UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________.
Commission File Number: 1-8833
BIG O TIRES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 87-0392481
(State or other juris- (I.R.S. Employer
diction of incorporation) Identification No.)
11755 EAST PEAKVIEW AVENUE, ENGLEWOOD, COLORADO 80111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (303) 790-2800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of registrant's common stock outstanding on November 10,
1995 was 3,317,840.
The total number of pages is 69.
<PAGE>
BIG O TIRES, INC.
CONSOLIDATED BALANCE SHEETS
---------------------------
(000s)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
Unaudited
-------------
ASSETS
- -------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 854 $ 4,882
Trade accounts receivable, net of
allowance for doubtful accounts 12,533 8,165
Other receivables 1,015 2,905
Current portion of notes receivable 631 733
Inventories 17,751 14,219
Deferred income taxes 2,300 2,126
Other current assets 480 688
------- --------
Total current assets 35,564 33,718
------- --------
NOTES RECEIVABLE, net of current portion 2,769 3,193
------- --------
PROPERTY, PLANT and EQUIPMENT 23,969 17,177
Less accumulated depreciation
and amortization (4,874) (5,146)
------- --------
19,095 12,031
------- --------
INTANGIBLE AND OTHER ASSETS:
Distribution rights 8,869 9,077
Equity in joint ventures and
unconsolidated subsidiaries 887 1,129
Other 2,662 2,820
------- --------
12,418 13,026
------- --------
TOTAL ASSETS $ 69,846 $ 61,968
------- --------
------- --------
</TABLE>
-See notes to consolidated financial statements-
<PAGE>
BIG O TIRES, INC.
CONSOLIDATED BALANCE SHEETS
---------------------------
(000s)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
Unaudited
-------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 5,418 $ 650
Accrued expenses 2,525 2,485
Warranty reserve 4,225 3,850
Current portion of long-term debt
and capital lease obligations 1,643 2,066
------- --------
Total current liabilities 13,811 9,051
------- --------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current portion 17,376 15,906
------- --------
OTHER LONG-TERM LIABILITIES 1,311 1,433
------- --------
EMPLOYEE STOCK OWNERSHIP PLAN OBLIGATIONS 188 449
------- --------
SHAREHOLDERS' EQUITY:
Common stock 335 334
Capital contributed in excess of par 15,445 15,418
Retained earnings 21,864 20,419
------- --------
37,644 36,171
Less: Employee stock ownership
plan obligations (188) (449)
Deferred stock grant compensation (175) (472)
Treasury stock (121) (121)
------- --------
37,160 35,129
------- --------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $ 69,846 $ 61,968
------- --------
------- --------
</TABLE>
-See notes to consolidated financial statements-
<PAGE>
<PAGE>
BIG O TIRES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(000s except for share and per share amounts)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
--------------------- ----------------------
1995 1994 1995 1994
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
NET SALES:
Product and franchising $ 39,551 $ 36,652 $ 103,142 $ 94,132
Real estate 1,191 -- 4,530 --
------------ ----------- ------------- ------------
40,742 36,652 107,672 94,132
------------ ----------- ------------- ------------
COST OF SALES:
Product and franchising 31,662 29,091 80,412 72,203
Real estate 1,128 -- 4,325 --
------------ ----------- ------------- ------------
32,790 29,091 84,737 72,203
------------ ----------- ------------- ------------
GROSS PROFIT:
Product and franchising 7,889 7,561 22,730 21,929
Real estate 63 -- 205 --
7,952 7,561 22,935 21,929
------------ ----------- ------------- ------------
EXPENSES, net:
Selling & administrative 5,035 4,668 14,672 14,772
Product delivery expense 1,032 908 2,973 2,218
Interest expense 366 510 1,199 1,177
Shareholder proposal expense 419 246 967 345
Loss on sale or closure
of retail stores 217 209 312 911
Warehouse consolidation costs -- -- 320 --
------------ ----------- ------------- ------------
7,069 6,541 20,443 19,423
------------ ----------- ------------- ------------
INCOME BEFORE INCOME TAXES 883 1,020 2,492 2,506
------------ ----------- ------------- ------------
PROVISION FOR INCOME TAXES:
Current 433 537 1,221 1,429
Deferred (61) (116) (174) (377)
------------ ----------- ------------- ------------
372 421 1,047 1,052
------------ ----------- ------------- ------------
NET INCOME $ 511 $ 599 $ 1,445 $ 1,454
------------ ----------- ------------- ------------
------------ ----------- ------------- ------------
EARNINGS PER SHARE $ .15 $ .18 $ .43 $ .44
------------ ----------- ------------- ------------
------------ ----------- ------------- ------------
WEIGHTED AVERAGE SHARES AND
COMMON STOCK EQUIVALENTS
OUTSTANDING 3,380,116 3,358,696 3,377,083 3,337,539
------------ ----------- ------------- ------------
------------ ----------- ------------- ------------
</TABLE>
-See notes to consolidated financial statements-
<PAGE>
BIG O TIRES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000s)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
--------------------------
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,445 $ 1,454
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 945 913
Amortization of intangibles 302 350
Cash flows from changes in working capital (1,031) (6,058)
Other (209) 848
---------- ----------
Total adjustments 7 (3,947)
---------- ----------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES 1,452 (2,493)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable (139) (509)
Payments received on notes receivable 1,198 937
Proceeds from sales of property and equipment 2,999 1,186
Equity investments in affiliates (111) (160)
Purchase of property and equipment (9,376) (3,419)
Purchase of Company-owned retail stores (141) 410
Increase in retail store construction in progress (1,034) --
Sale of Company-owned retail stores -- 51
Acquisition of property held for resale -- (84)
---------- ----------
NET CASH USED BY
INVESTING ACTIVITIES (6,604) (2,408)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 3,009 14,548
Principal payments on long-term debt and capital lease obligations (1,993) (5,807)
Proceeds from sale of common stock and stock options exercised 108 96
---------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,124 8,837
---------- ----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (4,028) 3,936
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 4,882 1,113
---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 854 $ 5,049
---------- ----------
---------- ----------
</TABLE>
-See notes to consolidated financial statements-
BIG O TIRES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(000s)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
----------------------
1995 1994
--------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 1,312 $ 1,100
Income taxes 1,186 1,392
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Accounts receivable transferred to long-term
notes receivable 533 203
Equity investments in affiliates -- 55
Inventories received in satisfaction of long-term
notes receivable -- 454
Common stock issued as unearned compensation -- 520
Decrease in employee stock ownership plan obligations 261 536
Restricted stock grants canceled 80 --
</TABLE>
-See notes to consolidated financial statements.
<PAGE>
<PAGE>
BIG O TIRES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1994
UNAUDITED
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
REFERENCE TO ANNUAL REPORT:
These financial statements should be read in conjunction with the Annual Report
on Form 10-K for the year ended December 31, 1994, since certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the United States Securities
and Exchange Commission ("SEC"). These interim financial statements reflect all
adjustments which are, in the opinion of Management, necessary for a fair
presentation of the financial position, results of operations and cash flows of
the Company for the interim periods. Such adjustments are of a normal recurring
nature. Operating results for the three and nine months ended September 30,
1995, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1995.
STOCK OPTION PLAN:
On January 1, 1995, the Company granted options for 4,943 shares of the
Company's $.10 par value common stock ("Common Stock") to certain directors and
employees who elected to participate in the Company's Director and Employee
Stock Option Plan ("Plan"). As of September 30, 1995, the liability for the
options granted on January 1, 1995 pursuant to the Plan was approximately
$58,000.
STOCK APPRECIATION RIGHTS:
In February 1995, the Company's Board of Directors granted Stock Appreciation
Rights ("SAR") to each of the three members of the Office of the Chief
Executive. Each SAR agreement grants 100,000 share equivalent units, each of
which represents an equal undivided interest in the future appreciation in the
value of a share of the Company's Common Stock on the exercise date. As of
September 30, 1995, no liability exists as a result of the SARs because the
value of the Common Stock was less than the base value, as defined in the
agreement.
In July 1995, the three members of the Office of the Chief Executive signed a
letter agreement stating, among other things, that the SAR agreements would
terminate and they would forfeit the unexercised SAR's as to all units, vested
and non-vested, if and when the proposed merger, described below, takes place,
subject to certain other conditions.
CREDIT FACILITY:
On January 23, 1995, the Company replaced its previously existing credit
facility with a $20 million Revolving Credit Agreement which expires January 22,
1998. Borrowings under the agreement (limited to a portion of eligible
collateral) were $5,725,000 at September 30, 1995. The agreement contains
various covenants and restrictions (including a restriction which precludes the
payment of cash dividends or the return of capital to shareholders) with which
the Company was in compliance at September 30, 1995.
SENIOR SECURED NOTES:
In April 1994, the Company sold 8.71% Senior Secured Notes in the aggregate
principal amount of $8,000,000, at par, which will mature in 1998 - 2004. The
notes are collateralized by a deed of trust on land and buildings located in
Nevada and Idaho.
UNEARNED STOCK COMPENSATION:
On August 5, 1994, the Company made restricted stock grants for 28,478 shares
(net of subsequent cancellation of 5,188 shares) of the Company's Common Stock
and granted options for an additional 41,942 shares of the Company's common
stock to certain officers in accordance with the Company's Long Term Incentive
Plan ("LTI Plan").
In connection with the restricted stock grants, compensation expense is being
recognized over a vesting period of three to five years in accordance with the
provisions of the LTI Plan. Compensation expense recognized for the three and
nine months ended September 30, 1995, was approximately $56,000 and $216,000,
respectively.
FRANCHISE AND ROYALTY FEES:
The Company receives initial franchise fees and continuing royalty fees from its
franchised Big O dealers. The initial franchise fees and continuing royalty
fees were $1,924,000 and $5,317,000 for the three and nine months ended
September 30, 1995, respectively, and $1,867,000 and $4,952,000 for the three
and nine months ended September 30, 1994, respectively.
SHAREHOLDER PROPOSAL EXPENSE:
At the Annual Meeting of Shareholders held in June 1994, the shareholders
adopted a resolution calling for the Company to engage an investment banker to
evaluate all alternatives for enhancing the values of the Company. Action
pursuant to this proposal led to the Company entering into a merger agreement
with a group of the Company's franchised dealers and senior managers of the
Company on July 24, 1995. The cost associated with the implementation of the
shareholder proposal for the three and nine months ended September 30, 1995 was
$419,000 and $967,000, respectively.
EARNINGS PER SHARE:
Earnings per share is computed using the weighted-average number of outstanding
shares during each period presented. Common stock equivalents are included but
did not have a material effect on the computation.
LITIGATION:
As a franchisor and wholesale distributor, the Company licenses the use of its
trade names, service marks and trademarks to the Company's franchisees and other
licensees and distributes tire products manufactured by the Company's suppliers
("Suppliers") under the Company's trade names and trademarks. As a result, the
Company has been named as a defendant in a number of lawsuits alleging negligent
acts and/or omissions by the Company's franchisees of alleged defective
workmanship and/or materials of the products produced by the Suppliers. As of
September 30, 1995, there were 35 such lawsuits pending in which the Company was
named as a defendant. Of those 35 lawsuits, only two directly involve the
Company. The other 33 involve franchisees of the Company or alleged tire
failures of its Suppliers. In most of the 35 lawsuits in which the Company is
named as a defendant, the claims for damages are not specific. It is possible
that a judgment may be rendered against the Company in one or more of these
lawsuits but the Company is unable to estimate the amount of any such possible
judgments. Over the past five years, the judgments that have been rendered
against the Company and settlements made by the Company in lawsuits similar to
the 35 lawsuits have not resulted in material losses to the Company. Therefore,
based upon such history, the Company does not believe that the Company will
suffer any material loss as a result of the 35 lawsuits pending against the
Company on September 30, 1995.
The Company requires that both the Company's franchisees and Suppliers indemnify
and protect the Company against claims resulting from the alleged negligent acts
and/or omissions of the franchisees and the alleged defects in workmanship
and/or materials of its Suppliers. In addition, the Company carries its own
insurance. The 33 lawsuits referred to above are being defended by attorneys
who have been retained by the applicable insurance companies and the Company is
not actively involved in the defense thereof. Historically, the Company has
been able to rely upon its franchisees and Suppliers and their insurance
carriers to defend, protect and indemnify the Company against such types of
lawsuits. Accordingly, even if a judgment is rendered against the Company in
any of these lawsuits, because of the insurance and indemnities described above,
management does not believe that the Company would incur any loss as a result of
any such judgment.
The Company is also a defendant in eight additional lawsuits which are
incidental to the Company's business and for which the Company does not believe
it is liable, but which are not covered by insurance. Thus, the Company is
directly and actively involved in its own defense and has sufficient information
to form a judgment on the likely outcome and exposure of such cases. Based on
this analysis, the Company believes that the ultimate outcome of these cases
will not have a material adverse effect on the Company's financial statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
LIQUIDITY AND CAPITAL RESOURCES:
SHAREHOLDER PROPOSAL
In June 1994, the shareholders adopted a proposal requesting the Company to
engage an investment banker to evaluate all alternatives to enhance the values
of the Company. In implementing this shareholder proposal, the Board of
Directors established the Investment Committee of the Board which retained
PaineWebber Incorporated ("PaineWebber") to fulfill this shareholder proposal.
In June 1995, the Company's Board of Directors approved in principle a proposal
to recommend to the Company's shareholders that the shareholders sell at a price
of $16.50 per share to a group consisting of a group of the Company's franchised
dealers and senior managers (the "Acquisition Group"). In July 1995, the
Company entered into an Agreement and Plan of Merger ("Merger Agreement") with
BOTI Holdings, Inc. and BOTI Acquisition Corp., (collectively "Purchaser"),
companies formed by the Acquisition Group to accomplish the merger. The Merger
Agreement is subject to approval of the Company's stockholders. Among other
conditions, the consummation of the merger was also subject to the receipt of
fairness opinions, the Acquisition Group obtaining acceptable financing,
participation in the acquisition by not less than 80% of the shares held by the
Company's ESOP and participation in the acquisition by not less than 85% of the
franchised Big O Tire stores as of the date of the Merger Agreement. In August
1995, the Purchaser presented to the Investment Committee of the Board of
Directors evidence of financing commitments subject to various contingencies,
the fulfillment of which would occur in the future. The Investment Committee
reviewed the financing commitments obtained by the Purchaser and determined that
financing commitments existed, in the aggregate, for amounts sufficient to
provide funds to pay the merger consideration at that time. However, the
financing contingency was not removed. In October 1995, the Company received
notice that the Purchaser advised the Company that dealers owning 82% of the
Company's franchised tire stores, as of the date of the Merger Agreement,
elected to participate indirectly in the acquisition of the Company. The
Purchaser advised the Company that while 82% is less than the percentage
specified in the Merger Agreement, such percentage was sufficient to enable the
Purchaser to proceed with satisfying certain financing contingencies and other
conditions of closing in the Merger Agreement and the Purchaser waived the 85%
contingency.
