UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM [ ] TO [ ]
COMMISSION FILE NO. 0-21451
BOWLIN Outdoor Advertising & Travel Centers Incorporated
(Name of small business issuer in its charter)
NEVADA 85-0113644
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
150 LOUISIANA NE, ALBUQUERQUE, NM 87108
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 505-266-5985
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
Title of each class Name of each exchange on which registered
Common Stock , $.001 Par Value AMEX
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
NONE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes[X] No[ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.[X]
The issuer's revenues for its most recent fiscal year were $27,439,398.
The aggregate market value of the voting stock held by non-affiliates of the
registrant at April 13, 1998 was $17,150,123.
The number of shares of Common Stock, $.001 par value, outstanding as of April
13, 1998: 4,384,848
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DOCUMENTS INCORPORATED BY REFERENCE:
None
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Forward-Looking Statements
Certain statements in this Annual Report on Form 10-KSB constitute
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and should be read in conjunction with the
Consolidated Financial Statements of BOWLIN Outdoor Advertising & Travel Centers
Incorporated, a Nevada Corporation (the "Company" or "BOWLIN"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that could cause the Company's actual results to differ materially
from those contained in these forward-looking statements, including those set
forth under the heading "RISK FACTORS" under ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION and the risks and other factors described
elsewhere. The cautionary factors, risks and other factors presented should not
be construed as exhaustive. The Company assumes no obligation to update these
forward-looking statements to reflect actual results, changes in assumptions or
changes in other factors affecting such forward-looking statements.
Company Overview
The Company is a regional leader in the operation of travel centers and
outdoor advertising displays dedicated to serving the traveling public in rural
and smaller metropolitan areas of the Southwestern United States. The Company's
tradition of serving the public dates back to 1912, when the Company's founder,
Claude M. Bowlin, started trading goods and services with Native Americans in
New Mexico. BOWLIN currently operates fourteen full-service travel centers along
interstate highways in Arizona and New Mexico. The Company advertises its travel
centers through a network of over 350 outdoor advertising display faces. The
Company's travel centers offer brand name food, gasoline and a variety of unique
Southwestern merchandise to the traveling public.
In addition to its travel centers, the Company operates over 2,760
revenue-generating outdoor advertising display faces for third party customers
such as hotels and motels, restaurants and consumer products. These display
faces are strategically situated primarily along interstate highways in Arizona,
New Mexico, and Texas and, to a lesser extent, in Colorado and Oklahoma. The
Company provides a comprehensive range of outdoor advertising services to its
clients, including customized design and production services. Although the
Company faces substantial competition in each of its operational areas, the
Company believes that few of its competitors offer the same breadth of products
and services dedicated to the traveling public.
Recent Developments
On April 1, 1997, the Company acquired all of the assets and assumed
certain liabilities of the outdoor advertising division of The McCarty Company
(known as Pony Panels) for $4.2 million cash. The purchased assets consisted
primarily of accounts receivable, prepaid assets, sign structures, vehicles,
machinery, operating equipment, office furniture and equipment, lease rights and
goodwill. The liabilities consisted primarily of trade accounts payable. The
purchase price was funded from proceeds of the initial public offering (IPO) of
$1.7 million and bank debt ($2.5 million) provided by Norwest Bank Minnesota,
N.A. at the bank's prime rate (8.5% at closing) and matures on April 2, 2007.
The bank debt is subject to certain financial and other restrictive covenants.
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On April 26, 1997, the Company acquired the outdoor assets of General
Outdoor Advertising for $240,000 in cash. The cash was provided from proceeds of
the Company's initial public offering (IPO) of common stock.
On April 29, 1997, the Company acquired the outdoor advertising assets of
Mesa Outdoor Advertising for $425,000. The purchase price was funded from IPO
proceeds ($150,000) and a note payable to the former owner in the amount of
$275,000 at a fixed rate of 9.0% per annum and matures May 1, 2007.
On November 25, 1997 the Company entered into a credit agreement with one
of its existing lenders for the following: 1) a facility line, which is a
multiple advance line, in the amount of $8,000,000 to fund acquisition of
existing travel centers, or construction of new travel centers, and the purchase
of related equipment; 2) a leasing line in the amount of $2,000,000; and 3) a
working capital open line in the amount of $500,000. This agreement carries a
variable interest rate based on the bank's prime lending rate, 8.5%.
On December 9, 1997, the Company acquired all of the assets of Sweezy
Outdoor Advertising Inc. (Sweezy) for $1.7 million. The purchased assets
consisted primarily of sign structures, vehicles, operating equipment and office
furniture and equipment. The consideration paid was funded by $700,000 of IPO
proceeds and $1.0 million of bank debt. The bank debt was provided by Norwest
Bank Minnesota, N.A. at the bank's prime rate (8.5% at closing). The bank debt
is subject to certain financial and other restrictive covenants. The Company
also entered into a "Non-Competition" agreement with the principals of Sweezy
for a period of ten years from the date of acquisition.
Subsequent Events
On February 1, 1998, the Company acquired the outdoor advertising assets of
Big-Tex Outdoor Advertising for $1,559,000. The purchased assets consisted
primarily of sign structures, vehicles, operating equipment and office furniture
and equipment. The consideraton paid was funded by $559,000 of IPO proceeds and
$1.0 million of bank debt. The bank debt was provided by Norwest Bank Minnesota,
N.A. at the bank's prime rate (8.5% at closing). The bank debt is subject to
certain financial and other restrictive covenants. The Company also entered into
a "Non-Competition" agreement with the principal of Big-Tex for a period of ten
years beginning in February 1999.
On March 3, 1998, the Company acquired the outdoor advertising assets of
Norwood Outdoor, Inc. for $1.0 million. The consideration was funded by $350,000
of IPO proceeds and $650,000 of bank debt. The bank debt was provided by Norwest
Bank Minnesota, N.A. at the bank's prime rate (8.5% at closing). The bank debt
is subject to certain financial and other restrictive covenants. The Company
also entered into a "Non-Competition" agreement with the principal of Norwood
for a period of ten years beginning in February 1999.
Industry Overview
Travel Services Industry. The travel services industry in which the Company
competes includes convenience stores that may or may not offer gasoline, and
fast food and full-service restaurants located along rural interstate highways.
The Company believes that the current trend in the travel services industry is
toward strategic pairings at a single location of complementary products that
are noncompetitive, such as brand name gasoline and brand name fast food
restaurants. This concept, known as "co-branding," has recently seen greater
acceptance by both traditional operators and larger petroleum companies. The
industry has also been characterized in recent periods by consolidation or
closure of smaller operators.
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The convenience store industry includes both traditional operators that
focus primarily on the sale of food and beverages but also offer gasoline and
large petroleum companies that offer food and beverages primarily to attract
gasoline customers. According to the National Association of Convenience Stores,
in 1996 the convenience store industry sold approximately $70.7 billion in food
and merchandise, and $81.2 billion in petroleum products.
The restaurant segment of the travel services industry is highly
competitive, most notably in the areas of consistency of quality, variety,
price, location, speed of service, and effectiveness of marketing. The major
chains are aggressively increasing market penetration by opening new
restaurants, including restaurants at "special sites" such as retail centers,
travel centers and gasoline outlets. Smaller quick-service restaurant chains and
franchise operations are focusing on brand and image enhancement and co-branding
strategies.
Outdoor Advertising Industry. According to recent estimates by the Outdoor
Advertising Association of America ("OAAA"), outdoor advertising generated total
billboard revenues of approximately $2.135 billion in 1997, representing growth
of approximately 8.8% over 1996. Outdoor advertising offers repetitive impact
and a relatively low cost-per-thousand impressions as compared to broadcast
media, newspapers, magazines and direct mail marketing, making it attractive to
both local businesses targeting a specific geographic area or set of demographic
characteristics and national advertisers seeking mass market support. Because
outdoor advertising reaches potential customers close to the point-of-sale,
restaurants, motels, service stations and similar businesses find outdoor
advertising particularly effective. Repeated viewing by people traveling the
same route on a daily basis makes outdoor advertising especially suitable for
companies such as banks, insurance companies, and soft drink manufacturers that
sell their products by promoting a particular image. Outdoor advertising
services have recently expanded beyond billboards to include a wide variety of
out-of-home advertising media, including advertising displays in shopping
centers, malls, airports, stadiums, movie theaters and supermarkets, as well as
on taxis, trains, buses and subways. Recent estimates published by the OAAA
report that total out-of-home advertising revenues, including traditional
billboard advertising, exceeded $4.047 billion in 1997.
The outdoor advertising industry uses three standardized display formats:
traditional bulletin-style painted billboards (with a typical face size of 14
feet by 48 feet), 30-sheet posters (with a typical face size of 12 feet by 25
feet) and junior or 8-sheet posters (with a typical face size of 6 feet by 12
feet). Generally, the physical advertising structure is owned by the outdoor
advertising company and is built on locations either owned or leased by the
operator or on which it has a permanent easement. Traditionally outdoor
advertising displays are leased to advertisers on a unit basis. Advertising
rates for outdoor advertising media are based on such factors as the size of the
advertising display, visibility, cost of leasing, construction and maintenance
and the number of people who have the opportunity to see the advertising
message.
The outdoor advertising market is highly fragmented but is dominated in the
large designated market areas by a few sizable firms, several of which are
subsidiaries of diversified companies. In addition to the large outdoor
advertising firms, there are many smaller regional and local companies operating
a limited number of displays in a single or a few local markets. There has been
a trend toward consolidation in the outdoor advertising industry in recent years
and the Company expects this trend to continue.
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Business Strategy
Travel Services Business Strategy. The Company opened its first travel
center in 1953 and has since expanded to fourteen travel centers. The Company's
travel centers are strategically located along well-traveled interstate highways
in Arizona and New Mexico where there are generally few gas stations,
convenience stores or restaurants. Most of the Company's travel centers offer
food and beverages, ranging from ice cream and snack foods at some locations to
full-service restaurants at others. The Company's food service operations at
seven of the Company's fourteen travel centers operate under the Dairy
Queen/Brazier or Dairy Queen trade names. Four of the Company's travel centers
operate under the Stuckey's brand name. The Stuckey's specialty stores are
family oriented shops that feature the Stuckey's line of pecan confectioneries.
Stuckey's is well known among travelers as a place to shop for souvenirs, gifts
and toys and travel games for children.
The Company's travel centers also offer brand name gasoline such as CITGO,
Chevron, and Diamond Shamrock. Effective October 1, 1995, the Company became an
authorized distributor of CITGO Petroleum Corporation, one of the largest and
fastest growing wholesalers of petroleum products in the United States. The
Company has converted eight of its existing locations to CITGO "superpumper"
stations. The Company also intends to market CITGO products to other retailers
in Arizona and New Mexico.
The Company's billboard advertising for its travel centers emphasizes the
wide range of unique Southwestern souvenirs and gifts available at the travel
centers, as well as the availability of gasoline and food. Merchandise at each
of the Company's stores is offered at prices intended to suit the budgets and
tastes of a diverse traveling population. The merchandise ranges from
inexpensive Southwestern gifts and souvenirs to unique hand-crafted jewelry,
rugs, pottery, kachina dolls and other gifts crafted specially for BOWLIN by
several Native American tribes
Outdoor Advertising Business Strategy. The Company operates over 2,760
revenue-generating advertising display faces, primarily in Arizona, New Mexico
and Texas and, to a lesser extent, in Colorado and Oklahoma. Approximately 67%
of these display faces are traditional bulletin style and 33% are assorted
poster styles. The Company's bulletin style displays are located primarily on
interstate highways, while the smaller poster sizes are typically used in local
settings by advertisers who prefer to change the display message regularly. The
Company's outdoor advertising displays are strategically located in rural and
smaller metropolitan areas throughout the Southwest, where the dispersion of
population, outdoor lifestyles and leading tourist destinations have created a
strong dependence on highway travel.
The Company began its outdoor advertising operations in 1980 and has grown
into a regional leader in small to medium-sized outdoor advertising markets. The
Company offers its outdoor advertising customers a complete full-service source
for graphic design and painting for the outdoor billboards operated by the
Company. As a result, the Company is able to attract advertisers that have
historically relied on other media in marketing their products and services. The
Company believes it is one of the largest outdoor advertising companies in rural
interstate markets in the Southwest.
Growth Strategy
Travel Centers. The Company is committed to expanding its travel center
operations through internal development as well as strategic acquisitions. The
Company plans to further expand its travel center operations in popular tourist
destinations, along heavily traveled interstate corridors and in smaller
metropolitan areas. The Company believes that the co-branding concept it has
implemented at its travel centers has resulted in increased revenues, and the
Company intends to pursue opportunities to acquire rights to additional brand
name products. The Company is currently in the process of developing a new full
service travel center with CITGO superpumper dispensing facilities near
Albuquerque, New Mexico.
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The following are the primary components of the Company's strategy for
expanding its travel center operations:
- - Continuing to offer high quality brand name food and products in a clean,
safe environment designed to appeal to travelers on interstate highways.
- - Continuing to increase sales at existing locations through ongoing
renovation and upgrading of facilities and the addition of products and
services.
- - Pursuing complementary national food and/or merchandise brands to further
implement the Company's co-branding concept.
- - Expanding the Company's travel center operations through internal
development and strategic acquisitions in key tourist destinations, along
heavily traveled interstate highways and in smaller metropolitan areas.
Gasoline Wholesaling. The Company is an authorized CITGO distributor. CITGO
is among the top five petroleum producers in the United States and one of the
fastest growing brand names of gasoline products in the country. The CITGO
distribution agreement allows the Company to streamline its gasoline supply
arrangements and take advantage of volume-driven pricing by consolidating
purchases from CITGO. The distribution agreement has a three-year term that
expires September 30, 1998, and automatically renews for three-year terms
thereafter. CITGO's ability to terminate or refuse to renew the agreement with
the Company is subject to the occurrence of certain events set forth in the
Petroleum Marketing Practices Act, which events currently include bankruptcy or
breach of the agreement by the Company or termination by CITGO of its petroleum
marketing activities in the Company's distribution area. The terms of the
distribution agreement require the Company to purchase certain minimum
quantities of gasoline during the term of the agreement, which includes gasoline
purchased for sale at the Company's travel centers. Since the effective date of
the distribution agreement, the Company's purchases of CITGO products have
substantially exceeded the required minimum quantities.
The Company will continue to grow gasoline sales by focusing on the
marketing of the CITGO line of petroleum products through our own travel
centers, and as a wholesale provider to other retailers in the Southwest.
Outdoor Advertising. The Company plans to increase its outdoor advertising
operations through internal development as well as acquisition. The Company
increased its inventory of billboard structures by 979 in fiscal year 1998 and
87 in fiscal year 1997. The Company anticipates that it will be adding
approximately 100 new billboard structures per year to its operations through
internal development, subject to the availability of necessary working capital
and the Company's ability to comply with applicable regulations.
In addition to internal development, the Company plans to increase its
outdoor advertising operations by pursuing strategic acquisitions of outdoor
advertising assets of small to medium-sized outdoor advertising operators when
appropriate. The Company routinely engages in discussions with third parties
regarding potential acquisitions. Any such acquisitions would be subject to the
negotiation and execution of definitive agreements, appropriate financing
arrangements, performance of due diligence, approval of the Company's Board of
Directors, and the satisfaction of other customary closing conditions, including
the receipt of third party consents.
Consistent with its past practices, the Company intends to pursue expansion
into markets that are not included in the 50 largest designated market areas.
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the Company believes that expansion along interstate highways and in smaller
metropolitan areas permits the Company to operate in areas where competition for
site acquisitions is less intense, purchase prices are more favorable and
government regulations are generally less onerous.
The Company's advertising customers consist largely of local and regional
advertisers, resulting in a diverse client base and limiting reliance on
national advertising clients. Unlike many of its competitors, the Company does
not rely to a significant extent upon tobacco advertisers, which are subject to
increasing regulation. The following table sets forth the categories of
industries from which the Company derived its outdoor advertising net revenues
for the year ended January 31, 1998, and the respective percentages of such net
revenues. The top three business categories accounted for approximately 62.0% of
the Company's total outdoor advertising net revenues and approximately 11.6% of
the Company's total revenues in the year ended January 31, 1998. No single
advertiser accounted for more than 2.4% of the Company's total outdoor
advertising net revenues in such period.
Percentage of Net
Advertising Revenues by Category
Hotels and Motels 25.5%
Restaurants 21.3
Travel & Entertainment 15.2
Retail/Consumer Products 12.7
Government 8.8
Services 7.2
Automotive 3.7
Alcohol .3
Tobacco .1
Other 5.2
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TOTAL 100.0%
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The Company plans to expand its outdoor advertising operations primarily
by:
- - Continuing to develop the Company's presence along interstate highways in
its existing markets throughout the Southwest.
- - Increasing revenues from existing billboards by implementing programs that
maximize advertising rates and occupancy levels.
- - Expanding its operations within current markets through new billboard
construction.
- - Making strategic acquisitions of existing outdoor advertising assets of
small to medium-sized outdoor advertising operations in the less populated
areas of the United States.
BUSINESS OPERATIONS
Travel Center Operations. The Company sells food, gasoline and merchandise
through its fourteen travel centers located along two interstate highways (I-10
and I-40) in Arizona and New Mexico. These are key highways for travel to
numerous tourist and recreational destinations as well as arteries for regional
traffic among major Southwestern cities. All of the Company's travel centers are
open every day of the year (except Christmas).
Each of the Company's travel centers maintains a distinct, theme-oriented
atmosphere. In addition to the Southwestern merchandise it purchases from Native
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American tribes, the Company also imports some 650 items from Mexico, including
handmade blankets, earthen pottery and wood items. Additional goods, novelties
and imprinted merchandise are imported from several Pacific Rim countries. The
Company has long-standing relationships with many of its vendors and suppliers.
The Company sells food under the Dairy Queen and Dairy Queen/Brazier brand
names and sells snacks and souvenir merchandise under the Stuckey's brand name.
The terms of its agreements with Stuckey's and Dairy Queen obligate the company
to pay these franchisers a franchise royalty and in some instances a promotion
fee, each equal to a percentage of gross sales revenues from products sold, as
well as comply with certain provisions governing the operation of the franchised
stores.
The Company continuously monitors and upgrades its travel center facilities
to maintain a high level of comfort, quality and appearance. Improvements
include new awnings and facings, new signage and enhanced lighting and
furnishings. The Company is also engaged in upgrading its petroleum storage and
dispensing equipment in order to increase fueling capacity and efficiency and to
satisfy new federal guidelines made mandatory by December 1998.
Outdoor Advertising Operations. The outdoor advertising operations of the
Company include leasing of sites, construction of display structures, sales of
advertising space and production and design of display faces. The Company's
leasing department has the responsibility for coordinating land leases with
owners for the right to construct and maintain billboard structures on the
landowner's property. The leasing department also monitors the Company's
compliance with all government regulations regarding lease rights, construction
and sales of outdoor structures. The Company's construction division erects
billboard structures on any sites acquired by the Company without a pre-existing
structure, with the goal of maximizing the amount of leaseable area on a
particular site.
The Company's sales department, through its account representatives, sells
advertising space to the Company's clients from its inventory of approximately
2,760 display faces. The account representatives work with the Company's
clients, their advertising agencies and the Company's production department to
provide clients with high quality design and artwork for their billboards.
Although the Company's consistent expansion of its outdoor advertising inventory
results in an advertising occupancy rate of less than 100%, the Company
generally has approximately 70% of its inventory under advertising agreements at
any time.
The Company's production staff performs a full range of activities required
to create and install outdoor advertising. Production work includes creating the
advertising copy design and layout, painting the design or coordinating its
printing and installing the design displays. Billboards have historically been
composed of several painted plywood sheets, but recently vinyl facing has
replaced plywood in the majority of advertising produced. The increased use of
vinyl and pre-printed advertising copy furnished to the Company by the
advertiser or its agency results in less labor-intensive production work. The
Company believes that this trend may reduce future operating expenses associated
with the Company's production activities.
Competition
Travel Services Competition. The Company faces competition at its travel
centers from quick-service and full-service restaurants, convenience stores,
gift shops and, to some extent, from truck stops located along interstate
highways in Arizona and New Mexico. Some of the travel centers that the Company
competes with are operated by large petroleum companies, while many others are
small independently owned operations that do not offer brand name food service
or gasoline. Giant Industries, Inc., a refiner and marketer of petroleum
products, operates two travel centers, one in Arizona and one in New Mexico,
which are high volume diesel fueling and large truck repair facilities that also
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include small shopping malls, full-service restaurants, convenience stores, fast
food restaurants and gift shops. The Company's principal competition from truck
stops includes Love's Country Stores, Inc., Petro Corporation and Flying J. Many
convenience stores are operated by large, national chains that are substantially
larger, better capitalized and have greater name recognition and access to
greater resources than the Company.
Outdoor Advertising Competition. The Company competes in all of its markets
with other outdoor advertisers as well as other media, including broadcast and
cable television, radio, newspaper and direct mail marketers. The Company has
little competition in its rural markets from other outdoor advertisers, but
encounters direct competition in its smaller metropolitan markets from larger
outdoor media companies, including Outdoor Systems, WhiteCo Outdoor Advertising
and Donrey Outdoor Advertising, each of which have large national networks and
greater resources than the Company. The Company believes that by concentrating
on interstate and tourist oriented advertising in markets other than the largest
50 designated market areas it will be able to compete more effectively. As the
Company expands geographically, however, it may encounter increased competition
from other outdoor advertising firms, some of whom are substantially larger and
have greater name recognition and access to substantially greater resources than
the Company.
Employees
As of January 31, 1998, the Company had approximately 171 full-time and 95
part-time employees, 49 of which were located in Arizona, 207 of which were
located in New Mexico and 10 of which were located in Texas. None of the
Company's employees are covered by a collective bargaining agreement and the
Company believes that relations with its employees are good.
Regulation
Travel Centers. Each of the Company's food service operations is subject to
licensing and regulation by a number of governmental authorities relating to
health, safety, cleanliness and food handling. The Company's food service
operations are also subject to federal and state laws governing such matters as
working conditions, overtime and tip credits and minimum wages. The Company
believes that operations at its fourteen travel centers comply in all material
respects with applicable licensing and regulatory requirements; however, future
changes in existing regulations or the adoption of additional regulations could
result in material increases in the Company's costs.
Historically, the Company has incurred ongoing costs to comply with
federal, state and local environmental laws and regulations, primarily relating
to underground storage tanks. These costs include assessment, compliance and
remediation costs, as well as certain ongoing capital expenditures relating to
the Company's gasoline dispensing operations. Under recently enacted federal
regulations, the Company is obligated to upgrade or replace all non-complying
underground storage tanks it owns or operates to meet corrosion protection and
overfill/spill containment standards by December 22, 1998. In response to such
programs, the Company has, wherever possible, adopted a policy of replacing its
underground storage tanks with above-ground storage tanks to minimize the costs
associated with leak detection and compliance with other regulatory programs.
Non-complying tanks have been upgraded or replaced at all but one of the
Company's travel centers, and the Company intends to complete the final
installation well in advance of the December 22, 1998 compliance deadline.
The Company's travel center operations are also subject to extensive laws
and regulations governing the sale of alcohol and tobacco, and fireworks in its
New Mexico travel centers. Such regulations include certain mandatory licensing
procedures and ongoing compliance measures, as well as special sales tax
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measures. These regulations are subject to change and future modifications may
result in decreased revenues or profit margins at the Company's travel centers
as a result of such changes.
Outdoor Advertising. The outdoor advertising industry is subject to
governmental regulation at the federal, state and local levels. Federal law,
principally the Highway Beautification Act of 1965, as amended (the
"Beautification Act"), encourages states, by the threat of withholding federal
appropriations for the construction and improvement of highways within such
states, to implement legislation to regulate billboards located within 660 feet
of, or visible from, interstate and primary highways except in commercial or
industrial areas. All of the states have implemented regulations at least as
restrictive as the Beautification Act, including some prohibition on the
construction of new billboards adjacent to federally aided highways. The
Beautification Act, and the various state statutes implementing it, requires the
payment of just compensation whenever governmental authorities require legally
erected and maintained billboards to be removed from federally-aided highways.
