specific Performance
Merger Consideration in accordance with the Stockholders' proportionate
interest therein.
(c) Promptly following each date which is nine (9) months after the
date an interest payment is made by the Disbursement Agent, the
Disbursement Agent shall return to Eller all unpaid interest payments (and
interest accrued thereon) in its possession. Thereafter, each holder of a
Certificate representing a Share may surrender such Certificate to Eller,
request payment therefrom, and (subject to applicable abandoned property,
escheat and similar laws) receive the unpaid interest payments (and
interest accrued thereon).
(d) From and after the Effective Date, the stock transfer books of
Metro shall be closed and no transfer of Shares shall thereafter be made.
(e) All administrative expenses of the Disbursement Agent shall be
paid by Eller.
3.11 Escrow Fund. Five Million and No/100 Dollars ($5,000,000.00)
-----------
(the "Damages Escrow Fund") of the Merger Consideration shall be held in Escrow
by the Disbursement Agent, acting as an "Escrow Agent," pursuant to a Damages
Escrow and Disbursement Agreement (the "Damages Escrow Agreement") in the form
attached hereto as Exhibit D.
ARTICLE IV
----------
REPRESENTATIONS AND
-------------------
WARRANTIES OF METRO
-------------------
Metro hereby represents and warrants to Eller and to EMS that, except
as otherwise set forth in the Disclosure Schedules, the following
representations and warranties are, as of the date hereof, and will be, as of
the Effective Date, true and correct:
4.1 Organization and Good Standing. Metro is a corporation duly
------------------------------
organized, validly existing and in good standing under California Law and has
full corporate power and authority to own its properties and carry on its
business as presently conducted. Metro is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of its properties owned or leased or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
or in good standing would not have a Material Adverse
13
<PAGE>
Effect. The copies of Metro's Bylaws (together with all amendments thereto)
which have been previously delivered to Eller and to EMS are correct and
complete as of the date hereof.
4.2 Capitalization. The authorized capital stock of Metro consists
--------------
of (a) 5,000,000 shares of Metro Common Stock, no par value, of which 943,030
shares are issued and outstanding as of the date hereof, and (b) 1,000,000
shares of Preferred Stock, no par value ("Preferred Stock"), of which no shares
are issued and outstanding as of the date hereof. All of the outstanding Shares
of Metro have been validly issued and are fully paid and non-assessable. No
shares of Metro Common Stock or Preferred Stock are held by Metro as treasury
stock. Except as set forth on Schedule 4.2, there is no existing option,
warrant, call, commitment or other security or agreement of any kind to which
Metro is a party requiring, and there are no convertible securities of Metro
outstanding which upon conversion would require, the issuance of any additional
shares of capital stock of Metro or other securities convertible into shares of
capital stock or any debt or equity security of Metro of any kind.
4.3 Subsidiaries. Metro has no Subsidiaries, except for BSON, which
------------
is an Excluded Asset.
4.4 Execution and Effect of Agreement. Metro has the corporate power
---------------------------------
and authority to execute and deliver this Agreement and to perform its
obligations hereunder, and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by Metro and the consummation by
Metro of the transactions contemplated hereby have been duly authorized by the
Board of Directors of Metro and no other corporate proceeding on the part of
Metro is necessary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, except for the Requisite
Stockholder Approval. This Agreement has been duly executed and delivered by
Metro and constitutes the legal, valid and binding obligation of Metro,
enforceable in accordance with its terms, except as limited by Bankruptcy and
Equity Exceptions.
4.5 Financial Statements. Metro has delivered to Eller and EMS
--------------------
copies of the Financial Statements through November 30, 1997. Each of the
Financial Statements has been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered thereby; and, with respect to the unaudited Financial Statements,
subject to the addition of footnotes and to normal year-end audit adjustments,
present fairly in all material respects the financial position, results of
operations and cash flows of Metro and its Subsidiaries at the dates and for the
periods indicated.
4.6 No Undisclosed Liabilities. As of the Balance Sheet Date,
--------------------------
neither Metro nor any of its Subsidiaries had any Indebtedness or other
liabilities (whether accrued, absolute, contingent or otherwise, and whether due
or to become due) which are not shown on the Balance Sheet (including the
footnotes thereto), which would normally be disclosed on a balance sheet
(including its footnotes) prepared in accordance with generally accepted
accounting principles if such Indebtedness or other liabilities had been known
at the time of the balance sheet's preparation, and which undisclosed
Indebtedness or liabilities would result in a Material Adverse Effect.
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4.7 No Material Adverse Change; No Dividends. Except as set forth on
----------------------------------------
Schedule 4.7, since the Balance Sheet Date, no material adverse change has
occurred in the assets, business, financial condition, or results of operations
of Metro. Since the Balance Sheet Date, no dividends or distributions of any
kind have been declared or paid on or made with respect to the Shares or any
other equity interests of Metro, nor have any Shares been repurchased or
redeemed.
4.8 SEC Reports. Since January 1, 1995, Metro has filed with the
-----------
Commission all forms, reports, schedules, statements and other documents
required to be filed by it and its Subsidiaries under the Exchange Act or the
Securities Act (collectively, the "Metro SEC Documents"). As of their
respective dates or, if amended, as of the date of the last such amendment, the
Metro SEC Documents:
(a) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading; and
(b) complied in all material respects with the applicable requirements
of the Exchange Act and the Securities Act, as the case may be.
4.9 Taxes.
-----
(a) Except as set forth on Schedule 4.9 hereto, (i) all material Tax
Returns required to be filed by or on behalf of Metro or its Subsidiaries
or any Affiliated Group of which Metro or its Subsidiaries is or was a
member have been filed with the appropriate taxing authorities in all
jurisdictions in which such Tax Returns are required to be filed, and all
amounts shown on such Tax Returns (including interest and penalties) as due
from Metro or its Subsidiaries either directly, as part of a consolidated
tax return, or otherwise, have been fully and timely paid or are adequately
provided for on the Balance Sheet; (ii) all such Tax Returns, insofar as
they relate to Metro or its Subsidiaries, are true, correct and complete in
all material respects; (iii) no waivers of statutes of limitation have
been given or requested with respect to Metro or its Subsidiaries in
connection with any Tax Returns covering Metro or its Subsidiaries; and
(iv) all Taxes that Metro or its Subsidiaries are required by law to
withhold or collect have been duly withheld or collected, and have been
timely paid to the appropriate tax authorities.
(b) Except as set forth on Schedule 4.9 hereto, all deficiencies
asserted or assessments made as a result of any examinations by the
Internal Revenue Service or any other taxing authority of the Tax Returns
of Metro or its Subsidiaries have been fully paid; no unpaid deficiencies
have been asserted or assessments made by any taxing authority against
Metro or its Subsidiaries; and no audits are currently pending or issues
raised in writing by any taxing authority in connection with Tax Returns of
Metro or its Subsidiaries.
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(c) Except as set forth on Schedule 4.9 hereto, neither Metro, its
Subsidiaries nor any other person on their behalf has filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as such
term is defined in Section 341(f)(4) of the Code) owned by Metro or its
Subsidiaries.
(d) Neither Metro nor any of the Subsidiaries is a foreign person
within the meaning of Section 1445 of the Code.
(e) Except for the Affiliated Group of which they are now members,
neither Metro nor any of its Subsidiaries has been a member of an
Affiliated Group of companies under Section 1504 of the Code.
(f) Except as set forth on Schedule 4.9 hereto, no property owned by
Metro or its Subsidiaries (i) is property required to be treated as being
owned by another person pursuant to the provisions of Section 168(f)(8) of
the Internal Revenue Code of 1954, as amended and in effect immediately
prior to the enactment of the Tax Reform Act of 1986, (ii) constitutes
"tax-exempt use property" within the meaning of Section 168(h)(l) of the
Code, or (iii) is tax-exempt bond financed property within the meaning of
Section 16B(g) of the Code.
(g) Neither Metro nor any of its Subsidiaries has any liability for
the Taxes of any person, other than Metro and its Subsidiaries under
Sections 1.1502-6 or 1.1502-78 of Title 26 of the Code of Federal
Regulations (or any similar provisions of state, local or foreign income
tax law).
(h) Schedule 4.9 sets forth the amounts and years of expiration of all
federal and state net operating losses of Metro and its Subsidiaries that
have not been taken as tax deductions by Metro or its Subsidiaries for
federal or state income tax purposes with respect to any taxable period
ending prior to the date of this Agreement.
4.10 Bus Shelter Contracts. Schedule 4.10 attached hereto contains
---------------------
a complete and accurate list of every Bus Shelter Contract and includes the
following information for each such contract:
(a) the names of all contracting parties and the date of the original
agreement and each amendment thereto or extension or renewal thereof;
(b) the termination date of each Bus Shelter Contract and a
description of any renewal or option rights with respect to the Bus Shelter
Contract;
(c) the number of bus shelters and the number of display faces Metro
currently operates under each Bus Shelter Contract;
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(d) the number of bus shelters and the number of display faces Metro
is obligated to construct (and that are not yet constructed) and the time
deadlines for such construction under each Bus Shelter Contract;
(e) the number of bus shelters and the number of display faces Metro
is authorized to construct (and that are not yet constructed) pursuant to
each such Bus Shelter Contract; and
(f) whether any consent, approval, or notice is required by the
contracting governmental authority for Metro to continue to exercise all of
its contractual rights under each Bus Shelter Contract subsequent to the
Effective Date.
All Bus Shelter Contracts are in full force and effect and are enforceable
against the parties thereto in accordance with their terms, subject to the
Bankruptcy and Equity Exceptions. Except as set forth on Schedule 4.10, Metro
is not in default under any Bus Shelter Contract, which default would constitute
a Material Adverse Effect; to the best of Metro's knowledge, no event exists
which with the passage of time or the giving of notice would constitute a
default under any Bus Shelter Contract and which would have a Material Adverse
Effect; and to the best of Metro's knowledge, no other party to a Bus Shelter
Contract is in default under such Bus Shelter Contract or would be in default
but for the passage of time or the giving of notice, which default would
constitute a Material Adverse Effect. Except as set forth on Schedule 4.10, all
Bus Shelter Contracts are free and clear of all Encumbrances. Except as set
forth on Schedule 4.10, neither the execution or delivery of this Agreement by
Metro nor the consummation by Metro of the transactions contemplated hereby,
will conflict with, or result in a breach of, or give rise to a right of
termination of, or accelerate the performance required by, or constitute a
default under, any Bus Shelter Contract, or result in the creation of an
Encumbrance upon any of Metro's right, title and interest under any Bus Shelter
Contract; and except as disclosed on Schedule 4.10 hereto, from and after the
Effective Date, Metro shall continue to hold all right, title and interest in
and to each Bus Shelter Contract, and shall be entitled to continue its business
pursuant to each Bus Shelter Contract as presently conducted, without the
consent of, approval by, or notice to, any governmental entity or any other
person, whether or not such person is a party to such Bus Shelter Contract.
4.11 Patents, Trademarks and Copyrights. Schedule 4.11 hereto
----------------------------------
contains a complete and correct list of each material patent, trademark, trade
name, service mark and copyright owned or used by Metro and pending applications
therefor, and each license or other agreement relating thereto. Except as set
forth on Schedule 4.11 hereto, each of the foregoing is owned by the party shown
on such Schedule as owning the same, free and clear of all Encumbrances. To the
best of Metro's knowledge, no claims have been asserted and are still pending,
contending that any of the foregoing is invalid or conflicts with the asserted
rights of others. Metro possesses all patents, patent licenses, trade names,
trademarks, service marks, brand marks, brand names, copyrights, know-how, and
other proprietary and trade rights necessary for the conduct of its business as
now conducted, except for those the absence of which would not result in a
Material Adverse Effect.
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4.12 Real Property; Leases of Real Property. Except as set forth on
--------------------------------------
Schedule 4.12 hereto, Metro does not own any real property. Schedule 4.12 hereto
contains a complete and correct list in all material respects of all leases,
subleases, license agreements or other rights of possession or occupancy of real
property (excluding the Bus Shelter Contracts) to which Metro is a party (as
tenant, occupier or possessor) pursuant to which the current net annual rent
payable by Metro currently exceeds $10,000 (a "Material Lease" and collectively
the "Material Leases"). Except as set forth on Schedule 4.12 hereto, all of the
Material Leases are in full force and effect. Complete and correct copies of
each Material Lease have been furnished or made available to Eller and EMS.
Except as disclosed on Schedule 4.12 hereto, no consent is required of any
landlord or other third party to any Material Lease to consummate the
transactions contemplated hereby; and upon consummation of the transactions
contemplated hereby, each Material Lease will continue to entitle Metro to the
use and possession of the real property specified in such Material Lease and for
the purposes for which such real property is now being used by Metro. Except as
set forth in such Schedule 4.12 hereto, Metro is not on the date hereof in
default, or in default but for the passage of time or giving of notice, under
any such Material Lease; and to Metro's knowledge, on the date hereof, no
uncured default by any third party exists thereunder, which defaults would
result in a Material Adverse Effect. All Material Leases are in full force and
effect and are enforceable against the parties thereto in accordance with their
terms subject to the Bankruptcy and Equity Exceptions.
4.13 Permits; Compliance with Laws. Metro has all necessary permits,
-----------------------------
licenses and governmental authorizations required for the ownership or occupancy
of its properties and assets and the carrying on of its business, including but
not limited to, its business pursuant to the Bus Shelter Contracts, except where
the failure to have any such permit, license or governmental authorization would
not result in a Material Adverse Effect.
4.14 Insurance. Schedule 4.14 hereto contains a complete and correct
---------
list in all material respects of all policies of insurance of any kind or nature
covering Metro, including, without limitation, policies of life, fire, theft,
employee fidelity and other casualty and liability insurance, and such policies
are in full force and effect. Complete and correct copies of each such policy
have been furnished or made available to Eller and EMS.
4.15 Material Contracts. Except as listed on Schedule 4.15 hereto or
------------------
any other schedule hereto, Metro is not a party to any:
(a) contract not made in the ordinary course of business;
(b) contract for the employment of any officer or employee;
(c) advertising agreement with a remaining term in excess of one year
and a payment obligation in excess of $10,000;
(d) franchise, distributorship or sales agency agreement;
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(e) contract for the future purchase of materials, supplies,
services, merchandise or equipment for an amount in excess of $10,000 or
not capable of being fully performed or not terminable within a period of
one year from the date hereof or in excess of normal operating
requirements;
(f) agreement for the sale or lease of any of its assets;
(g) contract or commitment for capital expenditures in excess of
$25,000;
(h) mortgage, pledge, conditional sales contract, security agreement,
factoring agreement, or other similar agreement with respect to any of its
real or personal property;
(i) lease of machinery or equipment involving annual payments in
excess of $10,000;
(j) agreement with a labor union or labor association;
(k) loan agreement, promissory note issued by it, guarantee,
subordination, indemnity or similar type of agreement;
(l) stock option, retirement, severance, pension, bonus profit
sharing, group insurance, medical or other fringe benefit plan or program
providing employee benefits; or
(m) consulting agreement involving annual payments in excess of
$10,000.
Complete and correct copies of each such agreement have been furnished or made
available to Eller and EMS. Except as set forth on Schedule 4.15 hereto, Metro
has performed all of the obligations required to be performed by it to date and
is not in default, or in default but for the passage of time or giving of
notice, under any of the agreements, leases, contracts or other documents to
which it is a party listed on Schedule 4.15 hereto, other than those failures to
perform and defaults which would not result in a Material Adverse Effect.
Except as set forth on Schedule 4.15 hereto, to the best of Metro's knowledge,
no party with whom Metro has such a scheduled agreement is in default
thereunder, or is in default but for the passage of time or giving of notice,
which default would result in a Material Adverse Effect. All such scheduled
agreements are in full force and effect and are enforceable against the parties
thereto in accordance with their terms subject to the Bankruptcy and Equity
Exceptions. Except as disclosed herein or on Schedule 4.15 hereto, Metro is not
a party to any non-compete or similar agreement which restricts in any way the
current operation of its business.
4.16 Title to Properties; Absence of Encumbrances. Metro has good
--------------------------------------------
and marketable title to all of its properties and assets, free and clear of any
and all Encumbrances, except as set forth on Schedule 4.16 hereto or except for
Permitted Encumbrances.
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4.17 Restrictions. Except as set forth on Schedule 4.17 hereto and
------------
except for leases which do not constitute Material Leases, neither the execution
or delivery of this Agreement by Metro, nor the consummation by Metro of the
transactions contemplated hereby, will violate its Articles of Incorporation or
Bylaws, or any judgment or decree, or conflict with or result in a breach of, or
give rise to a right of termination of, or accelerate the performance required
by, any terms of any agreement to which Metro is a party, or constitute a
default thereunder, or result in the creation of any Encumbrance upon any of its
assets, except for such conflicts, breaches, rights of termination or
acceleration, defaults and Encumbrances that would not result in a Material
Adverse Effect.
4.18 Litigation; Consents. No action, suit, proceeding or formal
--------------------
governmental inquiry or investigation is pending against Metro which seeks to
restrain or prohibit or otherwise challenge the consummation, legality or
validity of the transactions contemplated hereby. Except as disclosed on
Schedule 4.18 hereto, no action, suit, proceeding or formal governmental inquiry
or investigation is pending against Metro. Other than as required to comply
with the provisions of the Hart-Scott-Rodino Act, the Securities Act, the
Exchange Act, the "takeover" or 'blue sky" laws of various states, and as set
forth on Schedule 4.10, no consent, approval or authorization of any
governmental authority is required in connection with the execution and delivery
of this Agreement or the consummation of any of the transactions contemplated
hereby, except where the failure to obtain any consent, approval or
authorization would not have a Material Adverse Effect.
4.19 Environmental Matters. Except as disclosed on Schedule 4.19:
---------------------
(a) the operations of Metro and its Subsidiaries are in compliance
with applicable Environmental Laws, except for such noncompliance which
would not result in a Material Adverse Effect;
(b) neither Metro nor any of its Subsidiaries is subject to any
pending or threatened judicial or administrative proceeding alleging the
violation of any Environmental Law, which proceeding would result in a
Material Adverse Effect;
(c) neither Metro nor any of its Subsidiaries has received any written
notice from any governmental authority that it is a potentially responsible
party at any Superfund site;
(d) neither Metro nor any of its Subsidiaries has disposed of or
released Hazardous Materials (nor are underground storage tanks present)
on, in or at any real property owned or leased by Metro or its Subsidiaries
in any quantity which would result in a Material Adverse Effect;
(e) Metro and its Subsidiaries have not disposed of or released any
Hazardous Materials in or at any other real property in any quantity which
would result in a Material Adverse Effect;
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(f) neither Metro nor any of its Subsidiaries has agreed to indemnify
any predecessor or other party, including a buyer, seller, landlord or
tenant, with respect to any environmental liability, other than customary
indemnity arrangements contained in leases where Metro or any of its
Subsidiaries is a landlord or tenant; and
(g) no other party has released Hazardous Materials at a concentration
or level which requires remedial action under any applicable Environmental
Law at any property now or formerly owned or operated by Metro or any of
its Subsidiaries or in a location that would threaten or contaminate such
properties in any material respect.