The Merger Agreement remains subject to approval by the Company's stockholders
and to the contingency that at least 80% of the shares held by the ESOP
participate in the acquisition.
By its terms, the Merger Agreement puts certain constraints on the Company's
conduct of business pending the merger. These constraints provide that neither
the Company nor any of its subsidiaries shall take any action except in the
ordinary course of business and consistent with past practices. The Merger
Agreement also provides that any one member of a management committee,
consisting of the Chairman and Vice Chairman, and representatives of the
Purchaser, the President and the Executive Vice President of the Company, has
the right to object to expenditures, contingent liabilities or the acquisition
or disposition of assets which exceed $100,000 prior to the Company entering
into such transaction. If the management committee cannot then unanimously
agree to such expenditures or asset disposition or acquisition, the Merger
Agreement provides that approval may be obtained in writing from the Company and
from BOTI Holdings, Inc.
It is estimated that the expenses incurred by the Company in connection with the
merger will be approximately $1,400,000 in the aggregate, comprised of
approximately $11,000 for filing fees, $950,000 for financial advisory fees,
$350,000 for legal fees, $48,000 for solicitation expenses, $25,000 for
directors' fees and expenses, and $16,000 for miscellaneous expenses. In
addition, the Company has agreed to reimburse the Purchaser up to $750,000 for
its costs and expenses in structuring the merger and $217,000 for expenses
incurred in arranging the financing of the merger. Costs incurred for the three
and nine months ended September 30, 1995, were $419,000 and $967,000,
respectively.
Should the merger be approved, the Company anticipates that the surviving
corporation will require additional cash, including approximately $1.2 million
to retire the current senior notes and replace them with other financing,
approximately $2.0 million for fees associated with new debt financing, $300,000
for severance fees payable to two current officers who are not participating in
the acquisition, $750,000 for investment banker fees for the Purchaser, and
$250,000 in shareholder costs. Additionally, approximately $750,000 will be
required to cancel stock options held by current directors and employees.
WORKING CAPITAL
At September 30, 1995, the Company had $21,756,000 in working capital (defined
as current assets less current liabilities), which represented a net decrease of
$2,911,000 from December 31, 1994. Primary uses of working capital included the
purchase of the Las Vegas distribution facility for $7,972,000, purchase of
equipment of $1,404,000, and principal payments on long-term debt and capital
lease obligations of $1,992,000. These uses were partially offset by working
capital derived from borrowings on the Company's line of credit and other
long-term debt of $3,009,000, proceeds from sales of property and equipment of
$2,999,000 and working capital provided by operations of $1,452,000.
The Company's net trade receivables at September 30, 1995, increased by
$4,368,000 as compared to December 31, 1994. This increase resulted from the
effect of opening nine new stores (net of closures) during the first nine months
of 1995, normal seasonal increases, and continued success of the Company's
Cost-U-Less -TM- marketing program.
Inventories at September 30, 1995, increased by $3,532,000 as compared to
inventories at December 31, 1994. This increase resulted primarily from higher
inventory levels needed to support the increased sales due to the impact of the
nine additional stores opened during the first nine months of 1995 and the
normal seasonal increase in stocking levels to provide an adequate supply of
products to meet anticipated higher sales volumes which normally occur during
the fourth quarter of each year. Accounts payable at September 30, 1995,
increased $4,768,000 from December 31, 1994, as a result of the increased
inventory levels and extended payment terms on snow tires offered by the
Company's primary supplier.
LAS VEGAS RSC CONVERSION
In May 1994, the Company closed its Regional Service Center ("RSC") in
Vacaville, California, and consolidated its operations into the Ontario RSC.
The Vacaville warehouse was leased to an unrelated third party. In July 1995,
the Company sold this warehouse facility. The cash proceeds from the sale were
used to reduce the outstanding loan balance with First National Bank of Chicago
("First Chicago"). In March 1995, the Company closed its RSC in Denver,
Colorado, and consolidated its operations into the newly opened Las Vegas RSC.
The Denver RSC was sold to an unrelated third party in December 1994. (See
discussion under "Financial Commitments" below.) Ontario RSC operations were
fully converted to the new Las Vegas RSC in May 1995. While the Company is
obligated under the lease for the Ontario warehouse through May 1998, it sublet
this property to an unrelated third party for the remainder of the lease term
starting June 1995.
The results for the nine months ended September 30, 1995, include a $320,000
charge associated with the conclusion of this warehouse consolidation. This
charge resulted primarily from the sale of the Vacaville RSC facility at a price
less than previously anticipated as well as certain other costs that exceeded
expectations.
REAL ESTATE DEVELOPMENT
The Company's real estate development program involves Big O retail store site
selection and development by one of the Company's subsidiaries, and the
subsequent sale of these developed store sites to Franchisees that qualify for
Small Business Administration ("SBA") guaranteed loans. Significant financing
is required by the Company, which is planned to be repaid as the SBA guaranteed
financing is obtained by the prospective Franchisee. As of July 1995, permanent
financing had been approved for ten development projects through AT&T Capital
Corporation ("AT&T"). Due to the merger as described above, the agreement with
AT&T was terminated in August 1995. While the Company plans on continuing this
real estate development program, the extent of this development has been reduced
significantly. In connection with this reduction, $125,000 of costs relating to
terminated projects was expensed during the third quarter, 1995. The Company
anticipates funding future projects through its revolving line of credit, joint
ventures or directly with developers.
The Company completed the sales of eight real estate holdings during the first
nine months of 1995, including two during the third quarter of 1995. Five of
these real estate sales involved projects developed under the Company's real
estate development program, one related to a land sale for a site the Company
elected not to develop, and two sales related to retail properties previously
held as investments that the Company elected to sell.
CAPITAL EXPENDITURES
At September 30, 1995, the Company's subsidiary that is implementing the real
estate development program had approximately $3.1 million invested in
construction in progress for Big O retail store sites, an increase of $1.1
million since December 31, 1994. Additional capital expenditures are
anticipated in connection with these real estate development activities, which
are anticipated to be funded through the Company's revolving line of credit,
joint ventures or directly with developers.
In February 1995, the Company acquired the Las Vegas RSC at a total cost of
approximately $7,972,000. New equipment, including computer hardware and
software to operate this facility, will require approximately $1,400,000 in 1995
capital expenditures of which approximately $880,000 has been incurred as of
September 30, 1995. The Company is financing this equipment through its
existing revolving line of credit.
FINANCIAL COMMITMENTS
The Company's current operations are primarily funded through its revolving line
of credit with First Chicago which has a 1995 sub-limit of $6 million for
construction and permanent financing pursuant to the Company's real estate
development program.
Limited financing for the Company's real estate development was previously
provided by AT&T through an $11.75 million revolving credit line. In August
1995 the Company and AT&T mutually agreed to terminate this credit line for all
projects unfunded at that time.
In the fourth quarter of 1994 the Company sold approximately $3 million of long
term notes receivable. The Company successfully negotiated the sale of an
additional $.8 million of long term notes receivable in July 1995 and
approximately $.2 million in October 1995.
Management's discretion with respect to certain business matters is limited by
financial and other covenants contained in loan agreements with First Chicago,
the senior note holders, Kelly-Springfield Tire Company (a division of The
Goodyear Tire & Rubber Company) and other lenders. These covenants, among other
things, limit or prohibit the Company from (i) paying dividends on its capital
stock, (ii) incurring additional indebtedness, (iii) creating liens on or
selling certain assets, (iv) making certain loans, investments, or guarantees,
(v) violating certain financial ratios, (vi) repurchasing shares of its common
stock, (vii) making certain capital expenditures, and (viii) merging or selling
substantially all of its assets. At September 30, 1995, the Company was in
compliance with all of these covenants.
The Company has received notice from the senior note holders that the
consummation of the proposed merger will be an event of default, thus creating a
covenant violation. It is the Company's understanding that the Acquisition
Group is seeking replacement financing at this time. In compliance with the
terms of the Merger Agreement, the Company is contacting its other current
lenders and lessors where necessary in order to obtain the consents necessary
for the consummation of the merger.
The Company's continuing guarantees at September 30, 1995 were comprised
principally of the following:
Retail store financing $4.1 million
Notes receivable guarantees 1.6 million
Real estate lease guarantees 6.0 million
Employee Stock Ownership Plan .2 million
Denver RSC mortgage loan 2.8 million
SEASONALITY
The franchised and Company-owned retail stores experience some seasonal
variation in product sales because the sale of tires, wheels, and related
automotive products are generally greater during the summer months than in the
winter months. The Company generally experiences some seasonality, although not
to the same extent as the retail stores, since the Company maintains sales to
certain retail stores on a regional basis (e.g., snow tires and chains) that
offset the trend on a national basis.
ENVIRONMENTAL ISSUES
The Company and its franchisees are subject to federal and state environmental
regulations regarding the disposal of tires and used oil, and the handling and
storage of certain other substances. Such regulations have not previously had a
material effect on the Company's operations, and management does not believe
that they will have a material effect in the future since the Company has
adopted a policy of requiring Phase I environmental studies for any new projects
or the acquisition of any existing locations before such transactions are
consummated.
ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standard (FAS) No. 114,
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, effective January 1, 1995.
The adoption of this FAS did not have a material effect on the Company's
financial position nor results of operations for the nine months ended September
30, 1995.
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standard No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which is
required to
be implemented for the Company's fiscal year ending December 31, 1996. The
earlier adoption of this FAS would not have materially affected the Company's
financial position nor results of operations for the nine months ended September
30, 1995.
RESULTS OF OPERATIONS:
REVENUES
Net sales for the third quarter, 1995 increased by $4,090,000 as compared to the
third quarter, 1994 and net sales for the first nine months 1995 increased by
$13,540,000 over the first nine months of 1994. The sale of Big O brand units
increased by approximately 177,000 units (an increase of 17.5%) during the first
nine months of 1995 as compared to the corresponding period for 1994, and the
sale of other new tires decreased by approximately 46,000 units (a decrease of
12.5%) during the same period. The average selling price of Big O brand units
increased by $0.15 per unit (an increase of 0.3%) for the first nine months of
1995 as compared to the first nine months of 1994. The average selling price of
other new tires decreased by $0.57 (a decrease of 1.5%) during the first nine
months of 1995 as compared to the corresponding period in 1994. This decrease
was in response to increased competition in the industry and came in spite of
announced industry price increases.
Net sales for the third quarter of 1995 increased $4,090,000 as compared to the
third quarter of 1994, of which $1,191,000 related to the sale of two Company
developed real estate projects during the third quarter 1995. Other increases
included an increase of $1,123,000 in sales to existing dealers, sales to new
franchisees of $1,840,000 and an increase in royalty revenues of $57,000. These
increases were partially offset by a decrease of $487,000 which resulted from
the closing of franchisee retail stores which were operating during the third
quarter of 1994 but not 1995.
The increase in sales of $13,540,000 for the first nine months of 1995 included
an increase of $4,530,000 related to real estate sales, an increase of
$4,683,000 in sales to existing dealers, sales to new franchisees of $4,862,000
and an increase of $366,000 in royalty revenues. These increases were partially
offset by decreases in sales of $1,132,000 related to the closing of franchised
and Company-owned retail stores and $330,000 related to the sale of Company-
owned retail stores.
GROSS PROFIT
Gross profit for the third quarter 1995 increased by $391,000 as compared to the
third quarter of 1994, including an increase of $63,000 related to real estate
sales in 1995. The Company's product and franchising gross margin was 20.0% for
the third quarter of 1995 which represented a .6% decrease as compared to the
third quarter of 1994. This decrease in gross margin generated a decrease in
gross profit of $270,000, which was offset by an increase in gross profit of
$598,000 attributable to the higher product and franchising sales volumes. The
decrease in gross margin was primarily due to increased warranty and freight
expenses during the third quarter of 1995 over the third quarter of 1994.
Gross profit for the first nine months of 1995 increased by $1,006,000 as
compared to the first nine months of 1994, including an increase related to real
estate sales in 1995. The Company's product and franchising gross margin was
22.0% for the first nine months of 1995, a decrease of 1.3% from the first nine
months of 1994. An increase in gross profits of $2,099,000 was attributable to
the higher product and franchising sales volumes during the first nine months of
1995 as compared to the same period in 1994. This increase was partially offset
by the decrease of $1,298,000 due to the decrease in the gross margin which was
primarily related to the Company's Cost-U-Less -TM- marketing program.
NET EXPENSES
Selling and administrative expenses increased $367,000 for the third quarter of
1995 from the third quarter of 1994. This increase consisted primarily of an
increase in the provision for bad debts of $282,000, an increase of $125,000
related to costs associated with terminated real estate development projects and
an increase of $100,000 related to the writedown in value of one real estate
parcel. These increases were partially offset by a decrease in payroll and
related expenses of approximately $126,000.
Selling and administrative expenses decreased $100,000 for the first nine months
of 1995 as compared to the first nine months of 1994. This decrease was
primarily due to decreases related to the sale or closure of Company-owned
retail stores and decreases in the Company's proportionate share of joint
venture losses. These decreases were offset by increases related to the
provision for bad debts, additional costs associated with terminated real estate
development projects and writedowns in value for certain real estate projects.
Increases in selling and administrative expenses were also associated with
closing the Denver and Ontario RSC's and starting up of the new Las Vegas RSC
during 1995.
Interest expense decreased by $144,000 for the third quarter of 1995 as compared
to the same period for 1994. This decrease was primarily due to interest
concessions offered by a subordinated lender which was recorded in the third
quarter 1995 and also the assumption by the buyer of the Denver RSC mortgage
loan in December 1994. Interest expense for the nine months ended September 30,
1995 decreased by $22,000. This decrease resulted primarily from the
elimination of the Denver RSC mortgage loan which was offset somewhat by
increased borrowings under the Company's line of credit during the first half of
1995 for increased financing needs for the consolidation of three of the
Company's RSC's into the new Las Vegas RSC.
PART II
OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
Item 5. OTHER INFORMATION.
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
The following Exhibits are filed as part of this report and are
attached hereto:
(10.1) Agreement for Purchase and Sale of Joint Interest; Dissolution
of Joint Venture; and Continuation of Businesses by Acquiring Joint Ventures
dated effective October 1, 1994, by and between Big O Retail Enterprises, Inc.,
a Colorado corporation ("Seller") and C.S.B. Partnership, a California general
partnership ("Purchaser").