The states and local jurisdictions have, in some cases, passed additional
and more restrictive regulations on the construction, repair, upgrading, height,
size and location of, and, in some instances, content of advertising copy being
displayed on outdoor advertising structures adjacent to federally-aided highways
and other thoroughfares. Such regulations, often in the form of municipal
building, sign or zoning ordinances, specify minimum standards for the height,
size and location of billboards. In some cases, the construction of new
billboards or relocation of existing billboards is prohibited. Some
jurisdictions also have restricted the ability to enlarge or upgrade existing
billboards, such as converting from wood to steel or from non-illuminated to
illuminated structures. From time to time governmental authorities order the
removal of billboards by the exercise of eminent domain. Thus far, the Company
has been able to obtain satisfactory compensation for any of its structures
removed at the direction of governmental authorities, although there is no
assurance that it will be able to continue to do so in the future.
In recent years, there have been movements to restrict billboard
advertising of tobacco products. It is likely that additional legislation of
this type will be enacted on the national or on a local level in the Company's
markets. Revenues from tobacco advertisers accounted for less than 1% of the
Company's total advertising revenues in fiscal 1998.
Amortization of billboards has also been adopted in varying forms in
certain jurisdictions. Amortization permits the billboard owner to operate its
billboard as a non-conforming use for a specified period of time until it has
recouped its investment, after which it must remove or otherwise conform its
billboard to the applicable regulations without any compensation. Amortization
and other regulations requiring the removal of billboards without compensation
have been subject to vigorous litigation in state and federal courts and cases
have reached differing conclusions as to the constitutionality of these
regulations. To date, amortization and other regulations in the Company's
markets have not materially adversely affected its operations.
Trademarks
The Company operates its travel centers under a number of its own
trademarks, as well as certain trademarks owned by third parties and licensed to
the Company, such as the Dairy Queen, Dairy Queen/Brazier, Stuckey's and CITGO
trademarks. The Company believes that its trademark rights will not materially
limit competition with its travel centers. The Company also believes that none
of the trademarks it owns is material to the Company's overall business;
however, the loss of one or more of the Company's licensed trademarks could have
an adverse effect on the Company.
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ITEM 2. DESCRIPTION OF PROPERTY
As of January 31, 1998, the Company operated fourteen travel centers. The
Company owns the real estate and improvements where five of its travel centers
are located, as well as real estate and improvements at three additional
locations, one of which the Company is currently developing into a travel center
and two of which are leased to third party restaurant operators. The properties
at which three of the travel centers owned by the Company are operated are
subject to mortgages. Nine of the Company's existing travel centers and a travel
center location planned for development are located on real estate that the
Company leases from various third parties. These leases have terms ranging from
five to forty years, assuming exercise by the Company of all renewal options
available under certain leases.
As of January 31, 1998, the Company operated over 2,760 revenue generating
outdoor display faces throughout the Southwest. The Company typically owns the
billboard and related assets and enters into operating leases with the owners of
the real property upon which the billboards are located. These leases typically
have a term of 1 to 5 years and provide for minimum annual rents. As of January
31, 1998, the Company also owned and operated 55 and 295 non-revenue generating
display faces in Arizona and New Mexico, respectively, which are exclusively
dedicated to the advertisement of its fourteen travel centers. Listed below are
the locations of the Company's inventory of revenue generating display faces as
of January 31, 1998.
Billboards 30-sheet Posters 8-sheet Posters Total
---------- ---------------- --------------- -----
Arizona 138 -- -- 138
Colorado 14 -- -- 14
New Mexico 1,557 130 774 2,461
Oklahoma 4 -- -- 4
Texas 150 -- -- 150
--- -- -- ---
TOTAL 1,863 130 774 2,767
===== === === =====
The Company's principal executive offices occupy approximately 20,000
square feet of space owned by the Company in Albuquerque, New Mexico. The
Company's principal office space is subject to a mortgage, which matures on
January 29, 2000, and the principal balance of which interest accrues at the
bank's prime rate (8.50% at January 31, 1998). The Company owns outdoor
advertising production plant and warehouse facilities consisting of
approximately 10,000 square feet in Albuquerque, New Mexico and a central
warehouse and distribution facility occupying 27,000 square feet in Las Cruces,
New Mexico. The Las Cruces property is subject to two mortgages which mature on
October 4, 2000 and May 13, 2003 and each accrues interest on the unpaid
principal balance at a rate of 10% per annum. The Company believes that its
headquarters and warehouse facilities are adequate for its operations for the
foreseeable future.
The Company owns a pecan orchard located in southern New Mexico. During
this fiscal year, the operations of the pecan orchard were leased to an
unrelated third party. This investment has not had a material effect on the
Company's business or results of operations and the Company's management does
not expect it to have such effect in the future.
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ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is involved in litigation in the ordinary
course of business, including disputes involving advertising contracts, site
leases, employment claims and construction matters. The Company is also involved
in routine administrative and judicial proceedings regarding billboard permits,
fees and compensation for condemnations. The Company is not a party to any
lawsuit or proceeding which, in the opinion of management, is likely to have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the
fourth quarter of fiscal 1998.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the American Stock Exchange under
the symbol "BWN." On April 13, 1998, there were approximately 30 holders of
record of the Company's Common Stock. The following table sets forth the
quarterly high and low bid prices for the Company's Common Stock. These prices
reflect inter-dealer prices and do not include adjustments for retail mark-ups,
markdowns or commissions and may not represent actual transactions.
Fiscal Year Ended
January 31, 1997 High Low
- ---------------- ---- ---
Fiscal Quarter Ended 1/31* $ 8.8750 $ 7.3125
Fiscal Year Ended
January 31, 1998 High Low
- ---------------- ---- ---
Fiscal Quarter Ended 4/30 $ 8.0000 $ 5.0000
Fiscal Quarter Ended 7/31 $ 6.1250 $ 3.3750
Fiscal Quarter Ended 10/31 $ 6.1250 $ 3.7500
Fiscal Quarter Ended 1/31 $ 5.1250 $ 3.7500
*Reflects trading from December 17, 1996, through January 31, 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The following is a discussion of the consolidated financial condition and
results of operations of the Company as of and for the two fiscal years ended
January 31, 1998 and 1997. This discussion should be read in conjunction with
the Consolidated Financial Statements of the Company and the related Notes
included elsewhere in this Form 10-KSB. References to specific years refer to
the Company's fiscal year ending January 31 of such year.
The Company operates in two industry segments, travel centers and outdoor
advertising. In order to permit a meaningful evaluation of the Company's
performance in each of its operating segments, the Company has presented
selected operating data which separately sets forth the revenues, expenses and
operating income attributable to each segment, and also separately sets forth
the corporate expenses of the Company which are not properly allocable to either
of the Company's segments for purposes of determining their respective operating
income. The discussion of results of operations which follows compares such
selected segment operating data and corporate expense data for the fiscal
periods presented.
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Results of Operations
The following table presents certain income and expense items derived from
the Consolidated Statements of Income for the years ended January 31:
1998 1997 % incr/(decr)
---- ---- -------------
Travel Centers
Gross sales $ 22,583,587 $ 21,691,899 4.1%
Discounts on sales 279,943 303,000 (7.6%)
------- -------
Net sales 22,303,644 21,388,899 4.3%
Cost of goods 15,042,323 14,234,760 5.7%
---------- ----------
7,261,321 7,154,139 1.5%
General & administrative expenses 5,306,178 5,280,954 0.5%
Depreciation and amortization 368,748 362,803 1.6%
------- -------
Operating income 1,586,395 1,510,382 5.0%
Outdoor Advertising
Gross sales 4,855,811 3,459,032 40.4%
Direct operating expenses 2,488,880 2,105,615 18.2%
--------- ---------
2,366,931 1,353,417 74.9%
General & administrative expenses 780,436 368,564 111.8%
Depreciation and amortization 660,210 281,899 134.2%
------- -------
Operating income 926,285 702,954 31.8%
Corporate and Other
General & administrative expenses (481,326) (410,153) 17.4%
Depreciation and amortization (120,736) (134,869) (10.5%)
Interest expense (722,117) (677,746) 6.5%
Other income, net 558,887 518,113 7.9%
------- -------
Income before taxes 1,747,388 1,508,681 15.8%
Income taxes 678,200 603,472 12.4%
------- -------
Net income $ 1,069,188 $ 905,209 18.1%
=========== =========
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Comparison of the Fiscal Years Ended January 31, 1998 and January 31, 1997.
Travel Centers. Gross sales at the Company's travel centers increased 4.1%
to $22.6 million for fiscal 1998 from $21.7 million for fiscal 1997. Gasoline
sales were even at $11.6 million for both fiscal years 1998 and 1997.
Merchandise sales increased 1.5% to $7.0 million for the fiscal year ended
January 31, 1998 from $6.9 million for the fiscal year ended January 31, 1997.
Restaurant sales decreased 6.5% to $3.0 million for fiscal 1998 from $3.2
million for fiscal 1997. The Company's wholesale CITGO gasoline products
relationship commencing in February 1997 produced gross sales of $917,000.
Travel center operations were affected in the fourth quarter of the current
fiscal year by the reduction in fuel prices and margins as well as adverse
weather caused by El Nino which impacted the Western United States.
Merchandise sales were negatively impacted by the Company's warehouse
computer conversion to a perpetual inventory system including purchasing,
receiving and transfer of goods, and all other general inventory controls from
the corporate office and the distribution facility to the travel center
locations. The conversion progressed slower than anticipated and affected
shipment of goods to the stores during the fourth quarter. Construction of new
canopies and above ground tank storage facilities to meet federally mandated
regulations for 1998 has been completed at all but one location.
Cost of goods sold for the travel centers increased 5.7% to $15.0 million
for fiscal 1998 from $14.2 million for fiscal 1997. As a percentage of gross
sales, cost of goods sold increased slightly to 66.6% from 65.6%, for the
respective fiscal periods.
General and administrative expenses for travel centers consist of salaries,
bonuses and commissions for travel center personnel, property costs and repairs
and maintenance. General and administrative expenses for the travel centers were
unchanged at $5.3 million for the fiscal years ended January 31, 1998 and 1997.
Depreciation and amortization expenses increased by 1.6% to $369,000 for the
fiscal year ended January 31, 1998 from $363,000 for the fiscal year ended
January 31, 1997.
The above factors contributed to an increase in travel center operating
income of 5.0% to $1.6 million for the fiscal year ended January 31, 1998 as
compared to $1.5 million for the fiscal year ended January 31, 1997.
Outdoor Advertising. Gross sales from the Company's outdoor advertising
increased 40.4% to $4.9 million for fiscal 1998 from $3.5 million in fiscal
1997. The increase was primarily attributable to certain acquired assets,
including the outdoor advertising assets of The McCarty Company (formally known
as Pony Panels), General Outdoor Advertising, Mesa Outdoor Advertising, and
Sweezy Outdoor Advertising Inc., as well as overall rate increases.
Direct operating expenses related to outdoor advertising consist of direct
advertising expenses, which include rental payments to property owners for the
use of land on which advertising displays are located, production expenses and
selling expenses. Production expenses include salaries for operations personnel
and real estate representatives, property taxes, and repairs and maintenance of
advertising displays. Selling expenses consist primarily of salaries and
commissions for salespersons and travel related to sales. Direct operating
expenses increased 18.2% to $2.5 million for the fiscal year ended January 31,
1998 from $2.1 million for the same period in fiscal 1997, principally due to
the addition of sales and production personnel, sign rent and repairs and
maintenance of advertising displays.
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<PAGE>
General and administrative expenses for outdoor advertising consist of
salaries and wages for administrative personnel, insurance, legal fees,
association dues and subscriptions and other indirect expenses. General and
administrative expenses increased 111.8% to $780,000 for the fiscal year ended
January 31, 1998 from $369,000 for fiscal 1997. The increase was primarily
attributable to increases in administrative personnel, insurance and legal fees
due to the acquisition of the assets of The McCarty Company (formally known as
Pony Panels) and Sweezy Outdoor Advertising, Inc.
Depreciation and amortization expenses increased 134.2% to $660,000 for the
fiscal year ended January 31, 1998 from $282,000 for fiscal 1997. The increase
was attributable to the acquisitions of outdoor advertising assets, of The
McCarty Company (Pony Panels) in April 1, 1997, General Outdoor Advertising on
April 26, 1997, Mesa Outdoor Advertising on April 29, 1997 and Sweezy Outdoor
Advertising, Inc. on December 9, 1997.
The above factors contributed to the increase in outdoor advertising
operating income of 31.8% to $926,000 for the fiscal year ended January 31, 1998
as compared to $703,000 for the fiscal year ended January 31, 1997.
Corporate and Other. General and administrative expenses for corporate and
other operations of the Company consist primarily of executive and
administrative compensation and benefits, investor relations, and accounting and
legal fees. General and administrative expenses increased 17.4% to $481,000 for
the fiscal year ended January 31, 1998 from $410,000 for the fiscal year ended
January 31, 1997.
For the fiscal year ended January 31, 1998, the Company's President and its
Chief Operating Officer elected to accept annual base salaries of $136,000 and
$90,000, respectively, which are less than the $195,000 and $145,000 salaries
provided for in their respective employment agreements effective February 1,
1997. Each of the agreements has a perpetual five-year term, such that on any
given date, each agreement has a five-year remaining term.
Depreciation and amortization expenses for the Company's corporate and
other operations consist of depreciation associated with the corporate
headquarters and furniture and fixtures related thereto. Depreciation and
amortization decreased 10.5% to $121,000 for fiscal 1998 as compared to $135,000
for fiscal 1997.
Interest expense increased 6.5% to $722,000 for the fiscal year ended
January 31, 1998 from $678,000 for the fiscal year ended January 31, 1997, as a
result of borrowings to fund outdoor advertising expansion and the continued
conversion of travel centers to CITGO branding.
Income before taxes increased 15.8% to $1.7 million for the fiscal year
ended January 31, 1998 from $1.5 million for the fiscal year ended January 31,
1997. As a percentage of gross revenues, income before taxes increased to 6.4%
for the fiscal year ended 1998 from 6.0% for the same fiscal period 1997.
Income taxes were $678,000 for the fiscal year ended January 31, 1998 as
compared to $603,000 for the fiscal year ended January 31, 1997, as a result of
higher pre-tax income. The effective tax rate for fiscal year 1998 was 38.8% as
compared to 40.0% for fiscal year 1997.
The foregoing factors contributed to the Company's increase in net income
for the fiscal year ended January 31, 1998 to $1.1 million as compared to
$905,000 for the fiscal year ended January 31, 1997.
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Liquidity and Capital Resources
At January 31, 1998, the Company had working capital of $5.5 million and a
current ratio of 2.65:1, compared to working capital of $9.3 million and a
current ratio of 5.00:1 at January 31, 1997. The net cash provided by operating
activities increased to $1.4 million from $440,000 for the fiscal years ended
January 31, 1998 and 1997, respectively. The increase was due primarily to
increases in depreciation and amortization of $370,000, deferred income taxes of
$92,000, and changes in other operating assets and liabilities of $628,000, net.
The increase in depreciation and amortization in fiscal 1998 was primarily due
to additional display structures, machinery and equipment, and goodwill
associated with the acquisitions of the assets of Pony Panels. Deferred income
taxes increased as a result of book-tax timing differences.
Net cash used in investing activities increased to $7.3 million in fiscal
1998 from $1.9 million in fiscal 1997. The increase is due primarily to asset
acquisitions totaling $5.8 million in fiscal year 1998. These increases were
offset by an increase in proceeds from the sale/condemnation of certain assets
of $326,000.
Net cash provided by financing activities decreased to $2.5 million in
fiscal 1998 from $7.3 million in fiscal 1997. The decrease is due primarily to
the receipt of $7.4 million in IPO proceeds in fiscal year 1997 that were not
present in fiscal year 1998. This was offset by an increase in borrowing, net of
$2.4 million in fiscal year 1998 as compared to fiscal year 1997. The increase
in the Company's debt is a result of continued expansion of outdoor advertising
operations through development and acquisition. The Company also received
proceeds from the issuance of Common Stock prior to its IPO of $222,000 and paid
dividends of $50,600 for the fiscal year ended January 31, 1997 while there were
no proceeds from the issuance of Common Stock nor dividends paid for fiscal year
ended January 31, 1998.
As of January 31, 1998, the Company was indebted to various banks and
individuals in an aggregate principal amount of approximately $9.6 million under
various loans and promissory notes. Many of the loans and promissory notes are
secured by land, buildings, equipment, billboards and inventories of the
Company. The loans and promissory notes mature at dates from May 15, 1998 to
October 1, 2008 and accrue interest at rates ranging from 8.0 % to 12% per
annum. At January 31, 1998, the Company had two revolving lines of credit with
principal commitments of $1,000,000 and $500,000, respectively. As of January
31, 1998, an aggregate of $745,000 was outstanding under these commitments.
The Company made capital expenditures of approximately $2.8 million and
$2.1 million during fiscal years ended 1998 and 1997, respectively. These
expenditures were made primarily for upgrades to the Company's travel centers,
including the new warehouse facility, and for the construction and acquisition
of additional billboard structures. During the next twelve months, the Company
anticipates incurring capital expenditures of approximately $2.5 million related
to travel center operations. Included in the $2.5 million is approximately
$150,000 for the removal and replacement of underground fuel storage facilities,
$2.35 million for upgrades and improvements to existing facilities, and the
development of one new facility. With regard to outdoor advertising operations,
the Company has plans to build approximately 100 new billboard structures during
the fiscal year ending January 31, 1999, at a cost of approximately $1,000,000.
As of January 31, 1998, approximately $8.0 million of the Company's total
indebtedness accrued interest at variable rates tied to the respective bank's
prime lending rate. As such, the Company is subject to fluctuations in interest
rates that could have a negative impact on the net income of the Company. In
addition, it is likely that future indebtedness incurred by the Company will be
17
<PAGE>
at variable rates which could impact the Company's ability to consummate
significant acquisitions in the future.
On February 2, 1998, the Company acquired all of the assets of Big-Tex
Outdoor Advertising in Brownwood, Texas for $1.6 million cash. The consideration
paid by the Company was funded by working capital ($600,000 of IPO proceeds) and
$1,000,000 of bank debt. The bank debt was provided by Norwest Bank Minnesota,
N.A. at the bank's then prevailing prime rate (8.5% at closing) and has a
maturity date of May 2, 2005. The bank debt is subject to certain financial and
other restrictive covenants.
On March 3, 1998, the Company acquired all of the assets of Norwood
Outdoor, Inc. in Brady, Texas for $1.0 million cash. The consideration paid by
the Company was funded by working capital ($350,000 of IPO proceeds) and
$650,000 of bank debt. The bank debt was provided by Norwest Bank Minnesota,
N.A. at the bank's then prevailing prime rate (8.5% at closing) and has a
maturity date of May 2, 2005. The bank debt is subject to certain financial and
other restrictive covenants.
Although the Company does not have any agreements in place, it is currently
negotiating with independent parties for the acquisition of outdoor advertising
assets. The Company has not executed a letter of intent or other agreement,
binding or non-binding, to make such acquisitions. Any such acquisition would be
subject to the negotiation and execution of definitive agreements, appropriate
financing arrangements, performance of due diligence, approval of the Company's
Board of Directors, and the satisfaction of other customary closing conditions,
including the receipt of third party consents. The Company would likely finance
any such acquisitions with cash, additional indebtedness or a combination of the
two. To the extent that any such acquisition would be paid for by the Company in
cash, the Company could decide to use a portion of the remaining net proceeds
from the IPO, use funds from its ongoing operations, seek additional financing
from a commercial lender or some combination of the foregoing. Any commercial
financing obtained for purposes of acquiring additional assets is likely to
impose certain financial and other restrictive covenants upon the Company and
increase the Company's interest expense.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income". SFAS 130 establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial statements.
Specifically, SFAS 130 requires that all items that meet the definition of
components of comprehensive income be reported in a financial statement for the
period in which they are recognized. However, SFAS 130 does not specify when to
recognize or how to measure the items that make up comprehensive income. SFAS
130 is effective for fiscal years beginning after December 15, 1997 and early
application is permitted. Management believes the application of SFAS 130 will
not have a material effect on the Company's future consolidated financial
statements.
In June 1997, the Financial Accounting Standards Board issued SFAS 131
"Financial Reporting for Segments of a Business Enterprise". SFAS 131
establishes standards for the way that public business enterprises report
information about segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. SFAS 131 supersedes the
"industry segment" concept of SFAS 14 with a "management approach" concept as
the basis for identifying reportable segments. SFAS 131 is effective for fiscal
years beginning after December 15, 1997 and early application is permitted.
Management believes the application of SFAS 131 will not have a material effect
on the Company's future consolidated financial statements.
18
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Impact of the Year 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations. The Company has conducted a comprehensive review of
its computer systems to identify the systems that could be affected by the Year
2000 Issue and is developing an implementation plan to resolve the issue. The
Company estimates over the next eighteen months that the costs associated with
the implementation plan will not exceed $50,000. The Company presently believes
that, with modifications to existing software and conversions to new software,
the Year 2000 problem will not pose significant operational problems for the
Company's computer systems as so modified and converted.
Risk Factors
The Company does not provide forecasts of potential future financial
performance. While the Company's management is optimistic about the Company's
long-term prospects, the following issues and uncertainties, among others should
be considered in evaluating its growth outlook.
No Assurance of Successful Expansion. The Company intends to open new
travel centers, expand its outdoor advertising operations and implement gasoline
wholesaling activities. Although the Company's existing operations are based
primarily in the Southwest, the Company's current expansion plans include
consideration of acquisition opportunities in both the Southwest and other
geographic regions of the United States. However, there can be no assurance that
suitable acquisitions can be identified, and the Company is likely to face
competition from other companies for available acquisition opportunities. Any
such acquisition would be subject to negotiation of definitive agreements,
appropriate financing arrangements and performance of due diligence. There can
be no assurance that the Company will be able to complete such acquisitions,
obtain acceptable financing or any required consent of its bank lenders or that
such acquisitions that are completed can be integrated successfully into the
Company's existing operations. The success of the Company's expansion program
will depend on a number of factors, including the availability of sufficient
capital, the identification of appropriate expansion opportunities, the
Company's ability to attract, train and retain qualified employees and
management, and the continuing profitability of existing operations. There can
be no assurance that the Company will achieve its planned expansion or that any
expansion will be profitable. See "BUSINESS -Growth Strategy."
Need for Additional Financing. In order to successfully implement the
Company's growth strategy, the Company may need to seek additional financing
from external sources. The Company has been able to secure financing for the
acquisition of additional assets from commercial lenders in amounts up to 100%
of the fair market value of the acquired assets. However, there can be no
assurance that such additional financing will be available in the future, or
that if available, it will be on terms acceptable to the Company. The Company
anticipates that any financing which it does secure may impose certain financial
and other restrictive covenants upon the Company and its operations. There can
be no assurance that the Company will be able to successfully integrate any
acquired companies or assets into its existing operations, which could increase
the Company's operating expenses in the short-term and materially and adversely
affect the Company's results of operations. Any acquisition by the Company may
result in potentially dilutive issuances of equity or debt securities, the
incurrence of additional debt, and amortization of expenses related to goodwill
and intangible assets, all of which could adversely affect the Company's
profitability. Acquisitions involve numerous risks, such as the diversion of the
attention of the Company's management from other business concerns, the entrance
19
<PAGE>
of the Company into markets in which it has had no or only limited experience,
and the potential loss of key employees of the acquired company, all of which
could have a material adverse effect on the Company's business, financial
condition, and results of operations.