4.20 Collective Bargaining Agreements and Labor.
------------------------------------------
(a) Neither Metro nor any of its Subsidiaries is a party to any labor
or collective bargaining agreement; no labor or collective bargaining
agreements exist which pertain to employees of Metro or its Subsidiaries;
and no proceeding for the recognition of a labor union is pending.
(b) Except as set forth on Schedule 4.20 hereto, no pending
complaints, charges or claims against Metro or its Subsidiaries have been
filed with any public or governmental authority, arbitrator or court based
upon the employment or termination of employment by, or any act of
discrimination or harassment by, Metro or its Subsidiaries.
(c) Except as set forth on Schedule 4.20 hereto, Metro and its
Subsidiaries are in compliance with all laws, regulations and orders
relating to the employment of labor, including all such laws, regulations
and order relating to wages, hours, WARN, collective bargaining,
discrimination, civil rights, safety and health, workers' compensation and
the collection and payment of withholding and/or social security taxes and
any similar tax, except for such non-compliance as would not result in a
Material Adverse Effect.
4.21 Employee Benefit Plans; ERISA.
-----------------------------
(a) Schedule 4.21 hereto sets forth all material, written "employee"
benefit plans," as defined in Section 3(3) of ERISA, maintained by Metro or
its Subsidiaries or to which Metro or its Subsidiaries contributed or are
obligated to contribute thereunder for current or former employees of Metro
or its Subsidiaries (the "Metro Plans"). Schedule 4.21 hereto separately
identifies each Metro Plan which is a multiemployer plan, as defined in
Section 3(37) of ERISA ("Multiemployer Plan").
(b) True, correct and complete copies of the following documents, with
respect to each of Metro Plans (other than the Multiemployer Plans) have
been delivered to Eller and EMS by Metro or its Subsidiaries: (i) any
plans and related trust documents, and amendments thereto; (ii) the most
recent Forms 5500; (iii) the last Internal Revenue Service
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determination letter, if applicable; (iv) summary plan description; and (v)
the last actuarial valuation if the plan is a "defined benefit plan" as
defined in Section 3(35) of ERISA.
(c) Metro Plans intended to qualify under Section 401 of the Code and
the trusts maintained pursuant thereto are exempt from federal income
taxation under Section 501 of the Code, and nothing has occurred with
respect to the operation of the Metro Plans, which would cause the loss of
such qualification or exemption or the imposition of any liability, penalty
or tax under ERISA or the Code which would result in a Material Adverse
Effect.
(d) The Metro Plans have been maintained in accordance with their
terms and with all provisions of the Code and ERISA (including rules and
regulations thereunder) and other applicable federal and state laws and
regulations, except where the failure to so maintain would not result in a
Material Adverse Effect.
4.22 Employees At Will. Except for employees who are parties to the
-----------------
employment agreements set forth on Schedule 4.22, all of which shall be
terminated without cost to Metro effective on the Closing Date, all Metro
employees are employees at will whose employment with Metro may be terminated at
any time without cause.
4.23 Tangible Personal Property. Except for the Excluded Assets,
--------------------------
Schedule 4.23 sets forth a list of all of Metro's automobiles, trucks and cranes
and a description in reasonable detail of Metro's other tangible personal
property.
ARTICLE V
---------
REPRESENTATIONS AND
-------------------
WARRANTIES OF ELLER AND EMS
---------------------------
Each of Eller and EMS hereby represents and warrants to Metro that the
following representations and warranties are, as of the date hereof, and will
be, as of the Effective Date, true and correct:
5.1 Organization and Good Standing. Each of Eller and EMS is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation. Each of Eller and EMS has full corporate power
and authority to own its properties and carry on its business as it is now being
conducted. Each of Eller and EMS is duly qualified to do business as a foreign
corporation and is in good standing under the laws of:
(a) each jurisdiction in which it owns real property; and
(b) each other jurisdiction in which the conduct of its business or
the ownership of its assets requires such qualification and where a failure
to be so qualified or in good standing would not have a Material Adverse
Effect.
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5.2 Execution and Effect of Agreement. Each of Eller and EMS has the
---------------------------------
corporate power and authority to enter into this Agreement, to perform its
respective obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by each of Eller and EMS
and the consummation by each of Eller and EMS of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of each of Eller and EMS, and no other corporate proceeding on the part of Eller
and EMS is necessary to authorize the execution, delivery and performance of
this Agreement and the transactions contemplated hereby. This Agreement has
been duly executed and delivered by each of Eller and EMS and constitutes the
legal, valid and binding obligation of each of Eller and EMS, enforceable
against each of them in accordance with its terms, except as limited by
Bankruptcy and Equity Exceptions.
5.3 Restrictions. Neither the execution or delivery of this
------------
Agreement by Eller and EMS nor the consummation of the transactions contemplated
hereby:
(a) will violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge or restriction of any
government, governmental agency to which Eller or EMS is a party or by or
to which either of them is bound or subject, or the provisions of the
charter or bylaws of Eller or EMS; or
(b) will conflict with or result in a breach of, or give rise to a
right of termination of, or accelerate the performance required by, any
terms of any agreement to which Eller or EMS is a party, or constitute a
default thereunder, or result in the creation of any lien, security
interest, mortgage, deed of trust, pledge, hypothecation, easement or
conditional sale or other title retention agreement upon any of their
respective assets, except for such violations, conflicts, breaches, rights
of termination or acceleration, defaults and encumbrances that would not
have a Material Adverse Effect.
5.4 Litigation; Consents. No action, suit, proceeding or formal
--------------------
governmental inquiry or investigation is pending against Eller or EMS seeking
to restrain or prohibit or otherwise challenge the consummation, legality or
validity of the transactions contemplated hereby; and, except as expressly
contemplated hereby, no consent, approval or authorization of any governmental
authority on the part of Eller or EMS is required in connection with the
execution and delivery of this Agreement or the consummation of any of the
transactions contemplated hereby. No action, suit, proceeding or formal
governmental inquiry or investigation is pending against Eller or EMS which
would have a Material Adverse Effect.
5.5 Available Funds. Eller has authorized and available all funds
---------------
necessary to satisfy all of Eller's and EMS's obligations under this Agreement
in connection with the transactions contemplated by this Agreement, including
without limitation, the obligation to pay the aggregate Merger Consideration and
the BSON Capital Contribution pursuant to Article III hereof. The payment of
the aggregate Merger Consideration will not result in a violation of any federal
or state law.
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ARTICLE VI
----------
COVENANTS OF METRO,
-------------------
ELLER AND EMS
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6.1 Commission and Other Filings; Other Actions. Upon the terms and
-------------------------------------------
subject to the conditions contained herein:
(a) Metro shall prepare and file with the Commission as soon as is
reasonably practicable a proxy statement with respect to obtaining the
Requisite Stockholder Approval of the transactions contemplated by this
Agreement;
(b) Metro shall take all such action as reasonably may be required to
comply with the Exchange Act, the Securities Act, and all applicable state
statutes and the regulations thereunder;
(c) each of the parties hereto shall cooperate with one another in
determining whether any filings are required to be made with or consents or
permits required to be obtained from, any governmental authority in any
jurisdiction under any regulation, or from any lender, lessor or other
third party in connection with the contracts (including but not limited to
the Bus Shelter Contracts), the proprietary rights and leases, or
otherwise, prior to the Effective Date, in connection with the consummation
of the transactions contemplated hereby and cooperate in making any such
filings promptly and in seeking timely to obtain any such consents and
permits;
(d) each of the parties hereto shall furnish to each other party
hereto all such information in its possession as may be necessary for the
completion of such filings and submissions to be filed by the other party
hereto;
(e) each of the parties hereto shall use its Best Efforts to defend
all actions challenging this Agreement or the consummation of the Merger;
and to use its Best Efforts to lift or rescind any injunction or
restraining order or other court order adversely affecting the ability of
the parties to consummate the Merger; and
(f) each of the parties hereto shall use all reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
other things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement.
6.2 Access to Information. From and after the date hereof and until
---------------------
the Closing Date, Metro shall make available for inspection by Eller or EMS or
their respective representatives, upon reasonable advance notice, during normal
business hours and in a manner so as not to interfere with normal business
operations, all of Metro's corporate records, books of account, contracts and
all other documents in Metro's possession or control that are reasonably
requested by Eller or EMS, or
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by Eller's managerial employees, counsel and auditors in order to permit Eller,
EMS and their representatives to make reasonable inspection and examination of
the business and affairs of Metro. Metro shall cause its managerial employees,
counsel and regular independent certified public accountants to be available
upon reasonable advance notice to answer questions of Eller's and EMS's
representatives concerning the business and affairs of Metro. Each of Eller and
EMS and their respective representatives shall treat and hold as confidential
any information they receive from Metro in the course of the reviews
contemplated by this Section 6.2; shall not use any of the confidential
information except in connection with this Agreement; and if this Agreement is
terminated for any reason whatsoever, shall return to Metro all tangible
embodiments (and all copies) of such confidential information in their
possession.
6.3 Conduct of Business. From and after the date hereof and until
-------------------
the Closing Date, Metro shall cause the business of Metro to be conducted in the
ordinary course, consistent with the present conduct of its business. During
such period of time, except upon the prior written consent of Eller which
consent shall not be unreasonably withheld, Metro shall not:
(a) amend its Articles of Incorporation or Bylaws or comparable
organizational documents;
(b) issue any additional shares of capital stock, or issue, sell or
grant any option or right to acquire or otherwise dispose of or commit to
dispose of any of its authorized but unissued capital stock or other
corporate securities, except upon conversion or exercise of options and
other rights currently outstanding and set forth by name of option holder
and number of Shares subject to the option on Schedule 4.2 hereto;
(c) declare or pay any dividends or make any other distribution in
cash or property on its capital stock or other equity interests, except the
distributions of Excluded Assets;
(d) repurchase or redeem any shares of its capital stock or other
equity interests;
(e) incur any Indebtedness or other obligation or liability, except
obligations and liabilities incurred in the ordinary course of business or,
with the prior written consent of Eller in connection with the acquisition
of assets or capital stock for the purpose of expanding Metro's bus shelter
advertising business;
(f) enter into any employment agreement or become liable for any
bonus, profit-sharing incentive, or severance payment to any of its
officers, directors or employees, or otherwise change personnel policies,
compensation programs or benefit plans;
(g) grant any kind of Encumbrance with respect to any part of its
assets, real or personal, tangible or intangible, except Permitted
Encumbrances;
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(h) sell, transfer (other than the transfer of the Excluded Assets and
the elimination of all debt to or from BSON) or acquire (except in the
ordinary course of business) any properties or assets, real or personal,
tangible or intangible, including but not limited to, discounting or
transferring for less than full value any account receivable, without the
prior written consent of Eller;
(i) merge or consolidate with any corporation, acquire control or
acquire any capital stock or other securities of any other corporation or
business entity, or take any steps incident to or in furtherance of any
such actions whether by entering into an agreement providing therefor or
otherwise, without the prior written consent of Eller; nor
(j) take any other action not contemplated hereby which would cause
any of the representations and warranties made by Metro in this Agreement
not to be true and correct in all material respects on and as of the
Closing Date with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date.
6.4 Notification of Certain Matters. Metro shall give prompt written
-------------------------------
notice to Eller and EMS, and Eller and EMS shall give prompt written notice to
Metro, of:
(a) the occurrence, or failure to occur, of any event which occurrence
or failure would cause any representation or warranty contained in this
Agreement, the Disclosure Schedules or any written certificate or schedule
delivered pursuant hereto to be untrue or inaccurate in any material
respect at any time from the date of this Agreement through the Effective
Date; and
(b) any material failure of Metro, Eller, EMS or any of their
Affiliates, as the case may be, or of any officer, director, employee or
agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied under this Agreement; provided,
however, that no such notification shall affect the representations or
warranties of the parties or the conditions to the obligations to the
parties.
6.5 Employment of Accounting Personnel. From and after the Closing
----------------------------------
Date, Eller shall cause Metro to employ Ingrid Auld in the position of
Controller for a period of one year after the Closing Date. Metro shall cause
BSON to reimburse Eller monthly one-half of all wages and employment taxes,
resulting from such employment. This agreement between Eller and Metro shall
not create third-party beneficiary rights of any kind whatsoever, and Metro
shall have the right subsequent to the Closing Date to terminate such employee
with or without cause, provided that any termination without cause shall
constitute a breach of Eller's obligations to Metro under this Section.
6.6 Excluded Assets. Metro shall take all actions necessary or
---------------
appropriate to transfer the Excluded Assets to BSON (and the stock of BSON to
its new shareholders) on or before the Closing Date.
26
<PAGE>
6.7 Pending Litigation. Metro shall enter into, and shall cause BSON
------------------
to enter into, an agreement, effective on the Closing Date, in the form of the
Litigation Responsibility Agreement attached here to as Exhibit E, pursuant to
which BSON shall assume the financial responsibility to diligently pursue in a
reasonable and prudent manner the litigation listed on Items 3 through 5 on
Schedule 4.18. BSON shall be entitled to all financial benefits from
settlements or judicial awards or orders resulting from the pursuit of such
litigation.
6.8 Consulting Agreement. Metro shall cause BSON to enter into a
--------------------
Consulting Agreement with Eller effective on the Closing, and Eller shall enter
into such Agreement, in the form of the Consulting Agreement attached hereto as
Exhibit F (the "Consulting Agreement").
6.9 Van Wagner Litigation. From and after the Closing, Eller shall
---------------------
cause Metro to permit the Stockholder Representatives to (a) manage the conduct
of the Van Wagner Litigation; subject to consultation with Eller and Metro, and
(b) approve all costs, expenditures and settlements relating to the Van Wagner
Litigation prior to payment of such by Metro. All decisions regarding such
costs, expenditures and settlements shall be reasonably made by the Stockholder
Representatives and any differences shall be settled through arbitration in
accordance with the procedures set forth in Section 14.
ARTICLE VII
-----------
CONDITIONS PRECEDENT TO
-----------------------
ELLER'S AND EMS' OBLIGATIONS
----------------------------
The obligations of Eller and EMS to consummate the transactions
contemplated hereby are subject to the satisfaction, on or prior to the Closing
Date, of the following conditions, with the exception that in the event of the
failure of the conditions contained in Sections 7.8 and 7.16 below, Eller shall
remain obligated to consummate the transaction as provided herein pursuant to
Sections 3.5, 3.7, 3.9 and 3.10, as applicable, provided all of the other
conditions have been satisfied:
7.1 Representations and Warranties True. Each of the representations
-----------------------------------
and warranties of Metro contained in Article IV hereof shall be true and correct
in all material respects as of the Closing Date with the same force and effect
as though each had been made on and as of the Closing Date, except for (a) those
given as of a particular date, which shall be true and correct in all material
respects as of such date, and (b) those under Section 4.2 above for which
indemnification has been specifically provided pursuant to Section 5.1(d) of the
Damages Escrow Agreement.
7.2 Covenants Performed. Metro shall have performed and complied in
-------------------
all material respects with the covenants and provisions in this Agreement
required herein to be performed or complied with by Metro between the date
hereof and the Closing Date.
7.3 No Judicial or Administrative Restraint. No action or proceeding
---------------------------------------
shall have been instituted against Eller, EMS, Metro or its Subsidiaries before
any court or other governmental body,
27
<PAGE>
seeking to restrain or prohibit the consummation of the transactions
contemplated hereby, which in the reasonable opinion of Eller or EMS makes it
inadvisable to consummate such transactions. No governmental action or
proceeding shall have been instituted or threatened against Eller, EMS, Metro or
its Subsidiaries seeking to restrain or prohibit the consummation of the
transactions contemplated hereby, which in the reasonable opinion of Eller or
EMS makes it inadvisable to consummate such transactions.
7.4 Stockholder Approval. This Agreement and the Merger shall have
--------------------
been approved and adopted by the Requisite Stockholder Approval.
7.5 Officer's Certificate. Eller and EMS shall have received a
---------------------
certificate to the effect set forth in Sections 7.1, 7.2 and 7.4 above, dated
the Closing Date, signed by a duly authorized officer of Metro.
7.6 Board Approval. Eller and EMS shall have received a certificate
--------------
of a duly authorized officer of Metro, dated the Closing Date, setting forth
resolutions of the Board of Directors of Metro authorizing the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and certifying that such resolutions were duly adopted and have not been
rescinded or amended as of the Closing Date.
7.7 Damages Escrow Agreement. The Damages Escrow Agreement shall
------------------------
have been fully executed and delivered.
7.8 Van Wagner Agreements. Metro shall have terminated the Van
---------------------
Wagner Agreements and shall have delivered to Eller written evidence of their
termination in form and substance reasonably acceptable to Eller.
7.9 Consulting Agreement. Eller and BSON shall have entered into the
--------------------
Consulting Agreement.
7.10 Pending Litigation. Metro and BSON shall have entered into the
------------------
Litigation Responsibility Agreement.
7.11 Metro Stock Rights. All Metro Stock Rights shall have been
------------------
exercised.
7.12 BSON Reimbursement. Eller shall have received from BSON a
------------------
written undertaking, in form and substance reasonably acceptable to Eller, to
reimburse Eller for certain employee costs as set forth in Section 6.5 above.
7.13 Bus Shelter Contract Consents. Eller shall have received, in
-----------------------------
form and substance reasonably acceptable to Eller, the written consent to the
transaction contemplated by this Agreement, or the written confirmation that no
such consent is needed, from the government entities that are parties to the Bus
Shelter Contracts that are listed on Schedule 7.14 hereto.
28
<PAGE>
7.14 Opinion of Counsel. Eller shall have received a legal opinion
------------------
from Troy & Gould, P.C., counsel for Metro, dated as of the Closing Date, in
substantially the form set forth on Exhibit G hereto.