(27.1) Financial Data Schedule for Third Quarter, 1995.
b. Reports on Form 8-K
On July 25, 1995, as amended on July 27, 1995, the Company filed a Current
Report on Form 8-K/A announcing under Item 5 that on July 24, 1995, the Company
entered into an Agreement and Plan of Merger ("Merger Agreement") with BOTI
Holdings, Inc. and BOTI Acquisition Corp. The Merger Agreement provides that
BOTI Holdings, Inc., through its subsidiary BOTI Acquisition Corp., will acquire
the Company in a merger in which the Company's shareholders will receive a cash
price of $16.50 per share. The merger is subject to the approval of the
Company's stockholders.
The Company also reported that it amended the Rights Agreement dated August
26, 1994 between the Company and Interwest Co., Inc. to specifically exclude
from the definition of an "Acquiring Person", BOTI Holdings, Inc., BOTI
Acquisition Corp., an entity to be formed directly or indirectly by persons who
are currently franchisees of the Company, any other person who may be deemed to
be the beneficial owner of the Company's Common Stock because of the execution
and delivery of the Merger Agreement and any group consisting of two or more of
the foregoing.
The Company also filed under Item 7 of Form 8-K/A the Agreement and Plan of
Merger dated July 24, 1995 and the Amendment to Rights Agreement dated as of
July 24, 1995.
On August 17, 1995, the Company filed a Current Report on Form 8-K dated
August 17, 1995, announcing under Item 5 that on August 16, 1995, BOTI Holdings,
Inc. and BOTI Acquisition Corp. ("Purchaser") presented to the Investment
Committee of the Board of Directors evidence of financing commitments subject to
various contingencies, the fulfillment of which would occur in the future. The
Investment Committee reviewed and determined that the Acquisition Group's
financing commitments, in the aggregate, were for amounts sufficient to provide
funds to pay the merger consideration.
On September 5, 1995, the Company filed a Current Report on Form 8-K, dated
September 5, 1995, announcing that on August 31, 1995, the Company agreed to a
request made by the Purchaser to extend until October 2, 1995, the date on which
the Company or the Purchaser would be able to terminate the Merger Agreement if
prior to October 2, 1995, the Purchaser had not satisfied or waived the
contingency in the Merger Agreement that required participation in the
acquisition by the Company's dealers owning not less than 85% of the franchised
Big O Tire stores ("Dealer Participation Contingency"). As a part of the
agreement, the Purchaser agreed that the Company could delay incurring
additional expenditures with respect to its proxy statement until the Company
had been advised that the Dealer Participation Contingency had been satisfied or
waived, and the Company was satisfied that a fairness opinion would be received
by the participants in the Company's Employee Stock Ownership Plan in connection
with the proposed merger. The Company also filed under Item 7 of Form 8-K the
Letter Agreement dated August 31, 1995, by and among the Company, BOTI
Acquisition Corp., and BOTI Holdings, Inc.
On October 4, 1995, the Company filed a Current Report on Form 8-K dated
October 4, 1995, announcing under Item 5 that on October 2, 1995, the Company
agreed to a request made by the Purchaser to extend until October 16, 1995, the
date on which the Company or the Purchaser would be able to terminate the Merger
Agreement, if prior to October 16, 1995 the Purchaser Group had not satisfied or
waived the Dealer Participation Contingency. As part of the agreement, the
Purchaser agreed that the Company would agree to no further changes to Section
7.1(f) of the Merger Agreement and the Company could delay incurring additional
expenditures with respect to its proxy statement until the Company has been
advised that the Dealer Participation Contingency had been satisfied or waived.
The Company also filed under Item 7 of Form 8-K the Letter Agreement dated
October 2, 1995, by and among the Company, BOTI Acquisition Corp., and BOTI
Holdings, Inc.
On October 18, 1995, the Company filed a Current Report on Form 8-K dated
October 18, 1995, announcing that on October 15, 1995, the Company received
notice from the Purchaser that the Purchaser elected to waive the Dealer
Participation Contingency. The Purchaser advised the Company that dealers
owning 82% of the Company's franchised tire stores, as of the date of the Merger
Agreement, had elected to participate indirectly in the acquisition of the
Company. The Purchaser advised the Company that while 82% is less than the
percentage specified in the Merger Agreement, such percentage is sufficient to
enable the Purchaser to proceed with satisfying other conditions of closing in
the Merger Agreement. The Company also filed under Item 7 of Form 8-K the
Letter dated October 15, 1995, from BOTI Acquisition Corp. and BOTI Holdings,
Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1995
BIG O TIRES, INC.
By: /s/ John B. Adams
John B. Adams
Executive Vice President,
Principal Financial Officer
and Principal Accounting
Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT
PAGE NO.
(10.1)
Agreement for Purchase and Sale of Joint
Interest; Dissolution of Joint Venture;
and Continuation of Businesses by
Acquiring Joint Ventures dated effective
October 1, 1994, by and between Big O
Retail Enterprises, Inc., a Colorado
corporation ("Seller") and C.S.B.
Partnership, a California general
partnership ("Purchaser").
18
(27.1)
Financial Data Schedule for Third Quarter,
1995.
69
AGREEMENT FOR PURCHASE AND SALE OF JOINT VENTURE INTEREST;
DISSOLUTION OF JOINT VENTURE; AND CONTINUATION OF BUSINESSES
BY ACQUIRING JOINT VENTURER
This Agreement for Purchase and Sale of Joint Venture Interest; Dissolution
of Joint Venture and Continuation of Businesses by Acquiring Joint Venturer
("Agreement") is made effective as of the 1st day of October, 1994 ("Effective
Date") by and between BIG O RETAIL ENTERPRISES, INC., a Colorado corporation,
("Seller") and C.S.B. PARTNERSHIP, a California general partnership
("Purchaser").
RECITALS
A. Effective June 1, 1991, Seller and Purchaser formed a joint venture
called BIG O/C.S.B. JOINT VENTURE under California law (the "Joint Venture").
The Joint Venture is governed by the terms and provisions of that certain
Agreement of Joint Venture of Big O/C.S.B. Joint Venture effective as of June 1,
1991 (the "Original Joint Venture Agreement"), and that certain First Amendment
to Agreement of Joint Venture of Big O/C.S.B. Joint Venture dated as of
March 16, 1994 (the "First Amendment"). The Original Joint Venture Agreement
and the First Amendment shall sometimes collectively hereinafter be referred to
as the "Joint Venture Agreement". Purchaser, pursuant to the terms of the Joint
Venture Agreement, manages the business operations of the Joint Venture.
B. Seller desires to sell, transfer and convey its entire joint venture
interest in the Joint Venture, and Purchaser is willing to purchase and acquire
from Seller its joint venture interest in the Joint Venture and to continue the
business operations of the Joint Venture as a California general partnership
from and after the Effective Date on the terms and subject to the conditions of
this Agreement.
C. Subsequent to the consummation of the purchase and sale contemplated
herein, Purchaser as the "Liquidating Joint Venturer" (as defined below) intends
to proceed with the dissolution and orderly winding up and liquidation of the
Joint Venture in full compliance with California law, including, without
limitation, the provisions of the California Uniform Partnership Act (the
"Act").
D. The Joint Venturers currently own and hold the following percentages
of ownership in and to the Joint Venture:
PERCENTAGE JOINT VENTURE
JOINT VENTURER OWNERSHIP INTEREST
Big O Retail Enterprises, Inc. 50%
C.S.B. Partnership 50%
---
TOTAL: 100%
E. The Joint Venture currently owns and operates those duly franchised
retail Big O Tire Stores which are identified on EXHIBIT A, attached hereto (the
"Joint Venture Big O Stores").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
representations as contained herein, and for such other consideration, the
adequacy of which is hereby acknowledged, the parties, intending to be mutually
bound, agree as follows:
1. PURCHASE AND SALE OF SELLER'S INTEREST. Under the terms and
conditions set forth in this Agreement, Seller agrees to transfer, convey,
assign and sell to Purchaser and the Purchaser agrees to purchase and acquire,
in accordance with the provisions hereof, all of Seller's right, title and
interest in and to its joint venture interest in the Joint Venture ("Seller's
Interest"). Seller's Interest so being transferred, sold and conveyed pursuant
to this Agreement includes but is not limited to its fifty percent (50%) joint
venture interest in the assets and properties of the Joint Venture which are
substantially comprised of the Joint Venture Big O Stores, as follows: (i) the
tangible assets and property of the Joint Venture wherever located including,
without limitation, all units of inventory; all equipment, machinery, tools,
replacement parts, fixtures, trade fixtures, computers and computer programs,
sales materials and catalogs, displays, telephone equipment, office equipment,
supplies and furniture, gas, oil and grease, leasehold improvements, and
signage; (ii) accounts receivable; (iii) goodwill, going concern value and other
intangible assets, including, without limitation, but subject to the
intellectual and proprietary rights of Big O Tires, Inc., the names of each of
the Joint Venture Big O Stores and all variations and derivations thereof; the
telephone numbers; and all rights pertaining to customer accounts, customer
sales and service orders, commercial accounts and customer lists; (iv) the
franchises duly issued by Big O Tires, Inc. with respect to each of the Joint
Venture Big O Stores, (a listing of each of such franchises is set forth on
EXHIBIT B, attached hereto) and all other approvals, permits, licenses, orders,
registrations, certificates, variances and similar rights obtained from
governments and governmental agencies in connection with the Joint Venture's
businesses (the Joint Venture Big O Stores); (v) all leasehold rights and
obligations with respect to each of the premises upon which the Joint Venture
Big O Stores and offices of the Joint Venture are located (collectively, the
"Leases"); (vi) all books and records pertaining to the Joint Venture and its
businesses (the Joint Venture Big O Stores), provided that Seller shall have
access to such books and records and copies thereof as provided herein; (vii)
subject to the provisions of Sections 2 and 3 below, all rights and obligations
with respect to any equipment leases, tangible property subject to a conditional
sale, insurance policies and refunds, or similar arrangements; and (viii) all
cash on hand.
2. ASSUMED LIABILITIES. In connection with Purchaser's acquisition of
Seller's Interest and the continuation of the businesses (the Joint Venture Big
O Stores) of the Joint Venture from and after the Effective Date and pursuant to
the terms of the Joint Venture Agreement, Purchaser shall assume the liabilities
(the "Assumed Liabilities") of the Joint Venture which Assumed Liabilities are
set forth on the Balance Sheet of the Joint Venture as of September 30, 1994
(the "Balance Sheet"), a copy of which is attached hereto as EXHIBIT C.
Provided that, it is expressly understood and agreed that the "Purchase Price"
(as defined in Section 4 below) includes all obligations of Purchaser to Seller
with respect to "guaranteed payments" due Seller pursuant to Section 3 of the
First Amendment.In connection with the foregoing, a UCC-3 information search
with the office of the Secretary of State of California and a judgment lien and
tax lien search and in each county in which the Joint Venture's businesses (the
Joint Venture Big O Stores) are located shall be performed by the "Liquidating
Joint Venturer" (as defined below) to determine whether any liens, encumbrances
and/or liabilities exist of as of the Effective Date with respect to the Joint
Venture and its assets and properties which are not set forth on the Balance
Sheet as part of the Assumed Liabilities (the "Unaccounted Liabilities"). In
the event it is determined that such Unaccounted Liabilities exist, Purchaser
and Seller shall each bear one-half (1/2) of the responsibility therefore;
provided that, in the event either party disputes its responsibility therefore
as provided above and the parties are unable to resolve such dispute amongst
themselves, such dispute shall be submitted to arbitration before the American
Arbitration Association located in Orange County, California, which arbitration
shall be held in accordance with its Commercial Arbitration Rules as provided in
Section 22 below.
3. CONSENTS AND APPROVALS. The obligations of Purchaser and Seller
under this Agreement and the consummation of the transactions contemplated by
this Agreement are specifically conditioned upon and subject to the receipt of
all required consents, approvals and waivers of any default that might otherwise
result from the transaction contemplated herein. A schedule of those consents,
approvals and waivers of which the parties are aware is attached hereto as
EXHIBIT D ("Schedule of Consents, Approvals and Waivers"), and the consummation
and closing of this transaction as provided for herein shall not occur unless
and until such consents, approvals and waivers of default in forms satisfactory
to Purchaser and Seller and each of their respective counsel have first been
obtained; provided that in the event all such consents, approvals and waivers of
default are not obtained by the parties despite the exercise of due diligence
and reasonable efforts by Purchaser and Seller, Purchaser may elect by giving
written notification to Seller to proceed to consummate the transaction
contemplated by this Agreement, in which event, Purchaser shall indemnify,
protect, defend and hold Seller harmless therefrom as provided in Section 18
hereof.
4. PURCHASE PRICE AND PAYMENT/SECURITY. In full payment, settlement
and satisfaction of the purchase price for Seller's Interest (the "Purchase
Price"), Purchaser shall assume that portion of the Assumed Liabilities as
represented by Seller's Interest (50%) in the Joint Venture, and as additional
consideration shall pay Seller the sum of Five Hundred Fifty Thousand Dollars
($550,000) by execution and delivery of a promissory note in the form attached
hereto as EXHIBIT E (the "Note"). Such Note shall be secured by the terms of
that certain Security Agreement in the form attached hereto as EXHIBIT F. The
Purchase Price includes all obligations of Purchaser to Seller with respect to
"guaranteed payments" due Seller pursuant to the terms of Section 3 of the First
Amendment and the Joint Venture's accountant shall take all necessary steps to
account for such "guaranteed payment."
5. AUTHORITY. Upon consummation of this Agreement, Purchaser shall
assume and shall be liable for all of the Assumed Liabilities, whether accrued,
contingent, or otherwise, existing on or before the Effective Date. Commencing
with the Effective Date of this Agreement, Seller shall have no authority to
incur any obligations or liabilities on behalf of the Joint Venture, compromise
any obligations of the Joint Venture or participate in any way in management or
control of the Joint Venture or the businesses of the Joint Venture which will
be operated by Purchaser from and after the Effective Date; and hereby covenants
that it will not do any of the above. Purchaser shall in connection with its
continued management of and ownership and operation of the businesses (the Joint
Venture Big O Stores) from and after the Effective Date, except as otherwise
provided herein, assume or otherwise be responsible for all obligations and
liabilities incurred on or after the Effective Date with respect to the Joint
Venture and its businesses; and shall indemnify, protect, defend and hold Seller
harmless therefrom as provided in Section 18 hereof.
6. DISSOLUTION AND WINDING UP OF JOINT VENTURE. In connection with the
purchase and sale of Seller's Interest as provided herein, the parties agree to
perform the following actions in connection with the dissolution and winding up
and liquidation of the Joint Venture as required by this Agreement, the Joint
Venture Agreement and the applicable provisions of the California Corporations
Code, the Act, and other applicable California law.