Dependence on Third Party Relationships. The Company is dependent on a
number of third party relationships under which it offers brand name and other
products at its travel centers. These brand name relationships include the
Company's distributorship relationship with CITGO, and its existing franchise
agreements with Dairy Queen/Brazier and Stuckey's. The Company's existing
operations and plans for future growth anticipate the continued existence of
such relationships. There can be no assurance that the agreements that govern
these relationships will not be terminated. Several of these agreements contain
provisions that prohibit the Company from offering additional products or
services that are competitive to those of its suppliers. Although the Company
does not currently anticipate having to forego a significant business
opportunity in order to comply with such agreements, there can be no assurance
that adherence to existing agreements will not prevent the Company from pursuing
opportunities that management would otherwise deem advisable. The Company also
relies upon several at will relationships with various third parties for much of
its souvenir and gift merchandise. Although the Company believes it has good
relationships with its suppliers, there can be no assurance that the Company
will be able to maintain relationships with suppliers of suitable merchandise at
appropriate prices and in sufficient quantities. See "BUSINESS - Business
Operations."
Possible Adverse Impact of Competition. The Company's travel centers face
competition from major and independent oil companies; independent service
station operators; national and independent operators of restaurants, diners and
other eating establishments; and national and independent operators of
convenience stores and other retail outlets. In its outdoor advertising
operations, the Company faces competition for advertising revenues from other
outdoor advertising companies, as well as from other media such as radio,
television, print media and direct mail marketing. The Company also competes
with a wide variety of other out-of-home advertising media, the range and
diversity of which has increased substantially over the past several years,
including advertising displays in shopping centers and malls, airports,
stadiums, movie theaters and supermarkets. Some of the Company's competitors,
including major oil companies and convenience store operators, are substantially
larger, better capitalized and have greater name recognition and access to
greater resources than the Company. There can be no assurance that the Company's
travel centers and outdoor advertising operations will be able to compete
successfully in their respective markets in the future. See "BUSINESS -
Competition."
Seasonality and Other Factors; Quarterly Fluctuations. The travel center
portion of the Company's business is somewhat seasonal, and revenues may be
affected by many factors, including weather, holidays and the price of
alternative travel modes. The Company's revenues and earnings may experience
substantial fluctuations from quarter to quarter.
Potential Adverse Effects of Government Regulation of Travel Centers. Each
of the Company's food service operations is subject to licensing and regulation
by a number of governmental authorities, including regulations relating to
health, safety, cleanliness and food handling, as well as federal and state laws
governing such matters as working conditions, overtime and tip credits and
minimum wages. The Company's travel center operations are also subject to
extensive laws and regulations governing the sale of alcohol and tobacco, and
fireworks in its New Mexico travel centers. Such regulations include certain
mandatory licensing procedures and the ongoing compliance measures, as well as
special sales tax measures. The Company believes that its operations at fourteen
travel centers comply with all applicable licensing and regulatory requirements.
Any failure to comply with applicable regulations, or the adoption of additional
regulations or changes in existing regulations could impose additional
compliance costs on the Company, require a cessation of certain activities or
otherwise have a material adverse effect on the Company's business and results
of operations. See "BUSINESS - Regulation."
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Environmental Risks. The Company is subject to federal, state and municipal
laws and regulations governing the use, storage, handling and disposal of its
petroleum products. Specifically, the federal government has recently issued
more stringent regulations governing the storage of petroleum products with
which the Company is required to comply by December 1998. Although the Company
believes that its activities comply with the current standards prescribed by law
and the Company has already completed certain renovations of its facilities to
satisfy the federal government's recently enacted regulations, the risk of
accidental contamination to the environment or injury can not be eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result and any such liability could exceed the available resources of the
Company. The Company could be required to incur significant costs to comply with
environmental laws and regulations that may be enacted in the future. See
"BUSINESS - Regulation."
Potential Adverse Effects of Government Regulation of Outdoor Advertising.
Outdoor advertising displays are subject to regulation by federal, state, and
local governmental agencies. These regulations, in some cases, limit the height,
size and location of billboards and, in limited circumstances, regulate the
content of the advertising copy displayed on the billboards, particularly with
respect to tobacco advertising. Some governmental regulations prohibit the
construction of new billboards or the replacement, relocation, enlargement or
upgrading of existing structures. Some cities have adopted amortization
ordinances under which, after the expiration of a specified period of time,
billboards must be removed at the owner's expense and without the payment of
compensation. Due to the location of its billboard structures outside smaller
metropolitan and rural areas, the Company has not been materially affected by
such ordinances to date. However, there can be no assurance that the Company's
billboard structures will not become subject to similar ordinances in the
future. Ordinances requiring the removal of a billboard without compensation,
whether through amortization or otherwise, are being challenged in various state
and federal courts with conflicting results. Although, to date, the Company has
been adequately compensated for any of its structures removed at the direction
of governmental authorities, future changes in such regulations as well as
others applicable to the Company's outdoor advertising operations could have a
material adverse effect on the Company's business and results of operations.
Other Uncertainties
Other operating, financial or legal risks or uncertainties are discussed in
this Form 10-KSB in specific context and the Company is subject to the financial
or legal risks or uncertainties discussed in other documents filed by the
Company with the Securities and Exchange Commission. In addition, the Company
is, of course, also subject to general economic risks, and other risks and
uncertainties.
ITEM 7. FINANCIAL STATEMENTS
Following on next page.
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BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
January 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
BOWLIN Outdoor Advertising
& Travel Centers Incorporated:
We have audited the accompanying consolidated balance sheets of BOWLIN Outdoor
Advertising & Travel Centers Incorporated and subsidiaries as of January 31,
1998 and 1997, and the related consolidated statements of income, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BOWLIN Outdoor
Advertising & Travel Centers Incorporated and subsidiaries as of January 31,
1998 and 1997, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
April 1, 1998
23
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
January 31, 1998 and 1997
<TABLE>
<S> <C> <C>
Assets 1998 1997
------ ---- ----
Current assets:
Cash and cash equivalents $ 4,053,330 7,518,971
Accounts receivable, net 579,216 365,424
Notes receivable - related parties, current maturities (note 2) 30,029 20,021
Notes receivable, current maturities (note 2) 6,781 6,169
Inventories 3,622,916 3,202,191
Prepaid expenses 448,172 417,375
Income taxes 89,993 --
Other current assets 4,177 48,147
------------- -------------
Total current assets 8,834,614 11,578,298
------------- -------------
Investment and long-term receivables:
Investment in partnership 16,968 12,763
Notes receivable - related parties, less current maturities (note 2) 20,016 30,024
Notes receivable, less current maturities (note 2) 59,173 65,953
------------- -------------
Total investment and long-term receivables 96,157 108,740
Property and equipment, net (notes 3, 5 and 6) 15,728,243 9,970,546
Intangible assets, net (note 4) 1,200,302 185,133
------------- -------------
Total assets $ 25,859,316 21,842,717
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Short-term borrowing, bank (note 6) $ 745,000 --
Accounts payable 1,350,626 1,197,428
Long-term debt, current maturities (note 7) 779,179 576,186
Accrued liabilities 455,851 399,223
Income taxes payable -- 145,072
------------- -------------
Total current liabilities 3,330,656 2,317,909
Deferred income taxes (note 10) 177,300 42,600
Long-term debt, less current maturities (note 7) 8,123,736 6,118,406
------------- -------------
Total liabilities 11,631,692 8,478,915
------------- -------------
Minority interest -- 205,366
------------- -------------
Stockholders' equity:
Common stock, $.001 par value; authorized 100,000,000
shares; outstanding 4,384,848 (note 9) 4,385 4,385
Additional paid-in capital 11,604,303 11,604,303
Retained earnings 2,618,936 1,549,748
------------- -------------
Total stockholders' equity 14,227,624 13,158,436
Commitments and contingencies (notes 11 and 12) -- --
------------- -------------
Total liabilities and stockholders' equity $ 25,859,316 21,842,717
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
Years ended January 31, 1998 and 1997
1998 1997
---- ----
Gross sales $ 27,439,398 25,150,931
Less discounts on sales 279,943 303,000
------------ ------------
Net sales 27,159,455 24,847,931
Cost of goods sold 17,531,203 16,340,375
------------ ------------
Gross profit 9,628,252 8,507,556
General and administrative expenses (6,567,940) (6,115,350)
Other operating income 89,732 379,228
Depreciation and amortization (1,149,694) (779,571)
------------ ------------
Operating income 2,000,350 1,991,863
------------ ------------
Other income (expense):
Interest income 268,555 138,885
Gain on sale of assets 200,600 55,679
Interest expense (722,117) (677,746)
------------ ------------
Total other income (expense), net (252,962) (483,182)
------------ ------------
Income before income taxes 1,747,388 1,508,681
Income taxes (note 10) 678,200 603,472
------------ ------------
Net income $ 1,069,188 905,209
============ ============
Earnings per share:
Basic $ .24 .26
============ ============
Diluted $ .24 .26
============ ============
See accompanying notes to consolidated financial statements.
25
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended January 31, 1998 and 1997
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Additional
Number stock, paid-in Retained
of shares at par capital earnings Total
--------- ------ ---------- -------- -----
Balance at January 31, 1996 3,050,427 $ 3,051 3,806,220 993,912 4,803,183
Net income -- -- -- 905,209 905,209
Cash dividends on common
stock, $.02 per share -- -- -- (50,600) (50,600)
Stock dividends issued on common stock
and sale of fractional shares 191,799 192 301,596 (298,773) 3,015
Issuance of common stock 141,159 141 221,967 -- 222,108
Redemption of previously issued shares (note 8) (98,537) (99) (154,945) -- (155,044)
Contributed services -- -- 155,044 -- 155,044
Initial public offering of common stock, net of
expenses 1,100,000 1,100 7,274,421 -- 7,275,521
--------- ------- ---------- --------- ----------
Balance at January 31, 1997 4,384,848 4,385 11,604,303 1,549,748 13,158,436
Net income -- -- -- 1,069,188 1,069,188
--------- ------- ---------- --------- ----------
Balance at January 31, 1998 4,384,848 $ 4,385 11,604,303 2,618,936 14,227,624
========= ======= ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended January 31, 1998 and 1997
<TABLE>
<S> <C> <C>
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 1,069,188 905,209
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,149,694 779,571
Income from partnership investment -- (9,504)
Gain on sale of assets (200,600) (55,679)
Deferred income taxes 134,700 42,600
Minority interest (205,366) (21,225)
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable (139,851) (171,442)
Inventories (420,725) (799,171)
Prepaid expenses and other current assets 28,230 (130,658)
Accounts payable and accrued liabilities 194,328 (244,989)
Income taxes (235,065) 145,072
----------- -----------
Net cash provided by operating activities 1,374,533 439,784
----------- -----------
Cash flows from investing activities:
Capital received from (contributed to) partnership (4,205) 13,000
Proceeds from sale/condemnation of assets 703,201 376,973
Business acquisitions (5,845,000) --
Purchases of property and equipment (2,184,808) (2,149,471)
Disbursements on notes receivable -- (195,813)
Collections on notes receivable 6,168 99,258
----------- -----------
Net cash used in investing activities (7,324,644) (1,856,053)
----------- -----------
Cash flows from financing activities:
Short-term borrowings, net 745,000 (149,000)
Payments on long-term debt (1,015,530) (4,660,892)
Payments for debt issuance costs -- (84,794)
Proceeds from borrowings 2,755,000 4,778,052
Proceeds from issuance of common stock -- 222,108
Redemption of previously issued shares -- (155,044)
Proceeds from sale of fractional shares of common
stock sold in conjunction with stock dividend -- 3,015
Dividends paid -- (50,600)
Proceeds from initial public offering of common stock -- 8,800,000
Payment of registration costs associated with initial public
offering of common stock -- (1,369,435)
----------- -----------
Net cash provided by financing activities 2,484,470 7,333,410
----------- -----------
</TABLE>
(Continued)
27
<PAGE>
2
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<S> <C> <C>
1998 1997
---- ----
Net (decrease) increase in cash and cash equivalents $(3,465,641) 5,917,141
Cash and cash equivalents at beginning of period 7,518,971 1,601,830
----------- -----------
Cash and cash equivalents at end of period $ 4,053,330 7,518,971
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 722,986 678,694
=========== ===========
Income taxes paid $ 778,565 678,694
Noncash investing and financing activities:
Acquisition of land and outdoor advertising assets in
exchange for long-term debt $ 1,275,000 1,189,000
=========== ===========
Disposition of land and buildings in exchange for
assumption of long-term debt of subsidiary $(1,090,910) --
Acquisition of covenant not-to-compete in exchange
for long-term debt $ 284,763 --
=========== ===========
Stock dividend issued to shareholders $ -- 298,733
=========== ===========
Acquisitions of the net assets of Pony Panels, General Outdoor
Advertising, Mesa Outdoor Advertising, and Sweezy Outdoor
Advertising. Fair value of assets acquired and liabilities assumed at
the date of the acquisitions were as follows:
Account receivable $ 73,941 --
Prepaid expenses 15,057 --
Billboards 4,814,000 --
Machinery and equipment 84,500 --
Excess of purchase price over fair value of assets acquired 863,000 --
Covenants not-to-compete 10,000 --
Accounts payable (15,498) --
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1998 and 1997
(1) Summary of Significant Accounting Policies
(a) Description of Business
BOWLIN Outdoor Advertising & Travel Centers Incorporated and
subsidiaries (the Company) are located in Albuquerque, New
Mexico. On August 28, 1996, BOWLIN Outdoor Advertising & Travel
Centers, Inc. (BOATC) was incorporated in the state of Nevada.
BOATC's articles of incorporation authorize 10,000,000 shares of
preferred stock ($.001 par value) which can be issued at the
discretion of the Board of Directors. Pursuant to an agreement
and plan of merger effective September 27, 1996, BOWLIN'S, Inc.
(BI), which was incorporated in the state of New Mexico on
February 20, 1953, was merged with and into BOATC. Under the
terms of the agreement, BI shareholders received 211 of the
Company's shares for each BI share. Accordingly, the Company
issued approximately 3.4 million shares of its common stock for
all the outstanding shares of BI stock and all references to the
number of shares of common stock have been retroactively restated
to reflect the exchange for all periods presented. The
transaction has been accounted for in a manner similar to a
pooling of interests.
The Company's principal business activities include the operation of
full-service travel centers and restaurants which offer brand
name food and gasoline, and a unique variety of Southwestern
merchandise to the traveling public in the Southwestern United
States. In addition to the travel centers, the Company operates
outdoor billboard advertising displays which are situated on
interstate highways, primarily in the Southwestern United States.
Dragoon Water Company, Inc. (Dragoon), a majority owned subsidiary,
was acquired by the Company in 1986. On October 1, 1996, the
Company sold Dragoon to an unrelated third party. The sale
agreement provides for the continued provision of adequate water
utilities to the Company.
The Company acquired all of the outstanding stock of another
subsidiary, BMI Inc. (BMI), in November 1993. BMI's business
activities have historically been the acquisition of inventory in
Mexico which has been sold to the Company for the purpose of
resale in the United States. BMI has a January 31 fiscal year
end.
Neither Dragoon nor BMI is considered material to the overall
operations of the Company.
The Company also held a majority general partnership interest in the
Los Cuatros Apartments Limited Partnership (Los Cuatros) together
with a limited partnership interest. The partnership owns and
leases an apartment complex in Las Cruces, New Mexico. The
partnership was formed in January 1991 and has a December 31
fiscal year end. On June 16, 1997, the Company sold Los Cuatros
to an unrelated third party.
(Continued)
29
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(b) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company, its wholly owned subsidiary BMI and its
majority owned subsidiaries, Dragoon and Los Cuatros. Dragoon and
Los Cuatros are included from February 1, 1996 through their
respective dates sold. All material intercompany transactions
have been eliminated or disclosure has been made of the effect of
intervening events from December 31 to January 31, if any,
related to the differing fiscal year ends for Dragoon and Los
Cuatros.
(c) Cash and Cash Equivalents
The Company considers all liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
(d) Accounts Receivable and Allowance for Doubtful Accounts
Trade receivables are stated at face amount less the related allowance
for doubtful accounts.
(e) Inventories
Inventories consist primarily of merchandise and gasoline for resale
and are stated at the lower of cost or market value, with cost
being determined using the first-in, first-out (FIFO) method.
(f) Property and Equipment
Property and equipment are carried at cost. Maintenance and repairs,
including the replacement of minor items, are expensed as
incurred, and major additions to property and equipment are
capitalized. Depreciation is provided by the Company using
primarily straight-line, as well as accelerated methods.
(g) Intangible Assets
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line
basis over the expected periods to be benefited, generally 5 to
15 years. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured
based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The
assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
(Continued)
30
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Covenants not-to-compete are amortized over the life of the respective
covenants using the straight-line method, ranging from one to ten
years.
Franchise fees are amortized on a straight-line basis over the shorter
of the life of the related franchise agreements or the periods
estimated to be benefited, ranging from fifteen to twenty-five
years.
(h) Sales and Cost Recognition
Sales of merchandise are recognized at the time of sale and the
associated costs of the merchandise are included in cost of
sales. Revenues from rental of billboard space are accounted for
as operating leases with rental assets recorded at cost less
accumulated depreciation and rental income is recorded ratably
over the life of the lease contract.
(i) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(j) Year 2000
During the year ended January 31, 1998, the Company developed a plan
to deal with the Year 2000 problem and began converting its
computer systems to be Year 2000 compliant. The plan provides for
the conversion efforts to be completed by the end of calendar
1998. The Year 2000 problem is the result of computer programs
being written using two digits rather than four to define the
applicable year. The total cost of the project is not projected
to be material to the financial statements of the Company and is
being funded through operating cash flows. The Company is
expensing all costs associated with these systems changes as the
costs are incurred.
(Continued)
31
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(k) Stock-based Compensation
Effective February 1, 1996, the Company adopted the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires pro forma disclosure of net income
and earnings per share as if the SFAS No. 123 fair value method
had been applied. The Company continues to apply the provisions
of Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," for the preparation of its basic
consolidated financial statements.
(l) Impairment of Long-lived Assets and Long-lived Assets to Be Disposed
Of
The Company adopted the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to
Be Disposed Of," on February 1, 1996. This statement requires
that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount of
fair value less costs to sell. Adoption of this statement did not
have a material impact on the Company's financial position,
results of operations, or liquidity.
(m) Financial Instruments
Statement of Financial Accounting Standards No. 107 (SFAS),
"Disclosures About Fair Value of Financial Instruments," requires
the fair value of financial instruments be disclosed. The
Company's financial instruments are cash and cash equivalents,
accounts receivable, notes receivable, accounts payable,
short-term borrowings, and long-term debt. The carrying amounts
of cash and cash equivalents, accounts receivable, notes
receivable, accounts payable, accrued liabilities, short-term
borrowings, and long-term debt approximate fair value.
(n) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements in conformity
with generally accepted accounting principles. Actual results
could differ from those estimates.
(Continued)
32
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(o) Reclassification
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
(p) Earnings Per Share
In February 1997, SFAS No. 128, "Earnings per Share," was issued
which requires the presentation of basic and diluted earnings per
share for each period presented in the consolidated financial
statements and retroactive adjustment of all per share amounts in
the Company's consolidated financial statements. Basic earnings
per share of common stock is computed by dividing net income by
the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is calculated in the same
manner as basic earnings per share except that the denominator is
increased to include the number of additional common shares that
would have been outstanding, assuming the exercise of all
employee stock options that would have had a dilutive effect on
earnings per share. A reconciliation of the number of shares used
in the calculation of basic and diluted earnings per share for
the years ended January 31, 1998 and 1997 follows:
1998
-------------------------------------
Income Shares Per-share
(numerator) (denominator) amount
----------- ------------- ------
Basic EPS - income available
to common stockholders $ 1,069,188 4,384,848 $ .24
=====
Effect of dilutive securities -
stock options -- --
----------- ---------
Diluted EPS - income available
to common stockholders plus
assumed conversions $ 1,069,188 4,384,848 $ .24
=========== ========= =====
(Continued)
33
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1997
-------------------------------------
Income Shares Per-share
(numerator) (denominator) amount
----------- ------------- ------
Basic EPS - income available
to common stockholders $ 905,213 3,440,557 $ .26
=====
Effect of dilutive securities -
stock options -- --
Diluted EPS - income available
to common stockholders plus
assumed conversions $ 905,213 3,440,557 $ .26
========= ========= =====
Options to purchase 301,500 shares of common stock were outstanding
during the year ended January 31, 1998 and the last month of the
year ended January 31, 1997, but were not included in the
computation of diluted EPS because the options' exercise price
was greater than the average market price of the common shares.
The options, which expire December 2006, were still outstanding
at the end of the year ended January 31, 1998.
(q) New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS
130, "Reporting Comprehensive Income". SFAS 130 establishes
standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full
set of general purpose financial statements. Specifically, SFAS
130 requires that all items that meet the definition of
components of comprehensive income be reported in a financial
statement for the period in which they are recognized. However,
SFAS 130 does not specify when to recognize or how to measure the
items that make up comprehensive income. SFAS 130 is effective
for fiscal years beginning after December 15, 1997 and early
application is permitted. Management believes the application of
SFAS 130 will not have a material effect on the Company's future
consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS
131, "Financial Reporting for Segments of a Business Enterprise."
SFAS 131 establishes standards for the way that public business
enterprises report information about segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. SFAS 131 supersedes the "industry
segment" concept of SFAS 14 with a "management approach" concept
as the basis for identifying reportable segments. SFAS 131 is
effective for fiscal years beginning after December 15, 1997 and
early application is permitted. Management believes the
application of SFAS 131 will not have a material effect on the
Company's future consolidated financial statements.
(Continued)
34
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Notes Receivable
Notes receivable consist of the following at January 31:
<TABLE>
<S> <C> <C>
1998 1997
---- ----
Related parties:
Stockholder, due April 1997, plus interest at 7%, unsecured $ 10,012 10,012
Employees, receivable in annual installments totaling
$10,008 plus interest at 10%, unsecured 40,033 40,033
-------- ------
Subtotal 50,045 50,045
Less current maturities 30,029 20,021
-------- ------
$ 20,016 30,024
======== ======
Other:
Individuals, receivable in monthly installments from $350 to $694,
including interest ranging from 9% to
10%, secured by land $ 65,954 72,122
Less current maturities 6,781 6,169
-------- ------
$ 59,173 65,953
======== ======
</TABLE>
(3) Property and Equipment
Property and equipment consist of the following at January 31:
<TABLE>
<S> <C> <C> <C>
Estimated
life (years) 1998 1997
------------ ---- ----
Land - $ 2,208,459 1,984,312
Buildings and improvements 10 - 40 5,851,210 6,764,809
Machinery and equipment 3 - 10 5,390,278 4,813,546
Autos, trucks and mobile homes 3 - 10 1,739,926 1,527,401
Billboards on operating leases 15 - 20 10,835,449 4,657,590
Billboards 15 - 20 817,819 787,714
======= ------------ ----------
Subtotal, at cost 26,843,141 20,535,372
Less accumulated depreciation (11,476,469) (10,889,102)
Construction in progress 361,571 324,276
------------ ----------
Total property and equipment $ 15,728,243 9,970,546
============ ==========
</TABLE>
(Continued)
35
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During the year ended January 31, 1998, the Company determined the actual
lives for approximately $214,100 of billboard expenditures were
generally longer than the estimated useful lives previously
established for depreciation purposes. Therefore, effective February
1, 1997, the Company extended the estimated useful lives of those
assets up to 7 years. The effect of this change in accounting estimate
increased net income by $105,400 ($.02 per basic and diluted share).
During the year ended January 31, 1997, the Company determined the actual
lives for approximately $467,000 of equipment were generally longer
than the estimated useful lives previously established for
depreciation purposes. Therefore, effective February 1, 1996, the
Company extended the estimated useful lives of those assets, which are
depreciated using the straight-line method, from 5 years to 15 years.
