Lamar Advertising Company
Table of Contents

As filed with the Securities and Exchange Commission on December 2, 2004
Registration No. 333-            



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933


Lamar Advertising Company

(Exact name of Registrant as Specified in its Charter)
         
Delaware   7311   72-1449411
(State or other jurisdiction
of incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)


5551 Corporate Boulevard

Baton Rouge, Louisiana 70808
(225) 926-1000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Kevin P. Reilly, Jr.

Chief Executive Officer
Lamar Advertising Company
5551 Corporate Boulevard
Baton Rouge, Louisiana 70808
(225) 926-1000
(Name, address, including zip code, and telephone number, including area code, of agent for service)


With copies to:

         
Matthew J. Gardella
Palmer & Dodge LLP
111 Huntington Avenue
at Prudential Center
Boston, Massachusetts 02199
(617) 239-0100
  Brian B. Obie
Chief Executive Officer
Obie Media Corporation
4211 West 11th Avenue
Eugene, Oregon 97402
(541) 686-8400
  David C. Baca
Davis Wright Tremaine LLP
1300 S.W. Fifth Avenue
24th Floor
Portland, Oregon 97201
(503) 241-2300


    Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective time of this Registration Statement and the effective time of the merger contemplated by the Agreement and Plan of Merger by and among Lamar Advertising Company, OMC Acquisition Corporation, and Obie Media Corporation, dated as of September 17, 2004 (the “Merger Agreement”), which is attached as Annex A to the proxy statement/ prospectus forming a part of this Registration Statement.

    If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.    o

    If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

    If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

CALCULATION OF REGISTRATION FEE

                 


Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Aggregate Offering Aggregate Offering Amount of
Securities to be Registered be Registered Price Per Unit Price Registration Fee

Class A common stock, $.001 par value
  (1)   N/A   $43,313,718.00(2)   $5,487.85


(1)  In accordance with Rule 457(o) of the Securities Act of 1933, the number of shares being registered are not included in the table.
(2)  The registration fee has been calculated pursuant to Rule 457(o) on the basis of the maximum aggregate offering price of the Lamar Class A common stock to be issued in connection with the merger of Obie Media Corporation into OMC Acquisition Corporation. Pursuant to the Merger Agreement, the number of shares of Lamar Class A common stock to be issued in the merger will be based on an exchange ratio equal to $43,313,718 divided by the total number of shares of common stock of Obie Media Corporation issued and outstanding immediately prior to closing, which is further divided by the average of the closing sale prices per share for Lamar Class A common stock on the Nasdaq National Market for each of the 20 consecutive trading days ending with the third complete trading day prior to the closing date. Because the exact number of shares of Lamar Class A common stock to be issued will be based on the twenty-day average trading price of Lamar Class A common stock determined three days prior to closing, the aggregate market value of the actual number of shares issued as of the closing date may be more or less than $43,313,718.


    The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

 


Table of Contents



OBIE MEDIA CORPORATION

4211 West 11th Avenue
Eugene, Oregon 97402


                     , 2004


MERGER PROPOSAL — YOUR VOTE IS VERY IMPORTANT


Dear Shareholders of Obie Media Corporation:

     You are cordially invited to attend the special meeting of shareholders of Obie Media Corporation to be held at                     a.m., local time, on                    , 2005, at Obie’s offices located at 4211 West 11th Avenue, Eugene, Oregon 97402. At the special meeting, you will be asked to consider and vote upon a proposal to (1) approve the merger among Obie, Lamar Advertising Company, and OMC Acquisition Corporation, pursuant to which Obie will become a wholly owned subsidiary of Lamar and you will become a stockholder of Lamar, and (2) adjourn the special meeting, if necessary. Upon the closing of the merger, all outstanding shares of Obie common stock will convert into the right to receive shares of Lamar Class A common stock, and, in certain circumstances, cash, with each Obie shareholder entitled to a pro rata share of the aggregate merger consideration valued at $43,313,718. Approximately 1,000,000 shares of Lamar Class A common stock will be issued to Obie shareholders in the transaction, based upon the average closing price of Lamar Class A common stock on                    , 2004.

     Obie common stock is traded on the Nasdaq Small Cap Market under the symbol “OBIE.” Lamar common stock is traded on the Nasdaq National Market under the symbol “LAMR.”

     Your board of directors has carefully considered and approved the merger and has determined that the merger is in your best interests. Accordingly, the Obie board of directors recommends that you vote “FOR” approval of the merger and “FOR” approval of the related adjournment proposal, if necessary. In connection with this determination, the Obie board has received the written opinion of D.A. Davidson & Co., which concludes that the consideration to be paid by Lamar in the merger is fair, from a financial point of view, to you. A copy of this opinion is attached to this proxy statement/ prospectus as Annex B and we urge you to read this opinion in its entirety. A copy of the merger agreement is also attached to this proxy statement/ prospectus as Annex A. We encourage you to read the merger agreement. Also enclosed is a proxy card so you can vote on the proposals without attending the special meeting.

     THE MERGER INVOLVES CERTAIN RISKS TO OBIE MEDIA CORPORATION SHAREHOLDERS. SEE “RISK FACTORS,” BEGINNING ON PAGE                    .

     It is important that your shares be represented at the special meeting. Whether or not you expect to attend in person, please promptly sign, date, and return the enclosed proxy card in the enclosed, postage prepaid envelope.

     Thank you and we look forward to seeing you at the special meeting.

  Very truly yours,
 
  (-s- Brian B. Obie)
  BRIAN B. OBIE
  Chief Executive Officer

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES OF LAMAR ADVERTISING COMPANY COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/ PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

     This proxy statement/ prospectus is dated                    , 2004, and is first being mailed to shareholders on or about                    , 2004.


Table of Contents

OBIE MEDIA CORPORATION

4211 West 11th Avenue
Eugene, Oregon 97402

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held on                                , 2005

Dear Shareholders of Obie Media Corporation:

      A special meeting of the shareholders of Obie Media Corporation, an Oregon corporation (“Obie”), will be held at                      a.m., local time, on                           , 2005, at Obie’s offices located at 4211 West 11th Avenue, Eugene, Oregon 97402, for the following purposes:

        1. to consider and vote upon a proposal to approve the merger of Obie with OMC Acquisition Corporation, a wholly owned subsidiary of Lamar Advertising Company, and Obie Media Corporation;
 
        2. to consider and vote upon a proposal to approve one or more adjournments of the special meeting, if necessary, to permit further solicitation of proxies if there are insufficient votes at the time of the special meeting to approve the merger; and
 
        3. to transact such other business as may be properly brought before the meeting.

      Obie’s board of directors, after carefully considering many factors, has unanimously determined that the proposed merger is advisable, fair to, and in the best interests of Obie and its shareholders and has unanimously approved the merger. Obie’s board of directors unanimously recommends that you vote “FOR” the proposal to approve the merger at the special meeting and “FOR” approval of the related adjournment proposal. Please refer to the proxy statement/ prospectus accompanying this notice, which more fully describes the foregoing items of business.

      All shareholders are cordially invited to attend the special meeting. Only shareholders of record at the close of business on                     , 2004, the record date fixed by the Obie board of directors, however, are entitled to receive notice of the meeting and to vote at the meeting or any adjournment or postponement of the meeting. Shareholders may vote in person or by proxy.

      We will admit to the special meeting (1) all shareholders of record at the close of business on                     , 2004, (2) any persons holding proof of beneficial ownership as of that date, such as a letter or account statement from the person’s broker or bank, (3) any persons who have been granted proxies, and (4) other persons that the Obie board of directors, in its sole discretion, may elect to admit. All persons wishing to be admitted to the special meeting must present photo identification. If you plan to attend the special meeting, please check the appropriate box on your proxy card according to the instructions provided.

  By order of the Board of Directors,
 
  -s- Delores M. Mord
  DELORES M. MORD
  Secretary

Eugene, Oregon

                          , 2004

Your vote is important. Whether or not you intend to be present at the meeting, please sign and date the enclosed proxy card and return it in the accompanying envelope to ensure that your shares will be voted.


Table of Contents

REFERENCES TO ADDITIONAL INFORMATION

      This proxy statement/ prospectus incorporates important business and financial information about Lamar and Obie from other documents that are not included in or delivered with this proxy statement/ prospectus. Such information is included in documents filed by Lamar and Obie with the Securities and Exchange Commission and is available to you without charge upon your written or oral request. You may obtain these documents by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

     
Lamar Advertising Company
5551 Corporate Boulevard
Baton Rouge, LA 70808
(225) 926-1000
www.lamar.com
  Obie Media Corporation
4211 West 11th Avenue
Eugene, OR 97402
(541) 686-8400
www.obie.com

      You will not be charged for any of these documents that you request. If you wish to request documents, the applicable company must receive your request by                     (which is five business days before the scheduled date of the special meeting of Obie shareholders) in order for you to receive them before the special meeting. Information on the respective website of each company is NOT considered to be part of or incorporated by reference into this proxy statement/ prospectus unless specifically indicated to the contrary.

      See “Where You Can Find More Information” beginning on page 84.


Table of Contents

TABLE OF CONTENTS

           
Page

    1  
    4  
    9  
    11  
    13  
    15  
    16  
    26  
    27  
      27  
      27  
      27  
      27  
      28  
      28  
      28  
      29  
      29  
    30  
    32  
    49  
      49  
      50  
      50  
      52  
      58  
    59  
      59  
      59  
      59  
      59  
      59  
      60  
      60  
      60  
      60  
      63  
      64  
      64  
      64  
      65  


Table of Contents

           
Page

      65  
    66  
      66  
      68  
      69  
      70  
      71  
      72  
    73  
    83  
    83  
    83  
    84  
    84  
    F-1  
       
       
       
       
 EX-5.1 Opinion of Palmer and Dodge LLP
 EX-8.1 Opinion of Jones, Walker, Waechter, Poitvent, Carrere & Denegre L.L.P.
 EX-8.2 Opinion of David Wright Tremaine LLP
 EX-10.9 Amendment No. 2 to Credit Agreement
 EX-10.15 Consulting and Non-Competition Agreement
 EX-23.4 Consent of KPMG LLP
 EX-23.5 Consent of PricewaterhouseCoopers LLP
 EX-23.6 Consent of D.A. Davidson & Co.
 EX-99.1 Form of Obie Proxy Card

ii


Table of Contents

QUESTIONS & ANSWERS ABOUT THE MERGER

      The following are some questions that you, as a shareholder of Obie, may have about the merger and the answers to those questions. We urge you to read carefully the entire proxy statement/prospectus in order to consider all the information that might be important to you with respect to the merger and the other matters to be conducted at the special meeting. Additional important information is contained in the annexes to, and the documents incorporated by reference in, this proxy statement/prospectus.

 
Q: Why are Lamar and Obie proposing this merger?

A: Obie believes that the merger represents a unique opportunity to its shareholders to realize significant value for their shares as well as an opportunity to continue to participate in the out-of-home advertising industry by an investment in a well-capitalized, experienced company.

  Lamar believes that the quality and location of Obie’s billboards and the strength of Obie’s transit business will expand and complement Lamar’s existing business and will contribute to its goal of maintaining value for its stockholders.
 
Q: What risks should I consider?

A: You should review carefully our discussion of “Risk Factors” beginning on page 16.
 
Q: What will I receive in exchange for my Obie stock in the merger?

A. You will receive your proportional share of the merger consideration, which is valued at $43,313,718. Your Obie common stock will convert into the right to receive shares of Lamar Class A common stock and, in some circumstances, cash. You will receive cash instead of fractional shares and you may receive cash instead of some shares of Lamar stock if the price of Lamar stock falls below $30.00 per share.
 
Q: Will I be able to trade the shares of Lamar Class A common stock I receive in the merger?

A: The shares of Lamar Class A Common Stock will be quoted on the Nasdaq National Market under the symbol “LAMR.” You may freely trade these shares, unless you are an affiliate of Obie. Persons who are considered affiliates (generally directors, officers and 10% or greater shareholders) of Obie must either register their shares of Lamar stock for resale or fit within an exemption from registration under the Securities Act of 1933, as amended. Rule 145 is the most likely exemption an Obie affiliate would use to sell or otherwise transfer any of the shares of Lamar Class A common stock received in the merger. Generally speaking, under Rule 145 such persons may sell their shares of Lamar Class A common stock immediately upon receipt, subject to certain information requirements, volume limitations, and other conditions of Rule 144.
 
Q: What is the difference between the Lamar Class A common stock I will receive in exchange for my Obie stock in the merger and Lamar Class B common stock?

A: The Class A common stock and the Class B common stock have the same rights and powers, except that a share of Class A common stock entitles the holder to one (1) vote, while a share of Class B common stock entitles the holder to ten (10) votes. On                     , 2004, there were                     shares of Lamar Class A common stock outstanding, 15,672,527 shares of Lamar Class B common stock outstanding, and 5,719.49 shares of Lamar Series AA preferred stock outstanding, which constitute, in the aggregate           %,           % and less than 0.1%, respectively, of all outstanding votes. Accordingly, the holders of Lamar Class B common stock control approximately                     % of the voting stock of Lamar. References to “Lamar stock” in this proxy statement/prospectus refer to Lamar Class A common stock.

1


Table of Contents

 
Q: What are the tax consequences of the merger to me?

A: For United States federal income tax purposes, (1) the receipt of Lamar stock in exchange for Obie stock generally will not cause you to recognize any taxable gain or loss, and (2) your income tax basis in the Lamar stock you receive in the merger will be equal to your basis in the shares of Obie stock you surrender in the exchange. If you receive a combination of cash and stock in exchange for your Obie shares, you will be required to recognize any gain to the extent that cash is received in the merger, and you will not be entitled to recognize any loss realized. See “The Merger — Material U.S. Federal Income Tax Consequences of the Merger.”

  We urge you to consult your tax advisor to explain the tax consequences of the merger to you, including whether you may be entitled to capital gains treatment for any gains you recognize. Tax matters are very complicated and, in many cases, tax consequences of the merger will depend on your particular facts and circumstances.
 
Q: What do I need to do now?

A: After carefully reading and considering the information contained in this proxy statement/prospectus, please complete, sign, and date your proxy card and return it as soon as possible in the enclosed prepaid envelope so that your shares may be represented at the special meeting. If you sign and send in your proxy card, your shares will be voted as you indicate in your proxy card. If you sign and send in your proxy card, but do not indicate how you want to vote, we will count your proxy as a vote “FOR” the proposal to approve the merger and “FOR” approval of any adjournment of the special meeting, if necessary. Abstaining, failing to vote or withholding your votes will have the effect of voting against the proposal to approve the merger, but will have no effect on the proposal to adjourn the special meeting, if necessary.
 
Q: If my shares are held in “street name” by my broker, will my broker vote my shares for me?

A: Your broker or bank will vote your shares only if you provide instructions on how to vote. As a general rule, your broker or bank does not have authority to vote on the proposal to approve the merger or the proposal to adjourn the special meeting, if necessary. Accordingly, your broker or bank will vote your shares held by it in “street name” with respect to the merger and adjournment proposals only if you provide instructions to it on how to vote. Therefore, you should follow carefully the directions your broker or bank provides. Your failure to properly instruct your broker or bank to vote “FOR” the proposal to approve the merger will have the effect of voting your shares against the proposal to approve the merger, but will have no effect on the proposal to adjourn the special meeting, if necessary.
 
Q: Should I send in my Obie stock certificates now?

A: No. You should not send in your stock certificates at this time. Obie shareholders who hold their shares in certificated form will need to exchange their Obie stock certificates for Lamar Class A common stock and, in some circumstances, cash, after the merger is effective. Obie shareholders will receive instructions for exchanging Obie stock certificates following the effective date of the merger. Obie shareholders who hold their shares in book-entry form will receive instructions for exchanging their shares following the effective date of the merger. Please do not send in your stock certificates with your proxy.
 
Q: Can I change my vote after I have mailed my signed proxy?

A: Yes. You can change your vote in one of three ways at any time before your proxy is voted at the special meeting. First, you can send a written notice stating that you would like to revoke your proxy. Second, you can complete and submit a new proxy card dated after the date of your original proxy card. If you choose either of these two methods, the Secretary of Obie must receive your notice of revocation or your new proxy card at 4211 West 11th Avenue, Eugene, Oregon 97402 by the close of

2


Table of Contents

business on                     , 2005, which is one business day prior to the special meeting. Third, you can attend the special meeting and vote in person. Simply attending the meeting, however, will not revoke your proxy; you must also vote at the special meeting.
 
Q: When is the shareholder meeting?

A: The shareholder meeting will take place on at           a.m., local time, on                      , 2005 at Obie’s offices located at 4211 West 11th Avenue, Eugene, Oregon 97402. Upon receipt of the required shareholder vote, Obie may adjourn the special meeting, if necessary, to solicit additional proxies.
 
Q: Can I attend the special meeting and vote my shares in person?

A: All Obie shareholders are invited to attend the special meeting. Only shareholders of record as of                     , 2004, however, will be entitled to vote in person at the special meeting. If a bank, broker, or other nominee holds your shares in “street name,” then you are not the shareholder of record and you must ask your bank, broker, or other nominee how you can vote in person at the special meeting.
 
Q: What vote is required for approval of the two proposals under consideration at the special meeting?

A: The merger proposal must be approved by a majority of the outstanding shares of Obie common stock entitled to vote. As of the record date, there were                     shares of Obie stock outstanding and entitled to vote. Accordingly, the merger will be approved only if at least                      shares of Obie Stock vote in favor of the proposal to approve the merger. Abstentions and the failure to vote have the effect of voting against the merger. You are entitled to vote on the proposal to approve the merger if you held Obie stock at the close of business on the record date, which is                     , 2004.

  The adjournment proposal must be approved by the affirmative vote of a majority of the shares of Obie common stock present in person or by proxy at the special meeting, without regard to abstentions, even if there is no quorum at that meeting.
 
Q: When do you expect the merger to be completed?

A: We are working toward completing the merger as quickly as possible. If approved by the Obie shareholders, we expect to complete the merger on or about January      , 2005.
 
Q: Whom should I call with questions?

A: You can call Gary Livesay, Obie’s Vice President and Chief Financial Officer, at (541) 686-8400 with questions about the merger.

3


Table of Contents

SUMMARY

      This summary highlights certain information that we believe is important to you in deciding how to vote on the proposals described in this document. It does not contain all of the information that may be important to you. We urge you to read carefully this entire proxy statement/prospectus and the other documents to which this proxy statement/prospectus refers you in order to help you understand the proposed transaction. See “Where You Can Find More Information,” beginning on page 84. Each topic in this summary refers to the page of this document on which that topic is discussed in more detail. The information contained on the respective websites for Lamar and Obie is not considered part of or incorporated by reference into this proxy statement/prospectus unless specifically indicated to the contrary.

The Companies

Lamar Advertising Company (see page 30)

  5551 Corporate Boulevard
  Baton Rouge, LA 70808
  (225) 926-1000
  http://www.lamar.com

      Lamar is one of the largest and most experienced owners and operators of outdoor advertising structures in the United States. Lamar also operates the largest logo sign business in the United States. Lamar has a holding company structure, under which Lamar Advertising Company and its wholly-owned subsidiary, Lamar Media Corp., serve as holding companies for Lamar’s indirect subsidiaries.

Obie Media Corporation (see page 31)

  4211 West 11th Avenue
  Eugene, OR 97402
  (541) 686-8400
  http://www.obie.com

      Obie Media Corporation is an outdoor advertising company that markets advertising space primarily on transit vehicles and outdoor advertising displays such as billboards and wallscapes. Obie serves the transit districts of nine of the thirty largest U.S. markets (in terms of demographic market area) and the third largest Canadian market. Obie also owns and operates advertising displays on billboards and walls primarily in Washington, Oregon, California, Montana, Wyoming, Idaho, Utah, and South Dakota.

OMC Acquisition Corporation (see page 30)

      OMC Acquisition Corporation is a Delaware corporation and a wholly owned subsidiary of Lamar that was organized solely for the purpose of effecting the merger with Obie. OMC Acquisition Corporation has carried on no other activities other than in connection with the merger.

The Merger

Summary of the Transactions (see page 59)

      In the proposed merger, Obie will be merged into OMC Acquisition Corporation. OMC Acquisition Corporation will be the surviving corporation and will be renamed Lamar Obie, Inc.

      The merger will become effective only if the Obie shareholders approve the merger and all other conditions to the merger are satisfied or waived. The merger agreement is attached as Annex A to this proxy statement/prospectus. We encourage you to read it because it is the legal document that governs the merger.

4


Table of Contents

What the Holders of Obie Common Stock Will Receive in the Merger (see page 59)

      In the proposed merger, each holder of Obie stock will receive a pro rata share of the merger consideration valued at $43,313,718. When we complete the merger, each outstanding share of Obie common stock will convert into the right to receive Lamar Class A common stock and, in some circumstances, cash. Obie shareholders will receive cash instead of fractional shares of Lamar stock and may receive cash instead of some shares of Lamar stock if the price of Lamar stock falls below $30.00.

      Throughout this proxy statement/prospectus, we often refer to the Lamar Class A common stock as “Lamar stock” and Obie common stock as “Obie stock.”

Material U.S. Federal Income Tax Consequences of the Merger (see page 60)

      The merger will be treated as a “reorganization” within the meaning of Section 368 of the Internal Revenue Code in which no gain or loss will be recognized by Obie, Lamar, or OMC Acquisition Corporation as a result of the merger. In addition, you will not recognize gain or loss on the exchange of your shares of Obie stock for shares of Lamar stock, except you will recognize gain for any cash you receive.

  Because the tax consequences of the merger depend upon your individual circumstances, we urge you to consult your own tax advisors about the federal, state, local, or foreign tax consequences of your receipt of the merger consideration in exchange for your Obie common stock.

Appraisal or Dissenters’ Rights (see page 63 and Annex C)

      Under Oregon law, Obie shareholders are entitled to dissenters’ rights in connection with the merger so long as they follow the specific procedures set forth in the Oregon statute.

Obie’s Reasons for the Merger (see page 50)

      The Obie board of directors has concluded that the merger is advisable, fair to, and in the best interests of Obie and its shareholders. In reaching its decision, the Obie board of directors considered a variety of factors, without giving relative weight to any one factor, including the following:

  •  the merger consideration exceeds the value that could be expected to be realized in the foreseeable future by Obie shareholders if Obie continues as an independent entity;
 
  •  the combined company is expected to compete more effectively in the outdoor advertising market;
 
  •  the combined company will have greater depth of skill personnel, and expanded sales, art, and production services;
 
  •  the combined company will have better access to each company’s existing company base and partners;
 
  •  the combined company will have a larger customer base, higher market profile, and greater financial strength, which will present greater opportunities for marketing the products and services of the combined company;
 
  •  Obie shareholders will have the opportunity to participate in the potential for growth of Lamar’s business after the merger; and
 
  •  the combined company will be able to expand its offerings of products and services in the outdoor advertising market.

Lamar’s Reasons for the Merger (see page 50)

      In determining whether to approve the merger, Lamar’s board of directors considered a variety of factors, including the degree to which Obie’s billboard business complements Lamar’s billboard business, both in terms of the quality of assets and their location in the Northwest, and the strengths of Obie’s

5


Table of Contents

transit business, including: the number of larger markets served by Obie, its established management structure for serving those markets, and Obie’s significant in-house production capabilities. Lamar’s board of directors also considered Lamar’s experience integrating past acquisitions and the anticipated process of integrating Obie into Lamar.

Fairness Opinion of Obie’s Financial Advisor (see page 52 and Annex B)

      In connection with the merger, the Obie board of directors received an opinion from its financial advisor, D.A. Davidson & Co. On October 1, 2004, D.A. Davidson & Co. delivered its written opinion to the Obie board of directors, concluding that, as of that date and based on and subject to the factors and assumptions set forth in the opinion, the merger consideration is fair, from a financial point of view, to Obie shareholders. The full text of this written opinion is attached as Annex B to this proxy statement/prospectus. We encourage you to read this opinion in its entirety carefully. The opinion of D.A. Davidson & Co. is not a recommendation to any shareholder on whether to vote for or against the merger.

The Special Meeting

General; Date; Time and Place (see page 27)

      A special meeting of Obie shareholders will be held at                     a.m., local time, on                      , 2005, at Obie’s headquarters at 4211 West 11th Avenue, Eugene, Oregon 97402. At the special meeting, Obie shareholders will be asked to approve the merger and, if necessary, the related adjournment proposal.

Record Date; Voting Power (see page 27)

      If you owned shares of Obie stock as of the close of business on                     , 2004, the record date for the special meeting, you may vote on the proposal to approve the merger and other matters that may properly come before the meeting, including the related adjournment proposals. Obie shareholders will have one vote at the meeting for each share of common stock they owned on the record date. If you held your shares on the record date through a broker or bank, you may not vote the shares directly and must instruct the broker or bank to vote the shares on your behalf. Failure to do so will have the effect of casting your votes against the proposal to approve the merger, but will have no effect on the adjournment proposal.

      On the record date, no directors and officers of Lamar owned shares of Obie stock, and directors and officers of Obie as a group owned                      shares, or approximately           %, of the           outstanding shares of Obie stock.

Quorum; Required Votes; Voting Agreement (see page 27 and Annex D)

      The holders of a majority of the outstanding shares of Obie stock entitled to vote must be present, in person or by proxy, at the Obie special meeting for there to be a quorum.

      To approve the merger, holders of a majority of the outstanding shares of Obie stock entitled to vote must vote in favor of the proposal to approve the merger. To approve the adjournment proposal, a majority of shares present in person or by proxy at the special meeting must vote to adopt the proposal. If you fail to vote, withhold your vote, or abstain from voting, the effect will be a vote against the proposal to approve the merger but will have no effect on any adjournment proposal. A broker or bank that holds your Obie stock in “street name” will not have authority to vote your shares unless you provide the broker or bank with voting instructions.

      In connection with the merger, Brian B. Obie, Obie’s Chairman of the Board, President, and Chief Executive Officer, who holds 1,693,147 shares, or 27.5% of Obie’s stock, has entered into a voting agreement under which he has agreed to vote all of his Obie shares in favor of the proposal to approve the merger.

6


Table of Contents

      The merger does not require the approval of Lamar’s stockholders.

Recommendation of the Obie Board of Directors (see page 29)

      After careful consideration, on October 1, 2004, the Obie board of directors unanimously approved and adopted the merger agreement and voted to recommend that the shareholders of Obie vote in favor of the merger. For the factors considered by the Obie board of directors in reaching its decision to approve and recommend to the shareholders to approve the merger, see the section entitled “Background and Reasons for the Merger — Obie’s Reasons for the Merger” beginning on page 50. The Obie board of directors unanimously recommends that the Obie stockholders vote “FOR” the proposal to approve the merger and “FOR” the proposal to adjourn the Obie special meeting, if necessary, for the purpose of soliciting additional proxies.

Other Selected Information

Treatment of Obie Stock Options (see page 60)

      Pursuant to the merger agreement, Obie will accelerate the vesting of its outstanding options and provide a period of not less than 30 days (ending before the effective time of the merger) during which the options may be exercised. Any options for Obie stock that remain outstanding at the effective time of the merger will be cancelled and will no longer represent the right to receive Obie stock or Lamar stock.

Treatment of Obie Benefits (see page 60)

      The Obie employees who become employed by Lamar will be eligible to participate in Lamar’s 401(k) plan and may transfer any assets they have in Obie’s plan to Lamar’s plan. Obie employees who become employed by Lamar will also be allowed to carry-over the years of service they currently have with Obie to Lamar’s employee benefit plans.

Accounting Treatment (see page 60)

      Lamar expects to account for the merger under the purchase method of accounting, which means the assets and liabilities of Obie, including its intangible assets, will be recorded on Lamar’s balance sheet at their fair market values. Obie’s results of operations and cash flows will be included in Lamar’s financial statements prospectively as of the closing of the merger.

Regulatory Approvals (see page 65)

      We are not aware of any federal or state regulatory requirements that we must comply with or approvals that we must obtain for closing the merger, other than compliance with federal securities laws.

Conditions to the Merger (see page 69 and Annex A)

      The following conditions must be satisfied before completing the merger:

  •  Obie shareholders must approve the merger;
 
  •  none of the parties shall be subject to any court order, statute, rule, or regulation prohibiting the merger;
 
  •  the registration statement of which this proxy statement/prospectus forms a part must have been declared effective by the Securities and Exchange Commission, which is referred to as the SEC, and must not be the subject of any stop order or related proceeding;
 
  •  the shares of Lamar stock issued in the merger must be listed on the Nasdaq National Market;
 
  •  the parties to the merger agreement shall have performed their respective obligations and their respective representations and warranties shall be true;

7


Table of Contents

  •  Obie and Lamar each shall have received an opinion from their respective counsel that the merger will qualify as a tax deferred reorganization;
 
  •  Obie must meet certain conditions regarding the value of its assets and liabilities;
 
  •  certain agreements must be executed and in effect;
 
  •  not more than 5% of the shares of Obie stock shall be subject to a claim for dissenter’s rights under the Oregon statute; and
 
  •  other conditions regarding the resignation of Obie officers and the construction of certain advertising structures must be satisfied.

Termination of the Merger Agreement (see page 70 and Annex A)

      We can mutually terminate the merger agreement without completing the merger. Either Lamar or Obie may be able to terminate the agreement if the merger is not completed by February 28, 2005, and under other circumstances, including the failure of the Obie shareholders to approve the merger.

Expenses (see page 71 and Annex A)

      Each party is generally responsible for paying any expenses it incurs in connection with the merger. If the merger is not completed, Obie may be required to pay Lamar its expenses, up to $200,000, and a “break-up” fee of $1,090,803 under limited conditions.

Comparative Stockholder Rights (see page 73)

      When we complete the merger, you will hold shares of Lamar stock. Your rights will then be governed by Lamar’s certificate of incorporation and by-laws and Delaware law rather than by Obie’s articles of incorporation and by-laws and Oregon law.

Comparative Stock Price Information (see page 15)

      Lamar is quoted on the Nasdaq National Market. Obie stock is quoted on the Nasdaq Small Cap Market. The following table presents the market values of Lamar stock and Obie stock as of September 17, 2004, the last business day before we publicly announced the merger.

                                                 
Lamar Stock Obie Stock


High Low Closing High Low Closing






September 17, 2004
  $ 42.26     $ 41.86     $ 42.00     $ 5.00     $ 4.57     $ 4.79  

      We encourage you to obtain current market quotations for Lamar stock and Obie stock.

8


Table of Contents

LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

SELECTED HISTORICAL FINANCIAL INFORMATION

      Lamar is providing the following information to aid your analysis of the financial aspects of the merger. The table below presents selected historical information from the consolidated statement of operations, statement of cash flows, and balance sheet of Lamar and its subsidiaries. Lamar derived this information from audited financial statements for the years ended December 31, 1999 through December 31, 2003 and from unaudited financial statements for the nine months ended September 30, 2003 and September 30, 2004.

      In Lamar’s opinion, the information for the nine months ended September 30, 2003 and September 30, 2004 reflects all adjustments, consisting only of normal recurring adjustments, necessary to present the results of operations and financial condition fairly. Results from interim periods should not be considered indicative of results for any other periods or for the year. This information is only a summary. You should read it in conjunction with Lamar’s historical financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are incorporated by reference into this proxy statement/prospectus.