7.15 Bankruptcy Court Approval. Eller shall have received such
-------------------------
orders or other approvals of the transactions contemplated by this Agreement as
Eller reasonably deems necessary or appropriate from the United States
Bankruptcy Court for the Central District of California.
7.16 Pending Van Wagner/OSI Litigation. Metro shall have resolved,
---------------------------------
or provided for the resolution of, all pending and threatened litigation, in a
manner acceptable to Eller in its sole discretion, between Metro and the Van
Wagner Group.
7.17 Agreement of Merger. The Agreement of Merger duly executed by
-------------------
the parties shall have been filed with the Secretary of State of the State of
California.
7.18 Additional Escrow Agreements. If required by Section 3.7, the
----------------------------
Van Wagner Escrow Agreement and the Specific Performance Escrow Agreement shall
have been fully executed and delivered.
7.19 Price Adjustment Schedule. Eller shall have received and
-------------------------
approved a price adjustment schedule which sets forth the amounts of items
referenced in Section 3.6 (the "Price Adjustment Schedule").
ARTICLE VIII
------------
CONDITIONS PRECEDENT
--------------------
TO METRO'S OBLIGATION
---------------------
The obligations of Metro to consummate the transactions contemplated
hereby are subject to the satisfaction, on or prior to the Closing Date, of the
following conditions:
8.1 Representations and Warranties True. Each of the representations
-----------------------------------
and warranties of Eller and EMS contained in Article V hereof shall be true and
correct in all material respects as of the Closing Date with the same force and
effect as though the same had been made on and as of the Closing Date, except
for changes herein permitted or contemplated hereby.
8.2 Covenants Performed. Eller and EMS shall have performed and
-------------------
complied in all material respects with the covenants and provisions in this
Agreement required herein to be performed or complied with by Eller and EMS
between the date hereof and the Closing Date.
8.3 No Judicial or Administrative Restraint. No action or
---------------------------------------
proceeding, shall have been instituted against Eller, EMS, Metro or its
Subsidiaries before any court or other governmental body, seeking to restrain or
prohibit the consummation of the transactions contemplated hereby, which in
29
<PAGE>
the reasonable opinion of Metro makes it inadvisable to consummate such
transactions. No governmental action or proceeding shall have been instituted
or threatened against Eller, EMS, Metro or its Subsidiaries seeking to restrain
or prohibit the consummation of the transactions contemplated hereby, which in
the reasonable opinion of Metro makes it inadvisable to consummate such
transactions.
8.4 Stockholder Approval. This Agreement and the Merger shall have
--------------------
been approved and adopted by the Requisite Stockholder Approval.
8.5 Officers Certificate. Metro shall have received a certificate to
--------------------
the effect set forth in Sections 8.1 and 8.2 above, dated the Closing Date and
signed by a duly authorized officer of each of Eller and EMS.
8.6 Board Approval. Metro shall have received a certificate of a
--------------
duly authorized officer of each of Eller and EMS, dated the Closing Date,
setting forth the resolutions of the respective Board of Directors of each of
Eller and EMS authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, and certifying that such
resolutions were duly adopted and have not been rescinded or amended as of the
Closing Date.
8.7 Merger Consideration. As provided in Sections 3.5 and 3.7 above,
--------------------
Eller shall have made the deliveries required therein.
8.8 Damages Escrow Agreement. Eller, EMS and Metro shall have
------------------------
executed the Damages Escrow Agreement.
8.9 Pending Litigation. Metro and BSON shall have entered into the
------------------
Litigation Responsibility Agreement.
8.10 Consulting Agreement. Metro and Eller shall have entered into
--------------------
the Consulting Agreement.
8.11 No Action Letter or Registration. Metro shall have received
--------------------------------
from the Securities and Exchange Commission's staff a letter to the effect that
either (a) the distribution of the stock of BSON does not constitute a "sale" of
such stock under Section 2(3) of the Securities Act or (b) that the Securities
and Exchange Commission's staff shall not recommend enforcement action if the
distribution is effected without registration under the Securities Act or the
Securities Exchange Act of 1934; or, alternatively, if such letter does not
issue, appropriate registration under the securities laws shall have become
effective.
8.12 Agreement of Merger. The Agreement of Merger duly executed by
-------------------
the parties shall have been filed with the Secretary of State of the State of
California.
30
<PAGE>
8.13 Additional Escrow Agreements. If required by Section 3.7, the
----------------------------
Van Wagner Escrow Agreement and Specific Performance Escrow Agreement shall have
been fully executed and delivered.
ARTICLE IX
----------
MISCELLANEOUS
-------------
9.1 No Brokers. Metro represents to Eller and EMS, and Eller and EMS
----------
represent to Metro, that they respectively have had no dealings with any broker
or finder in connection with the transactions contemplated by this Agreement.
9.2 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties contained in this Agreement shall survive for a
period of three years following the Closing Date. Notwithstanding such
survival, Eller and EMS's sole recourse with respect to any breach by Metro of a
representation or warranty shall be as provided for in the Escrow Agreement.
9.3 Specific Performance. The parties hereto acknowledge that
--------------------
irreparable damage would result if this Agreement is not specifically enforced.
Therefore, the rights and obligations of the parties under the Agreement,
including, without limitation, their respective rights and obligations to effect
the Merger, shall be enforceable by a decree of specific performance issued by
any court of competent jurisdiction, and appropriate injunctive relief may be
applied for and granted in connection therewith. Such remedies shall, however,
be cumulative and not exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise.
9.4 Termination. Anything contained in this Agreement to the
-----------
contrary notwithstanding, any of the parties may terminate this Agreement
without the prior authorization of its Board of Directors (whether before or
after stockholder approval) as provided below:
(a) At any time on or prior to the Effective Date, by the mutual
consent in writing of Eller, EMS and Metro;
(b) Eller and EMS may terminate this Agreement by giving written
notice to Metro at any time prior to the Effective Date (i) in the event
Metro has breached any material representation, warranty or covenant
contained in this Agreement in any material respect, Eller or EMS has
notified Metro of the breach, and the breach has continued without cure for
a period of 30 days after the notice of breach, or (ii) if the Closing
shall not have occurred on or before January 31, 1998, by reason of the
failure of any condition precedent under Article VI hereof (unless the
failure results primarily from Eller or EMS breaching any representation,
warranty or covenant contained in this Agreement);
(c) Metro may terminate this Agreement by giving written notice to
Eller and EMS at any time prior to the Effective Date (i) in the event
Eller or EMS has breached any
31
<PAGE>
material representation, warranty or covenant contained in this Agreement
in any material respect, Metro has notified Eller and EMS of the breach,
and the breach has continued without cure for a period of 30 days after
notice of breach, or (ii) if the Closing shall not have occurred on or
before January 31, 1998, by reason of the failure of any condition
precedent under Article VII hereof (unless the failure results primarily
from Metro breaching any representation, warranty or covenant contained in
this Agreement);
(d) Any party may terminate this Agreement by giving written notice to
the other parties at any time after the Stockholders' Meeting in the event
this Agreement and the Merger fail to receive the Requisite Stockholder
Approval.
In the event that this Agreement shall be terminated pursuant to this Section
9.4, (i) each party shall redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same, and (ii) all further obligations of the parties under this
Agreement shall terminate without further liability of any party to any other
party (except for any liability of any party then in breach); provided, however,
that Sections 9.5 and 9.11 below shall survive such termination.
Notwithstanding the foregoing any willful or intentional breach of any
representation, warranty, covenant or agreement set forth in this Agreement by
any party to this Agreement, prior to the Effective Date, shall not limit or
restrict the availability of specific performance or other injunctive relief to
the extent that specific performance or such other relief would otherwise be
available to a party hereunder.
9.5 Confidentiality; Press Releases.
-------------------------------
(a) Eller and EMS agree to keep non-public information regarding Metro
confidential and agree that they shall only use such information in
connection with the transactions contemplated by this agreement and not
disclose any of such information other than (i) to Eller's, EMS's, and
Clear Channel Communication, Inc.'s directors, officers, employees,
representatives, and agents who are involved with the transactions
contemplated by this Agreement, (ii) to the extent such information
presently is or hereafter becomes available, on a non-confidential basis,
from a source other than Metro, and (iii) to the extent disclosure is
required by law, regulation or judicial order by any governmental
authority.
(b) Metro agrees to keep non-public information regarding Eller and
EMS confidential and agrees that it shall only use such information in
connection with the transactions contemplated by this Agreement and not
disclose any of such information other than (i) to Metro's directors,
officers, employees, representatives, and agents who are involved with the
transactions contemplated by this Agreement, (ii) to the extent such
information presently is or hereafter becomes available, on a non-
confidential basis, from a source other than Eller or EMS, and (iii) to the
extent disclosure is required by law, regulation or judicial order by any
governmental authority.
32
<PAGE>
(c) Prior to any disclosure required by law, regulation or judicial
order, Eller, EMS or Metro, as the case may be, shall advise each of the
others of such requirement so that it may seek a protective order.
(d) None of Eller, EMS or Metro shall make any press release or public
announcement in connection with the transactions contemplated hereby
without the prior written consent of the other party or, if required by
law, without prior consultation with the other party.
9.6 Notices. Any notices or other communications required or
-------
permitted hereunder, shall be sufficiently given if in writing and personally
delivered or sent by pre-paid first class mail, overnight courier, telex or
facsimile, addressed as follows or to such other address as the parties shall
have given notice of pursuant hereto:
In the case of Eller or EMS:
Scott S. Eller, President
Eller Media Company
2850 East Camelback Road, Ste. 300
Phoenix, AZ 85016
Fax: 602/957-8602
With a copy to:
Paul J. Meyer, General Counsel
Eller Media Company
2850 East Camelback Road, Ste. 300
Phoenix, AZ 85016
Fax: 602/381-5740
In the case of Metro:
Scott A. Kraft, President
and Chief Executive Officer
Metro Display Advertising, Inc.
15265 Alton Parkway
Irvine, CA 92618
Fax: 714/727-9145
With a copy to:
33
<PAGE>
Martin T. Goldblum
Troy & Gould, P.C.
1801 Century Park East
Suite 1600
Los Angeles, CA 90067-2302
Fax: 310/201-4746
All such notices and communications shall be deemed to have been duly given:
when personally delivered; three business days after being deposited in the
mail, as aforesaid; next day, if by overnight courier with guaranteed delivery;
when answered back, if telexed; and when receipt is acknowledged; if transmitted
by facsimile.
9.7 Entire Agreement. This Agreement together with all exhibits and
----------------
schedules hereto (including the Disclosure Schedules) represents the entire
understanding and agreement among the parties hereto with respect to the subject
matter hereof and supersedes all prior understandings and agreements, whether
written or oral, and can be amended, supplemented or changed, and any provision
hereof can be waived, only by written instrument making specific reference to
this Agreement signed by the party against whom enforcement of any such
amendment, supplement modification or waiver is sought. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar) nor shall such waiver constitute
a continuing waiver unless otherwise expressly provided.
9.8 Successors. This Agreement shall be binding upon and shall inure
----------
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that this Agreement and all rights and obligations
hereunder may not be assigned or transferred without the prior written consent
of the other parties hereto, and except that the Stockholders may not assign any
rights and/or obligations which they may have hereunder. Eller may assign its
rights hereunder to a wholly-owned subsidiary of Eller or to Clear Channel
Communications, Inc.
9.9 Choice of Law. This Agreement shall be construed, interpreted
-------------
and the rights of the parties determined in accordance with California Law
(without reference to the choice of law provisions of California Law) except
with respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
9.10 Amendments to Disclosure Schedules. Notwithstanding the
----------------------------------
foregoing, between the date hereof and the Closing Date, Metro may add to the
Disclosure Schedules by notification in writing to Eller and EMS of the matter
to be added or amended. If Eller and EMS shall not object to such addition or
amendment within five days of notice (as provided in Section 9.6 above) or by
the Closing Date, whichever is earlier, Eller and EMS shall be deemed to have
accepted such addition or amendment. If Eller or EMS timely notifies Metro of
their objection to any such addition or amendment, and if the parties are unable
to reach agreement with respect to the proposed addition or amendment for a
period of ten days after Eller's or EMS's notice of objection, then this
Agreement may be terminated by either party without any liability of any party
to the other.
34
<PAGE>
9.11 Expenses. Whether or not the transactions contemplated hereby
--------
are consummated, the parties hereto shall pay their own respective legal,
accounting, out-of-pocket and other expenses, except that Eller and Metro shall
divide and share equally filing fees in connection with government filings
necessary to consummate the transactions contemplated hereby. If the
transactions contemplated by this Agreement are consummated, such expenses of
Metro shall be paid by the Disbursement Agent from the aggregate Cash Merger
Consideration.
9.12 Severability. If at any time subsequent to the date hereof, any
------------
provision of this Agreement shall be held by any court of competent jurisdiction
to be illegal, void or unenforceable, such provision shall be of no force and
effect, but the illegality or unenforceability of such provision shall have no
effect upon and shall not impair the enforceability of any other provision of
this Agreement.
9.13 Titles. The titles, captions or headings of the Sections herein
------
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
9.14 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
9.15 No Third-Party Beneficiaries. No person (other than parties to
----------------------------
this Agreement or their respective successors or permitted assigns) shall have
or be construed to have any legal or equity right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
9.16 Construction. The parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue or authorship of any provision
of this Agreement.
9.17 Cumulative Remedies. All rights and remedies of any party
-------------------
hereto are cumulative of each other and of every right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
9.18 Amendment and Modification. At any time prior to the filing of
--------------------------
the Agreement of Merger with the California Secretary of State, this Agreement
may be terminated by the agreement of the Boards of Directors of Eller, EMS and
Metro notwithstanding approval thereof by the stockholders of Metro; and such
Boards of Directors may amend this Agreement at any time prior to the filing of
such Certificate with the Secretary of State of the State of California provided
that an amendment made subsequent to the adoption of this Agreement by the
stockholders of Metro
35
<PAGE>
shall be approved by all of such Boards of Directors and shall not (a) alter or
change the amount of the Merger Consideration or (b) alter or change any of the
terms and conditions of this Agreement or the Agreement of Merger if such
alteration or change would adversely affect the holders of any Shares of Metro.
9.19 Metro Sales Agreement Indemnity. Metro shall indemnify and hold
-------------------------------
harmless Eller, its stockholders, directors and officers, from and against all
losses claims, demands, liabilities, obligations, damages, deficiencies,
assessments, judgments, payments, penalties, costs and expenses (including
without limitation reasonable attorneys fees, any amounts paid in investigation,
defense or settlement of any of the foregoing) incurred in connection with,
arising out of, resulting from or incident to the execution, delivery and
performance by Eller of that certain Interim Sales Agreement entered into by
Eller and Metro and dated as of May 27, 1997.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
METRO DISPLAY ADVERTISING, INC.,
a California corporation
By ______________________________
Scott A. Kraft, President
and Chief Executive Officer
ELLER MEDIA COMPANY
a Delaware corporation
By _______________________________
Scott S. Eller, President
EMS, INC., a California corporation
By _______________________________
Scott S. Eller, President
36
<PAGE>
EXHIBIT B
SPECIFIC PERFORMANCE ESCROW AGREEMENT
THIS SPECIFIC PERFORMANCE ESCROW AGREEMENT, dated as of this____day of
____________199_ (this "Agreement"), is among Eller Media Company, a Delaware
corporation ("Eller") and a subsidiary of Clear Channel Communications, Inc., a
Delaware corporation ("Clear Channel); Scott A. Kraft, Allan L. Ross, M.D., and
Robert C. Lamb, as stockholder representatives (such stockholder representatives
and their successors, as determined in accordance with this Agreement, shall be
referred to collectively herein as the "Stockholder Representatives"), and
________________, as escrow agent, a national banking association with its
office at ________________________(the "Escrow Agent").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, Eller
is acquiring all of the issued and outstanding shares of capital stock of Metro
Display Advertising, Inc., a California corporation (the "Company"), pursuant to
an Amended and Restated Agreement and Plan of Merger, dated as of December__,
1997 (the "Merger Agreement"), between Eller and the Company.
B. Eller, the Company and the Stockholder Representatives have agreed to
set aside a portion of the Merger Consideration to be paid to the Stockholders
pursuant to Section 3.5 of the Merger Agreement for the purposes of providing
Eller with a remedy in the event that any member of the Van Wagner Group is
granted specific performance of any part of the Van Wagner Agreements and/or in
the event that Eller is granted an arbitration award pursuant to the terms set
forth herein.
C. A material condition to the consummation of the transactions
contemplated by the Merger Agreement is that the parties hereto enter into this
Agreement.
NOW THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. Except as hereinafter defined, capitalized terms used in
-----------
this Agreement will have the meanings assigned to such terms in the Merger
Agreement.
1.1 "Claim" shall mean a claim by Eller for Damages pursuant to
-----
Section 5 of this Agreement.
1.2 "Claim Expiration Date" shall mean the earlier of (a) the date on
---------------------
which Eller receives evidence acceptable to Eller in its sole
reasonable discretion that the only remedy available to the Van
Wagner Group in the Van Wagner Litigation is monetary damages and
(b) 90 days after entry of a final non-appealable determination as
to Estimated Damages.
<PAGE>
1.3 "Claim Notice" shall have the meaning set forth in Section 5 of
------------
this Agreement.
1.4 "Company" shall have the meaning set forth in Recital A of this
-------
Agreement.
1.5 "Company Common Stock" shall mean the common stock, no par value,
--------------------
of the Company.
1.6 "Damages" shall have the meaning set forth in Section 4 of this
-------
Agreement.
1.7 "Estimated Damages" shall have the meaning set forth in Section 5
-----------------
of this Agreement.
1.8 "Eller" shall have the meaning set forth in the first (1st)
-----
paragraph of this Agreement.
1.9 "Escrow Agent" shall have the meaning set forth in the first
------------
(1st) paragraph of this Agreement.
1.10 "Escrow Fund" shall mean all or that portion of the aggregate
-----------
Specific Performance Escrow Merger Consideration being held by
the Escrow Agent subject to the terms of this Agreement.
1.11 "Final Instruction" shall mean a written notice, signed both by
-----------------
Eller and the Stockholder Representatives (except as otherwise
provided in Sections 6.2 or 6.4 below), and given to the Escrow
Agent directing the disbursement to Eller of an amount of Damages
or Estimated Damages, as applicable, with respect to a Claim.
1.12 "Merger Agreement" shall have the meaning set forth in Recital A
----------------
of this Agreement.