The effect of this change in accounting estimate increased net income
by $34,200 ($.01 per basic and diluted share) for the year ended
January 31, 1997.
Additionally, depreciation of all property and equipment acquired during
the year ended January 31, 1997 has been computed using the
straight-line method. Depreciation of property and equipment acquired
in prior years was computed primarily using accelerated methods. The
effect of this change increased net income by $67,300 ($.02 per basic
and diluted share) for the year ended January 31, 1997.
(4) Intangible Assets
Intangible assets, at cost, consist of the following at January 31:
1998 1997
---- ----
Excess of purchase price over fair
value of assets acquired $ 863,000 --
Covenants not-to-compete 294,763 --
Franchise fees 209,500 209,500
Other -- 83,888
----------- -------
1,367,263 293,388
Less accumulated amortization (166,961) (108,255)
----------- -------
Intangible assets, net $ 1,200,302 185,133
=========== =======
(Continued)
36
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Billboard Rental Income
Included in property and equipment in the consolidated balance sheets of
the Company are billboards on operating leases. The billboards are
owned by the Company and the advertising space is leased to others.
See note 12 regarding land leased from others by the Company for
billboard use.
Minimum future rental income on noncancelable billboard leases in effect as
of January 31, 1998 are as follows:
Year ending January 31
----------------------
1999 $ 5,531,624
2000 2,209,834
2001 201,294
2002 3,900
-----------
Total $ 7,946,652
===========
(6) Short-term Borrowing, Bank
In May 1997, the Company entered into an available billboard construction
bank line of credit arrangement totaling $1,000,000, which matures in
May 1998. Interest is payable monthly at the prime rate plus 1 percent
(8.50 percent at January 31, 1998). The Company had drawn $745,000 and
none as of January 31, 1998 and 1997, respectively. Borrowings under
this line of credit are limited to six times the trailing cash flow
from existing billboards not financed by this facility less the
balance outstanding on another note to the bank. The line is secured
by billboards and inventory. Under this line of credit, the Company is
required to maintain specific ratios. At January 31, 1998, the Company
was in compliance with all covenants.
In November 1997, the Company entered into a financing agreement with a
bank that permits the Company to borrow for a period of two years, up
to $10.5 million at terms established upon execution of the agreement.
As of January 31, 1998, there were no amounts drawn on this financing
agreement. The credit agreement is comprised of three different lines
as follows:
(1) The "facility line" of $8 million is to be used to fund
acquisition or construction of new travel centers and to finance
the purchase of new vehicles, fuel dispensing and other related
equipment, computer systems and other furniture, fixtures and
equipment. The Company must pay a fee of 35 basis points (.35
percent) of the maximum note amount for construction or
acquisitions. The Company must pay a fee of 25 basis points (.25
percent) of the maximum note amount for purchases of equipment,
computers or furniture, fixtures and equipment.
(Continued)
37
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) The "leasing line" of $2 million is to be used to fund individual
leases by the bank to the Company. The Company must pay a fee of
one-half percent (.005 percent) of the net interest balance on
each lease.
(3) The "working capital line" of $500,000 is to be used to fund the
Company's short-term working capital needs. The Company must pay
a fee of 25 basis points (.25 percent) of the $500,000 face
amount of the working capital note.
(7) Long-term Debt
Long-term debt is as follows:
<TABLE>
<S> <C> <C>
1998 1997
---- ----
Due bank, maturity April 2007, variable interest at index rate (8.50%
at January 31, 1997), monthly installments of $31,164, secured by
mortgage and deed of trust $ 2,363,929 --
Due bank, maturity January 2006, variable interest at base lending
rate (8.25% at January 31, 1998), monthly installments of
$21,724, secured by mortgage and deed of trust 1,463,808 1,588,087
Due bank, maturity May 2005, variable interest at bank index rate
(8.50% at January 31, 1998), monthly installments of $15,836,
secured by billboards 1,000,000 --
Due bank, maturity February 2003, variable interest at base lending
rate (8.25% at January 31, 1998), monthly installments of
$15,755, secured by billboards 784,327 902,136
Due bank, maturity January 2000, variable interest at index rate
(8.50% at January 31, 1998), monthly installments of $6,883
secured by buildings and equipment 717,876 737,968
Due bank, maturity January 2000, variable interest at index rate plus
.5 (9.00% at January 31, 1998), monthly installments of $8,614,
secured by buildings and equipment 810,571 843,049
Due banks and other financing companies, with maturity dates ranging
from 1998 to 2002. Most bear interest at adjustable rates ranging
from 8.25% to 9.75%, with certain fixed rate notes ranging from
8.00% to 10.25%. Monthly payments totaling $14,995. Secured by
land, buildings, equipment, billboards, and inventories 592,156 1,813,699
=========== =========
</TABLE>
(Continued)
38
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
1998 1997
---- ----
Due individuals, various payment schedules with maturity dates
ranging from 1998 to 2004, including interest ranging from 8.00%
to 12.00%. Monthly payments totaling $12,792. Secured by land,
buildings, and billboards $ 925,485 809,653
Due individuals, maturity dates in 2008, including imputed interest
at 8.50%, annual payments totaling $40,000; unsecured 244,763 --
----------- ---------
8,902,915 6,694,592
Less current maturities 779,179 576,186
----------- ---------
$ 8,123,736 6,118,406
=========== =========
</TABLE>
Future maturities of long-term debt are as follows:
1999 $ 779,179
2000 983,819
2001 2,292,284
2002 852,554
2003 919,527
Thereafter 3,075,552
-----------
Total $ 8,902,915
===========
On February 5, 1996, the Company entered into a consolidating note
agreement with a financial institution. The new note agreement
consolidated approximately $1,700,000 of the Company's existing debt
and provided $1,000,000 of new debt. This debt was used primarily for
the expansion of the Company's outdoor advertising operations and
improvements to existing travel centers.
(8) Stockholders' Equity
In December 1996, the Company completed an initial public offering of
1,100,000 shares of common stock at $8.00 per share. Proceeds from the
offering, net of underwriter discounts and commissions and other
offering expenses, totaled approximately $7,300,000. The Company
utilized a portion of the net proceeds of the initial public offering
to repay certain indebtedness of the Company and plans to utilize the
remaining balance for general corporate purposes, including the
acquisition or development of additional travel centers and outdoor
advertising operations.
(Continued)
39
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Concurrent with the closing of the initial public offering, the Company
issued a five-year nonredeemable option to purchase up to 93,500
shares of common stock at an exercise price equal to 120 percent of
the offering price, or $9.60 per share to the underwriter. The option
became exercisable in December 1997. As of January 31, 1998, the
option has not been exercised.
On November 12, 1996, the Company entered into an agreement with an
outside consultant whereby 98,537 shares of outstanding common stock
were returned to the Company without consideration, and the stock
certificates were canceled. The shares had been issued in April 1996,
in exchange for services rendered in connection with the initial
public offering.
(9) Stock Option Plan
On September 27, 1996, the Company adopted the 1996 Stock Option Plan
(the Plan) pursuant to which the Company's board of directors may
grant stock options to officers and key employees. The Plan authorizes
grants of options to purchase shares of authorized but unissued common
stock up to an amount equal to ten percent of issued and outstanding
shares of common stock (438,485 shares as of January 31, 1998). Stock
options are granted with an exercise price equal to the stock's fair
market value at the date of grant. All stock options expire in ten
years and vest, and become fully exercisable as determined by the
board at time of grant.
On September 27, 1996, the board of directors of the Company granted
options to purchase an aggregate of 338,000 shares of common stock to
62 employees and officers, and 6,000 shares to each of its four
nonemployee directors, effective as of the closing of the initial
public offering. All of the options granted provide for a three-year
vesting period and have an exercise price equal to or at 110 percent
of the initial public offering price of $8.00 (weighted average
exercise price of $8.22).
At January 31, 1998, there were 136,985 additional shares available for
grant under the Plan. The per share weighted-average fair value of
stock options granted during 1997 was $3.03 on the date of grant using
the Black Scholes option-pricing model with the following
weighted-average assumptions: expected dividend yield 0.0 percent,
expected volatility of 30 percent, risk-free interest rate of 6.15
percent, and an expected life of 5 years.
(Continued)
40
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the consolidated financial statements. Had the Company
determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below for
the years ended January 31, 1998 and 1997:
1998 1997
---- ----
Net income As reported $ 1,069,188 905,209
Pro forma 764,626 707,557
=========== =======
Earnings per share As reported .24 .26
=========== =======
Pro forma .17 .21
=========== =======
Pro forma net income reflects only options granted in the year ended
January 31, 1997.
During the year ended January 31, 1998, no options were granted, exercised
or expired, however, 60,500 options were forfeited. Thus, 301,500
options are outstanding as of January 31, 1998. During the year ended
January 31, 1997, no options were exercised, forfeited or expired.
At January 31, 1998, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $8.00 - $8.80
and 8.88 years, respectively.
At January 31, 1998, 8,000 of the options granted are exercisable.
(10) Income Taxes
Income taxes from continuing operations consist of the following for the
years ended January 31:
Current Deferred Total
------- -------- -----
Years ended January 31, 1998:
U.S. federal $ 452,800 112,200 565,000
State and local 90,700 22,500 113,200
--------- ------- -------
$ 543,500 134,700 678,200
========= ======= =======
Years ended January 31, 1997:
U.S. federal $ 472,072 35,500 507,572
State and local 88,800 7,100 95,900
--------- ------- -------
$ 560,872 42,600 603,472
========= ======= =======
(Continued)
41
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to pretax income from continuing
operations as a result of the following factors:
January 31,
--------------------------
1998 1997
---- ----
Computed "expected" tax $ 594,112 512,951
State income taxes, net of
federal tax benefit 74,682 64,446
Other 9,406 26,075
--------- -------
Total $ 678,200 603,472
========= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
as follows at January 31:
1998 1997
---- ----
Deferred tax assets:
Compensated absences, principally
due to accrual for financial
reporting purposes $ 24,824 17,258
Other 11,700 12,000
---------- ------
Total gross deferred tax assets 36,524 29,258
Less valuation allowance - -
Net deferred tax assets 36,524 29,258
---------- ------
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation (211,824) (67,712)
Other (2,000) (4,146)
---------- ------
Total gross deferred liabilities (213,824) (71,858)
---------- ------
Net deferred tax liability $ (177,300) (42,600)
========== ======
There was no valuation allowance for deferred tax assets as of February 1,
1997 or 1996. Based upon the level of historical taxable income and
projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these
deductible differences.
(Continued)
42
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Profit Sharing Plan
The Company maintains a qualified defined contribution profit sharing plan
that covers substantially all employees. The plan year end is December
31. The elected salary reduction is subject to limits as defined by
the Internal Revenue Code. The Company provides a matching
contribution and additional discretionary contributions as determined
by resolution of the board of directors. Legal and accounting expenses
related to the plan are absorbed by the Company and were approximately
$12,965 and $15,745 for fiscal 1998 and 1997, respectively. The
Company's contributions to the profit sharing plan were $56,974 in
fiscal 1998 and $49,520 in fiscal 1997.
(12) Commitments and Contingencies
The Company leases land at several of its retail operating locations.
Included in general and administrative expenses in the accompanying
consolidated statements of income is rental expense for these land
leases of $306,283 and $286,752 for the years ended January 31, 1998
and 1997, respectively.
The leasing agreements for the various locations include 5-35 year leases
with remaining lives on those leases ranging from approximately 5-25
years at January 31, 1998. Renewal options vary, with the most
extensive including three 5-year renewal options. Contingent rentals
are generally based on percentages of specified gross receipts.
Several leases include terms for computation of rent expense as the
greater of a percent of gross receipts or a percent of land value as
defined by the lease. In most cases, the Company is responsible for
certain repairs and maintenance, insurance, property taxes or property
tax increases, and utilities.
Future minimum rental payments under these leases are as follows:
1999 $ 129,175
2000 110,600
2001 81,535
2002 60,600
2003 60,600
Thereafter 446,633
---------
Total $ 889,143
=========
(Continued)
43
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has entered into various land operating leases for billboard
space. These leases require minimum annual rentals and range from
terms of 1-5 years. Rent expense was $753,926 and $519,314 for the
years ended January 31, 1998 and 1997, respectively. At January 31,
1998 and 1997, the Company had prepaid on these leases in the amounts
of $347,612 and $290,882, respectively. See note 4 regarding billboard
advertising space leased to others by the Company.
Minimum future rental payments under these leases are as follows:
Year ending January 31
----------------------
1999 $ 836,136
2000 299,810
2001 220,854
2002 188,962
2003 157,268
Thereafter 237,186
-----------
$ 1,940,216
===========
(13) Related Party Transactions (See also notes 2 and 7)
The following interest transactions took place with related parties during
the periods presented as follows:
1998 1997
---- ----
Interest income $ 4,704 2,027
Interest expense -- 33,995
======== ======
An individual who is an officer and stockholder in the Company is also an
officer and stockholder in Stuckey's Corporation (Stuckey's). The
Company paid Stuckey's franchise fees for four stores in the amount of
$35,690 and $33,468 for January 31, 1998 and 1997, respectively.
Franchise fees are included in general and administrative expenses in
the accompanying consolidated statements of income.
(Continued)
44
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During the year ended January 31, 1998, wholesale gasoline distribution
sales totaling $916,733 were sold to a Stuckey's franchise travel
center not owned by the Company. The travel center is owned by the
daughter of an individual who is a stockholder in the Company.
(14) Industry Segment Information
The Company's major operations are in the retail sale of merchandise, food
and gasoline to the traveling public (travel center operations) and
outdoor advertising operations. Revenue, operating income,
identifiable assets, depreciation and amortization, and capital
expenditures pertaining to the industries in which the Company
operates are presented below (in thousands of dollars) for each of the
fiscal years ended January 31.
<TABLE>
<S> <C> <C> <C> <C> <C>
Depre-
ciation
Identi- and Capital
Net Operating fiable amorti- expend-
sales income assets zation itures
----- ------ ------ ------ ------
1998:
Travel center operations $ 22,303 1,586 9,525 369 1,760
Outdoor advertising operations 4,856 926 11,023 660 5,227
Corporate and other -- (512) 5,311 121 96
-------- ----- ------ ----- -----
$ 27,159 2,000 25,859 1,150 7,083
======== ===== ====== ===== =====
1997:
Travel center operations $ 21,389 1,510 8,277 363 1,015
Outdoor advertising operations 3,459 703 3,966 282 987
Corporate and other -- (221) 9,600 135 147
-------- ----- ------ ----- -----
$ 24,848 1,992 21,843 780 2,149
======== ===== ====== ===== =====
</TABLE>
During 1998, $916,733 and $33,606 of net sales and operating income,
respectively, related to wholesale gasoline distribution sales are
included in travel center operations.
(Continued)
45
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Acquisitions
On April 1, 1997, the Company acquired all of the tangible and intangible
assets and certain liabilities of the outdoor advertising division of
The McCarty Company (McCarty) known as Pony Panels for $4.2 million. A
member of the Company's Board of Directors is the majority shareholder
of the McCarty Company. The Company paid $1.7 million from the
proceeds of the initial public offering and financed $2.5 million with
bank debt. Pony Panels owns and operates approximately 750 8-sheet
poster panels in the Albuquerque, New Mexico metro area. The Company
also entered into a non-compete agreement with the former principals
of McCarty for a period of five years from the date of the
acquisition. The acquisition was accounted for as a purchase.
Accordingly, the results of Pony Panels operations have been combined
with the Company's since the date of acquisition. The purchase price
was allocated to assets acquired and liabilities assumed based on
their estimated fair values. The excess of the purchase price over the
net assets acquired (goodwill) of $863,000 recorded in connection with
the purchase will be amortized over the estimated benefit period of 15
years.
On April 26, 1997, the Company purchased the outdoor advertising assets
of General Outdoor Advertising (General) for $240,000 in cash. The
cash was provided by the proceeds of the Company's initial public
offering in December 1996. General owns and operates approximately 56
painted bulletin faces in the Alamogordo, New Mexico market. The
acquisition was accounted for as a purchase. Accordingly, the results
of General's operations have been combined with the Company's since
the date of acquisition. The purchase price was allocated to the
assets acquired based on their estimated fair values and no goodwill
was recorded in connection with the purchase.
On April 29, 1997, the Company purchased the outdoor advertising assets
of Mesa Outdoor Advertising (Mesa) for $150,000 in cash and a note
payable to the former owner in the amount of $275,000. The cash was
provided from proceeds of the Company's initial public offering in
December 1996. Mesa owns and operates approximately 57 30-sheet poster
faces in the Farmington, New Mexico market. The acquisition was
accounted for as a purchase. Accordingly, the results of Mesa's
operations have been combined with the Company's since the date of
acquisition. The purchase price was allocated to the assets acquired
based on their estimated fair values and no goodwill was recorded in
connection with the purchase.
On December 9, 1997, the Company acquired certain assets of Sweezy
Outdoor Advertising (Sweezy) for $1,245,000, of which $945,000 was
paid at closing and $300,000 was placed in escrow payable upon
transfer of title on the outdoor billboards acquired to the Company.
As of January 31, 1998, $100,000 of the escrow balance was outstanding
and is included in accounts payable in the accompanying consolidated
(Continued)
46
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
balance sheet. The Company paid $245,000 from the proceeds of the
initial public offering and financed $1 million with bank debt. Sweezy
owns and operates approximately 68 painted bulletin faces in the
Killeen/Fort Hood area of Texas. The acquisition was accounted for as
a purchase. Accordingly, the results of Sweezy's operations have been
combined with the Company's since the date of acquisition. The
purchase price was allocated to the assets acquired based on their
estimated fair values and no goodwill was recorded in connection with
the purchase.
In conjunction with the Sweezy acquisition, the Company entered into
non-compete agreements with the former principals of Sweezy. One of
the principals entered into an agreement for a period of ten years,
payable by the Company in ten annual installments of $40,000 beginning
in January 1998. The note payable, discounted for imputed interest
costs computed at 8.5 percent, is included in long-term debt in the
accompanying consolidated balance sheet. Two principals were paid
$5,000 each for a non-compete period of one year from the date of
acquisition.
The following unaudited pro forma information presents the combined
results of operations for the years ended January 31, 1998 and 1997,
as though the acquisitions of Pony Panels and Sweezy had occurred on
February 1, 1996. The unaudited pro forma results do not purport to be
indicative of what would have occurred had the acquisitions actually
been made as of such date or of results which may occur in the future.
Year ended January 31
---------------------
1998 1997
---- ----
Dollars in thousands, except per
share amounts (unaudited)
Net sales $ 28,090 26,558
======== ======
Net income $ 1,009 869
======= ===
Earnings per basic and diluted share $ .23 .25
===== ===
Adjustments made in arriving at the pro forma unaudited results of
operations include increased interest expense on acquisition debt,
depreciation on fixed assets acquired, amortization of goodwill and
related tax adjustments.
The effects of the Company's acquisitions of the assets of General and
Mesa are not material to the combined results of operations of the
Company for the years ended January 31, 1998 and 1997.
(Continued)
47
<PAGE>
BOWLIN
OUTDOOR ADVERTISING & TRAVEL CENTERS
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) Subsequent Events
On February 1, 1998, the Company acquired the outdoor advertising assets
of Big-Tex Outdoor Advertising (Big-Tex) for $1,559,000. The Company
paid $559,000 from the proceeds of the initial public offering and
financed $1,000,000 with bank debt. Big-Tex owns and operates 285
poster and painted bulletin faces in the Brownwood, Texas metro area.
The Company also entered into a non-compete agreement with the former
principals of Big-Tex for a period of ten years from the date of the
acquisition, payable in ten annual installments of $10,000 beginning
in February 1999.
The acquisition will be accounted for as a purchase in the year ended
January 31, 1999. The purchase price will be allocated to assets
acquired based on their estimated fair values. The excess of the
purchase price over the net assets acquired, if any, will be amortized
over the estimated period of benefit. The purchase price allocation
will be determined during the year ending January 31, 1999 when
appraisals and other information become available.
On March 3, 1998, the Company acquired the outdoor advertising assets of
Norwood Outdoor, Inc. (Norwood) for $1,000,000. The Company paid
$350,000 from the proceeds of the initial public offering and financed
$650,000 with bank debt. Norwood owns and operates approximately 140
poster and painted bulletin faces in the Brady, Texas metro area. The
acquisition will be accounted for as a purchase in the year ending
January 31, 1999. The purchase price will be allocated to assets
acquired based on their estimated fair values. The excess of the
purchase price over the net assets acquired, if any, will be amortized
over the estimated period of benefit. The purchase price allocation
will be determined during the year ending January 31, 1999 when
appraisals and other information become available.
48
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information concerning the Company's current Directors and executive
officers is set forth below. A summary of the background and experience of each
of these individuals is set forth after the table.
Name Age Position
- ---- --- --------
Michael L. Bowlin (1)(2) 55 Chairman of the Board, President and Chief
Executive Officer
C. Christopher Bess 51 Executive Vice President, Chief Operating
Officer and Director
William J. McCabe 47 Senior Vice President -Management
Information Systems
Anita J. Vachon 48 Senior Vice President - Travel Center
Operations
Nina J. Pratz 46 Senior Vice President, Chief Financial
Officer, Treasurer, Secretary, and Director
Michael Mons 43 Senior Vice President-Bowlin Advertising
Services
Robert L. Beckett (1) 72 Director
Harold Van Tongeren (2) 74 Director
Brian McCarty (2) 61 Director
James A. Clark (1) 67 Director
(1) Member of Audit Committee
(2) Member of Compensation Committee
Michael L. Bowlin. Mr. Bowlin has served as Chairman of the board and Chief
Executive Officer of BOWLIN since 1991 and as President since 1983. Mr. Bowlin
has been employed by BOWLIN since 1968. Mr. Bowlin's father, Claude M. Bowlin,
Sr., founded the business in 1912. Michael L. Bowlin is the immediate past
Chairman of the Board for the OAAA and serves on the Board for the American
Council of Highway Advertisers. Mr. Bowlin also serves as President and a member
of the Board of Directors of Stuckey's Incorporated, a restaurant and specialty
store franchisor (including specialty stores located at four of the Company's
travel centers); however, substantially all of Mr. Bowlin's professional time is
devoted to his duties at the Company. Mr. Bowlin holds a Bachelor's degree in
Business Administration from Arizona State University.
49
<PAGE>
C. Christopher Bess. Mr. Bess has served as the Company's Executive Vice
President and Chief Operating Officer since 1983. Mr. Bess has served as a
member of the Company's Board of Directors since 1974. During his 24 years with
the Company, Mr. Bess has also served in such capacities as internal auditor,
Merchandiser for Travel Center Operations, Travel Center Operations Manager and
as Development Manager. Mr. Bess is a certified public accountant and holds a
Bachelor's degree in Business Administration from the University of New Mexico.
William J. McCabe. Mr. McCabe has served as the Company's Senior Vice
President -Management Information Systems since 1997 and as Assistant Secretary
since 1996. Mr. McCabe served as a member of the Board of Directors from 1983
until August 1996. Prior to 1997, Mr. McCabe served as Senior Vice President -
Advertising Services from 1993, Vice President of Outdoor Operations from 1988
and as Vice President of Accounting from 1984 to 1987. Mr. McCabe has been
employed by BOWLIN since 1976 in such additional capacities as a Staff
accountant and Controller. Mr. McCabe holds a Bachelor's degree in Business
Administration from New Mexico State University.
Anita J. Vachon. Ms. Vachon has served as the Company's Senior Vice
President - Travel Center Operations since 1993 and was a member of the Board of
Directors from 1991 until August 1996. Since 1982, Ms. Vachon has been employed
by the Company in such positions as staff accountant, Purchasing Department
Manager and Vice President of Merchandising. Ms. Vachon holds an Associate's
degree in Accounting.