6.1 DISSOLUTION/CONTINUATION OF BUSINESS OPERATIONS BY PURCHASER.
The Joint Venture shall be dissolved as of the Effective Date ("Date of
Dissolution"). Immediately following the consummation of the purchase and
transaction contemplated by this Agreement as provided in Section 13 hereof, the
Liquidating Joint Venture (as defined below) shall promptly commence the orderly
winding up and liquidation of the Joint Venturer and its businesses (the "Joint
Venture Big O Stores"); provided that it is expressly understood and agreed that
the operations of the Joint Venture Big O Stores shall continue without any
break in continuity except that from and after the Date of Dissolution, such
Joint Venture Big O Stores shall be owned and operated by C.S.B. Partnership as
a California partnership, as provided in this Section 6.
6.2 CESSATION OF BUSINESS. Subject to the provisions of Section
6.1 and except for the purpose of carrying out the liquidation of the businesses
of the Joint Venture, none of the Joint Venturers shall do any further business
or incur any further obligations on behalf of Joint Venture after the Date of
Dissolution.
6.3 APPOINTMENT OF LIQUIDATING JOINT VENTURER. Purchaser shall
be the "Liquidating Joint Venturer" and shall have exclusive rights and
responsibilities for winding up and liquidating the Joint Venture; provided
that, Seller shall assist Purchaser to the extent necessary in order to
effectuate the winding up and dissolution of the Joint Venture. After the Date
of Dissolution, Seller shall have no authority to act on behalf of or bind the
Joint Venture or participate in its management or control for purposes of
winding up its businesses or otherwise.
6.4 POWERS OF LIQUIDATING JOINT VENTURER. The Liquidating Joint
Venturer shall have authority to wind up and dissolve the Joint Venture's
businesses, including full power and authority to do the following:
(a) Represent and act on behalf of the Joint Venture in all
matters affecting it during the winding up, including the power to engage
professional and technical services of others (including without limitation,
accountants, attorneys, appraisers, brokers, auctioneers), and to institute and
defend any legal proceedings that may be pending or brought by or against the
Joint Venture.
(b) Prepare, execute, file, record, and publish on behalf of
the Joint Venture and its Joint Venturers any agreements, documents, or
instruments connected with the winding up and dissolution of the business and
affairs of the Joint Venture.
(c) Except with respect to the Assumed Liabilities which
shall become the obligation of Purchaser from and after the Effective Date, pay
or otherwise settle or discharge all of the debts, liabilities, and other
obligations;
(d) Except as otherwise provided herein, distribute any Joint
Venture assets and properties to Purchaser subject to the Assumed Liabilities.
(e) Take all other action necessary, appropriate, or
incidental to the foregoing powers or to the performance of the duties of the
Liquidating Joint Venturer or necessary to carry out the purposes of this
Agreement.
6.5 DUTIES OF LIQUIDATING JOINT VENTURER. The Liquidating Joint
Venturer shall devote such time as it deems necessary to liquidate the Joint
Venture. The Liquidating Joint Venturer shall also do the following:
(a) Notify each of the Joint Venture's known creditors of the
Joint Venture's dissolution pursuant to the form of letter attached hereto as
EXHIBIT G and cause to be published a Notice of Dissolution pursuant to
California Corporations Code Section 15035.5 pursuant to the form of notice
attached hereto as EXHIBIT H.
(b) Prepare, file, publish, and record in a timely manner all
appropriate agreements, documents, and instruments, including federal and state
tax returns, to reflect the dissolution and termination of the Joint Venture and
the cessation of the use of its name;
(c) Obtain necessary authorizations, including but not
limited to tax rulings connected with the winding up and termination of the
Joint Venture's businesses or the disposition of its assets and property
pursuant to the terms and provisions hereof; and to the extent required by law,
cancel any existing authorizations, licenses, or permits and resolve or dispose
of other matters related to the dissolution in the manner required by law or
consistent with the purposes of this Agreement;
(d) In the performance of these duties, the Liquidating Joint
Venturer shall act diligently and in good faith.
6.6 INDEMNIFICATION OF LIQUIDATING JOINT VENTURER. Purchaser, as
the Liquidating Joint Venturer, shall be indemnified, protected, defended and
held harmless by the Joint Venture from all lawsuits, claims, expenses, damages,
liabilities, or obligations of any kind (including legal fees and expenses),
commencing with the Date of Dissolution, arising from or connected with the
winding up and liquidation of the Joint Venture and the performance of its
duties under this Agreement, except for losses, claims, expenses, damages,
liabilities, or obligations (including legal fees and expenses) arising from or
connected with the Liquidating Joint Venturer's breach of any of its obligations
under this Agreement, including, without limitation, its continuing obligation
to manage the businesses of the Joint Venture (the Joint Venture Big O Stores),
its negligent or willful misconduct, or of its other obligations as a Joint
Venturer of the Joint Venture.
6.7 SUBSTITUTION OF LIQUIDATING JOINT VENTURER. In the event that
the Liquidating Joint Venture is unable to carry out its duties under this
Agreement, for whatever reason, Seller shall assume all powers and duties of the
Liquidating Joint Venturer under this Agreement.
6.8 ADDITIONAL CONTRIBUTION OF CAPITAL. In connection with the
provisions of Section 2 hereof regarding Unaccounted Liabilities and subject to
the rights of each party with respect thereto in the event either party disputes
its responsibility therefore, any required additional contributions by Purchaser
and Seller as the Joint Venturers of the Joint Venture shall be made in
accordance with their respective percentage interests (fifty percent [50%]
each); provided that to the extent any additional contributions are required,
Seller's portion thereof shall be applied as an offset against the Purchase
Price; provided further, that Seller's obligation to make any additional
contributions shall only apply to liabilities or other obligations of the Joint
Venture which accrued or arose prior to the Effective Date (October 1, 1994),
Purchaser being solely responsible for such liabilities or other obligations of
the Joint Venture which accrued or arose after the Effective Date. Subject to
the foregoing limitations, if either Joint Venturer shall fail to contribute its
share, the other Joint Venturer shall contribute pro rata, based on its
respective interests, and shall be indemnified by the defaulting Joint Venturer
for all amounts so contributed, with interest at the rate of ten percent (10%)
per annum on the unpaid balance until paid, and all costs and expenses of
collection, including attorney's fees. Any Joint Venturer, including the
Liquidating Joint Venturer, shall have the right to demand that this
contribution be paid to the Liquidating Joint Venturer from the other Joint
Venturer to satisfy any deficiency at any time after the Joint Venturer who is
so demanding has contributed the amount representing its share of the
deficiency.
6.9 MUTUAL REPRESENTATIONS AND WARRANTIES. Purchaser and Seller,
and each of them, as a Joint Venturer of the Joint Venture, represents and
warrants to the other, that except as stated in the Joint Venture's books and
records, (a) it has not incurred any obligation or liability on behalf or as
apparent agent of the Joint Venture, or the Joint Venturers, or for which it or
any other Joint Venturers may be charged, or for which it intends to claim
refund or reimbursement from the Joint Venture, and (b) it has not received,
discharged, or transferred any credit, monies, property, or other assets of the
Joint Venture. These representations and warranties shall survive the final
termination and dissolution of the Joint Venture.
6.10 WAIVER OF ACCOUNTING. The Joint Venturers hereby waive any
rights they may have at law or in equity to obtain an accounting or a court
supervised winding up, or maintain an action and partition of property or to
otherwise interfere in any way with the process of winding up and termination
contemplated by this Agreement.
7. CONFIDENTIALITY. Except as may be required by applicable
governmental laws and regulations, Seller covenants and agrees not to divulge,
communicate, use to the detriment of the Joint Venture, or its successors or
employees, or for the benefit of any other person or persons, or misuse in any
way any confidential information or trade secrets of the Joint Venture or its
successors, including but not limited to personnel information, customer lists
or financial or technical data. Seller acknowledges and agrees that any such
information or data acquired through connections with the Joint Venture was
received in confidence and as a fiduciary of the Joint Venture and its
successors.
8. RETENTION OF BOOKS AND RECORDS. Purchaser shall retain custody of
all the existing books and records of the Joint Venture. Seller shall have
access to these books and records at all reasonable times during working hours,
and at its expense may copy all or any part of these records for any proper
purpose, through the effective date of liquidation of the Joint Venture.
9. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
warrants to Purchaser that:
9.1 ORGANIZATION AND QUALIFICATION. Big O Retail Enterprises,
Inc., is a corporation in good standing under the laws of Colorado, and is
authorized as a foreign corporation to do business in California and as such is
authorized to execute this Agreement. All acts and other proceedings required
to be taken by or on the part of Seller to authorize it to perform its
obligations hereunder or to otherwise consummate the transactions contemplated
hereby have been duly and properly taken.
9.2 POWER AND AUTHORITY; VALID AND BINDING. This Agreement
constitutes the legally binding obligations of Seller in accordance with the
terms hereof subject as its enforceability to limitations imposed by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or effecting
creditors' rights generally and to the general principles of equity. Neither
the execution, delivery or performance of this Agreement, nor the consummation
of the transactions contemplated hereby (i) is prohibited by or requires Seller
to obtain the consent, authorization, approval or registration under any law,
rule, or regulations, judgment, order, writ, injunction or decree which is
binding upon Seller; (ii) will violate any provision of the Articles of
Incorporation or Bylaws of Seller or the Joint Venture Agreement; or (iii) will
violate any provision of, result in any default or acceleration of any
obligations under, result in the creation or imposition of any liens pursuant to
or require any content under any material agreement to which Seller is a party
or is otherwise bound.
9.3 OWNERSHIP OF JOINT VENTURE INTEREST. Seller is the owner
beneficially and of record of its Seller's Interest in the Joint Venture, free
and clear of all liens, encumbrances, security agreements, equities, options,
claims, charges and restrictions.
9.4 PRESENT OPERATIONS. As of October 1, 1994, Seller has had no
actual knowledge of any change in the financial condition or operation of the
Joint Venture, except changes in the ordinary course of business which are not
known or should have been known by Purchaser as of the closing.
9.5 REPRESENTATIONS AND WARRANTIES. None of the representations
and warranties made by Seller, or made in any certificate or memorandum
furnished or to be furnished by it or on its behalf, contains or will contain
any untrue statement of a material fact.
10. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents
and warrants to Seller that:
10.1 ORGANIZATION AND QUALIFICATION. C.S.B. Partnership is a
California general partnership in good standing under the laws of California and
as such is authorized to execute this Agreement. All acts and other proceedings
required to be taken by or on the part of Purchaser to authorize it to perform
its obligations hereunder or to otherwise consummate the transactions
contemplated hereby have been duly and properly taken.
10.2 POWER AND AUTHORITY; VALID AND BINDING. This Agreement
constitutes the legally binding obligations of Purchaser in accordance with the
terms hereof subject as its enforceability to limitations imposed by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or effecting
creditors' rights generally and to the general principles of equity. Neither
the execution, delivery or performance of this Agreement, nor the consummation
of the transactions contemplated hereby (i) is prohibited by or requires
Purchaser to obtain the consent, authorization, approval or registration under
any law, rule, or regulations, judgment, order, writ, injunction or decree which
is binding upon Purchaser; (ii) will violate any provision of the Articles of
Incorporation or Bylaws of Purchaser or the Joint Venture Agreement; or (iii)
will violate any provision of, result in any default or acceleration of any
obligations under, result in the creation or imposition of any liens pursuant to
or require any content under any material agreement to which Purchaser is a
party or is otherwise bound.
10.3 FINANCIAL STATEMENT. The Balance Sheet is to the best
knowledge of Purchaser complete and correct in all material respects and fairly
presents the financial position of the Joint Venture and its businesses as of
the dates and for the periods indicated. As of the date of this Agreement,
Purchaser is not aware of any material assets and property or liabilities
(whether accrued, absolute, contingent or otherwise) which are not reflected on
the Balance Sheet except as otherwise disclosed to Purchaser in writing on or
before the Effective Date.
10.4 PRESENT OPERATIONS. As of October 1, 1994, Purchaser has had
no actual knowledge of any change in the financial condition or operation of the
Joint Venture, except changes in the ordinary course of business.
10.5 REPRESENTATIONS AND WARRANTIES. None of the representations
and warranties made by Purchaser, or made in any certificate or memorandum
furnished or to be furnished by it or on its behalf, contains or will contain
any untrue statement of a material fact.
11. CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to purchase the Seller's Interest under this Agreement are subject to
the satisfaction at or before the Closing, of all the conditions set out below
in this Section 11. Purchaser may waive any or all of these conditions in whole
or in part by giving written notice to Seller on or before the Closing Date;
provided, however, that no such waiver of a condition shall constitute a waiver
by Purchaser of any of its other rights or remedies, at law or in equity, if
Seller shall be in default of any of its representations, warranties or
covenants under this Agreement.
11.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Except as
otherwise permitted by this Agreement, all representations and warranties by
Seller in this Agreement, or in any written statement that may be delivered to
Purchaser under this Agreement, shall be true in all material respects on and as
of the Closing Date as though made at that time.
11.2 COVENANTS OF SELLER. Seller shall have performed, satisfied
and complied with all covenants, agreements, and conditions required by this
Agreement and/or the Joint Venture Agreement to be performed or complied with by
it on or before the Closing Date.
11.3 NO VIOLATION OF ORDERS. No action, suit, or proceeding
before any court or any governmental body or authority, pertaining to the
transactions contemplated by this Agreement or to its consummation, shall have
been instituted or threatened on or before the Closing Date.
11.4 CONSENTS, APPROVALS AND WAIVERS. All required consents,
approvals and waivers as provided in SECTION 3 hereof shall have either (1) been
obtained or (2) Purchaser shall have elected to consummate the purchase and sale
transaction contemplated by this Agreement as provided therein.
11.5 DISPOSITION OF UNACCOUNTED LIABILITIES. In the event,
pursuant to the provisions of SECTION 2, any Unaccounted Liabilities are
discovered that Purchaser and Seller shall have agreed upon the allocation of
responsibility and disposition thereof.
11.6 DOCUMENT. The form and substance of all certificates,
instruments, exhibits, schedules and other documents delivered to each party by
the other under this Agreement shall be satisfactory in all reasonable respects
to each party.
12. CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller to
sell, transfer and convey the Seller's Interest under this Agreement are subject
to the satisfaction at or before the Closing, all the conditions set out below
in this Section 12. Seller may waive any or all of these conditions in whole or
in part by giving written notice to Purchaser on or before the Closing Date;
provided, however, that no such waiver of a condition shall constitute a waiver
by Seller of any of its other rights or remedies, at law or in equity, if
Purchaser shall be in default of any of its representations, warranties or
covenants under this Agreement.
12.1 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Except as
otherwise permitted by this Agreement, all representations and warranties by
Purchaser in this Agreement, or in any written statement that may be delivered
to Seller under this Agreement, shall be true in all material respects on and as
of the Closing Date as though made at that time.