                                                               
(Unaudited)
Nine Months Ended
For the Years Ended December 31,

September 30, September 30,
1999 2000 2001 2002 2003 2003 2004







(Restated) (Restated)
(Dollars in thousands, except per share data)
Statement of Operations Data:
                                                       
Net revenues
  $ 444,135     $ 687,319     $ 729,050     $ 775,682     $ 810,139     $ 604,119     $ 659,513  
     
     
     
     
     
     
     
 
Operating expenses:
                                                       
 
Direct advertising expenses
    143,090       217,465       251,483       274,772       292,017       219,489       224,543  
 
General and administrative expenses
    94,372       138,072       151,048       167,182       171,520       126,156       138,387  
 
Depreciation and amortization
    173,647       312,191       349,550       271,832       284,947       209,408       217,876  
 
(Gain) loss on disposition of assets
    (5,481 )     (986 )     (923 )     (336 )     (1,946 )     (1,515 )     1,617  
     
     
     
     
     
     
     
 
   
Total operating expenses
    405,628       666,742       751,158       713,450       746,538       553,538       582,423  
     
     
     
     
     
     
     
 
     
Operating income (loss)
    38,507       20,577       (22,108 )     62,232       63,601       50,581       77,090  
Other expense (income):
                                                       
 
Loss on extinguishment of debt
    298                   5,850       33,644       29,493        
 
Interest income
    (1,421 )     (1,715 )     (640 )     (929 )     (502 )     (283 )     (235 )
 
Interest expense
    93,110       153,512       132,840       113,333       93,787       72,479       56,208  
     
     
     
     
     
     
     
 
   
Total other expense
    91,987       151,797       132,200       118,254       126,929       101,689       55,973  
     
     
     
     
     
     
     
 
Income (loss) before income tax expense (benefit) and cumulative effect of a change in accounting principle
    (53,480 )     (131,220 )     (154,308 )     (56,022 )     (63,328 )     (51,108 )     21,117  
Income tax expense (benefit)
    (9,712 )     (37,115 )     (45,674 )     (19,694 )     (23,573 )     (18,369 )     8,784  
     
     
     
     
     
     
     
 

9


Table of Contents

                                                         
(Unaudited)
Nine Months Ended
For the Years Ended December 31,

September 30, September 30,
1999 2000 2001 2002 2003 2003 2004







(Restated) (Restated)
(Dollars in thousands, except per share data)
Income (loss) before cumulative effect of a change in accounting principle, net
    (43,768 )     (94,105 )     (108,634 )     (36,328 )     (39,755 )     (32,739 )     12,333  
Cumulative effect of a change in accounting principle
    767                         40,240       40,240        
     
     
     
     
     
     
     
 
Net income (loss)
    (44,535 )     (94,105 )     (108,634 )     (36,328 )     (79,995 )     (72,979 )     12,333  
Preferred stock dividends
    (365 )     (365 )     (365 )     (365 )     (365 )     (273 )     (273 )
     
     
     
     
     
     
     
 
Net income (loss) applicable to common stock
  $ (44,900 )   $ (94,470 )   $ (108,999 )   $ (36,693 )   $ (80,360 )   $ (73,252 )   $ 12,060  
     
     
     
     
     
     
     
 
Earnings (loss) per common share — basic and diluted:
                                                       
Earnings (loss) before a change in accounting principle
  $ (0.64 )   $ (1.04 )   $ (1.11 )   $ (0.36 )   $ (0.39 )   $ (0.32 )   $ 0.12  
Cumulative effect of a change in accounting principle
    (0.01 )                       (0.39 )     (0.39 )      
     
     
     
     
     
     
     
 
Net earnings (loss)
  $ (0.65 )   $ (1.04 )   $ (1.11 )   $ (0.36 )   $ (0.78 )   $ (0.71 )   $ 0.12  
     
     
     
     
     
     
     
 
Statement of Cash Flow Data:
                                                       
Cash flows provided by operating activities(1)
  $ 110,551     $ 177,601     $ 190,632     $ 240,443     $ 260,075     $ 171,130     $ 209,471  
Cash flows used in investing activities(1)
  $ (950,650 )   $ (435,595 )   $ (382,471 )   $ (155,763 )   $ (210,041 )   $ (183,353 )   $ (181,091 )
Cash flows (used in) provided by financing activities(1)
  $ 719,903     $ 321,933     $ 132,384     $ (81,955 )   $ (57,847 )   $ 3,105     $ (24,191 )
Balance Sheet Data(2):
                                                       
Cash and cash equivalents
  $ 8,401     $ 72,340     $ 12,885     $ 15,610     $ 7,797     $ 6,492     $ 11,986  
Working capital
    43,112       72,526       27,261       95,922       69,902       91,040       58,041  
Total assets
    3,209,270       3,642,844       3,671,652       3,888,106       3,669,373       3,733,610       3,672,681  
Total debt (including current maturities)
    1,615,781       1,738,280       1,811,585       1,994,433       1,704,863       1,765,429       1,660,642  
Total long-term obligations
    1,733,035       1,824,928       1,877,532       1,856,372       1,905,497       1,969,866       1,819,796  
Stockholders’ equity
    1,391,529       1,689,455       1,672,221       1,709,173       1,689,661       1,692,952       1,733,226  


(1)  Cash flows from operating, investing, and financing activities are obtained from Lamar’s consolidated statements of cash flows prepared in accordance with GAAP.
 
(2)  As of the end of the period.

10


Table of Contents

OBIE MEDIA CORPORATION

SELECTED HISTORICAL FINANCIAL INFORMATION

      Obie is providing the following information to aid your analysis of the financial aspects of the merger. The table below presents selected historical information from the consolidated statement of operations, statement of cash flows, and balance sheet of Obie and its subsidiaries. Obie derived this information from audited financial statements for the years ended November 30, 1999 through November 30, 2003 and from unaudited financial statements for the nine months ended August 31, 2003 and August 31, 2004.

      In Obie’s opinion, the information for the nine months ended August 31, 2003 and August 31, 2004 reflects all adjustments, consisting only of normal recurring adjustments, necessary to present the results of operations and financial condition fairly. Results from interim periods should not be considered indicative of results for any other periods or for the year. This information is only a summary. You should read it in conjunction with Obie’s historical financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” See page 32 and pages F-1 through F-31.

                                                             
Nine Months Ended
Years Ended November 30,

August 31, August 31,
1999 2000 2001 2002 2003 2003 2004







(Unaudited)
(Dollars in thousands, except per share data)
Statement of Operations Data:
                                                       
Net sales
  $ 36,460     $ 48,304     $ 42,892     $ 44,283     $ 43,117     $ 30,696     $ 35,001  
Production, occupancy and sales
    26,438       35,609       34,644       33,348       33,348       23,619       25,185  
General and administrative
    4,677       6,882       9,191       7,892       7,324       5,450       6,569  
Depreciation and amortization
    1,513       1,871       2,077       2,181       1,752       1,370       1,450  
Start-up costs
    668       116                                
Contract settlement
    (1,077 )                                    
     
     
     
     
     
     
     
 
Operating income (loss)
    4,241       3,826       (3,020 )     862       693       258       1,797  
Income (loss) from continuing
operations
    2,012       1,618       (3,434 )     (862 )     (2,143 )     (1,604 )     (1,090 )
Loss on discontinued operations
                (3,814 )     (1,154 )     (764 )     (307 )     (53 )
     
     
     
     
     
     
     
 
Net income (loss) available for common shareholders
  $ 2,012     $ 1,618     $ (7,248 )   $ (2,017 )   $ (2,907 )   $ (1,911 )   $ (1,142 )
     
     
     
     
     
     
     
 
Basic net income (loss) per share:
                                                       
 
Income (loss) from continuing operations
  $ 0.40     $ 0.27     $ (0.58 )   $ (0.14 )   $ (0.36 )   $ (0.27 )   $ (0.18 )
 
Loss from discontinued operations
  $     $     $ (0.65 )   $ (0.20 )   $ (0.13 )   $ (0.05 )   $ (0.01 )
   
Net income (loss) per share
  $ 0.40     $ 0.27     $ (1.23 )   $ (0.34 )   $ (0.49 )   $ (0.32 )   $ (0.19 )
Diluted net income (loss) per share:
                                                       
 
Income (loss) from continuing operations
  $ 0.39     $ 0.27     $ (0.58 )   $ (0.14 )   $ (0.36 )   $ (0.27 )   $ (0.18 )
 
Loss from discontinued operations
  $     $     $ (0.65 )   $ (0.20 )   $ (0.13 )   $ (0.05 )   $ (0.01 )
   
Net income (loss) per share
  $ 0.39     $ 0.27     $ (1.23 )   $ (0.34 )   $ (0.49 )   $ (0.32 )   $ (0.19 )
EBITDA(1)
    5,754       5,697       (5,849 )     1,889       1,681       1,321       3,194  
Balance Sheet Data:
                                                       
Working capital (deficit)
  $ 2,958     $ 10,544     $ 4,415     $ 7,148     $ 4,927     $ (7,898 )   $ 4,376  
Total assets
    32,704       38,937       44,161       38,127       35,446       35,081       35,899  
Total long-term debt, less current portion
    4,919       13,695       13,881       17,707       17,247       3,637       18,551  
Shareholders’ equity
    17,365       19,225       12,149       10,127       7,179       8,164       6,098  

11


Table of Contents

                                                         
Nine Months Ended
Years Ended November 30,

August 31, August 31,
1999 2000 2001 2002 2003 2003 2004







(Unaudited)
(Dollars in thousands)
Cash Flow Data:
                                                       
Net cash provided by (used in) operations
    251       799       (1,232 )     1,091       1,488       168       419  
Cash provided by (used in) investing activities
    (3,265 )     (5,261 )     (1,327 )     (1,195 )     (636 )     (414 )     (1,195 )
Cash provided by (used in) financing activities
    2,724       5,064       2,316       1,521       (674 )     (578 )     (326 )


(1)  Obie believes that EBITDA is widely used as one measure to evaluate the financial performance of companies in the out-of-home advertising industry, and therefore, is an appropriate supplemental measure regarding the operating performance of its business. Obie believes that EBITDA can assist you in comparing out-of-home advertising company performance on a consistent basis without regard to depreciation and amortization, which can vary significantly depending on accounting methods used (particularly when acquisitions are involved) or non-operating factors (such as historical cost basis). Accordingly, this information has been disclosed to facilitate the comparative analysis of Obie’s operating performance relative to other companies in the out-of-home advertising industry. EBITDA a non-GAAP financial measure, is defined as operating income before depreciation and amortization expense. EBITDA should not be considered in isolation or as a substitute for net income (loss), cash provided by operating activities or other income or cash flow data prepared in accordance with generally accepted accounting principles, or as a measure of profitability or liquidity. Following is a reconciliation of EBITDA to net income (loss):
                                                         
Nine Months Ended
Years Ended November 30,

August 31, August 31,
1999 2000 2001 2002 2003 2003 2004







(Unaudited)
(Dollars in thousands)
Reported net income (loss)
  $ 2,012     $ 1,618     $ (7,248 )   $ (2,017 )   $ (2,907 )   $ (1,911 )   $ (1,142 )
Interest expense
    942       1,121       1,337       1,725       2,334       1,753       1,814  
Depreciation and amortization
    1,513       1,871       2,077       2,181       1,752       1,370       1,450  
Loss on extinguishment of debt
                                        961  
Provision (benefit) for income taxes
    1,287       1,087       (2,015 )     0       502       109       111  
     
     
     
     
     
     
     
 
EBITDA
  $ 5,754     $ 5,697     $ (5,849 )   $ 1,889     $ 1,681     $ 1,321     $ 3,194  
     
     
     
     
     
     
     
 

12


Table of Contents

COMPARATIVE PER SHARE DATA

      The following table sets forth selected historical earnings per share and book value per share information of Lamar and Obie and unaudited pro forma combined earnings per share and book value per share information after giving effect to the transaction, assuming 0.1717 of a share of Lamar stock had been issued in exchange for each outstanding share of Obie stock. You should read this information in conjunction with the selected historical financial information of Lamar and Obie included elsewhere in this proxy statement/prospectus or incorporated in this proxy statement/prospectus by reference. See “Where You Can Find More Information,” beginning on page 84. The companies may have performed differently had they actually been combined during the periods presented below. You should not rely on this information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience after the proposed merger.

      The historical earnings per share information for fiscal year 2003 is derived from audited consolidated financial statements of Lamar and Obie as of and for the year ended December 31, 2003 and November 30, 2003, respectively. The historical earnings per share and book value per share information for (a) Lamar for the nine months ended September 2004 is derived from unaudited condensed consolidated financial statements of Lamar as of and for the nine months ended September 30, 2004 and (b) for Obie for the nine months ended August 2004 is derived from unaudited condensed consolidated financial statements of Obie as of and for the nine months ended August 31, 2004. The unaudited pro forma combined share, earnings per share and book value per share information is calculated assuming an exchange ratio of 0.1717, which is what the exchange ratio would have been if the merger had closed on September 17, 2004, the date the merger agreement was signed. Because the number of shares of Lamar stock to be issued in the merger will not be known until shortly before the completion of the merger, the actual exchange ratio as of the closing will be different from the assumed exchange ratio used for the purpose of presenting the information set forth in the following tables.

                     
Lamar Common Stock

Pro Forma
Historical Per Share


Income (loss) per share:
               
 
Year ended December 31, 2003 (Restated):
               
   
Basic
  $ (0.78 )   $ (0.80 )
   
Diluted
  $ (0.78 )   $ (0.80 )
 
Nine Months ended September 30, 2004:
               
   
Basic
  $ 0.12     $ 0.10  
   
Diluted
  $ 0.12     $ 0.10  
Dividends per share:
               
 
Year ended December 31, 2003 (Restated)
    N/A       N/A  
 
Nine Months ended September 30, 2004
    N/A       N/A  
Book value per share:
               
 
Year ended December 31, 2003 (Restated):
               
   
Basic
  $ 16.46     $ 16.71  
   
Diluted
  $ 16.40     $ 16.65  
 
Nine Months ended September 30, 2004:
               
   
Basic
  $ 16.68     $ 16.93  
   
Diluted
  $ 16.59     $ 16.84  

13


Table of Contents

                   
Obie Common Stock

Pro Forma
Equivalent Per
Historical Share


Income (loss) per share:
               
 
Year ended November 30, 2003
  $ (0.49 )   $ (0.14 )
 
Nine Months ended August 31, 2004
  $ (0.19 )     0.02  
Dividends per share:
               
 
Year ended November 30, 2003
    N/A       N/A  
 
Nine Months ended August 31, 2004
    N/A       N/A  
Book value per share
               
 
Year ended November 30, 2003
  $ 1.21     $ 2.86  
 
Nine Months ended August 31, 2004
  $ 1.02       2.89  

14


Table of Contents

COMPARATIVE STOCK PRICES AND DIVIDENDS

      Lamar stock is quoted on the Nasdaq National Market under the trading symbol “LAMR.” Obie stock is quoted on the Nasdaq Small Cap Market under the trading symbol “OBIE.” The following table presents the high and low bid prices per share of Lamar stock and Obie stock as reported on the Nasdaq National Market and Nasdaq Small Cap Market, respectively.

                                   
Lamar Stock Obie Stock


High Low High Low




Fiscal Year 2002
                               
 
First Quarter
  $ 43.50     $ 33.35     $ 3.40     $ 1.84  
 
Second Quarter
  $ 45.66     $ 32.90     $ 3.84     $ 2.95  
 
Third Quarter
  $ 37.72     $ 25.48     $ 3.67     $ 2.30  
 
Fourth Quarter
  $ 36.80     $ 27.55     $ 3.50     $ 1.65  
Fiscal Year 2003
                               
 
First Quarter
  $ 38.04     $ 27.65     $ 3.40     $ 2.14  
 
Second Quarter
  $ 37.98     $ 28.71     $ 2.54     $ 1.77  
 
Third Quarter
  $ 35.57     $ 28.95     $ 2.07     $ 1.74  
 
Fourth Quarter
  $ 37.69     $ 29.30     $ 2.71     $ 2.07  
Fiscal Year 2004
                               
 
First Quarter
  $ 41.85     $ 36.56     $ 3.77     $ 2.50  
 
Second Quarter
  $ 44.66     $ 38.83     $ 3.75     $ 2.60  
 
Third Quarter
  $ 44.11     $ 38.62     $ 6.01     $ 3.15  
 
Fourth Quarter (through October 26, 2004)
    N/A       N/A     $ 6.84     $ 4.19  

Recent Closing Prices

      The following table sets forth the high, low, and closing sales prices per share of Lamar stock and of Obie stock as reported on the Nasdaq National Market and Nasdaq Small Cap Market, respectively, on September 17, 2004, the last trading day before our execution and public announcement of the merger agreement, and on                           , 2004, the last practicable trading day before the date of this document.

                                                 
Lamar Stock Obie Stock


High Low Closing High Low Closing






September 17, 2004
  $ 42.26     $ 41.86     $ 42.00     $ 5.00     $ 4.57     $ 4.79  
             , 2004
  $       $       $       $       $       $    

      The market price of Lamar stock is likely to fluctuate prior to the merger. You should obtain current market quotations. We cannot predict the future prices of Lamar stock or on which markets Lamar stock will be traded in the future.

Dividend Information

      No cash dividends have ever been paid or declared on the shares of Lamar stock or on the shares of Obie stock. Lamar does not intend to pay cash dividends on the Lamar stock in the foreseeable future. Any future payment of dividends on Lamar stock will be at the discretion of Lamar’s board of directors and will depend upon, among other things, Lamar’s earnings, financial condition, capital requirements, level of indebtedness, and other factors that Lamar’s board of directors deems relevant. In addition, covenants in certain of Lamar’s debt agreements and instruments restrict the payment of dividends.

15


Table of Contents

RISK FACTORS

      You should carefully consider the following risks before deciding whether to vote to approve the merger. In addition, you should read and consider the risks associated with each of the businesses of Lamar and Obie because these risks will also affect the combined company. These risks can be found in Lamar’s Annual Report on Form 10-K/A for the year ended December 31, 2003 and in Obie’s Annual Report on Form 10-K for the year ended November 30, 2003, which are filed with the SEC and incorporated by reference into this proxy statement/ prospectus. You should also read and consider the other information in this proxy statement/ prospectus and the other documents incorporated by reference in this proxy statement/ prospectus. See the sections entitled “Where You Can Find More Information” beginning on page 84 and “Note Regarding Forward-Looking Statement” beginning on page 84.

Risks Related to the Merger

 
Officers and directors of Obie have conflicts of interest that may have influenced their decisions regarding the merger.

      You should be aware of potential conflicts of interest, and the benefits available to officers and directors of Obie, when considering the Obie board’s recommendation of the merger. The officers and directors of Obie have interests in the merger that are in addition to, or different from, their interests as Obie shareholders. The Obie board was aware of these conflicts of interest when it approved the merger. These interests include the rights of Obie’s officers and directors to indemnification with respect to acts and omissions in their capacities as officers and directors of Obie as well as the fact that Obie leases its corporate offices and certain of its billboards from officers of the company and their affiliates. For a more detailed discussion of potential conflicts of interests of Obie management, see “Background and Reasons for the Merger — Potential Conflicts of Interests of Obie Management in the Merger” on page 58 of this proxy statement/prospectus.

 
In some circumstances, Lamar will have the right to substitute cash for a portion of the shares that Obie shareholders will receive in the merger.

      If the twenty-day average closing price of Lamar stock, calculated as of the trading day preceding the closing date by three calendar days, is below $30.00, then Lamar has the right, in its sole discretion, to substitute cash for a portion of the shares of Lamar stock issued to each Obie shareholder as merger consideration, as set forth below:

         
Then Lamar has a right to substitute cash for shares of
If the twenty-day average closing price of Lamar stock is: Lamar stock up to the following aggregate amount:


Greater than $30.00
  $ 0  
$30.00 or less but greater than $22.00
  $ 10,756,696  
$22.00 or less
  $ 21,083,124  
 
Former Obie shareholders may be unable to sell their shares of Lamar stock immediately upon closing of the merger.

      Former Obie shareholders will experience a delay between the time at which the merger is completed and the time at which they actually receive stock certificates evidencing their Lamar stock. Until stock certificates are received, former Obie shareholders may not be able to sell their Lamar shares in the open market and, therefore, may be unable to avoid losses resulting from any decrease in the trading price of Lamar stock during this period. In addition, because of restrictions on trading imposed by Rule 144 and Rule 145 under the Securities Act, affiliates of Obie may be unable to avoid losses resulting from any decrease in the trading price of Lamar stock following the effective date of the merger. Stock price changes may result from a variety of factors that are beyond the control of Lamar and Obie, including general market and economic conditions as well as factors that are directly attributable to Lamar’s performance.

16


Table of Contents

Risks Related to Lamar

 
Lamar’s substantial indebtedness could adversely affect its business and may create a need to borrow additional money in the future to make the significant fixed payments on its debt and operate its business.

      Lamar has borrowed substantial amounts of money in the past and may borrow more money in the future. At September 30, 2004, Lamar Advertising Company had approximately $287.5 million of convertible notes outstanding. At September 30, 2004, Lamar Media had approximately $1.4 billion of debt outstanding consisting of approximately $975.0 million in bank debt, $389.1 million in various series of senior subordinated notes and $9.0 million in various other short-term and long-term debt. In addition, the indentures governing Lamar Media’s notes and bank credit facility allow it to incur substantial additional indebtedness in the future. As of September 30, 2004, Lamar Media had approximately $216.1 million available to borrow under its bank credit facility. Lamar’s substantial indebtedness and the fact that a large part of Lamar’s cash flow from operations must be used to make principal and interest payments on its debt may have important consequences, including:

  •  limiting cash flow available to fund Lamar’s working capital, capital expenditures, potential acquisitions, or other general corporate requirements;
 
  •  increasing Lamar’s vulnerability to general adverse economic and industry conditions;
 
  •  limiting Lamar’s ability to obtain additional financing to fund future working capital, capital expenditures, potential acquisitions, or other general corporate requirements;
 
  •  limiting Lamar’s flexibility in planning for, or reacting to, changes in its business and industry;
 
  •  placing Lamar at a competitive disadvantage compared to its competitors with less indebtedness; and
 
  •  making it more difficult for Lamar to comply with financial covenants in its bank credit facility.

      In addition, if Lamar’s operations generate less cash from operations in the future, it may need to borrow funds in order to be able to make principal and interest payments on its debt. Lamar may not have sufficient capacity under its existing debt arrangements to borrow such funds in the future. Lamar also finances most of its acquisitions through borrowings under its bank credit facility. Since its borrowing capacity under its credit facility is limited, Lamar may not be able to continue to finance future acquisitions at its historical rate with borrowings under its credit facility. Lamar may need to borrow additional amounts or seek other sources of financing to fund future acquisitions. Such additional financing may not be available on favorable terms. Lamar may need the consent of the banks under its credit facility, or the holders of other indebtedness, to borrow additional money.

 
Restrictions in Lamar’s, and its wholly owned, direct subsidiary, Lamar Media’s, debt agreements reduce operating flexibility and contain covenants and restrictions that create the potential for defaults.

      The terms of Lamar’s various debt instruments and agreements restrict its ability to:

  •  incur additional debt or repay debt;
 
  •  dispose of assets;
 
  •  create liens or security interests on its assets, which may hinder its ability to borrow additional funds;
 
  •  make investments;
 
  •  enter into affiliate transactions; and
 
  •  pay dividends.

17


Table of Contents

      These agreements also require Lamar and its subsidiaries to maintain specified financial ratios and levels including:

  •  a minimum interest coverage ratio;
 
  •  a minimum fixed charges ratio;
 
  •  a maximum senior debt ratio; and
 
  •  a maximum total debt ratio.

      If Lamar fails to comply with these ratios in the future, its lenders have the right to cause all amounts outstanding under the bank credit facility to become immediately due. If this were to occur, and the lenders decided to exercise their right to accelerate the indebtedness, it would create serious financial problems for Lamar and could lead to an event of default under the debt agreements. Any of these events could have a material adverse effect on its business, financial condition, and results of operations. Lamar’s ability to comply with these restrictions, and any similar restrictions in future agreements, depends on its operating performance. Because its performance is subject to economic, financial, and business conditions and other factors, many of which are beyond Lamar’s control, it may be unable to comply with these restrictions in the future.

 
Lamar’s business is derived from advertising, which is particularly sensitive to changes in economic conditions and advertising trends.

      Lamar sells advertising space to generate revenues. Advertising spending is particularly sensitive to changes in general economic conditions, and advertising spending typically decreases during adverse economic conditions. A decrease in demand for advertising space could adversely affect Lamar’s business by reducing revenues, increasing costs, and adversely impacting profits and cash flows. A reduction in demand for advertising displays could result from:

  •  a decline in the economy in general or in the particular markets in which Lamar conducts its business;
 
  •  a decline in advertising spending in general or in outdoor advertising in particular;
 
  •  a general shift in spending from outdoor advertising to other types of advertising;
 
  •  cost increases that increase the price of Lamar’s products and services, which cause customers to purchase products and services from Lamar’s competitors or to use other forms of advertising; and
 
  •  the ability of diversified competitors to cross-sell their products and services to customers when advertising budgets are limited.
 
Lamar’s continued growth by acquisitions may become more difficult and involves costs and uncertainties.

      Historically, a significant portion of Lamar’s growth in inventory of advertising displays has been through acquisitions. Lamar’s growth strategy has involved in the past and is likely to involve in the future acquiring outdoor advertising businesses and assets in markets where it currently competes as well as in new markets. The following factors may affect Lamar’s ability to continue to pursue this strategy effectively:

  •  a lack of suitable acquisition candidates, particularly because of the consolidation of the outdoor advertising industry, may result in fewer acquisitions and less favorable terms if competition for these acquisitions intensifies;
 
  •  Lamar’s competitors, which may have greater financial resources, may commence pursuing or may continue to pursue acquisitions as a growth strategy, which may result in fewer acquisition opportunities and higher prices for those opportunities;

18


Table of Contents

  •  Lamar may not have access to sufficient capital resources on acceptable terms, if at all, to finance its acquisitions and may not be able to obtain required consents from its lenders;
 
  •  Lamar may be unable to integrate acquired businesses and assets with its existing operations effectively, or such integration could require significantly more management time and attention than anticipated, thereby diverting management’s time and resources away from existing business; and
 
  •  Lamar may not realize the benefits and cost savings that it anticipates from its acquisitions, which in turn could adversely affect profits and results from operations.
 
Lamar faces competition from larger and more diversified outdoor advertisers and other forms of advertising that could hurt its performance.

      Lamar may be unable to compete successfully against the current and future forms of outdoor advertising and other media. The competitive pressure that it faces could adversely affect its profitability or financial performance. Although Lamar is the largest company focusing exclusively on outdoor advertising, it faces competition from larger companies with more diversified operations that also include television, radio, and other broadcast media. Lamar’s diversified competitors have the opportunity to cross-sell their different advertising products to their customers. Lamar also faces competition from other forms of media, including newspapers, direct mail advertising, and the Internet. It must also compete with an increasing variety of other out-of-home advertising media that include advertising displays in shopping centers, malls, airports, stadiums, movie theaters, and supermarkets, and on taxis, trains, and buses.

 
Lamar’s operations are impacted by the regulation of outdoor advertising by federal, state, and local governments.

      Lamar’s operations are significantly impacted by federal, state, and local government regulation of the outdoor advertising business.

      The federal government conditions highway assistance on states and imposes location restrictions on the placement of billboards on primary and interstate highways. Federal laws also impose size, spacing, and other limitations on billboards. Some states have adopted standards more restrictive than those imposed by the federal government. Local governments generally control billboards as part of their zoning regulations. Some local governments have enacted ordinances requiring the removal of billboards by a future date. In addition, four states have banned billboard advertising altogether. Other states prohibit the construction of new billboards and the reconstruction of significantly damaged billboards or allow new construction only to replace existing structures.

      Local laws that require the removal of a billboard without compensation have been challenged in state and federal courts with conflicting results. Accordingly, Lamar may not be successful in negotiating acceptable arrangements when Lamar’s displays have been subject to removal under these types of local laws.

      Additional regulations may be imposed on outdoor advertising in the future. Legislation regulating the content of billboard advertisements has been introduced in Congress from time to time. Additional regulations or changes in the current laws regulating and affecting outdoor advertising at the federal, state, or local level may have a material adverse effect on Lamar’s results of operations.

 
Lamar’s logo sign contracts are subject to state award and renewal.

      For the year ended December 31, 2003, approximately 5% of Lamar’s net revenues were derived from state-awarded logo sign service contracts. Lamar currently competes against three other logo sign providers, as well as numerous local companies, for these service contracts. Even when Lamar is awarded a service contract, the award may be challenged under state contract bidding requirements. If an award is challenged, Lamar may incur delays and litigation costs.

19


Table of Contents

      When Lamar is awarded a service contract, it usually incurs significant start-up costs, which are generally financed through Lamar’s debt facilities. Without access to adequate capital, Lamar may be unable to incur these costs with its available cash and may be forced to forgo any newly-awarded service contracts.

      Generally, state-awarded logo sign service contracts have a term of five to ten years, with additional renewal periods. Some states have the right to terminate a contract early; but in most cases must pay compensation to the logo sign provider for early termination. At the end of the term of the contract, ownership of the structures is transferred to the state.

      Lamar may be unable to renew its expiring contracts or to obtain new service contracts. Moreover, Lamar cannot predict what remaining states, if any, will start logo sign programs or convert state-run logo sign programs to privately operated programs.

 
Lamar is controlled by significant stockholders who are able to control the outcome of all matters submitted to Lamar’s stockholders for approval and whose interests may be different than yours.

      As of November 30, 2004, Lamar’s president and chief executive officer and certain other family members, owned, in the aggregate, approximately 16.0% of the outstanding shares of Lamar’s Class A common stock. However, this same group holds 100% of Lamar’s Class B common stock, which entitles the holders to 10 votes per share, compared to 1 vote per share for Class A common stockholders. Thus, this group of individuals effectively controls 63.6% of Lamar’s voting stock. Class A common stock does not have class voting rights and former Obie shareholders will hold less than 1.0% of Lamar’s voting stock following the merger Accordingly, the individuals holding the Class B common stock effectively control all matters submitted to shareholders for their approval, including the power to:

  •  elect Lamar’s entire board of directors;
 
  •  control Lamar’s management and policies; and
 
  •  determine the outcome of any corporate transaction or other matters required to be submitted to Lamar’s stockholders for approval, including the amendment of its certificate of incorporation, mergers, consolidations, and the sale of all or substantially all of its assets.

      Further, subject to contractual restrictions and general fiduciary obligations, Lamar may engage in transactions with management or its principal stockholders or with entities in which members of management or Lamar’s principal stockholders have an interest.

 
Many of Lamar’s advertising properties and structures are susceptible to uninsured losses due to severe weather and other natural disasters; such losses could adversely affect Lamar’s business through reduced revenues, higher costs, and lower profits.

      Many of Lamar’s advertising properties and structures are located in areas subject to extreme weather such as hurricanes and severe rain and wind. Lamar believes that it is not economical to obtain insurance against losses from such phenomena and instead has developed contingency plans. For example, Lamar attempts to remove the advertising faces on billboards at the onset of a storm, when possible, in order to help the structures withstand high winds. Lamar then replaces these advertising faces after the storm passes. Lamar has also built these structures in ways that it hopes will help the structures to survive severe weather. These plans, however, may be ineffective and may result in the destruction of these structures and properties. The destruction of these properties may result in lower revenues as advertising fees generally are not collected until the structures are repaired or replaced, and in additional costs for materials and labor costs associated with servicing, building, repairing, and rebuilding such structures, and in lower profits.

20


Table of Contents

 
Lamar’s by-laws and certificate of incorporation contain certain anti-takeover provisions that may make it harder for stockholders to realize a premium over the common stock’s market price or that may affect the market price of Lamar stock.

      Provisions of Lamar’s certificate of incorporation and by-laws may discourage a third party from offering to acquire Lamar. These provisions, therefore, may inhibit the holders of Lamar stock from realizing a premium over the prevailing market price of the stock.

      These provisions may also adversely affect the market price of Lamar stock. For example, under Lamar’s certificate of incorporation, Lamar’s board of directors is authorized to issue preferred stock with such designations, rights, and preferences as it determines without the need for shareholder approval. If issued, such preferred stock could discourage, delay, or prevent a change in control of Lamar. In addition, outstanding shares of preferred stock may adversely affect the voting and dividend rights, rights upon liquidation, and other rights of common stockholders. Lamar does not currently intend to issue any shares of this type of preferred stock but retains the right to do so in the future.

      Furthermore, Lamar is subject to Section 203 of the Delaware General Corporation Law, which may discourage takeover attempts. Section 203 generally prohibits a publicly held Delaware corporation from engaging in a business combination with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder.

 
You may not receive any cash dividends on the Lamar stock.

      Lamar has never paid cash dividends on its Class A common stock and does not plan to pay dividends in the foreseeable future but retains the right to do so. Lamar is restricted in its ability to pay dividends by provisions in its debt agreements and instruments.

 
Lamar faces different market risks from those faced by Obie and these risks may cause the value of the shares of Lamar stock issued to you to decline.

      The business, strategy, and financial condition of Lamar are somewhat different from that of Obie. Lamar’s results of operations, as well as the price of Lamar stock, will be affected by various factors different from those affecting Obie’s results of operations and its common stock price. Future events that may not have affected the price of Obie stock may cause the price of Lamar stock to fall. For a discussion of the businesses of Lamar and Obie and of factors to consider in connection with those businesses, see the documents incorporated by reference in this proxy statement/ prospectus and referred to under “Where You Can Find More Information” beginning on page 84.

 
Lamar may be unable to integrate Obie’s operations successfully and retain key Obie employees.

      The merger involves the integration of two companies that previously operated independently. Although the businesses of the two companies are complementary, the integration of the respective departments, systems, business units, operating procedures, information technologies, and personnel will present a significant challenge to management, which may detract from developing Lamar’s existing business. We cannot assure you that Lamar will be able to integrate and manage these operations effectively or maintain or improve the historical financial performances of Lamar and Obie. The failure to integrate these systems and procedures successfully could have a material adverse effect on Lamar’s results of operations and financial condition.

      The difficulties of combining the respective operations of Lamar and Obie include:

  •  integrating Obie’s operations, resources, and products;
 
  •  coordinating geographically distant operations;
 
  •  combining different corporate cultures;
 
  •  assimilating personnel with diverse business backgrounds and training;

21


Table of Contents

  •  retaining key employees;
 
  •  maintaining customer satisfaction;
 
  •  coordinating sales and marketing activities; and
 
  •  managing any potential, unknown liabilities associated with the merger and the combined operations.
 