Nina J. Pratz. Ms. Pratz has served as the Company's Senior Vice President
- - Chief Financial Officer since 1997 and Treasurer/Secretary since 1977. Prior
to 1997, Ms. Pratz served as Chief Administrative Officer since 1988. In
addition, Ms. Pratz has served as a member of the Company's Board of Directors
since 1976. She has been employed by the Company for over 20 years. Ms. Pratz
holds a Bachelor's degree in Business Administration from New Mexico State
University.
Michael Mons. Mr. Mons has served as the company's Senior Vice President
for Advertising Services since December of 1997. Prior to December 1997, Mr.
Mons served as Sales Manager for the outdoor division for three years. Mr. Mons
has over eleven years experience in the all facets of the outdoor advertising
industry with emphasis in directing the start up and growth phases of outdoor
plants. Mr. Mons holds a Bachelor's degree in Business Administration from the
University of Arizona.
Harold Van Tongeren. Mr. Van Tongeren has served as a member of the Board
of Directors of BOWLIN since 1988. Mr. Van Tongeren has also served as Chairman
of the Board of Directors and President of Herk and Associates, a representative
of domestic gift and jewelry wholesalers, since 1952. In addition, Mr. Van
Tongeren serves as a key contact to the Company regarding potential acquisition
opportunities in the travel and tourism industry. Mr. Van Tongeren attended Hope
College and Dennison University.
Robert L. Beckett. Mr. Beckett has served as a member of the Board of
Directors of BOWLIN since 1974. Mr. Beckett has also been President and a
Director of The Cooper Agency, Inc., a consumer loan company, since 1964. In
addition to serving as a Director and executive officer of various private
entities, Mr. Beckett formerly served as Mayor of the City of Deming, New
Mexico.
Brian McCarty. Mr. McCarty became a Director upon the closing of the IPO.
Mr. McCarty has served since 1994 as Chairman of the Board and Chief executive
Officer of Business Location Research, a company specializing in the design and
development of advanced geographic information systems. From 1990 to 1993, Mr.
McCarty served as President and Chief Executive Officer of Naegele Outdoor
Advertising ("Naegele"). Prior to his employment at Naegele, Mr. McCarty served
as President of Ackerley Communications, a publicly traded company engaged in
50
<PAGE>
the operation of outdoor advertising, radio and television broadcasting
properties. Mr. McCarty holds a Bachelor's degree in Marketing from Lewis
University.
James A. Clark. Mr. Clark became a Director of the Company upon the closing
of the IPO. Mr. Clark is currently retired from full-time employment. Mr. Clark
served as President and Chief Executive Officer of First Interstate Bank of
Albuquerque from 1985 to 1991. Prior to 1991, Mr. Clark served in several
capacities at various banking and financial services entities for over 25 years.
Mr. Clark holds a Certificate of Graduation from the Stonier Graduate School of
Banking at Rutgers University.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of the
Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and greater
than ten-percent owners are required by the Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on the Company's review of the copies of such forms received
by it, the Company believes that, during the fiscal year ended January 31, 1998,
all filing requirements applicable to its officers, directors and greater than
ten-percent owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes all compensation paid during the last three
fiscal years to the Company's Chief Executive Officer. No other executive
officer received total annual salary and bonus in excess of $100,000 for
services rendered to the Company during fiscal 1998.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
-----------------------------
Annual Compensation Awards Payouts
---------------------------- ---------- -----------------
Other Securities LTIP
Salary Annual Restricted Underlying Pay- All Other
Name and Principal ($) Bonus Compensa- Stock Options/ outs Compensa-
Position Year (1),(2) (2)($) tion ($) Awards SARs (2)(#) ($) tion ($)
-------- ---- ------- ------ --------- ------ ----------- ---- ---------
Michael L. Bowlin 1998 136,000 -- 14,535 (6) -- -- -- --
Chairman of the Board 1997 93,000 -- 16,133 (5) -- 50,000 -- --
President & CEO 1996 78,000 150,050 14,452 (4) -- -- -- --
</TABLE>
(1) Includes amounts deferred at the election of the officer to be contributed
to his 401(k) Profit Sharing Plan account
(2) The Company decided not to pay discretionary cash bonuses in fiscal 1997
and to grant stock options to its executive offer in lieu thereof. In
September 27, 1997 Mr. Bowlin was granted an option to purchase 50,000
shares of Common Stock under the 1996 Stock Option Plan.
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<PAGE>
(3) On September 27, 1996, the Company entered into an employment contract with
Mr. Bowlin that provides for an annual base salary of $195,000 effective
February 1, 1997. See "Employment Contracts".
(4) Includes (I) $5,487 of the Company's discretionary matching contributions
allocated to Mr. Bowlin's 401(k) Profit Sharing Plan account, (ii) $7,723
for premiums on term life, auto and disability insurance policies of which
Mr.. Bowlin or his wife is the owner and (iii) $1,242 for Mr. Bowlin's use
of a vehicle owned by the Company.
(5) Includes (I) $4,750 of the Company's discretionary matching contributions
allocated to Mr. Bowlin's 401(k) Profit Sharing Plan account, (ii) $10,155
for premiums on term life, auto and disability insurance policies of which
Mr.. Bowlin or his wife is the owner and (iii) $1,228 for Mr. Bowlin's use
of a vehicle owned by the Company.
(6) Includes (I) $2,901 of the Company's discretionary matching contributions
allocated to Mr. Bowlin's 401(k) Profit Sharing Plan account, (ii) $10,426
for premiums on term life, auto and disability insurance policies of which
Mr.. Bowlin or his wife is the owner and (iii) $1,208 for Mr. Bowlin's use
of a vehicle owned by the Company.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are entitled to receive
$1,000 per each meeting of the Board of Directors, or any committee thereof,
attended plus reimbursement of reasonable expenses. Non-employee Directors also
receive an option to purchase 6,000 shares of Common Stock upon their election
to the Board of Directors and an annual grant of 2,000 shares of Common Stock
during each year of service, all under the Company's 1996 Stock Option Plan.
Directors who are employees of the Company do not receive any additional
compensation for such services.
EMPLOYMENT CONTRACTS
On August 23, 1996, the Board of Directors approved employment agreements
with Michael L. Bowlin for services as Chairman of the Board, President and
Chief Executive Officer and with C. Christopher Bess for services as Executive
Vice president and Chief Operating Officer (Messrs. Bowlin and Bess are
sometimes collectively referred to herein as the "Employee"). These agreements
provide for base annual salaries, effective as of February 1, 1997, for Messrs.
Bowlin and Bess of $195,000 and $145,000, respectively, subject to annual
increases at the discretion of the Board of Directors, but at least equal to the
corresponding increase in the Consumer Price Index. In addition, the Employee is
entitled to receive bonuses at the discretion of the Board of Directors in
accordance with the Company's bonus plans in effect from time to time.
Additional details and other information regarding the agreements are
discussed in documents previously filed with the commission and are incorporated
herein by reference.
For the fiscal year ended January 31, 1998, in the interest of maintaining
the Company's profitability and capital, Messrs. Bowlin and Bess agreed to
accept base annual salaries of $136,000 and $90,000, respectively.
52
<PAGE>
PROFIT-SHARING 401(k) PLAN
Under the Company's 401(k) plan, effective July 1, 1990, as amended (the
"401(k) Plan"), eligible employees may direct that a portion of their
compensation, up to a legally established maximum, be withheld by the Company
and contributed to their account. All 401(k) Plan contributions are placed in a
trust fund and invested by the 401(k) Plan's trustee. It is the Company's policy
that all of the 401(k) Plan funds be invested in a single fund that is
identified by the Plan's trustee or administrator. The 401(k) Plan permits the
Company to make discretionary matching contributions in an amount to be
determined on an annual basis by the Company's Board of Directors. Amounts
contributed to participant accounts are generally not subject to federal income
tax until distributed to the participant and may not be withdrawn until death,
retirement or termination of employment.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "1996 Plan") authorizes the Board
to grant options to Directors and employees of the Company to purchase in the
aggregate an amount of shares of Common Stock equal to 10% of the shares of
common Stock issued and outstanding from time to time. Directors, officers and
other employees of the Company who, in the opinion of the Board of Directors,
are responsible for the continued growth and development and the financial
success of the company are eligible to be granted options under the 1996 Plan.
Options may be nonqualified options, incentive stock options, or any combination
of the foregoing. In general, options granted under the 1996 Plan are not
transferable and expire ten years after the date of grant. The per share
exercise price of an incentive stock option granted under the 1996 Plan may not
be less than the fair market value of the Common Stock on the date of grant and
no options granted under the 1996 plan may have an exercise price per share less
than the initial public offering price. Incentive stock options granted to
persons who have voting control over 10% or more of the Company's capital stock
are granted at 110% of the fair market value of the underlying shares on the
date of grant and expire five years after the date of grant. No option may be
granted after August 23, 2006.
The 1996 Plan provides the Board of Directors with the discretion to
determine when options granted thereunder will become exercisable. Generally,
such options may be exercised after a period of time specified by the Board of
Directors at any time prior to expiration, so long as the optionee remains
employed by the Company. No option granted under the 1996 Plan is transferable
by the optionee other than by will or the laws of descent and distribution, and
each option is exercisable during the lifetime of the optionee only by the
optionee.
The following table summarizes stock options granted during the last three
fiscal years to the Company's executive officers.
Individual Grants
-----------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise of Expira-
Name and Principal Options/SARs Employees in Base Price tion
Position Year Granted(#) Fiscal Year ($/sh) Date
-------- ---- ---------- ----------- ------ ----
Michael L. Bowlin 1998 -- -- -- --
Chairman of the Board 1997 50,000 15% $8.80 2006
President & CEO 1996 -- -- -- --
53
<PAGE>
C. Christopher Bess 1998 -- -- -- --
Executive Vice President 1997 40,000 12% $8.80 2006
Chief Operating Officer 1996 -- -- -- --
Anita J. Vachon 1998 -- -- -- --
Senior Vice President - 1997 30,000 9% $8.00 2006
Travel Center Operations 1996 -- -- -- --
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANGEMENT
The following table sets forth, as of January 31, 1998, the number and
percentage of outstanding shares of Common stock owned by (i) each Director and
Director-Nominee of the Company; (ii) the Chief Executive Officer of the
Company; (iii) all Directors and executive officers of the Company as a group;
and (iv) all persons known by the Company to be the beneficial owners of more
than 5% of the outstanding shares of Common Stock.
NAME OF BENEFICIAL OWNER (1) AMOUNT AND NATURE OF BENEFICIAL PERCENT OF
OWNERSHIP (2) CLASS (3)
Michael L. Bowlin (4) 1,723,513 39.3%
C. Christopher Bess (5) 508,081 11.6%
Anita J. Vachon 42,200 *
Nina J. Pratz 120,802 2.8%
William J. McCabe 61,190 1.4%
Michael Mons 330 *
Robert J. Beckett 123,646 2.8%
Harold Van Tongeren (6) 44,099 1.0%
Brian McCarty -- --
James A. Clark 2,000 *
Monica A. Bowlin (7) 1,723,513 39.3%
The Francis W. McClure
and Evelyn Hope McClure
Revocable Trust 403,124 9.2%
All directors and executive
officers as a group
(10 persons) (4)(5)(6)(7) 2,625,861 59.9%
- -----------------------------------------
*Less than 1.0%
54
<PAGE>
(1) All of the holders have an address at c/o the Company, 150 Louisiana NE,
Albuquerque, NM, 87108.
(2) Unless otherwise noted and subject to community property laws, where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of common stock as shown
beneficially owned by them.
(3) Number of shares outstanding excludes (i) 93,500 shares which are subject
to the Representative's Option, as previously described in a document
previously filed with the Commission and (ii) 301,500 shares reserved for
issuance upon the exercise of options granted by the Company under the
Company's 1996 Stock Option Plan.
(4) Includes 425,687 shares held by Mr. Bowlin's wife and 171,332 shares held
by each of three daughters. Mr. Bowlin disclaims beneficial ownership of an
aggregate of 342,664 of such shares, which are held by two of his
daughters.
(5) Includes 73,006 shares held by Mr. Bess' wife and 19,623 shares held by Mr.
Bess' minor daughter.
(6) All of such 44,099 shares are held by Mr. Van Tongeren jointly with his
wife.
(7) Includes 783,830 shares held by Mrs. Bowlin's husband and 171,332 shares
held by each of three daughters. Mrs. Bowlin disclaims beneficial ownership
of an aggregate of 342,664 of such shares, which are held by two of her
daughters.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Michael L. Bowlin is the President and Chairman of the board of, and a 25%
stockholder in, Stuckey's Corporation ("Stuckey's"), a franchiser of restaurants
and specialty stores, including specialty stores located at four of the
Company's travel centers. In fiscal year 1997, aggregate franchise and other
related fees paid by the company to Stuckey's equaled approximately $35,690.
Michael L. Bowlin and C. Christopher Bess each have perpetual five-year
employment agreements with the Company that provide for an annual base salary,
effective as of February 1, 1997, of $195,000 and $145,000, respectively, during
their terms of employment, as well as certain rights to indemnification. See
"EXECUTIVE COMPENSATION - Employment Contracts."
On April 1, 1997, the Company entered into an agreement to purchase
substantially all of the assets and certain liabilities of a division of The
McCarty Companies formally known as "Pony Panels." The McCarty Companies are
owned by a director of the Company, Brian McCarty. The purchase price of the
transaction was $4,200,000, and was financed from a portion of the proceeds from
the Company's IPO and bank debt. Terms of the financing have been disclosed and
previously filed with the SEC. See ITEM 1. DESCRIPTION OF BUSINESS under the
heading "Recent Developments".
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits as indexed below are included as part of this Form 10-KSB.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the three months ended January 31,
1998.
55
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit Method
Number Description of Filing
- ------ ----------- ---------
2.1 Purchase Agreement dated April 1, 1997 (Incorporated by reference;
between the Registrant and the McCarty previously filed as Exhibit 2.1
Company to the Registrant's Report on
Form 8-K dated April 15, 1997)
2.2 Purchase Agreement dated December 9, (Incorporated by reference;
1997 between the Registrant and Sweezy previously filed as Exhibit 2.2
Outdoor Advertising, Inc. to the Registrant's Report on
Form 10-QSB dated December 15,
1997)
2.3 Purchase Agreement dated February 1, Filed herewith
1998 between the Registrant and Big-
Tex Outdoor Advertising, Inc.
2.4 Purchase Agreement dated March 2, 1998 Filed herewith
between the Registrant and Norwood
Outdoor, Inc.
10.43 Promissory Note, dated as of May 2, (Incorporated by reference;
1997, payable by the Registrant to previously filed as Exhibit
Norwest Bank in the aggregate amount 10.43 to the Registrant's
of $1,000,000 Report on Form 10-QSB dated
June 16, 1997)
10.44 Credit Agreement with First Security (Incorporated by reference;
Bank, dated as of November 25, 1997, previously filed as Exhibit
granting the Registrant funds in the 10.44 to the Registrant's
aggregate principal amount of Report on Form 10-QSB dated
$10,500,000 December 15, 1997)
27 Financial Data Schedule Filed herewith
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BOWLIN Outdoor Advertising &
Travel Centers Incorporated
By: /s/ MICHAEL L. BOWLIN
--------------------------------
Michael L. Bowlin,
Chairman of the Board, President
and Chief Executive Officer
Date: April 29, 1998
56
<PAGE>
In accordance with the Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the Company and in the
capacities and on the dates indicated:
Signature Date
--------- ----
By: /s/ MICHAEL L. BOWLIN April 29, 1998
------------------------------------------------------
Michael L. Bowlin, Chairman of the Board, President,
CEO and Director (Principal Executive Officer)
By: /s/ C. CHRISTOPHER BESS April 29, 1998
------------------------------------------------------
C. Christopher Bess, Executive Vice President, Chief
Operating Officer, and Director
By: /s/ NINA J. PRATZ April 29, 1998
------------------------------------------------------
Nina J. Pratz, Senior Vice President, Chief Financial
Officer, Treasurer and Secretary, and Director
By: /s/ ROBERT L. BECKETT April 29, 1998
------------------------------------------------------
Robert L. Beckett, Director
By: /s/ JAMES A. CLARK April 29, 1998
--------------------------------------------------------
James A. Clark, Director
By: /s/ BRIAN MCCARTY April 29, 1998
------------------------------------------------------
Brian McCarty, Director
By: /s/ HAROLD VAN TONGEREN April 29, 1998
------------------------------------------------------
Harold Van Tongeren, Director
57
<PAGE>
PURCHASE AGREEMENT 1/6/98
THIS AGREEMENT is hereby made this, January 6, 1998 by and between Big Tex
Outdoor Advertising, Inc., a Texas corporation ("Big Tex" or the "Company"),
Lawrence J. Link, individually, the sole shareholder of Big Tex ("Shareholder"),
and Bowlin Outdoor Advertising & Travel Centers Incorporated, a Nevada
corporation ("Bowlin").
Purpose of Agreement
Bowlin desires to purchase and Big Tex desires to sell all tangible and
intangible assets that comprise that portion of Big Tex's business known as "Big
Tex Outdoor Advertising, Inc." Therefore, in consideration of the premises and
of the mutual representations, warranties and covenants herein contained, the
parties hereby agree as follows:
Terms and Conditions
Purchase Price
The purchase price shall be a total of $1,500,000 paid in the following
manner:
(a) 1,400,000 cash at closing
(b) $10,000 per year for the duration of ten (10) years paid as
consideration for the "Non-Competition Agreement" for Lawrence J.
Link specified in this agreement and attached as Exhibit B and
incorporated for all purposes herein. Annual distributions shall
be made beginning February 1, 1999 and thereafter on February 1
annually thereafter until paid, in an aggregate amount of
$100,000.
In addition to the amount specified above, Bowlin will pay to Big Tex at
closing:
(a) an amount equal to the amount of current accounts receivable,
provided that Big Tex guarantees the collection of such accounts
receivable within ninety (90) days of closing. Big Tex hereby
agrees to make immediate cash payment to Bowlin, upon Bowlin's
request, of the amount of any such account receivable not
collected within ninety (90) days of closing;
(b) an amount equal to the amount of any prepaid insurance, leases,
permits and taxes as specified in attached Exhibit E and
incorporated for all purposes herein
Notwithstanding the foregoing, in calculating the amount to be paid by Bowlin
for the accounts receivable at closing, such amount shall be credited with and
reduced by the amount of any prepaid revenues received by Big Tex as of the
closing and reduced by Bowlin's prorated share (prorated by day as of Closing
date) of the current month's revenues billed in advance by Big Tex.
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<PAGE>
The purchase price, and payments noted above, shall be the sole considerations
paid by Bowlin under this agreement.
Date of Closing
The parties contemplate that Closing shall take place on February
1, 1998. If Closing does not occur by that date, it will occur as
soon thereafter as Bowlin is able to complete its due diligence
investigation. The parties agree that Bowlin's obligation to
complete this purchase is contingent upon Bowlin being satisfied,
in its sole discretion, that all representations made to it
concerning Big Tex's assets are true; that the financial
condition, books, and accounts of Big Tex are sound; that the
land leases, outdoor advertising permits and advertising
contracts are of satisfactory condition to Bowlin; and that the
value of the assets being transferred is not less than the
purchase price. Transfer of Assets to Bowlin, and Transfer of
Funds to Lawrence J. Link shall take place on February 1, 1998.
Transfer of Assets
At closing, Big Tex will sell, transfer, assign, convey and
deliver to Bowlin free and clear of any liens, debts, or
encumbrances, and Bowlin will purchase, accept and acquire from
Big Tex all of the Assets listed in Exhibit A and Exhibit A-1
attached hereto and incorporated for all purposes herein.
In addition to the Assets listed in Exhibit A and Exhibit A-1,
Big Tex will sell, transfer, assign, convey and deliver to Bowlin
the right to use the names "Big Tex" and "Big Tex Outdoor
Advertising, Inc." and variants of those names, provided,
however, that Shareholder shall continue to have the right to the
use of his name, Lawrence J. Link, and the names "Big Tex", "Big
Tex Advertising, Inc." and variants thereof.
Instruments of Transfer
(a) Big Tex and Shareholder's Deliveries. At the closing, Big
Tex shall deliver to Bowlin:
i. A bill of sale transferring to Bowlin title to the
Assets as provided herein, in form and substance
acceptable to Bowlin;
ii. A ten (10) year non-competition agreement for Lawrence
J. Link (See attached Exhibit B);
iii. A ten (10) year lease agreement pertinent to the
building and premises currently occupied and used by
Big Tex for the operation of their outdoor advertising
business (See attached Exhibit "C")
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<PAGE>
iv. A land lease agreement acceptable to Bowlin pertinent
to signs located on land currently occupied, used, and
owned by Big Tex and/or Lawrence J. Link personally
(See attached Exhibit D).
v. Letter(s) from Big Tex and Shareholder to the Texas
Department of Transportation regarding transfer of the
applicable outdoor advertising permits from Shareholder
to Bowlin in the form of attached Exhibit F;
vi. Assignment of land lease agreements pertinent to sign
sites located on property owned by third parties (See
attached Exhibit G);
vii. Such other bills of sale, titles and other instruments
of assignment, transfer and conveyance as Bowlin shall
reasonably request, in recordable form, where
appropriate, and properly executed, evidenced and
notarized where appropriate in such form as shall be
necessary or appropriate to vest in Bowlin good title
to the Assets.
viii.A Corporate resolution signed by Big Tex and
Shareholder authorizing Lawrence J. Link to act on
behalf of the corporation and sell assets thereof.
(b) Bowlin's Deliveries. At the closing, Bowlin shall deliver to
Big Tex: i. A check for the cash portion of the purchase
price as specified herein; ii. Checks in an amount
sufficient to pay the net amount due for items listed in
Exhibit E, and iii. A check payable to the Big Tex Outdoor
Advertising, Inc. in the amount of $2,500 for the transfer
of Big-Tex's outdoor advertising permits (see attached
Exhibit E).
(c) Other Transfer Instruments. Following the Closing, at the
request of Bowlin, Big Tex shall deliver any further
Instruments and take all reasonable action as may be
necessary or appropriate to vest in Bowlin all of Big Tex's
title to the assets.
No Assumption of Liabilities
It is expressly understood and agreed by the parties hereto that
Bowlin assumes no debts, liabilities (including tax liabilities)
or obligations (contractual or otherwise) of Big Tex or
Shareholder or any other debts, liabilities or obligations
related to the conduct of Big Tex's business.
Representations and Warranties
Big Tex and Shareholder represent and warrant to Bowlin as of the
date hereof and on the closing date as follows (all
representations and warranties being joint and several):
(a) Authority. Big Tex has the legal authority to sell,
transfer, and deliver to Bowlin the tangible and intangible
assets of the business known as "Big Tex Outdoor
Advertising, Inc."
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<PAGE>
(b) Title. Big Tex has good and marketable title to all
properties, assets and leasehold estates, real and personal,
tangible and intangible, to be transferred pursuant to this
Agreement subject to no mortgage, pledge, lien, conditional
sales agreement, encumbrance or charge. Big Tex and
Shareholder have good and marketable title, respectively, to
all real property to be leased to Bowlin under a building
lease pursuant to this agreement, subject to no mortgage,
lien, encumbrance or change which would interfere with
Bowlin's rights under such building lease.
(c) Insurance. Big Tex has delivered to Bowlin a list, complete
in all material respects as of the date of this agreement,
of all insurance policies carried by Big Tex relating to the
assets transferred under this Agreement. Big Tex carries
insurance, which it believes to be adequate in character and
amount, with reputable insurers in respect of its
properties, assets, and business and such insurance policies
are still in full force and effect, and shall be in effect
without interruption until closing has occurred.
