-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GjuLPNn34iIgBUNsjt4NMYIG7lbE5zR22JTtrzvUfjy8eLz/v+MfEN89gw/KAjhU J8sIy5YRg2Jg345oJ1D7UQ== 0000944209-98-000004.txt : 19980107 0000944209-98-000004.hdr.sgml : 19980107 ACCESSION NUMBER: 0000944209-98-000004 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980115 FILED AS OF DATE: 19980106 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: METRO DISPLAY ADVERTISING INC CENTRAL INDEX KEY: 0000944742 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 33093323 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-25982 FILM NUMBER: 98501195 BUSINESS ADDRESS: STREET 1: 15265 ALTON PARKWAY STREET 2: STE 100 CITY: IRVINE STATE: CA ZIP: 92718 BUSINESS PHONE: 7147273333 MAIL ADDRESS: STREET 1: 15265 ALTON PARKWAY STREET 2: STE 100 CITY: IRVINE STATE: CA ZIP: 92718 DEF 14A 1 DEFINITIVE PROXY STATEMENT 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: ---------------------------------------------------------------------- 2) Aggregate number of securities to which transaction applies: ---------------------------------------------------------------------- 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): ---------------------------------------------------------------------- 4) Proposed maximum aggregate value of transaction: ---------------------------------------------------------------------- 5) Total fee paid: ---------------------------------------------------------------------- [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: ---------------------------------------------------------------------- 2) Form, Schedule or Registration Statement No.: ---------------------------------------------------------------------- 3) Filing Party: ---------------------------------------------------------------------- 4) Date Filed: ---------------------------------------------------------------------- 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 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 TABLE OF CONTENTS
Page ---- 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
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
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
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. 1 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 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 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 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 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 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. 7 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 8 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. 9 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. 10 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. 11 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." 12 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 13 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 14 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 15 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. 16 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. 17 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 18 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 19 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. 20 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 21 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. 22 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 23 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 24 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 25 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 26 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. 27 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 28 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. 29 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 30 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. 31 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 32 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. 33 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 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 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 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:
NAME AGE POSITION 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
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 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 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 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 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 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 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.
SHARES BENEFICIALLY OWNED (2) --------------------------------- NAME AND ADDRESS OF NUMBER PERCENT BENEFICIAL OWNER (1) ---------------- -------------- - -------------------------------- 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%
________________ * 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 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 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 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 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 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"):
Long Term Compensation ------------ Annual Compensation (1) Awards --------------------------------- ------------ Fiscal Year Securities Name and Ended Underlying Principal Position December 31, Salary Bonus Options - ------------------------ ------------ -------- ------- ------------ 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
_____________ (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 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
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 - ------------------------ ---------------- ------------ ------------- -------------- ------------ ------------- Scott A. Kraft 0 0 20,000 0 $(1) $0 President and Chief Executive Officer
(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 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 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 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 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 INDEX TO FINANCIAL STATEMENTS
Page ---- 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
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
[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 [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 METRO DISPLAY ADVERTISING, INC. CONSOLIDATED BALANCE SHEETS
ASSETS December 31, 1996 1995 ------------ ------------ 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 =========== ===========
See notes to consolidated financial statements F-3 METRO DISPLAY ADVERTISING, INC. CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996 1995 ------------ ------------ 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 ========== ==========
See notes to consolidated financial statements F-4 METRO DISPLAY ADVERTISING, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996 and 1995
COMMON ACCUMULATED STOCK DEFICIT TOTAL ========== =========== ========== 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 ========== ========= ==========
See notes to consolidated financial statements F-5 METRO DISPLAY ADVERTISING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 1995 ----------- ----------- 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 =========== ===========