Lamar may be unable to realize the expected cost savings and other synergies from the merger.

      Even if Lamar is able to integrate the operations of Obie successfully, we cannot assure you that this integration will produce the cost savings, synergies, or revenue enhancements that Lamar expects to result from this integration or that these benefits will be achieved within the expected timeframe. The cost savings and other synergies from the merger may be offset by costs incurred in integrating Obie’s operations, as well as by increases in other expenses, by operating losses, or by problems with Lamar’s or Obie’s businesses unrelated to the merger.

 
All of Lamar’s debt obligations and preferred stock will have priority over our common stock with respect to payment in the event of a liquidation, dissolution, or winding up.

      Were Lamar to liquidate, dissolve, or wind up, shares of stock would rank below all of the significant debt claims against Lamar as well as any liquidation preference claims held by the preferred shareholders. As a result, holders of Lamar stock will not be entitled to receive any payment or other distribution of assets upon Lamar’s liquidation, dissolution, or winding up until Lamar has satisfied its obligations to its debt holders.

Risks Related to Obie

      If the merger is not concluded, Obie will remain an independent company owned by its stockholders. As an independent company, Obie will face a number of risks, including the following:

 
Failure to close the merger may result in significant expense for Obie, including the opportunity cost incurred by management in pursuing the merger.

      If the merger agreement is terminated prior to the closing of the merger or if the merger is not completed under certain limited conditions, Obie may be liable to Lamar for a “break-up” fee of up to $1,090,803 and transaction expenses of up to $200,000. In addition, a failure to close the merger is likely to have a negative effect upon Obie’s financial results, as the merger transaction has been a significant distraction from the efforts of Obie’s management to pursue the goals and objectives of Obie as an independent company.

 
Failure to close the merger may limit Obie’s ability to meet the bonding requirements necessary to maintain and expand Obie’s agreements with transit districts.

      Obie has no remaining bonding capacity and is operating under waivers of bonding requirements from certain transit districts. One of the key benefits to the merger may be Lamar’s expanded bonding capacity. If the merger is not closed and Obie continues to operate as an independent company, its growth may be severely limited by its inability to generate additional bonding capacity. In addition, there can be no assurance that the transit districts requirements will continue to waive bonding requirements, which could result in a breach of certain transit district agreements.

 
Obie’s future growth depends in part on factors beyond Obie’s control and Obie may not be successful in implementing its growth strategy.

      A principal component of Obie’s growth strategy is to obtain exclusive agreements with additional transit districts while renewing existing transit agreements. Other components of Obie’s growth strategy

22


Table of Contents

include increasing its inventory of outdoor displays, expanding its national presence, and selectively acquiring other out-of-home advertising companies or assets. The implementation of Obie’s growth strategy, which may not be successful, will depend upon a number of factors, both within and outside of Obie’s control, including:

  •  identification of new geographic markets in which Obie can effectively compete;
 
  •  Obie’s ability to bid for new transit district agreements successfully and to renew existing transit district agreements on terms favorable to Obie in the face of increasing competitive pressures;
 
  •  Obie’s ability to obtain required performance bonds or other guarantees of its obligations under transit district agreements;
 
  •  acceptance of Obie and its products by customers in new markets;
 
  •  receipt of any required governmental authorizations for any proposed expansion;
 
  •  identification and acquisition on favorable terms of suitable acquisition candidates;
 
  •  Obie’s ability to hire, train and retain qualified personnel; and
 
  •  Obie’s ability to obtain required financing on acceptable terms, if at all.

      Obie may not be successful in expanding its operations and any expansion may not be profitable. Further, Obie’s results to date may not be indicative of its prospects or its ability to penetrate new markets, many of which may have different competitive conditions and demographic characteristics than Obie’s current markets.

 
Obie may be unable to generate sufficient advertising revenues to profit from transit district agreements.

      Under its transit district agreements, Obie typically agrees to pay the transit district the greater of a minimum guaranteed amount or a percentage (usually approximately 50%) of the advertising revenues generated by Obie’s use of the district’s vehicles. Obie may not be able to operate under such transit agreement profitably. In expanding into new geographic markets and renewing Obie’s existing transit agreements, Obie also may face competitive pressure to increase the amounts or change the payment schedules of Obie’s guarantees or increase the percentage of revenues it pays to transit districts. Any such increase could result in financial losses or lower profits under Obie’s transit district agreements. In addition, some of Obie’s agreements with transit districts provide that the transit district may terminate the agreement before the end of the specified term at the convenience of the transit district, or if the transit district determines that such termination is in its best interest or the public interest.

 
A substantial portion of Obie’s revenues is derived from agreements with a limited number of transit districts, the loss of any of which could adversely affect Obie.

      A substantial portion of Obie’s revenues is derived from agreements with a limited number of transit districts, including transit districts in Vancouver, British Columbia, Portland, Oregon, and Dallas, Texas. Obie’s inability to renew any of these or other significant transit agreements on favorable terms, if at all, or the early termination of any such agreements, could adversely affect Obie.

 
Changes in advertising trends and general economic conditions could reduce Obie’s revenues.

      Obie relies on sales of advertising space for its revenues. Changes in general economic conditions and trends in the advertising industry affect sales of advertising space. A general decline in economic conditions, a decline in economic conditions in particular markets where Obie conducts business, or a reallocation of advertising expenditures by advertisers using Obie’s displays or services could result in a reduction in Obie’s advertising revenues.

23


Table of Contents

 
Loss of any key executive could adversely affect Obie’s business.

      Obie’s success depends to a significant extent upon the continued services of Obie’s executive officers and other key management and sales personnel. In particular, Obie relies on Brian B. Obie, Obie’s Chairman of the Board, President, and Chief Executive Officer, and Gary Livesay, Obie’s Vice President and Chief Financial Officer. Obie has no long-term employment agreements with any of Obie’s employees. The loss of the services of any of Obie’s executive officers or other key management and sales personnel could adversely affect Obie.

      Obie currently owns, and is the beneficiary of, “key-man” life insurance for Mr. Obie in the amount of $2.0 million, but does not carry life insurance on any other employee.

 
Intense competition may lead to reduced revenues or profits.

      Obie’s markets are highly competitive, particularly the large advertising markets. Several of Obie’s competitors, including diversified media companies, are substantially larger, better capitalized, more widely known and have access to substantially greater resources than Obie. Obie may not be able to compete successfully either with other out-of-home advertising companies or with other advertising media, such as broadcast and cable television, radio, print media, direct mail marketing, and displays in shopping centers, malls, airports, stadiums, theaters, and on taxis, trains, and subways. In recent years, there has been consolidation among Obie’s competitors, including consolidation between out-of-home advertising companies and broadcast or other media.

 
Government regulations may limit Obie’s ability to expand its outdoor advertising business.

      The outdoor advertising industry is extensively regulated at the federal, state and local levels. Regulations limit the location, relocation, height and size of outdoor advertising displays. In addition, some jurisdictions prohibit the construction of new outdoor advertising displays or the replacement, relocation, enlargement, or upgrading of existing displays. Governmental regulations, tobacco industry agreements, and Obie’s transit district agreements also may restrict the content of the advertisements displayed by Obie. Existing or future laws or regulations could adversely affect Obie and may limit Obie’s ability to increase Obie’s inventory of outdoor advertising displays or display particular types of advertisements.

 
Obie’s credit agreements limit its financial and operational flexibility.

      Obie’s primary lender has a lien on substantially all of Obie’s assets to collateralize Obie’s indebtedness. Obie’s credit agreements restrict its ability to incur additional debt, create additional liens, sell assets, and make acquisitions. The credit agreements also contain financial covenants. These restrictions and covenants may limit Obie’s ability to implement its growth strategy, pay dividends, or engage in other activities that would benefit Obie or its shareholders.

 
If the merger is not completed, Brian B. Obie will continue to have significant control of Obie.

      Brian B. Obie, Obie’s Chairman of the Board, President, and Chief Executive Officer, beneficially owns 27.5% of the outstanding shares of Obie’s common stock. Mr. Obie may be able to control the management and affairs of Obie and the outcome of certain corporate actions submitted for approval to Obie’s shareholders, including the election of its board of directors. As a result of such control, certain transactions may not be possible without Mr. Obie’s approval. These transactions include proxy contests, mergers involving Obie, and tender offers or other purchases of Obie’s common stock that could give Obie’s shareholders the opportunity to realize a premium over the then-prevailing market price for their shares.

24


Table of Contents

 
Obie’s revenues and profits may fluctuate and may become more seasonal if its transit advertising business increases.

      Obie’s revenues and operating results historically have fluctuated by season. Typically, Obie’s results of operations are strongest in the fourth quarter and weakest in the first quarter of Obie’s fiscal year ending November 30. Obie’s transit advertising operations are more seasonal than Obie’s outdoor advertising operations because Obie’s outdoor advertising display space, unlike Obie’s transit advertising display space, is sold nearly exclusively by means of 12-month contracts. Obie’s management believes this seasonality will increase if Obie’s transit advertising operations continue to expand more rapidly than its outdoor advertising operations. This seasonality, together with fluctuations in general and regional economic conditions, obtaining new transit agreements, and other actions taken to implement Obie’s growth strategy, have contributed to fluctuations in Obie’s periodic operating results. These fluctuations likely will continue. Accordingly, Obie’s results of operations in any period may not be indicative of the results to be expected for any future period. Because a significant portion of Obie’s expenses are fixed and are based, in part, on Obie’s estimate of future revenues, Obie may be unable to adjust its expenditures in a timely manner to compensate for any unanticipated reduction in revenues. This could result in period-to-period declines in Obie’s operating results and net income.

 
Obie’s stock price may fluctuate significantly.

      The market price of Obie’s common stock may fluctuate significantly due to variations in actual and anticipated operating results, changes in earnings estimates by analysts, lack of liquidity, Obie’s failure to implement its growth strategy and other events or factors, some of which are outside of Obie’s control. In addition, the stock markets have recently experienced price and volume volatility that has affected the market prices of companies in ways seemingly unrelated to their operating performance. Stock market volatility may adversely affect the market price of Obie’s common stock.

25


Table of Contents

NOTE REGARDING FORWARD-LOOKING STATEMENTS

      This proxy statement/ prospectus and the documents incorporated by reference contain certain forward-looking statement about Lamar, Obie, and the combined company after completion of the transaction. These statements are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. These statements may be made directly in this document or may be incorporated in this document by reference to other documents and may include statements for the period following the completion of the transaction. Representatives of Lamar and Obie may also make forward-looking statements regarding various topics, including:

  •  expected operating results;
 
  •  market opportunities;
 
  •  acquisition opportunities;
 
  •  ability to compete; and
 
  •  stock price.

      Forward-looking statements are statements that are not historical facts. Forward-looking statements may be identified by the use of words such as “anticipate,” “believe,” “expect,” “intend,” “estimate,” “plan,” “outlook,” and “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These statements are based on current expectations and beliefs of Lamar and Obie and involve a number of risks and uncertainties, including the risks described in this document under “Risk Factors” and other risks described in the respective SEC reports filed by Lamar and Obie, that could cause actual results to differ materially from those stated or implied by the forward-looking statements. These risks, uncertainties, and other important factors include:

  •  risks and uncertainties relating to Lamar’s significant indebtedness;
 
  •  the demand for outdoor advertising;
 
  •  the performance of the U.S. economy generally and the level of expenditures on outdoor advertising particularly;
 
  •  the ability to renew expiring contracts at favorable rates;
 
  •  the integration of companies that Lamar acquires and its ability to recognize cost savings or operating efficiencies as a result of these acquisitions;
 
  •  Lamar’s need for and ability to obtain additional funding for acquisitions or operations; and
 
  •  the regulation of the outdoor advertising industry by federal, state, and local governments.

      The forward-looking statements contained in this proxy statement/ prospectus speak only as of the date of this filing. Lamar and Obie each expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained in this proxy statement/ prospectus to reflect any change in expectations or any change in events, conditions, or circumstances on which any forward-looking statement is based, except as may be required by law.

26


Table of Contents

THE OBIE SPECIAL MEETING

General; Date; Time and Place

      Obie is furnishing this proxy statement/ prospectus to its shareholders in connection with the special meeting of shareholders of Obie to be held at                      a.m., local time on                           , 2005, at Obie’s offices located at 4211 West 11th Avenue, Eugene, Oregon 97402, and any postponement or adjournment of that meeting. The approximate date this proxy statement/ prospectus is first being sent to Obie’s shareholders is       , 2004.

Purpose of the Obie Special Meeting

      At the special meeting, holders of Obie common stock will be asked to consider and vote on proposals to:

  •  approve the merger of Obie Media Corporation into OMC Acquisition Corporation, a wholly owned subsidiary of Lamar Advertising Company;
 
  •  approve one or more adjournments of the special meeting, if necessary, to permit further solicitation of proxies if there are insufficient votes at the time of the special meeting to approve the merger proposal; and
 
  •  transact such other business as may be properly brought before the meeting;

      The merger agreement is attached as Annex A to this proxy statement/ prospectus and is incorporated herein by reference.

Record Date; Voting Power

      Only shareholders of record at the close of business on                     , 2004, the record date fixed by the Obie board of directors, are entitled to receive notice of the special meeting and to vote at the special meeting or any adjournment or postponement of the special meeting. Each share of Obie stock is entitled to one vote at the special meeting.

      At the record date, there were                      shareholders of record who held an aggregate of                      shares of Obie stock. Obie believes, however, that the actual number of beneficial holders of its common stock may be substantially greater than the stated number of shareholders of record because a substantial portion of its common stock is held in street name.

      At the record date, the directors, executive officers and affiliates of Obie owned or controlled in the aggregate the vote of                      shares of Obie stock entitled to vote, which represents approximately      % of the voting power held by Obie shareholders. Obie believes that each of its directors and executive officers intends to vote “FOR” the proposal to approve the merger and “FOR” the proposal to adjourn the Obie special meeting, if necessary, for the purpose of soliciting additional proxies.

Quorum; Required Votes; Voting Agreement

      A majority of the shares of the Obie stock entitled to vote, present in person or represented by proxy, will constitute a quorum at the special meeting.

      The affirmative vote of the holders of a majority of the shares of outstanding Obie stock entitled to vote is required to approve the merger. The vote of the holders of a majority of shares present in person or by proxy at the special meeting is required to approve the adjournment proposal. As of the close of business on the record date,                      shares of Obie stock were outstanding and entitled to vote at the special meeting.

      Abstentions have the same effect as votes “against” the proposal to approve the merger, but have no effect on the related adjournment proposal. Broker non-votes are counted for purposes of determining

27


Table of Contents

whether a quorum exists at the special meeting but (1) have the same effect as a vote against the proposal to approve the merger and (2) have no effect on the related adjournment proposal.

      Please note that although the Notice of Special Meeting of Shareholders of Obie Media Corporation provides for transaction of any other business as may properly come before the meeting, Obie’s board of directors has no knowledge of any matters that will be presented at the meeting other than those referred to in this proxy statement/ prospectus. The accompanying proxy card, however, gives the proxy holders authority to vote with management on any other matters that are presented, unless you specify otherwise.

      Brian B. Obie, Obie’s Chairman of the Board, President, Chief Executive Officer, and largest shareholder, is a party to a voting agreement in which he has agreed to vote his Obie shares at the special meeting in favor of the proposal to approve the merger and against any competing proposal. As of the record date, Mr. Obie held                      shares obligated to vote at the special meeting, which is approximately 27.5% of all shares entitled to vote at the special meeting. See “The Merger — Voting Agreement.”

      The merger does not require the approval of Lamar’s stockholders.

How to Vote

      A shareholder may vote in person at the special meeting or by proxy without attending the special meeting. To vote by proxy, a shareholder must complete the enclosed proxy card, sign and date it, and return it in the enclosed prepaid envelope.

      A proxy card is enclosed for Obie shareholders. The Obie board of directors requests that shareholders sign and return the proxy card in the accompanying envelope. No postage is required if mailed within the United States. If you have questions about the merger, including procedures for voting your shares, you should contact Gary Livesay, Obie’s Chief Financial Officer, at (541) 686-8400.

      Please note that if the signed proxy is returned without instructions, it will be voted “FOR” the proposal to approve the merger and “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies, if there are insufficient votes to approve the merger.

Revocation of Proxy

      Any person completing and submitting the proxy card accompanying this proxy statement/ prospectus has the power to revoke it at any time before its exercise. You may revoke the proxy by filing with the Secretary of Obie an instrument of revocation or a duly executed proxy bearing a later date. You also may revoke the proxy by affirmatively voting in person while attending the special meeting. If you attend the meeting, however, you need not revoke the proxy and vote in person unless you wish to do so. Simply attending the special meeting will not result in the revocation of your proxy. All valid, unrevoked proxies will be voted at the special meeting in accordance with the instructions given on the proxy.

Solicitation of Proxies

      Obie’s board of directors is soliciting the accompanying proxy. Obie and Lamar are bearing the expense of preparing, printing, and mailing this proxy statement/ prospectus (including the registration statement of which the proxy statement/ prospectus is a part), the proxy card and the material used in soliciting the proxies. See “The Merger Agreement — Merger Expenses and Termination Fees and Expenses.” In addition to the use of the mails, proxies may be solicited by personal interview, telephone, and telegram by directors, officers, and employees of Obie. No additional compensation will be paid to directors, officers or employees for such solicitation efforts. Arrangements have also been made with brokerage houses, banks, and other custodians, nominees, and fiduciaries for the forwarding of solicitation materials to the beneficial owners of Obie stock held of record by such person, and Obie will reimburse them for any reasonable out-of-pocket expenses they incur.

28


Table of Contents

Proposal to Approve Adjournment of Special Meeting

      Obie is submitting a proposal for consideration at the special meeting to authorize the named proxies to approve one or more adjournments of the special meeting if there are insufficient votes to approve the merger proposal at the time of the special meeting. Even though a quorum may be present at the special meeting, it is possible that Obie may not receive sufficient votes to approve the merger proposal by the time of the special meeting. In that event, Obie would need to adjourn the special meeting in order to solicit additional proxies. The adjournment proposal relates only to an adjournment of the special meeting for purposes of soliciting additional proxies to obtain the requisite shareholder approval to approve the merger proposal. Any other adjournment of the special meeting (e.g., an adjournment required because of the absence of a quorum) would be voted upon pursuant to the discretionary authority granted by the proxy. Under Obie’s by-laws, approval of any adjournment proposal requires the affirmative vote of a majority of those shares present at the meeting in person or by proxy.

      With respect to broker non-votes, we believe that brokers or other nominees who hold shares of Obie stock in “street name” accounts generally lack authority to vote to approve any adjournment of the special meeting without appropriate instructions from the beneficial owner. If your shares are held in street name and you fail to instruct your broker on how to vote with respect to the adjournment proposal, those Obie shareholders who vote “FOR” or “AGAINST” the adjournment proposal will decide whether to adopt that proposal, and your shares will have no effect on the outcome of the proposal. An abstention as to this proposal will have no effect on whether it is adopted.

      Obie’s board of directors recommends that Obie shareholders vote “FOR” the adjournment proposal so that proxies may be used for that purpose, should it become necessary. Properly executed proxies will be voted “FOR” the adjournment proposal, unless otherwise noted on the proxies.

      Under Obie’s by-laws, Obie may adjourn the special meeting to another date, time, or place without providing notice of the adjourned meeting, so long as Obie announces the new date, time, and place before adjourning the meeting. If Obie fixes a new record date for the special meeting or if the adjournment is for more than 120 days, then Obie must provide shareholders of record on the applicable record date notice of the adjourned meeting.

      The Obie board of directors retains full authority pursuant to Oregon law and Obie’s by-laws to postpone the special meeting before it is convened without the consent of any Obie shareholder.

Recommendation of the Obie board of directors

      At a meeting held on September 15, 2004, the Obie board of directors determined that the merger agreement is in the best interests of Obie and Obie shareholders.

      At a meeting held on October 1, 2004, the Obie board of directors voted unanimously ratified its determination that the merger agreement and the transactions contemplated thereby are fair to, advisable, and in the best interests of Obie shareholders and voted unanimously to recommend that its shareholders vote in favor of the proposal to approve the merger and the transactions contemplated by the merger agreement.

      After careful consideration, the Obie board of directors recommends that Obie shareholders vote “FOR” the proposal to approve the merger and “FOR” the proposal to adjourn the Obie special meeting, if necessary, for the purpose of soliciting additional proxies.

29


Table of Contents

INFORMATION ABOUT THE COMPANIES

Lamar Advertising Company

Lamar Advertising Company

5551 Corporate Boulevard
Baton Rouge, Louisiana 70808
Telephone: (225) 926-1000
http://www.lamar.com

      Lamar Advertising Company is one of the largest outdoor advertising companies in the United States based on number of displays and has operated under the Lamar name since 1902. As of September 30, 2004, Lamar owned and operated over 151,600 billboard advertising displays in 42 states, operated over 100,000 logo advertising displays in 20 states and the province of Ontario, Canada, and operated approximately 9,500 transit advertising displays in 12 states.

      Lamar’s business consists of the following three principal product lines:

  •  Billboard advertising. Lamar offers customers a fully integrated service, covering their billboard display requirements from ad copy production to placement and maintenance. Lamar’s billboard advertising displays are comprised of bulletins and posters. As a result of their greater impact and higher cost, bulletins are usually located on major highways. Posters are usually concentrated on major traffic arteries or on city streets to target pedestrian traffic.
 
  •  Logo signs. Lamar is the largest provider of logo sign services in the United States, operating 20 of the 25 privatized state logo sign contracts. Logo signs are erected near highway exits to direct motor traffic to service and tourist attractions, as well as to advertise gas, food, camping and lodging.
 
  •  Transit advertising. Lamar provides transit advertising in 34 transit markets. Transit displays appear on the exterior or interior of public transportation vehicles or stations.

      Lamar’s business has grown rapidly in recent years through a combination of internal growth and strategic acquisitions that have resulted in increased operating efficiencies, greater geographic diversification, and increased market penetration. Historically, focus has been on small to mid-sized markets where acquisition opportunities have been pursued in order to establish a leadership position. Since January 1, 1997, Lamar has successfully completed approximately 595 acquisitions of outdoor advertising businesses and assets. Lamar’s acquisitions have expanded its operations in major markets, and Lamar currently has a presence in 32 of the top 50 outdoor advertising markets in the United States. Lamar’s large national footprint gives it the ability to offer cross-market advertising opportunities to both local and national advertising customers.

      Lamar has been in operation since 1902 and completed a reorganization on July 20, 1999 to create a new holding company structure. At that time, Lamar Advertising Company was renamed Lamar Media Corp. and all its stockholders became stockholders in a new holding company. The new holding company then took the Lamar Advertising Company name and Lamar Media Corp. became a wholly owned subsidiary of Lamar Advertising Company.

OMC Acquisition Corporation

      OMC Acquisition Corporation is a Delaware corporation and a wholly owned subsidiary of Lamar that was organized solely for the purpose of effecting the merger with Obie. OMC Acquisition Corporation has carried on no other activities other than in connection with the merger.

30


Table of Contents

Obie Media Corporation

Obie Media Corporation

4211 West 11th Avenue
Eugene, Oregon 97402
Telephone: (541) 686-8400
http://www.obie.com

      Obie Media Corporation is an outdoor advertising company that markets advertising space primarily on transit vehicles and outdoor advertising displays such as billboards and wallscapes. As of September 30, 2004, Obie had 38 exclusive agreements with transit districts in the United States and Canada to operate transit advertising displays. The markets in which these transit districts are located include nine of the thirty largest U.S. markets (in terms of demographic market area) — Dallas, TX; Portland, OR; Sacramento, CA; Hartford, CT; Ft. Lauderdale, FL; St. Louis, MO; Tampa, FL; Indianapolis, IN; and Kansas City, MO — and the third largest Canadian market, Vancouver, British Columbia. Since Obie’s initial public offering in November 1996, the number of vehicles on which Obie has the right to operate transit-advertising displays has increased from approximately 1,200 to over 7,000. Obie also operates and generally owns over 1,100 advertising displays on billboards and walls primarily in Washington, Oregon, California, Montana, Wyoming, Idaho, Utah, and South Dakota.

      Obie was formed in 1987 as a subsidiary of Obie Industries Incorporated (“Obie Industries”), a family-owned outdoor advertising business. To facilitate its initial public offering, Obie was separated from Obie Industries in November 1996. In September 1998, Obie acquired P & C Media (“P & C”), which had operated in the outdoor advertising industry for over 50 years. In August 1999, Obie completed a public offering of an additional 1,100,000 shares of common stock. The net proceeds of the offering, approximately $9.7 million, were used to reduce debt, including the debt incurred in Obie’s acquisition of P & C.

31


Table of Contents

OBIE MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Overview

      Obie Media Corporation generates revenues by selling advertising space on out-of-home advertising displays located primarily on transit vehicles and outdoor advertising displays such as billboards and wallscapes. Obie also provides design and installation services and produces advertising display content.

      Transit advertising represents a significant portion of the out-of-home advertising industry and Obie has focused its business in this segment of the industry. According to estimates of the Federal Transit Administration, in 2002 there were approximately 600 transit agencies in the United States operating more than 45,022 transit advertising displays, representing a significant source of revenue to transit districts. As of September 30, 2004, Obie had 38 exclusive agreements with transit districts in the United States and Canada to operate transit advertising displays. Obie has the right to operate transit advertising displays on more than 7,000 vehicles. Under its transit agreements, Obie typically guarantees to pay the transit district the greater of a minimum stated amount or a percentage of the advertising revenues generated by Obie’s use of the district’s vehicles.

      Obie also operates more than 1,100 advertising displays on billboards and walls primarily in Washington, Oregon, Montana, Wyoming, California and Idaho. Obie either owns or leases each of these billboard sites.

      Obie’s operating results are affected by general economic conditions, as well as trends in the advertising industry. Moreover, Obie’s historical growth has primarily resulted from: (i) growth in its transit advertising business, primarily resulting from new agreements with additional transit districts; (ii) selected acquisitions; and (iii) the development and acquisition of new outdoor displays. As a result of these factors, its operating performance is not necessarily comparable on a period-to-period basis.

      Obie’s net revenues decreased $1.2 million from $44.3 million in fiscal 2002 to $43.1 million in fiscal 2003, primarily due to continued weakness in this sector of the out-of-home industry, particularly in the northeastern portion of the United States. For the nine months ended August 31, 2004, however, net revenues increased $4.3 million to $35.0 million from $30.7 million for the same period in fiscal 2003, due to Obie’s increased success in selling transit advertising contracts and to higher occupancy rates of the billboard plant.

      Operating income decreased to $693,000 in fiscal 2003, compared to operating income of $862,000 in fiscal 2002. For the nine months ended August 31, 2004, operating income was $1.8 million compared to $258,000 in the same period of fiscal 2003.

      Obie reported a loss from continuing operations of $2.1 million in fiscal 2003 as compared to a loss of $862,000 in fiscal 2002. For the nine months ended August 31, 2004, Obie generated an operating loss from continuing operations of $1.1 million compared to an operating loss of $1.6 million for the same period in fiscal 2003.

Recent Developments

      On January 14, 2004, Obie entered into a new long-term financing arrangement with CapitalSource Finance, LLC. The agreement includes a $17.5 million term loan and a $6.0 million revolving line of credit to Obie, both of which mature on November 30, 2008. The agreement also includes a $2.5 million term loan to Obie Media Ltd., Obie’s Canadian subsidiary, which matures on January 31, 2009. The interest rates are prime plus 4.5% on the revolving line of credit and prime plus 5.5% on the term loans. These margins may be reduced by up to 1.0% depending on Obie’s leverage ratio. The effective rates on the revolving line of credit and term loans at August 31, 2004 were 9.0% and 10.0%, respectively. The first date the margins may be adjusted is the quarter ending November 30, 2004.

32


Table of Contents

      Funds from the term loan were used to (1) pay off the existing term loan with the previous lender, (2) pay off the balance of the settlement obligation with the Chicago Transit Authority, and (3) pay off the promissory note related to the purchase of the minority interest of O. B. Walls, Inc. in fiscal 2002. Funds from the new revolving line of credit were used to pay off the existing revolving line of credit with the previous lender and to fund closing costs and working capital needs. Approximately $1.1 million is available for future borrowings under the revolving line of credit as of August 31, 2004. The term loan principal payment amounts are $1.0 million in fiscal 2004, $1.0 million in fiscal 2005, $2.0 million in fiscal 2006, $3.0 million in fiscal 2007, $11.1 million in fiscal 2008, with the balance due at maturity. The revolving line of credit balance is due in full at maturity.

      The loan agreement with CapitalSource Finance, LLC contains financial covenants regarding (1) minimum rolling EBITDA, (2) maximum leverage ratios, (3) fixed-charge coverage ratios, and (4) interest coverage ratios, all of which are measured on a quarterly basis. Obie was in compliance with all covenants as of August 31, 2004. The loan agreement also restricts Obie’s ability to pay dividends. The loans are collateralized by substantially all of Obie’s assets.

      During fiscal 2003, Obie extended its contract with the transit authority in London, Ontario, Canada for an additional five years beginning in January 2004. The first year guarantee of the extension period is approximately 37% less than the guarantee for the final year of the original contract. Obie was also the successful bidder in an RLI process in Ft. Lauderdale, Florida. Obie has been awarded a new three-year contract by that transit agency, commencing January 1, 2004. The first year guaranteed amount under the new contract is approximately 37% less than the guarantee during the final year of the original contract.

      Also during 2003 Obie was selected as the successful bidder for transit advertising in Pittsburgh, PA. Obie began operating in the market in July 2003 pending the execution of a definitive contract. Obie was unable to come to agreement with the transit authority regarding a final contract and withdrew from the market at the end of October 2003. The results of operations in this market have been included in results of discontinued operations.

      In June 2003, Obie was sued by VIA Metropolitan Transit (“VIA”), the transit authority for San Antonio, Texas. The suit alleged breach of contract, fraud, and theft relative to a contract for transit advertising services between the Company and VIA. Damages were not specified but were expected to exceed $600,000. While Obie believed (and continues to believe) that the claims were without merit and intended to vigorously contest them, Obie and Lamar also believe that settlement, on the right terms and conditions, could be beneficial to Lamar if the merger is closed. Therefore, on November 4, 2004, Obie and VIA agreed to settle all claims, subject to ratification by their respective board of directors and governing board and execution of a definitive settlement and release agreement, for a total of $1.5 million payable by Obie as follows: (a) $300,000 upon execution of the settlement agreement; (b) $50,000 per month commencing 30 days after the initial payment, with the unpaid balance bearing interest at 7% per annum; (c) if the merger occurs, the entire unpaid balance, including accrued but unpaid interest, is due on January 30, 2005; and (d) if the merger does not occur, $600,000 of the unpaid balance will be paid directly to VIA by Lamar within three days following the termination of the merger agreement. The unpaid balance will be paid as specified in (b) above.

      On December 5, 2001 the Company received notice from the Chicago Transit Authority (CTA) that it was terminating the Company’s transit advertising agreement effective as of that date. The Company and the CTA had been disputing settlement of 2001 transit fees in light of the nature of the early termination and a shortage of advertising space made available to the Company, and the parties entered into an agreement as of May 28, 2002 resolving all of the outstanding issues.

      The agreed upon fee for the 2001 contract year was settled with the CTA at $17 million, substantially less than the original guaranteed payment of $21.8 million. As of May 31, 2002, approximately $7.5 million had been paid to the CTA, and an additional $1.5 million was paid on June 1, 2002. The balance has been paid in substantially equal monthly payments of $116,080 beginning June 2002 through December 2003 with the remaining balance having been paid on January 14, 2004 as noted above.

33


Table of Contents

Critical Accounting Policies and Estimates

      The following discussion and analysis of Obie’s financial condition and results of operations are based upon Obie’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires Obie to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

      Obie believes that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on its financial statements, so Obie considers these to be its critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates Obie uses in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the reserve for uncollectible accounts receivable and deferred income taxes. These policies require that Obie make estimates in the preparation of its financial statements as of a given date. However, since Obie’s business cycle is relatively short, actual results related to the estimates relative to uncollectible accounts receivable are generally known within the six month period following the financial statement date. Thus, these policies generally affect only the timing of reported amounts across two to three quarters. The estimate of deferred tax assets may affect reported amounts beyond that time period.

      Within the context of these critical accounting policies, Obie is not currently aware of any reasonably likely events or circumstances which would result in materially different amounts being reported.

      Recognition of Revenue. Revenue from advertising contracts is recognized ratably over the contract term, and the estimated cost components of a contract (cost of the advertising space and the costs of producing and installing advertising copy) are deferred and matched against the periodic recognition of revenue on essentially a straight-line basis. This method also necessitates the recognition of an unearned revenue liability for billings to customers for time periods beyond the end of the current accounting cycle.

      Discontinued Operations. Effective during its fiscal year ending November 30, 2002, Obie adopted Statements of Financial Accounting Standards No. 144 “Accounting for the Impairment of Long-Lived Assets” (SFAS No. 144) and No. 146 “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS No. 146).