12.2 COVENANTS OF PURCHASER. Purchaser shall have performed,
satisfied and complied with all covenants, agreements, and conditions required
by this Agreement and/or the Joint Venture Agreement to be performed or complied
with by it on or before the Closing Date.
12.3 NO VIOLATION OF ORDERS. No action, suit, or proceeding before
any court or any governmental body or authority, pertaining to the transactions
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened on or before the Closing Date.
12.4 CONSENTS, APPROVALS AND WAIVERS. All required consents,
approvals and waivers as provided in SECTION 3 hereof shall have either (1) been
obtained or (2) Purchaser shall have elected to consummate the purchase and sale
transaction contemplated by this Agreement as provided therein.
12.5 DISPOSITION OF UNACCOUNTED LIABILITIES. In the event,
pursuant to the provisions of SECTION 2, any Unaccounted Liabilities are
discovered that Purchaser and Seller shall have agreed upon the allocation of
responsibility and disposition thereof.
12.6 DOCUMENT. The form and substance of all certificates,
instruments, exhibits, schedules and other documents delivered to each party by
the other under this Agreement shall be satisfactory in all reasonable respects
to each party.
13. CLOSING. The parties intend that the consummation of the purchase
and sale transaction contemplated in this Agreement (the "Closing") shall take
place at the offices of C.S.B. Partnership, 27131 Calle Arroyo, Suite 1703, San
Juan Capistrano, California 91761, on or before July 15, 1995, or at such other
time and place as the parties may agree to in writing (the "Closing Date");
provided that it is expressly understood and agreed that the Effective Date and
the Date of Dissolution shall be as of October 1, 1994. On the Closing Date,
Seller shall transfer, convey and assign onto Purchaser its Joint Venture
interest in the Joint Venture in the form of the Bill of Sale and Assignment
attached hereto as EXHIBIT I.
Notwithstanding the foregoing, in the event the Closing Date does not occur
on or before July 31, 1995, and the parties have not otherwise agreed in writing
to extend the Closing Date, this Agreement shall be deemed void and of no
further force and effect, provided that such termination shall not relieve any
party of its liability for any misrepresentation, default or breach under the
terms and provisions of this Agreement.
14. DELIVERIES BY SELLER AT CLOSING. At the Closing, Seller shall
deliver to Purchaser the following instruments, in form and substance
satisfactory to Purchaser and its counsel:
14.1 SELLER CERTIFICATES. A certificate executed by Seller, dated
the Closing Date, certifying that its representations and warranties in this
Agreement are true and correct at and as of the Closing Date, as though each
representation and warranty had been made on that date;
14.2 CORPORATE RESOLUTION. Board of Director resolutions
authorizing the transactions contemplated by this Agreement and a certification
by a proper officer of Seller certifying such corporate resolutions; and
14.3 BILL OF SALE AND ASSIGNMENT. A fully executed Bill of Sale
and Assignment.
15. DELIVERIES BY PURCHASER AT CLOSING. At the Closing, Purchaser
shall deliver to Seller the following instruments and documents:
15.1 PURCHASER CERTIFICATION. A certificate executed by
Purchaser, dated the Closing Date, certifying that its representations and
warranties in this Agreement are true and correct at and as of the Closing Date,
as though each representation and warranty had been made on that date;
15.2 NOTE. Execution and delivery by Purchaser of the Note
attached to this Agreement as EXHIBIT E;
15.3 SECURITY AGREEMENT. Execution and delivery of the Security
Agreement attached hereto as EXHIBIT F along with corresponding UCC-1 financing
statements thereby granting to Seller and Big O Tires, Inc. a security interest
in the assets and properties which comprise the Joint Venture Big O Tires
Stores; and
15.4 INSURANCE. Evidence of insurance as required under (1) the
terms of each of the franchise agreements for the Joint Venture Big O Stores,
and (2) the real property leases for each of the Joint Venture Big O Stores; and
as otherwise maintained by the Joint Venture prior to the Effective Date.
16. RELEASE OF SELLER/LEASES. In connection with the Leases and to the
extent required, Purchaser shall use its best efforts to obtain the release of
Seller from its obligations under each of those Leases. Unless and until this
is accomplished, Purchaser hereby confirms its obligation to pay to Seller (its
parent, Big O Tires, Inc.) a three percent (3%) override on the monthly rent
under such Leases, in consideration of the continued risk of liability carried
by Seller.
17. SELLER'S INDEMNIFICATION. Seller shall indemnify, protect, defend,
and hold harmless Purchaser from and against and in respect of any and all
claims, demands, losses, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including interest, penalties and reasonable
attorneys' fees that it shall incur or suffer which arise, result from or relate
to any breach of, or failure by Seller to perform any of its representations,
warranties, covenants or agreements in this Agreement, under the Joint Venture
Agreement or any other instrument furnished or to be furnished by Seller under
this Agreement.
18. PURCHASER'S INDEMNIFICATION. Purchaser agrees to indemnify,
protect, defend, and hold harmless Seller against, and in respect of, any and
all claims, losses, expenses, costs, obligations, and liabilities it may incur
by reason of Purchaser's breach of or failure to perform any of the
representations, warranties, covenants or agreements or any other instrument
furnished by Purchaser under this Agreement, under the Joint Venture Agreement
or by reason of any act or omission of Purchaser, or any of its successors or
assigns after the Closing Date, that constitute a breach or default under or a
failure to perform, any obligation, duty or liability of Purchaser, including,
without limitation, its continuing responsibility for the management and
operation of the businesses of the Joint Venture (the Joint Venture Big O
Stores), but only to the extent to which Purchaser expressly assumes these
obligations, duties, and liabilities under this Agreement.
19. SURVIVAL. The representations, warranties, and covenants and
indemnification, protection, defense, and hold harmless provisions and
obligations contained in this Agreement shall survive the closing of this
purchase and sale and dissolution and continuation transaction.
20. COSTS AND EXPENSES. Each party shall pay all costs and expenses
incurred or to be incurred by it in negotiating or preparing this agreement and
in closing and carrying out the transactions contemplated by this Agreement.
21. POSTCLOSING COVENANTS. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes and effect of
this Agreement, each of the parties covenants and agrees to take such further
action (including the execution and delivery of such further instruments and
documents) as the other party reasonably may request, all at the sole cost and
expense of the requesting party (unless the requesting party is entitled to
indemnification therefor under either Section 17 or 18 of this Agreement or
unless such action is merely a continuation or completion of action commenced
prior to the Closing). In addition, in the event and so long as any party
actively is contesting or defending against any charge, complaint, action, suit,
proceeding, hearing, investigation, claim or demand in connection with (1) any
transaction contemplated under this Agreement or (2) any fact, situation,
circumstance, status, activity, practice, plans, occurrence, event, incident,
action, failure to act or transaction on or prior to the Effective Date
involving the Joint Venture, Purchaser and Seller will cooperate reasonably with
each other or its counsel in the contest or defense, reasonably making available
their personnel and providing such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending party (unless the
contesting or defending party is entitled to indemnification therefor under
Sections 17 or 18 above).
22. EMPLOYMENT MATTERS. Up and until the Effective Date, the Joint
Venture and each of the Joint Venturers (in respect of each of their respective
percentage interest in the Joint Venture [50%]) shall be responsible for any
employment agreement, collective bargaining agreement or any bonus, profit-
sharing, stock option, service award benefit plan, deferred or additional
compensation, pension or retirement arrangement or agreement with respect to
each employee which was employed by the Joint Venture. From and after the
Effective Date, Purchaser shall be responsible for any employment agreement,
collective bargaining agreement or any bonus, profit-sharing, stock option,
service award, benefit plan, deferred or additional compensation, pension or
retirement arrangement or agreement with respect to each employee of the Joint
Venture which it has retained and which arose and accrued after the Effective
Date.
23. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors,
heirs, representatives and assigns as the case may be; provided, however, that
no party shall prior to the Closing Date, assign or delegate this Agreement or
any of the rights or obligations created hereunder without the prior written
consent of the other party. Nothing contained in this Agreement shall confer
upon any person, firm, partnership or corporation not a party to this Agreement
or the legal representatives of such person, firm, partnership or corporation
any rights or remedies of any nature or kind whatsoever under or by reason of
this Agreement.
24. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter contained in it and
supersedes all prior and contemporaneous agreements, representations and
understandings of the parties. No supplement, modification or amendment of this
Agreement shall be binding unless excluded in writing by all the parties. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar. Nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
25. RIGHTS UNDER JOINT VENTURE AGREEMENT. Purchaser and Seller, and
each of them, acknowledge certain rights and restrictions of transfer, rights of
first refusal, purchase and sale terms, valuation formulas and obligatory
purchase obligations under the Joint Venture Agreement, and agree (1) that to
the extent the terms of this Agreement conflict with the terms of the Joint
Venture Agreement, the terms of this Agreement shall control; and (2) to waive
any of the foregoing rights and restrictions to the extent necessary to carry
out the terms of this Agreement. Upon the consummation of the transactions
contemplated by this Agreement, the Joint Venture Agreement shall automatically,
without any further actions required, terminate.
26. ARBITRATION. Any controversy or claim arising out of, or relating
to, this Agreement, or the making, performance or interpretation of it shall be
settled by arbitration under the Commercial Arbitration Rules of the American
Arbitration Association then existing, and judgment on the arbitration award may
be entered in any court having jurisdiction over the subject matter of the
controversy. The parties hereto shall have the same discovery rights afforded
litigants under California Code of Civil Procedure Section 1283.
NOTICE: BY INITIALLING IN THE SPACE PROVIDED BELOW YOU ARE AGREEING
TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN "ARBITRATION OF
DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW
AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE A DISPUTE LITIGATED
IN A COURT OR JURY TRIAL. BY INITIALLING IN THE SPACE BELOW AND EXCEPT AS
OTHERWISE PROVIDED HEREIN, THIS SECTION 26 YOU ARE GIVING UP YOUR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN
THE "ARBITRATION OF DISPUTES" PROVISION HEREIN. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE
UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT
TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE ARBITRATION OF DISPUTES PROVISION TO
NEUTRAL ARBITRATION.
Purchaser's Initials _______ ________ ________ ________
Seller's Initials _______ ________
27. ATTORNEYS' FEES. If any legal action or any arbitration 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 shall be
entitled to recovery reasonable attorneys' fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it or they may be
entitled.
Attorneys' fees incurred by any party to this Agreement in enforcing
any judgment on any action brought to resolve any controversy arising under this
Agreement, to enforce any of its terms or for the breach of this Agreement shall
be recoverable by the prevailing party. Such a right to postjudgment attorneys'
fees shall be separate and distinct from the rights to recovery attorneys' fees
pursuant to the above paragraph. The provisions of this paragraph should be
severable from all other provisions. This Agreement, shall survive any judgment
and shall not be deemed merged into any judgment.
28. RECITALS. The Recitals set forth in the introductory paragraphs of
this Agreement form an integral part of this Agreement and are incorporated
herein.
29. EXHIBITS. All exhibits referred to herein are attached to this
Agreement, incorporated herein by this reference and made a part hereof.
30. NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom the
notice is to be given, or on the third day after mailing if mailed to the party
to whom notice is to be given, by first class mail, registered or certified,
postage prepaid, and properly addressed as follows:
Seller: Big O Retail Enterprises, Inc.
11755 E. Peakview Avenue
Englewood, CO 80111
Attn: Chief Financial Officer
Purchaser: C.S.B. Partnership
27131 Calle Arroyo, Suite 1703
San Juan Capistrano, CA 92675
Attention: Christopher R. Phillips
WITH COPY TO: Richard P. Waxman, Esq.
Wendel, Rosen, Black & Dean
1111 Broadway, 24th Floor
Oakland, CA 94607
or to such other persons or at such other addresses as shall be furnished by any
party by like notice to the other. Any party may give any notice or other
communications hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex or ordinary mail or
electronic mail, but not such notice of communication shall be deemed to have
been duly given unless and until it actually is received by the individual for
whom it is intended.
31. GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed by the laws of the State of California as applied to
contracts that are executed and performed entirely in California.
32. SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable by any court of final jurisdiction, it is the intent of the
parties that all other provisions of this Agreement be construed to remain fully
valid, enforceable and binding on the parties.
33. COUNTERPARTS. This Agreement may be executed simultaneously or in
one (1) or more counterparts, each of which shall be deemed an original, but all
of which shall constitute one (1) in the same instrument.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on
the day and year reflected below, to be effective October 1, 1994.
SELLER:
Date: 8/11/95 BIG O RETAIL ENTERPRISES, INC.