See notes to consolidated financial statements F-6 METRO DISPLAY ADVERTISING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL SCHEDULE
Years Ended December 31, 1996 1995 ---------- ---------- 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 ========== ==========
See notes to consolidated financial statements F-7 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 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 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:
Current Long Term Total ------- --------- -------- 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
F-10 METRO DISPLAY ADVERTISING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 4 - LONG TERM DEBT, CONTINUED
Current Long Term Total -------- --------- --------- 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 ======== ======== ==========
Future maturities of long-term debt are as follows:
Year Ended December 31 ---------------------- 1998 $281,922 1999 118,530 2000 184,562 2001 82,260 2002 and after 166,511 -------- $833,785 ========
F-11 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:
December 31, --------------------------- 1996 1995 ----------- ---------- 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 =========== ===========
The income tax components of the provision (benefit) for income taxes consist of the following:
December 31, --------------------------- 1996 1995 ----------- ---------- Current: State $ 800 $ 800 Deferred: Federal (28,500) 38,000 State (60,500) 8,200 -------- ------- $(89,000) $46,200 -------- ------- $(88,200) $47,000 ======== =======
The (benefit) provision for income taxes differs from the amount computed by applying the statutory federal rate to pretax income as follows:
December 31, --------------------------- 1996 1995 ----------- ---------- 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 % ======== =======
F-12 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 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:
Fiscal year ended ----------------- 1997 $ 92,478 1998 42,654 1999 23,604 2000 3,934 -------- Total $162,670 ========
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 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 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 METRO DISPLAY ADVERTISING, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30, 1996 1997 (unaudited) -------------- -------------- 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 =========== ===========
See accompanying Notes to condensed Financial Statements F-17 METRO DISPLAY ADVERTISING, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Nine Months Ended September 30, 1996 1997 ------------ ------------- 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) ========== ==========
See accompanying Notes to Condensed Financial Statements F-18 METRO DISPLAY ADVERTISING, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 1996 1997 ---------- ----------- 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) ========= =========
See accompanying Notes to Condensed Financial Statements F-19 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 [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 BUSTOP SHELTERS OF NEVADA, INC. BALANCE SHEETS
ASSETS December 31, 1996 1995 ---------- ---------- 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 =========== ==========
See notes to financial statements F-22 BUSTOP SHELTERS OF NEVADA, INC. STATEMENTS OF INCOME
ASSETS Years Ended December 31, 1996 1995 ---------- ---------- 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 =========== ==========
See notes to financial statements F-23 BUSTOP SHELTERS OF NEVADA, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
ADDITIONAL COMMON PAID-IN RETAINED SHARES STOCK CAPITAL EARNINGS TOTAL ------ --------- ---------- ---------- ---------- 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 ======= ======== ========== ========== ==========
See notes to financial statements F-24 BUSTOP SHELTERS OF NEVADA, INC. STATEMENT OF CASH FLOWS
Years Ended December 31, 1996 1995 -------- -------- 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 $ - =========== ===========
See Notes to financial statements F-25 BUSTOP SHELTERS OF NEVADA, INC. STATEMENTS OF CASH FLOWS - SUPPLEMENTAL SCHEDULE
Years Ended December 31, 1996 1995 ----------- ------------ 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 ========== ==========
See notes to financial statements F-26 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 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 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:
December 31, ------------ 1996 1995 ---- ---- 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) ========= ==========
The income tax components of the provision for income taxes consist of the following:
December 31, ------------ 1996 1995 ---- ---- Current $ 104,000 $ - Deferred (122,800) 11,800 --------- ---------- $ (18,800) $ 11,800 ========= ==========
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 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:
Fiscal year ended ----------------- 1997 $ 38,178 1998 23,604 1999 23,604 2000 3,934 -------- Total $ 89,320 ========
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 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 BUSTOP SHELTERS OF NEVADA, INC. CONDENSED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30, 1996 1997 (unaudited) ------------ ------------ 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 ============ ============
See accompanying Notes to condensed Financial Statements F-32 BUSTOP SHELTERS OF NEVADA, INC. CONDENSED STATEMENT OF OPERATIONS
(Unaudited) Year ended Nine Months Ended December 31, September 30, 1996 1996 1997 ------------ ----------- ----------- 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 ========== ========== ==========
See accompanying Notes to Condensed Financial Statements F-33 BUSTOP SHELTERS OF NEVADA, INC. CONDENSED STATEMENT OF CASH FLOWS
(Unaudited) Year ended Nine Months Ended December 31, September 30, 1996 1996 1997 ------------- ---------- ---------- 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 $ - $ - ============= =========== ===========
See accompanying Notes to Condensed Financial Statements F-34 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 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 METRO DISPLAY ADVERTISING, INC. PRO FORMA CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1997
(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 ----------------- ---------------- ------------ ----------- ----------------- 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 =========== ========== ===========
See accompanying notes to pro forma financial statements F-37 METRO DISPLAY ADVERTISING, INC. PRO FORMA CONDENSED STATEMENT OF LOSS FOR THE YEAR ENDED DECEMBER 31, 1996
(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 ----------------- ---------------- ------------ ----------- ----------------- 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) ========== ========== ===========
See accompanying notes to pro forma financial statements F-38 METRO DISPLAY ADVERTISING, INC. PRO FORMA CONDENSED STATEMENT OF LOSS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(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 ---------------- ---------------- ----------- ----------- ---------------- 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) ========== ========== ==========