      Pursuant to these pronouncements, Obie has classified as “Discontinued Operations” the results of operations and any exit costs associated with transit district contracts that were exited. As a result, Obie has no further involvement with these markets. For fiscal 2004, the transit districts included in Discontinued Operations are San Antonio, TX; Pittsburgh, PA; and Bridgeport, CT. For fiscal 2003 the U.S. transit districts included in Discontinued Operations were: Chicago, IL; San Antonio, TX; Cincinnati, OH; Kitsap, WA; Santa Cruz, CA; and Bridgeport, CT; and the Canadian transit districts included are: Pickering, Whitby, Cambridge and St. Catharines. For fiscal 2002, the transit markets included in Discontinued Operations were Santa Cruz, CA; Bridgeport, CT; Chicago, IL; San Antonio, TX; Cincinnati, OH; Kitsap, WA; and Pickering, Whitby, Cambridge and St. Catharines, ONT, Canada, and for fiscal 2001 they were Santa Cruz, CA; Bridgeport, CT; Chicago, IL; San Antonio, TX; Cincinnati, OH; Cleveland, OH; Kitsap, WA; and Pickering, Whitby, Cambridge and St. Catharines, ONT, Canada.

      The Company operated in the Pittsburgh market for a short period in fiscal 2003, but left the market upon failure to reach contract terms with the transit authority. The Chicago, Pickering, Whitby, Cambridge and St. Catharines contracts were terminated during fiscal year 2002; the contract in San Antonio was terminated in fiscal year 2003. The Company did not aggressively participate in new contract bidding in Cincinnati, which expired in fiscal 2002, or Kitsap, which expired in fiscal 2003. The results of operations for these transit districts for 2002 and 2001 have been reclassified to Discontinued Operations for comparability purposes.

      Allowance for Uncollectible Accounts Receivable. Obie makes ongoing estimates relating to the collectibility of its accounts receivable and maintains a reserve for estimated losses resulting from the inability of Obie’s customers to make required payments. In determining the amount of the reserve, Obie

34


Table of Contents

considers its historical level of credit losses, the aging spread of accounts at the date the estimate is made, trends in the overall media economy, and general business conditions. Since Obie cannot predict future changes in the financial stability of its customers, actual future losses from uncollectible accounts may differ from Obie’s estimates. If the financial condition of its customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In the event that a smaller or larger reserve was appropriate, Obie would record a credit or charge to administrative expense in the period in which Obie made such a determination.

      Income Taxes. Obie records valuation allowances against its deferred tax assets, when necessary, in accordance with SFAS No. 109, “Accounting for Income Taxes.” Realization of deferred tax assets (such as net operating loss carryforwards) is dependent on future taxable earnings and therefore is uncertain. Obie assesses the likelihood that its deferred tax asset balance will be recovered from future taxable income on a quarterly basis. To the extent that Obie believes recovery is unlikely, Obie establishes a valuation allowance against its deferred tax assets increasing its income tax expense in the period such determination is made. An increase in the valuation allowance would result in a charge to income tax expense. A decrease in the valuation allowance would result in a reduction to income tax expense.

      On an interim basis, Obie estimates what its effective tax rate will be for the full fiscal year and records a quarterly income tax provision in accordance with the anticipated annual rate. As the fiscal year progresses, Obie continually refines its estimate based upon actual events and earnings during the year. This continual estimation process periodically results in a change to Obie’s expected tax rate for the fiscal year. When this occurs, Obie adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision is in accordance with the annual anticipated rate.

      Property, Plant and Equipment and other Long-lived Assets. Property, plant and equipment, including buildings, equipment, and computer hardware and software is recorded at cost (including, in some cases, the cost of internal labor) and is depreciated over estimated useful lives. Changes in circumstances (such as technological advances or changes to our business operations) can result in differences between the actual and estimated useful lives. In those cases where Obie determines that the useful life of a long-lived asset should be shortened, Obie increases depreciation expense over the remaining estimated useful life to depreciate the asset to its salvage value.

      In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142), goodwill amortization was discontinued as of November 30, 2002. Obie conducted an impairment analysis as of November 30, 2003 and found no instances of impairment. Goodwill at August 31, 2004 and November 30, 2003 amounted to $5,448,552, net of accumulated amortization of $2,181,571.

      Other Contingencies. In the ordinary course of business, Obie is involved in legal proceedings involving contractual, employment, and a variety of other matters. Obie records contingent liabilities resulting from claims against Obie when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Obie discloses contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. Estimating probable losses requires analysis of multiple factors, in some cases including judgments about the potential actions of third party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. However, if actual or estimated probable future losses exceed Obie’s recorded liability for such claims, Obie would record additional charges as other expense during the period in which the actual loss or change in estimate occurred.

      From time to time, Obie is subject to legal proceedings and claims in the ordinary course of business. Obie is currently involved in claims and legal proceedings in which monetary damages and other relief are sought. Obie is vigorously contesting these claims; however, resolution is not expected to occur quickly, and their ultimate outcome cannot presently be predicted. In the opinion of Obie’s management, the ultimate resolution of these claims and proceedings will not likely have a material adverse effect on Obie’s consolidated financial condition, results of operations or cash flows.

35


Table of Contents

      On December 5, 2001, Obie received notice from the Chicago Transit Authority (CTA) that it was terminating Obie’s transit advertising agreement effective as of that date. Obie and the CTA had been disputing settlement of 2001 transit fees in light of the nature of the early termination and a shortage of advertising space made available to Obie, and the parties entered into an agreement as of May 28, 2002 resolving all of the outstanding issues.

      The agreed upon fee for the 2001 contract year was settled with the CTA at $17.0 million, substantially less than the original guaranteed payment of $21.8 million. As of May 31, 2002, approximately $7.5 million had been paid to the CTA, and an additional $1.5 million was paid on June 1, 2002. The balance was payable in substantially equal monthly payments of $116,080 beginning June 2002 and ending May 2007, with an additional $1.0 million balloon payment due on January 1, 2004. The monthly payments were without interest through May 2003, and included a 5% interest charge thereafter. These periodic deferred payments were valued using a junior unsecured discount rate of 15%, resulting in a present value of $6.1 million, which is included within long-term debt in our balance sheet. The result is a present value of $15.1 million for the settlement. The cost of the settlement is covered by previous accruals, including an accrual which Obie established in the third quarter of fiscal 2001. The balance of $5,084,167 owing on this obligation at November 30, 2003 was paid off in January of 2004 with proceeds of the Company’s January 2004 new financing arrangement with CapitalSource Finance, LLC.

      A substantial portion of Obie’s loss for fiscal 2001 resulted from its payment of minimum advertising revenues guaranteed to transit districts under its transit district contracts. Beginning in the latter half of fiscal 2001 Obie became increasingly concerned about these minimum revenue guarantees in the face of declining advertising revenues in some transportation districts. Accordingly, Obie began to seek to restructure or terminate certain of these arrangements in a way that would limit Obie’s exposure to these payments to an amount that would reflect a more appropriate sharing of revenues under Obie’s advertising contracts. Between August 31, 2001 and February 15, 2004, Obie renegotiated 13 contracts that have resulted in transit guarantee reductions of $1.7 million in fiscal 2001, $4.0 million in fiscal 2002 and $5.8 million in fiscal 2003. It cannot be assured that Obie will be able to eliminate or further reduce this type of risk and, if not, Obie may experience further adverse impacts on its operating revenues, some or all of which may be material.

      In addition, during fiscal 2002, transit contract bids occurred in Obie’s transit markets of Austin, Dallas and San Antonio, TX; Kansas City, MO; Cincinnati, OH; and Santa Cruz and Sacramento, CA. Obie was awarded new contracts in Kansas City, Dallas and Sacramento as it was the high bidder for those contracts. In the other markets mentioned above, except for Austin, Obie had been experiencing significant operating losses due primarily to the high minimum guaranteed payments to the transit authorities. In its rebids of these markets Obie substantially reduced the amounts offered as guaranteed payments, and as a result, the contracts were awarded to others. Obie also terminated contracts in St. Catharines, Pickering Cambridge and Whitby, all in the Canadian province of Ontario. Since Obie has exited these markets, the results of operations of these markets, plus the results relative to the Chicago market termination and settlement described above, have been classified as results from discontinued operations in Obie’s statement of operations.

      During fiscal 2003, Obie was selected to be the advertising provider for the Pittsburgh transit market, and began operating in the market on July 1, 2003. Subsequently, Obie was unable to reach agreement with the transit authority on contract terms, and left the market effective October 31, 2003. The results of operations of this market are also included in results from discontinued operations.

      In June 2003, Obie was sued by VIA Metropolitan Transit (“VIA”), the transit authority for San Antonio, Texas. The suit alleged breach of contract, fraud and theft relative to a contract for transit advertising services between the Company and VIA. Damages were not specified but were expected to exceed $600,000. While Obie believed (and continues to believe) that the claims were without merit and intended to vigorously contest them, Obie and Lamar also believe that settlement, on the right terms and conditions, could be beneficial to Lamar if the merger is closed. Therefore, on November 4, 2004, Obie and VIA agreed to settle all claims, subject to ratification by their respective board of directors and

36


Table of Contents

governing board and execution of a definitive settlement and release agreement, for a total of $1.5 million payable by Obie as follows: (a) $300,000 upon execution of the settlement agreement; (b) $50,000 per month commencing 30 days after the initial payment, with the unpaid balance bearing interest at 7% per annum; (c) if the merger occurs, the entire unpaid balance, including accrued but unpaid interest, is due on January 30, 2005; and (d) if the merger does not occur, $600,000 of the unpaid balance will be paid directly to VIA by Lamar within three days following the termination of the merger agreement. The unpaid balance will be paid as specified in (b) above.

Results of Operations

 
Comparison of the Three Months ended August 2004 and 2003

      Revenues. Obie’s revenues are derived from providing advertising space on out-of-home advertising displays, primarily on transit vehicles under transit district agreements and on outdoor advertising displays Obie owns or operates. Revenues are also derived from the sale of design and installation services and the production of advertising display content. Net revenues for the three months ended August 31, 2004 increased $1.8 million, or 15.6%, to $13.1 million from $11.4 million for the same period in fiscal 2003. Transit net revenues increased $1.5 million, or 15.9%, to $11.0 million for the three months ended August 31, 2004 from $9.5 million for the same period of fiscal 2003. The increase reflects Obie’s continuing success in selling annual, production included transit advertising contracts to its customers. Outdoor net revenues increased $261,000, or 14.1% to $2.1 million for the three months ended August 31, 2004 compared to $1.9 million for the same period of fiscal 2003. The increase was due primarily to higher occupancy (sell-out) rates of the billboard plant.

      Production and Installation Expenses. These expenses relate primarily to the production of transit advertising content and the installation of the content on transit vehicles, benches and shelters. Also included is the cost of billboard content and installation. Production and installation expenses increased $313,000, or 21.3%, to $1.8 million for the three months ended August 31, 2004 from $1.5 million in fiscal 2003. Obie’s production and installation activities are primarily related to the transit advertising part of its business, and were approximately 16.2% of net transit revenues for the three months ended August 31, 2004 as compared to 15.5% of transit net revenues for the same period of fiscal 2003. The increase is primarily due to the fact that Obie has sold this year, when compared to a year ago, a higher portion of long-term versus short-term business which has a higher production cost component.

      Transit and Outdoor Occupancy Expenses. These expenses include fees paid to transit authorities and lease payments to landowners for billboard sites. Under its transit agreements, Obie typically guarantees to pay the transit district the greater of a minimum stated amount or a percentage of the advertising revenues generated by Obie’s use of the district’s vehicles. Occupancy expense for outdoor structures includes the cost of illuminating outdoor displays and property taxes on the outdoor advertising structures. Transit and outdoor occupancy expenses decreased approximately $64,000, or 1.2%, to $5.2 million for the three months ended August 31, 2004 compared to $5.3 million in the same period of fiscal 2003. The slight decrease was related primarily to lower minimum guarantees in transit contracts that were renewed during 2004. These expenses, as a percentage of net revenues, decreased to 39.8% in the three months ended August 31, 2004 compared to 46.5% of net revenues in the same period of fiscal 2003. The decrease in the ratio was primarily due to reduced guaranteed payments on transit contracts.

      Selling Expenses. Sales expenses consist primarily of employment and administrative expenses associated with Obie’s sales force. These expenses increased $179,000, or 9.2%, to $2.1 million for the three months ended August 31, 2004 compared to $1.9 million in the same period in fiscal 2003 due to increased sales. However, selling expenses, as a percentage of net revenues, dropped to 16.1% for the three months ended August 31, 2004 compared to 17.1% in the same period in fiscal 2003. The decrease was primarily related to cost containment elements of Obie’s sales incentive compensation programs.

      General and Administrative Expenses. General and administrative expenses include costs related to individual markets, as well as corporate expenses. Expenses related to individual markets include expenses for the personnel and facilities required to administer that market and neighboring markets. Corporate general and administrative expenses represent personnel and facilities costs for Obie’s executive offices and

37


Table of Contents

centralized staff functions which include accounting, marketing, human resources and technology management.

      General and administrative expenses increased $345,289, or 17.9% to $2.3 million for the three months ended August 31, 2004 as compared to $1.9 million in the same period of fiscal 2003. The increase was related primarily to additional costs in the corporate marketing department in support of the annual incentive contract sales mentioned above ($190,000) and an increase in legal fees incurred in connection with the defense of the VIA lawsuit ($175,000).

      Depreciation and Amortization Expenses. Depreciation and amortization expenses increased $41,000, or 9.0%, to $491,000 in the three months ended August 31, 2004 compared to $451,000 for the same period in fiscal 2003. The increase was due to increased loan cost amortization expense relative to the new financing arrangements consummated in January 2004.

      Operating Income. Due to the events and factors discussed above Obie generated operating income of $1.2 million in the three months ended August 31, 2004 compared to operating income of $281,000 in the same period of fiscal 2003.

      Interest Expense. Interest expense increased $16,000, or 2.5%, to $641,000 for the three months ended August 31, 2004 compared to $625,000 for the comparable period of fiscal 2003. The increase was due primarily to increased interest rates on Obie’s new financing arrangements with CapitalSource Finance, LLC.

      Provision for Income Taxes. Obie accounted for all available loss carryback refunds in the fiscal 2001 provision for income taxes. Obie has substantial loss carryforwards, against which valuation allowances have been provided. Since the operating loss carryforwards expire at certain times, Obie has evaluated the likeliness of utilizing those carryforwards against future taxable income in such time frames and has established a valuation allowance accordingly. The current provision for income taxes, both for the 2004 and 2003 fiscal periods, is comprised of Canadian income taxes of one of Obie’s subsidiaries that also operates in Canada.

      Income (Loss) from Continuing Operations. Due to the items and factors discussed above, Obie generated income from continuing operations of $533,000 in the three months ended August 31, 2004 compared to an operating loss of $319,000 for the same period in fiscal 2003.

 
Results of Discontinued Operations

      Most transit arrangements include a provision that a certain percentage of net revenues be shared with the transit authorities (transit fees) on a revenue sharing basis (a certain percentage to the transit authority, the balance retained by Obie), but often with minimum payment requirements. Agreements that contain large minimum transit fee payment guarantees, relative to market size, significantly hinder Obie’s ability to manage its operating expenses in weak economic environments. These high minimum payment requirements have prompted Obie to negotiate modifications to such contracts, negotiate or effect early terminations to such contracts, or exit such markets at the end of the contract term.

      As discussed above, discontinued operations contain the operating results, net of income taxes, for transit markets from which Obie has exited. The discontinued operations for the three months ended August 31, 2004 include the operations of San Antonio, TX; Pittsburgh, PA; and Bridgeport, CT. For the same period of fiscal 2003 discontinued operations include the operations of Chicago, IL; San Antonio, TX; Cincinnati, OH; Kitsap, WA; Santa Cruz, CA; Bridgeport, CT; and the Ontario, Canada markets of Pickering, Whitby, Cambridge and St. Catharines.

      Net Income (Loss). Due to the items and factors discussed above, Obie realized net income of $511,000 during the three months ended August 31, 2004, compared to a net loss of $407,000 in the same period of fiscal 2003.

38


Table of Contents

 
Comparison of the Nine Months ended August 31, 2004 and 2003

      Revenues. Obie’s revenues are derived from providing advertising space on out-of-home advertising displays, primarily on transit vehicles under transit district agreements and on outdoor advertising displays we own or operate. Revenues are also derived from the sale of design and installation services and the production of advertising display content. Net revenues for the nine months ended August 31, 2004 increased $4.3 million, or 14.0% to $35.0 million from $30.7 million for the same period in fiscal 2003. Transit net revenues increased $3.4 million, or 13.3%, to $28.8 million for the nine months ended August 31, 2004 compared to $25.5 million for the same period of fiscal 2003. The increase reflects Obie’s continuing success in selling annual, production included transit advertising contracts to our customers. Outdoor net revenues increased $928,000, or 17.7%, to $6.2 million for the nine months ended August 31, 2004 compared to $5.2 million for the same period of fiscal 2003. The increase was due primarily to higher occupancy (sell-out) rates of the billboard plant.

      Production and Installation Expenses. These expenses relate primarily to the production of transit advertising content and the installation of the content on transit vehicles, benches and shelters. Also included is the cost of billboard content and installation. Production and installation expenses increased $604,000, or 13.8%, to $5.0 million for the nine months ended August 31, 2004 compared to $4.4 million in fiscal 2003. Obie’s production and installation activities are primarily related to the transit advertising part of our business, and were approximately 17.3% of net transit revenues for the nine month periods of both years.

      Transit and Outdoor Occupancy Expenses. These expenses include fees paid to transit authorities and lease payments to landowners for billboard sites. Under Obie’s transit agreements, it typically guarantees to pay the transit district the greater of a minimum stated amount or a percentage of the advertising revenues generated by Obie’s use of the district’s vehicles. Occupancy expense for outdoor structures includes the cost of illuminating outdoor displays and property taxes on the outdoor advertising structures. Transit and outdoor occupancy expenses increased approximately $230,000, or 1.7%, to $13.7 million for the nine months ended August 31, 2004 compared to $13.5 million in the same period of fiscal 2003. The increase was related primarily to increased land lease expenses for billboard sites ($163,000). These expenses, as a percentage of net revenues, decreased to 39.1% in the nine month period ended August 31, 2004 compared to 43.8% of net revenues in the same period of fiscal 2003. The decrease in the ratio is primarily due to reduced guaranteed payments on transit contracts.

      Selling Expenses. Sales expenses consist primarily of employment and administrative expenses associated with Obie’s sales force. These expenses increased $732,000, or 12.7%, to $6.5 million for the nine months ended August 31, 2004 compared to $5.8 million in the same period in fiscal 2003. Selling expenses, as a percentage of net revenues, decreased to 18.6% for the nine months ended August 31, 2004 compared to 18.8% in the same period in fiscal 2003. The decrease was primarily due to variable sales costs (sales commissions and incentives) that fluctuate with sales volume.

      General and Administrative Expenses. General and administrative expenses include costs related to individual markets, as well as corporate expenses. Expenses related to individual markets include expenses for the personnel and facilities required to administer that market and neighboring markets. Corporate general and administrative expenses represent personnel and facilities costs for Obie’s executive offices and centralized staff functions which include accounting, marketing, human resources and technology management.

      General and administrative expenses increased $1.1 million, or 20.5% to $6.6 million for the nine months ended August 31, 2004 as compared to $5.4 million in the same period of fiscal 2003. The increase was related primarily to (1) additional costs in the corporate marketing department in support of the annual incentive contract sales mentioned above ($511,000), (2) management performance incentives accrued in the fiscal 2004 period where none were accrued in fiscal 2003 ($127,000), (3) rent on the Chicago office space in fiscal 2004 ($180,000), and (4) legal fees incurred in defending the VIA lawsuit ($185,000).

39


Table of Contents

      Depreciation and Amortization Expenses. Depreciation and amortization expenses increased $81,000, or 5.9%, to $1.5 million in the nine months ended August 31, 2004 compared to $1.4 million for the same period in fiscal 2003. The increase was due to increased loan cost amortization expense relative to the new financing arrangements consummated in January 2004.

      Operating Income. Due to the events and factors discussed above Obie generated operating income of $1.8 million in the nine months ended August 31, 2004 compared to $258,000 in the same period of fiscal 2003.

      Interest Expense. Interest expense increased $61,000, or 3.5%, to $1.8 million for the nine months ended August 31, 2004, compared to $1.75 million for the comparable period of fiscal 2003. The increase was due primarily to increased interest rates on Obie’s new financing arrangements with CapitalSource Finance, LLC.

      Loss on Debt Extinguishment. Obie experienced a loss on debt extinguishment resulting from the pay-off of its old debt in the first quarter of fiscal 2004 with the proceeds from its new financing arrangements with CapitalSource Finance, LLC. The loss is comprised of charges of approximately $709,000 relating to the write-off of unamortized discount on the Chicago Transit Authority settlement payoff, and approximately $252,000 relating to unamortized prepaid loan costs on the previous debt arrangements.

      Provision for Income Taxes. Obie accounted for all available loss carryback refunds in the fiscal 2001 provision for income taxes. Obie has substantial loss carryforwards, against which valuation allowances have been provided. Since the operating loss carryforwards expire at certain times, Obie has evaluated the likeliness of utilizing those carryforwards against future taxable income in such time frames and has established a valuation allowance accordingly. The current provision for income taxes, both for the 2004 and 2003 fiscal periods, is comprised of Canadian income taxes of one of Obie’s subsidiaries that also operates in Canada.

      Income (Loss) from Continuing Operations. Due to the items and factors discussed above, Obie generated an operating loss from continuing operations of $1.1 million in the nine months ended August 31, 2004 compared to an operating loss of $1.6 million for the same period in fiscal 2003.

      Results of Discontinued Operations. Most transit arrangements include a provision that a certain percentage of net revenues be shared with the transit authorities (transit fees) on a revenue sharing basis (a certain percentage to the transit authority, the balance retained by Obie), but often with minimum payment requirements. Agreements that contain large minimum transit fee payment guarantees, relative to market size, significantly hinder Obie’s ability to manage its operating expenses in weak economic environments. These high minimum payment requirements have prompted Obie to negotiate modifications to such contracts, to negotiate or effect early terminations to such contracts, or exit such markets at the end of the contract term.

      As discussed above, discontinued operations contain the operating results, net of income taxes, for transit markets from which Obie has exited. The discontinued operations for the nine month period of fiscal 2004 include the operations of San Antonio, TX; Pittsburgh, PA; and Bridgeport, CT. The same period of fiscal 2003 includes the operations of Chicago, IL; San Antonio, TX; Cincinnati, OH; Kitsap, WA; Santa Cruz, CA; Bridgeport, CT; and the Ontario, Canada markets of Pickering, Whitby, Cambridge and St. Catharines.

      Net Income (Loss). Due to the items and factors discussed above, Obie generated a net loss of $1.1 million during the nine months ended August 31, 2004, compared to a net loss of $1.9 million in the same period of fiscal 2003.

40


Table of Contents

 
Operating Results for Fiscal Year Ended November 30, 2003, 2002 and 2001

      The following table presents certain items from Obie’s consolidated statements of income (and EBITDA) as a percentage of net revenues.

                             
Years ended November 30,

2003 2002 2001



Transit net advertising revenue
    83.9 %     84.8 %     84.3 %
Outdoor net advertising revenue
    16.1       15.2       15.7  
Net revenues
    100.0       100.0       100.0  
Operating expenses:
                       
 
Production, occupancy and selling
    77.3       75.3       80.8  
 
General and administrative
    17.0       17.8       21.4  
 
Depreciation and amortization
    4.1       5.0       4.8  
   
Operating income (loss)
    1.6       1.9       (7.0 )
Interest expense
    5.4       3.9       3.1  
   
(Loss) from continuing operations before income taxes
    (3.8 )     (1.9 )     (10.2 )
Provision for (benefit from) income taxes
    (1.2 )     0.0       (2.2 )
   
Loss from continuing operations
    (5.0 )     (1.9 )     (8.0 )
Results of discontinued operations
    (1.8 )     (2.6 )     (8.9 )
   
Net loss
    (6.7 )     (4.6 )     (16.9 )
EBITDA(1)
    3.9 %     4.3 %     (13.6 )%


(1)  Obie believes that EBITDA is widely used as one measure to evaluate the financial performance of companies in the out-of-home advertising industry, and therefore, is an appropriate supplemental measure regarding the operating performance of our business. Obie believes that EBITDA can assist you in comparing out-of-home advertising company performance on a consistent basis without regard to depreciation and amortization, which can vary significantly depending on accounting methods used (particularly when acquisitions are involved) or non-operating factors (such as historical cost basis). Accordingly, this information has been disclosed to facilitate the comparative analysis of our operating performance relative to other companies in the out-of-home advertising industry. EBITDA, a non-GAAP financial measure, is defined as operating income before depreciation and amortization expense. EBITDA should not be considered in isolation or as a substitute for net income (loss), cash provided by operating activities or other income or cash flow data prepared in accordance with generally accepted accounting principles, or as a measure of profitability or liquidity.
 
Comparison of Years ended November 30, 2003 and 2002

      Revenues. Obie’s revenues are derived from sales of advertising on out-of-home advertising displays, primarily on transit vehicles under transit district agreements and on outdoor advertising displays it owns or operates. Revenues are a function of both the occupancy of these display spaces and the rates Obie can charge. Net revenues for fiscal 2003 decreased $1.2 million, or 2.6%, from $44.3 million in fiscal 2002 to $43.1 million in fiscal 2003. Transit net revenues in fiscal 2003 decreased $1.4 million, or 3.7%, when compared to the same period of fiscal 2002. This decrease was primarily due to continued weakness in this sector of the out-of-home industry, particularly in the northeastern portion of the United States. Outdoor net revenues for fiscal 2003 increased $210,000, or 3.1%, when compared to fiscal 2002. This increase was due primarily to higher billboard inventory utilization in fiscal 2003 as compared to fiscal 2002.

      Production and Installation Expenses. These expenses relate primarily to the production of transit advertising content and the installation of the content on transit vehicles, benches and shelters. Also included is the cost of billboard content and installation. Production and installation expenses decreased $229,000, or 3.5%, from $6.5 million in fiscal 2002 to $6.2 million in fiscal 2003. The majority of these

41


Table of Contents

expenses are related to transit advertising, and the decrease mirrored the decrease in the transit revenues noted above.

      Transit and Outdoor Occupancy Expenses. These expenses include fees paid to transit authorities and lease payments to landowners for billboard sites. Under Obie’s transit agreements, it typically guarantees to pay the transit district the greater of a minimum stated amount or a percentage of the advertising revenues generated by Obie’s use of the district’s vehicles. Occupancy expense for outdoor structures includes the cost of illuminating outdoor displays and property taxes on the outdoor advertising structures. Transit and outdoor occupancy expenses increased $1.1 million, or 5.9%, from $18.3 million in fiscal 2002 to $19.4 million in fiscal 2003. Of this increase, approximately $113,000 is related to increases in billboard leases and related costs. In addition, Obie experienced a $334,000 increase in transit fees of Obie’s Canadian transit operations and a $653,000 increase in United States transit operations. These transit expense increases were primarily due to increased guaranteed payments to transit authorities.

      Selling Expenses. Sales expenses consist primarily of employment and administrative expenses associated with Obie’s sales force. These expenses decreased $845,000, or 9.9%, from $8.6 million in fiscal 2002 to $7.7 million in fiscal 2003. The decrease was due primarily to an overall reduction in turn-over of sales personnel in 2003 as compared to 2002.

      General and Administrative Expenses. General and administrative expenses include costs related to individual markets, as well as corporate expenses. Expenses related to individual markets include expenses for the personnel and facilities required to administer that market and neighboring markets. Corporate general and administrative expenses represent personnel and facilities costs for Obie’s executive offices and centralized staff functions, which include accounting, marketing, human resources and technology management.

      General and administrative expenses decreased $568,000, or 7.2%, from $7.9 million in fiscal 2002 to $7.3 million in fiscal 2003. The decrease was due primarily to a reduction in bad debt expenses in fiscal 2003 as compared to fiscal 2002.

      Depreciation and Amortization Expenses. Depreciation and amortization expenses decreased $429,000, or 19.7%, from $2.2 million in fiscal 2002 to $1.8 million in fiscal 2003. The decrease related primarily a reduction in amortization of goodwill of approximately $516,000 coupled with an increase in prepaid loan fee amortization of approximately $73,000 when comparing fiscal 2003 with 2002.

      Operating Income. Due to the events and factors discussed above, Obie experienced operating income of $693,000 in fiscal 2003, compared to operating income of $863,000 in fiscal 2002.

      Interest Expense. Interest expense increased $609,000, or 35.3%, from $1.7 million in fiscal 2002 to $2.3 million in fiscal 2003. Of the increase, approximately $385,000 related to the amortization of the discount on the Chicago Transit Authority settlement that applied for the full fiscal year in 2003 as opposed to one-half of fiscal 2002. The balance of the increase was related to interest costs on Obie’s term loan and working capital revolving line of credit arrangements with its primary lender.

      Obie will expense the remaining unamortized discount related to the Chicago Transit Authority in fiscal 2004, as that obligation was paid off in January 2004 from proceeds of Obie’s new financing arrangement. The amount of the write-off will be approximately $700,000. In addition, Obie will be writing off approximately $251,000 in prepaid loan fees related to the previous lending arrangements.

      Provision for Income Taxes. Obie accounted for all available loss carryback refunds in the fiscal 2001 provision for income taxes. Obie has substantial loss carryforwards, against which valuation allowances have been provided. Since the operating loss carryforwards expire at certain times, Obie has evaluated the likelihood of utilizing those carryforwards against future taxable income in that time frame and has established a valuation allowance accordingly. The other deferred tax asset items have no expiration date and are expected to be fully realized.

      The net loss before income taxes resulted in a tax benefit of $2.0 million for fiscal 2001, the year in which carryback refunds were applied ($1.1 million of the benefit was applied to discontinued operations).

42


Table of Contents

The difference between the statutory United States federal income tax rate and the beneficial tax rate for both fiscal 2002 and 2001 is due primarily to the deferred tax valuation reserve for the net operating loss carryforwards. The difference between the statutory United States federal income tax rate and Obie’s effective tax rate in fiscal 2003 is due to state taxes and foreign taxes related to its Canadian subsidiary, as well as the application of the valuation reserve to the net operating loss carryforwards.

      Income (Loss) from Continuing Operations. Due to the items and factors discussed above Obie experienced a loss from continuing operations of $2.1 million in fiscal 2003 as compared to a loss of $862,000 in fiscal 2002.

      Results of Discontinued Operations. Most transit arrangements include a provision that a certain percentage of net revenues be shared with the transit authorities (transit fees) on a revenue sharing basis (a certain percentage to the transit authority, the balance retained by Obie), but often with minimum payment requirements. Agreements that contain large minimum transit fee payment guarantees significantly hinder our ability to manage our operating expenses during weak economic periods. These high minimum payment requirements have prompted us to either negotiate modifications to those contracts, to negotiate or effect early terminations to such contracts, or to exit the market at the end of such contract terms.

      As discussed above, discontinued operations contain the operating results, net of income taxes, for transit markets from which we have exited. Discontinued operations for fiscal 2003 include costs relative to Chicago, Illinois; San Antonio, Texas; Bridgeport, Connecticut; and Santa Cruz, California as well as results of operations from the Pittsburgh, Pennsylvania market as described above. The discontinued operations for fiscal 2002 include the operations of San Antonio, Texas; Santa Cruz, California; Chicago, Illinois; Kitsap, Washington; Cincinnati, Ohio; and the Ontario, Canada markets described above.

      Net Loss. Obie realized a net loss of $2.9 million during fiscal 2003, compared to a net loss of $2.0 million in fiscal 2002. The difference in the losses for fiscal 2003 and fiscal 2002 have been noted above.

 
Comparison of Years ended November 30, 2002 and 2001

      Revenues. Obie’s revenues are derived from sales of advertising on out-of-home advertising displays, primarily on transit vehicles under transit district agreements and on outdoor advertising displays it owns or operates. Revenues are a function of both the occupancy of these display spaces and the rates Obie can charge. Obie focuses its sales efforts on maximizing occupancy levels while maintaining rate integrity in its markets. Net revenues for fiscal 2002 increased $1.4 million, or 3.2%, from $42.9 million in fiscal 2001 to $44.3 million. In fiscal 2002 the entire increase related to net transit revenues as outdoor net revenues were unchanged from fiscal 2001 to fiscal 2002.

      Production and Installation Expenses. These expenses relate primarily to the production of transit advertising content and the installation of the content on transit vehicles, benches, and shelters. Also included is the cost of billboard content and installation. Production and installation expenses increased $215,000, or 3.4%, from $6.3 million in fiscal 2001 to $6.5 million in fiscal 2002. The increase was primarily related to increased production volume in transit related production.