a Colorado corporation, as joint
venturer
By: /s/ John B. Adams
Its:
PURCHASER:
C.S.B. PARTNERSHIP, a California
General Partnership, as joint
venturer
Date: ___________________ BY: C.E.P. Developments, Inc., a
California corporation as
General Partner: Federal Tax
I.D. No. 33-0255435
BY: /s/ Christopher R. Phillips
Christopher R. Phillips
Its:President
BY: Someday, Inc., a California
Date: 8-11-95 corporation as General Partner:
Federal Tax I.D. No. 68-0127269
BY: /s/ Ronald D. Asher
Ronald D. Asher
Its:President
Date: 8-24-95 BY: J.M.C., Inc., a California
corporation as General Partner:
Federal Tax I.D. No. 33-0366139
BY: /s/ John Connelly
John Connelly
Its:President
Date: 8-19-95 BY: FOUR KYLES, INC., a California
corporation as General Partner
Federal Tax I.D. No. 68-0193761
BY: /s/ Virgil Kyle Kyle
Virgil Kyle Kyle
Its:President
<PAGE>
EXHIBIT A
JOINT VENTURE BIG O STORES
LOCATION
- --------
27812 ALISO CREEK ROAD
ALISO VIEJO, CA 92656
399 BROADWAY
CHULA VISTA, CA 91910
1002 WEST 6TH STREET
CORONA, CA 91720
844 N. JOHNSON AVENUE
EL CAJON, CA 92020
20742 LAKE FOREST ROAD
LAKE FOREST, CA 92630
499 COLLEGE BOULEVARD
OCEANSIDE, CA 92056
40525 WINCHESTER ROAD
TEMECULA, CA 92590
<PAGE>
EXHIBIT B
JOINT VENTURE BIG O STORES FRANCHISES
LOCATION FRANCHISE DATE OF
AGREEMENT # FRANCHISE AGREEMENT
- ----------- ----------- -------------------
27812 ALISO CREEK ROAD 91064 06/01/92
ALISO VIEJO, CA 92656
399 BROADWAY 94021 08/01/94
CHULA VISTA, CA 91910
1002 WEST 6TH STREET 91058 04/01/92
CORONA, CA 91720
844 N. JOHNSON AVENUE 91084 10/01/92
EL CAJON, CA 92020
20742 LAKE FOREST ROAD 91042 12/04/91
LAKE FOREST, CA 92630
499 COLLEGE BOULEVARD 91043 12/26/91
OCEANSIDE, CA 92056
40525 WINCHESTER ROAD 94010 04/01/94
TEMECULA, CA 92590
<PAGE>
EXHIBIT C
BALANCE SHEET AS OF SEPTEMBER 30, 1994
<PAGE>
EXHIBIT D
REQUIRED CONSENTS, APPROVALS AND WAIVERS
<PAGE>
EXHIBIT E
PROMISSORY NOTE
PROMISSORY NOTE
$550,000.00 Englewood, Colorado
Date: as of October 1, 1994
FOR VALUE RECEIVED, the undersigned ("Maker"), jointly, severally and
unconditionally promises to pay to the order of BIG O RETAIL ENTERPRISES, INC.,
a Colorado corporation, or BIG O TIRES, INC., a Nevada corporation, jointly and
severally, their successors or assigns ("Holder") the sum of Five Hundred Fifty
Thousand and 00/100 Dollars ($550,000.00), and all subsequent advances made,
with interest thereon, commencing April 1, 1995, at an annual rate equal to the
"Corporate Base Rate" charged by the primary commercial lender of Big O Tires,
Inc. (currently First National Bank of Chicago, but which may change from time
to time), plus two percent (2%), adjusted on the day of the Corporate Base Rate
changes, on the entire unpaid balance until paid in full. Principal and
interest shall be due and payable in lawful currency of the United States of
America on the first day of each month, commencing the first day of August,
1995, by Automatic Clearing House debits to Maker's checking account number:
____________________, at _____________________________________
(Checking Account #) (Name of Bank and ABA Number)
______________________________________________________________
(Address of Bank)
or at the election of Holder, at the offices of Big O Tires, Inc., 11755 East
Peakview Avenue, Englewood, Colorado 80111, or at such other place as the Holder
hereof may designate from time to time in writing, in the following manner:
(i) interest only shall accrue from April 1, 1995 through October 31, 1995;
(ii) commencing November 1, 1995, the principal balance hereof, which shall
include the accrued and unpaid interest as provided in (I), above, shall be paid
monthly based upon an amortization over 240 months with the interest provided
herein, with such monthly payments commencing December 1, 1995 and continuing
on the first day of each and every month thereafter, AND IF NOT SOONER PAID, ONE
FINAL "BALLOON" PAYMENT OF ALL UNPAID PRINCIPAL AND ALL ACCRUED AND UNPAID
INTEREST ON DECEMBER 31, 2002.
Notwithstanding the foregoing, Maker hereby agrees to make minimum annual
mandatory prepayments on the principal hereof of $50,000.00, each (or so much
thereof as will be equal to the remaining unpaid principal balance and all
accrued and unpaid interest hereunder), on or before December 1 of the years
1996 through 2001. In addition, Maker hereby agrees to additional annual
mandatory prepayments in the event of the sale of each of its Big O Tires retail
stores, equal to 75% of the net proceeds or 30% of the gross proceeds of each
such sale (the determination of "net proceeds" and "gross proceeds" shall be in
accordance with GAAP consistently applied), whichever is higher (or an amount
equal to the remaining unpaid principal balance and all accrued and unpaid
interest hereunder) (which prepayments can be applied to fund each or all of
the
minimum annual mandatory $50,000.00 prepayments); provided, however, that the
maximum of all such minimum annual prepayments in any calendar year, at the
election of Maker, shall be limited to $100,000.00; provided, however, and in
connection with Maker's intention to refinance a portion of its debt
obligations, which refinancing includes this Note, any such minimum annual
mandatory prepayments which are derived from the sale of any of Maker's Big O
Tires retail stores shall be applied against such refinanced loan arrangement.
Maker shall notify Holder at least two (2) business days prior to making such
mandatory prepayments, whether by mail, Automatic Clearing House debit or by
wire transfer of funds.
An amortization schedule, based on the current Corporate Base Rate, plus two
percent (2%) per annum, attached hereto as SCHEDULE 1, is for reference purposes
only and is subject to change, as provided hereunder. Such amortization schedule
shall be amended, as necessary, to reflect any change in the interest rate to be
charged against the unpaid principal.
All payments received hereunder shall be first applied to the payment of
interest due hereunder, then to the payment of any other sums payable hereunder,
if any, and finally to the unpaid principal balance then remaining unpaid. The
principal balance, accrued and unpaid interest and any other sums payable
hereunder, may be prepaid in whole or in part at any time and from time to time
upon two (2) business days notice, without premium or penalty, provided the
accrued and unpaid interest on such prepaid principal amount is also paid. All
prepayments, whether mandatory or otherwise, shall be applied to each next
maturing annual mandatory prepayment until all such annual mandatory prepayments
have been satisfied and, thereafter, shall be applied to the then-existing
principal balance in which event a new amortization schedule shall be prepared
reflecting the reduction in principal.
As further incentive to Maker to make prepayments on the principal of this Note,
Holder hereby agrees to principal reduction(s) ("Principal Reduction(s)") in the
following manner:
In the event the unpaid principal Holder hereby agrees to the
balance of this Note has been paid following Principal
down to within one of the following Reduction(s) of:
ranges at December 31, 1995:
$400,000.00 to $300,000.01 $5,000.00
$300,000.00 to $250,000.01 $10,000.00
$250,000.00 or less $10,000.00 plus an amount
equal to a one percent (1%)
reduction in the interest
rate for the nine (9) month
period, April 1, 1995
through December 31, 1995.
In the event the principal amount of this note is not paid down to $250,000.00
or less by December 31, 1995, but is paid down to $250,000.00 or less by
December 31, 1996, Holder hereby agrees to a Principal Reduction equal to
$15,000.00, less the amount of Principal Reduction(s) granted at January 1,
1995, if any, as determined by the immediately preceding paragraph.
For 1995 only, all interest accrued and/or paid under this Note for the period
April 1, 1995 though December 31, 1995, less any interest rebates provided under
the Principal Reduction(s), will also be applied as a Principal Reduction on
January 1, 1996; PROVIDED ALL of the following criteria (which shall be
determined an a cumulative basis, as provided below) are achieved by all of the
Big O Tires retail stores owned by C.S.B. Partnership (including the Big O Tires
retail stores owned by the Big O/C.S.B. Joint Venture which is in the process of
winding up and being dissolved) and all of the Big O Tires retail stores owned
by the Big O/S.A.N.D.S. Joint Venture, during the period July 1, 1995 through
December 31, 1995 (the "Performance Period") (as to any such Big O Tires retail
stores sold during the Performance Period, criteria for that store for the month
in which the actual conveyance of such store occurs and for the months
thereafter shall be excluded from this requirement and prorated for the months
that such store was subject to these requirements):
1. Sales of Big O Tires brand products shall constitute sixty-five percent
(65%) of all new tire sales by all of such Big O Tires retail stores during the
Performance Period; and
2. The average per store purchases of total tire products by such Big O Tires
retail stores during the Performance Period shall meet or exceed 1,830 units;
and
3. The dollar volume of all purchases from Big O Tires, Inc. (except used
tires) during the Performance Period, shall equal or exceed thirty-five percent
(35%) of the retail sales volume of all such Big O Tires retail store sales
during this Performance Period; and
4. Maker shall provide Holder monthly reports during the Performance Period
reflecting compliance (or the lack thereof) with the above criteria, which
reports are due by the 15th of the following month (or the next business day
should the 15th of the month fall on a weekend or holiday).
Notwithstanding the foregoing, each and every Principal Reduction provided for
in this Note shall only be credited by the Holder of this Note on January 1 of
the years 1996 and 1997, upon meeting such criteria; provided all trade payables
to all vendors including, without limitation, Big O Tires, Inc. and its
subsidiaries and affiliates are current in accordance with each vendors payment
terms and all of Makers obligations under promissory notes, leases, franchise
agreements, local advertising groups, local accounting groups and any other
obligations to Big O Tires, Inc., its subsidiaries and affiliates, are not,
subject to any applicable cure period, in default.
Time is of the essence hereof. In the event of a default in the payment of any
amount when due hereunder, and Maker fails to make such payment within ten (10)
business days of the date it receives notice of such nonpayment from Holder, the
entire unpaid principal balance hereunder, including any subsequent advances
made hereunder by Holder, together with any accrued and unpaid interest may, at
the option of Holder, be declared immediately due and payable and such
accelerated amounts shall bear interest at the lesser of 12% per annum or the
highest rate then allowed by law, from the date of default until paid in full.
Maker, endorser(s) or any other person(s) liable hereunder waive delinquency in
collection, demand for payment, presentment for payment, protest, notice of
protest, notice of dishonor and all duty or obligation of Holder to effect,
protect, perfect, retain or enforce any security for payment of this Note or to
proceed against any collateral before otherwise enforcing this Note. This Note
shall be the joint and several obligation of Maker, endorser(s) or any other
person(s) liable hereunder and shall be binding upon them, their personal
representatives, heirs, successors and assigns. Furthermore, Maker, endorser(s)
or any other person(s) liable hereunder expressly agree that this Note and any
payment hereunder may be extended, by Holder, from time to time without in any
way affecting the liability of the Maker, endorser(s) or any other person(s)
liable hereunder.
Maker, endorser(s) or any other person(s) liable hereunder, jointly, severally
and unconditionally guarantee prompt payment when due, whether by acceleration
or otherwise, of the entire outstanding principal balance, all amounts of any
subsequent advances made by Holder hereunder and all accrued and unpaid interest
hereunder and further agrees to immediately pay to Holder upon demand, all
losses, costs and expenses (including attorneys' fees) incurred by Holder in
collection and enforcement of this Note in the event of default or otherwise.
Each Maker executing this Note represents and warrants that this Note is binding
upon the undersigned Maker in accordance with its terms, except to the extent
that enforcement of remedies may be limited by applicable bankruptcy,
insolvency, and other laws affecting the enforcement of creditors' rights
generally. Such undersigned Maker represents and warrants that the indebtedness
evidenced by this Note was incurred for business and commercial purposes and not
for personal, family, household or agricultural purposes.
If any interest rate, fee or cost provided for herein or in the other loan
documents shall exceed that which is allowed pursuant to any applicable statute
or law, such amount shall be deemed by the parties hereto to be modified so as
to conform to and equal the maximum amount allowed by such statute or law. All
sums paid hereunder in excess of those lawfully collectible as interest, fees or
costs shall, without further agreement or notice between or by any party hereto,
be applied toward reduction of the principal hereof with the same force and
effect as though such extra sums were specifically designated to be so applied
to principal and Holder had agreed to accept such extra payment as a
premium-free prepayment, or if there is then no outstanding principal
indebtedness owed to Holder by Makers hereunder, or if such outstanding
principal indebtedness is less than the amount to be applied as a reduction,
such excess shall be refunded by Holder to Makers.
In the event it should become necessary for Holder to employ counsel for advice
regarding any default under this Note and any of the other loan documents, or to
respond, intervene or otherwise become involved in any suit or proceeding
relating to this Note and/or the other loan documents, or to collect payment on
or enforce the obligations of this Note and/or under any of the other loan
documents, or to protect or foreclose on any of the collateral subject to the
security interest and liens given in connection herewith, Maker agrees to pay
upon demand reasonable attorneys' fees incurred by Holder for services of such
counsel, whether or not suit is brought, plus costs incurred in connection
therewith, including interest thereon at the default interest rate.
Payment and performance of all obligations under this note are secured by
security interests granted by Maker to Holder in the inventory, accounts
receivables, machinery, equipment, furniture and intangibles of Maker's Big O
Tires retail stores and of the Big O Tires retail stores owned and operated by
the Big O/C.S.B. and Big O/S.A.N.D.S. Joint Ventures.
Each individual executing this Note represents and warrants that he or she is
duly authorized to execute and deliver this Note on behalf of the person or
entity for which he or she is so executing and that this Note is binding upon
the undersigned Makers in accordance with its terms, except to the extent that
enforcement of remedies is limited by applicable bankruptcy, insolvency, and
other laws affecting the enforcement of creditors' rights generally.
The terms and provisions of this Note shall be construed and governed by the
laws of the State of California.
MAKER:
Big O/C.S.B. Joint Venture,
a California joint venture
DATE: 8-11-95 C.S.B. PARTNERSHIP,
a California General Partnership,
as managing joint venturer
DATE:____________ BY: C.E.P. Developments, Inc.,
a California corporation
as General Partner
BY: /s/ Christopher R. Phillips
TITLE: President
DATE:____________ BY: Someday, Inc.,
a California corporation
as General Partner
BY:/s/ Ronald D. Asher
TITLE: President
DATE:8-24-95 BY: J.M.C., Inc.,
a California corporation
as General Partner
BY: /s/ John Connelly
TITLE: President
DATE: 8-22-95 BY: FOUR KYLES, INC.,
a California corporation
as General Partner
BY:/s/ Virgil Kyle Kyle, III
TITLE: President
COMAKERS:
Date: ____________ /s/ Christopher R. Phillips
Christopher R. Phillips, Individually
Date: 8-23-95 /s/ Emiko J. Phillips
Emiko J. Phillips, Individually
Date: ____________ /s/ Ronald D. Asher
Ronald D. Asher, Individually
Date: ____________ /s/ Andria L. Asher
Andria L. Asher, Individually
Date: 8-27-95 /s/ Virgil Kyle Kyle, III
Virgil Kyle Kyle, III, Individually
Date: 8-22-95 /s/ Diane Kyle
Diane Kyle, Individually
Date: 8-24-95 /s/ John L. Connelly
John L. Connelly, Individually
Date: 8-24-95 /s/ Monika Connelly
Monika Connelly, Individually
<PAGE>
AUTHORIZATION AGREEMENT
FOR PREAUTHORIZED PAYMENT SERVICE
AGREEMENT:
I (or We if there are joint owners of the account referenced later in this
agreement) authorize and request the company named below, now referred to as the
Company, to obtain payment for amounts I (we) owe to the Company as these
amounts become due by initiating a payment entry to my (our) account. The
account number, name of financial institution, payment amount, and date on or
immediately after which payment should be deducted from the account are
identified below. In addition, I (we) authorize and request the financial
institution, now referred to as the Bank, to accept the payment entries
presented to the Bank and to deduct them from my (our) account without
responsibility for the correctness of these payments.
I (we) understand that this agreement can be terminated at any time as long as I
(we) have given either the Company or the Bank written notification. This
written notification to either the Company or Bank shall be effective for only
those payments to be issued by the Company or received by the Bank after they
either or both receive notification and have sufficient and reasonable
opportunity to act upon it.
I (we) understand that I (we) have all the rights shown below as these rights
relate to all payment entries initiated by the Company and to which this
agreement pertains.
I (we) understand that all payment entries initiated by the Company and covered
under this agreement are subject to the following:
If the amount of the initial payment entry initiated by the Company differs from
the amount of the previous entry initiated under this agreement, the Company
will send me (us) a written notification of this change in not less than ten
(10) calendar days before this payment amount will be deducted from the account.