1.13 "Stockholder Representatives" shall have the meaning set forth in
---------------------------
the first (1st) paragraph of this Agreement.
1.14 "Stockholder" or "Stockholders" shall mean the record owners of
-----------------------------
the Company Common Stock on the Closing Date pursuant to the
Merger Agreement.
2. APPOINTMENT OF ESCROW AGENT. Eller and the Stockholder Representatives
----------------------------
hereby designate and appoint__________________as Escrow Agent for the purposes
set forth in this Agreement, and__________________hereby accepts such
appointment on the terms herein provided.
2
<PAGE>
3. DEPOSIT AND INVESTMENT OF THE MERGER CONSIDERATION.
--------------------------------------------------
3.1 Simultaneously with the execution and delivery of this Agreement,
Eller shall deliver to the Escrow Agent the Merger Consideration, which includes
the aggregate Specific Performance Escrow Merger Consideration, by wire
transfer.
3.2 The Escrow Agent shall invest the Merger Consideration in such
money market accounts, United States Treasury obligations, and other obligations
guaranteed by the United States Government or an agency thereof, reasonably
determined by Eller.
3.3 Except as otherwise set forth herein, the Escrow Agent, acting in
its capacity as Disbursement Agent, shall disburse to the Stockholders during
the term of this Agreement, pro rata in accordance with their percentage
interest in the Shares, the accrued interest from the Escrow Fund in consecutive
quarterly installments, commencing with April 1, 1998.
4. ELLER'S RIGHTS TO INDEMNIFICATION. Eller, the Company, and any other
---------------------------------
affiliate of either, shall be entitled to indemnification from the Escrow Fund
from and against all actual and estimated losses, claims, demands, liabilities,
obligations, damages, deficiencies, assessments, judgments, payments, penalties,
costs and expenses (including without limitation reasonable attorneys fees), any
amounts paid in investigation, defense or settlement of any of the foregoing
(collectively, "Damages") actually incurred or which are estimated to be
incurred in connection with, arising out of, resulting from or incident to an
award of specific performance of any part of the Van Wagner Agreements.
5. PROCEDURE FOR ASSERTING CLAIM TO ESCROW FUND. Eller shall have the
--------------------------------------------
right to make one or more claims for Damages or Estimated Damages, as
applicable, (a "Claim") on or prior to the Claim Expiration Date by delivering a
notice of such Claim (a "Claim Notice") to the Stockholder Representatives and
the Escrow Agent. Such Claim Notice shall state with particularity the basis for
the Claim together with sufficient facts to enable the Stockholder
Representatives to reasonably evaluate the Claim, and Eller's estimate of the
aggregate amount of the resulting Damages. If Eller has not received, prior to
the fifth anniversary of the date hereof, evidence acceptable to it in its sole
reasonable discretion that the only remedy available to the Van Wagner Group in
the Van Wagner Litigation is monetary damages, then the following issues shall
be submitted to arbitration in accordance with the procedures set forth in
Section 14 below:
(1) the percentage likelihood that a court having competent
jurisdiction over the matter will rule that the Van Wagner Group or
any member thereof is entitled to specific performance of any portion
of the Van Wagner Agreements; and
(2) the estimated amount of Eller's and/or Metro's losses if specific
performance of any portion of the Van Wagner Agreements were
available.
3
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The figures set forth above, as determined by the arbitrator, shall then be
multiplied to determine the "Estimated Damages."
6. DETERMINATION OF VALID ELLER CLAIM; FINAL INSTRUCTION. A Final
-----------------------------------------------------
Instruction shall be delivered to the Escrow Agent with respect to a Claim under
the following circumstances and accompanied by the indicated documentation.
6.1 If the Stockholder Representatives dispute either the validity,
amount or calculation of the Claim, they shall give written notice of such
dispute to Eller, with a copy to the Escrow Agent, within twenty (20) Business
Days after the delivery of the Claim Notice by Eller to the Stockholder
Representatives. In such circumstances, no Final Instruction may be given to the
Escrow Agent except as provided in Sections 6.3 or 6.4 below.
6.2 If the Stockholder Representatives fail to respond to the Claim
Notice within twenty (20) Business Days after it is delivered to the Stockholder
Representatives and the Escrow Agent, or if the Stockholder Representatives
notify the Escrow Agent that the Claim is not disputed, Eller shall have the
right to deliver to the Escrow Agent a Final Instruction with respect to the
Claim, signed only by Eller.
6.3 If the Stockholder Representatives and Eller reach an agreement on
the proper amount of the Claim, the Stockholder Representatives and Eller shall
give to the Escrow Agent a Final Instruction with respect to the Claim, signed
by both the Stockholder Representatives and Eller.
6.4 If the Stockholder Representatives and Eller are unable to reach an
agreement with respect to the proper determination of the Claim, the disputed
Claim shall be submitted by Eller and the Stockholder Representatives to
arbitration pursuant to Section 14 below. Upon final, nonappealable resolution
of such disputed Claim, either the Stockholder Representatives or Eller shall
have the right to deliver to the Escrow Agent a Final Instruction with respect
to the Claim based on and in compliance with the final, nonappealable resolution
of the Claim, signed only by the Stockholder Representatives or by Eller, and
accompanied by a copy of any arbitration award, or judgment or any court order
with respect thereto.
6.5 Upon receipt of a Final Instruction in accordance with this
Section, the Escrow Agent shall disburse to Eller from the Escrow Fund such
amount of Damages or Estimated Damages, as applicable and if any, as shall be
set forth in the Final Instruction, and shall distribute any remaining portion
of the Escrow Fund in accordance with Section 7 below. Under no circumstances
shall the Escrow Agent distribute any portion of the Escrow Fund with respect to
any Claim Notice received by the Escrow Agent after the Claim Expiration Date.
6.6 Damages to which Eller is entitled pursuant to a Final Instruction
shall be paid thirty (30) days following receipt of the Final Instruction.
4
<PAGE>
7. DISTRIBUTION OF ESCROW FUND. If Eller fails to make a Claim on or prior
---------------------------
to the Claim Expiration Date, then as promptly as practicable thereafter (and in
no event later than ten (10) Business Days following the Claim Expiration Date),
the Escrow Agent shall disburse the Escrow Fund (including any interest thereon)
to the Stockholders pro rata in accordance with their respective ownership of
Company Common Stock on the Closing Date. If Eller timely makes a Claim, and if
at or after the expiration of the Claim Expiration Date, Eller's Claims (whether
or not in dispute) aggregate less than the remaining amount of the Escrow Fund,
then the Escrow Agent shall deliver the remaining amount of the Escrow Fund
(less 110% of the amount of Eller's Claims) to the Stockholders pro rata in
accordance with their respective ownership of Company Common Stock on the
Closing Date, and the balance, if any, after resolution of Eller's Claims. If,
however, Eller timely makes a Claim or Claims in accordance with Section 5
above, and if at the expiration of the Claim Expiration Date, such Claim or
Claims (whether or not in dispute) aggregate more than the remaining amount of
the Escrow Fund, then, only after the Escrow Agent's receipt of (and
distributions of Damages with respect to) Final Instructions for all such
Claims, shall the Escrow Agent deliver any remaining portion of the Escrow Fund
to the Stockholders pro rate in accordance with their respective ownership of
Company Common Stock on the Closing Date.
8. RELIANCE BY ESCROW AGENT; LIABILITY OF ESCROW AGENT. The Escrow Agent
---------------------------------------------------
shall be protected in acting upon any written notice, request, waiver, consent,
certificate, receipt, authorization or other paper or document that the Escrow
Agent believes to be genuine and what it purports to be. The Escrow Agent may
confer with its own corporate or outside legal counsel in the event of any
dispute or question as to the construction of any of the provisions hereof, or
its duties hereunder, and shall incur no liability and shall be fully protected
in acting in accordance with the written opinions of such counsel. The duties of
the Escrow Agent hereunder will be limited to the observance of the express
provisions of this Agreement. The Escrow Agent will not be subject to, or be
obliged to recognize, any other agreement between the parties hereto or
directions or instructions not specifically set forth as provided for herein.
The Escrow Agent will not make any payment or disbursement from or out of the
Escrow Fund that is not expressly authorized pursuant to this Agreement. The
Escrow Agent may rely upon and act upon any instrument received by it pursuant
to the provisions of this Agreement that it reasonably believes to be genuine
and in conformity with the requirements of this Agreement. The Escrow Agent
undertakes to use the same degree of care and skill in performing its services
hereunder as an ordinary prudent person would do or use under the circumstances
in the conduct of his or her own affairs. The Escrow Agent will not be liable
for any action taken or not taken by it under the terms hereof in the absence of
breach of its obligations hereunder or gross negligence or willful misconduct on
its part.
9. INDEMNIFICATION OF ESCROW AGENT. Eller, on the one hand, and the
-------------------------------
Stockholders collectively, on the other, will indemnify and hold the Escrow
Agent harmless from and against any and all losses, costs, damages or expenses
(including but not limited to, reasonable attorneys' fees) it may sustain by
reason of its service as Escrow Agent hereunder, and except such losses, costs,
damages or expenses (including but not limited to, reasonable attorneys' fees)
incurred by reason of such acts or omissions for which the Escrow Agent is
liable or responsible under Section 8 of this Agreement. Any indemnification
amounts payable pursuant to this Section 9 shall be paid one-half
5
<PAGE>
by Eller, on the one hand, and one-half solely from the Escrow Fund by the
Stockholders collectively, on the other.
10. STOCKHOLDER REPRESENTATIVES; SUCCESSOR STOCKHOLDER REPRESENTATIVES.
------------------------------------------------------------------
10.1 The Stockholders have made, constituted and appointed the
Stockholder Representatives as their agent and authorized and empowered them to
fulfill the role of Stockholder Representatives hereunder. The Stockholder
Representatives shall act on the basis of majority vote, and any writing on
behalf of the Stockholders Representatives, including instructions and notices
under this Agreement, shall be valid and effective for all purposes if signed by
any two (2) Stockholder Representatives.
10.2 The Stockholders entitled to receive a majority of the Escrow
Fund may remove the Stockholder Representatives at any time. If a Stockholder
Representative should die, resign, become incapacitated or be removed by the
Stockholders pursuant to this Section 10.2, his successor shall be Mark Boileau;
and if he or another Stockholder Representative should refuse to serve, die,
resign, become incapacitated, or be removed, the next successor shall be Michael
Slater. Thereafter, the remaining Stockholders entitled to receive a majority
of the Escrow Fund shall appoint each successor within twenty-one (21) days of a
Stockholder Representative's resignation, death, incapacity or removal. Such
successor shall be either a Stockholder or shall otherwise be acceptable to
Eller. If the Stockholders fail to appoint a successor within such twenty-one
(21)-day period, then Eller shall have the right to appoint the successor from
among the Stockholders. The choice of a successor Stockholder Representative
appointed in any manner permitted above shall be final and binding upon all of
the Stockholders. The decisions and actions of any successor Stockholder
Representative shall be, for all purposes, those of a Stockholder Representative
as if originally named herein.
10.3 Each Stockholder has made, constituted and appointed the
Stockholder Representatives as such person's true and lawful attorney in fact
and agent, for such person and in such person's name, (a) to receive all notices
and communications directed to such Stockholder under this Agreement and the
Merger Agreement, (b) to execute and deliver any and all documents required to
be executed and delivered by such holder pursuant to this Agreement or the
Merger Agreement in order to effect the transactions contemplated hereby, and
(c) to execute and deliver all instruments and documents of every kind incident
to the foregoing with the same effect as such Stockholder could do personally.
10.4 The designation of the Stockholder Representatives as
attorney-in-fact is coupled with an interest and is binding upon the
Stockholders notwithstanding the death, incapacity or dissolution of any
Stockholder. If any such event shall occur prior to the completion of the
transactions contemplated by this Agreement, the Stockholder Representatives
are, nevertheless, to the extent that they are legally able to do so, authorized
and directed to complete all transactions and act pursuant to this authority as
if such event had not occurred. Eller is entitled to deal solely with the
Stockholder Representatives in connection with this Agreement and is entitled to
rely upon the
6
<PAGE>
provisions hereof and the authority granted to the Stockholder Representatives
to act on behalf of the Stockholders.
10.5 The Stockholder Representatives' acceptance of their duties under
this Agreement is subject to the following terms and conditions, which the
parties hereto agree shall govern and control with respect to the rights,
duties, liabilities and immunities of the Stockholder Representatives (but not
in their capacity as a Stockholder or as an officer, director, or employee of
the Company):
(a) The Stockholder Representatives make no representation and
have no responsibility as to the validity of this Agreement or of any
other instrument referred to herein, or as to the correctness of any
statement contained herein, and they shall not be required to inquire
as to the performance of any obligation under this Agreement.
(b) The Stockholder Representatives shall be protected in acting
upon written notice, request, waiver, consent, receipt or other paper
or document, not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth of any
information therein contained, which they in good faith believe to be
genuine and what it purports to be.
(c) The Stockholder Representatives shall not be liable for any
error of judgment, or for any act done or step taken or omitted by them
in good faith, or for any mistake of fact or law, or for anything which
they may do or refrain from doing in connection therewith, except as a
result of their own gross negligence or willful misconduct.
(d) The Stockholder Representatives may consult with competent
and responsible legal counsel selected by them and they shall not be
liable for any action taken or omitted by them in good faith in
accordance with the advice of such counsel.
(e) The Stockholders shall bear pro rata all expenses incurred by
the Stockholder Representatives in connection with their duties
hereunder and shall indemnify them against and save them harmless from
any and all claims, liabilities, costs, payments and expenses,
including fees of counsel (who may be selected by the Stockholder
Representatives), for anything done or omitted by them in the
performance of this Agreement or the Merger Agreement, except as a
result of their own gross negligence or willful misconduct.
(f) The Stockholder Representatives shall have no duties or
responsibilities except those expressly set forth herein and in the
Merger Agreement. They shall not be bound by any modification under
this Agreement or the Merger Agreement unless it is in writing and
signed by the other parties hereto or thereto,
7
<PAGE>
and if their duties as Stockholder Representatives hereunder or
thereunder are affected, unless they shall have given prior written
consent thereto.
11. FEES AND EXPENSES OF THE ESCROW AGENT. All fees of the Escrow Agent
-------------------------------------
for its services hereunder, together with any expenses it reasonably incurs in
connection with this Agreement, shall be paid by Eller.
12. RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign from its
---------------------------
duties hereunder by giving each of the parties hereto not less than (60) days
prior written notice of the effective date of such resignation. A substitute
Escrow Agent shall be appointed by mutual agreement of Eller and the Stockholder
Representatives to fulfill the duties of the Escrow Agent hereunder for the
remaining term of this Agreement. If on or before the effective date of such
resignation, a substitute Escrow Agent has not been appointed, the Escrow Agent
shall thereupon deposit the Escrow Fund into the registry of a court of
competent jurisdiction.
13. DESIGNEES FOR INSTRUCTIONS. Eller, may, by notice to the Escrow
--------------------------
Agent, designate one or more persons who will execute notices and from whom the
Escrow Agent may take instructions hereunder. Such designations may be changed
from time to time upon notice to the Escrow Agent from Eller. The Escrow Agent
shall be entitled to rely conclusively on any notices or instructions from any
person so designated by Eller.
14. ARBITRATION. Any dispute arising under this Agreement, or arbitration
-----------
proceeding required by Section 5 for purposes of determining Estimated Damages,
shall be resolved by binding arbitration conducted in Los Angeles, California,
after written demand from one party to the other. If the parties cannot agree on
a single arbitrator within thirty (30) days after written demand for
arbitration, the arbitrator shall be selected pursuant to the rules and
regulations of the American Arbitration Association governing commercial
transactions. The arbitration proceeding shall be conducted within ninety (90)
days of any demand for arbitration. If reasonable, as determined by the
arbitrator, it shall be conducted on a single day with each party being allowed
an equal amount of time to present its case. No discovery shall be allowed
except that each party shall submit to the other and to the arbitrator, no later
than thirty (30) days prior to the proceeding, copies of all documents to be
presented, the names and occupations of all proposed witnesses, and a written
summary of the substance of their proposed testimony. The arbitrator shall
exclude any evidence not presented within such time period to the other party
and the arbitrator as required by this Section. The parties shall submit such
legal briefing or other statements of position as the arbitrator may request.
Eller shall pay one-half of the costs of any such arbitrator, and the
Stockholders shall be responsible for paying one-half of such costs solely out
of the Escrow Fund. Any arbitration decision or award shall be final and not
subject to appeal to any court of law, except in the case of a manifest error in
the application of law. Eller and the Stockholder Representatives on behalf of
the Stockholders specifically covenant to one another that they shall not
commence litigation against one another with respect to any dispute subject to
arbitration hereunder for any reason except as may be necessary to enforce this
Section or an arbitrator's decision or award. In the event litigation shall be
required to enforce this Section or the arbitrator's decision or award, the
prevailing party shall be paid its reasonable attorney's fees and costs.
8
<PAGE>
15. INSPECTION. All property held as part of the escrow shall at all
----------
times be clearly identified as being held by the Escrow Agent hereunder. Any
party hereto may at any time during normal business hours (with reasonable
notice) inspect any records or reports relating to the Specific Performance
Escrow Merger Consideration.
16. NOTICES. All notices, requests, demands and other communications
-------
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express); and
----
upon receipt, if sent by certified or registered mail, return receipt requested.
Notwithstanding the foregoing, a Claim Notice delivered pursuant to Section 5
hereof and a Final Instruction provided pursuant to Section 6 hereof shall be
deemed to have been duly given only if delivered personally, by recognized
overnight delivery or by certified registered mail and if receipt of such Claim
Notice or such Final Instruction, as the case may be, was acknowledged in
writing. In each case notice shall be sent to:
If to Eller:
Scott S. Eller, President
ELLER MEDIA COMPANY
2850 East Camelback Road, Suite 300
Phoenix, Arizona 85016
Fax: 602/957-8602
With a copy to:
Paul J. Meyer, General Counsel
ELLER MEDIA COMPANY
2850 East Camelback Road, Suite 300
Phoenix, Arizona 85016
Fax: 602/381-5740
If to the Stockholder Representatives:
Scott A. Kraft, President
and Chief Executive Officer
c/o BUSTOP SHELTERS OF NEVADA
5425 South Valley View, Suite 103
Las Vegas, NV 89118
Fax: 702/795-3658
With a copy to:
9
<PAGE>
Martin T. Goldblum
TROY & GOULD, P.C.