      Transit and Outdoor Occupancy Expenses. These expenses include fees paid to transit authorities and lease payments to landowners for billboard sites. Under Obie transit agreements, Obie typically guarantees to pay the transit district the greater of a minimum stated amount or a percentage of the advertising revenues generated by its use of the district’s vehicles. Occupancy expense for outdoor structures includes the cost of illuminating outdoor displays and property taxes on the outdoor advertising structures. Transit and outdoor occupancy expenses decreased $1.9 million, or 9.2%, from $20.2 million in fiscal 2001 to $18.3 million in fiscal 2002. The decrease is primarily a result of renegotiated transit fee arrangements mentioned above.

      Selling Expenses. Sales expenses consist primarily of employment and administrative expenses associated with Obie’s sales force. These expenses increased $352,000, or 4.3%, from $8.2 million in fiscal

43


Table of Contents

2001 to $8.6 million in fiscal 2002. The increase was due primarily to an enlarged sales force in Vancouver, British Columbia in 2002, as compared to 2001 when the transit district was on strike for five months and Obie operated with a reduced sales force.

      General and Administrative Expenses. General and administrative expenses include costs related to individual markets, as well as corporate expenses. Expenses related to individual markets include expenses for the personnel and facilities required to administer that market and neighboring markets. Corporate general and administrative expenses represent personnel and facilities costs for Obie’s executive offices and centralized staff functions, which include accounting, marketing, human resources and technology management.

      General and administrative expenses decreased $1.3 million, or 14.1%, from $9.2 million in fiscal 2001 to $7.9 million in fiscal 2002. The decrease was due primarily to a $1.1 million reduction in bad debt expense in fiscal 2002 as compared to fiscal 2001, and personnel reductions in marketing and the business office at the corporate headquarters of approximately $200,000 in 2002 when compared to fiscal 2001.

      Depreciation and Amortization Expenses. Depreciation and amortization expenses increased $104,000, or 5.0%, from $2.1 million in fiscal 2001 to $2.2 million in fiscal 2002, primarily due to capital expenditures for outdoor advertising displays as well as investment in digital production equipment as noted above.

      Operating Income. Due to the events and factors discussed above, Obie experienced operating income of $862,000 in fiscal 2002, compared to an operating loss of $3.0 million in fiscal 2001.

      Interest Expense. Interest expense increased $388,000, or 29.0%, from $1.3 million in fiscal 2001 to $1.7 million in fiscal 2002. The increase was due primarily to the amortization of the discount on the Chicago Transit Authority settlement.

      Provision for Income Taxes. Obie accounted for all available loss carryback refunds in the fiscal 2001 provision for income taxes. Obie has substantial loss carryforwards, against which valuation allowances have been provided. Since the operating loss carryforwards expire at certain times, Obie has evaluated the likeliness of utilizing those carryforwards against future taxable income in that time frame and has established a valuation allowance accordingly. The other deferred tax asset items have no expiration date and are expected to be fully realized.

      The net loss before income taxes resulted in a tax benefit of $2.0 million for fiscal 2001, the year in which carryback refunds were applied ($1.1 million of the benefit was applied to discontinued operations). The difference between the statutory United States federal income tax rate and the beneficial tax rate for both fiscal 2002 and 2001 is due primarily to the deferred tax valuation reserve for the net operating loss carryforwards.

      Income (loss) from Continuing Operations. Due to the items and factors discussed above, Obie experienced a loss of $862,000 in fiscal 2002 as compared to a loss of $3.4 million in fiscal 2001.

      Results of Discontinued Operations. Most transit arrangements include a provision that a certain percentage of net revenues be shared with the transit authorities (transit fees) on a revenue sharing basis (a certain percentage to the transit authority, the balance retained by Obie), but often with minimum payment requirements. Agreements that contain large minimum transit fee payment guarantees significantly hinder Obie’s ability to manage its operating expenses in weak economic environments. These high minimum payment requirements have prompted Obie to either negotiate modifications to those contracts, negotiate or effect early terminations to the contracts, or to exit the market at the end of the contract term.

      As discussed above, discontinued operations contain the operating results, net of income taxes, for transit markets from which we have exited. The discontinued operations for fiscal 2002 include the operations of Santa Cruz, California; San Antonio, Texas; Cincinnati, Ohio; Kitsap, Washington; Chicago, Illinois; and the Ontario, Canada markets described above. Discontinued operations for fiscal 2001 also included the results of the settlement related to the Chicago, Illinois market. The results of the Chicago

44


Table of Contents

operation and settlement included in fiscal 2001 is the primary reason for the $2.7 million reduction in the loss from discontinued operations from fiscal 2001 to fiscal 2002.

      Net Loss. Obie realized a net loss of $2.0 million during fiscal 2002, compared to a net loss of $7.2 million in fiscal 2001. The difference in the losses for fiscal 2002 and fiscal 2001 were primarily due to the decrease in the loss from discontinued operations in fiscal 2002 when compared to fiscal 2001, and the absence of an income tax benefit for the operating loss in fiscal 2002.

Seasonality

      Obie’s revenues and operating results historically have fluctuated by season, generally following the advertising trends in its major transit markets. Typically, results of operations are strongest in the fourth quarter and weakest in the first quarter of our fiscal year, which ends on November 30. Transit advertising operations are more seasonal than outdoor advertising operations as Obie’s outdoor advertising display space, unlike its transit advertising display space, is and has been sold largely by means of 12-month contracts. Obie believes that the seasonality of revenues and operating results will increase if transit advertising operations continue to expand more rapidly than outdoor advertising operations. This seasonality, together with fluctuations in general and regional economic conditions and the timing and expenses related to acquisitions, the obtaining of new transit agreements and other actions that have been taken to implement Obie’s growth strategy, have contributed to fluctuations in periodic operating results. These fluctuations likely will continue. Accordingly, results of operations in any period may not be indicative of the results to be expected for any future period.

Liquidity and Capital Resources

      On January 14, 2004, Obie entered into a new long-term financing arrangement with CapitalSource Finance, LLC. The arrangements include a $17.5 million term loan and a $6.0 million revolving line of credit. Both obligations mature on November 30, 2008. In addition, there is a $2.5 million term loan to Obie Media Ltd., which matures on January 31, 2009.

      The interest rates are prime plus 4.5% on the revolving line of credit and prime plus 5.5% on the term loans. These margins may be reduced by up to 1.0%, depending on Obie’s leverage ratio. The effective rates on the revolving line of credit and term loans at August 31, 2004 were 9.0% and 10.0%, respectively. The first date on which the margin may be adjusted is the quarter ending November 30, 2004.

      Funds from the term loans were used to (1) pay off the existing term loan with the previous lender, (2) pay off the balance of the settlement obligation with the Chicago Transit Authority, and (3) pay off the promissory note related to the purchase of the minority interest of O. B. Walls, Inc. Funds from use of the revolving line of credit were used to pay off the existing revolver with the previous lender and to fund closing costs and working capital needs. Approximately $1.1 million of future borrowings is available under the revolving line of credit.

      This new financing arrangement with CapitalSource Finance, LLC allowed Obie to consolidate debt obligations, make use of additional revolver availability, and restructure principal payment obligations to better fit its growth and cash flow needs. The term loan principal payment amounts are $1.0 million in fiscal 2004, $1.0 million in fiscal 2005, $2.0 million in fiscal 2006, $3.0 million in fiscal 2007, $11.1 million in fiscal 2008, with the balance due at maturity. The revolving line of credit balance is due in full at maturity.

      The loan agreement with CapitalSource Finance, LLC contains financial covenants regarding (1) minimum rolling EBITDA, (2) maximum leverage ratios, (3) fixed-charge coverage ratios, and (4) interest coverage ratios, all of which are measured on a quarterly basis. Obie was in compliance with all covenants as of August 31, 2004. The loan agreement also restricts Obie’s ability to pay dividends. The loans are collateralized by substantially all of Obie’s assets.

45


Table of Contents

      Obie has historically satisfied its working capital requirements with cash from operations and revolving credit borrowings. Obie’s working capital was $4.4 million at August 31, 2004 as compared to $4.9 million at November 30, 2003.

      Acquisitions and capital expenditures, primarily for the construction of new outdoor advertising displays, digital printing equipment and technology related assets have been financed primarily with borrowed funds. At August 31, 2004, Obie had outstanding borrowings of $24.5 million, of which $24.2 million was pursuant to credit agreements with CapitalSource Finance, LLC, and $300,000 in other notes. Obie’s indebtedness is collateralized by substantially all of its assets.

      Obie’s net cash provided from operating activities was $419,000 during the nine months ended August 31, 2004, as compared to $168,000 for the same period in fiscal 2003. The difference was primarily due to (1) a decrease in year to date net loss ($769,000), (2) a smaller decrease in fiscal 2004 when compared to fiscal 2003 in accounts receivable ($1.7 million), and (3) the effect, in fiscal 2004, of the loss on debt extinguishment ($961,000).

      Net cash used in investing activities was $1.2 million and $414,000 during the nine month periods ended August 31, 2004 and 2003, respectively. The amounts used in both years related to equipment purchases, primarily automobiles and computing equipment; the primary difference in the nine months ended August 31, 2004 is due to billboard construction and upgrades.

      Net cash used in financing activities was $326,000 for the nine month period ended August 31, 2004, as compared to $578,000 in the same period of fiscal 2003. The difference between the two periods is related to the effects of the new financing arrangements that were consummated in the first quarter of fiscal 2004.

      Obie expects to pursue a policy of measured growth through obtaining favorable new transit district agreements, acquiring out-of-home advertising companies or assets and constructing new outdoor advertising displays. Obie intends to finance future expansion activities using a combination of internal and external sources. Obie believes internally generated funds and funds available for borrowing under lender credit facilities will be sufficient to satisfy all debt service obligations and to finance existing operations, including anticipated capital expenditures, but excluding possible acquisitions, through fiscal 2004. Obie’s future acquisitions may require additional debt or equity financing.

      If operations are not consistent with management’s plans due to risks and uncertainties, including failure to conclude favorable negotiations on pending transactions with existing transit agency partners, or to successfully assimilate expanded operations, inability to generate sufficient advertising revenues to meet contractual guarantees, potential for cancellation or interruptions of contracts with governmental agencies, a further decline in the demand for advertising in the markets in which Obie conducts business, slower than expected acceptance of Obie’s display products, there can be no assurance that the amounts from these financial resources will be sufficient for such purposes. In any of the above events or for other reasons, Obie may be required to seek alternative financing arrangements. There is no assurance that such sources of financing will be available, if required, or if available, within terms acceptable to Obie.

Long-Term Financial Obligations and Other Commercial Commitments

      Obie’s significant long-term contractual obligations as of November 30, 2003 are as follows:

                                                         
Cash payments during the fiscal years ended November 30

Description of Commitment 2004 2005 2006 2007 2008 Thereafter Total








(In thousands)
Transit guaranteed minimum payments
  $ 15,216     $ 12,982     $ 3,737     $ 628     $ 721     $     $ 33,284  
Building and land leases
    2,434       1,874       1,334       695       428       1,011       7,776  
CapitalSource Finance, LLC term debt
    1,000       1,000       2,000       3,000       11,100       1,900       20,000  
     
     
     
     
     
     
     
 
Total
  $ 18,650     $ 15,856     $ 7,071     $ 4,323     $ 12,249     $ 2,911     $ 61,060  
     
     
     
     
     
     
     
 

46


Table of Contents

Other Commitments

      As of November 30, 2003, Obie had outstanding performance bonds of approximately $7.2 million and letters of credit of approximately $200,000 provided to certain transit agencies in support of guaranteed payments.

Market Risk

      Because Obie’s debt bears interest at variable rates, Obie may be exposed to future interest rate changes on its debt. Management does not believe that a hypothetical 10 percent change in end of period interest rates would have a material effect on Obie’s cash flow.

      The Effect of New Accounting Pronouncements.

      On June 30, 2001, the FASB issued Statement of Financial Accounting Standards No. 142 (SFAS No. 142), “Goodwill and Other Intangible Assets,” which eliminates the amortization of goodwill and other acquired intangible assets with indefinite economic useful lives. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Obie adopted SFAS No. 142 effective December 1, 2002.

      As of November 30, 2003, Obie had net unamortized goodwill in the amount of $5.4 million. SFAS No. 142 requires that goodwill be tested annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. The second step of the goodwill impairment test measures the amount of impairment loss (measured as of the beginning of the year of adoption), if any, and must be completed by the end of Obie’s fiscal year, which as been done. Obie has determined that there has been no impairment to goodwill during fiscal 2003. As a result of adopting SFAS No. 142 Obie no longer will amortize goodwill.

      On October 3, 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (SFAS No. 144), “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS No. 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30, “Reporting Results of Operations — Reporting the Effects of Disposal of a Segment of a Business.” SFAS No. 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less the cost to sell. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, however, earlier adoption is permitted. Obie early adopted the provisions of SFAS No. 144 in fiscal 2002 and has recorded the results of operations from transit markets that it has exited as discontinued operations.

      On June 28, 2002, the FASB adopted Statement of Financial Accounting Standards No. 146 (SFAS No. 146), “Accounting for Exit or Disposal Activities,” effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force (“EITF”) has set forth in EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” Obie early adopted the provisions of SFAS No. 146 in fiscal 2002 and has recorded exit costs relating to contract terminations resulting from its exit of certain transit markets in accordance with the provisions of SFAS No. 146. These costs have been recorded as a component of discontinued operations in accordance with SFAS No. 144.

      In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, (SFAS No. 148), “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FAS 123.” SFAS No. 148 amends Statement of Financial Accounting Standards No. 123, (“SFAS No. 123”) “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee

47


Table of Contents

compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Finally, SFAS No. 148 amends APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure about those effects in interim financial information. The amendments to the transition and disclosure provisions is effective for fiscal years ending after December 15, 2002. The amendment to Opinion 28 is effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. Obie adopted the disclosure provisions of SFAS No. 148 during the second quarter of fiscal 2003.

      In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45, which elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002; while the provisions of the disclosure requirements are effective for the financial statements of interim or annual reports ending after December 15, 2002. Obie has adopted the disclosure requirements of FIN 45. The adoption of the disclosure requirements of FIN 45 did not have a material effect on Obie’s financial position or results of operations.

      In May 2003, the Emerging Issues Task Force issued EITF 00-21 (“EITF 00-21”), “Accounting for Revenue Arrangements with Multiple Deliverables.” EITF 00-21 addresses the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. The EITF applies to all contractual arrangements under which a vendor will perform multiple revenue-generating activities. A delivered item should be considered a separate unit of accounting if the delivered item has stand-alone value to the customer, if the fair value of the undelivered item can be determined reliably, and, in the case of a general or specific refund right, if the delivery of the undelivered item is probable and substantially controlled by the vendor. EITF 00-21 provides that either the relative-fair value method or the residual method be used to allocate the consideration into separate units of accounting if there is objective and reliable evidence of fair value of both items or the undelivered item. EITF 00-21 is applicable to all revenue arrangements entered into in fiscal periods beginning after June 15, 2003, however early adoption is permitted. EITF 00-21 did not have an impact on Obie’s operations in fiscal year 2003.

48


Table of Contents

BACKGROUND AND REASONS FOR THE MERGER

Background

      The senior managements, boards of directors, and financial and legal advisors of Lamar and Obie negotiated the terms and conditions of the merger agreement. In determining the form of the transaction and the form and amount of the consideration, the respective senior managements, boards of directors, and financial and legal advisors of Lamar and Obie reviewed numerous factors. The following is a brief discussion of the contacts and negotiations that occurred between Lamar and Obie.

      Following Obie’s successful refinancing of its debt facilities at the end of 2003, the Obie board of directors began a process of evaluating alternatives to support Obie’s growth, and whether it was in the best interests of Obie and its shareholders to continue to keep Obie as an independent entity, to combine operations in the form of an acquisition, merger, joint venture, or otherwise, or to pursue other strategic opportunities, including additional financing. A central issue in these discussions was whether Obie’s existing and anticipated financial resources would be sufficient to enable Obie to maintain and grow its transit business, which depends on Obie’s ability to meet the bonding requirements of transit authorities. The Obie board of directors met with management and Obie’s legal and financial advisors to assist with this evaluation process.

      In June, 2004, Obie was approached by Dennis Brush, an advertising consultant, who had assisted in the placement of Obie’s new debt facilities, regarding the possibility of a combination with a financial buyer. After a series of discussions that occurred between June 4 and June 18, 2004, the parties decided that such a combination did not make sense at that time and Obie returned to pursuing financing alternatives as an independent entity.

      At the beginning of July 2004, Mr. Brush contacted Obie about the possibility of a transaction with a strategic buyer, possibly Lamar. On July 2, 2004, Mr. Brush contacted Sean Reilly, Lamar’s Chief Operating Officer, to inquire as to whether Lamar might be interested in discussing a potential transaction with Obie. Mr. Reilly indicated that Lamar would be interested in considering such a combination and signed a confidentiality agreement on behalf of Lamar. Following the execution of the confidentiality agreement, the parties began discussing the terms of a potential merger between Lamar and Obie.

      On July 7, 2004, Mr. Brush sent Mr. Reilly an information package about Obie. Mr. Reilly responded by asking follow-up questions regarding Obie’s business and financial condition, as well as general due diligence matters. Shortly after July 7, 2004, Mr. Reilly and Mr. Brush discussed preliminary price terms, focusing on a price of $7.00 per share.

      On August 17, 2004, Mr. Brush provided Obie with a draft term sheet from Lamar, which provided for a per share valuation of $7.00, or $43,026,784 in the aggregate, and set forth certain closing conditions, including a positive working capital balance of $5.0 million at the end of Obie’s 2004 fiscal year and net long term debt not to exceed $18.3 million.

      On August 17, 2004, Mr. Obie responded through Mr. Brush and indicated that Obie was interested in the potential transaction, but was not prepared to enter into a binding letter of intent. No term sheet or letter of intent was agreed to or executed by the parties.

      On August 26, 2004, the proposed transactions was discussed at a regularly scheduled meeting of Lamar’s board of directors.

      On August 27, 2004, Obie’s board of directors met to discuss the potential transaction and authorized Mr. Obie to negotiate the terms of a merger agreement, subject to approval of its execution by the Obie board of directors at a later date.

      On September 2, 2004, Jones, Walker, Waechter, Poitevent, Carrère & Denègre, LLP, counsel to Lamar, sent a due diligence request list to Mr. Brush.

49


Table of Contents

      In late August and early September 2004, representatives of Lamar conducted a due diligence investigation of Obie in connection with the potential merger, and the parties continued to negotiate the terms of the merger agreement. During this period, Obie’s officers sought and obtained proposals from three independent financial advisors to advise its board of directors and render an opinion as to the fairness of the merger consideration to Obie shareholders.

      On September 8, 2004, Jones Walker sent an initial draft of the merger agreement to Obie, Lamar and Lamar’s securities counsel, Palmer & Dodge LLP.

      On September 14, 2004, Jones Walker sent revised versions of the merger agreement to Lamar, Obie, Davis Wright Tremaine LLP, Obie’s counsel, and Palmer & Dodge.

      On September 15, 2004, Obie’s board of directors met to consider the draft merger agreement and approved the merger. Obie’s board of directors authorized Mr. Obie and Mr. Livesay to continue negotiation of certain unresolved issues, and, upon resolution to their satisfaction, to execute a final merger agreement in substantially the form of the draft merger agreement reviewed by the board of directors. The Obie board of directors also authorized the officers to enter into an agreement with D.A. Davidson & Co. as financial advisor to the board of directors, and a draft of the engagement letter between Obie and D.A. Davidson was circulated.

      On September 15-17, 2004, Jones Walker continued to send revised versions of the merger agreement to Lamar, Obie, Davis Wright, and Palmer & Dodge. During this period, drafts of a press release and Obie Form 8-K were distributed.

      On September 17, 2004, an execution copy of the merger agreement was circulated and Lamar’s board of directors acted by written consent to approve the merger and the merger agreement. On the same day, a definitive merger agreement was signed by Obie, Lamar and OMC Acquisition Corporation after the close of the market, and Obie’s board of directors acted by unanimous consent to confirm various aspects of the transaction, as contemplated by the merger agreement.

      On September 20, 2004, the merger was publicly announced prior to the opening of the securities trading markets.

      On October 1, 2004, D.A. Davidson presented its findings and delivered the fairness opinion at a meeting of Obie’s board of directors. The Obie board of directors unanimously approved the merger at that meeting, recommended that the shareholders vote in favor of the merger, and authorized the officers of Obie to prepare and file this proxy statement/ prospectus.

      The directors and officers of Obie have interests in the merger different from the interests of other Obie shareholders. See “— Potential Conflicts of Interest of Obie Management in the Merger.”

Lamar’s Reasons for the Merger

      In determining whether to approve the merger, Lamar’s board of directors considered a variety of factors, including the degree to which Obie’s billboard business complements Lamar’s billboard business, both in terms of the quality of assets and their location in the Pacific Northwest, and the strengths of Obie’s transit business, including: the number of larger markets, served by Obie, its established management structure for serving those markets, and Obie’s significant in house production capabilities. Lamar’s board of directors also considered Lamar’s experience integrating past acquisitions and the anticipated process of integrating Obie into Lamar.

Obie’s Reasons for the Merger

      The following discussion of Obie’s reasons for the merger contains a number of forward-looking statements that reflect the current views of Obie with respect to future events that may have an effect on its future financial performance. These forward-looking statements include statements regarding Obie’s consideration of the markets for Lamar’s, Obie’s, and the combined company’s services, their planned response to the demands of their markets, their business strategies, and certain potential technological and

50


Table of Contents

operating synergies intended to be achieved by the merger. These forward-looking statements are subject to various risks and uncertainties that could cause actual results of Lamar, Obie, and the combined company to differ materially from those currently anticipated, including the ability of Lamar and Obie to integrate their operations successfully and achieve expected synergies; the ability to retain key employees following completion of the merger; changes in business conditions and growth trends affecting Lamar’s and Obie’s markets; the outdoor advertising industry, and the economy in general; and a variety of other competitive factors. These and other factors that could cause actual results to differ materially are described under “Risk Factors” and elsewhere in this proxy statement/ prospectus.

      The Obie board of directors believes that the terms of the merger are advisable, and fair to, and in the best interests of Obie and its shareholders, has approved the proposed merger and the merger agreement, and unanimously recommends that Obie shareholders vote “FOR” for the proposal to approve the merger and vote “FOR” the proposal to adjourn the Obie special meeting, if necessary, for the purpose of soliciting additional proxies. In reaching its decision, the Obie board of directors considered, with the assistance of management and its legal and financial advisors, the following factors:

  •  the merger consideration exceeds the value that could be attained in the foreseeable future if Obie continues as an independent entity;
 
  •  the combined company is expected to compete more effectively in the outdoor advertising market;
 
  •  the combined company will have greater depth of skilled personnel, and expanded sales, art, and production services;
 
  •  the combined company will have greater access to each of Lamar’s and Obie’s client base and partners;
 
  •  the combined company will have a larger customer base, a higher market profile and greater financial strength, which will present greater opportunities for marketing the products and services of the combined company;
 
  •  Obie shareholders will have the opportunity to participate in the potential for growth of Lamar’s business after the merger; and
 
  •  the combined company will have an opportunity to expand its offering of products and services in the outdoor advertising market.

      The Obie board of directors also considered a number of risks associated with the merger, including:

  •  failure to conclude the merger could result in a significant “break-up” fee as well as a distraction from management’s focus on the goals and objectives of Obie as an independent company;
 
  •  failure to conclude the merger could result in the continued insufficient bonding capacity for Obie, thereby limiting its ability to maintain and expand transit district agreements;
 
  •  officers and directors of Obie have conflicts of interest that may have influenced their decision regarding the merger, including indemnification rights, a consulting agreement, a real estate lease, and leases for billboard sites;
 
  •  Obie shareholders may suffer adverse tax consequences if the merger fails to qualify as a “reorganization” for U.S. federal income tax purposes;
 
  •  if the average Lamar stock price prior to closing does not reach certain levels, Lamar may elect to pay a portion of the merger consideration in cash, which may result in accelerated and greater tax liability for Obie shareholders;
 
  •  former Obie shareholders may be unable to sell their shares of Lamar stock immediately upon closing of the merger, and affiliates of Obie prior to the merger will face restrictions on sale of such shares for 24 months, during which time such former Obie affiliates are at risk of losing the value of their investment if the price of Lamar stock falls;

51


Table of Contents

  •  Lamar faces different market risks than those faced by Obie, such as those set forth in “Risk Factors — Risks Related to Lamar,” beginning on page 17, and these risks may cause the value of shares of Lamar stock issued in the merger to decline;
 
  •  former Obie shareholders will have limited ability to influence Lamar’s actions and decisions following the merger;
 
  •  Lamar may be unable to integrate Obie’s operations successfully and retain key Obie employees;
 
  •  Lamar may be unable to realize the expected cost savings and other synergies from the merger;
 
  •  charges to earnings resulting from the application of the purchase method of accounting may adversely affect the market value of Lamar stock following the merger; and
 
  •  all of Lamar’s debt obligations and preferred stock will have priority over the Lamar stock received in the merger with respect to payment in the event of a liquidation, dissolution, or winding up of Lamar.

      In its final analysis, however, the Obie board of directors determined that the benefits of the merger outweigh the potential risks and approved the merger.

      The foregoing discussion of information and factors considered by the Obie board is not intended to be exhaustive but is intended to include the material factors considered. In view of the wide variety of factors considered, the Obie board of directors did not find it practical to, and did not, quantify or otherwise assign relative weight to the specific factors considered. Individual directors may have given different weights to different factors.

Fairness Opinion of Obie’s Financial Advisor

      D.A. Davidson & Co. (“Davidson”) has acted as financial advisor to Obie’s board of directors in rendering a fairness opinion in connection with the merger. The Obie board of directors selected Davidson based on Davidson’s experience, expertise, and familiarity with Obie. Davidson, as part of its investment banking business, is engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bidding transactions, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes.

      In connection with Davidson’s engagement, Obie’s board of directors requested that Davidson advise it with respect to the fairness to the Obie shareholders from a financial point of view of the consideration to be delivered to the Obie shareholders pursuant to the merger agreement (the “merger consideration”). At the October 1, 2004 meeting of the Obie board of directors, Davidson rendered its oral opinion, which was subsequently confirmed in writing, to the effect that, as of that date and based on and subject to the assumptions, limitations, and qualifications described therein and described herein, the merger consideration was fair to the holders of the Obie common stock from a financial point of view.

      Although Davidson evaluated the fairness, from a financial point of view, of the merger consideration, Obie and Lamar determined the merger consideration itself through arm’s-length negotiations. Obie did not provide specific instructions to Davidson, or place any limitation on Davidson with respect to the procedures to be followed or factors to be considered by Davidson in performing its analyses or providing its opinion. In arriving at its opinion, Davidson was not authorized to solicit, and did not solicit, indications of interest from any potential buyers of part or all of Obie’s assets or business.

      Davidson’s opinion is addressed to the Obie board of directors and relates only to the fairness of the merger consideration from a financial point of view. The opinion does not address any other aspect of the proposed merger or any related transaction and does not constitute a recommendation to any shareholder as to any matter relating to the merger. The full text of the written opinion of Davidson, which sets forth the assumptions made, procedures followed, matters considered, and limitations on the review undertaken in connection with the opinion, is included as Annex B to this proxy statement/ prospectus. The summary

52


Table of Contents

of Davidson’s opinion set forth in this proxy statement/ prospectus is qualified in its entirety by reference to the full text of the opinion. You are urged to read the opinion carefully and in its entirety.

      In arriving at its opinion, Davidson reviewed:

  1.  the merger agreement dated September 17, 2004, and exhibits thereto;
 
  2.  certain financial statements and other historical financial and business information about Obie and Lamar made available to Davidson from published sources and/or from the internal records of Obie and Lamar;
 
  3.  certain internal financial analyses and forecasts of Obie prepared by and/or reviewed with management of Obie regarding its business, financial condition, results of operations and prospects;
 
  4.  the publicly reported historical prices and trading activity for Obie’s and Lamar’s common stock, including a comparison of certain financial and stock market information for Obie and Lamar with similar publicly available information for certain other companies the securities of which are publicly traded;
 
  5.  the financial terms of certain other similar transactions recently effected, to the extent publicly available;
 
  6.  the current market environment generally and the environment for the advertising market in particular;
 
  7.  the pro forma financial impact of the merger; and
 
  8.  such other information, financial studies, analyses and investigations and financial, economic and market criteria as Davidson considered relevant.

      In addition, Davidson had discussions with the management and other representatives and advisors of Obie concerning the business, financial condition, results of operations and prospects of Obie and Lamar.

      In arriving at its opinion, Davidson assumed and relied upon the accuracy and completeness of all information supplied or otherwise made available to it, discussed with or reviewed by or for it, or publicly available, and it did not assume responsibility for independently verifying such information or undertaking an independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of Obie or Lamar, nor was Davidson furnished with any such evaluation or appraisal. In addition, Davidson did not conduct any physical inspection of the properties or facilities of Obie or Lamar.

      With respect to financial projections, Davidson assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of management of Obie as to the future financial performance of Obie and, for purposes of its opinion, Davidson assumed that the results contemplated in the projections will be realized. For purposes of its discounted cash flow analysis, Davidson also considered certain somewhat more conservative assumptions and estimates which resulted in an alternative set of cash flow projections.

      Davidson assumed in all respects material to its analysis that all of the representations and warranties contained in the merger agreement and all related agreements are true and correct, that each party to such agreements will perform all of the covenants required to be performed by such party under such agreements, and that the conditions precedent in the merger agreement are not waived. In addition, Davidson assumed that in the course of obtaining necessary regulatory or other consents or approvals (contractual or otherwise) for the merger, no restrictions, including any divestiture requirements or amendment or modifications, will be imposed that will have a material adverse effect on the contemplated benefits of the merger. Davidson expresses no view as to, and its opinion does not address, the relative merits of the merger as compared to any alternative business strategies that might exist for Obie or the effect of any other transaction in which Obie might engage. Davidson’s opinion is necessarily based upon information available to it and economic, market, financial, and other conditions as they exist and can be evaluated on the date of its opinion.

53


Table of Contents

      Davidson’s opinion is based on a variety of financial and comparative analyses, as described in the sub-sections below. The information provided in these sections is not a complete description of the analyses that Davidson used in reaching its opinion, but rather a summary of such analyses. Certain of the analyses include information presented in tabular format. In order to fully understand the financial analyses used by Davidson, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.

 
Summary of Financial Analyses

      Davidson performed the following analyses to determine the fairness of the merger consideration, from a financial point of view, to Obie shareholders:

        1. premiums paid analysis;
 
        2. comparable public company analysis;
 
        3. precedent transaction analysis;
 
        4. discounted cash flow analysis; and
 
        5. other analyses.

      Where applicable, Davidson separated Obie’s financial results/projections into two segments, billboard and transit, in order to value each segment separately and obtain a better sense of Obie’s overall business value.

 
Premiums Paid Analysis

      Davidson conducted an analysis of the implied premium to be paid to Obie’s shareholders based on the closing price of Obie’s common stock on the Nasdaq Small Cap Market one day prior to the announcement date of September 20, 2004 and compared this implied premium to ranges of premiums based on various studies, including:

        1. the average implied premium paid in publicly reported transactions in all industry sectors over the last twelve months ended August 31, 2004, one day prior to announcement;
 
        2. the average implied premium paid in a sample of selected publicly reported transactions in the outdoor advertising industry, one day prior to announcement; and
 
        3. the average implied premium paid in publicly reported transactions in all industry sectors over the period April 1, 1998 through August 31, 2004, one day prior to announcement.

      Davidson applied the range of implied premiums to the appropriate Obie stock price prior to announcement in order to arrive at a range of equity values per share. The analysis resulted in a range of equity value per share of $5.76 to $6.98, summarized in the table below:

                                         
Obie Stock Premium Equity Value
Premium Paid Study Price Range Per Share




Premium Paid to 1 Day Prior Stock Price — All Transactions (Last Twelve Months)
  $ 4.79       25%       31%     $ 6.00     $ 6.27  
Premium Paid to 1-Day Prior Stock Price —
Industry Only
  $ 4.79       20%       25%     $ 5.76     $ 5.97  
Premium Paid to 1-Day Prior Stock Price —
All Transactions (April 1, 1998 through August 31, 2004)
  $ 4.79       37%       46%     $ 6.58     $ 6.98  
 
Comparable Public Company Analysis

      Davidson compared certain financial, operating, and stock market data for companies that are comparable to or similar to Obie. Davidson compared data from Obie’s billboard business to Clear

54


Table of Contents

Channel Communications Inc., Lamar Advertising Company, and Viacom Inc. For Obie’s transit business, Davidson was not able to identify any comparable publicly traded companies. However, Davidson identified three publicly traded companies with similar characteristics to Obie’s transit business to use as reference companies.