In addition, if the Company makes any change in the date of the billing cycle on
which payment is to be deducted from the account, the Company will send me (us)
a written verification of the new date on or after which payment entries will be
deducted from the account. This provision does not apply if my (our)
authorization agreement is in effect for a single payment entry to the account
or if I (we) have agreed that payment entries representing my (our) indebtedness
may be deducted from the account after such indebtedness has been incurred.
I (we) may, by notice to the Bank, stop payment of any payment entry initiated
or to be initiated by the Company to the account under this agreement. Notice
of such stop payment must be received by the Bank in such a time and manner that
will allow the Bank a reasonable time to act on it and if my (our) notice is
oral, it will be binding on the Bank for only fourteen (14) calendar days unless
I (we) confirm it in writing within this period.
If a payment entry is erroneously initiated by the Company to the account, I
(we) will have the right to have the amount of this entry added back to the
account by the Bank if I (we) send or deliver a written notice to the Bank
within fifteen (15) calendar days following the date on which the Bank sent or
made available to me (us) a statement of account or notification pertaining to
the erroneous payment entry. My (our) written notice will identify the payment
entry, state that the payment entry was in error and request the Bank to add the
amount of the payment entry to the account balance.
<PAGE>
COMPANY INFORMATION
Company Name: BIG O TIRES, INC. Customer Account No. _____
Payment Date: Payment Frequency: MONTHLY Payment Amount:VARIABLE DUE TO
VARIABLE INTEREST AND PRINCIPAL PAYMENTS, AS PROVIDED IN THE PROMISSORY NOTE.
YOUR BANK ACCOUNT INFORMATION
Bank Name: ___________________________________________
Bank Address: _________________________________________
Please attach a voided check and we will complete this information for you
Transit Routing Number: ________________________
Checking Account Number: _______________________
Your Name(s) ______________________ _________________________
(Please Print) (Please Print)
Signature(s) ______________________ __________________________
Date Signed _______________________
<PAGE>
EXHIBIT F
SECURITY AGREEMENT
<PAGE>
SECURITY AGREEMENT
INVENTORY AND ACCOUNTS RECEIVABLE
EQUIPMENT AND FIXTURES
INTANGIBLES
1. DEBTOR. C.S.B. Partnership,
a California general partnership
Federal Tax I.D.# 33-0235374
C.E.P. Developments, Inc.,
a California corporation, as general partner
Someday, Inc.,
a California corporation, as general partner
Four Kyles, Inc.,
a California corporation, as general partner
J.M.C., Inc.,
a California corporation, as general partner
Individuals: Christopher R. Phillips, Emiko J. Phillips, Ronald
D. Asher, Andria Asher, Virgil Kyle Kyle, III, Diane Kyle, John Lawrence
Connely, and Monika Connely and (his) (her) (its) (their) successors, assigns,
heirs and personal representatives
27131 Calle Arroyo
San Juan Capistrano, California 92675
Telephone #: (714) 443-4155
DEBTOR'S BUSINESS. Those certain Big O franchise outlets located at:
27812 Aliso Creek Rd., Bldg #D 399 Broadway
Aliso Viejo, California 92656 Chula Vista, California 91910
1002 West 6th Street 844 North Johnson Avenue
Corona, California 91720 El Cajon, California 92020
20742 Lake Forest Road 499 College Boulevard
Lake Forest, California 92630 Oceanside, California 92056
40525 Winchester Road
Temecula, California 92591
2. SECURED PARTY. [X] BIG O TIRES, INC., [ ] BIG O TIRE OF IDAHO, INC.,
a Nevada corporation an Idaho corporation
and its subsidiaries, and its subsidiaries
successors and assigns. successors and assigns.
11755 East Peakview Avenue 3511 South T.K. Avenue
Englewood, Colorado 80111 Boise, Idaho 83705
Telephone #: (303) 790-2800 Telephone #: (208) 345-4074
Telecopier #: (303) 790-0225 Telecopier #: (208) 342-4113
3 COLLATERAL.
3.1. Inventory and Accounts Receivable.
a. All inventory (meaning stock-in-trade and merchandise) of
Debtor in Debtor's Business now owned or hereafter acquired, including but not
limited to, all tires, wheels, shocks, brake parts and front end parts, together
with their products, if any, and all additions, accessions and replacements
thereto;
b. All accounts and contract rights of debtor, now existing or
hereafter created.
c. All interest of Debtor now existing or hereafter arising, in
goods the sale or lease of which gave rise to any accounts;
d. All chattel paper, documents and instruments now existing or
hereafter created, relating to any such accounts;
e. Any other property, rights or interests of Debtor which shall
at any time come into the possession, custody or control of Secured Party for
any purpose and in any manner; and
f. All proceeds (including insurance proceeds) from any of the
above-mentioned property.
3.2. EQUIPMENT AND FIXTURES. All machinery, equipment, furniture,
fixtures, fixed assets, tools, dies, blueprints, catalogues, books, records,
machine parts, vehicles and leasehold improvements of every kind and nature, now
or hereafter acquired by Debtor in Debtor's Business, and all improvements,
attachments, additions, accessions and replacements thereto and all proceeds
(including insurance proceeds) and products therefrom.
3.3 INTANGIBLES. All leasehold interests, business name, telephone
numbers and listings, contract rights, franchise rights and all of the trade,
goodwill, going concern value and any other intangible assets of Debtor in
Debtor's Business, now or hereafter created.
4. LOCATION OF COLLATERAL. The Collateral shall at all times be kept and
maintained at Debtor's Business. Debtor shall notify Secured Party, in writing,
at least ten (10) days in advance of Debtor's intention to move the Collateral
to a different location.
5. PRIMARY USE OF COLLATERAL. The primary use of the Collateral is for
business purposes and not for personal, family or household purposes or farming
operations.
6. OBLIGATIONS OF DEBTOR.
6.1. Any and all obligations of Debtor to Secured Party under the [ ]
Loan Agreement [ ] Purchase Agreement [X] Franchise Agreements between
Debtor, as Franchisee, and Big O Tires, Inc., as Franchisor (the "Franchise
Agreements") agreement numbers 91064, 91058, 91084, 91042, 91043, 94010 and
94021, [ ] the Promissory Note dated as of October 1, 1994, any and all other
loan documents and all other agreements and instruments executed by Debtor and
delivered to Secured Party in consummating all transactions contemplated in said
agreement(s) and/or promissory note(s);
6.2. All obligations of Debtor to Secured Party or its affiliates,
including, but not limited to, all franchise fees, royalty fees, advertising
fees, accounting fees and other related fees, owed to Secured Party by Debtor.
6.3. All amounts due and payable under all invoices and billings
evidencing purchases from Secured Party of certain inventory and other personal
property including, without limitation, tires, car care products and related
automotive goods, accessories and equipment;
6.4. All promissory notes which Debtor shall make in favor of Secured
Party from time to time pursuant to any Franchise Agreements, any credit
agreements or any other agreement or arrangement;
6.5. All payments (including proceeds) due Secured Party for all
inventory and other personal property including, without limitation, tires,
wheels, car care products and related automotive goods, accessories and
equipment held by Debtor under any Consignment and Warehouse Agreement between
Debtor and Secured Party.
6.6. Future advances made by Secured Party to Debtor, plus any interest
thereon;
6.7. All expenditures of any kind or nature made by Secured Party to
preserve the Collateral, including, but not limited to, all amounts paid to
discharge taxes, liens, security interests and any other encumbrances against
the Collateral, and to repair any damage to the Collateral or otherwise preserve
or maintain the Collateral and all insurance coverages thereon; and
6.8. All expenditures made or incurred by Secured Party pursuant to the
provisions of any loan agreements, other loan documents, Franchise Agreements,
consignment and warehouse agreements, joint venture agreements, credit
agreements, promissory notes and this Agreement, and all other obligations of
Debtor to Secured Party, direct or indirect, absolute or contingent, due or to
become due, whether now existing or hereafter arising, including, but not
limited to, interest due to Secured Party hereunder or thereunder, and
attorneys' fees and costs incurred by Secured Party to enforce any provision
herein or therein.
7. SECURITY INTEREST. To secure payment and performance of any and all of
the Obligations, Debtor hereby transfers, conveys, grants and assigns to Secured
Party a security interest in the Collateral and in all improvements,
attachments, additions, accessions and replacements thereto and all proceeds and
products therefrom. Unless the context otherwise indicates, the term
"inventory" or "account" or "accounts" or "equipment" or "fixtures" in this
Agreement refers to that part of the Collateral consisting of such property.
Inventory shall include goods of Debtor in the hands of manufacturers or
suppliers or in the process of delivery to Debtor or any representative of
Debtor. Debtor warrants and represents that Debtor has, or forthwith will
acquire, title to the Collateral free and clear of all liens, security
interests, encumbrances and/or leases (except security interests, liens,
encumbrances and/or leases, if any, set forth in EXHIBIT A, attached hereto and
incorporated herein) and that Debtor has the right to transfer, grant, convey
and assign this security interest.
8. WARRANTIES AND REPRESENTATIONS OF DEBTOR. Debtor warrants and represents
to Secured Party the following:
8.1. Except for the security interest created by this Agreement and any
security interests liens, encumbrances and/or leases, if any, set forth on
EXHIBIT A, attached hereto and incorporated herein by reference, Debtor is the
owner of all of the Collateral, or will be at the time such Collateral is
created or acquired, free and clear of all liens, security interests
encumbrances and/or leases.
8.2. The transfer, conveyance, grant and assignment of the security
interest hereunder is valid and enforceable in accordance with its terms and
represents a legally binding obligation of debtor and constitutes a security
interest in the Collateral in favor of Secured Party.
8.3. Debtor agrees to warrant and defend Secured Party's right, title,
security interest in and assignment of Collateral and/or any cash or property
distributed thereunder.
8.4. Debtor has no undisclosed knowledge of any circumstances or
conditions with respect to the Collateral that could reasonably be expected to
adversely affect the value or marketability of such Collateral.
8.5. Except as otherwise indicated by Debtor to Secured Party in
writing, at the time each account becomes subject to the security interest
granted in this Agreement:
a. Debtor will be the owner of the account, with the absolute
right to transfer any interest therein, and
b. The account will be a valid obligation of the account of
Debtor, enforceable in accordance with its terms and, to the best of Debtor's
knowledge and belief, free and clear of all liens, security interests,
restrictions, setoffs, adverse claims, assignments, defaults, prepayments,
defenses and conditions precedent other than the security interest created by
this Agreement and those set forth on EXHIBIT A, if any.
8.6. The unpaid amount and all other information shown as to the
account in Debtor's books and on any schedule, certificate or report at any time
given by Debtor to Secured Party is and will be true and correct as of the date
indicated.
8.7. All chattel paper, documents and instruments which are part of the
Collateral are valid and genuine and comply with applicable laws concerning
form, content and manner of preparation and execution, and all persons appearing
to be obligated thereon have authority and capacity to contract and are bound as
they appear to be.
8.8. No debtor or creditor of Debtor has any defense, setoff, claim or
counterclaim against Debtor which can be asserted against Secured Party, whether
in any proceeding to enforce Secured Party's rights in the Collateral or
otherwise.
8.9. No financing statement covering any of the Collateral is on file
in any public office other than those which reflect the security interest
created by this Agreement and those set forth on EXHIBIT A, if any.
8.10. If Debtor is a corporation, its certificate or articles of
incorporation and bylaws do not now and will not in the future prohibit any term
or condition of this Agreement and all proper corporate authorities have been
obtained to permit Debtor to enter in this Agreement.
8.11. The execution and delivery of this Agreement will not violate any
agreement to which Debtor is a party or to the best of Debtor's knowledge, will
not violate any law governing Debtor.
8.12. All information and statements with respect to Debtor on the
front page of this Agreement are true and correct.
9. COVENANTS OF DEBTOR. Unless and until Secured Party consents in writing
to another course of action, Debtor covenants and agrees to the following:
9.1. Debtor will timely and promptly pay and remit to Secured Party all
monies due Secured Party pursuant to the terms and conditions of the Obligations
and after an event of default as set forth in SECTION 10 hereof, to account
fully and faithfully for and promptly pay or turn over to Secured Party the
proceeds in whatever form received in disposition in any manner of Collateral.
9.2. Debtor will keep the Collateral at the location specified in
SECTION 4.
9.3. Debtor will not sell, assign, transfer, pledge, lease, abandon or
otherwise dispose of any of the Collateral or any interest therein except that
the inventory may be sold in the ordinary course of business.
9.4. Debtor will keep the Collateral in good condition and free of
liens, security interests encumbrances and/or leases (other than the security
interest created by this Agreement and those set forth on EXHIBIT A, if any);
will promptly notify Secured Party of any event of default, as defined in
SECTION 10; will not use the Collateral for hire or in violation of any
applicable statute, ordinance or insurance policy; will defend the Collateral
against the claims and demands of all persons; and will pay promptly all taxes
and assessments with respect to the Collateral; and will not permit the
Collateral to become part of or to be affixed to any real or personal property
without first making arrangements satisfactory to Secured Party to protect
Secured Party's interest. Secured Party may inspect the Collateral at any time,
wherever located.
9.5. Debtor will keep the Collateral insured with companies acceptable
to Secured Party against such casualties and in such amounts as Secured Party
may require. If requested by Secured Party, all insurance policies will be
written for the benefit of Debtor and Secured Party as their interests may
appear, and will provide for 30 days' written notice to Secured Party prior to
cancellation. Debtor shall notify Secured Party upon receipt of any draft or
check received for any insurance claim and shall endorse over and deliver to
Secured Party such draft or check unless otherwise provided in writing by
Secured Party. Secured Party may act as attorney for Debtor in making, adjusting
and settling claims under or canceling such insurance and endorsing Debtor's
name on any drafts relating thereto. Secured Party may apply any proceeds of
insurance toward payments of the obligations, whether or not due, in any order
or priority.
9.6. At its option in the event Debtor fails to timely perform any of
the following, Secured Party may discharge taxes, liens, security interests and
any other encumbrances against the Collateral and may pay for the repair of any
damage to the Collateral, the maintenance and preservation thereof and insurance
thereon. Debtor will reimburse Secured Party on demand for any payments so made,
plus interest thereon at the rate specified in any applicable promissory note,
or if none, 12% per annum, from the date of such payment. Any such payments by
Secured Party will be deemed advances on behalf of the Debtor and will become a
part of the Obligations, secured by the Collateral.
9.7. At the request of Secured Party, Debtor will from time to time
execute financing statements, and extensions and/or modifications thereof and
other documents in form satisfactory to Secured Party (and pay the cost of
filing or recording them in whatever public offices Secured Party deems
reasonably necessary) and perform such other acts as Secured Party may
reasonably request to perfect and maintain a valid security interest in the
Collateral.