1801 Century Park East
Suite 1600
Los Angeles, CA 90067-2302
Fax: 310/201-4746
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
17. ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of the
--------------------------
rights or obligations hereunder may be assigned by any party without the prior
written consent of the other parties. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
18. AMENDMENT AND TERMINATION. This Agreement may be amended or modified
-------------------------
by and upon written notice to the Escrow Agent given jointly by Eller and the
Stockholder Representatives, but the duties and responsibilities of the Escrow
Agent may not be increased without its written consent. This Agreement will
terminate on the date on which all the Escrow Fund has been distributed in
accordance with the terms set forth herein.
19. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. SEVERABILITY AND FURTHER ASSURANCES. This Agreement and the Specific
-----------------------------------
Performance Escrow Agreement constitute the entire agreement among the parties
and supersedes all prior and contemporaneous agreements and undertakings on the
parties in connection herewith. No failure or delay of the Escrow Agent in
exercising any right, power or remedy may be, or may be deemed to be, a waiver
thereof; nor may any single or partial exercise of any right, power or remedy
preclude any other or further exercise of any right, power or remedy. In the
event that any one or more of the provisions contained in this Agreement, shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
then to the maximum extent permitted by law, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement. Each
of the parties hereto shall, at the request of the other party, deliver to the
requesting party all further documents or other assurances as may reasonably be
necessary or desirable in connection with this Agreement.
21. TITLES. The titles, captions or headings of the Sections herein are
------
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
22. GOVERNING LAW. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of California without regard to the
principles of conflicts of laws.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the date first written above.
ELLER MEDIA COMPANY
By ___________________________________
Scott S. Eller, President
ESCROW AGENT
By ___________________________________
Name:
Title:
STOCKHOLDER REPRESENTATIVES
By ___________________________________
Scott A. Kraft
By:__________________________________
Allan L. Ross, M.D.
By:__________________________________
Robert C. Lamb
<PAGE>
EXHIBIT C
VAN WAGNER ESCROW AGREEMENT
THIS VAN WAGNER ESCROW AGREEMENT, dated as of this ______ day of _____
__________ 199__ (this "Agreement"), is among Eller Media Company, a Delaware
corporation ("Eller") and a subsidiary of Clear Channel Communications, Inc., a
Delaware corporation ("Clear Channel); Scott A. Kraft, Allan L. Ross, M.D., and
Robert C. Lamb, as stockholder representatives (such stockholder representatives
and their successors, as determined in accordance with this Agreement, shall be
referred to collectively herein as the "Stockholder Representatives"), and
_________________________, as escrow agent, a national banking association with
its office at ______________________ (the "Escrow Agent").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, Eller
is acquiring all of the issued and outstanding shares of capital stock of Metro
Display Advertising, Inc., a California corporation (the "Company"), pursuant to
an Amended and Restated Agreement and Plan of Merger, dated as of December ___,
1997 (the "Merger Agreement"), between Eller and the Company.
B. Eller, the Company and the Stockholder Representatives have agreed to
set aside a portion of the Merger Consideration to be paid to the Stockholders
pursuant to Section 3.5 of the Merger Agreement for the purposes of providing
Eller with a remedy in the event Metro is required to pay damages as a result of
the Van Wagner Litigation.
C. A material condition to the consummation of the transactions
contemplated by the Merger Agreement is that the parties hereto enter into this
Agreement.
NOW THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. Except as hereinafter defined, capitalized terms used in
-----------
this Agreement will have the meanings assigned to such terms in the Merger
Agreement.
1.1 "Claim" shall mean a claim by Eller for Damages pursuant to
-----
Section 5 of this Agreement.
1.2 "Claim Expiration Date" shall mean the earlier of (a) 90 days
---------------------
after entry of a final non-appealable determination on damages in
the Van Wagner Litigation, and (b) 90 days after the execution of
a binding settlement agreement between the parties to the Van
Wagner Litigation which determines all damages, if any, payable
by Metro as a result of the Van Wagner Litigation.
1.3 "Claim Notice" shall have the meaning set forth in Section 5 of
------------
this Agreement.
<PAGE>
1.4 "Company" shall have the meaning set forth in Recital A of this
-------
Agreement.
1.5 "Company Common Stock" shall mean the common stock, no par value,
--------------------
of the Company.
1.6 "Damages" shall have the meaning set forth in Section 4 of this
-------
Agreement.
1.7 "Eller" shall have the meaning set forth in the first (1st)
-----
paragraph of this Agreement.
1.8 "Escrow Agent" shall have the meaning set forth in the first
------------
(1st) paragraph of this Agreement.
1.9 "Escrow Fund" shall mean all or that portion of the aggregate Van
-----------
Wagner Escrow Merger Consideration being held by the Escrow Agent
subject to the terms of this Agreement.
1.10 "Final Instruction" shall mean a written notice, signed both by
-----------------
Eller and the Stockholder Representatives (except as otherwise
provided in Section 6.2 or 6.4 below), and given to the Escrow
Agent directing the disbursement to Eller of an amount of Damages
with respect to a Claim.
1.11 "Merger Agreement" shall have the meaning set forth in Recital A
----------------
of this Agreement.
1.12 "Stockholder Representatives" shall have the meaning set forth in
---------------------------
the first (1st) paragraph of this Agreement.
1.13 "Stockholder" or "Stockholders" shall mean the record owners of
-----------------------------
the Company Common Stock on the Closing Date pursuant to the
Merger Agreement.
2. APPOINTMENT OF ESCROW AGENT. Eller and the Stockholder Representatives
---------------------------
hereby designate and appoint _____________________________ as Escrow Agent for
the purposes set forth in this Agreement, and ___________________ hereby accepts
such appointment on the terms herein provided.
3. DEPOSIT AND INVESTMENT OF THE MERGER CONSIDERATION.
--------------------------------------------------
3.1 Simultaneously with the execution and delivery of this Agreement,
Eller shall deliver to the Escrow Agent the Merger Consideration, which includes
the aggregate Van Wagner Escrow Merger Consideration, by wire transfer.
2
<PAGE>
3.2 The Escrow Agent shall invest the Merger Consideration in such
money market accounts, United States Treasury obligations, and other obligations
guaranteed by the United States Government or an agency thereof, reasonably
determined by Eller.
3.3 Except as otherwise set forth herein, the Escrow Agent, acting in
its capacity as Disbursement Agent, shall disburse to the Stockholders, pro rata
in accordance with their percentage interest in the Shares, the accrued interest
from the Escrow Fund in consecutive quarterly installments, commencing with
April 1, 1998.
4. ELLER'S RIGHTS TO INDEMNIFICATION. Eller, the Company, and any other
---------------------------------
affiliate of either, shall be entitled to indemnification from the Escrow Fund
from and against all losses, claims, demands, liabilities, obligations, damages,
deficiencies, assessments, judgments, payments, penalties, costs and expenses
(including without limitation reasonable attorneys fees, any amounts paid in
investigation, defense or settlement of any of the foregoing (collectively,
"Damages") incurred in connection with, arising out of, resulting from or
incident to, the Van Wagner Litigation, including, all Damages (as defined in
the Specific Performance Escrow Agreement), arising out of an award to any
member of the Van Wagner Group of specific performance of any portion of the Van
Wagner Agreements. The above-described indemnity for Damages arising out of an
award of specific performance shall be applicable nonwithstanding (a) that Eller
may have received an award or other determination for such Damages under the
Specific Performance Escrow Agreement or (b) that the Specific Performance
Escrow Agreement may have expired or been terminated; provided, however, that
-----------------
the indemnity under this Agreement, whether for "Damages" as defined herein or
"Damages" as defined in the Specific Performance Escrow Agreement, shall only be
provided to the extent such "Damages," respectively, exceed the award, if any,
provided to Eller under the Specific Performance Escrow Agreement, except that
if an award of solely monetary damages rather than specific performance is
granted in the Van Wagner Litigation, the maximum aggregate award to Eller under
this Agreement and the Specific Performance Escrow Agreement shall be Five
Million Dollars ($5,000,000.00)
5. PROCEDURE FOR ASSERTING CLAIM TO ESCROW FUND. Eller shall have the
--------------------------------------------
right to make one or more claims for Damages (a "Claim") on or prior to the
Claim Expiration Date by delivering a notice of such Claim (a "Claim Notice") to
the Stockholder Representatives and the Escrow Agent. Such Claim Notice shall
state with particularity (a) the basis for the Claim together with sufficient
facts to enable the Stockholder Representatives to reasonably evaluate the
Claim, and (b) Eller's estimate of the aggregate amount of the resulting
Damages.
6. DETERMINATION OF VALID ELLER CLAIM; FINAL INSTRUCTION. A Final
-----------------------------------------------------
Instruction shall be delivered to the Escrow Agent with respect to a Claim under
the following circumstances and accompanied by the indicated documentation.
6.1 If the Stockholder Representatives dispute either the validity,
amount or calculation of the Claim, they shall give written notice of such
dispute to Eller, with a copy to the Escrow Agent, within twenty (20) Business
Days after the delivery of the Claim Notice by Eller to
3
<PAGE>
the Stockholder Representatives. In such circumstances, no Final Instruction may
be given to the Escrow Agent except as provided in Sections 6.3 or 6.4 below.
6.2 If the Stockholder Representatives fail to respond to the Claim
Notice within twenty (20) Business Days after it is delivered to the Stockholder
Representatives and the Escrow Agent, or if the Stockholder Representatives
notify the Escrow Agent that the Claim is not disputed, Eller shall have the
right to deliver to the Escrow Agent a Final Instruction with respect to the
Claim, signed only by Eller.
6.3 If the Stockholder Representatives and Eller reach an agreement
on the proper amount of the Claim, the Stockholder Representatives and Eller
shall give to the Escrow Agent a Final Instruction with respect to the Claim,
signed by both the Stockholder Representatives and Eller.
6.4 If the Stockholder Representatives and Eller are unable to reach
an agreement with respect to the proper determination of the Claim, the disputed
Claim shall be submitted by Eller and the Stockholder Representatives to
Arbitration pursuant to Section 14 below. Upon final, nonappealable resolution
of such disputed Claim, either the Stockholder Representatives or Eller shall
have the right to deliver to the Escrow Agent a Final Instruction with respect
to the Claim based on and in compliance with the final, nonappealable resolution
of the Claim, signed only by the Stockholder Representatives or by Eller, and
accompanied by a copy of any arbitration award, or judgment or any court order
with respect thereto.
6.5 Upon receipt of a Final Instruction in accordance with this
Section, the Escrow Agent shall disburse to Eller from the Escrow Fund such
amount of Damages, if any, as shall be set forth in the Final Instruction, and
shall distribute any remaining portion of the Escrow Fund in accordance with
Section 7 below. Under no circumstances shall the Escrow Agent distribute any
portion of the Escrow Fund with respect to any Claim Notice received by the
Escrow Agent after the Claim Expiration Date.
6.6 Damages to which Eller is entitled pursuant to a Final
Instruction shall be paid thirty (30) days following receipt of the Final
Instruction.
7. DISTRIBUTION OF ESCROW FUND. If Eller fails to make a Claim on or
---------------------------
prior to the Claim Expiration Date, then as promptly as practicable thereafter
(and in no event later than ten (10) Business Days following the Claim
Expiration Date), the Escrow Agent shall disburse the Escrow Fund (including any
interest thereon) to the Stockholders pro rata in accordance with their
respective ownership of Company Common Stock on the Closing Date. If Eller
timely makes a Claim, and if at or after the expiration of the Claim Expiration
Date, Eller's Claims (whether or not in dispute) aggregate less than the
remaining amount of the Escrow Fund, then the Escrow Agent shall deliver the
remaining amount of the Escrow Fund (less 110% of the amount of Eller's Claims)
to the Stockholders pro rata in accordance with their respective ownership of
Company Common Stock on the Closing Date, and the balance, if any, after
resolution of Eller's Claims. If, however, Eller timely makes a Claim or Claims
in accordance with Section 5 above, and if at the expiration of the
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Claim Expiration Date, such Claim or Claims (whether or not in dispute)
aggregate more than the remaining amount of the Escrow Fund, then, only after
the Escrow Agent's receipt of (and distributions of Damages with respect to)
Final Instructions for all such Claims, shall the Escrow Agent deliver any
remaining portion of the Escrow Fund to the Stockholders pro rata in accordance
with their respective ownership of Company Common Stock on the Closing Date.
8. RELIANCE BY ESCROW AGENT; LIABILITY OF ESCROW AGENT. The Escrow Agent
---------------------------------------------------
shall be protected in acting upon any written notice, request, waiver, consent,
certificate, receipt, authorization or other paper or document that the Escrow
Agent believes to be genuine and what it purports to be. The Escrow Agent may
confer with its own corporate or outside legal counsel in the event of any
dispute or question as to the construction of any of the provisions hereof, or
its duties hereunder, and shall incur no liability and shall be fully protected
in acting in accordance with the written opinions of such counsel. The duties of
the Escrow Agent hereunder will be limited to the observance of the express
provisions of this Agreement. The Escrow Agent will not be subject to, or be
obliged to recognize, any other agreement between the parties hereto or
directions or instructions not specifically set forth as provided for herein.
The Escrow Agent will not make any payment or disbursement from or out of the
Escrow Funds that is not expressly authorized pursuant to this Agreement. The
Escrow Agent may rely upon and act upon any instrument received by it pursuant
to the provisions of this Agreement that it reasonably believes to be genuine
and in conformity with the requirements of this Agreement. The Escrow Agent
undertakes to use the same degree of care and skill in performing its services
hereunder as an ordinary prudent person would do or use under the circumstances
in the conduct of his or her own affairs. The Escrow Agent will not be liable
for any action taken or not taken by it under the terms hereof in the absence of
breach of its obligations hereunder or gross negligence or willful misconduct on
its part.
9. INDEMNIFICATION OF ESCROW AGENT. Eller, on the one hand, and the
-------------------------------
Stockholders collectively, on the other, will indemnify and hold the Escrow
Agent harmless from and against any and all losses, costs, damages or expenses
(including but not limited to, reasonable attorneys' fees) it may sustain by
reason of its service as Escrow Agent hereunder, and except such losses, costs,
damages or expenses (including but not limited to, reasonable attorneys' fees)
incurred by reason of such acts or omissions for which the Escrow Agent is
liable or responsible under Section 8 of this Agreement. Any indemnification
amounts payable pursuant to this Section 9 shall be paid one-half by Eller, on
the one hand, and one-half solely from the Escrow Fund by the Stockholders
collectively, on the other.
10. STOCKHOLDER REPRESENTATIVES; SUCCESSOR STOCKHOLDER REPRESENTATIVES.
------------------------------------------------------------------
10.1 The Stockholders have made, constituted and appointed the
Stockholder Representatives as their agent and authorized and empowered them to
fulfill the role of Stockholder Representatives hereunder. The Stockholder
Representatives shall act on the basis of majority vote, and any writing on
behalf of the Stockholders Representatives, including instructions and notices
under this Agreement, shall be valid and effective for all purposes if signed by
any two (2) Stockholder Representatives.
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10.2 The Stockholders entitled to receive a majority of the Escrow Fund
may remove the Stockholder Representatives at any time. If a Stockholder
Representative should die, resign, become incapacitated or be removed by the
Stockholders pursuant to this Section 10.2, his successor shall be Mark Boileau;
and if he or another Stockholder Representative should refuse to serve, die,
resign, become incapacitated, or be removed, the next successor shall be Michael
Slater. Thereafter, the remaining Stockholders entitled to receive a majority of
the Escrow Fund shall appoint each successor within twenty-one (21) days of a
Stockholder Representative's resignation, death, incapacity or removal. Such
successor shall be either a Stockholder or shall otherwise be acceptable to
Eller. If the Stockholders fail to appoint a successor within such twenty-one
(21)-day period, then Eller shall have the right to appoint the successor from
among the Stockholders. The choice of a successor Stockholder Representative
appointed in any manner permitted above shall be final and binding upon all of
the Stockholders. The decisions and actions of any successor Stockholder
Representative shall be, for all purposes, those of a Stockholder Representative
as if originally named herein.
10.3 Each Stockholder has made, constituted and appointed the
Stockholder Representatives as such person's true and lawful attorney in fact
and agent, for such person and in such person's name, (a) to receive all notices
and communications directed to such Stockholder under this Agreement and the
Merger Agreement, (b) to execute and deliver any and all documents required to
be executed and delivered by such holder pursuant to this Agreement or the
Merger Agreement in order to effect the transactions contemplated hereby, and
(c) to execute and deliver all instruments and documents of every kind incident
to the foregoing with the same effect as such Stockholder could do personally.
10.4 The designation of the Stockholder Representatives as attorney-in-
fact is coupled with an interest and is binding upon the Stockholders
notwithstanding the death, incapacity or dissolution of any Stockholder. If any
such event shall occur prior to the completion of the transactions contemplated
by this Agreement, the Stockholder Representatives are, nevertheless, to the
extent that they are legally able to do so, authorized and directed to complete
all transactions and act pursuant to this authority as if such event had not
occurred. Eller is entitled to deal solely with the Stockholder Representatives
in connection with this Agreement and is entitled to rely upon the provisions
hereof and the authority granted to the Stockholder Representatives to act on
behalf of the Stockholders.
10.5 The Stockholder Representatives' acceptance of their duties under
this Agreement is subject to the following terms and conditions, which the
parties hereto agree shall govern and control with respect to the rights,
duties, liabilities and immunities of the Stockholder Representatives (but not
in their capacity as a Stockholder or as an officer, director, or employee of
the Company):
(a) The Stockholder Representatives make no representation and
have no responsibility as to the validity of this Agreement or of any
other instrument referred to herein, or as to the correctness of any
statement contained herein, and they shall
6
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not be required to inquire as to the performance of any obligation
under this Agreement.
(b) The Stockholder Representatives shall be protected in acting
upon written notice, request, waiver, consent, receipt or other paper
or document, not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth of any
information therein contained, which they in good faith believe to be
genuine and what it purports to be.
(c) The Stockholder Representatives shall not be liable for any
error of judgment, or for any act done or step taken or omitted by
them in good faith, or for any mistake of fact or law, or for anything
which they may do or refrain from doing in connection therewith,
except as a result of their own gross negligence or willful
misconduct.
(d) The Stockholder Representatives may consult with competent
and responsible legal counsel selected by them and they shall not be
liable for any action taken or omitted by them in good faith in
accordance with the advice of such counsel.