(d) Violations, Suits, Claims, etc. Big Tex is not in default
under any law or regulation, or under any order of any court
or federal, state, municipal or other governmental
department, commission, board, bureau, agency or
instrumentality wherever located, and there are (1) no
claims, actions, suits or proceedings instituted or filed
and (2) no claims actions, suits or proceedings threatened
presently or which in the future may be threatened or
asserted against or affecting Big Tex at law or in equity,
or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency
or instrumentality wherever located, and (3) there are no
potential claims, demands, liens, encumbrances, or debts
with regard to the assets that are the subject of this sale
or that may create for Bowlin any environmental or
regulatory liability.
(e) Tax Returns. Big Tex has filed all requisite federal, state
and other tax returns due for all fiscal periods ended on or
before the date of this agreement. There are no claims
against Big Tex for federal, state or other taxes for any
period or periods to and including the date of this
agreement, the amounts shown as provisions for taxes on the
financial statements of Big Tex as of the date of this
agreement delivered to Bowlin are sufficient for the payment
of all taxes of all kinds for all fiscal periods ended on or
before that date.
(f) Sole Shareholder. Shareholder is the sole owner of all
issued and outstanding capital stock of the Company, and no
other person has any right to acquire shares of capital
stock of the Company.
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<PAGE>
(g) Organization, Good Standing, Power, etc. Big Tex (a) is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Texas; and (b) has
the requisite power and authority to own, lease and operate
its properties and to carry on its business as currently
conducted.
(h) Authorizations and Enforceability. Big Tex has all requisite
power and authority to execute, deliver and perform this
Agreement and the other agreements and instruments delivered
pursuant hereto and to consummate the transactions
contemplated hereby. This Agreement and the other agreements
and instruments delivered pursuant hereto have been duly and
validly authorized, executed and delivered by Big Tex and
constitutes the valid and binding obligations of Big Tex,
fully enforceable in accordance with their terms.
(i) Effect of Agreement. The execution, delivery and performance
of this Agreement by Big Tex and Shareholder and the
consummation of the transactions contemplated hereby will
not, with or without the giving of notice or the lapse of
time, or both: (a) violate any material provision of law,
statute, rule or regulation to which Company is subject; (b)
violate any judgment, order, writ or decree of any court,
arbitrator or governmental agency applicable to Company; or
(c) result in a material breach of or material conflict with
any term, covenant, condition or provision of, result in the
modification or termination of, constitute a material
default under, or result in the creation or imposition of,
any lien, security interest, charge or encumbrance upon any
of the Assets pursuant to any charter, bylaw, commitment,
contract or other agreement or instrument, to which Company
is a party or by which any of its Assets is bound.
(j) Permits, Licenses, Compliance with Applicable Laws and Court
Orders. Company has all requisite corporate power and
authority, and all permits, licenses and approvals of
governmental and administrative authorities, to own, lease
and operate its properties and to carry on its business as
presently conducted; all such permits, licenses and
approvals material to the conduct of the business of Company
are in full force and effect. Company's conduct of its
business does not materially violate or infringe any
applicable law, statute, ordinance or regulation. Company is
not in default in any respect under any executive,
legislative, judicial, administrative or private (such as
arbitration) ruling, order, writ, injunction or decree.
(k) Financial Information. All financial information relating to
the Assets or the business and provided to Bowlin by Big Tex
have been prepared from the books and records of seller in
accordance with generally accepted accounting principles and
fairly and accurately present the financial condition of Big
Tex and the business relating to the Assets as of the date
of such information.
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Initials
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<PAGE>
(l) Absence of Undisclosed Liabilities. Big Tex has no
liabilities other than those that are expressly disclosed in
the financial information provided to Bowlin. Between the
date of this Agreement and the Closing, there will be no
material change in the financial position of Big Tex.
(m) Agreements, Plans, Arrangements, etc. Except as set forth in
Exhibit A or A-1 hereto, Company is not a party to, nor is
Company or any of the Assets bound or affected by, any oral
or written:
(1) lease agreement (whether as lessor or lessee) relating
to real or personal property;
(2) license agreement, assignment or other contract
(whether as licensor or licensee, assignor or assignee)
relating to trademarks, trade names, patents,
copyrights (or applications therefor);
(3) agreement with any business broker with respect to this
transaction;
(4) agreement with any supplier, distributor, franchisor,
dealer, sales agent or representative;
(5) joint venture or partnership agreement with any other
person;
(6) agreement with any bank, factor, finance company or
similar organization regarding the financing of
accounts receivable or other extensions of credit;
(7) agreement granting any lien, security interest or
mortgage on any Asset or other property of Company,
including, without limitation, any factoring agreement
for the assignment of accounts receivable;
(8) agreement for the Construction or modification of any
Asset or leasehold interest of Company;
(9) agreements with advertisers for lease of sign
structures;
(10) agreement with any employee, consultant, or independent
contractor providing personal services to Company.
(n) Acquisition Agreements. There are no agreements relating to
the acquisition of the stock, business or Assets of Company
to which Company is a party, other than this Agreement.
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Initials
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<PAGE>
(o) Status of Real Property. Neither Company nor Shareholder has
received any notice of noncompliance with respect to real
property on which any of the Assets are located (the "Real
Property") with any applicable statutes, laws, codes,
ordinances, regulations or requirements relating to fire,
safety, health or environmental matters or noncompliance
with any covenants, conditions and restrictions (whether or
not of record) or local, municipal, regional, state or
federal requirements or regulations. To the best of
Company's and Shareholder's knowledge, there has been no
release or discharge on or under the Real Property by the
Company of any toxic or hazardous substance, material or
waste which is or has been regulated by any governmental or
quasi-governmental authority or is or has been listed as
toxic or hazardous under any applicable local, state or
federal law. To the best of the Company's and Shareholder's
knowledge, there are no subsurface or other conditions
related to toxic or hazardous waste affecting the Real
Property or any portion or component thereof, and there are
no underground storage tanks located on the Real Property.
(p) Defects. To the best of Company's and Shareholder's
knowledge, there are no structural or operational defects in
any of the Assets.
(q) Leases Current. All obligations of the Company under all
existing lease agreements which are required by such
agreements to have been performed by Company have been
fulfilled by the Company, including the payment by the
Company of all lease payments due and payable through the
date hereof.
Bowlin represents and warrants to Big Tex and Shareholder as of the date hereof
and the Closing date as follows:
(a) Organization. Bowlin is a validly existing corporation
organized under the laws of the State of Nevada and has all
requisite corporate power and authority to own, operate and
lease its properties and assets.
(b) Authority. Bowlin has full corporate power, authority and
legal rights to execute and deliver, and to perform its
obligations under this Agreement, and has taken all
necessary action to authorize the purchase hereunder on the
terms and conditions of this Agreement and to authorize the
execution, delivery and performance of this Agreement. This
Agreement has been duly executed by Bowlin, and constitutes
a legal, valid and binding obligation of Bowlin enforceable
in accordance with its terms.
(c) Compliance with Instruments, Consents, Adverse Agreements.
Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will
conflict with or result in any violation of or constitute a
default under the articles of incorporation or the by-laws
of Bowlin, or any Law, Instrument, lien or other Contract by
which Bowlin is bound. Bowlin is not a party or subject to
any Contract, or subject to any article or other corporate
restriction or any Law which materially and adversely affect
the business operation, prospects, properties, assets or
condition, financial or otherwise, of Bowlin.
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(d) Litigation. There is no suit, action or litigation,
administrative, arbitration, or other proceeding or
governmental investigation pending or, to the knowledge of
Bowlin, threatened which might, severally or in the
aggregate materially and adversely affect the financial
condition or prospects of Bowlin or Bowlin's ability to
acquire the Assets as contemplated by this Agreement.
(e) Brokers. All negotiations relative to the Agreement and the
transactions contemplated hereby have been carried on by
Bowlin is such manner without giving rise to any valid claim
against Big Tex for a finder's fee, brokerage commission or
other like payment.
Covenants
Between the date of this agreement and the closing date:
(a) Big Tex's officers will cause Big Tex to:
(1) Carry on its outdoor advertising business in substantially
the same manner as it has heretofore and not introduce any
material new method of management, operation or accounting;
(2) Maintain their properties and facilities in as good working
order and condition as at present, ordinary wear and tear
excepted;
(3) Perform all material obligations under agreements relating
to or affecting its assets, properties and rights;
(4) Keep in full force and effect present insurance policies or
other comparable insurance coverage; and
(5) Use its best efforts to maintain and preserve its assets
intact, retain its present employees and maintain its
relationships with suppliers, customers and others having
business relations with it.
(b) Big Tex's officers will not permit Big Tex without the prior
written consent of Bowlin to:
(1) Enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures except
in the normal course of business;
(2) Create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties
transferred under this agreement, whether now owned or
hereafter acquired; or
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(3) Sell, assign, lease or otherwise transfer or dispose of any
property or equipment subject to this agreement except in
the normal course of business.
Competition
Simultaneously with the execution of this Agreement, Lawrence J. Link will
execute and deliver to Bowlin a Non-Competition Agreement in the form and
on the terms as set forth in Exhibit B attached hereto and incorporated by
reference herein for all purposes.
Conditions to Bowlin's Obligations
The obligations of Bowlin hereunder are subject to the fulfillment, at or
prior to the Closing, of each of the following conditions, any or all of
which may be waived in writing by Bowlin, in its sole discretion:
(a) Accuracy of Representations and Warranties. Each of the
representations and warranties of Big Tex and Shareholder contained in
this Agreement shall be true on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date,
except as affected by transactions contemplated hereby.
(b) Performance of Covenants. Big Tex shall have performed and complied
with all covenants, obligations and agreements to be performed or
complied with by it on or before the Closing Date pursuant to this
Agreement.
(c) No Litigation or Claims. No claim, action, suit, proceeding,
arbitration, investigation or hearing or notice of hearing shall be
pending or threatened against or affecting Big Tex which: (a) might
foreseeably result, or has resulted, either in an action to enjoin or
prevent or delay the consummation of the transactions contemplated by
this Agreement or in such an injunction; or (b) could, in the
determination of Bowlin, have an adverse effect on the assets to be
transferred hereunder.
(d) No Violations. No material violation of Big Tex shall exist, or be
alleged by any governmental authority to exist, of any law, statute,
ordinance or regulation, the enforcement of which would adversely
affect the financial condition, results of operations, properties or
business of Big Tex.
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(e) Consents and Assignments. Big Tex shall have delivered to Bowlin all
consents and assignments of all persons and entities necessary for the
performance of the transactions contemplated by this Agreement,
including the transfer of all assets and the assignment of leases, and
Big Tex shall have obtained the consents of: any lender to Big Tex,
or, in the alternative, the release of all liens held by such lender,
with respect to the sale and transfer of the assets; and any other
consents of third parties deemed necessary or appropriate by Bowlin.
(f) Certificate. Bowlin shall have received a certificate signed by Big
Tex and Shareholder, dated the Closing Date, satisfactory in form and
substance to Bowlin and its counsel, certifying as to the fulfillment
of the conditions specified above.
(g) Satisfactory Completion of Due Diligence. Bowlin shall be satisfied in
its sole discretion with the content of the final Exhibits hereto and
other related documents for closing and shall otherwise be satisfied
in its sole discretion with the results of its due diligence review,
including the right to terminate this agreement with no penalty in the
event that the land leases, outdoor advertising permits and
advertising contracts are not of satisfactory condition to Bowlin.
Indemnification
(a) Indemnification of Bowlin by Big Tex and Shareholder. Big Tex and
Shareholder, jointly and severally, agree to indemnify and hold
harmless Bowlin and any person claiming by or through it or its
successors and assigns from, against and in respect of any and all
losses, claims, and liabilities incurred by or asserted against Bowlin
or its successors or assigns in connection with any breach of any
representation or warranty of Big Tex or Shareholder;
(i) any breach of any representation or warranty of Big Tex or
Shareholder;
(ii) any breach of any covenant or agreement made by Big Tex or
Shareholder in this Agreement;
(iii)any liability, debt or obligation of Big Tex or lien or
encumbrance on the Assets or
(iv) any claim arising out of the use, sale or operation of the Assets
by Big Tex or Shareholder and/or the operation of the business of
Big Tex or Shareholder prior to the Closing.
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(b) Indemnification of Big Tex and Shareholder by Bowlin. Bowlin agrees to
indemnify and hold harmless Big Tex and Shareholder and any person
claiming by or through it or its successors and assigns from, against
and in respect of any and all losses, claims, and liabilities incurred
by or asserted against Big Tex or Shareholder or its successors or
assigns in connection with:
(i) any breach of any representation or warranty of Bowlin;
(ii) any breach of any covenant or agreement made by Bowlin in this
Agreement;
(iii)any act or omission of Bowlin after Closing, and
(iv) any claim arising out of the use, sale or operation of the Assets
by Bowlin and/or the operation of the business by Bowlin after
Closing.
(c) IF THE EVENT GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION ARISES OUT
OT THE JOINT OR CONCURRENT NEGLIGENCE OF THE PERSON TO BE INDEMNIFIED
AND THE INDEMNIFYING PARTY, THE PERSON TO BE INDEMNIFIED SHALL BE
INDEMNIFIED TO THE EXTENT THAT THE INDEMNITOR'S NEGLIGENCE CAUSED SUCH
EVENT. IT IS THE INTENT OF THE PARTIES THAT BUYER SHALL BE ENTITLED TO
COMPARATIVE INDEMNIFICAITON.
Taxes
Real Estate and personal property taxes, if any, assessed or to be assessed
for the current calendar or fiscal year, regardless of when payable, shall
be prorated between Bowlin and Big Tex as of the closing date.
Risk of Loss
The risk of loss or destruction of or damage to the assets transferred
hereunder, including inventory, fixtures, equipment and real property from
any cause whatsoever at all times on or subsequent to the execution of this
document but before closing shall be borne by Big Tex.
Bowlin's Remedies
Bowlin shall be entitled, without limitation, to all incidental and
consequential damages resulting from a breach of any warranty or
representation or covenant of Big Tex or Shareholder made herein including,
but not limited to, all costs of litigation incurred, including reasonable
attorney's fees.
Arbitration Dispute Resolution
(a) In the event of any dispute arising from this Agreement, the Parties
agree to attempt a solution through non-binding mediation conducted by
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<PAGE>
a mutually agreed mediator. While this mediation shall be non-binding
in all respects (except agreements in settlement of the dispute
negotiated by the Parties), each Party agrees that:
(i) it shall appear when directed by the mediator, be fully prepared
to work towards a resolution of the dispute, and participate in
good faith in the mediation towards a resolution of all disputed
issues or concerns, and
(ii) the duty to mediate in good faith shall be specifically
enforceable by the courts of Texas.
(b) Any questions, claims, disputes, or litigation arising from or related
to this Agreement are governed by the laws of the state of Texas
without regard to the principles of conflicts of the law.
(c) The Parties agree that Texas has a substantial relationship to this
transaction, and that this Agreement is performable in Brown Count,
Texas. Each Party consents to personal jurisdiction in the courts
thereof, and any action or suit arising from or related to this
Agreement shall only be brought by the Parties in any federal or state
court with appropriate jurisdiction over the subject matter
established or sitting in the state of Texas located in Brown County,
Texas.
Miscellaneous
(a) Expenses. Except as otherwise provided herein, whether or not the
transactions contemplated by this Agreement are consummated, each
party hereto shall pay its own expenses and the fees and expenses of
its counsel and accountants and other experts. Furthermore, Bowlin
shall be responsible for payment to the business broker retained by
it.
(b) Expenses. The representations, warranties, covenants and agreements
set forth in this Agreement and any other written representation in
any ancillary document shall survive the Closing.
(c) Waivers. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
(d) Binding Effect; Benefits. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and assigns.
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<PAGE>
(e) Notices. All notices, requests, demands and other communications which
are required to be or may be given under this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in
person or transmitted by fax or five (5) days after deposit in the
U.S. mails by certified or registered first class mail, postage
prepaid, return receipt requested, addressed to the party to whom the
same is so given or made.
if to Big Tex or Shareholder to:
Lawrence J. Link
3001 Green Meadows Rd.
Granbury, TX 76049
if to Bowlin to:
Bowlin Outdoor Advertising and Travel Centers Incorporated
150 Louisiana Blvd. N.E.
Albuquerque, New Mexico 87108
Attention: Michael L. Bowlin, President
or to such other address or Fax Number as any party may designate by
giving notice to the other parties hereto.
(f) Further Assurances. The Company and Shareholder shall, from time to
time at or after the Closing, at the request of Bowlin, and without
further consideration, execute and deliver such other instruments and
take such other actions as may be required to confer to Bowlin and its
assignees the benefits contemplated by this Agreement.
(g) Entire Agreement. This document contains the entire agreement between
the parties and supersedes all prior agreements between the parties,
if any, written or oral, with respect to the subject matter thereof.
AGREED and ACCEPTED:
BOWLIN OUTDOOR ADVERTISING & TRAVEL CENTERS INCORPORATED
By:
------------------------------------
C. C. Bess, Executive Vice President
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<PAGE>
BIG TEX OUTDOOR ADVERTISING, INC.
By:
------------------------------------
Lawrence J. Link, President
By:
------------------------------------
Lawrence J. Link, Individually
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<PAGE>
Acknowledgment for Corporations
STATE OF TEXAS )
) ss.
COUNTY OF [ ] )
The foregoing instrument was acknowledged before me this [ ] day of
[ ], 199[ ], by C. C. Bess, Executive Vice President of BOWLIN
Outdoor Advertising & Travel Centers Incorporated, a Nevada Corporation, on
behalf of the corporation.
---------------------------------
Notary Public
My commission expires:
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Acknowledgment for Corporations
STATE OF TEXAS )
) ss.
COUNTY OF [ ] )
The foregoing instrument was acknowledged before me this [ ] day of
[ ], 199[ ] by Lawrence J. Link, President of Big Tex Outdoor
Advertising, Inc., a Texas Corporation, on behalf of the corporation.
---------------------------------
Notary Public
My commission expires:
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Acknowledgment for Individual
STATE OF TEXAS )
) ss.
COUNTY OF [ ] )
The foregoing instrument was acknowledged before me this [ ] day of
[ ], 199[ ] by Lawrence J. Link, Individually.
---------------------------------
Notary Public
My commission expires:
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<PAGE>
ADDENDUM TO PURCHASE AGREEMENT
between
Lawrence W. Link, Seller
And
BOWLIN Outdoor Advertising & Travel Centers, Inc., Purchaser
It is distinctly understood that in the event Lawrence W. Link ("Link") should
contemplate the sale, transfer, or other disposition of his ownership position
and interest in Big Tex Advertising, Inc. of Granbury, Texas ("Big Tex"), that
BOWLIN Outdoor Advertising and Travel Centers Incorporated ("Bowlin") shall be
given the second option to purchased said ownership position and interest in Big
Tex. First option to purchase Link's ownership position and interest in Big Tex
has been granted to another owner of Big Tex.
Bowlin shall have 30 days to respond in a definitive written manner to Link upon
Bolwin's receipt or written notice to Bowlin that Link's ownership position and
interest in Big Tex is for sale. Included in the written notice shall be a full
disclosure of the assets and financial condition of Big Tex involved in the
sale, as well as the financial and physical participation of Link in Big Tex. In
the event that Bowlin should reject the purchase of the ownership position and
interest based on the sale price, terms and conditions set by Link, Link shall
not offer, sell, transfer or otherwise dispose of his ownership position and
interest in Big Tex to any other party unless it is for a sale price, terms and
conditions identical to that offered to Bowlin.
Agreed and Accepted:
- -------------------------------------- --------------------------
Lawrence J. Link Date
- -------------------------------------- --------------------------
C. Bess, Executive Vice President Date
BOWLIN Outdoor Advertising &
Travel Centers, Inc.
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Initials
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered into as of this
February 27, 1998 by and among BOWLIN OUTDOOR ADVERTISING & TRAVEL CENTERS INC.,
a Nevada corporation (the "Purchaser") and NORWOOD OUTDOOR, INC., a Texas
corporation (the "Company").
Purchaser desires to purchase from the Company, and the Company desires to
sell to the Purchaser, those certain assets of the Company hereinafter described
upon the terms and conditions set forth herein. In consideration of the
respective agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
TRANSFER OF ASSETS AND ASSUMPTION OF OBLIGATIONS
1.1 Transfer of Assets; Assumption of Obligations
A. Transfer of Assets. For purposes of this Agreement, the term "Business"
shall be defined to mean the Company's current business of providing and
marketing outdoor display advertising on signs and billboards that are located
within Texas counties more fully described on Exhibit C (the "Territory").
Subject to the terms and conditions set forth in this Agreement, the Company
agrees to sell, convey, transfer, assign and deliver to the Purchaser, and the
Purchaser agrees to purchase from the Company on the Closing Date, the following
(such assets to be referred to herein as the "Assets"):
1. The outdoor advertising display structures and faces (together with
all ladders, walks, trim, lighting equipment and other installed
accessories) owned or leased by the Company (the "Sign Structures") erected
on land within the Territory and all other tangible personal property and
assets more fully described on Exhibit A (collectively, the Sign Structures
and such other tangible property and assets are herein referred to as the
"Tangible Property");
2. Subject to Section 1.1B herein, all of Company's right, title and
interest in and to contracts for outdoor display advertising, to the extent
performable on the Closing Date by posting or other display on Sign
Structures erected on locations within the Territory (collectively, the
"Advertising Contracts"); and
3. Subject to Section 1.1B herein, all of the Company's right, title
and interest and to all agreements for the erection and/or placement of
Sign Structures at locations within the Territory (the "Site Agreements"),
such locations being those listed on Exhibit A1 ("the Locations");
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4. Subject to Section 1.1B herein, the leases, subleases, contracts,
contract rights and agreements (other than Advertising Contracts and Site
Agreements) more fully described on Exhibit A2 (the "Other Contracts"); and
5. All franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies required or necessary for the conduct
of the Business in the Territory, to the extent they relate to the
operation of the Business within the Territory and are assignable or
transferrable by the Company to Purchaser (the "Licenses"). Attached hereto
as Exhibit A3 is a list of all Licenses and other franchises, approvals,
permits, etc. obtained from governments and governmental agencies that are
required or necessary to the operation of the Business in the Territory.
As used in this Agreement, the term "Contracts" shall mean and include,
collectively, the Advertising Contracts, the Site Agreements, and the Other
Contracts. Notwithstanding anything to the contrary contained herein, the Assets
do not include any of the following: (i) all liabilities, obligations, payables
or debts of any nature whatsoever of the Company not specifically included in
the definition of the Assumed Liabilities pursuant to Section 1.1B hereof; (ii)
any right or interest in any Plan as defined in Section 2.15, including any
trust created thereunder; (iii) any cash, cash equivalents, marketable
securities or investment securities owned by the Company; (iv) any receivables
(except prepaids), accounts, accounts receivable, notes, notes receivable or
other evidence of indebtness or obligation for the payment of money to or in
favor of the Company existing on the Closing Date; (v) the Company's name, any
assumed name, or any logo mark, slogan, or other identifying feature (except
Purchaser will be allowed 6 months from the Closing Date to replace imprints on
Sign Structures bearing the Company's name with imprints containing Purchaser's
name; and (vi) any of the tangible personal or other property and assets listed
on Exhibit A4 hereto (the "Excluded Assets").
B. Assumption of Obligations. Subject to the exceptions an exclusions of
this Section 1.1B, the Purchaser agrees that on the Closing Date, the Purchaser
will assume and agree to perform and pay when due:
1. All unperformed and unfulfilled obligations of the Company under
the Advertising Contracts for which the Company is not in default on the
Closing Date;
2. All obligations of the Company under the Site Agreements to the
extent performance thereof is not warranted by the Company hereunder and
all liabilities arising out of or resulting from any Location Claim (as
defined in Section 2.3 hereof);
3. All unperformed and unfulfilled obligations of the Company under
the Other Contracts for which the Company is not in default on the Closing
Date; and
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<PAGE>
4. The obligations imposed upon holders of the Licenses for which the
Company is not in default on the Closing Date; and
5. The obligations and liabilities of the Company described and
referred to on Exhibit B attached hereto for which the Company is not in
default on the Closing Date
(collectively, the "Assumed Obligations"). The Assumed Obligations shall not
include any other debts, liabilities or obligations, whether accrued, absolute,
contingent or otherwise, in contract or in tort, including but not limited to
(i) accrued income taxes, (ii) deferred income taxes, (iii) accrued franchise
taxes, (iv) any tax imposed on the Company because of the operations of any its
respective business on or prior to the Closing Date, (v) any of the liabilities
or expenses of the Company incurred in negotiating and carrying out its
obligations under this Agreement; (vi) any obligations of the Company under
employee benefit agreements; (vii) any liabilities or obligations incurred by
the Company in violation of, or as a result of the Company's violation of, this
Agreement, and (vii) liabilities, costs, and expenses associated with the
litigation described in Schedule 2.4 hereto.