      Financial information and valuation measurements reviewed by Davidson included, among other things:

  •  common equity market valuation as September 24, 2004 for billboard comparables and as of September 27, 2004 for transit reference companies;
 
  •  operating performance;
 
  •  ratios of Enterprise Value (defined as common equity market value plus debt minus cash) to last twelve months (“LTM”) earnings before interest and taxes (“EBIT”), to estimated 2004 EBIT and to estimated 2005 EBIT;
 
  •  ratios of Enterprise Value to LTM earnings before interest expense, income taxes, and depreciation and amortization (“EBITDA”), to estimated 2004 EBITDA and to estimated 2005 EBITDA; and
 
  •  ratios of Equity Value to LTM free cash flow (“FCF”) (defined as net income plus depreciation and amortization), to estimated 2004 FCF and to estimated 2005 FCF.

      To estimate the trading multiples for the selected comparable/reference groups of companies, Davidson used publicly available information concerning projected financial performance for the years 2004 and 2005 from third party equity research analysts.

      The results of the comparisons were as follows:

                                                                         
Enterprise Value/ Enterprise Value/
Equity/FCF EBIT EBITDA



Billboard Segment Comparable Companies LTM CY’04 CY’05 LTM CY’04 CY’05 LTM CY’04 CY’05










Clear Channel Communications Inc. 
    10.3x       12.9x       12.2x       15.5x       14.5x       12.3x       11.0x       10.6x       9.8x  
Lamar Advertising, Co. 
    15.5x       14.3x       13.0x       70.3x       52.6x       38.0x       16.1x       15.2x       13.9x  
Viacom Inc. 
    20.9x       14.6x       14.4x       12.6x       12.1x       11.0x       10.6x       10.2x       9.6x  
                                                                         
Enterprise Value/ Enterprise Value/
Equity/FCF EBIT EBITDA



Transit Segment Reference Companies LTM CY’04 CY’05 LTM CY’04 CY’05 LTM CY’04 CY’05










Aramark Corp. 
    7.6x       7.8x       7.2x       10.6x       11.4x       10.3x       7.1x       7.3x       6.7x  
Central Parking Corp. 
    10.7x       10.3x       8.5x       19.1x       15.2x       11.6x       10.6x       NM       NM  
Standard Parking Corp. 
    15.4x       8.5x       7.8x       12.5x       10.8x       10.0x       9.3x       8.4x       8.0x  

      Applying multiples derived from its analysis of the comparable/reference companies to Obie’s billboard and transit financial metrics and then combining the two, Davidson calculated an overall range of implied equity value per share of Obie of $2.07 to $9.45.

      However, because of the inherent differences in the businesses, operations, financial conditions, risks, and prospects of Obie and the comparable/ reference companies, Davidson believed that it was inappropriate to, and, therefore, did not, rely solely on the quantitative results of the comparable public company analysis. Instead, Davidson also made qualitative judgments concerning these differences, including, without limitation, the fact that Obie is substantially smaller than these companies in size and markets served.

 
Precedent Transactions Analysis

      Davidson reviewed and analyzed the publicly available financial terms of selected merger and acquisition transactions that took place over the last several years, which Davidson believed to be comparable to the merger. Davidson separated the selected relevant transactions into two categories in

55


Table of Contents

order to value Obie’s two business segments separately. These categories were billboard (13 transactions) and transit (1 transaction). Transactions reviewed included the following:
       
Acquiror Target


Billboards
   
 
Clear Channel Communications
  Ackerly Group Inc.
 
Lamar Advertising
  Bowlin Outdoor Advertising and Travel Centers
 
Lamar Advertising
  Macon, GA Properties
 
Lamar Advertising
  Advantage Outdoor
 
Sportsworld Media Group
  Sports & Outdoor Media International
 
Infinity Broadcasting, Inc.
  Giraudy Outdoor Advertising
 
Clear Channel Communications
  Ackerly Florida Outdoor
 
Lamar Advertising
  Chancellor Media Outdoor Corporation
 
Lamar Advertising
  Vivid, Inc.
 
Infinity Broadcasting, Inc. 
  Infinity Outdoor, Inc.
 
Lamar Advertising
  Frank Hardie, Inc.
 
Lamar Advertising
  KJS LLC.
 
Lamar Advertising
  American Displays, Inc.
Transit
   
 
Infinity Broadcasting, Inc. 
  TDI Worldwide Inc.

      For the selected transactions, Davidson determined multiples of Enterprise Value to EBITDA and Equity Value to FCF based on publicly available LTM financial data for the target companies. The following table displays the average transaction multiples calculated by Davidson:

                 
Enterprise
Price/FCF Value/EBITDA


Billboard Transactions
    27.8x       18.1x  
Transit Transaction
    12.1x       7.9x  

      Applying multiples derived from its analysis of the selected transactions to Obie’s LTM, EBITDA, and FCF and 2004 estimated EBITDA and FCF for both the billboard and transit financial metrics and then combining the separate equity value per share ranges, Davidson calculated an overall range of implied equity value per share of Obie of $3.43 to $7.92.

      However, because of the inherent differences in the businesses, operations, financial conditions, risks, and prospects of Obie and the companies involved in the selected transactions, Davidson believed that it was inappropriate to, and, therefore, did not, rely solely on the quantitative results of the precedent transaction analysis. Instead, Davidson also made qualitative judgments concerning these differences, including, without limitation, the fact that the selected transactions took place several years prior to the merger.

 
Discounted Cash Flow Analysis

      Davidson performed a discounted cash flow analysis of Obie based upon (1) a financial forecast for years ended November 30, 2004 through November 30, 2009 based on management estimates; and (2) a financial forecast for years ended November 30, 2004 through November 30, 2009 based on an assumption of more moderate growth. Based on these projections, Davidson calculated Obie’s unleveraged free cash flow, defined as EBITDA less taxes less capital expenditures less the change in working capital, under both scenarios and the respective projected terminal values at November 30, 2009. Davidson calculated the projected terminal values based upon a blended (billboard/ transit) Enterprise Value/ EBITDA multiple range applied to projected EBITDA in 2009 under both scenarios. Davidson’s determination of the appropriate range of terminal multiples was based on a blended calculation utilizing multiples from

56


Table of Contents

comparable public companies and transactions for both the billboard and transit segments. The cash flow streams and terminal values were discounted to present values using a range of discount rates from 13.0% to 15.0%, which were calculated based on several assumptions regarding factors such as interest rates, the inherent market risk, and company specific risk.

      This analysis resulted in the following ranges of equity value per share: $5.91 to $8.98, based on management projections, and $5.46 to $8.07, based on the projections showing more moderate growth.

 
Other Analyses

      Davidson also reviewed and analyzed:

  •  stock price performance for Obie and Lamar over the last three years and the last twelve months and compared the performance of the two stocks to each other and the S&P 500 market index;
 
  •  average daily trading volumes for Obie and Lamar over the last three months, last twelve months, and last three years; and
 
  •  selected research analysts’ reports for Lamar.

      The foregoing summary describes analyses and factors that Davidson deemed material in its presentation to the Obie board of directors, but is not a comprehensive description of all analyses performed and factors considered by Davidson in connection with preparing its opinion. Preparation of a fairness opinion involves various determinations and judgments as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. In arriving at its opinion, Davidson did not attribute any particular weight to any analysis or factor considered by it, but, rather, made qualitative judgments as to the significance and relevance of each analysis and factor. As such, Davidson believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors without considering all analyses and factors could create a misleading or incomplete view of the processes underlying its opinion.

      In its analyses, Davidson made numerous assumptions with respect to industry performance, general business and economic conditions, and other matters, many of which are beyond the control of Obie and Lamar. No company, transaction or business used in Davidson’s analyses as a comparison is identical to Obie or Lamar or the proposed merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the merger, public trading, or other values of the companies, business segments or transactions being analyzed.

      The estimates contained in Davidson’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, Davidson’s analyses and estimates are inherently subject to substantial uncertainty.

      Davidson’s opinion to the Obie board of directors was one of a number of factors taken into consideration by the Obie board of directors in making its determination to recommend that the Obie shareholders approve the merger. Consequently, Davidson’s analyses described above should not be viewed as determinative of the opinion of the Obie board of directors or management with respect to the value of Obie. The merger consideration was determined through negotiations between representatives of Obie and was approved by the entire board.

      Obie has agreed to pay Davidson for its financial advisory services fees that are customary for transactions of this nature, a substantial portion of which are contingent on consummation of the merger. In addition, Obie has agreed to reimburse Davidson for reasonable out-of-pocket expenses incurred in connection with the merger and to indemnify Davidson for certain liabilities that may arise out of its engagements by Obie and the rendering of this opinion.

57


Table of Contents

      Davidson is acting as financial advisor to Obie’s board of directors in rendering a fairness opinion in connection with the merger. Davidson has not performed other investment banking services for Obie or Lamar in the past.

Potential Conflicts of Interest of Obie Management in the Merger

      The officers and directors of Obie have interests in the merger that are in addition to or different from your interests as shareholders. The Obie board of directors was aware of and considered these interests when it considered and approved the merger agreement and the merger. These interests include the right of Obie’s officers and directors to indemnification with respect to acts and omissions in their capacities as officers and directors of Obie and the existence of real property and certain billboard lease agreements between Obie and certain of its officers and their affiliates.

      The following are summaries of various agreements which may give rise to conflicts of interest on behalf of Obie management in connection with the merger:

 
Consulting and Non-Competition Agreement

      On September 17, 2004, as a condition to the merger, Mr. Obie and Lamar entered into a Consulting and Non-Competition Agreement. Under this agreement, Lamar is to pay Mr. Obie a consulting fee of $15,000 per year, and a non-competition payment of $122,716 per year, for five years. In addition, Mr. Obie is to receive reimbursement for certain consulting expenses and ownership of two life insurance policies currently owned by Obie. Pursuant to the Consulting Agreement, Lamar will grant Mr. Obie options to acquire Lamar stock. The number of options Mr. Obie will receive and the exercise price for such options will be determined by the average closing price of a share of Lamar stock as reported on the Nasdaq National Market for the twenty trading days ending on the last trading day immediately prior to the third calendar day preceding the closing of the merger. Mr. Obie’s existing options to purchase 50,000 shares of Obie stock will be cancelled in connection with the merger.

 
Voting Agreement.

      The terms of the Voting Agreement between Lamar and Mr. Obie are summarized below. See “The Merger — Voting Agreement.”

 
Amended and Restated Lease Agreement.

      The terms of the Amended and Restated Lease Agreement between Obie Industries and Obie are summarized below. See “The Merger — Lease Agreements.” Mr. Obie is the President, a director, and the controlling shareholder of Obie Industries. In addition, Dolores Mord, a director of Obie and its Secretary, is the Vice President, a director, and a shareholder of Obie Industries.

 
Billboard Site Lease with Obie Industries.

      Obie currently has a billboard site lease with Obie Industries, which will continue after the merger.

 
Billboard Site Lease with M.O. Partners.

      Obie currently has a billboard site lease with M.O. Partners, which will continue after the merger. Mr. Obie and Ms. Mord are partners in M.O. Partners.

 
Billboard Site Lease with Papé Properties, Inc.

      Obie currently has a billboard site lease with Papé Properties, Inc., an entity owned or controlled by Randall Papé, or affiliates of Mr. Papé. Mr. Papé is a director of Obie. The billboard site lease with Papé Properties, Inc. will continue after the merger.

58


Table of Contents

THE MERGER

General Description of the Merger

      In the merger, Obie will merge with and into OMC Acquisition Corporation (“Merger Sub”), a specially formed, wholly owned subsidiary of Lamar. Merger Sub will be the surviving corporation and will continue to exist under Delaware law as a wholly owned subsidiary of Lamar. The certificate of incorporation of Merger Sub, as in effect immediately before the merger, will be the certificate of incorporation of the surviving corporation. The by-laws of Merger Sub, as in effect immediately before the merger, will be the by-laws of the surviving corporation.

Effective Time

      We expect to close the merger by                     , 2005. The merger will be effective upon the filing of a certificate of merger with the Delaware Secretary of State and articles of merger with the Oregon Secretary of State, or a later time that we specify in the certificate of merger and articles of merger. The filing of the certificate of merger and articles of merger will take place upon the closing of the merger.

Merger Consideration for Obie Stock

      At the effective time of the merger, each share of Obie stock, except as noted below, will be converted into the right to receive that number of shares of Lamar Class A common stock (“Lamar stock”) equal to (A) the quotient of (i) $43,313,718 (the “merger consideration”) divided by (ii) the number of Obie shares issued and outstanding immediately prior to the effective time, further divided by (B) the average closing sales price of a share of Lamar stock as reported on the Nasdaq National Market for the twenty trading days ending on the last trading day immediately prior to the third calendar day preceding the closing of the merger. If the average closing sales price of a share of Lamar stock is $30.00 or less but greater than $22.00, however, Lamar may elect, in its sole discretion, to pay up to $10,756,696 of the merger consideration in cash in lieu of shares of Lamar stock. If the average closing sales price of a share of Lamar stock is $22.00 or less per share, Lamar may elect, in its sole discretion, to pay up to $21,083,124 of the merger consideration in cash in lieu of shares of Lamar stock. If Lamar elects to pay a portion of the merger consideration in cash, then Obie shareholders will receive the Lamar stock and cash pro rata based on their Obie holdings. The exchange formula was agreed to in arm’s-length negotiations between representatives of Lamar and Obie.

No Fractional Shares

      Lamar will not issue fractional shares in the merger. Instead, Lamar will pay cash to each Obie shareholder who otherwise would be entitled to receive a fractional share of Lamar stock. The cash amount will equal the fractional share number multiplied by the average of the closing sales price of a share of Lamar stock as reported on the Nasdaq National Market for the twenty trading days ending on the last trading day immediately prior to the third calendar day preceding the closing of the merger.

Exchange of Obie Stock Certificates

      Promptly after the effective time, an exchange agent appointed by Lamar will mail transmittal forms to each person who held shares of Obie stock as of the effective time for use in exchanging Obie stock certificates for Lamar stock certificates and cash, if any. The transmittal forms will include instructions specifying details of the exchange.

      Please do not send in your Obie certificates until you receive a transmittal form.

      If certificates for any shares of Obie stock have been lost, stolen, or destroyed, the holder must submit appropriate evidence regarding the ownership, loss, theft, or destruction of the stock certificate, an affidavit to that effect, and a customary indemnification agreement to the exchange agent.

59


Table of Contents

      Lamar will honor your request that the Lamar stock being exchanged be issued to a person other than you on the exchange agent’s books, so long as you:

  •  submit all documents necessary to evidence and effect the transfer to the new holder; and
 
  •  pay any transfer or other taxes for issuing shares of Lamar stock to a person other than the registered holder of the certificate, unless you satisfactorily establish to Lamar that any tax has been paid or is inapplicable.

      You will be entitled to receive dividends and other distributions on Lamar stock (without interest) that are declared or made with a record date after the effective time of the merger. Dividends or other distributions will not be paid to you, however, until you surrender your shares of Obie stock to the exchange agent.

Treatment of Obie Stock Options

      Any options for Obie stock that remain outstanding at the effective time of the merger shall be cancelled and shall not represent the right to receive Obie stock or Lamar stock. Pursuant to the Consulting and Non-Competition Agreement discussed below, however, Mr. Obie will not exercise options to purchase 50,000 shares of Obie stock resulting in their cancellation, and will receive options to purchase Lamar stock in connection with the merger. Obie has notified each holder of an option to purchase Obie stock that he or she has the right to exercise any and all of those options, whether or not currently exercisable according to their respective terms, prior to the effective date of the merger. As of October 29, 2004, options to acquire 183,732 shares of Obie stock were outstanding (excluding the 50,000 options held by Mr. Obie that will not be exercised) and fully vested and exercisable at an exercise price below the expected per share merger consideration.

Treatment of Obie Benefits

      The Obie employees who become employed by Lamar will be eligible to participate in Lamar’s 401(k) plan and any assets that they have in the Obie plan may be transferred to Lamar’s plan. Former Obie employees will also be allowed to carry-over the years of service they currently have with Obie to Lamar’s employee benefit plans.

Accounting Treatment

      The merger will be accounted for as a purchase by Lamar under accounting principles generally accepted in the United States. Under the purchase method of accounting, Obie’s assets and liabilities will be recorded, as of the date the merger is completed, at their respective fair values and added to Lamar’s assets and liabilities. To the extent that the purchase price allocated to the net assets exceeds the fair value of those assets, the excess will be added to goodwill. Lamar’s financial statements issued after the completion of the merger will reflect Obie’s assets, liabilities, and operating results after the completion of the merger but will not be restated retroactively to reflect the historical pre-closing financial position or results of operations of Obie. Following the completion of the merger, Lamar’s earnings will reflect the impact from fair value adjustments in purchase accounting, including amortization and depreciation expense for acquired assets and related tax benefits. In accordance with the applicable accounting rules, goodwill resulting from the merger will not be amortized, but will be reviewed for impairment at least annually. To the extent goodwill is determined in the future to be impaired in value, its carrying value will be written down to its implied fair value and a charge will be made to earnings in the amount of the write-down.

Material U.S. Federal Income Tax Consequences of the Merger

      The following discussion summarizes the material U.S. federal income tax consequences of the merger applicable to U.S. citizens and residents. The discussion is based on and subject to the Internal Revenue Code of 1986, as amended (the “Code”), the regulations promulgated under the Code,

60


Table of Contents

administrative rulings of the Internal Revenue Services (the “IRS”) and court decisions, all as in effect on the date hereof and all of which may change, possibly with retroactive effect. This discussion assumes that Obie shareholders hold their shares of Obie stock as capital assets within the meaning of Section 1221 of the Code. This discussion does not address all aspects of U.S. federal income taxation that may be important to you either in light of your particular circumstances or if you are subject to special rules. These special rules include those relating to:

  •  shareholders who are not U.S. citizens or residents or that are foreign corporations, partnerships, estates or trusts;
 
  •  financial institutions;
 
  •  tax-exempt organizations;
 
  •  insurance companies;
 
  •  dealers in securities;
 
  •  shareholders who acquired their Obie stock by exercising options or similar derivative securities or otherwise as compensation; and
 
  •  shareholders who hold their Obie stock as part of a hedge, straddle, appreciated financial position, or conversion transaction.

      In the opinion of Davis Wright Tremaine LLP, counsel to Obie, and Jones, Walker, Waechter, Poitevent, Carrère & Denègre, LLP, counsel to Lamar, the merger will be treated as a reorganization within the meaning of Section 368(a)(1)(A) of the Code. These opinions are based on a number of assumptions, representations, and covenants, including the assumption that the merger will be completed as described in this proxy statement/ prospectus and that the representations contained in letters delivered to counsel by Obie, Lamar, and Merger Sub in connection with the delivery of the opinions will be accurate. The opinions neither bind the IRS nor preclude the IRS from adopting a position contrary to that expressed in the opinions. Obie and Lamar cannot assure you that contrary positions will not be successfully asserted by the IRS or adopted by a court if the issues are litigated. Neither company intends to obtain a ruling from the IRS with respect to the tax consequences of the merger.

      In its letter to counsel, Lamar has represented that it will not pay cash or permit Merger Sub to pay cash (including cash paid to dissenters) in an amount that would exceed fifty percent of the total value of the merger consideration paid to the Obie shareholders. In addition, both Lamar and Obie must receive an opinion from their counsel that the merger will be treated as a reorganization as a condition to closing. The merger agreement does not prevent Lamar from paying cash in an amount that exceeds fifty percent of the total value of the merger consideration, however. In that case, counsel would not be able to deliver the opinion required as a condition to closing, but this would not prevent the parties from waiving that condition and completing the merger. If the merger does not qualify as a reorganization, each Obie shareholder will recognize gain in an amount equal to the excess of the value of the merger consideration received by that shareholder over the shareholder’s tax basis in their Obie stock. In addition, Obie would recognize gain in an amount equal to the excess of the value of the merger consideration over Obie’s tax basis in its assets.

 
Tax Consequences to Obie Shareholders

      Unless the merger fails to qualify as a reorganization, the merger will have the following U.S. federal income tax consequences to the Obie shareholders:

  •  an Obie shareholder will not recognize any gain or loss upon the receipt of shares of Lamar stock in exchange for the shareholder’s Obie common stock;
 
  •  an Obie shareholder will recognize any gain, but not loss, realized to the extent of any cash (other than cash in lieu of fractional shares) received in exchange for the shareholder’s Obie common stock. Depending on the particular circumstances of the Obie shareholder, the gain will be treated

61


Table of Contents

  as a dividend or as capital gain which will be long-term capital gain if the Obie stock exchanged was held for more than one year as of the effective time of the merger;
 
  •  the tax basis of the shares of Lamar stock received by an Obie shareholder in the merger will be equal to the adjusted tax basis of the shares of Obie common stock exchanged therefor, decreased by the amount of any cash payments received, and increased by the amount of any gain required to be recognized by the Obie shareholder;
 
  •  the holding period of the shares of Lamar stock received by an Obie shareholder in the merger will include the holding period of the shares of Obie common stock exchanged therefor; and
 
  •  cash received by an Obie shareholder in lieu of a fractional share of Lamar stock will be treated as received in exchange for the fractional share, and the shareholder will recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the portion of the tax basis of the share of the Obie common stock allocable to the fractional interest.

      In the event that the merger does not qualify as a “reorganization” under Section 368(a) of the Code, an Obie shareholder generally would recognize an amount of taxable gain or loss equal to the difference between (1) the fair market value of the shares of Lamar stock plus the amount of cash received in the merger, and (2) the Obie shareholder’s adjusted tax basis in Obie common stock exchanged therefor. That gain or loss generally would be capital gain or loss and would be long-term capital gain or loss if the Obie common stock exchanged was held for more than one year as of the effective time of the merger. An Obie shareholder’s tax basis in any shares of Lamar stock received would equal the fair market value of the shares at the effective time of the merger and the holding period for the shares would begin on the date immediately following the effective time of the merger.

 
Tax Consequences to Lamar and Obie

      If the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, Lamar, Merger Sub, and Obie will not recognize gain or loss for U.S. federal income tax purposes by reason of the merger. If the merger does not so qualify, then Obie will recognize gain equal to the excess of the value of the total merger consideration over its adjusted basis in its assets.

 
Backup Withholding

      Obie shareholders may be subject to backup withholding of 28% with respect to payments, including cash received in the merger, unless that shareholder (1) is a corporation or comes within specified other exempt categories and, when required, demonstrates this fact, or (2) provides a properly completed IRS Form W-9 (or successor or substitute form) showing the shareholder’s correct taxpayer identification number, certifying that the shareholder has not lost the exemption from backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. An Obie shareholder who does not provide its correct taxpayer identification number may be subject to penalties imposed by the IRS. Backup withholding is not an additional tax. Rather, any amounts withheld will be a credit against the shareholder’s tax liability for the year in which the merger occurs. If the amount withheld exceeds the shareholder’s income tax liability for such year, it will be entitled to a refund, provided the shareholder furnishes specified required information to the IRS.

      Obie shareholders will be required to retain records pertaining to the merger and will be required to file with their U.S. federal income tax returns for the year in which the merger takes place a statement setting forth specified facts relating to the merger.

      The foregoing discussion is only intended to provide you with a general summary. It is not a complete analysis or description of every potential U.S. federal income tax consequence or any other consequence of the merger. In addition, the discussion does not address tax consequences that may vary with, or are contingent on, your individual circumstances. Moreover, this discussion does not address any non-income tax or any foreign, state, or local tax consequences of the merger. Accordingly, we strongly

62


Table of Contents

urge you to consult with your tax advisor to determine the particular U.S. federal, state, local, or foreign tax consequences to you of the merger.

Appraisal or Dissenters’ Rights

      The rights of Obie shareholders who dissent in connection with the merger are governed by specific legal provisions contained in Oregon law. The following summary of the provisions of Oregon law is not intended to be a complete statement of such provisions and is qualified in its entirety by reference to the full text of such statutory provisions, a copy of which is attached as Annex C to this proxy statement/ prospectus, and incorporated herein by reference. The required procedure set forth in Oregon law must be followed exactly or any dissenters’ rights may be lost.

      If you disagree with the terms and conditions of the merger or otherwise do not wish to accept the merger consideration set forth in the merger agreement, you may exercise certain rights, called dissenters’ rights, under the Oregon Business Corporations Act (the “Oregon Act”). In order to perfect your dissenters’ rights, however, you must follow certain procedures under the Oregon Act, a copy of which is attached as Annex C and a summary of which is set forth below:

  •  before the vote is taken at the special meeting, you must notify Obie in writing that you (i) intend to assert your dissenters’ rights by demanding payment for your shares if the merger is approved and (ii) will not vote your shares in favor of the merger;
 
  •  while you may attend the special shareholders meeting and be counted for purposes of establishing a quorum and may participate in discussions of the merger, you automatically forfeit your dissenters’ rights if you vote your shares in favor of the merger;
 
  •  if the merger is approved and you have satisfied the conditions set forth above, Obie will send to you a written notice not later than ten (10) days after the approval of the merger. This notice will tell you where you must send your demand for payment and where and when the certificate for your shares must be sent. The notice will set forth the date by which you must submit your demand for payment (the date will be not less than thirty (30) days nor more than sixty (60) days after delivery of the written notice);
 
  •  in order to perfect your dissenters’ rights, you will then have to demand payment for your shares, certify that you acquired your shares before September 20, 2004, and deposit the certificate for your shares in accordance with the notice from Obie. You will forfeit your dissenters’ rights if you do not comply with the instructions in that written notice;
 
  •  assuming that you properly perfect your dissenters’ rights, Obie will pay you what Obie believes is the fair value of your shares, plus accrued interest from the date of the merger. As of the date of this proxy statement, the board of directors of Obie does not believe the fair value will be greater than the value you would receive for your shares in the merger;
 
  •  if you disagree with Obie’s assessment of the fair value of your shares, you must notify Obie of your disagreement, including your assessment of the fair value, and demand payment of your assessment of the fair value; and
 
  •  if you and Obie cannot come to an agreement regarding the fair value of your shares, Obie will commence an action in the Circuit Court of the State of Oregon for the County of Lane and petition the court to determine the fair value of your shares. This petition will be filed no later than sixty (60) days of receipt of your notice stating that you disagree with Obie’s assessment of the fair value of your shares. The court then will determine the fair value of your shares.

      You must carefully follow the procedure set forth in the Oregon Act in order to perfect your dissenters’ rights. The information set forth above is only a summary and you may not rely upon it to determine the procedure for perfecting your dissenters’ rights. The relevant provisions of the Oregon Act are attached to this proxy statement/ prospectus as Annex C and you should carefully review those provisions and consult an attorney for professional advice in this regard. If your shares are held by your

63


Table of Contents

broker or bank in street name, only the broker or bank may assert your dissenter’s rights; you may not do so directly. If you wish to assert your dissenter’s rights and you are not the record holder you must contact your broker or bank and instruct them to follow the procedure required to exercise your dissenter’s rights.

Delisting and Deregistering of Obie Stock

      If the merger is completed, Obie stock will be delisted from the Nasdaq Small Cap Market and will be deregistered under the Securities Exchange Act of 1934.

Resales of Lamar Stock by Obie Affiliates

      Obie shareholders may freely transfer the shares of Lamar stock received in the merger, unless they are individuals or entities who are deemed to be “affiliates” of Obie before the merger or affiliates of Lamar after the merger. Persons who may be deemed to be affiliates of Obie or Lamar include individuals or entities that control, are controlled by, or are under common control with, Obie or Lamar, respectively, and generally include executive officers and directors as well as stockholders holding 10% or more of the outstanding voting shares of the entity. These affiliates or their brokers risk being characterized as “underwriters” when they sell shares of Lamar stock received in the merger. The United States securities laws require registration of shares sold by underwriters. An affiliate and its broker can avoid being characterized as an underwriter and, therefore, avoid the Securities Act registration requirements by selling shares in compliance with exemptions from registration, including these found in Rule 144 and Rule 145 under the Securities Act. These rules limit the number of shares of stock issued in a merger an affiliate may sell during a particular period of time. The merger agreement requires Obie to use its reasonable best efforts to cause each of its affiliates to execute and deliver to Lamar a written agreement to the effect that the affiliate will not offer or sell or otherwise dispose of Lamar stock issued to the affiliate in the merger in violation of the Securities Act or the related rules and regulations adopted by the SEC.

      This proxy statement/ prospectus does not cover resales of Lamar stock received by any person who may be deemed to be an affiliate of Obie and/or Lamar.

Voting Agreement

      As inducement for Lamar to enter into the merger agreement, Brian B. Obie, Obie’s Chairman of the Board, President, Chief Executive Officer and largest shareholder, has entered into a voting agreement with Lamar and granted Lamar an irrevocable proxy with respect to all shares of Obie common stock that he beneficially owns or subsequently acquires.

      As of September 17, 2004, at least 1,653,147 shares of Obie common stock, representing 27.5% of the total issued and outstanding Obie common stock as of that date were subject to the voting agreement. Any and all Obie shares Mr. Obie acquires after the date of voting agreement automatically become subject to the voting agreement.

      Mr. Obie has agreed to vote, or cause to be voted, all of the shares beneficially owned by him:

  •  in favor of the approval of the merger;
 
  •  against the approval of any alternative transaction;
 
  •  against a change in a majority of the current board of directors;
 
  •  against any amendment to Obie’s article of incorporation or by-laws;
 
  •  against any other action that is intended, or that could reasonably be expected, to adversely affect the ability of Obie to consummate the merger; and
 
  •  against any action or agreement that would result in a material breach of any covenant, representation, warranty, or obligation of Obie under of the merger agreement.

64


Table of Contents

      Mr. Obie has further agreed not to offer, sell, or otherwise transfer any Obie shares in any manner. Mr. Obie has also irrevocably waived any appraisal or dissenters’ rights he may have had.

      The voting agreement terminates the earlier of (i) the termination of the merger agreement according to its terms, (ii) the written agreement of the parties to terminate the voting agreement, or (iii) the effective time of the merger. The parties have agreed that each has a right of specific performance and a right to an injunction in case the other party breaches or threatens breach under the voting agreement.

      This summary of the voting agreement is not intended to be complete and is qualified in all respects by the actual agreement, a copy of which is attached to this proxy statement/ prospectus at Annex D and incorporated herein by reference.

Lease Agreement

      As a condition to the merger, on September 17, 2004, Obie Industries, Incorporated entered into an Amended and Restated Lease Agreement with Obie Media Corporation, a related party (the “Lease Agreement”) for Obie’s headquarters located at 4211 West 11th Avenue, Eugene, Oregon 97402. The Lease Agreement provides for monthly rent of $29,269.86, and also grants to the tenant a purchase option during the lease term for the fair market value of the real property as determined by appraisal. The term of the Lease Agreement is three years.

Regulatory Matters

      Neither Lamar nor Obie are aware of any material governmental or regulatory requirements that must be complied with regarding the merger, other than federal securities laws and the filing of documents describing principal terms of the merger agreement with the Secretaries of State of the States of Delaware and Oregon.

65


Table of Contents

THE MERGER AGREEMENT

      The following is a discussion of the merger agreement. This is a summary only and may not contain all of the information that is important to you. A copy of the merger agreement is attached to this proxy statement/ prospectus as Annex A and is incorporated by reference herein. You are urged to read this entire proxy statement/ prospectus, including the merger agreement, for a more complete understanding of the merger.

Covenants Under the Merger Agreement

      Each party has agreed to abide by certain covenants during specified periods.

 
Obie’s Interim Operations

      Until the closing of the merger, Obie has agreed to operate its business and to cause its subsidiaries to operate each of their respective businesses in the ordinary course. Subject to certain exceptions, Obie has agreed to, and in certain cases, has agreed to cause each of its subsidiaries to:

  •  use its reasonable best efforts to preserve its business organization and goodwill, to keep the services of its officers and employees available, and to maintain satisfactory business relationships;
 
  •  refrain from amending its organizational documents and from changing its capitalization in any way;
 
  •  refrain from adopting a shareholder rights plan;
 
  •  refrain from issuing shares of its capital stock and from entering into any agreements conferring the right to acquire shares of its capital stock;
 
  •  refrain from declaring a dividend or other distribution and from redeeming, purchasing, or otherwise acquiring any shares of its capital stock (other than under agreements or instruments existing as of the date of the merger agreement);
 
  •  refrain from entering into or amending any agreement relating to the holding, voting, or disposing shares of Obie common stock;
 
  •  refrain from increasing the compensation or benefits of any officer, director, or agent and from increasing the compensation or benefits of any employee other than an officer outside of the ordinary course of business;
 
  •  refrain from entering into any employment or severance agreement;
 
  •  refrain from adopting any new, or amending any existing, employee benefit plan and from accelerating any rights, benefits, or payments under any benefit plan (except for the accelerated vesting of all outstanding options to purchase shares of Obie common stock);
 
  •  refrain from selling, leasing, or otherwise disposing of any of its assets (including capital stock of subsidiaries) other than in the ordinary course of business and for fair value;
 
  •  refrain from changing any accounting principles or practices (except as required under applicable law or GAAP);
 
  •  refrain from certain actions with respect to taxes;
 
  •  refrain from entering into any business combination (other than the merger) or any joint venture, partnership, or other joint business venture;
 
  •  use its reasonable best efforts to maintain customary insurance coverage;
 
  •  refrain from incurring any indebtedness other than in the ordinary course of business under Obie’s existing line of credit;

66


Table of Contents

  •  refrain from entering into any material contract or lease or from creating any encumbrance other than in the ordinary course of business;
 
  •  refrain from making or committing to make capital expenditures in excess of $100,000 individually or $500,000 in the aggregate;
 
  •  maintain confidentiality required by any agreement; and
 
  •  take all actions necessary to terminate, prior to the merger, (i) all options to acquire shares of Obie stock issued pursuant to Obie’s Restated 1996 Stock Incentive Plan and (ii) Obie’s Employee Share Purchase Plan.
 