(e) The Stockholders shall bear pro rata all expenses incurred
by the Stockholder Representatives in connection with their duties
hereunder and shall indemnify them against and save them harmless from
any and all claims, liabilities, costs, payments and expenses,
including fees of counsel (who may be selected by the Stockholder
Representatives), for anything done or omitted by them in the
performance of this Agreement or the Merger Agreement, except as a
result of their own gross negligence or willful misconduct.
(f) The Stockholder Representatives shall have no duties or
responsibilities except those expressly set forth herein and in the
Merger Agreement. They shall not be bound by any modification under
this Agreement or the Merger Agreement unless it is in writing and
signed by the other parties hereto or thereto, and if their duties as
Stockholder Representatives hereunder or thereunder are affected,
unless they shall have given prior written consent thereto.
11. FEES AND EXPENSES OF THE ESCROW AGENT. All fees of the Escrow Agent
-------------------------------------
for its services hereunder, together with any expenses it reasonably incurs in
connection with this Agreement, shall be paid by Eller.
12. RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign from its
---------------------------
duties hereunder by giving each of the parties hereto not less than sixty (60)
days prior written notice of the effective date of such resignation. A
substitute Escrow Agent shall be appointed by mutual agreement of Eller and the
Stockholder Representatives to fulfill the duties of the Escrow Agent hereunder
for the remaining term of this Agreement. If on or before the effective date of
such
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<PAGE>
resignation, a substitute Escrow Agent has not been appointed, the Escrow Agent
shall thereupon deposit the Escrow Fund into the registry of a court of
competent jurisdiction.
13. DESIGNEES FOR INSTRUCTIONS. Eller, may, by notice to the Escrow Agent,
--------------------------
designate one or more persons who will execute notices and from whom the Escrow
Agent may take instructions hereunder. Such designations may be changed from
time to time upon notice to the Escrow Agent from Eller. The Escrow Agent shall
be entitled to rely conclusively on any notices or instructions from any person
so designated by Eller.
14. ARBITRATION. Any dispute arising under this Agreement shall be resolved
-----------
by binding arbitration conducted in Los Angeles, California, after written
demand from one party to the other. If the parties cannot agree on a single
arbitrator within thirty (30) days after written demand for arbitration, the
arbitrator shall be selected pursuant to the rules and regulations of the
American Arbitration Association governing commercial transactions. The
arbitration proceeding shall be conducted within ninety (90) days of any demand
for arbitration. If reasonable, as determined by the arbitrator, it shall be
conducted on a single day with each party being allowed an equal amount of time
to present its case. No discovery shall be allowed except that each party shall
submit to the other and to the arbitrator, no later than thirty (30) days prior
to the proceeding, copies of all documents to be presented, the names and
occupations of all proposed witnesses, and a written summary of the substance of
their proposed testimony. The arbitrator shall exclude any evidence not
presented within such time period to the other party and the arbitrator as
required by this Section. The parties shall submit such legal briefing or other
statements of position as the arbitrator may request. Eller shall pay one-half
of the costs of any such arbitrator, and the Stockholders shall be responsible
for paying one-half of such costs solely out of the Escrow Fund. Any arbitration
decision or award shall be final and not subject to appeal to any court of law,
except in the case of a manifest error in the application of law. Eller and the
Stockholder Representatives on behalf of the Stockholders specifically covenant
to one another that they shall not commence litigation against one another with
respect to any dispute subject to arbitration hereunder for any reason except as
may be necessary to enforce this Section or an arbitrator's decision or award.
In the event litigation shall be required to enforce this Section or the
arbitrator's decision or award, the prevailing party shall be paid its
reasonable attorneys' fees and costs.
15. INSPECTION. All property held as part of the escrow shall at all times
----------
be clearly identified as being held by the Escrow Agent hereunder. Any party
hereto may at any time during normal business hours (with reasonable notice)
inspect any records or reports relating to the Merger Consideration.
16. NOTICES. All notices, requests, demands and other communications which
-------
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express); and
----
upon receipt, if sent by certified or registered mail, return receipt requested.
Notwithstanding the foregoing, a Claim Notice delivered pursuant to Section 5
hereof and a Final Instruction provided pursuant to
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<PAGE>
Section 6 hereof shall be deemed to have been duly given only if delivered
personally, by recognized overnight delivery or by certified registered mail and
if receipt of such Claim Notice or such Final Instruction, as the case may be,
was acknowledged in writing. In each case notice shall be sent to:
If to Eller:
Scott S. Eller, President
ELLER MEDIA COMPANY
2850 East Camelback Road, Suite 300
Phoenix, Arizona 85016
Fax: 602/957-8602
With a copy to:
Paul J. Meyer, General Counsel
ELLER MEDIA COMPANY
2850 East Camelback Road, Suite 300
Phoenix, Arizona 85016
Fax: 602/381-5740
If to the Stockholder Representatives:
Scott A. Kraft, President
and Chief Executive Officer
c\o BUSTOP SHELTERS OF NEVADA
5425 South Valley View, Suite 103
Las Vegas, NV 89118
Fax: 702/795-3658
With a copy to:
Martin T. Goldblum
TROY & GOULD, P.C.
1801 Century Park East
Suite 1600
Los Angeles, CA 90067-2302
Fax: 310/201-4746
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
17. ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of the
--------------------------
rights or obligations hereunder may be assigned by any party without the prior
written consent of the other parties. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
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<PAGE>
18. AMENDMENT AND TERMINATION. This Agreement may be amended or modified
-------------------------
by and upon written notice to the Escrow Agent given jointly by Eller and the
Stockholder Representatives, but the duties and responsibilities of the Escrow
Agent may not be increased without its written consent. This Agreement will
terminate on the date on which all the Escrow Fund has been distributed in
accordance with the terms set forth herein.
19. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. SEVERABILITY AND FURTHER ASSURANCES. This Agreement constitutes the
-----------------------------------
entire agreement among the parties and supersedes all prior and contemporaneous
agreements and undertakings on the parties in connection herewith. No failure
or delay of the Escrow Agent in exercising any right, power or remedy may be, or
may be deemed to be, a waiver thereof; nor may any single or partial exercise of
any right, power or remedy preclude any other or further exercise of any right,
power or remedy. In the event that any one or more of the provisions contained
in this Agreement, shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, then to the maximum extent permitted by law, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement. Each of the parties hereto shall, at the request of the
other party, deliver to the requesting party all further documents or other
assurances as may reasonably be necessary or desirable in connection with this
Agreement.
21. TITLES. The titles, captions or headings of the Sections herein are
------
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
22. GOVERNING LAW. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of California without regard to the
principles of conflicts of laws.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the date first written above.
ELLER MEDIA COMPANY
By ______________________________
Scott S. Eller, President
ESCROW AGENT
By ______________________________
Name:
Title:
STOCKHOLDER REPRESENTATIVES
By ______________________________
Scott A. Kraft
By:______________________________
Allan L. Ross, M.D.
By:______________________________
Robert C. Lamb
<PAGE>
EXHIBIT D
DAMAGES ESCROW AND DISBURSEMENT AGREEMENT
THIS DAMAGES ESCROW AND DISBURSEMENT AGREEMENT, dated as of this __ day of
________ 199_ (this "Agreement"), is among Eller Media Company, a Delaware
corporation ("Eller") and a subsidiary of Clear Channel Communications, Inc., a
Delaware corporation ("Clear Channel"); Scott A. Kraft, Allan L. Ross, M.D., and
Robert C. Lamb, as stockholder representatives (such stockholders
representatives and their successors as determined in accordance with this
Agreement, shall be referred to collectively herein as the "Stockholder
Representatives"), and __________, as escrow agent, a national banking
association with its office at _______________ (the "Escrow Agent").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, Eller is
acquiring all of the issued and outstanding shares of capital stock of Metro
Display Advertising, Inc., a California corporation (the "Company"), pursuant to
an Amended and Restated Agreement and Plan of Merger, dated as of December __,
1997, with all of its attached schedules and exhibits (collectively, the "Merger
Agreement"), between Eller and the Company.
B. Eller, the Company and the Stockholder Representatives have agreed to
set aside a portion of the aggregate Merger Consideration to be paid to the
Stockholders pursuant to Section 3.5 of the Merger Agreement for the purposes of
(1) providing Eller with a remedy in the event of a breach by the Company of the
representations, warranties and covenants made in the Merger Agreement, and (2)
compensating Eller for certain potential losses as more specifically set forth
herein.
C. Eller, the Company, and the Stockholder Representatives have agreed to
authorize the Escrow Agent to serve in the additional capacity of Disbursement
Agent pursuant to (1) Section 3.9 of the Merger Agreement or (2) Section 3.10 of
the Merger Agreement.
D. A material condition to the consummation of the transactions
contemplated by the Merger Agreement is that the parties hereto enter into this
Agreement.
NOW THEREFORE, the parties hereto agree as follows:
1. Definitions. Except as hereinafter defined, capitalized terms used in
-----------
this Agreement will have the meanings assigned to such terms in the Merger
Agreement.
1.1 "Claim" shall mean a claim by Eller for Damages pursuant to
-----
Section 6 of this Agreement.
1.2 "Claim Expiration Date" shall mean the third (3rd) anniversary of
---------------------
the date of this Agreement.
<PAGE>
1.3 "Claim Notice" shall have the meaning set forth in Section 6
------------
of this Agreement.
1.4 "Company" shall have the meaning set forth in Recital A of
-------
this Agreement.
1.5 "Company Common Stock" shall mean the common stock, no par
--------------------
value, of the Company.
1.6 "Damages" shall have the meaning set forth in Section 5.1 of
-------
this Agreement.
1.7 "Damages Escrow Fund" shall mean all or that portion of the
-------------------
aggregate Damages Escrow Merger Consideration being held by
the Escrow Agent subject to the terms of this Agreement.
1.8 "Disbursement Agent" shall mean the Escrow Agent acting
------------------
pursuant to Sections 4 and 8 of this Agreement.
1.9 "Eller" shall have the meaning set forth in the first (1st)
-----
paragraph of this Agreement.
1.10 "Eller Transit" shall mean all of the following entities if
-------------
they are engaged in operating a bus shelter outdoor
advertising business: Eller, Clear Channel and their
respective subsidiaries and affiliates, including Metro and
its subsidiaries.
1.11 "Escrow Agent" shall have the meaning set forth in the first
------------
(1st) paragraph of this Agreement, and shall include the
Escrow Agent acting as Disbursement Agent for purposes of
Sections 4 and 8 below.
1.12 "Final Instruction" shall mean a written notice, signed both
-----------------
by Eller and the Stockholder Representatives (except as
otherwise provided in Sections 7.2 or 7.4, below), and given
to the Escrow Agent directing the disbursement to Eller of an
amount of Damages with respect to a Claim.
1.13 "Merger Agreement" shall have the meaning set forth in Recital
----------------
A of this Agreement.
1.14 "Stockholder Representatives" shall have the meaning set forth
---------------------------
in the first (1st) paragraph of this Agreement.
1.15 "Stockholder" or "Stockholders" shall mean the record owners
-----------------------------
of the Company Common Stock on the Closing Date pursuant to
the Merger Agreement.
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2. Appointment of Escrow Agent and Disbursement Agent. Eller and the
--------------------------------------------------
Stockholder Representatives hereby designate and appoint ____________ as Escrow
Agent and Disbursement Agent for the purposes set forth in this Agreement, and
____________ hereby accepts such appointment on the terms herein provided.
3. Deposit and Investment of the Merger Consideration.
--------------------------------------------------
3.1 Simultaneously with the execution of this Agreement, Eller shall
deliver to the Escrow Agent the aggregate Merger Consideration, which includes
the aggregate Damages Escrow Merger Considerations, by wire transfer.
3.2 The Escrow Agent shall invest the aggregate Merger Consideration in
such money market accounts, United States Treasury obligations, and other
obligations guaranteed by the United States Government or an agency thereof, as
reasonably determined by Eller.
4. Disbursement Obligations.
------------------------
4.1 If the conditions set forth in Section 3.7(a) of the Merger
Agreement are satisfied on or prior to the Closing, the Escrow Agent shall
discharge the obligations of the Disbursement Agent set forth in Section 3.9 of
the Merger Agreement and, if applicable, Section 3.7(c) of the Merger Agreement.
A copy of such subsections is attached hereto as Exhibit B-1. If the conditions
set forth in Section 3.7(a) of the Merger Agreement are not satisfied on or
prior to the Closing, the Escrow Agent, shall discharge the obligations of the
Disbursement Agent set forth in Section 3.10 of the Merger Agreement. A copy of
such subsection is attached hereto as Exhibit B-2.
4.2 Except as otherwise set forth herein, during the first two (2) years
of this Agreement, the Escrow Agent, acting in its capacity as Disbursement
Agent, shall disburse to the Stockholders, pro rata in accordance with their
percentage interest in the Shares, the accrued interest from the Damages Escrow
Fund in eight (8) consecutive quarterly installments, commencing with April 1,
1998. Thereafter, the interest shall be paid to the Stockholders in accordance
with Section 8 below, subject to a prior right to distribution by Eller to
satisfy any interest owed to Eller pursuant to section 7.6 below.
5. Eller's Rights to Indemnification.
---------------------------------
5.1 Eller, the Company, and any other affiliate of either, shall be
entitled to indemnification from the Escrow Fund from and against all losses,
claims, demands, liabilities, obligations, damages, deficiencies, assessments,
judgments, payments, penalties, costs and expenses (including without limitation
reasonable attorneys fees, any amounts paid in investigation, defense or
settlement of any of the foregoing) (collectively, "Damages") incurred in
connection with, arising out of, resulting from or incident to, the following:
(a) any breach of a representation or warranty made by the Company the
Merger Agreement;
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(b) any breach of a covenant or agreement of the Company set forth in
the Merger Agreement;
(c) any litigation pending against the Company on the Closing Date
other than the Van Wagner Litigation;
(d) except as disclosed in Schedule 4.2 to the Merger Agreement, any
option, warrant, call, commitment or other security or agreement of any
kind requiring the issuance of the capital stock of the Company or any
other security convertible into capital stock of the Company;
(e) the loss of the ability to utilize any federal or state net
operating loss carry forwards listed on Schedule 4.9 to the Merger
Agreement because of the tax treatment of any transaction resulting in
the transfer of an Excluded Asset (including the stock of BSON) from the
Company to BSON or any other party; and
(f) all fees payable to any party to a Bus Shelter Contract, if such
fees become payable as a result of consummation of the transactions
contemplated by the Merger Agreement.
5.2 Eller shall also be entitled to recover from the Damages Escrow Fund
Damages incurred in connection with, arising out of, resulting from or incident
to, the termination of the right to operate bus shelter displays that are
authorized by the Bus Shelter Contracts listed on Schedule 5.2 hereto if the
termination of such right results from any of the following:
(a) the failure to obtain from any party to a Bus Shelter Contract any
consent requested of such party to the indirect transfer of a Bus
Shelter Contract as a result of the transactions contemplated by the
Merger Agreement;
(b) the failure to obtain the renewal of any Bus Shelter Contract that
by its terms expires, resulting in the termination of Metro's operations
pursuant to such Bus Shelter Contract, during the term of this
Agreement; or
(c) the termination of any Bus Shelter Contract on Schedule 5.2 as a
result of the nonillumination of certain bus shelters thereunder or the
termination of the Redding Bus Areas Bus Authority Contract for failure
to provide any of the thirty (30) additional advertising benches
requested by the Redding Area Bus Authority, provided that Eller shall
have used Best Efforts to cure such default after receiving notice from
the third parties thereto.
Eller shall not be obligated to pursue litigation as a pre-requisite to its
entitlement to recover Damages under this Section 5.2. The amount of such
Damages shall be determined as follows:
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(i) the number of bus shelter display faces that Eller is legally
entitled to operate on the Claim Expiration Date (including those
display faces not yet constructed by Eller Transit and display faces
that Eller voluntarily relinquishes the legal right to operate) for each
Category of Bus Shelter Contracts listed on Schedule 5.2 shall be
subtracted from (ii) the number of bus shelter display faces listed for
each Category on Schedule 5.2; and any resulting excess of (ii) over (i)
for each such Category shall be multiplied by the dollar amounts for
each Category as set forth on Schedule 5.2, provided that the foregoing
calculation shall be made on a contract-by-contract basis for all Bus
Shelter Contracts listed in Category I on Schedule 5.2.
6. PROCEDURE FOR ASSERTING CLAIM TO ESCROW FUND. Eller shall have the
--------------------------------------------
right to make one or more claims for Damages (a "Claim") on or prior to the
Claim Expiration Date by delivering a notice of such Claim (a "Claim Notice")
to the Stockholder Representatives and the Escrow Agent. Such Claim Notice shall
state with particularity (a) the basis for the Claim together with sufficient
facts to enable the Stockholder Representatives to reasonably evaluate the
Claim, and (b) Eller's estimate of the aggregate amount of the resulting
Damages. Upon notice of any Claim based on subsection (a), (b) or (f) of
Section 5.1 above, the Stockholder Representatives shall have thirty (30) days
to meet with any third parties for the purpose of resolving the Claim to Eller's
satisfaction before Eller shall resort to Arbitration pursuant to Section 15
below.
7. DETERMINATION OF VALID ELLER CLAIM; FINAL INSTRUCTION. A Final
-----------------------------------------------------
Instruction shall be delivered to the Escrow Agent with respect to a Claim under
the following circumstances and accompanied by the indicated documentation.
7.1 If the Stockholder Representatives dispute either the validity,
amount or calculation of the Claim, they shall give written notice of such
dispute to Eller, with a copy to the Escrow Agent, within twenty (20) Business
Days after the delivery of the Claim Notice by Eller to the Stockholder
Representatives. In such circumstances, no Final Instruction may be given to the
Escrow Agent except as provided in 7.3 or 7.4 below.
7.2 If the Stockholder Representatives fail to respond to the Claim
Notice within twenty (20) Business Days after it is delivered to the Stockholder
Representatives and the Escrow Agent, or if the Stockholder Representatives
notify the Escrow Agent that the Claim is not disputed, Eller shall have the
right to deliver to the Escrow Agent a Final Instruction with respect to the
Claim, signed only by Eller.
7.3 If the Stockholder Representatives and Eller reach an agreement on
the proper amount of the Claim, the Stockholder Representatives and Eller shall
give to the Escrow Agent a Final Instruction with respect to the Claim, signed
by both the Stockholder Representatives and Eller.