1.2 Consideration for Assets and Non-Compete will be as follows: (i)
$900,000 payable in cash at closing, as the purchase price for the Assets and
(ii) the non-compete consideration will be payable in ten annual installments of
$10,000 each, commencing on the first anniversary date of the closing and each
year thereafter on that date until paid.
1.3 Determination Period.
A. For and in consideration of the sum of $2,500,00 (which amount is
paid by Purchaser to company of even date herewith as consideration for the
rights described in this Section 1.3 and not a deposit), the Company grants
Purchaser the right to inspect, review, audit, analyze, enumerate, verify,
evaluate and/or inventory the Assets, Assumed Obligations, financial and
other records of or pertaining to the Business, and to otherwise conduct
due diligence regarding its decision to purchase the Assets (the
"Purchaser's Review") during the period commencing on the date hereof and
expiring on February 28, 1998 (the "Determination Period"). In exchange for
the consideration above recited and paid, Purchaser may, at any time prior
to the expiration of the Determination Period, for any reason or no reason,
terminate this Agreement by the delivery to the Company of written notice
to that effect meeting the requirements of Section 9.3. At Closing,
Purchaser shall be entitled to a credit against the cash portion of the
purchase price then payable an amount equal to the consideration previously
paid to the Company pursuant to this Section 1.3.
B. Purchaser acknowledges and agrees that is is an experienced
participant in the outdoor advertising industry, and that is possesses
adequate specialized knowledge concerning that industry and concerning
assets of the type as are comprised by the Assets to carry out the
Purchaser's Review and otherwise make an informed decision based thereon
(and on those representations, warranties and covenants of the Company
expressly made herein) as to whether or not to purchase the same. Purchaser
agrees and acknowledges that it is relying and will rely on the Purchaser's
Review in making its decision to consummate the transactions contemplated
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<PAGE>
hereby, provided that undertaking the Purchaser's review will n ot impair
or limit any warranty, representation or covenant of the Company expressly
made or given in the Agreement. As to any matter not specifically addressed
by an express representation, warranty or covenant of the Company contained
herein, Purchaser shall rely (and shall be deemed to have relied) solely on
the purchaser's Review in making any determination concerning that matter.
Without limitation of the foregoing (and notwithstanding anything to the
contrary in this Agreement), Purchaser shall rely exclusively on the
results of the Purchaser's Review in determining (i) the existence,
magnitude, risk, and nature of nay Location Claims; and (ii) the need for
consent to the assignment of any Contract of License by any party thereto
or any third party.
C. All documents and information may be made available in the course
of the Purchaser's Review to Purchaser, its stockholders, agents and/or
employees are hereby acknowledged to be and remain subject to the terms and
provisions of that certain terms sheet and letter agreement dated February
11, 1998, between the company and Purchaser regarding confidentiality and
non-disclosure. Such agreement shall survive Closing and/or any expiration
or termination of this Agreement, except that following Closing,
Purchaser's obligation of confidentiality and non-use thereunder shall
terminate as to such documents and information to the extent the same
pertain to the Contracts, other Assets or the Business.
1.4 Instruments of Transfer. The Company will deliver to the Purchaser at
Closing such bills of sale, endorsements, assignments and other good and
sufficient instruments of conveyance, transfer and assignment as shall be
effective to vest in the Purchaser good title to the Assets as warranted herein.
The Purchaser will deliver to the Company at Closing such instruments of
assumption as shall be effective to obligate Purchaser to the payment and/or
other performance of the Assumed Liabilities. SAVE AND EXCEPT FOR THOSE
WARRANTIES EXPRESSLY HEREIN MADE BY COMPANY, NEITHER THE COMPANY NOR ANY OF ITS
EMPLOYEES, SHAREHOLDERS, OFFICERS, DIRECTORS, REPRESENTATIVES OR AGENTS MAKES
ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR OR
GENERAL PURPOSE OR USE, SUITABILITY, QUALITY, QUANTITY, MAGNITUDE, RISK,
CONDITION, OR OTHER CHARACTERISTIC WHATSOEVER OF OR WITH RESPECT TO ANY OF THE
ASSETS OR ASSUMED LIABILITIES. SAID INSTRUMENTS SHALL CONVEY, TRANSFER AND
ASSIGN THE ASSETS AND GIVE EFFECT TO PURCHASER'S ASSUMPTION OF THE ASSUMED
LIABILITIES, IN THEIR AS-IS CONDITION AND/OR EXISTING STATE, WITHOUT ANY
REPRESENTATION OF WARRANTY, EXPRESSED OR IMPLIED, EXCEPT AS SPECIFICALLY STATED
IN THIS AGREEMENT. THE COMPANY DISCLAIMS, AND THE PURCHASER HEREBY ACKNOWLEDGES
THE DISCLAIMER OF, ANY AND ALL SUCH REPRESENTATIONS OR WARRANTIES, EXCEPT AS
STATED IN THIS AGREEMENT. The disclaimer given by Purchaser shall survive the
Closing and the conveyance of the Assets or any expiration or termination of
this Agreement.
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<PAGE>
1.5 Closing. Payment of the Purchase Price and delivery of documents and
instruments evidencing the assumption of the Assumed Liabilities required to be
made by the Purchaser to the Company, the transfer of the Assets by the Company
and the other transactions contemplated hereby (the "Closing") shall take place
in the offices of the Company in Brady, Texas on March 2, 1998, the transaction
contemplated hereby to have effect, however, as of 12:01 a.m. on March 1, 1998.
The date of the Closing is referred to in the Agreement as the "Closing Date".
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The representations and warranties of the Company are made and given as of
the date of 0execution of this Agreement, and shall be deemed to have been again
made and given as of the Closing. The Company represents and warrants to the
Purchaser as follows:
2.1 Organization, Existence and Good Standing. The Company is a corporation
duly organized, validly existing in good standing under the laws of the State of
Texas and has all requisite corporate power and authority to own or lease and
operate its properties and to carry on its business as now being conducted.
2.2 Authority. The Company has full corporate power, authority and legal
capacity to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized and approved by the Company's board of directors and its
shareholders, and no corporate proceedings on the part of the Company or its
shareholders are necessary to authorize the execution and delivery of this
Agreement by the Company and the consummation of the transaction contemplated
hereby. Edgar R. Keeling Jr. and wife, Joan Keeling are the only persons having
and interest in the outstanding capital stock of the Company.
2.3 Title to Assets. Except as otherwise provided herein, the Company has
good and marketable title to the Assets and, except as noted on Exhibits A, A1,
A2 and A3, and except for statutory liens for taxes, assessments or governmental
charges or levies which are not delinquent, none of the Assets are subject to
any lien, mortgage, pledge, security interest, lease, option, claim,
restriction, condition, transfer, assignment or other encumbrance, of any nature
whatsoever. Notwithstanding the foregoing or anything to the contrary in this
Agreement, however, Purchases expressly acknowledges and agrees that, with
respect to the Site Agreements, Company warrants and represents only that:
A. It is in possession of such agreements, and has not sold
assigned, transferred, or pledged them or any of its interest in
them;
B. The Company has paid, and as of the Closing Date will have paid,
all amounts due under the Site Agreements to those persons or
entities that, to the best of the Company's knowledge, are
entitled to such payment; and
C. Except as disclosed to the Purchaser in Schedule 2.3 (with
respect to Location Claims first asserted prior to the date
hereof) or otherwise disclosed to Purchaser in writing prior to
the Closing Date (with respect to Location Claims first asserted
between date hereof and Closing), it has not received notice of
nor, to the best of Company's knowledge, it is otherwise actually
aware of any Location Claim concerning any of the Site
Agreements.
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The Purchaser shall, as part of the Purchaser's Review, determine which, if any,
of the Site Agreements by their terms require, in order to make valid the
assignment thereof by Company to Purchaser pursuant to this Agreement, the
consent of any party thereto or third party, and shall secure such consent.
Company expressly does not warrant, nor make any representation concerning, the
validity or enforceability of any of the Site Agreements, nor concerning
Company's right, title or interest in or to any land covered by any of the Site
Agreements, and Purchases acknowledges that it shall rely exclusively on the
Purchaser's Review in ascertaining those matters. Purchaser acknowledges that
Site Agreements may be subject to Location Claims, liability for which (if any)
will, at Closing, be expressly assumed by Purchaser. As used in this Agreement,
the term "Location Claims" means any alleged or actual defect in or any claim
adverse to a Site Agreement or a location covered thereby concerning or relating
to title, boundary, access, limitations, description of land, parties,
signatures, forgeries, imposters, authority, capacity, improper identification,
location of improvements, encroachments, trespass, failure to properly direct
payments due, conveyance or assignment of any rights in land or under any Site
Agreement or other defect in or adverse claim to or affecting title, possession
or right to use or occupy property, asserted by any person or entity (other than
Company), and without regard to when any events or circumstances giving rise to
any such claim occurred or took place or when any such claim is asserted.
Location Claims expressly include, without limitation, any claim (i) that a Sign
Structure is a fixture and is realty (it is Company's position that Sign
Structures are personalty and not fixtures or improvements to realty) and (ii)
of failure to have any person or entity join in the execution of a Site
Agreement, to place of record any Site Agreement, to secure any renewal or
extension of any Site Agreement, or to secure the approval to the transfer of
any Site Agreement from any third party. Purchaser further acknowledges that, as
a result of Locations Claims, Purchaser right to possession of or access to Sign
Structures located pursuant to a particular Site Agreement may be impaired or
otherwise adversely affected. Purchaser acknowledges that Company's warranty of
any representations concerning title shall, with regard to Sign Structures, be
subject to the effect thereon of any Location Claim. Purchaser agrees that it
will exclusively on the Purchaser's Review for any assurance against any
impairment of its rights of possession of or access to Sign Structures due to
any Location Claims.
The definition of "Locations Claims" set forth above shall not be read as
encompassing claims of third parties for damages arising from acts or omissions
of the Company or its employees, contractors or agents upon property that is the
subject of a Site Agreement to the extent such claims are for (i) the death of
or bodily injury to one or more persons: (ii) the loss of, or damage or
destruction to personal property of one or more persons: or (iii) contamination,
pollution or disposal upon any real or personal property of one or more third
persons of hazardous or toxic materials.
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2.4 Litigation. Except as stated on Schedule 2.4 attached hereto, there are
no legal, administrative, arbitration, investigatory or other proceedings
pending or, to the best of Company's knowledge, threatened against of affecting
the Company or the Assets or as to which the Company has received notice that it
is or might become a party, or challenging the validity or propriety of the
transactions contemplated by this Agreement.
2.5 No Broker's or Finder's Fee. No agent, broker, investment banker,
person or firm has acted directly or indirectly on behalf of the Company in
connection with this Agreement or the transaction contemplated herein.
2.6 Tax Returns. Within the times and in the manner prescribed by law,
including extensions permitted thereunder, the Company has filed and will file
all federal, state and local tax returns required by law and has paid and will
pay all taxes, assessments and penalties due and payable in connection with the
Business through and including the Closing Date. Nothing herein shall impair or
limit Company's right to, in good faith, contest any charge or assessment of any
such taxes, assessments, and penalties in accordance with applicable law. To the
Company's knowledge, there are no present disputes as to taxes of any nature
payable by the Company.
2.7 Tangible Property. The Tangible Property includes all Sign Structures
owned by, leased by, in the lawful possession of, or used by the Company within
the geographic boundaries of the Territory. Except as disclosed on Exhibit A or
A1, none of the Tangible Property is held under any lease, security agreement,
conditional sales contract, or other title retention or security arrangement.
The Company is in possession of all the Tangible Property, subject only to
Location Claims.
2.8 Advertising and Other Contracts. There has not been any default by the
Company under any of the Advertising Contracts or Other Contracts, nor has there
occurred any event which would, with the passing of time or the giving of
notice, constitute default by the Company under any of the Advertising and Other
Contracts. To the best of Company's knowledge, each of the Contracts is valid
and in full force and effect, and, except as noted on Schedule 2.8, no other
party thereto is in default thereunder, nor has there occurred any event that
with notice or lapse of time or both, would constitute a default by any other
party to any of the Advertising Contracts or Other Contracts. The Purchases
shall, as a part of the Purchaser's Review, determine which, if any, of the
Advertising and/or Other contracts by their terms require, in order to make
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valid the assignment thereof by Company to Purchaser pursuant to this Agreement,
the consent of any party thereto or third party, and shall advise Company
thereof. Company shall, with Purchaser's reasonable cooperation, use
commercially reasonable efforts to procure such consent. Prior to the successful
procurement of any such consent or approval, Company agrees that it shall
perform all acts and execute any and all documents as may be reasonably
requested by Purchaser so that Purchaser may realize the benefits of such
Advertising and/or Other Contracts as Purchaser deems necessary or desirable,
until such time as such consent is obtained. In the event any of the Advertising
Contracts and/or Other Contracts is later determined to be non-assignable, then
Company (to the extent permitted under the terms of such contracts or
applicable), shall subcontract to the Purchaser the remaining work on such
contract, and the Company shall forward to the Purchaser all proceeds of such
contract received by the Company; provided, however, that Company shall be
reimbursed for any reasonable out-of-pocket expenses incurred by it. To the
extend any such contract cannot be subcontracted, Purchaser agrees to cooperate
with Company and enter into such other commercially reasonable arrangements as
will enable Company to fulfill its remaining obligations under said contracts.
Purchaser will pay any fees and otherwise at its cost and expense fulfill any
conditions to consent to the assignment to or assumption by Purchaser of any
Advertising and/or Other Contract that may be charged or imposed by a party to
such contract other than the Company or an affiliate or shareholder of the
Company. Notwithstanding the foregoing, Purchaser shall not be obligated
hereunder to pay any past due amount or otherwise cure any breach or default by
the Company that may exist under any such contract. The Company has not received
notice, nor, to the best of Company's knowledge, is it otherwise aware that any
party to any of the Advertising Contracts or Other Contracts intends to cancel
or terminate any of them or exercise or not exercise any options that they might
have thereunder.
2.9 Licenses. The Company, in the conduct of the Business, has not
infringed, and is not now infringing, on any license belonging to any other
person, firm, or corporation. The Company lawfully owns or hold adequate
licenses or other rights to use all Licenses necessary for the Business as now
conducted by the Company. The Purchaser shall, as a part of the Purchaser's
Review, determine which of the Licenses require, in order to make valid the
assignment or transfer thereof by Company to Purchaser pursuant to this
Agreement, consent or approval of any body issuing the same, and shall, at its
cost and expense prepare all necessary applications and pay all required fees.
Company will join in, provide all available information and render all
reasonable assistance to Purchaser with regard to any such applications.
2.10 Employment Contracts. Company has no employment contracts, collective
bargaining agreements, pension, bonus, or profit sharing plans providing for
employee remuneration or benefits with respect to employees of the Company
(whether working in the Business or not) that by their terms or by law will
become binding upon or the obligations of Purchaser. Company is in compliance
with, and upon the Closing will remain in compliance with all of its obligations
under such agreements or other arrangements.
2.11 Compliance with Laws. To the best of Company's knowledge, Company has
complied with, and is not in violation of, applicable federal, state or local
statutes, laws, and regulations (including, without limitation, any applicable
building code or other law, ordinance or regulation) that affects, directly or
indirectly, any of the Assets or the Business. There are not any uncured
violations of federal, state or municipal laws, ordinances, orders, regulations
or requirements affecting any portion of the Business of which Company has
received notice or of which it is aware.
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2.12 No Breach or Violation. The consummation of the transactions
contemplated by this Agreement will not result in or constitute any of the
following: (i) a default or any event that, with notice or lapse of time or
both, would be a default, breach or violation of, or that would permit any party
to terminate, any lease, license, promissory note, conditional sales contract,
commitment, indenture, mortgage, deed of trust, security agreement or other
agreement, instrument or arrangement by which the Assets or the Business may be
materially affected, or to which the Assets or the Company may be bound (other
than a failure to obtain any consent or approval to assignment of any Contract
or License0, (ii) the creation or imposition of any lien, charge, or encumbrance
on any of the Assets, or (iii) a breach of any term or provision of this
Agreement.
2.13 Valid and Binding Obligations. Upon execution and delivery, this
Agreement, and each document, instrument and agreement to be executed by the
Company in connection herewith, will constitute the legal, valid, and binding
obligations of the Company, enforceable in accordance with each such
agreement's, document's, or instrument's respective terms, except as may be
limited by applicable bankruptcy laws, insolvency laws, and other similar laws
affecting the rights of creditors generally.
2.14 Financial Statements. The term "Financial Statements" shall mean the
unaudited balance sheet and income statements of the Company as of December 31,
1997, which are true and correct in all respects, and have been prepared in
accordance with accounting principles consistently applied by Company in its
conduct of the Business.
2.15 Absence of Certain Changes or Events. Except as disclosed in Schedule
2.16, since December 31, 1997, with respect to the Business there has been no:
(i) Material adverse change in the condition, financial or otherwise,
of the Assets or the Business;
(ii) Material loss, destruction or damage to any Assets that has not
been or will not be repaired as of the Closing Date (subject to limitations
contained in any License);
(iii) Change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization policies or rates)
by the Company and applicable to the Business or the Assets;
(iv) Re-evaluation by the Company of any of the Assets;
(v) Lien, mortgage, pledge or other encumbrance of any Asset;
(vi) Any known waiver of a right or claim held by the Company that was
material to the Business;
(vii) Any material change in the personnel of the Company involved in
the Business, or the terms or conditions of their employment;
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(viii) Any transaction by the Company outside of the normal course of
business having a material effect on the Business or the Assets;
(ix) Any capital expenditure by the Company relating to the Assets or
Business in excess of $10,000;
(x) Agreement by the Company to do any of the things described in the
preceding clauses (i) through (ix).
2.17 Disclosure. This Agreement, the Schedules and Exhibits hereto, and all
other documents and written information furnished by the Company to the
Purchaser pursuant hereto or in connection herewith, are true, complete and
correct in all material respects, and do not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements made herein and therein not misleading.
2.18 Sale of Assets. For purposes of determining whether a sale and a use
tax charge is applicable, the sale of the Assets constitutes an "occasional
sale" under applicable state law.
2.19 Insurance Polities. Schedule 2.19 to this Agreement is a list of all
insurance policies held by the Company concerning the Business or the Assets.
Wherever in this Agreement the term "to the best of Company's knowledge" is used
with respect to a party's ascertainment of any status, condition,
characteristic, existence, non-existence, or other matter, it is acknowledged
and agreed that such term is descriptive of that party's knowledge without its
having conducted any particular inquiry, investigation, audit or inspection
directed at such ascertainment, and that it is neither actually aware nor has it
received notice that its ascertainment is contrary to the statement made.
Notwithstanding anything to the contrary in this Agreement, the Company neither
makes nor attempts to make any disclosures, or gives any representation,
warranty, or other assurance whatsoever (and Company hereby DISCLAIMS any such
representation, warranty, or other assurance) (i) that Purchaser shall obtain
hereunder any right, privilege or power with respect to any Sign Structure or
Site Location in excess of limitations imposed thereon by any License; and (ii)
concerning any effect on the value, prospects, utility, or other characteristic
of any of the Assets or the Business of (a) any past, present, pending or
contemplated act or activity of any city, county, state, or federal legislative,
rule making, or governing body, or (b) general or specific economic or business
conditions affecting any particular locality, market, or industry.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The representations and warranties of the Purchaser contained in this
(Article III) are made and given as of the date of execution of this Agreement,
and shall be deemed to have been again made and given as of the Closing. The
Purchaser represents and warrants to the Company as follows:
3.1 Organization, Existence and Good Standing. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation or organization, and has duly qualified and is
fully authorized to conduct business under the laws of the State of Texas.
Purchaser has all requisite corporate power and authority to own or lease and
operate its properties and to carry on its business as now being conducted and
as will be conducted following the consummation of the sale contemplated hereby.
3.2 Authority. The Purchaser has full corporate power, authority and legal
capacity to execute and deliver this Agreement and to consummate the transaction
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transaction contemplated hereby have been duly and validly
authorized and approved by the Purchaser's board of directors and its
shareholders, and no corporate proceedings on the part of the Purchaser or any
of its shareholders are necessary to authorize the execution and delivery of
this Agreement by the Purchaser and the consummation of the transaction
contemplated hereby.
3.3 Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement, the consummation of the transaction contemplated
hereby, nor the compliance by the Purchaser with any of the provisions hereof
will, as of the Closing Date, (i) conflict with or result in any breach of any
provision of the Articles of Incorporation or Bylaws (or any other
organizational document) of the Purchaser, (ii) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default under, any of the terms, conditions or provisions of any agreement or
obligation to which the Purchaser is a party or by which the Purchaser or any of
its properties or assets may be bound, (iii) violate any law, regulation,
judgment, order, writ, injunction or decree applicable to the Purchaser or any
of the Assets.
3.4 Broker's or Finder's Fees. Purchaser has used the services of Ted R.
Clifton, CPA acting as Purchasers agent in this matter and will be solely
responsible for any payments due as a result, no other agent, broker, investment
banker, person or firm has acted directly or indirectly on behalf of the
Purchaser in connection with this Agreement or the transaction contemplated
herein.
3.5 Tax Returns. Within the times and in the manner prescribed by law,
including extensions permitted thereunder, the Purchaser has filed and will file
all federal, state and local tax returns required by law and has paid and will
pay all taxes, assessments and penalties due and payable in connection with the
operation of its business through and including the Closing Date and in
connection with its operation of the Business after the Closing Date. Nothing
herein shall impair or limit Purchaser's right to, in good faith, contest any
charge or assessment of any such taxes, assessments, and penalties in accordance
with applicable law. There are no present disputes as to taxes of any nature
payable by the Purchaser.
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3.6 Compliance with Laws. To the best of Purchaser's knowledge, Purchaser
has complied with, and is not in violation of, applicable federal, state or
local statutes, laws, and regulations (including, without limitation, any
applicable building code or other law, ordinance or regulation) that affects,
directly or indirectly, any business or activities of the Purchaser.
3.7 Valid and Binding Obligations. Upon execution and delivery, this
Agreement, and each document, instrument and agreement to be executed by the
Purchaser in connection herewith, will constitute the legal, valid, and binding
obligations of the Purchaser, enforceable in accordance with each such
agreement's, document's, or instrument's respective terms, except as may be
limited by applicable bankruptcy laws, insolvency laws, and other similar laws
affecting the rights of creditors generally.
ARTICLE IV
OBLIGATIONS OF THE PARTIES PENDING CLOSING
During the period commencing on the date of this Agreement through the
Closing Date, the parties covenant and agree as follows:
4.1 Conduct of Business. The Company shall conduct the operations of the
Business in the usual and ordinary course of business and shall (without making
any commitment on behalf of, or which would be binding on, the Purchaser other
than entering into Advertising Contracts and/or Site Agreements with third
parties or securing permits and/or approvals in the ordinary course of business)
use its normal and customary efforts to preserve its good relationships with its
employees, customers, and suppliers and others having business relationships
with it.