Lamar’s Interim Operations

      Until the closing of the merger, Lamar has agreed to operate its business in the ordinary course. Additionally, Lamar has agreed to prepare and file the registration statement containing this proxy statement/ prospectus.

 
Mutual Interim Obligations

      Lamar and Obie have each agreed to:

  •  use their reasonable best efforts to satisfy the closing conditions;
 
  •  refrain from taking any action that is likely to delay materially or affect adversely either (i) the ability of the parties to obtain any governmental consent necessary to close the merger or (ii) the expiration of any applicable waiting period required to consummate the merger;
 
  •  inform the other party of, and cooperate with the other party other in, any interactions with a governmental entity concerning the proposed transaction;
 
  •  provide to the other party reasonable access to its records, files, correspondence, audits, and properties for the other party’s review;
 
  •  comply with the terms of the confidentiality agreement; and
 
  •  issue press releases and make public announcements only with the other party’s consent.
 
No Solicitation by Obie

      Obie has agreed that it, its subsidiaries, and its directors, officers, employees, agents, and representatives will not solicit any person or negotiate with any person regarding any alternative transaction to this merger. Obie’s officers and board of directors, however, may make any disclosure to shareholders and furnish information to, and negotiate with, any person regarding an alternative transaction where required by fiduciary duties under applicable law. Obie has agreed to inform Lamar of any inquiry it receives relating to an alternative transaction to this merger.

 
Recommendation of the Obie Board

      The Obie board of directors has agreed to take all lawful action that does not interfere with its fiduciary duties to secure the vote of its shareholders to approve the merger.

 
Other Covenants

      Both parties have agreed to other customary covenants relating to, among other things, regulatory filings, indemnification and insurance, and notifications.

      Lamar has also agreed to use its reasonable best efforts to cause the shares of Lamar stock that it will issue in the merger to be approved for listing on the Nasdaq National Market.

67


Table of Contents

Representations and Warranties

      Each of Lamar, Merger Sub, and Obie has made customary representations and warranties in the merger agreement regarding, among other things:

  •  its organization and similar corporate matters;
 
  •  the authorization, execution, delivery, and performance of the merger agreement;
 
  •  its capital structure;
 
  •  the absence of conflicts, violations, or defaults under its organizational documents and other agreements and documents as a result of executing the merger agreement;
 
  •  the absence of conflicts with or violations of any laws as a result of executing the merger agreement;
 
  •  possession of all necessary permits;
 
  •  compliance with all applicable laws;
 
  •  necessary governmental consents and filings;
 
  •  reports and financial statements filed with the SEC and the accuracy of the information contained in those documents;
 
  •  the sufficiency of its internal controls; and
 
  •  the absence of certain changes.

      Obie has made additional representations and warranties to Lamar regarding, among other things:

  •  its subsidiaries;
 
  •  its leases;
 
  •  its advertising and transit contracts;
 
  •  the types and locations of its outdoor advertising faces;
 
  •  its owned real property;
 
  •  the absence of litigation;
 
  •  the absence of any undisclosed liabilities since its latest audited balance sheet;
 
  •  the filing of tax returns and payment of taxes;
 
  •  its satisfaction of certain requirements so that the merger qualifies as a tax free reorganization;
 
  •  its employee benefit plans;
 
  •  employee and labor matters;
 
  •  compliance with governmental regulations concerning employees;
 
  •  compliance with environmental laws and other environmental matters;
 
  •  the intellectual property it uses in its business;
 
  •  the absence of encumbrances on titles to its properties
 
  •  insurance coverage;
 
  •  its bank accounts;
 
  •  transactions with related parties;
 
  •  absences of non-competition agreements;

68


Table of Contents

  •  its material contracts;
 
  •  the voting requirements for shareholder approval of the merger;
 
  •  board approval of the merger;
 
  •  retention of a financial advisor to render a fairness opinion;
 
  •  merger-related brokers’ and finders’ fees;
 
  •  complete disclosure; and
 
  •  its customers and suppliers.

Conditions to the Merger

      Each parties’ obligation to effect the merger is subject to certain conditions.

 
Conditions to Each Party’s Obligation to Effect the Merger

      The parties to the merger agreement do not have to consummate the merger unless the following conditions are met (or waived):

  •  Obie shareholders must approve the merger;
 
  •  no injunction or other judgment or law is in effect to prohibit the consummation of the merger;
 
  •  the registration statement of which this proxy statement/ prospectus is a part must not be subject to any stop order or related proceeding; and
 
  •  the shares of Lamar stock to be issued in the merger are authorized for listing on the Nasdaq National Market.
 
Conditions to the Obligation of Obie to Effect the Merger

      Obie does not have to consummate the merger unless the following additional conditions are met (or waived by Obie):

  •  Lamar and Merger Sub must have performed in all material respects their respective covenants and agreements contained in the merger agreement;
 
  •  the representations and warranties of Lamar and Merger Sub contained in the merger agreement that are qualified by a materiality qualification must be true and correct as of the date of the merger agreement and as of the closing date of the merger;
 
  •  the representations and warranties of Lamar and Merger Sub contained in the merger agreement which are not qualified by a materiality qualification must be true and correct in all material respects as of the date of the merger agreement and as of the closing date of the merger;
 
  •  Obie must have received an opinion of counsel to the effect that (i) the merger will be a tax free reorganization within the meaning of Section 368(a) of the Code and (ii) Lamar, Merger Sub, and Obie will be parties to a tax free reorganization with the meaning of Section 368(a) of the Code; and
 
  •  Obie must receive the customary closing documents described in the merger agreement.
 
Conditions to the Obligation of Lamar and Merger Sub to Effect the Merger

      Lamar and Merger Sub do not have to consummate the merger unless the following additional conditions are met (or waived by Lamar):

  •  Obie must have performed in all material respects its covenants and agreements contained in the merger agreement;

69


Table of Contents

  •  the representations and warranties of Obie contained in the merger agreement that are qualified by a materiality qualification must be true and correct as of the date of the merger agreement and as of the closing date of the merger;
 
  •  Obie’s working capital, with certain adjustments, must be at least $5.0 million as of the closing date of the merger;
 
  •  Obie’s total long-term debt must not exceed $18.3 million as of the closing date of the merger;
 
  •  the Consulting and Non-Competition Agreement by and between Lamar and Mr. Obie must be in full force and effect as of the date of the merger agreement;
 
  •  the Amended and Restated Lease by and between Obie Industries, Incorporated and Obie must be in full force and effect as of the date of the merger agreement;
 
  •  no more than 5% of the total number of shares of Obie common stock issued and outstanding immediately prior to the closing shall have dissented;
 
  •  Lamar must have received an opinion of counsel to the effect that (i) the merger will be a tax free reorganization with the meaning of Section 368(a) of the Code and (ii) Lamar, Merger Sub, and Obie will be parties to a tax free reorganization with the meaning of Section 368(a) of the Code;
 
  •  Obie shall have obtained all necessary consents and approvals;
 
  •  no governmental entity shall institute or continue any action or proceeding seeking to limit in any way Lamar’s ownership interest in Obie or its subsidiaries;
 
  •  Obie shall complete construction of certain outdoor advertising faces prior to the closing of the merger must be legal and conforming, available for sale, and in suitable condition;
 
  •  Lamar shall have received resignations of each director of Obie and its subsidiaries, each effective upon consummation of the merger; and
 
  •  Lamar must receive the customary closing documents described in the merger agreement.

Termination of the Merger Agreement

      Certain actions or occurrences will trigger rights to terminate the merger agreement.

 
Termination by Mutual Consent

      Lamar and Obie may terminate the merger agreement by mutual consent at any time prior to effective time of the merger.

 
Termination by Either Lamar or Obie

      Subject to certain exceptions, either Lamar or Obie may terminate the merger agreement at any time prior to effective time of the merger if:

  •  the merger is not consummated by February 28, 2005 (or by March 31, 2005, if the SEC has not declared the registration statement effective by January 10, 2005);
 
  •  shareholder approval is not obtained at any meeting of Obie’s shareholders held for the purpose of approving the merger; or
 
  •  a court or regulatory agency issues a final, non-appealable order prohibiting the merger.

70


Table of Contents

 
Termination by Lamar

      Subject to certain exceptions, Lamar may terminate the merger agreement at any time prior to effective time of the merger if:

  •  Obie has materially breached any representation, warranty, covenant, or agreement set forth in the merger agreement such that certain closing conditions are unfulfilled, and either Obie fails to cure the breach on a timely basis or the breach is incurable;
 
  •  any of Obie’s representations, warranties, covenants, or agreements set forth in the merger agreement have become untrue such that certain closing conditions are unfulfilled, and either Obie fails to cure the breach on a timely basis or the breach is incurable;
 
  •  prior to the shareholder vote, Obie’s board of directors:

  (i) withdraws or modifies its recommendation that the shareholders approve the merger;
 
  (ii) fails to reconfirm upon request its recommendation that the shareholders approve the merger;
 
  (iii) approves or recommends that the shareholders approve an alternative transaction; or
 
  (iv) recommends or fails to recommend against acceptance of an alternate tender or exchange offer;

  •  Obie fails to satisfy certain other closing conditions; or
 
  •  Obie’s financial advisor withdraws, modifies, withholds, or changes its fairness opinion to indicate that the merger consideration is no longer fair to Obie’s shareholders, from a financial point of view.
 
Termination by Obie

      Subject to certain exceptions, Obie may terminate the merger agreement at any time prior to effective time of the merger if:

  •  Lamar or Merger Sub have materially breached any representation, warranty, covenant, or agreement set forth in the merger agreement such that certain closing conditions are unfulfilled, and either Lamar or Merger Sub fails to cure the breach on a timely basis or the breach is incurable; or
 
  •  any of Lamar’s or Merger Sub’s representations, warranties, covenants, or agreements set forth in the merger agreement have become untrue such that certain closing conditions are unfulfilled, and either Lamar or Merger Sub fails to cure the breach on a timely basis or the breach is incurable.

Merger Expenses and Termination Fees and Expenses

      Generally, each party is responsible for its own expenses incurred in connection with the merger. Obie, however, has agreed to pay Lamar up to $200,000 to cover all expenses Lamar incurs in connection with the merger agreement if the merger agreement is terminated:

  •  by either Lamar or Obie because Obie’s shareholders failed to approve the merger;
 
  •  by Lamar because Obie’s board of directors failed to call a shareholders meeting or recommend the merger to shareholders for approval; or
 
  •  by Lamar because Obie’s financial advisor withdrew, modified, withheld, or changed its fairness opinion to indicate that the merger consideration is no longer fair to Obie’s shareholders.

71


Table of Contents

      In addition, Obie has agreed to pay Lamar $1,090,803 as a “break-up” fee if the merger agreement is terminated:

  •  by either Lamar or Obie because Obie’s shareholders failed to approve the merger after the public announcement of an alternative transaction with a third party in lieu of the merger;
 
  •  by Lamar because Obie’s board of directors failed to call a shareholders meeting or recommend the merger to shareholders for approval; or
 
  •  by Lamar because Obie’s financial advisor withdrew, modified, withheld, or changed its fairness opinion to indicate that the merger consideration is no longer fair to Obie’s shareholders.

Amendments and Waivers

      Generally, Lamar and Obie may amend or waive any provision of the merger agreement prior to Obie’s shareholders approving the merger. After Obie’s shareholders approve the merger, Lamar and Obie may amend or waive any provision of the merger agreement prior to the effective time of the merger, provided that if the amended or waived condition is material, Obie will resolicit proxies for the approval of the merger in accordance with the amended terms and conditions.

72


Table of Contents

COMPARISON OF RIGHTS OF LAMAR AND OBIE STOCKHOLDERS

      Lamar is a Delaware corporation subject to the provisions of the Delaware General Corporation Law or the DGCL. Obie is an Oregon corporation subject to the provisions of the Oregon Business Corporation Act or the OBCA. Upon completion of the merger, Obie shareholders, whose rights are currently governed by Obie’s articles of incorporation and by-laws and the OBCA, will become stockholders of Lamar, whose rights will be governed by Lamar’s certificate of incorporation and by-laws and the DGCL.

      The following description summarizes material differences that may affect the rights of holders of Obie stock. This is not a complete statement of all those differences, or a complete description of the specific provisions referred to in this summary. The identification of specific differences is not intended to indicate that other equally or more significant differences do not exist. For additional information regarding the specific rights of holders of Lamar Class A common stock, see the description of Lamar Class A common stock incorporated by reference into this proxy statement/ prospectus. You should read carefully the relevant provisions of the DGCL and the OBCA, Lamar’s certificate of incorporation and by-laws and Obie’s articles of incorporation and by-laws, which are incorporated by reference into this proxy statement/ prospectus.

         
Lamar Stockholder Rights Obie Shareholder Rights


Corporate Governance   Delaware law and Lamar’s certificate of incorporation and by-laws govern the rights of Lamar stockholders. Upon completion of the merger, the rights of Lamar stockholders will continue to be governed by Delaware law and Lamar’s certificate of incorporation and by-laws.   Oregon law and Obie’s articles of incorporation and by-laws currently govern the rights of Obie shareholders. Upon completion of the merger, the rights of Obie shareholders who become Lamar stockholders in the merger will be governed by Delaware law and Lamar’s certificate of incorporation and by-laws.
 
Authorized Capital Stock   Lamar’s authorized capital stock consists of 175,000,000 shares of Class A common stock, $.001 par value per share, 37,500,000 shares of Class B common stock, $.001 par value per share, 10,000 shares of Class A preferred stock, $638 par value per share, and 1,000,000 shares of preferred stock, $.001 par value per share, of which 5,790 shares are designated as Series AA preferred stock.

With respect to Lamar’s undesignated preferred stock, the Lamar board is authorized to issue shares of preferred stock in one or more series, and to determine the preferences, voting powers, qualifications, and special or relative rights or privileges of that series, all without stockholder approval.
  Obie’s authorized capital stock consists of 20,000,000 shares of common stock, without par value, and 10,000,000 shares of preferred stock, without par value.

With respect to Obie’s preferred stock, the Obie board is authorized, without shareholder approval, to issue shares of preferred stock in one or more series and to determine the powers, designations, preferences and relative, participating, optional and other special rights.

73


Table of Contents

         
Lamar Stockholder Rights Obie Shareholder Rights


Dividends   Dividends are payable on Lamar stock only when, as, and if declared by Lamar’s board of directors, out of funds legally available for distribution. Under the DGCL, a corporation may pay dividends out of surplus or net profits for the current or preceding fiscal year, provided that the capital of the corporation is not less than the aggregate liquidation preference of the corporation’s outstanding stock having a preference upon distribution of assets.   Dividends are payable on Obie stock as Obie’s board of directors may from time to time declare. Under the OBCA, a corporation may pay dividends unless, after giving effect to the proposed dividend, in the judgment of the board of directors (i) the corporation would not be able to pay its debts as they become due in the usual course of business and (ii) the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
 
Liquidation Rights   Upon liquidation or dissolution, after payment has been made to any creditors or holders of preferred stock of the full amount to which they are entitled, the holders of Lamar stock are entitled to share ratably according to the number of shares of common stock held by them in all remaining assets of the company available for distribution to its stockholders.   Subject to the rights of any preferred stock, upon liquidation, dissolution or winding up of Obie, the holders of Obie common stock are entitled to receive the net assets of the corporation available for distribution in proportion to their interest therein.
 
Voting Rights   Stockholders of Lamar stock vote together as one class on all matters on which common stockholders generally are entitled to vote. The Lamar stock that Obie shareholders will receive in the merger is Class A common stock. The Class A common stock is entitled to one vote per share. Lamar also has Class B common stock. The Class B common stock is entitled to ten votes per share, but is otherwise identical to the Class A common stock. Holders of Series AA preferred stock are entitled to one vote per share and the holders of Class A preferred stock have no voting rights, except as provided by the DGCL.   Obie shareholders vote together as one class on all matters that common stockholders are entitled to vote. Holders of Obie stock are entitled to one vote for each share of stock held at any meeting of stockholders.

74


Table of Contents

         
Lamar Stockholder Rights Obie Shareholder Rights


Cumulative Voting for Election of Directors   Neither Lamar’s certificate of incorporation nor its by-laws provide for cumulative voting in the election of directors, which means that the holders of a majority of the shares voted can elect all of the directors then outstanding for election.   Neither Obie’s articles of incorporation nor its by-laws provide for cumulative voting in the election of directors, which means that the holders of a majority of the shares voted can elect all of the directors then nominated for election.
 
Meetings of Stockholders; Notice   A special meeting of Lamar’s stockholders may be called only by the chief executive officer or by a majority of the board of directors.

A written notice stating the date, time, place and purpose of the meeting shall be given to each stockholder entitled to vote at the meeting not less than 10 nor more than 60 days before the meeting.
  A special meeting of Obie’s shareholders may be called only by the chief executive officer, a majority of the board of directors, or the holders of at least ten percent of the shares entitled to vote at the meeting.

A written notice stating the date, time, place, and purpose of the meeting shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at the meeting.
 
Stockholder
Action by
Written Consent
  Lamar’s by-laws permit stockholders to act without a meeting, prior notice, or vote, if they do so by written consent.   Obie’s by-laws permit shareholders to take action by unanimous written consent in lieu of a meeting.
 
Stockholder Proposals   Lamar’s by-laws provide that for a stockholder proposal to be brought properly before an annual meeting, the stockholder must notify Lamar of the proposal the earlier of: (a) not less than 75 days before the anniversary date of the prior years’ annual meeting, unless there was no annual meeting in the prior year or if the date of the current annual meeting is more than 30 days from the anniversary date of the prior year’s annual meeting, in which case this provision does not apply, or (b) 45 days prior to the current years’ annual meeting.   Obie’s by-laws provide that for a shareholder proposal to be brought properly before an annual meeting, the shareholder must notify Obie of the proposal at least 30 days prior to the meeting or, in the case where less than 30 days’ notice of the meeting was given to shareholders, by the close of business on the tenth day following the mailing of the notice of the meeting.
 
Quorum for Meeting of Stockholders   The holders of one-third of all outstanding stock entitled to vote at a Lamar stockholder meeting, present in person or represented by proxy, constitute a quorum for transacting business at a meeting.   The holders of a majority of all outstanding stock entitled to vote at an Obie shareholder meeting, present in person or represented by proxy, constitute a quorum for transacting business at a meeting.

75


Table of Contents

         
Lamar Stockholder Rights Obie Shareholder Rights


Stockholder Inspection Rights   Under the DGCL, any stockholder has the right to inspect the company’s stock ledger, stockholder list, and other books and records for a purpose reasonably related to the person’s interest as a stockholder.   Under OBCA, any shareholder giving five days written notice to Obie has the right to inspect Obie’s organizational documents, certain board resolutions, shareholder meeting minutes and recordings of all actions taken by the shareholders without a meeting, all written communications to the shareholders generally within the past three years, a list of the names and addresses of Obie’s current directors and officers and Obie’s most recent annual report delivered to the Oregon Secretary of State. In addition, any shareholder giving five days’ written notice to Obie may also inspect and copy board and committee meeting minutes, accounting records, and a list of shareholders, provided the shareholder’s demand is made in good faith and for a proper purpose, specifically describes the records to be inspected, and the records are directly connected with the shareholder’s purpose.
 
Number of Directors   Lamar currently has seven directors. Lamar’s by-laws provide that the board of directors shall have at least one member. The number of directors is fixed by the board and may be enlarged at any time by a vote of the majority of directors.   Obie currently has five directors. Obie’s by-laws provide that the board of directors shall have at least two members. The number of directors is fixed by the board and may be enlarged at any time by a vote of two-thirds of the directors then in office.
 
Classification of Board of
Directors
  Lamar does not have a classified board, which means that all members of Lamar’s board of directors are up for re-election every year.   Obie’s articles of incorporation provides that when it has five or fewer directors, all directors will be elected annually. Obie’s articles of incorporation also provides that, at any time that the board of directors consists of six or more members, the board of directors will consist of three classes with each class elected for a three-year terms at alternating annual meetings of the stockholders.

76


Table of Contents

         
Lamar Stockholder Rights Obie Shareholder Rights


Removal of Directors   Under the DGCL, directors may be removed, with or without cause, by the holders of a majority of the shares entitled to vote for the election of directors. Under Lamar’s by-laws, vacancies on the board may be filled by the board by a majority vote of the directors then in office, though less than a quorum, or by the sole remaining director.   Obie’s articles of incorporation provides that except as otherwise provided in Obie’s by- laws relating to the rights of the holders of any series of preferred stock, voting separately by class or series, to elect directors under specified circumstances directors may be removed, with cause, and by the affirmative vote of a majority of the outstanding stock of Obie. Obie’s by-laws provide for removal of directors with or without cause. Obie’s by-laws also provide that vacancies on the board of directors may be filled by a majority of the board of directors, though less than a quorum.
 
Limitation on Personal Liability of Directors and Officers   Lamar’s certificate of incorporation provides that directors shall not be personally liable to Lamar or its stockholders for monetary damages for breaching their fiduciary duties except for:

• breaches of their duty of loyalty to Lamar or its stockholders;

• acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law;

• unlawful payment of dividends or unlawful repurchases of stock; or

• transactions from which the directors derived improper personal benefit.
  Obie’s by-laws provide that directors shall not be personally liable to Obie or its shareholders for monetary damages for conduct as a director except for:

• any breach of the duty of loyalty to Obie or its stockholders;

• acts or omissions which involve intentional misconduct or knowing violation of law;

• authorizing a distribution in violation of the OBCA;

• transactions from which the directors derived improper personal benefit; or

• profits made from the purchase and sale of securities by the director within the meaning of Section 16(b) of the Exchange Act or equivalent state law.
 
Indemnification of Directors and Officers   Delaware law permits, and Lamar’s by-laws provide for, indemnification of directors and officers for expenses, judgments, or settlements actually and reasonably incurred by them in legal proceedings if they acted in good faith and in a manner they reasonably believed to be in Lamar’s best interests.

Lamar’s by-laws provide that indemnification is a contract right for the benefit of the directors, officers, and other persons entitled to be indemnified.

The DGCL does not permit a corporation to indemnify persons against judgments in actions brought by or in the right of the corporation.
  Oregon law permits, and Obie’s articles of incorporation provide for, indemnification of directors, officers, employees, and agents for expenses, judgments, or settlements actually and reasonably incurred by them in legal proceedings if they acted in good faith and in a manner they reasonably believed to be in or not opposed to Obie’s best interests.

Obie’s by-laws provide that indemnification is a contract right for the benefit of the directors, officers, and other persons entitled to be indemnified.

77


Table of Contents

         
Lamar Stockholder Rights Obie Shareholder Rights


Amendments to Charter   Under the DGCL, a certificate of incorporation may be amended by the affirmative vote of a majority of the outstanding stock and a majority of the outstanding shares of each class entitled to vote as a class. Lamar’s certificate of incorporation provides for amendments to be made in the manner prescribed by Delaware law.   Under the OBCA, articles of incorporation may be amended by the affirmative vote of a majority of the outstanding stock and a majority of the outstanding shares of each class entitled to vote as a class. Obie’s articles of incorporation reserves the right to amend any provision in its articles of incorporation, but requires the affirmative vote of the holders of at least 66 2/3% of the outstanding stock entitled to vote to amend any provision in a manner inconsistent with certain provisions of the articles of incorporation.
 
Amendments to By-laws   Lamar’s by-laws may be altered or repealed, and new by-laws may be made by a majority of the board of directors. Lamar’s by-laws may also be altered, amended, or repealed, and new by-laws may be adopted, by the stockholders at an annual or special meeting of stockholders. In the case of a special meeting, a description of the alteration, amendment, repeal, or adoption must be included in the notice of the special meeting.   Obie’s by-laws may be repealed, altered, amended, or rescinded and new by-laws may be adopted by either (i) the affirmative vote of the holders of a majority of the outstanding stock entitled to vote at meeting of stockholders or (ii) a majority of the board of directors unless the articles of incorporation or the OBCA reserves that power exclusively to the shareholders or the shareholders, in amending or repealing a particular by-law, provide expressly that the board of directors may not amend or repeal that by-law (neither the articles of incorporation, the OBCA or any by-law currently prohibits the board of directors from amending the by-laws).

78


Table of Contents

         
Lamar Stockholder Rights Obie Shareholder Rights


Anti-Takeover Provisions   Business Combination Act

Section 203 of the DGCL prohibits a Delaware corporation from engaging in a “business combination” with a person owning 15% or more of the corporation’s voting stock (an “interested stockholder”) for three years following the time that person became an interested stockholder, unless:

• the board, before the time the person became an interested stockholder, approved either the business combination or the transaction that resulted in the person becoming an interested stockholder;

• the person became an interested stockholder and 85% owner of the voting stock in the transaction, excluding shares owned by directors and officers and shares owned by some employee stock plans; or

• the combination transaction is approved by the board and authorized by the affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder.

A Delaware corporation can elect in its certificate of incorporation or by-laws not to be governed by Section 203. Lamar has not made that election.
 

The Oregon Business Combination Act to which Obie is subject is, in all material respects, identical to Delaware law.

79


Table of Contents

         
Lamar Stockholder Rights Obie Shareholder Rights


    Control Share Act

No applicable law governing Lamar.
 

The Oregon Control Share Act (“OCSA”) regulates the manner in which a person may acquire control of any Oregon-based corporation with 100 or more shareholders without the consent and cooperation of the board of directors. The OCSA generally provides that shares of stock acquired in a “control share acquisition” have no voting rights unless the restoration of the voting rights associated with such shares is approved by the shareholders. The restoration must be approved by the holders of a majority of the voting shares, including the control shares, and by a majority of the voting shares, excluding the control shares, entitled to vote. A Control Share Acquisition is defined as the acquisition of shares in a transaction or series of transactions that causes the acquiring person to own more than 20%, 33% or 50% of the total voting power of all voting shares. Shares are not deemed to be acquired in a control share acquisition if, among other things, they are acquired from the issuing corporation, or are issued pursuant to a plan of merger or exchange effected in compliance with the OBCA and the issuing corporation is a party to the merger or exchange agreement.

80


Table of Contents

         
Lamar Stockholder Rights Obie Shareholder Rights


Provisions Relating to Some Business Combinations   The DGCL generally requires that a merger and consolidation, or sale, lease, or exchange of all or substantially all of a corporation’s property and assets be approved by the directors and by a majority of the outstanding stock. A corporation’s certificate of incorporation may require a greater vote. Lamar’s certificate of incorporation does not provide for a greater vote.

Under the DGCL, a surviving corporation need not obtain stockholder approval for a merger if:

• each share of the surviving corporation’s stock outstanding prior to the merger remains outstanding in identical form after the merger;

• the merger agreement does not amend the certificate of incorporation of the surviving corporation; and

• either no shares of common stock of the surviving corporation are to be issued or delivered in the merger or, if common stock will be issued or delivered, it will not increase the number of shares of common stock outstanding prior to the merger by more than 20%.
  The OBCA generally requires that a merger or exchange be approved by the directors and by a majority of the outstanding stock. A corporation’s articles of incorporation may require a greater vote. Obie’s articles of incorporation do not provide for a greater vote. Under the OBCA, a surviving corporation need not obtain stockholder approval for a merger if:

• the articles of incorporation of the surviving corporation will not differ from its articles before the merger;

• each share of the surviving corporation’s stock outstanding prior to the merger remains outstanding in identical form after the merger;

• the number of voting shares outstanding immediately after the merger, plus the number of voting shares issued as a result of the merger, either by conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20 percent the total number of voting shares of the surviving corporation outstanding immediately before the merger; and

• the number of participating shares outstanding immediately after the merger, plus the numbers of participating shares issuable as a result of the merger, either by the conversion of securities issue pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20 percent the total number of participating shares outstanding immediately before the merger.

81


Table of Contents

         
Lamar Stockholder Rights Obie Shareholder Rights


Appraisal or Dissenters’ Rights   Under Delaware law, the right of dissenting stockholders to obtain the fair value for their shares is available in connection with some mergers or consolidations. Unless otherwise provided in the certificate of incorporation, appraisal rights are not available to stockholders when the corporation will be the surviving corporation in a merger and no vote of its stockholders is required to approve the merger. In addition, no appraisal rights are available to holders of shares of any class of stock which is either:

• listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the NASD, or

• held of record by more than 2,000 stockholders,

unless those stockholders are required by the terms of the merger to accept anything other than (1) shares of stock of the surviving corporation, (2) shares of stock of another corporation which, on the effective date of the merger or consolidation, are of the kind described above, (3) cash instead of fractional shares of stock, or (4) any combination of the consideration set forth in (1) through (3).
  Under Oregon law, the right of dissenting shareholders to obtain the fair value for their shares is available in connection with some mergers or consolidations. Unless otherwise provided in the articles of incorporation, appraisal rights are not available to shareholders when no vote of its shareholders is required to approve the merger. In addition, no appraisal rights are available to holders of shares of any class of stock which is listed on a national securities exchange or included in the national market system by the NASD unless Obie’s articles of incorporation specifies otherwise.

82


Table of Contents

EXPERTS

      The consolidated financial statements and the related financial statement schedule of Lamar Advertising Company and subsidiaries as of December 31, 2003 and 2002, and for each of the years in the three-year period ended December 31, 2003, have been incorporated by reference herein in reliance upon the report of KPMG LLP, an independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The audit reports covering the consolidated financial statements refer to (a) the Company’s restatement of it’s consolidated financial statements for the year ended December 31, 2003, (b) the adoption of the provisions of Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” and certain provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001 and the full adoption of SFAS No. 142 on January 1, 2002, and (c) the adoption of the provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations” on January 1, 2003.

      The financial statements and the related financial statement schedule of Obie Media Corporation as of November 30, 2003 and 2002 and for each of the three years in the period ended November 30, 2003 included in this proxy statement/ prospectus have been included in reliance on the report of PricewaterhouseCoopers LLP (“PwC”), an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

Change in Accountants

      On July 22, 2004, Obie dismissed PwC as its independent registered public accounting firm. Prior to filing its Form 10-Q with the SEC for the quarterly period ended August 31, 2004, Obie engaged Moss Adams LLP as its independent registered public accounting firm. The decision to change independent registered public accounting firms was recommended by Obie’s Audit Committee and approved by its board of directors. The reports of PwC on Obie’s consolidated financial statements as of and for the years ended November 30, 2003 and 2002, did not contain any adverse opinion, disclaimer of opinion, or qualification or modification as to uncertainty, audit scope, or accounting principles, with the exception of the fiscal year 2002 report which contained an emphasis-of-matter report regarding uncertainty with respect to Obie’s liquidity. During the fiscal years ended November 30, 2003 and 2002, and during the period from December 1, 2003 through July 22, 2004, there were no disagreements with PwC on any matter of accounting principles or practices which, if not resolved to PwC’s satisfaction, would have caused PwC to make reference to such disagreements in Obie’s financial reports.

LEGAL MATTERS

      The validity of the shares of Lamar stock to be issued in the merger will be passed upon for Lamar by its counsel, Palmer & Dodge LLP. Certain U.S. federal income tax consequences relating to the merger will also be passed upon for Lamar by Jones, Walker, Waechter, Poitevent, Carrère & Denègre, LLP, and for Obie by Davis Wright Tremaine LLP.

FUTURE OBIE SHAREHOLDER PROPOSALS

      If the merger occurs, there will be no annual meeting of the Obie shareholders for 2005. If the merger is not completed, Obie anticipates holding its 2005 Annual Meeting of Shareholders as soon as practicable following the special meeting. Obie shareholders who expect to present a proposal at the 2005 annual meeting of shareholders for publication in Obie’s proxy statement and action on the proxy form for such meeting must submit their proposal by                     . The proposal must be mailed to Obie’s Corporate Secretary at 4211 West 11th Avenue, Eugene, Oregon 97402. If Obie fails to receive notice of the proposal by such date, Obie will not be required to include the proposal in its proxy statement. In addition to these advance notice requirements, there are other requirements that a shareholder must meet

83


Table of Contents

in order to have a proposal included in the proxy statement under the rules of the Securities and Exchange Commission.

OTHER MATTERS

      Neither Lamar nor Obie presently intends to bring before the Obie special meeting any matters other than those specified in the notice accompanying this proxy statement/ prospectus, and neither Lamar nor Obie has any knowledge of any other matters that may be brought up by other persons. However, if any other matters come before the Obie special meeting or any adjournments of the meeting, the persons named in the enclosed proxy card, including any substitutes, will use their best judgment to vote the proxies.