7.4 If the Stockholder Representatives and Eller are unable to reach an
agreement with respect to the proper determination of the Claim, the disputed
Claim shall be submitted by Eller
5
<PAGE>
and the Stockholder Representatives to Arbitration pursuant to Section 15 below.
Upon final, nonappealable resolution of such disputed Claim, either the
Stockholder Representatives or Eller shall have the right to deliver to the
Escrow Agent a Final Instruction with respect to the Claim based on and in
compliance with the final, nonappealable resolution of the Claim, signed only by
the Stockholder Representatives or by Eller, and accompanied by a copy of any
arbitration award, or judgment or any court order with respect thereto.
7.5 Upon receipt of a Final Instruction in accordance with this
Section, the Escrow Agent shall disburse to Eller from the Damages Escrow Fund
such amount of Damages, if any, as shall be set forth in the Final Instruction,
and shall distribute any remaining portion of the Damages Escrow Fund in
accordance with Section 8 below. Under no circumstances shall the Escrow Agent
distribute any portion of the Damages Escrow Fund with respect to any Claim
Notice received by the Escrow Agent after the Claim Expiration Date.
7.6 Damages to which Eller is entitled pursuant to a Final Instruction
shall be paid at the end of the first calendar quarter following receipt of the
Final Instruction. Eller shall receive all interest earned on any portion of the
Damages Escrow Fund distributed to Eller as Damages pursuant to Section 5.2
above, and Eller shall receive such amount of the Damages Escrow Fund principal
to cover any shortfall in such interest payment.
8. DISTRIBUTION OF ESCROW FUND. If Eller fails to make a Claim on or prior
---------------------------
to the Claim Expiration Date, then as promptly as practicable thereafter (and in
no event later than ten (10) Business Days following the Claim Expiration Date),
the Escrow Agent shall disburse the Damages Escrow Fund (including any accrued
but unpaid interest thereon) to the Stockholders pro rata in accordance with
their respective ownership of Company Common Stock on the Closing Date. If
Eller timely makes a Claim, and if at or after the expiration of the Claim
Expiration Date, Eller's Claims (whether or not in dispute) aggregate less
than the remaining amount of the Damages Escrow Fund, then the Escrow Agent
shall deliver the remaining amount of the Damages Escrow Fund (less 110% of the
amount of Eller's Claims) to the Stockholders pro rata in accordance with their
respective ownership of Company Common Stock on the Closing Date, and the
balance, if any, after resolution of Eller's Claims. If, however, Eller timely
makes a Claim or Claims in accordance with Section 6 above, and if at the
expiration of the Claim Expiration Date, such Claim or Claims (whether or not in
dispute) aggregate more than the remaining amount of the Damages Escrow Fund,
then, only after the Escrow Agent's receipt of (and distributions of Damages
with respect to) Final Instructions for all such Claims, shall the Escrow Agent
deliver any remaining portion of the Damages Escrow Fund (including any interest
not distributed pursuant to Section 7.6 above) to the Stockholders pro rata in
accordance with their respective ownership of Company Common Stock on the
Closing Date.
9. RELIANCE BY ESCROW AGENT; LIABILITY OF ESCROW AGENT. The Escrow Agent
---------------------------------------------------
shall be protected in acting upon any written notice, request, waiver, consent,
certificate, receipt, authorization or other paper or document that the Escrow
Agent believes to be genuine and what it purports to be. The Escrow Agent may
confer with its own corporate or outside legal counsel in the event of any
dispute or question as to the construction of any of the provisions hereof, or
its duties hereunder, and shall incur no liability and shall be fully protected
in acting in accordance with the written opinions
6
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of such counsel. The duties of the Escrow Agent hereunder will be limited to the
observance of the express provisions of this Agreement. The Escrow Agent will
not be subject to, or be obliged to recognize, any other agreement between the
parties hereto or directions or instructions not specifically set forth as
provided for herein. The Escrow Agent will not make any payment of disbursement
from or out of the Escrow Fund that is not expressly authorized pursuant to this
Agreement. The Escrow Agent may rely upon and act upon any instrument received
by it pursuant to the provisions of this Agreement that it reasonably believes
to be genuine and in conformity with the requirements of this Agreement. The
Escrow Agent undertakes to use the same degree of care and skill in performing
its services hereunder as an ordinary prudent person would do or use under the
circumstances in the conduct of his or her own affairs. The Escrow Agent will
not be liable for any action taken or not taken by it under the terms hereof in
the absence of breach of its obligations hereunder or gross negligence or
willful misconduct on its part. This Section also shall apply to the Escrow
Agent acting in the capacity of Disbursement Agent.
10. INDEMNIFICATION OF ESCROW AGENT. Eller, on the one hand, and the
-------------------------------
Stockholders collectively, on the other, will indemnify and hold the Escrow
Agent harmless from and against any and all losses, costs, damages or expenses
(including but not limited to, reasonable attorneys' fees) it may sustain by
reason of its service as Escrow Agent hereunder, and except such losses, costs,
damages or expenses (including but not limited to, reasonable attorneys' fees)
incurred by reason of such acts or omissions for which the Escrow Agent is
liable or responsible under Section 9 of this Agreement. This Section also shall
apply to the Escrow Agent acting in the capacity of Disbursement Agent. Any
indemnification amounts payable pursuant to this Section 10 shall be paid one-
half by Eller, on the one hand, and one-half solely from the Escrow Fund by the
Stockholders collectively, on the other.
11. STOCKHOLDER REPRESENTATIVES; SUCCESSOR STOCKHOLDER REPRESENTATIVES.
------------------------------------------------------------------
11.1 The Stockholders have made, constituted and appointed the
Stockholder Representatives as their agent and authorized and empowered them to
fulfill the role of Stockholder Representatives hereunder and under the Merger
Agreement (including any exhibit attached thereto). The Stockholder
Representatives shall act on the basis of majority vote, and any writing on
behalf of the Stockholders Representatives, including instructions and notices
under this Agreement, shall be valid and effective for all purposes if signed by
any two (2) Stockholder Representatives.
11.2 The Stockholders entitled to receive a majority of the Damages
Escrow Fund may remove the Stockholder Representatives at any time. If a
Stockholder Representative should die, resign, become incapacitated or be
removed by the Stockholders pursuant to this Section 11.2, his successor shall
be Mark Boileau; and if he or another Stockholder Representative should refuse
to serve, die, resign, become incapacitated, or be removed, the next successor
shall be Michael Slater. Thereafter, the remaining Stockholders entitled to
receive a majority of the Damages Escrow Fund shall appoint each successor
within twenty-one (21) days of a Stockholder Representative's resignation,
death, incapacity or removal. Such successor shall be either a Stockholder or
shall otherwise be acceptable to Eller. If the Stockholders fail to appoint a
successor within such twenty-one (21) day period, then Eller shall have the
right to appoint the successor from among the
7
<PAGE>
Stockholders. The choice of a successor Stockholder Representative appointed in
any manner permitted above shall be final and binding upon all of the
Stockholders. The decisions and actions of any successor Stockholder
Representative shall be, for all purposes, those of a Stockholder Representative
as if originally named herein.
11.3 Each Stockholder has made, constituted and appointed the
Stockholder Representatives as such person's true and lawful attorney in fact
and agent, for such person and in such person's name, (a) to receive all notices
and communications directed to such Stockholder under this Agreement and the
Merger Agreement (and any exhibit attached thereto) and any document executed in
connection therewith, (b) to execute and deliver any and all documents required
to be executed and delivered by such holder pursuant to this Agreement and the
Merger Agreement (and any exhibit attached thereto) in order to effect the
transactions contemplated hereby and thereby, and (c) to execute and deliver all
instruments and documents of every kind incident to the foregoing with the same
effect as such Stockholder could do personally.
11.4 The designation of the Stockholder Representatives as
attorney-in-fact is coupled with an interest and is binding upon the
Stockholders notwithstanding the death, incapacity or dissolution of any
Stockholder. If any such event shall occur prior to the completion of the
transactions contemplated by this Agreement, the Stockholder Representatives
are, nevertheless, to the extent that they are legally able to do so, authorized
and directed to complete all transactions and act pursuant to this authority as
if such event had not occurred. Eller is entitled to deal solely with the
Stockholder Representatives in connection with this Agreement and the Merger
Agreement (and any exhibit attached thereto), and is entitled to rely upon the
provisions hereof and the authority granted to the Stockholder Representatives
to act on behalf of the Stockholders.
11.5 The Stockholder Representatives' acceptance of their duties under
this Agreement and the Merger Agreement (and any exhibit attached thereto) is
subject to the following terms and conditions, which the parties hereto agree
shall govern and control with respect to the rights, duties, liabilities and
immunities of the Stockholder Representatives (but not in their capacity as a
Stockholder or as an officer, director, or employee of the Company):
(a) The Stockholder Representatives make no representation and
have no responsibility as to the validity of this Agreement, the Merger
Agreement (or any exhibit attached thereto) or of any other instrument
referred to herein, or as to the correctness of any statement contained
herein, and they shall not be required to inquire as to the performance
of any obligation under this Agreement or the Merger Agreement (or any
exhibit attached thereto).
(b) The Stockholder Representatives shall be protected in acting
upon written notice, request, waiver, consent, receipt or other paper or
document, not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth of any
information therein contained, which they in good faith believe to be
genuine and what it purports to be.
8
<PAGE>
(c) The Stockholder Representatives shall not be liable for any
error of judgment, or for any act done or step taken or omitted by
them in good faith, or for any mistake of fact or law, or for anything
which they may do or refrain from doing in connection therewith,
except as a result of their own gross negligence or willful
misconduct.
(d) The Stockholder Representatives may consult with competent
and responsible legal counsel selected by them and they shall not be
liable for any action taken or omitted by them in good faith in
accordance with the advice of such counsel.
(e) The Stockholders shall bear pro rata all expenses incurred
by the Stockholder Representatives in connection with their duties
hereunder and under the Merger Agreement (and any exhibit attached
thereto) and shall indemnify them against and save them harmless from
any and all claims, liabilities, costs, payments and expenses,
including fees of counsel (who may be selected by the Stockholder
Representatives), for anything done or omitted by them in the
performance of this Agreement or the Merger Agreement (and any exhibit
attached thereto), except as a result of their own gross negligence or
willful misconduct.
(f) The Stockholder Representatives shall have no duties or
responsibilities except those expressly set forth herein and in the
Merger Agreement (or any exhibit attached thereto). They shall not be
bound by any modification under this Agreement or the Merger Agreement
(or any exhibit attached thereto) unless in writing and signed by the
other parties hereto or thereto, and if their duties as Stockholder
Representatives hereunder or thereunder are affected, unless they
shall have given prior written consent thereto.
12. Fees and Expenses of the Escrow Agent. All fees of the Escrow Agent
-------------------------------------
and Disbursement Agent for its services hereunder, together with any expenses it
reasonably incurs in connection with this Agreement, shall be paid by Eller.
13. Resignation of Escrow Agent. The Escrow Agent and the Disbursement
---------------------------
Agent may resign from its duties hereunder by giving each of the parties hereto
not less than sixty (60) days prior written notice of the effective date of such
resignation. A substitute Escrow Agent and Disbursement Agent shall be appointed
by mutual agreement of Eller and the Stockholder Representatives to fulfill the
duties of the Escrow Agent and Disbursement Agent hereunder for the remaining
term of this Agreement. If on or before the effective date of such resignation,
a substitute Escrow Agent has not been appointed, the Escrow Agent shall
thereupon deposit the Escrow Fund into the registry of a court of competent
jurisdiction.
14. Designees for Instructions. Eller, may, by notice to the Escrow Agent
--------------------------
and Disbursement Agent, designate one or more persons who will execute notices
and from whom the Escrow Agent and Disbursement Agent may take instructions
hereunder. Such designations may be changed from time to time upon notice to the
Escrow Agent and Disbursement Agent from Eller. The
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<PAGE>
Escrow Agent and Disbursement Agent shall be entitled to rely conclusively on
any notices or instructions from any person so designated by Eller.
15. Arbitration. Any dispute arising under this Agreement shall be
-----------
resolved by binding arbitration conducted in Los Angeles, California, after
written demand from one party to the other. If the parties cannot agree on a
single arbitrator within thirty (30) days after written demand for arbitration,
the arbitrator shall be selected pursuant to the rules and regulations of the
American Arbitration Association governing commercial transactions. The
arbitration proceeding shall be conducted within ninety (90) days of any demand
for arbitration. If reasonable, as determined by the arbitrator, it shall be
conducted on a single day with each party being allowed an equal amount of time
to present its case. No discovery shall be allowed except that each party shall
submit to the other and to the arbitrator, no later than thirty (30) days prior
to the proceeding, copies of all documents to be presented, the names and
occupations of all proposed witnesses, and a written summary of the substance of
their proposed testimony. The arbitrator shall exclude any evidence not
presented within such time period to the other party and the arbitrator as
required by this Section. The parties shall submit such legal briefing or other
statements of position as the arbitrator may request. Eller shall pay one-half
of the costs of any such arbitrator, and the Stockholders shall be responsible
for paying one-half of such costs solely out of the Escrow Fund. Any arbitration
decision or award shall be final and not subject to appeal to any court of law,
except in the case of a manifest error in the application of law. Eller and the
Stockholder Representatives on behalf of the Stockholders specifically covenant
to one another that they shall not commence litigation against one another with
respect to any dispute subject to arbitration hereunder for any reason except as
may be necessary to enforce this Section or an arbitrator's decision or award.
In the event litigation shall be required to enforce this Section or the
arbitrator's decision or award, the prevailing party shall be paid its
reasonable attorneys' fees and costs, provided that, Eller's recovery thereof
shall be limited solely to the Escrow Fund.
16. Inspection. All property held as part of the escrow shall at all times
----------
be clearly identified as being held by the Escrow Agent and Disbursement Agent
hereunder. Any party hereto may at any time during normal business hours (with
reasonable notice) inspect any records or reports relating to the Merger
Consideration.
17. Notices. All notices, requests, demands and other communications which
-------
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g.; Federal Express); and
---
upon receipt, if sent by certified or registered mail, return receipt requested.
Notwithstanding the foregoing, a Claim Notice delivered pursuant to Section 6
hereof and a Final Instruction provided pursuant to Section 7 hereof shall be
deemed to have been duly given only if delivered personally, by recognized
overnight delivery or by certified registered mail and if receipt of such Claim
Notice or such Final Instruction, as the case may be, was acknowledged in
writing. In each case notice shall be sent to:
10
<PAGE>
If to Eller:
Scott S. Eller, President
Eller Media Company
2850 East Camelback Road, Suite 300
Phoenix, Arizona 85016
Fax: 602/957-8602
With a copy to:
Paul J. Meyer, General Counsel
Eller Media Company
2850 East Camelback Road, Suite 300
Phoenix, Arizona 85016
Fax: 602/381-5740
If to the Stockholder Representatives:
Scott A. Kraft, President
and Chief Executive Officer
c/o Bustop Shelters of Nevada
5425 South Valley View, Suite 103
Las Vegas, NV 89118
Fax: 702/795-3658
With a copy to:
Martin T. Goldblum
Troy & Gould, P.C.
1801 Century Park East
Suite 1600
Los Angeles, CA 90067-2302
Fax: 310/201-4746
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
18. Assignment; Binding Effect. Neither this Agreement not any of the
--------------------------
rights or obligations hereunder may be assigned by any party without the prior
written consent of the other parties. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
19. Amendment and Termination. This Agreement may be amended or modified
-------------------------
by and upon written notice to the Escrow Agent and Disbursement Agent given
jointly by Eller and the Stockholder Representatives, but the duties and
responsibilities of the Escrow Agent and
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<PAGE>
Disbursement Agent may not be increased without its written consent. This
Agreement will terminate on the date on which all the Escrow Fund has been
distributed in accordance with the terms set forth herein.
20. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
21. Severability and Further Assurances. This Agreement constitutes the
-----------------------------------
entire agreement among the parties and supersedes all prior and contemporaneous
agreements and undertakings on the parties in connection herewith. No failure or
delay of the Escrow Agent and Disbursement Agent in exercising any right, power
or remedy may be, or may be deemed to be, a waiver thereof; nor may any single
or partial exercise of any right, power or remedy preclude any other or further
exercise of any right, power or remedy. In the event that any one or more of the
provisions contained in this Agreement, shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, then to the maximum extent
permitted by law, such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement. Each of the parties hereto shall,
at the request of the other party, deliver to the requesting party all further
documents or other assurances as may reasonably be necessary or desirable in
connection with this Agreement.
22. Titles. The titles, captions or headings of the Sections herein are
------
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
23. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of California without regard to the
principles of conflicts of laws.
[SIGNATURE PAGE TO FOLLOW]
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the date first written above.
ELLER MEDIA COMPANY
By _____________________________
Scott S. Eller, President
ESCROW AGENT
By _____________________________
Name:
Title:
STOCKHOLDER REPRESENTATIVES
By _____________________________
Scott A. Kraft
By: _____________________________
Allan L. Ross, M.D.
By: _____________________________
Robert C. Lamb
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<PAGE>
SCHEDULE 5.2
I. Damages for the net loss of the legal entitlement to operate less than the
number of advertising display faces set forth after each of the following Bus
Shelter Contracts shall be $13,000.00 per advertising display face:
- Buena Park 176 - Newport Beach 42
- County of Los Angeles 716 - Seal Beach 54
- Huntington Beach 322
II. Damages for the net loss of the legal entitlement to operate less than an
aggregate of 988 advertising display faces under the following Bus Shelter
Contracts shall be $13,000.00 per advertising display face:
LOS ANGELES COUNTY
------------------
- Diamond Bar - Signal Hill
- Glendale Community - Pomona
ORANGE COUNTY
-------------
- Brea - Mission Viejo
- County of Orange - Orange Mall
- Disneyland Hotel - Santa Ana
- Fountain Valley - Stanton
- Garden Grove - Westminster #1
- La Habra #1 - Westminster #2
- La Habra #2 - Westminster Mall
- Laguna Hills
SAN BERNARDINO COUNTY
---------------------
- Sunrise Airport Parking (Ontario) - Victor Valley College
SAN DIEGO COUNTY
----------------
- Mira Costa College (Oceanside) - Oceanside
SHASTA COUNTY
-------------
- Bus Authority
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III. Damages for the loss of the legal entitlement to operate less than an
aggregate of 1,124 advertising display faces under the following Bus
Shelter Contracts shall be $11,000.00;
LOS ANGELES COUNTY
------------------
. AVTA (Lancaster) . Baldwin Park
. College of the Canyon . Commerce
(Santa Clarita) . Grants Parking
. Harvey Capital (Commerce) . Hawaiian Gardens
. Huntington Park . Lakewood
. Lawndale . Montebello
. Norwalk . San Fernando
. Santa Clarita . Santa Fe Springs
. South El Monte
SAN BERNARDINO COUNTY
---------------------
. City of San Bernardino . County of San Bernardino
. Fontana . Grand Terrace
. Ontario #1 . Rialto
RIVERSIDE COUNTY
----------------
. Corona . Moreno Valley
NOTE: No adjustment shall be made for the loss of advertising display faces
under any other Bus Shelter Contract.