4.2 Condition of Assets. The Company will maintain and keep the Assets in
substantially the condition in which they exist as of the date of this
Agreement, subject to ordinary wear and tear (and in the case of the Contracts,
subject to termination or expiration in accordance with the terms thereof in the
ordinary course of business), and will notify Purchaser of any material damage
or destruction of any of the Assets caused by casualty or other reason.
Purchaser acknowledges that the terms of the Licenses may prevent the
replacement of certain Sign Structures in the event of casualty loss;
notwithstanding anything in this Agreement, in such event Company shall have no
obligation to replace such Sign Structure if not permitted by any applicable
License.
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ARTICLE V
THE CLOSING
5.1 Closing. The Closing shall take place on the Closing Date, unless the
time is changed by mutual agreement of the parties.
5.2 Company's Deliveries. At the Closing, the Company shall deliver or
cause to be delivered to the Purchaser:
(a) Two (2) duly authorized and executed originals of the Bill of
Sale, Assignment and Assumption Agreements executed by Company and
Purchaser, together with such other instruments of assignment and transfer
or bills of sale as the Purchaser shall reasonably request; and
(b) A certificate signed by the secretary of the Company certifying
the adoption by Company's board of directors of resolutions authorizing the
transactions contemplated hereby.
In addition, the Company will relinquish full possession and enjoyment of all
Assets immediately upon consummation of the Closing.
5.3 Purchaser's Obligations. At the Closing, the Purchaser will deliver or
cause to be delivered to the Company or other designated person, the following:
(a) Payment, in good and collected funds available in Brady, Texas, of
the Purchase Price in the aggregate amount of Nine Hundred Thousand and
No/100 Dollare ($900,000.00), which delivery shall be facilitated by wire
transfer;
(b) Two (2) duly authorized and executed original of the Bill of Sale;
Assignment and Assumption Agreement
(c) Payment by Purchaser of all costs and fees associated with the
transfer of state permits to Purchaser in connection with the transactions
contemplated hereby;
(d) Purchaser's non-interest bearing promissory note to evidence its
obligation to make payment of the non-competition consideration in the
amount of $100,000, payable in ten (10) annual installments of $10,000
each, due and payable on the first and on each subsequent anniversary date
of the Closing Date, containing the usual provisions for default,
acceleration and recovery of attorney's fees and collection costs in the
event of non-payment; and
(e) A certificate signed by the secretary of the Purchaser certifying
the adoption by the Company's board of directors of resolutions authorizing
the transactions contemplated hereby.
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5.4 Prorations. The Company and the Purchaser shall prorate amount
themselves and make a net adjustment, as of the effective date of the
transaction, for prepayments received by the Company under the Advertising
Contracts of pursuant to other Assets, consideration paid in advance by the
Company under Site Agreements or other Assumed Obligations, and other prepaid
and/or deferred items as shall be appropriate to effect a transfer of the
Business as of the effective date of the transaction as set forth in Section
1.5. Such adjustment shall be applied to reduce or increase (as the case may be)
the purchase price payable at Closing to account for such prorations, and the
parties agree to execute a statement setting forth such prorations and
adjustments at Closing.
5.5 Insurance, Ad Valorem Taxes, Income Taxes, Receivables. Purchaser will
not assume any contracts of insurance as a part of the transactions contemplated
hereby. Under no circumstances shall the Purchaser be obligated to reimburse the
Company for any insurance premium payments that have been prepaid. With regard
to ad valorem taxes on the Assets for the 1997 tax year, the Company and the
Purchaser agree that the taxes to be paid shall be prorated as of the Closing
Date.
5.6 Further Assurances. At and after the Closing, each of the parties shall
take all appropriate action and execute all documents of any kind which may be
reasonably necessary or desirable to carry out the transactions contemplated
hereby. The Company, at any time at or after the Closing, will execute,
acknowledge and deliver any further bills of sale, assignments and other
assurances, documents and instruments of transfer reasonably requested by the
Purchaser, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by the Purchaser for the purpose of
assigning and confirming to the Purchaser all of the Assets. The Purchaser, at
any time at or after the Closing, will execute, acknowledge and deliver any
further amendments, documents, instruments or other papers, reasonably requested
Company. In addition, the Company shall make available the books and records of
the Business during reasonable business hours and take such other actions as are
reasonably requested by the Purchaser to assist the Purchaser in the operation
of the Business.
5.7 Termination of Employment of the Company's Employees. Nothing herein
shall imply or guarantee employment of any employee of the Business by the
Purchaser. If the Business's employees desire employment with the Purchaser,
they will be interviewed in conjunction with the applicants from other sources
and given strong consideration for available positions with Purchaser, at the
wages, hours, and conditions of employment established by Purchaser prior to
hiring any employees. Nothing shall prohibit Purchaser from terminating any of
the employees subsequent to their employment by Purchaser. Company shall pay all
wages, benefits, accrued vacation, sick pay and any other benefits the employees
of the Business are entitled to receive on or before the Closing. The Company
agrees to use reasonable efforts to make available employees of the Business to
the Purchaser that Purchaser desires to hire for the purpose of operating the
Business.
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5.8 Licenses. To the extent allowed under applicable law, the Company shall
have executed and delivered to Purchaser assignments of all the Licenses. With
respect to any License in which the consent of a governmental authority or third
party is required, Company and Purchaser shall each use commercially reasonable
efforts to procure such consent (subject to agreements herein contained
regarding the payment of transfer and other fees and costs). Prior to the
successful procurement of any such consent or approval to the assignment of
Licenses in which the same is required, and subject to any limitations imposed
by applicable law or regulation, Company agrees that it shall perform all acts
and execute any and all documents as may be reasonable requested by Purchaser so
that Purchaser may realize the benefits of such Licenses to the greatest degree
possible, until such time as such Licenses are successfully assigned to
Purchaser and/or until Purchaser is able to procure its own licenses with
respect to such Licenses and any others. Purchaser will pay any fees and
otherwise at its cost and expense fulfill any conditions to consent to the
transfer to Purchaser of any License that may be charged or imposed by the
agency or body issuing the same. Notwithstanding the foregoing, Purchaser shall
not be obligated hereunder to pay any past due amount or otherwise cure any
violation or breach by the Company that may exist under any such License, any
such past due amounts, violations, or breaches shall be remedied by the Company
within a reasonable period of time consistent with the principles and conditions
contained in the agreement.
ARTICLE VI
COVENANTS NOT TO COMPETE
6.1 Scope of Covenant. The Company hereby agrees that, for a period of ten
(10) years after the Closing Date (the "Non Compete Period"), neither it nor any
of its shareholders will engage in any business in the Territory similar to or
competitive with the Company's or Purchaser's business (as conducted on the
Closing Date) (a "Competing Business"), either directly or indirectly, whether
through any partnership of which any such person is a partner, through any trust
of which any such person is a beneficiary or trustee, or through a corporation
or other association in which any such person has any interest, legal or
equitable, or as agent, consultant, nominee, receiver, assignee, trustee or in
any other capacity whatsoever. During the Non Compete Period, neither the
Company nor any of its shareholders, officers, or directors will, either
directly or indirectly, on his own behalf or in the service of or on behalf of
others, solicit or attempt to divert to a Competing Business any person,
concern, or entity who is or was a customer of Purchaser or any subsidiary of
affiliate of Purchaser (or any customer of any of the foregoing), and further,
Company will not, either directly or indirectly, on its own behalf or in the
service of or on behalf of others, initiate a call upon any person, concern or
entity who is a customer of Purchaser or any of such customers for the purpose
of diverting or appropriating business to a Competing Business. Furthermore,
during the Non Compete Period, the Company will not, either directly or
indirectly, on its own behalf or in the service of or on behalf of others,
solicit, divert, or recruit any employee of Purchaser or any subsidiary or
affiliate to leave such employment or otherwise terminate his or her employment,
whether or not such employment is pursuant to a written contract or at will.
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6.2 Severability of Provisions. The parties hereto agree that the duration
and area for which this covenant is to be effective are reasonable. In the event
that any court determines that the time period or the area, or both, are
unreasonable and the covenant is to that extent unenforceable, the parties agree
that the restrictions of this Article VI shall remain in full force and effect
for the greatest time period and within the greatest area that would not render
it unenforceable.
6.3 Remedies. The Company acknowledges and agrees that, by virtue of its
conduct of the Business and its use of the Assets, it has acquired a special
knowledge of the affairs, business and customer operations of the Business and
irreparable loss and damage will be suffered by Purchaser if Company should
breach or violate any of the covenants and agreements contained in this
Agreement. Company further acknowledges and agrees that each of the covenants
herein contained is reasonably necessary to protect and preserve the value of
the Assets acquired by Purchaser from the Company. Company therefore agrees and
consents that, in addition, to any other remedies available to Purchaser, to the
extent permissible by law Purchaser shall be entitled to an injunction or other
equitable relief to prevent a breach by Company of any of the covenants or
agreements contained in this Article VI. In the event either party hereto brings
legal action to enforce its rights hereunder, to the extent permissible by law,
the non-prevailing party shall pay all of the prevailing party's court costs and
reasonable legal fees and expenses arising out of such action.
6.4 Acknowledgment of Enforceability. Company hereby acknowledges and
agrees that a part of the consideration for this covenant not to compete is the
benefits Company is receiving under this Agreement. Company further acknowledges
and agrees that this covenant not to compete contains reasonable limitations as
to time, geographical area, and scope of activity to be restrained that do not
impose a greater restraint than is necessary to protect the goodwill or other
business interest of Purchaser and the value of the Assets acquired by Purchaser
from Company. Therefore, Company agrees that all restrictions are fairly
compensated for and that no unreasonable restrictions exist.
ARTICLE VII
TERMINATION
7.1 Termination. Purchaser may terminate this Agreement pursuant to Section
1.3 hereof. Otherwise, this Agreement may only be terminated upon the following
terms and conditions, subject to Section 7.3:
(i) Mutual Consent. By mutual consent of the Purchaser and the
Company.
(ii) By the Purchaser. By the Purchaser pursuant to the provisions of
Section 1.3, or if, as of the Closing Date, any of the conditions specified
in Section 5.2 of this Agreement have not be satisfied and shall not have
been waived by the Purchaser.
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(iii) By the Company. By the Company if, as of the Closing Date, any
of the conditions specified in Section 5.3 of this Agreement have not been
satisfied and shall not have been waived by the Company, or if, for any
reason other than Company's failure to comply with the provisions hereof,
the Closing has not taken place by May 1,1998.
7.2 Notice of Termination. In the event that any party hereto exercises its
right to terminate this Agreement in accordance with the provisions of Section
7.1 hereinabove, such election shall be effective only when notice of such
election is given to each of the other parties hereto, in writing, in accordance
with the provisions of Section 9.3 hereof.
7.3 Effect of Termination or Waiver. In the event that this Agreement shall
be terminated pursuant to the provisions of Section 7.1 hereof, this Agreement
shall become null and void and shall have no further effect, and all further
obligations of the parties hereto under this Agreement shall terminate without
further liability of any party to another, except as otherwise provided in this
Agreement.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification.
A. By the Company. The Company shall indemnify, save, defend and hold
harmless the Purchaser and Purchaser's shareholders, directors, officers,
partners, agents and employees (collectively, the "Purchaser Indemnified
Parties") from and against any and all costs, lawsuits, losses, liabilities,
deficiencies, claims and expenses, including interest, penalties, attorneys'
fees and all amounts paid in investigation, defense of settlement of any of the
foregoing (collectively referred to herein as "Damages"), (i) incurred in
connection with or arising out of or resulting from or incident to any breach of
any covenant or warranty or the inaccuracy of any representation, made by the
Company in or pursuant to this Agreement, or any other agreement contemplated
hereby or in any schedule, certificate, exhibit, or other instrument furnished
or to be furnished by the Company or its affiliates under this Agreement, or
(ii) based upon, arising out of, or otherwise in respect of any liability or
obligation of the Business or relating to the Assets (a) relating to any period
prior to the Closing Date, other than those Damages based upon or arising out of
the Assumed Liabilities, or (c) relating to any period on and after the Closing
Date which constitute a breach or violation of this Agreement by the Company.
Notwithstanding anything to the contrary in this Section 8.1A, the Company shall
not be liable for any such Damages to the extent, if any, such Damages result
from or arise out of a breach or violation of this Agreement by or any negligent
or willful act or omission of any Purchaser Indemnified Parties.
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B. By the Purchaser. The Purchaser shall indemnify, save, defend and hold
harmless the Company and Company's shareholders , directors, officers, agents
and employees (collectively, the "Company Indemnified Parties") from and against
any and all Damages (i) incurred in connection with or arising out of or
resulting from or incident to any breach of any covenant or warranty, or the
inaccuracy of any representation, made by the Purchaser in or pursuant to this
Agreement, or any other agreement contemplated hereby or in any schedule,
certificate, exhibit, or other instrument furnished or to be furnished by the
Purchaser under this Agreement, or (ii) based upon, arising out of or otherwise
in respect of any liability or obligation of the Business or relating to the
Assets (a) relating to any period on and after the Closing Date or (b) arising
out of the Assumed Liabilities, or (c) relating to any period preceding the
Closing Date or arising out of facts or circumstances existing prior to the
Closing Date which constitute a breach or violation of this Agreement by the
Purchaser
C. Establishment of Damages from Third-Party Claims. If any lawsuit or
enforcement action (a "Claim") is filed by any third party against the Purchaser
Indemnified Parties or the Company Indemnified Parties (Purchaser Indemnified
Parties or Company Indemnified Parties, as the case may be, hereinafter, the
"Indemnitees"), which, if sustained, would result in Damages to the Indemnitees,
then the Indemnitees shall give written notice thereof describing such Claim in
reasonable detail and indicating the amount (estimated, if necessary) or good
faith estimate of the reasonably foreseeable estimated amount of Damages (which
estimate shall in no way limit the amount of indemnification the Indemnitees are
entitled to receive hereunder), shall be given to the indemnifying party as
promptly practicable (and in any event within ten (10) days after service of the
citation or summons) ("Notice of Action"); provided that the failure of any
indemnified party to give timely notice shall not affect its rights to
indemnification hereunder to the extent that the indemnified party demonstrates
that the amount the indemnified party is entitled to recover exceeds the actual
damages to the indemnifying party caused by such failure to so notify within ten
(10) days. The indemnifying party may elect to compromise or defend any such
Claim, and to assume all obligations contained in this Section 8.1 to indemnify
the Indemnitees by a delivery of notice of such election ("Notice of Elections")
within ten (10) days after delivery of the Notice of Action. Upon delivery of
the Notice of Election, the indemnifying party shall be entitled to take control
of the defense and investigation of such lawsuit or action and to employ and
engage attorneys of its own choice to handle and defend the same, at the
indemnifying party's sole cost, risk and expense, and such Indemnities shall
cooperate in all reasonable respects, at the indemnifying party's sole cost,
risk and expense, with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the Indemnitees may, at their own
cost, risk and expense, participate in such investigation, trial, and defense of
such lawsuit or action and any appeal arising therefrom. No settlement or
compromise of any Claim may be made by the indemnifying party without the prior
written consent of the Indemnitees unless (i) prior to such settlement or
compromise the indemnifying party acknowledges in writing its obligation to pay
in full the amount of the settlement or compromise and all associated expenses,
and the Indemnitees are furnished with security therefor reasonably satisfactory
to the Indemnitees that the indemnifying party will in fact pay such amount and
expenses; or (ii) the indemnifying party in fact pays the amount of the
settlement and compromise and all associated expenses. If the indemnifying party
elects not to defend the Claim or does not deliver to the Indemnitees a Notice
of Election within ten (10) days after delivery of the Notice of Action, the
Indemnitees may, (but shall not be obligated to) defend, or may compromise or
settle (exercising reasonable business judgment) the Claim on behalf, for the
account, and at the risk, of the indemnifying party.
18
<PAGE>
D. Establishment of Damages from Claims of Indemnified Parties. If the
Indemnitees assert any entitlement to Damages against the indemnifying party,
they shall give written notice to the indemnifying party of the nature and
amount of the Damages asserted. In the event of any such claim, it is agreed by
the parties that Damages shall not include (and the parties each hereby waive)
special, consequential, exemplary or punitive damages. If the indemnifying party
within a period of thirty (30) days after the giving of the Indemnitees' notice,
shall not respond in writing to the Indemnitees announcing its intent to contest
such assertion of the Indemnitees (such notice by the indemnifying party being
hereinafter referred to as the "Contest Notice"), such assertion of a claim for
Damages shall be settled by arbitration to be held in Waco, Texas in accordance
with the Commercial Rules of American Arbitration Association then existing. The
determination of the arbitrator shall be delivered in writing to the
indemnifying party and the Indemnitees and shall be final, binding and
conclusive upon all of the parties hereto, and the amount of the Damages, if
any, determined to exist, shall be deemed established.
E. Establishment of Damages by Agreement. The Indemnitees and the
indemnifying party may agree in writing, at any time, as to the existence and
amount of Damages, and, upon the execution of such agreement such Damages shall
be deemed established.
F. Payment of Damages. The indemnifying party hereby agrees to pay the
amount of established Damages within 15 days after the establishment thereof.
The amount of established Damages shall be paid in cash. Where Damages are
established by an arbitrator, judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof if such Damages are not
timely paid.
8.2 Survival of Representations and Warranties. All of the representations,
warranties, covenants and agreements contained in this Agreement shall survive
the Closing of the transactions contemplated herein and the execution and
delivery of the documents, instruments and agreements described in Article V
hereof, notwithstanding any investigation made by or on behalf of the Company or
the Purchaser.
ARTICLE IX
MISCELLANEOUS
9.1 Amendment and Modification. Except as provided otherwise in this
agreement, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.
19
<PAGE>
9.2 Waiver of Compliance; Consents. Any failure of the purchaser on the one
hand, or the Company, on the other hand, to comply with any obligation,
covenant, agreement or condition herein may be waived by the Company or the
Purchaser, respectively, only by a written instrument signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
9.2.
9.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the other party at
the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
(i) if to the Company, to:
Norwood Outdoor, Inc.
P.O. Box 367
Brady, Texas 76825
Attention: Mr. Ed Keeling
with a copy to:
Mr. Lee Keeling
Walker, Keeling & Carroll, L.L.P.
P.O. Box 108
Victoria, Texas 77902
(ii) if to the Purchaser, to:
Bowlin Outdoor Advertising & Travel Centers, Inc.
150 Louisiana NE
Albuquerque, New Mexico 87108
Attention: Michael L. Bowlin
9.4 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties. This
Agreement is not intended to and shall not confer upon any person other than the
parties any rights or remedies hereunder.
20
<PAGE>
9.5 Governing Law. This Agreement shall be governed by the Laws of the
State of Texas (regardless of the laws that might otherwise govern under
applicable Texas principles of conflicts of law) as to all matters, including
but not limited to matters of validity, construction, effect, performance and
remedies.
9.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.7 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
9.8 Entire Agreement. This Agreement, including the exhibits hereto and the
documents, instruments and schedules referred to herein, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, representations,
warranties, covenants, or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
undertakings between the parties with respect to such subject matter.
9.9 Waiver. A provision of this Agreement may be waived only by a written
instrument executed by or on behalf of the party waiving compliance. The failure
of any party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by any party of any condition, or of any breach of any term, covenant,
representation or warranty contained in this Agreement, in any one or more
instances, shall be construed to be a waiver of any other condition or of any
other breach of the same or any other term, covenant, representation or
warranty.
9.10 Disclosure. The parties hereto shall not, prior to Closing, make any
public disclosure of the transactions contemplated hereby or in connection
herewith without the written consent of the other party.
9.11 Expenses. Except as otherwise provided in this Agreement, the
Purchaser shall pay all expenses incurred by the Purchaser in connection with
entering into and carrying out its obligations pursuant to this Agreement,
including all its attorneys' fees, and the Company shall pay all expenses
incurred by the Company in connection with entering into and carrying out their
obligations pursuant to this Agreement, including all of its attorneys' fees.
9.12 Arbitration.
A. Binding Arbitration of Controversies. Notwithstanding any provision in
this agreement to the contrary, in case any disagreement, controversy or claim
whatsoever (other than an Excepted Controversy) shall arise between the parties
21
<PAGE>
hereto in relation to this Agreement, whether as to any breach hereof, the
construction or operation hereof or the respective rights and liabilities
hereunder (a "Controversy"), and if said Controversy cannot be settled through
negotiation, the parties agree first to try in good faith to settle the
Controversy by mediation under the Commercial Mediation Rules of the American
Arbitration Association, before resorting to arbitration, litigation, or any
other dispute resolution procedure. If mediation is unsuccessful, then upon the
written demand of any party (a "Notice to Arbitrate"), whether made before or
after the institution of any other judicial proceeding, any Controversy shall be
settled by binding arbitration, to be held in Waco, Texas. Arbitration shall be
initiated by either party giving Notice to Arbitrate to the other, stating
therein the question to be arbitrated and the name of the arbitrator selected by
that party. Within thirty (30) days of the date of such Notice to Arbitrate, the
other party shall select and give written notice of its arbitrator to the
initiating party. The two arbitrators so selected shall select a third
arbitrator and give written notice within thirty (30) days after the second
arbitrator is chosen. The arbitration shall be conducted solely by the third
arbitrator, who shall hear evidence within sixty (60) days after the notice of
selection of the third arbitrator is given to the parties and to render an award
within thirty days of the hearing, which award, when signed by the third
arbitrator, shall be final. If a party receiving Notice of Arbitration shall
refuse or neglect to appoint an arbitrator within the time provided herein, then
the arbitrator so appointed by the first party shall have power to proceed to
arbitrate and determine the matter of disagreement as if he were an arbitrator
appointed by both the parties hereto for that purpose, and his award in writing
signed by him shall be final; provided that such award shall be made within
ninety (90) days after such refusal or neglect of the other party to appoint an
arbitrator. The party against which such award is made shall pay all costs and
expenses of the arbitration. Judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof.
B. Excepted Controversies. Although the parties hereto may agree to submit
Excepted Controversies to mediation or binding arbitration, neither party shall
be required to do so. As used in this Agreement, the term "Excepted Controversy"
means (i) a claim or action by a party seeking solely injunctive relief
(together with costs and reasonable attorneys' fees incurred in connection
therewith) to (a) compel the performance of the confidentiality obligations of
Purchaser described in Section 1.4D hereof or restrain actions prohibited
thereby, or (b) compel specific performance of this Agreement following the
satisfaction or waiver by a party of all conditions to Closing provided for
herein; and (ii) any counterclaim by a party against which a claim described in
clause (i) is asserted seeking solely injunctive or declaratory relief (together
with costs and reasonable attorneys' fees incurred in connection therewith). No
claim or action (nor any counterclaim or counteraction) seeking damages
(including, without limitation, any Damages) shall be an Excepted Controversy.
9.13 Specific Performance; Remedies. Each of the parties hereby agrees that
the transactions contemplated by this Agreement are unique, and that each party
shall have, in addition to any other legal or equitable remedy available to it,
the right to enforce this Agreement by decree of specific performance. The
parties expressly authorize any arbitrator to render a binding decree of
specific performance or other relief of an equitable nature. If any legal action
22
<PAGE>
or other proceeding is brought for the enforcement of this Agreement, or because
of an alleged dispute, breach, default or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party or
parties be entitled to recover reasonable attorneys' fees other costs incurred
in that action or proceeding in addition to any other remedies to which it or
they may be entitled at law or equity. The rights and remedies granted herein
are subject to the provisions of Section 9.13 hereof, but are cumulative and not
exclusive of any other right or remedy granted herein or provided by law.
IN WITNESS WHEREOF, each of the parties hereto has caused the Agreement to
be executed on its behalf as of the date first above written.
"Purchaser" "Company"
BOWLIN OUTDOOR ADVERTISING NORWOOD OUTDOOR, INC.
& TRAVEL CENTERS, INC.
By: By:
----------------------------- -----------------------------
C.C. Bess Edgar R. Keeling, Jr.
Executive Vice President President
23
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