WHERE YOU CAN FIND MORE INFORMATION

      Obie and Lamar each file annual, quarterly, and special reports, proxy statements, and other information with the SEC. You may read and copy any document that Obie or Lamar files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. Obie’s and Lamar’s SEC filings are also available on the SEC’s website at http://www.sec.gov. Copies of these materials can also be inspected and copied at the office of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006-1500. You may also access the SEC filings and obtain information about Lamar and Obie through the websites maintained by Lamar and Obie, which are http://www.lamar.com and http://www.obie.com, respectively. The information contained on Lamar’s and Obie’s websites is NOT incorporated by reference into this proxy statement/ prospectus.

      The SEC allows Lamar and Obie to “incorporate by reference” certain information into this proxy statement/ prospectus from other documents filed separately with the SEC, which means that Lamar and Obie can disclose important information by referring to those documents. The information incorporated by reference is considered to be part of this proxy statement/ prospectus, and information that Lamar and Obie file later with the SEC will automatically update and supersede this information. These documents contain important information about the companies and their financial condition.

      Lamar incorporates by reference the documents listed below and any future filings Lamar makes with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 after the date of the initial registration statement and prior to effectiveness of the registration statement and after the date of the prospectus and prior to the effective date of the merger:

  •  Lamar’s Annual Report on Form 10-K for the year ended December 31, 2003, as filed on March 10, 2004, as amended by Form 10-K/A, as filed on December 1, 2004;
 
  •  Lamar’s Proxy Statement on Schedule 14A, dated April 19, 2004, relating to its annual meeting of shareholders held on May 22, 2004, as filed on April 19, 2004;
 
  •  Lamar’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, as filed on May 10, 2004, as amended by Form 10-Q/A, as filed on December 1, 2004;
 
  •  Lamar’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, as filed on August 6, 2004, as amended by Form 10-Q/A, as filed on December 1, 2004;
 
  •  Lamar’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, as filed on November 15, 2004;
 
  •  Lamar’s Current Reports on Form 8-K filed on February 11, 2004, May 6, 2004, August 5, 2004, November 9, 2004, November 15, 2004; and
 
  •  The description of the Class A common stock contained in Lamar’s Registration Statement on Form 8-A filed on June 7, 1996 (File No. 0-20833), as amended by Forms 8-A/ A filed on July 31,

84


Table of Contents

  1996 (File No. 0-20833) and July 27, 1999 (File No. 333-50559-56), including any further amendment or report filed hereafter for the purpose of updating such description.

      Obie incorporates by reference the documents listed below and any future filings Obie makes with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 after the date of the initial registration statement and prior to effectiveness of the registration statement and after the date of the prospectus and prior to the later of (i) the date on which the special meeting of Obie’s shareholders is held and (ii) the date of the last adjournment of the special meeting of Obie shareholders:

  •  Obie’s Annual Report on Form 10-K for the year ended November 30, 2003, as filed on March 15, 2004;
 
  •  Obie’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2004, as filed on April 14, 2004;
 
  •  Obie’s Proxy Statement on Schedule 14A, dated April 12, 2004, relating to its annual meeting of shareholders held on May 20, 2004, as filed on May 4, 2004;
 
  •  Obie’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2004, as filed on July 14, 2004;
 
  •  Obie’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2004, as filed on October 15, 2004;
 
  •  Obie’s Current Reports on Form 8-K filed with the SEC on January 15, 2004, April 16, 2004, July 15, 2004, July 28, 2004, September 20, 2004; October 18, 2004; and
 
  •  The description of the common stock contained in Obie’s Registration Statement on Form 8-A filed on October 15, 1996 (File No. 000-21623), including any further amendment or report filed hereafter for the purpose of updating such description.

      You may request a copy of these filings, at no cost, by writing or telephoning using the following contact information:

     
Shareholder Services
  Investor Relations
Lamar Advertising Company
  Obie Media Corporation
5551 Corporate Boulevard
  4211 West 11th Avenue
Baton Rouge, LA 70808
  Eugene OR 97402-5435
(225) 926-1000
  (541) 686-8400

      You should rely only on the information contained or incorporated by reference in this proxy statement/ prospectus. Neither Lamar nor Obie has authorized anyone to provide information different from the information contained or incorporated by reference in this proxy statement/ prospectus. Neither the delivery of this proxy statement/ prospectus nor the sale of the Lamar stock offered by this proxy statement/ prospectus means that information contained or incorporated by reference in this proxy statement/ prospectus from previous filings by Lamar is correct after the date of this proxy statement/ prospectus. This proxy statement/ prospectus is neither an offer to sell nor a solicitation of an offer to buy Lamar stock offered by this proxy statement/ prospectus in any circumstance under which the offer or solicitation is unlawful.

85


Table of Contents

INDEX TO FINANCIAL STATEMENTS

Obie Media Corporation Financial Statements

         
Consolidated Condensed Balance Sheets as of August 31, 2004 (unaudited) and November 30, 2003
    F-2  
Consolidated Condensed Statement of Operations for the periods ended August 31, 2004 and 2003 (unaudited)
    F-3  
Consolidated Condensed Statement of Cash Flows for the periods ended August 31, 2004 and 2003 (unaudited)
    F-4  
Notes to Consolidated Condensed Financial Statements for the period ending August 31, 2004
    F-5  
Report of Independent Registered Public Accounting Firm
    F-12  
Consolidated Balance Sheets as of November 30, 2003 and 2002
    F-13  
Consolidated Statement of Operations for the years ended November 30, 2003, 2002 and 2001
    F-14  
Consolidated Statements of Changes in Shareholders’ Equity for the years ended November 30, 2003, 2002 and 2001
    F-15  
Consolidated Statements of Cash Flows for the years ended November 30, 2003, 2002 and 2001
    F-16  
Notes to Consolidated Financial Statements — November 30, 2003, 2002 and 2001
    F-17  

F-1


Table of Contents

OBIE MEDIA CORPORATION

As of August 31, 2004 and November 30, 2003

CONSOLIDATED CONDENSED BALANCE SHEETS

                     
August 31 November 30
2004 2003


(Unaudited)
ASSETS
CURRENT ASSETS:
               
 
Cash
  $ 797,832     $ 1,943,169  
 
Accounts receivable, net
    5,493,288       5,774,226  
 
Prepaids and other current assets
    6,208,542       5,099,504  
 
Deferred income taxes
    1,542,592       1,543,750  
     
     
 
   
Total current assets
    14,042,254       14,360,649  
 
Property and equipment, net
    14,836,855       14,886,619  
 
Goodwill, net
    5,448,552       5,448,552  
 
Other assets
    1,571,677       749,936  
     
     
 
    $ 35,899,338     $ 35,445,756  
     
     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
               
 
Current portion of long-term debt
  $ 1,000,000     $ 1,723,695  
 
Working capital revolver
    4,935,214       3,890,483  
 
Accounts payable
    509,197       307,901  
 
Accrued transit fees
    973,096       1,148,124  
 
Accrued expenses
    1,164,969       1,220,754  
 
Income taxes payable
          214,540  
 
Unearned revenue
    1,083,821       928,051  
     
     
 
   
Total current liabilities
    9,666,297       9,433,548  
 
Deferred tax liability
    1,584,805       1,586,631  
 
Long-term debt, net
    18,550,670       17,246,748  
     
     
 
   
Total liabilities
    29,801,772       28,266,927  
     
     
 
Shareholders’ equity:
               
 
Preferred stock, without par value, 10,000,000 shares authorized, no shares issued or outstanding
               
 
Common stock, without par value, 20,000,000 shares authorized, 6,001,442 and 5,913,602 shares issued and outstanding at August 31, 2004 and November 30, 2003 respectively
    17,531,978       17,282,128  
 
Deferred stock based compensation
    (146,523 )      
 
Other comprehensive loss
    (87,892 )     (45,495 )
 
Accumulated deficit
    (11,199,997 )     (10,057,804 )
     
     
 
   
Total shareholders’ equity
    6,097,566       7,178,829  
     
     
 
    $ 35,899,338     $ 35,445,756  
     
     
 

See accompanying notes

F-2


Table of Contents

OBIE MEDIA CORPORATION

CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS

                                     
Three Months Ended August 31 Nine Months Ended August 31


2004 2003 2004 2003




(Unaudited)
REVENUES:
                               
 
Transit advertising
  $ 11,016,302     $ 9,506,089     $ 28,830,135     $ 25,453,336  
 
Outdoor advertising
    2,118,368       1,857,271       6,170,950       5,242,898  
     
     
     
     
 
   
Net revenue
    13,134,670       11,363,360       35,001,085       30,696,234  
     
     
     
     
 
OPERATING EXPENSES:
                               
 
Production and installation
    1,783,684       1,470,753       4,996,602       4,392,478  
 
Transit and outdoor occupancy
    5,225,496       5,289,138       13,689,923       13,459,925  
 
Selling
    2,120,656       1,941,640       6,498,531       5,766,680  
 
General and administrative
    2,275,588       1,930,299       6,569,310       5,449,891  
 
Depreciation and amortization
    491,131       450,572       1,450,066       1,369,516  
     
     
     
     
 
   
Total operating expenses
    11,896,555       11,082,402       33,204,432       30,438,490  
     
     
     
     
 
   
Operating income
    1,238,115       280,958       1,796,653       257,744  
OTHER EXPENSE:
                               
 
Interest expense
    641,159       625,239       1,814,093       1,752,997  
 
Loss on debt extinguishment
                961,411        
     
     
     
     
 
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    596,956       (344,281 )     (978,851 )     (1,495,253 )
INCOME TAX PROVISION (BENEFIT)
    64,423       (25,431 )     110,838       109,100  
     
     
     
     
 
INCOME (LOSS) FROM CONTINUING OPERATIONS
    532,533       (318,850 )     (1,089,689 )     (1,604,353 )
DISCONTINUED OPERATIONS, NET OF INCOME TAXES
    (21,739 )     (88,195 )     (52,502 )     (306,696 )
     
     
     
     
 
 
NET INCOME (LOSS)
  $ 510,794     $ (407,045 )   $ (1,142,191 )   $ (1,911,049 )
     
     
     
     
 
Earnings (loss) per share:
                               
 
Basic and diluted, from continuing operations
  $ 0.09     $ (0.05 )   $ (0.18 )   $ (0.27 )
 
Basic and diluted, from discontinued operations
    0.00       (0.02 )     (0.01 )     (0.05 )
 
Basic and diluted, on net earnings (loss)
  $ 0.09     $ (0.07 )   $ (0.19 )   $ (0.32 )

See accompanying notes

F-3


Table of Contents

OBIE MEDIA CORPORATION

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

                         
Nine Months Ended August 31,

2004 2003


(Unaudited)
Cash Flows From Operating Activities:
               
 
Net loss
  $ (1,142,191 )   $ (1,911,049 )
 
Adjustments to reconcile net loss to net cash used in operating activities:
               
   
Depreciation and amortization
    1,450,066       1,242,061  
   
Loss on debt extinguishment
    961,411        
   
Compensation expense from restricted stock
    65,781        
   
Changes in assets and liabilities:
               
   
(Increase) decrease in:
               
     
Accounts receivable
    280,938       1,960,681  
     
Prepaid and other assets
    (1,145,861 )     (618,688 )
     
Deferred income taxes
    1,158          
   
Increase (decrease) in:
               
     
Accounts payable
    201,296       (62,485 )
     
Other liabilities
    (253,865 )     (442,820 )
     
     
 
       
Net cash provided by operating activities
    418,733       167,700  
     
     
 
Cash Flows From Investing Activities:
               
 
Capital expenditures
    (1,195,382 )     (413,725 )
     
     
 
   
Net cash used in investing activities
    (1,195,382 )     (413,725 )
     
     
 
Cash Flows From Financing Activities:
               
 
Net borrowings on line of credit
    1,044,731       810,000  
 
Borrowings of long-term debt
    20,215,535       92,679  
 
Payments on long-term debt
    (20,345,125 )     (1,480,555 )
 
Loan fees incurred with financing
    (1,241,432 )        
     
     
 
   
Net cash used in financing activities
    (326,291 )     (577,876 )
     
     
 
Effect of exchange rate changes on cash
    (42,397 )     (51,915 )
Net decrease in cash
    (1,145,337 )     (875,816 )
Cash, beginning of period
    1,943,169       1,815,886  
     
     
 
Cash, end of period
  $ 797,832     $ 940,070  
     
     
 

See accompanying notes

F-4


Table of Contents

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

For the Period Ending August 31, 2004
 
1. Basis of Presentation

      The interim financial statements have been prepared by Obie Media Corporation (“Obie,” “Obie Media” or the “Company”) without audit. In the opinion of management, the accompanying financial statements contain all adjustments necessary to present fairly the financial position of the Company as of August 31, 2004 and November 30, 2003, and the results of operations and cash flows of the Company for the three and nine months ended August 31, 2004 and 2003, as applicable. The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, and all significant intercompany accounts and transactions have been eliminated in consolidation.

      Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as permitted by rules and regulations of the Securities and Exchange Commission. The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the Company’s financial statements for the period ending November 30, 2003, beginning on page F-17.

 
2. Stock Options
 
Statements of Financial Accounting Standards No. 123 and No. 148

      The Company measures compensation expense for its stock-based employee compensation plans using the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees —” (APB 25), and provides pro forma disclosures of net income (loss) and net income (loss) per common share as if the fair value method had been applied in measuring compensation expense in accordance with Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” (SFAS No. 123).

      In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, (SFAS No. 148), “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FAS 123.” SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Finally, SFAS No. 148 amends APB Opinion No. 28 (“APB 28”), “Interim Financial Reporting,” to require disclosure about those effects in interim financial information. The amendments to the transition and disclosure provisions is effective for fiscal years ending after December 15, 2002. The amendment to APB 28 is effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. We adopted the disclosure provisions of SFAS No. 148 during our quarter ended May 31, 2003.

      As required by SFAS No. 123, the Company computed the value of options granted during the three and nine month periods ended August 31, 2004 and 2003 using the Black-Scholes option pricing model for pro forma disclosure purposes. The weighted average assumptions used for stock option grants for the three and nine month periods ended August 31, 2004 and 2003 were a risk-free interest rate of 3.46% and 4.9%, respectively, expected dividend yields of 0%, expected lives of 6.0 years and expected volatility of 79.76% and 81.48%, respectively.

      Options are assumed to be exercised upon vesting for purposes of this valuation. Adjustments are made for options forfeited as they occur. For the three month periods ended August 31, 2004 and 2003, the total value of the options granted was approximately $7,100 and $7,200, respectively. For the nine month periods ended August 31, 2004 and 2003 the total value of options granted was approximately $139,000 and $20,600 respectively. The value would be amortized on a straight-line basis over the vesting periods of the options.

F-5


Table of Contents

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
For the Period Ending August 31, 2004

      Had Obie accounted for these plans in accordance with SFAS No. 123, the Company’s net income (loss) and pro forma net income (loss) per share would have been reported as follows:

                 
Three Months
Ended August 31,

2004 2003


(In thousands,
except per share
data)
Net income (loss) as reported
  $ 511     $ (407 )
Deduct total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects
    (40 )     (53 )
     
     
 
Pro-forma net income (loss)
  $ 471     $ (460 )
     
     
 
Net income (loss) per share
               
Basic:
               
As reported
  $ 0.09     $ (0.07 )
Pro forma
  $ 0.08     $ (0.08 )
Fully diluted:
               
As reported
  $ 0.09     $ (0.07 )
Pro forma
  $ 0.08     $ (0.08 )
                 
Nine Months
Ended August 31,

2004 2003


(In thousands,
except per share
data)
Net loss as reported
  $ (1,142 )   $ (1,911 )
Deduct total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects
    (120 )     (160 )
     
     
 
Pro-forma net loss
  $ (1,262 )   $ (2,071 )
     
     
 
Net loss per Share
               
Basic:
               
As reported
  $ (0.19 )   $ (0.32 )
Pro forma
  $ (0.21 )   $ (0.35 )
Fully diluted:
               
As reported
  $ (0.19 )   $ (0.32 )
Pro forma
  $ (0.21 )   $ (0.35 )

      The effects of applying SFAS No. 123 for providing pro forma disclosure for the three and nine month periods ended August 31, 2004 and 2003 are not likely to be representative of the effects on reported net income (loss) and net income (loss) per share for future years since options vest over several years and additional awards are made each year.

      The Company entered into restricted stock agreements with eight executives in November 2003 and February 2004 in exchange for certain of their stock options. The restricted stock agreements were approved by the Company’s board of directors. Under the terms of the agreements, 87,945 shares of restricted stock were exchanged for 175,890 stock options. 71,508 shares vest over three and one-half years and 16,437 shares vest over five years. The fair value of the restricted stock on the date of grants

F-6


Table of Contents

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
For the Period Ending August 31, 2004

amounted to $247,184, of which $65,781 was recorded as compensation expense during the nine months ended August 31, 2004. Unamortized compensation expense at August 31, 2004 totaled $146,523 and has been recorded as Deferred Stock Based Compensation in the balance sheet. The restricted stock shares were issued in December 2003 and June 2004.

 
3. Contract Termination

      On December 5, 2001 the Company received notice from the Chicago Transit Authority (CTA) that it was terminating the Company’s transit advertising agreement effective as of that date. The parties entered into a settlement agreement effective May 28, 2002 with respect to outstanding issues.

      The settlement agreement required the Company to pay the CTA approximately $17 million, substantially less than the original contracted guaranteed payment of $21.8 million. This obligation was paid in full in January 2004 from funds provided by new financing arrangements described in Note 4 below.

 
4. Debt Agreements

      On January 14, 2004 the Company entered into a new long-term financing agreement with CapitalSource Finance, LLC. The agreement includes a $17.5 million term loan and a $6.0 million revolving line of credit to Obie Media Corporation. Both obligations mature on November 30, 2008. The agreement includes a $2.5 million term loan to Obie Media Ltd., the Company’s Canadian subsidiary which expires on January 31, 2009. Funds from the term loans were used to (1) pay off the existing term loan with U.S. Bank, (2) pay off the balance of the settlement obligation with the Chicago Transit Authority, and (3) pay off the promissory note related to the purchase of the minority interest of O.B. Walls, Inc. Funds from the revolving line of credit were used to pay off the outstanding balance on the operating line of credit due to U.S. Bank. The interest charged is prime plus 4.5% on the revolving line of credit and prime plus 5.5% on the term loans. These margins may be reduced by up to 1.0% depending on the company’s leverage ratio. The effective rates on the revolving line of credit and term loans at August 31, 2004 were 9.0% and 10.0%, respectively. The first date the margins may be adjusted is the quarter ending November 30, 2004. This transaction resulted in a write off of the discount on the obligation with the Chicago Transit Authority in the amount of $709,817, and write off of prepaid loan costs in the amount of $251,594. These amounts have been shown as loss on debt extinguishment in the consolidated statement of operations.

      The loan agreement with CapitalSource Finance, LLC contains financial covenants regarding (1) minimum rolling EBITDA, (2) maximum leverage ratios, (3) fixed-charge coverage ratios, and (4) interest coverage ratios, all of which are measured on a quarterly basis. The first measurement date was as of February 29, 2004. The loan agreement also restricts the Company’s ability to pay dividends. The loans are collateralized by substantially all of the assets of the Company. The Company was in compliance with all covenants at August 31, 2004.

      The Company has an arrangement with Travelers Casualty & Surety Company of America (“Travelers”), to provide bonds required by the Company. The Company and Travelers have entered into a security agreement whereby Travelers maintains a second position security interest in certain of the Company’s assets, subordinate to the security arrangements with CapitalSource Finance, LLC or any other replacement primary lender.

 
5. Accounting for Goodwill

      In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (SFAS No. 142), goodwill amortization was discontinued as of November 30, 2002. We continued our impairment analysis during the quarter ending August 31, 2004 and have found no

F-7


Table of Contents

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
For the Period Ending August 31, 2004

instances of impairment. Goodwill at August 31, 2004 and November 30, 2003 amounted to $5,448,552, net of accumulated amortization of $2,181,571.

 
6. Income Taxes

      The provision for (benefit from) income taxes for the nine months ended August 31, 2004 and 2003 differs from the amounts computed by applying the U.S. federal income tax rate of 34 percent to pretax income as follows:

                 
Nine Months
Ended August 31,

2004 2003


Statutory federal income tax rate
    (34.0 )%     (34.0 )%
Increase in income taxes resulting from:
               
State and local taxes, net of federal benefit
    (3.6 )%     (3.6 )%
Net operating loss valuation allowance
    37.6 %     37.6 %
Foreign income taxes
    11.3 %     7.3 %
     
     
 
Effective income tax rate
    11.3 %     7.3 %
     
     
 
 
7. Earnings Per Share

      Basic earnings per share (EPS) is calculated using the weighted average number of common shares outstanding for the period and diluted EPS is calculated using the weighted average number of common shares and dilutive common equivalent shares outstanding. The following is a reconciliation of the basic and diluted shares used in the per share calculation:

                 
Three Months
Ended August 31,

2004 2003


Basic Shares (weighted average)
    6,000,464       5,908,577  
Dilutive effect of stock options
    41,054        
     
     
 
Diluted shares (weighted average)
    6,041,518       5,908,577  
     
     
 
                 
Nine Months
Ended August 31,

2004 2003


Basic Shares (weighted average)
    5,989,180       5,908,577  
Dilutive effect of stock options
    18,506        
     
     
 
Diluted shares (weighted average)
    6,007,686       5,908,577  
     
     
 

      At August 31, 2004 and 2003 options to acquire 521,990 and 654,908 shares, respectively, of the Company’s common stock were outstanding.

 
8. Comprehensive Income

      In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 “Reporting Comprehensive Income” (SFAS No. 130). This statement establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. The objective of SFAS No. 130 is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than

F-8


Table of Contents

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
For the Period Ending August 31, 2004

transactions with owners. Comprehensive income did not materially differ from reported net income (loss) for the nine month periods ended August 31, 2004 and 2003 respectively.

 
9. Discontinued Operations

      Effective during its fiscal year ended November 30, 2002, the Company adopted Statements of Financial Accounting Standards No. 144 “Accounting for the Impairment of Long-Lived Assets” (SFAS No. 144) and No. 146 “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS No. 146).

      Pursuant to these pronouncements, the Company has classified as “Discontinued Operations” the results of operations and any exit costs associated with transit agreements that were (a) economically not viable — and (b) where the Company plans to or has already either exited the market or intends not to be a competitive participant in new contract awards for expiring agreements. Accordingly, the Company exited these markets and has no ongoing advertising operations. These operations qualify as components of an entity with separate financial reporting as described in SFAS No. 144. The assets associated with the discontinued markets are, in the aggregate, not material. For fiscal 2004, the U.S. transit districts included in Discontinued Operations are San Antonio, Pittsburgh and Bridgeport. For fiscal 2003 the U.S. transit districts included in Discontinued Operations are: Chicago, San Antonio, Cincinnati, Kitsap, Santa Cruz and Bridgeport, and the Canadian transit districts included are: Pickering, Whitby, Cambridge and St. Catharines. The Chicago (see Note 3 above), Pickering, Whitby, Cambridge and St. Catharines contracts were terminated during fiscal year 2002 — and the contract in San Antonio was terminated in December 2002. The Company did not aggressively participate in new contract awards in Cincinnati, Kitsap, Santa Cruz or Bridgeport, which contracts expired either during fiscal 2002 or early in fiscal 2003. The results of operations for these transit districts for 2003 have been reclassified to Discontinued Operations for comparability purposes.

      Net revenues and the components of the net loss related to the discontinued operations were as follows:

                 
Three Months
Ended August 31,

2004 2003


Net revenues
  $ 108     $ 10,491  
Production and installation expenses
          (4,228 )
Occupancy expense
    (22,659 )     (29,009 )
Sales expense
    4,000       (922 )
General and administrative expense
    (3,188 )     (64,527 )
     
     
 
Loss from discontinued operations before income taxes
    (21,739 )     (88,195 )
Income tax expense
           
     
     
 
Net loss from discontinued operations
  $ (21,739 )   $ (88,195 )
     
     
 

F-9


Table of Contents

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
For the Period Ending August 31, 2004
                 
Nine Months
Ended August 31,

2004 2003


Net revenues
  $ (5,805 )   $ 258,308  
Production and installation expenses
    (5,643 )     (53,350 )
Occupancy expense
    (26,596 )     (168,710 )
Sales expense
    1,208       (53,576 )
General and administrative expense
    (15,666 )     (289,368 )
     
     
 
Loss from discontinued operations before income taxes
    (52,502 )     (306,696 )
Income tax expense
           
     
     
 
Net loss from discontinued operations
  $ (52,502 )   $ (306,696 )
     
     
 
 
10. New Accounting Pronouncements

      In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements regarding its obligations under certain of its guarantees. FIN 45 also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, while the provisions of the disclosure requirements are effective for the financial statements of interim or annual reports ending after December 15, 2002. The Company has adopted the requirements of FIN 45. The adoption of FIN 45 did not have a material effect on the Company’s financial position or results of operations.

 
11. Reclassifications

      Certain amounts previously reported in the Company’s financial statements as of August 31, 2003 have been reclassified to conform to the current fiscal year presentation. These reclassifications had no effect on previously reported net income (loss) or shareholders’ equity.

 
12. Contingencies

      From time to time the Company is subject to legal proceedings and claims in the ordinary course of business. The Company is currently involved in claims and legal proceedings in which monetary damages and other relief are sought. The Company is vigorously contesting these claims. Resolution, however, is not expected to occur quickly, and the ultimate outcome cannot presently be predicted. In the opinion of the Company’s management, the ultimate resolution of these claims and proceedings will not likely have a material adverse effect on the consolidated financial condition, results of operations or cash flows of the Company. See “Subsequent Events” in Note 13.

 
13. Subsequent Event

      On September 17, 2004, Obie entered into a definitive agreement to be merged with Lamar Advertising Company. Under the terms of the agreement Lamar will acquire all of Obie’s outstanding stock for approximately $43 million or approximately $7.00 per share of Obie common stock. Lamar expects to issue an aggregate of approximately 1.0 million shares of Lamar Class A common stock in the merger. The exact exchange ratio is to be based upon the average closing price of Lamar stock for the twenty trading days three days prior to closing. Closing is expected to occur on or about January 15, 2005.

F-10


Table of Contents

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
For the Period Ending August 31, 2004

      In conjunction with executing the above agreement, the Company’s board of directors accelerated vesting on all outstanding stock options and, effective September 30, 2004, terminated the Company’s employee stock purchase plan.

      In June 2003, Obie was sued by VIA Metropolitan Transit (“VIA”), the transit authority for San Antonio, Texas. The suit alleged breach of contract, fraud and theft relative to a contract for transit advertising services between the Company and VIA. Damages were not specified but were expected to exceed $600,000. While Obie believed (and continues to believe) that the claims were without merit and intended to vigorously contest them, Obie and Lamar also believe that settlement, on the right terms and conditions, could be beneficial to Lamar if the merger is closed. Therefore, on November 4, 2004, Obie and VIA agreed to settle all claims, subject to ratification by their respective board of directors and governing board and execution of a definitive settlement and release agreement, for a total of $1.5 million payable by Obie as follows: (a) $300,000 upon execution of the settlement agreement, (b) $50,000 per month commencing 30 days after the initial payment, with the unpaid balance bearing interest at 7% per annum; (c) if the merger occurs, the entire unpaid balance, including accrued but unpaid interest, is due on January 30, 2005; and (d) if the merger does not occur, $600,000 of the unpaid balance will be paid directly to VIA by Lamar within three days following the termination of the merger agreement. The unpaid balance will be paid as specified in (b) above.

F-11


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Obie Media Corporation:

      In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in shareholders’ equity, and of cash flows present fairly, in all material respects, the financial position of Obie Media Corporation and its subsidiaries at November 30, 2003 and November 30, 2002, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule included in Item 21(b) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” on December 1, 2002. As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statements of Financial Accounting Standards No. 144 and No. 146, “Accounting for the Impairment of Long-lived Assets,” and “Accounting for Costs Associated with Exit or Disposal Activities,” on December 1, 2001.

  /s/ PRICEWATERHOUSECOOPERS LLP
  PRICEWATERHOUSECOOPERS LLP

Portland, Oregon

March 12, 2004

F-12


Table of Contents

OBIE MEDIA CORPORATION

CONSOLIDATED BALANCE SHEETS

As of November 30, 2003 and 2002
                     
2003 2002


ASSETS
CURRENT ASSETS
               
 
Cash
  $ 1,943,169     $ 1,815,886  
 
Accounts receivable, net of allowance for doubtful accounts of $592,163 and $1,938,537, respectively
    5,774,226       7,327,681  
 
Refundable income taxes
            121,055  
 
Prepaid expenses and other current assets
    5,099,504       4,869,804  
 
Deferred income taxes
    1,543,750       1,732,395  
     
     
 
   
TOTAL CURRENT ASSETS
    14,360,649       15,866,821  
     
     
 
PROPERTY AND EQUIPMENT, net
    14,886,619       15,864,193  
OTHER ASSETS
               
 
Goodwill
    5,448,552       5,448,552  
 
Other assets, net
    749,936       947,322  
     
     
 
   
TOTAL ASSETS
  $ 35,445,756     $ 38,126,888  
     
     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
               
 
Current portion of long-term debt
  $ 1,723,695     $ 2,847,311  
 
Line of credit
    3,890,483       2,980,483  
 
Accounts payable
    307,901       283,075  
 
Accrued transit fees
    1,148,124       1,102,519  
 
Accrued expenses
    1,220,754       737,698  
 
Income taxes payable
    214,540        
 
Unearned revenue
    928,051       767,637  
     
     
 
   
Total current liabilities
    9,433,548       8,718,723  
DEFERRED INCOME TAXES
    1,586,631       1,573,729  
LONG TERM DEBT, less current portion
    17,246,748       17,707,306  
     
     
 
      28,266,927       27,999,758  
     
     
 
COMMITMENTS AND CONTINGENCIES (Note 9)
               
SHAREHOLDERS’ EQUITY
               
 
Preferred stock, without par value, 10,000,000 shares authorized, no shares issued and outstanding
               
 
Common stock, without par value, 20,000,000 shares authorized, 5,913,602 and 5,908,577 shares issued
    17,282,128       17,272,128  
 
Other comprehensive income
    (45,495 )     5,350  
 
Accumulated deficit
    (10,057,804 )     (7,150,348 )
     
     
 
   
Total shareholders’ equity
    7,178,829       10,127,130  
     
     
 
   
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 35,445,756     $ 38,126,888  
     
     
 

The accompanying notes are an integral part of these consolidated financial statements

F-13


Table of Contents

OBIE MEDIA CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

For the Years Ended November 30, 2003, 2002 and 2001
                               
2003 2002 2001



REVENUES:
                       
 
Outdoor advertising
  $ 6,945,164     $ 6,735,537     $ 6,732,336  
 
Transit advertising
    36,172,176       37,547,635       36,160,064  
     
     
     
 
     
Net revenues
    43,117,340       44,283,172       42,892,400  
OPERATING EXPENSES:
                       
 
Production and installation
    6,247,029       6,476,412       6,261,254  
 
Occupancy
    19,374,636       18,299,548       20,163,299  
 
Sales
    7,726,752       8,571,638       8,219,734  
 
General and administrative
    7,323,877       7,891,548       9,191,412  
 
Depreciation and amortization
    1,752,421       2,181,490       2,077,365  
     
     
     
 
     
Operating income (loss)
    692,625       862,536       (3,020,664 )
INTEREST EXPENSE
    2,333,805       1,724,994       1,337,136  
     
     
     
 
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    (1,641,180 )     (862,458 )     (4,357,800 )
PROVISION FOR (BENEFIT FROM) INCOME TAXES
    502,236               (923,957 )
     
     
     
 
LOSS FROM CONTINUING OPERATIONS
    (2,143,416 )     (862,458 )     (3,433,843 )
     
     
     
 
DISCONTINUED OPERATIONS (NOTE 1 ) LOSS FROM DISCONTINUED OPERATIONS
    (764,040 )     (1,154,069 )     (4,905,872 )
 
INCOME TAX BENEFIT
                (1,091,327 )
     
     
     
 
LOSS ON DISCONTINUED OPERATIONS
    (764,040 )     (1,154,069 )     (3,814,545 )
     
     
     
 
NET LOSS
  $ (2,907,456 )   $ (2,016,527 )   $ (7,248,388 )
     
     
     
 
BASIC NET LOSS PER SHARE:
                       
 
LOSS FROM CONTINUING OPERATIONS
  $ (0.36 )   $ (0.14 )   $ (0.58 )
 
LOSS FROM DISCONTINUED OPERATIONS
    (0.13 )     (0.20 )     (0.65 )
     
     
     
 
   
NET LOSS PER SHARE
  $ (0.49 )   $ (0.34 )   $ (1.23 )
     
     
     
 
DILUTED LOSS PER SHARE:
                       
 
LOSS FROM CONTINUING OPERATIONS
  $ (0.36 )