15
<PAGE>
EXHIBIT B
Chapter 13 of the California General Corporation Law
----------------------------------------------------
<PAGE>
Chapter 13. Dissenters' Rights
1300. (a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting" shall means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System and the notice of meeting of
shareholders to act upon the reorganization summarizes of this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision does
not apply to any shares with respect to which there exists any restriction on
transfer imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described in
subparagraph (A) or (B) if demands for payment am filed with respect to 5
percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
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<PAGE>
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1302.
(c) As used in this chapter, dissenting shareholder' means the
recordholder of dissenting shams and includes a transferee of record.
1301. (a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300; unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
2
<PAGE>
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
1302. Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
1303. (a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after (he amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificate
therefor, unless provided otherwise by agreement.
1304. (a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the
3
<PAGE>
shares are dissenting shares or the fair market value of the dissenting shares
or both or may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares
is in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305. (a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and rile a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the
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<PAGE>
corporation, the corporation shall pay the costs (including in the discretion of
the court attorneys' fees, fees of expert witnesses and interest at the legal
rate on judgments from the date of compliance with Sections 1300, 1301 and 1302
if the value awarded by the court for the shares is more than 125 percent of the
price offered by the corporation under subdivision (a) of Section 1301).
1306. To the extent that the provisions of Chapter 5 prevent the payment
to any holders of dissenting shares of their fair market value, they shall
become creditors of the corporation for the amount thereof together with
interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter 5.
1307. Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of approval of the reorganization by the
outstanding shares (Section 152) and prior to payment for the shares by the
corporation shall be. credited against the total amount to be paid by the
corporation therefor.
1308. Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
1309. Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
5
<PAGE>
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310. If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
1311. This chapter, except Section 1312, does not apply to classes of
shares whose terms and provisions specifically set forth the amount to be paid
in respect to such shares in the event of a reorganization or merger.
1312.
(a) No shareholder of a corporation who has a right under this
chapter to demand payment of cash for the shares held by the shareholder shall
have any right at law or in equity to attack the validity of the reorganization
or short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger subdivision (a) shall not apply
to any shareholder of such party who has not demanded payment of cash for such
shareholder's shares pursuant to this chapter, but if the shareholder institutes
any action to attack the validity of the reorganization or short-form merger or
to have the reorganization or short-form merger set aside or rescinded, the
shareholder shall not thereafter have any right to demand payment of cash for
the shareholder's shares pursuant to this chapter. The court in any action
attacking the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded
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<PAGE>
shall not restrain or enjoin the consummation of the transaction except upon 10
days prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
7
<PAGE>
EXHIBIT C
Form of Amended and Restated Articles of Incorporation of BSON
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BUSTOP SHELTERS OF NEVADA, INC.
I
The name of this corporation is: BUSTOP SHELTERS OF NEVADA, INC.
II
The principal office or place of business of this corporation shall be
located in the county of Washoe, at:
911 W. Moana Lane
Reno, Nevada 89509
III
The nature of the business or objects or purposes to be transacted,
promoted or carried on by the corporation shall be to engage in any lawful
activity.
IV
This corporation shall be authorized to issue only one class of shares of
stock; and the total number of shares which this corporation shall be authorized
to issue shall be One Million Five Hundred Thousand (1,500,000).
V
The corporation shall have between three and five directors. As of the
date of these Articles of Incorporation, the names and addresses of the
directors are as follows:
Name Address
---- -------
Allan L. Ross, M.D. 5425 South Valley View
Suite 103
Las Vegas, Nevada 89118
Scott A. Kraft 5425 South Valley View
Suite 103
Las Vegas, Nevada 89118
Mark R. Boileau 5425 South Valley View
Suite 103
Las Vegas, Nevada 89118
William M. Slater 5425 South Valley View
Suite 103
Las Vegas, Nevada 89118
<PAGE>
VI
The shares of this corporation shall not be subject to assessment to pay
the debts of the corporation.
VII
The resident agent of the corporation is ________, whose address is
____________, _______ Nevada ________.
VIII
The duration of the corporation shall be perpetual.
IX
A shareholder may not transfer any shares of common stock of this
Corporation except for: (a) transfers to BSON; (b) transfers to existing BSON
shareholders; (c) transfers by gift, bequest or operation of the laws of
descent; (d) transfers to an entity unaffiliated with BSON pursuant to a merger,
consolidation, stock for stock exchange, or similar transaction involving BSON;
(e) transfers by a partnership to its partners; (f) transfers which would be
exempt from the registration requirements of Section 5 of the Securities Act by
virtue of the exemption provided by Section 4(2) of the Securities Act if the
transferor were the issuer of the BSON Common Stock, provided that the
transferee is an "accredited investor" within the meaning of Rule 501(a) under
the Securities Act; or (g) transfers pursuant to an effective registration under
the Securities Act simultaneous with a registration of the BSON Common Stock
under Section 12 of the Exchange Act.
The transfers described in items (b), (c), (e) and (f) will be permitted
only if the BSON Common Stock in the hands of the transferee remain subject to
the same restrictions on transfer as they were when held by the transferor.
In addition, before any shareholder can sell or transfer shares of common
stock of this Corporation under items (b) or (f) above, he shall first offer the
stock to the Corporation and then to the shareholders in the following manner:
(a) The offering shareholder shall give a written offer, by mailing,
personally delivering or telegraphing it to the secretary of the Corporation,
stating the number of shares to be sold or transferred and the price, terms and
conditions of the proposed sale or transfer. The Corporation shall then have
the right to purchase all or any whole number of the shares offered, at the
price and on the terms and conditions stated in the offer, by giving written
<PAGE>
notice to the offering shareholder of its election to purchase shares and of the
number of shares it intends to purchase. This notice shall be given by mailing,
personally delivering, or telegraphing it within five (5) days after the
offering shareholder's offer is given. If the Corporation elects to purchase
less than all the shares being offered, or fails to give notice of its election
to purchase within the period that it has the right to do so, the offering
shareholder will then be permitted to sell or transfer such shares to the
proposed third-party purchaser (who must be either an existing shareholder of
the Corporation or an "accredited investor" within the meaning of Rule 501(a)
under the Securities Act of 1933, as amended (the "Securities Act")) at the
price and on the terms of the original offer, subject to the other restrictions
referred to below.
(b) Each offer, notice, or statement provided for in this article
shall be considered given when it is personally delivered to the person to whom
it is to be given, or it is properly addressed and deposited in the United
States mail or delivered to a telegraph office with all postage or other charges
fully prepaid.
(c) Unless otherwise prohibited by law or by the Amended and Restated
Articles of Incorporation or these Bylaws, the Corporation may purchase its own
shares from any offering shareholder. The Corporation shall not purchase all of
its outstanding shares. Any sale or transfer, or purported sale or transfer, of
the Corporation's shares by any shareholder shall be null and void unless the
terms, conditions, and provisions of this article are strictly followed.
These restrictions on transfer will expire as to all holders on the date on
which BSON becomes a reporting company under the Exchange Act.
Any shares of stock permitted to be transferred shall be transferable only
upon the books of the Corporation by the holders thereof in person or by their
duly authorized attorneys or legal representatives, and upon such transfer the
old certificates shall be surrendered to the Corporation by the delivery thereof
to the person in charge of the stock and transfer books and ledgers, or to such
other persons as the directors may designate, by whom they shall be canceled,
and new certificates shall thereupon be issued. A record shall be made of each
transfer and whenever a transfer shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer.
<PAGE>
EXHIBIT D
Form of Amended and Restated Bylaws of BSON
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
BUSTOP SHELTERS OF NEVADA, INC.
______________________
ARTICLE I - OFFICES
-------------------
SECTION 1. REGISTERED OFFICE. The registered office shall be established
and maintained at 911 W. Moana Lane, Reno, in the County of Washoe in the State
of Nevada.
SECTION 2. OTHER OFFICES. The corporation may have other offices, either
within or without the State of Nevada, at such place or places as the Board of
Directors may from time to time appoint or the business of the corporation may
require.
ARTICLE II - MEETING OF STOCKHOLDERS
------------------------------------
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Nevada, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting. In the event the
Board of Directors fails to so determine the time, date and place of meeting,
the annual meeting of stockholders shall be held at the registered office of the
corporation in Nevada on May 1.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
may transact such other corporate business as shall be stated in the notice of
the meeting.
SECTION 2. OTHER MEETING. Meetings of stockholders for any purpose other
than the election of directors may be held at such time and place, within or
without the State of Nevada, as shall be stated in the notice of the meeting.
SECTION 3. VOTING. Each stockholders entitled to vote in accordance with
the terms and provisions of the Certificate of Incorporation and these By-Laws
shall be entitled to one vote, in person or by proxy, for each share of stock
entitled to vote held by such stockholder, but no proxy shall be voted after
three years from its date unless such proxy provides for
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<PAGE>
a longer period. Upon the demand of any stockholder, the vote for directors and
upon any question before the meeting shall be by ballot. All elections for
directors shall be decided by plurality vote; all other questions shall be
decided by majority vote except as otherwise provided by the Certificate of
Incorporation or the laws of the State of Nevada.
SECTION 4. STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the corporation shall at least 10 days before each meeting of
stockholders prepare a complete alphabetical addressed list of the stockholders
entitled to vote at the ensuing election, with the number of shares held by
each. Said list shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, for a period of
at least ten days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall be available for inspection at the meeting.
SECTION 5. QUORUM. Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted at the meeting as originally noticed; but only those stockholders
entitled to vote at the meeting as originally noticed shall be entitled to vote
at any adjournment or adjournments thereof.
SECTION 6. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the directors
or stockholders entitled to vote. Such request shall state the purpose of the
proposed meeting.
SECTION 7. NOTICE OF MEETINGS. Written notice, stating the place, date
and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholders entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than fifty days before the date of the meeting.
2
<PAGE>
SECTION 8. BUSINESS TRANSACTED. No business other than that stated in the
notice shall be transacted at any meeting without the unanimous consent of all
the stockholders entitled to vote thereat.
SECTION 9. ACTION WITHOUT MEETING. Except as otherwise provided by the
Certificate of Incorporation whenever the vote of stockholders at a meeting
thereof is required or permitted to be taken in connection with any corporate
action by any provisions of the statutes or the Certificate of Incorporation or
of these ByLaws, the meeting and vote of stockholders may be dispensed with, if
all the stockholders who would have been entitled by vote upon the action if
such meeting were held, shall consent to writing to such corporate action being
taken.
ARTICLE III - DIRECTORS
-----------------------
SECTION 1. NUMBER AND TERM. The number of directors shall be four. The
term of each director shall be four years and shall be staggered so that one
director shall be subject to election each year. The initial four directors
shall serve one, two, three and four year terms, respectively, so as to
implement the staggered terms.
SECTION 2. RESIGNATIONS. Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. REMOVAL. Any director or directors may be removed either for
or without cause at any time by the affirmative vote of the holders of a
majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for the purpose and the vacancies
thus created may be filled, at the meeting held for the purpose of removal, by
the affirmative vote of a majority in interest of the stockholders entitled to
vote.
SECTION 4. INCREASE OF NUMBER. The number of directors may be increased
or decreased, but not above five or below three, by amendment to these Bylaws of
the Corporation by the affirmative vote of a majority of the directors, or, by
the affirmative vote of a majority in interest of the shareholders, and by like
vote the additional directors may be chosen by such directors or such
shareholders to hold office until the respective term ends and until the
respective successor is elected and qualified.
SECTION 5. COMPENSATION. Directors shall not receive any stated salary
for their services as directors or as
3
<PAGE>
members of committees, but by resolution of the board a fixed fee and expenses
of attendance may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 6. ACTION WITHOUT MEETING - Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken with out a meeting, if prior to such action a written consent thereto
is signed by all members of the board, or of such committee as the case may be,
and such written consent is filed with the minutes of proceedings of the board
or committee.
ARTICLE IV - OFFICERS
---------------------
SECTION 1. OFFICERS. The officers of the corporation shall consist of a
President, a Treasurer, and a Secretary, and shall be elected by the Board of
Directors and shall hold office until their successors are elected and
qualified. In addition, the Board of Directors may elect a Chairman, one or
more Vice-Presidents and such Assistant Secretaries and Assistant Treasurers as
it may deem proper. None of the officers of the corporation need be directors.
The officers shall be elected at the first meeting of the Board of Directors
after each annual meeting. More than two offices may be held by the same
person,
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint
such officers and agents as it may deem advisable, who shall hold their offices
for such terms and shall exercise such power and perform such duties as shall be
determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. The Chairman of the Board of Directors if one be
elected, shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT. The President shall be chief executive officer of
the corporation and shall have the general powers and duties of supervision and
management usually vested in the office of President of a corporation. He shall
reside at all meetings of the stockholders if present thereat, and in the
absence or non-election of the Chairman of the Board of Directors, at all
meeting of the Board of Directors, and shall have general supervision, direction
and control of the business of the corporation Except as the Board of Directors
shall authorize the execution thereof in some other manner, he shall execute
bonds, mortgages, and other contracts in behalf of the corporation, and shall
cause the
4
<PAGE>
seal to be affixed to any instrument requiring it and when so affixed the seal
shall be attested by the signature of the Secretary or the Treasurer or an
Assistant Secretary or an Assistant Treasurer.
SECTION 4. VICE-PRESIDENT. Each Vice-President shall have such powers and
shall perform such duties as shall be assigned to him by the directors.
SECTION 5. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositories as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be ordered
by the Board of Directors, or the President, taking proper vouchers for such
disbursements. He shall render to the President and Board of Directors at the
regular meetings of the Board of Directors, or whenever they may request it, an
account of all his transactions as Treasurer and of the financial condition of
the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
SECTION 6. SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any-person thereunto directed
by the President, or by the directors, or stockholders, upon whose requisition
the meeting is called as provided in these By-Laws. He shall record all the
proceedings of the meetings of the corporation and of directors in a book to be
kept for that purpose. He shall keep in safe custody the seal of the
corporation,and when authorized by the Board of Directors, affix the same to any
instrument requiring it, and when so affixed, it shall be attested by his
signature or by the signature of any assistant secretary.
SECTION 7. ASSISTANT TREASURER & ASSISTANT SECRETARIES. Assistant
Treasurer and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
5
<PAGE>
ARTICLE V
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by the chairman or vice-chairman of the board of directors,
or the president or a vice-president and the treasurer or an assistant
treasurer, or the secretary of the corporation, certifying the number of shares
owned by him in the corporation. If the corporation shall be authorized to
issue more than one class of stock or more than one series of any class, the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications
limitations, or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class of series of stock, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating optional or other special rights of each class of stock or series
thereof and the and the qualifications, limitations or restrictions of such
preferences and/or rights. Where a certificate is countersigned (1) by a
transfer agent other than the corporation of its employee, or (2) by a registrar
other that the corporation or its employee, the signatures of such officers may
be facsimiles.
SECTION 2. LOST CERTIFICATES. New certificates of stock may be issued in
the place of any certificate therefore,issued by the corporation, alleged to
have been lost or destroyed, and the directors may in their discretion, require
the owner of the lost or destroyed certificate of his legal representatives, to
give the corporation a bond, in such sum as they may director not exceeding
double the value of the stock, to indemnify the corporation against it on
account of the alleged loss of any such new certificate.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such transfer
the old certificates shall be surrendered to the corporation by the delivery
thereof to the person in charge of the stock and transfer books and ledgers, or
to such other Persons as the directors may designate, by who they shall be
cancelled and new certificates shall thereupon be issued. A record shall be
made of each transfer and whenever a transfer shall be made
6
<PAGE>
for collateral security, and not absolutely, it shall be so expressed in the
entry of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the day of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however,, that the Board of Directors may fix a new record date for
the adjourned meeting.
SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring ,any
dividends there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL. The corporate seal shall be circular in form and shall
contain the name of the corporation, the day and the year of its creation and
the words "INCORPORATED NEVADA." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or otherwise reproduced.
SECTION 7. FISCAL YEAR. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS. All checks, drafts, or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by the officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required
by these By-Laws to be given, personal notice is not meant unless expressly
stated, and any notice so
7
<PAGE>
required shall be deemed to be sufficient if given by depositing the same in the
United States mail, postage prepaid, addressed to the person entitled thereto at
his address as it appears on the records of the corporation, and such notice
shall be deemed to have been given on the day of such mailing stockholders not
entitled to vote shall not be entitled to receive notice of any meetings except
as otherwise provided by statute.
Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Certificate of Incorporation of the
corporation or these By-Laws, a waiver thereof in writing signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed proper notice.
ARTICLE VI AMENDMENTS
----------------------
These By-Laws may be altered and repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
thereof is contained in the notice of such special meeting by the affirmative
vote of a majority of the stock issued and outstanding or entitled to vote
thereat, or by the regular meeting of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice thereof is contained in the notice of such special meeting.
8
<PAGE>
EXHIBIT E
Letter from Stinchfield & Co. dated September 19, 1997
<PAGE>
STINCHFIELD & CO.
An Accountancy Corporation
Certified Public Accountants
September 19, 1997
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Gentlemen:
We were previously principal accountants for Metro Display Advertising,
Inc. and we reported on the financial statements and schedules of Metro Display
Advertising, Inc. for the fiscal year ended December 31, 1994 and 1995. On
December 10, 1996, we were dismissed as the principal accountants of Metro
Display Advertising, Inc. We have read the section entitled "Independent
Accountants" in the attached proxy statement of Metro Display, Advertising, Inc.
to be distributed in conjunction with the Company's Annual Meeting of
Shareholders for 1997 and to be filed with the Securities and Exchange
Commission and are in agreement with the statements contained therein.
Sincerely,
STINCHFIELD & CO.
By: /s/ Dale L. Stinchfield
-----------------------------
Dale L. Stinchfield,
President