See accompanying notes to pro forma financial statements F-39 BUSTOP SHELTERS OF NEVADA, INC. PRO FORMA CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1997
Pro Forma Bustop Bustop Shelters of Shelters of Nevada, Inc.. Pro Forma Nevada, Inc. ASSETS 9/30/97 Adjustments 9/30/97 ------------ ----------- ------------ 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 ========== ==========
See accompanying notes to pro forma financial statements F-40 BUSTOP SHELTERS OF NEVADA, INC. PRO FORMA CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996
Historical Pro Forma Bustop Bustop Shelters of Shelters of Nevada, Inc. Pro Forma Nevada, Inc. 12/31/96 Adjustments 12/31/96 ------------ ----------- ------------ 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 ===========
See accompanying notes to pro forma financial statements. F-41 BUSTOP SHELTERS OF NEVADA, INC. PRO FORMA CONDENSED STATEMENT OF LOSS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Pro Forma Bustop Bustop Shelters of Shelters of Nevada, Inc. Pro Forma Nevada, Inc. 9/30/97 Adjustments 9/30/97 ------------- --------------- -------------- 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 =============
See accompanying notes to pro forma financial statements F-42 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. 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 ==========
(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 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 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. 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 EX-99.A 2 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER 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 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 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. 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 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 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 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 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 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 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 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 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 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 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 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 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. 14 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. 15 (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; 16 (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. 17 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; 18 (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. 19 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; 20 (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 21 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. 22 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. 23 ARTICLE VI ---------- COVENANTS OF METRO, ------------------- ELLER AND EMS ------------- 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 24 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; 25 (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 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 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 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 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 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 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 (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 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 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 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 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. 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 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 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 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 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 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 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 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 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 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 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. 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 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 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 4 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. 5 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 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 7 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 8 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. 9 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. 10 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 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. 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. 2 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; 3 (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: 4 (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 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 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 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 (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 9 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 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 11 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 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 13 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 14 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 EX-99.B 3 CHAPTER 13 OF THE CALIFORNIA CORPORATION LAW EXHIBIT B Chapter 13 of the California General Corporation Law ---------------------------------------------------- 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. 1 (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 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 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 4 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 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 6 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 EX-99.C 4 FORM OF AMENDED AND RESTATED ARTICLES OF INCORPORATION EXHIBIT C Form of Amended and Restated Articles of Incorporation of BSON 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 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 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. EX-99.D 5 FORM OF AMENDED AND RESTATED BYLAWS OF BSON EXHIBIT D Form of Amended and Restated Bylaws of BSON 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 1 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 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 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 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 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 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 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 EX-99.E 6 LETTER FROM STINCHFIELD & CO. DATED SEPT. 19, 1997 EXHIBIT E Letter from Stinchfield & Co. dated September 19, 1997 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 -----END PRIVACY-ENHANCED MESSAGE-----