9.8. Debtor will pay all expenses and reimburse Secured Party for any
expenditures, including reasonable attorneys' fees and legal expenses, incurred
in connection with Secured Party's exercise of any of its rights and remedies
under this Agreement.
9.9. Debtor will defend, at Debtor's own cost and expense, any action,
proceeding or claim affecting the Collateral.
9.10. The Debtor agrees that the security interest granted by Debtor to
Secured Party shall remain in effect irrespective of the various payments
required by the obligation so long as there are any Obligations of any kind,
including Obligations under guarantees or assignments, owed by Debtor to Secured
Party; provided, however, that upon any assignment of this Agreement by Secured
Party, that the assignee shall thereafter be deemed, for the purpose of this
paragraph, the Secured Party under this Agreement.
9.11. Debtor will:
a. Keep separate, accurate and complete books and records
pertaining to the Collateral at the office of Debtor at the address set forth
above; and provide Secured Party with such books and records or such other
information concerning the Collateral pursuant to the terms and conditions of
this Security Agreement, the Franchise Agreement(s) as Secured Party may
reasonably request from time to time;
b. Permit representatives of Secured Party, at reasonable times,
to inspect the Collateral and to inspect and make abstracts or copies from
Debtor's books and records pertaining to the Collateral or proceeds; conduct a
complete inventory of the Collateral and its proceeds and Debtor shall assist
Secured Party in whatever way necessary to conduct any such inventory or make
any such inspection;
c. Prepare and supply to the Secured Party, if Secured Party shall
at its option so request, a complete list of the Collateral on a monthly basis,
which shall be as complete and accurate as is commercially practicable;
d. Prepare, or cause to be prepared and deliver to Secured Party
all schedules of accounts, financial statements, invoices, shipping and
receiving records, aging and reconciliation reports and such other reports and
data reasonably requested by Secured Party, at such times and in such form as
may be satisfactory to Secured Party.
9.12. At Secured Party's request, Debtor will mark or stamp each of its
individual ledger sheets or cards pertaining to any of the Collateral with the
legend "For value received, this account has been assigned to Secured Party or
its assignees" and will stamp or otherwise mark and keep its books and records
relating to the Collateral in such manner as Secured Party may deem advisable.
9.13. Debtor will give such written notice to account debtors as
Secured Party may at any time request. Secured Party may at any time, whether or
not a default exists under this Agreement (but, in the event Debtor is not in
default, so notify the account debtor):
a. Notify any account debtor of Secured Party's interest in the
Collateral;
b. Request information as to the Collateral from any account
debtor; and
c. Notify any account debtor to make all payments with respect to
the Collateral directly to Secured Party or in any other manner directed by
Secured Party.
9.14 Debtor shall, at all times, maintain the following physical and
accounting controls over the Collateral:
a. Complete inventory records of the Collateral shall be
maintained in accordance with generally accepted accounting principles by the
Debtor;
b. Financial statements and records shall be maintained by Debtor
in accordance with the terms and conditions of that certain Franchise
Agreement(s) as then currently in effect and which shall include Debtor's
obligations to maintain such statements and records pursuant to a management
system acceptable to the Secured Party or Franchisor;
c. A physical inventory shall be conducted once every three months
by the Secured Party's area support personnel at its option. This physical
inventory shall be reconciled with the perpetual records of the Debtor and shall
be compared with the original Collateral of the Debtor in terms of units and
dollars; and
d. Debtor shall at all times meet and maintain the
responsibilities imposed upon it by any Franchise Agreement(s), including its
obligation to maintain working capital and a net worth which is sufficient, in
Secured Party's opinion as the Franchisor, to enable Debtor as Franchisee to
fulfill its Obligations hereunder and as Franchisee thereunder.
9.15. The Debtor shall maintain such Collateral pursuant to the terms
of any Franchise Dealer Agreement(s) and as may from time to time be required by
Secured Party.
9.16. Upon the good faith belief by Secured Party that the Obligations
are or have become inadequately or under secured by the then existing
Collateral, Debtor shall either provide to Secured Party such additional
collateral of such value and kind as shall be acceptable to Secured Party, or
shall reduce the amount of the Obligations to any amount acceptable to Secured
Party based on the value of the then existing Collateral, or both.
10. EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an event of default under this Agreement:
10.1. Failure to pay any of the Obligations when due;
10.2. Failure to perform or observe any other covenant (after the
applicable cure period has expired) contained in this Agreement and any loan
agreements, or other loan documents, credit agreement(s), Franchise
Agreement(s), joint venture agreement(s), consignment and warehouse
agreement(s), if applicable, or any other documents or instruments evidencing
any obligation of Debtor to Secured Party, whether now or hereafter in
existence;
10.3. Any warranty, representation or statement of Debtor in this
Agreement, or any other agreement, document or instrument, or otherwise made or
furnished to Secured Party by or on behalf of Debtor, proves to have been false
in any material respect when made or furnished;
10.4. Any uninsured loss, theft, damage, destruction, sale, liens or
encumbrance to, or of, any of the Collateral (except as specifically allowed
herein), or any levy, seizure or attachment thereof or thereon;
10.5. Death of any individual who is a Debtor under this Agreement
(unless a co-owner or new owner of the Debtor's Business is approved by Secured
Party); dissolution or termination of existence of Debtor without Secured
Party's consent; insolvency, business failure, appointment of a receiver of any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding under any bankruptcy or insolvency laws of, by or
against, Debtor or any guarantor or surety of Debtor of any of the Obligations.
10.6. The Collateral, or any part thereof, or interest therein, is
sold, conveyed or is otherwise transferred outside the normal and ordinary
course of business, or is pledged, mortgaged, leased, hypothecated or abandoned
except as otherwise permitted herein;
10.7. The sale or transfer of Debtor's interest in Debtor's Business or
any part thereof, or interest therein, without the prior written consent of
Secured Party; or if Debtor is a corporation, the sale or transfer of any of the
issued and outstanding capital stock of Debtor or the issuance of additional
capital stock that reduces the holdings in the issued and outstanding capital
stock of Debtor, without the prior written consent of Secured Party; or if
Debtor is a partnership, the sale or transfer of more than 25% of the
partnership interests in Debtor without the prior written consent of Secured
Party; or
10.8. The good faith belief by Secured Party that the Obligations are
inadequately or under secured or that the prospect of payment or performance of
any of the Obligations is impaired.
11. RIGHTS AND REMEDIES OF SECURED PARTY.
11.1. Upon the occurrence of any event of default and at any time
thereafter, Secured Party shall have, in addition to all other rights and
remedies, the remedies of a secured party under the Uniform Commercial Code as
then in effect ("UCC"), regardless of whether the UCC applies to the secured
transactions covered by this Agreement, including without limitation the right
to accelerate the maturity of the Obligations, without notice or demand, and to
take possession of the Collateral and any proceeds thereof wherever located.
Debtor shall assemble the Collateral and make the Collateral and all records
relating thereto available to Secured Party at a place to be designated by
Secured Party that is reasonably convenient for both parties. If notice is
required, Secured Party shall give to Debtor at least five (5) days' prior
written notice of the time and place of any public sale of the Collateral or of
the time after which any private sale or any other intended disposition is to be
made.
11.2. During the time that Secured Party is in possession of the
Collateral, and to the extent permitted by law, Secured Party shall have the
right to hold, use, operate, manage and control all or any part of the
Collateral; to make all such repairs, replacements, alterations, additions and
improvements to the Collateral as it may deem proper; and to demand, collect and
retain all earnings, proceeds from such use and all other costs, expenses,
charges, damage or loss by reason of such use.
11.3. Secured Party shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral if it takes such action for
that purpose as Debtor shall request, but failure to honor any such request
shall not of itself be deemed a failure to exercise reasonable care. Secured
Party shall not be required to take any steps necessary to preserve any rights
in the Collateral against prior parties nor to protect, preserve or maintain any
security interest given to secure any of the Collateral.
11.4. After an Event of Default as set forth in SECTION 10 hereof,
Debtor hereby irrevocably appoints Secured Party as the attorney-in-fact of the
Debtor, with full powers of substitution and at the cost and expense of Debtor,
to reasonably exercise any of the following powers with respect to any of the
accounts;
a. Demand, sue for, collect and give receipts for any payments due
thereon or by virtue thereof;
b. Receive, take, endorse, assign and deliver chattel paper,
documents, instruments and all other property taken or received by Secured Party
in connection therewith;
c. Settle, compromise, compound, prosecute or defend any action or
proceeding with respect thereto;
d. Sell, transfer, assign or otherwise deal therein or therewith
as fully and effectually as if Secured Party were the absolute owner thereof;
and
e. Extend the time of payment thereof and make allowances and
other adjustments with reference thereof.
In exercising any power herein granted, Secured Party may act in its
name or the name of the Debtor. This power of attorney appointment, being
coupled with an interest, shall be irrevocable.
11.5. If Secured party in good faith believes that any state or federal
law prohibits or restricts the customary manner of sale or distribution of any
of the Collateral, Secured Party may sell such Collateral privately or in any
other manner deemed commercially reasonable by Secured Party at such price or
prices as Secured Party determines in its sole discretion. Debtor recognizes
that such prohibition or restriction may cause the Collateral to have less value
than it otherwise would have and that, consequently, such sale or disposition by
Secured Party may result in a lower sales price than if the sale were otherwise
held.
11.6. To the extent allowed by law, Debtor shall pay Secured Party all
expenses of retaking, holding, preparing for sale, selling and the like,
including reasonable attorneys' fees and legal expenses, and such costs shall be
paid out of the proceeds of disposition of the Collateral. Such proceeds may be
applied to the Obligations in any order of priority.
11.7. As a supplementary or additional remedy, Secured Party shall also
be entitled, without notice or demand and to the extent permitted by law, to
exercise or continue all of the rights granted to Secured Party above and/or to
have a receiver appointed, upon ex-parte application, without notice to Debtor,
to take charge of all or any part of the Collateral, exercising all of the
rights granted to Secured Party above.
11.8. Secured Party may recover from Debtor any deficiency between the
amount due under any of the Obligations and the proceeds of such sale or
disposal together with all costs and expenses, including, without limitation,
reasonably attorneys' fees incurred or paid by Secured Party in exercising any
right, power or remedy provided by this Security Agreement or by law.
11.9. Notwithstanding that which is granted and provided herein,
Secured Party shall be under no duty to exercise, or to withhold the exercise of
any of the rights, powers, privileges and options expressly or implicitly
granted to Secured Party under this Agreement, and shall not be responsible for
any failure to do so or delay in doing so.
12. COLLECTION OF ACCOUNTS. Until revocation of this authority, Debtor, as
agent of Secured Party, and at the expense of Debtor:
12.1. Shall use its best efforts to collect all amounts due and owing
on the accounts, including the taking of such action to repossess goods, impose
liens or enforce payment as Secured Party or Debtor may deem proper.
12.2. Shall receive such goods as may be returned or rejected by or
repossessed from account debtors, and, upon an event of default as set forth in
SECTION 10 hereof, hold such goods and the proceeds therefrom in trust for the
account of Secured Party, separate and identified by suitable markings as
Secured Party's property, without intermingling them with Debtor's property, and
remit promptly any proceeds of sales or lease of such goods in the manner
described in SECTION 13 below.
12.3. May, in the ordinary course of business, grant to account debtors
any rebate, refund or allowance to which they are entitled, and in connection
therewith may accept the return of any goods, the sale or lease of which gave
rise to the accounts.
13. PAYMENT OF PROCEEDS TO SECURED PARTY.
13.1. After an event of default as set forth in SECTION 10 hereof,
Debtor shall receive all payments with respect to the Collateral in trust for
Secured Party, without intermingling them with any other funds or property of
Debtor and (until such authority is revoked or different instructions are given
by Secured Party) shall immediately deliver them to Secured Party in the exact
form received, bearing Debtor's full-recourse endorsement or assignment when
necessary, for application on the Obligations in any order of priority
determined by Secured Party. Debtor shall have the liability of a general
endorser with respect to such payments and hereby waives presentment, notice of
dishonor, protest, demand and all other notices with respect thereto, whether or
not Debtor endorses the instruments or other evidences of payment and regardless
of the form of payment or Debtor's endorsement or assignment thereon.
13.2. After an event of default as set forth in SECTION 10 hereof, at
the election of Secured Party, all payments described in the preceding SECTION
13.1 shall be deposited in a separate bank account maintained by Secured Party
(the "Collateral Account"), from which Debtor shall have no right to withdraw
funds. All instruments evidencing payment shall be deposited in the Collateral
Account subject to final payment, and all deposits therein shall be held as
security for the Obligations. From time to time in its discretion, Secured Party
may (and if requested by Debtor shall, but not more often than once a week)
apply all or any of the balance in the Collateral Account to payment of the
Obligations in any order of priority determined by Secured Party. Additionally,
Secured Party in its discretion may release all or any of the balance in the
Collateral Account to Debtor.
14. GENERAL.
14.1. The terms "Debtor," "Debtor's Business," "Secured Party,"
"Collateral" and "Obligations" are defined in paragraphs 1, 2, 3 and 6. Where
Debtor and the obliger on the Obligations are not the same, the term "Debtor"
herein means the owner of the Collateral in any provision dealing with the
Collateral, the obligor in any provision dealing with the Obligations, and both
where the context so requires.
14.2. No defaults shall be waived by Secured Party except in writing
and no waiver of any payment or other right under this Agreement shall operate
as a waiver of any other payment or right.
14.3. Secured Party may assign or transfer its rights under this
Agreement to any transferee. Debtor hereby agrees that; (a) on such assignment
or other transfer, all rights, powers and remedies of Secured Party hereunder
shall belong to and be exercisable by the transferee, and, on receipt of notice
of such assignment or other transfer, Debtor will tender performance of Debtor's
obligations hereunder, if requested, to such transferee rather than to Secured
Party; (b) upon delivery of Secured Party's security interest in the Collateral
to the transferee, Secured Party shall thereafter be fully discharged from all
responsibility with respect to such Collateral; and (c) in any action brought by
the transferee against Debtor to recover any sums under this Agreement or to
recover possession of the Collateral, Debtor will not assert as a defense,
counterclaim, set off, cross complaint, or otherwise, any claim, known or
unknown, which Debtor now has or hereafter acquires against Secured Party.
14.4. If there is more than one Debtor, all of the terms and conditions
of this Agreement shall apply to each and any of them jointly and severally.
14.5. Without affecting any Obligations of Debtor under this Agreement,
Secured Party without notice or demand may renew, extend or otherwise change the
terms and conditions of any of the Obligations; take or release any other
collateral as security for any of the Obligations, and add or release any
guarantor, endorser, surety or other party to any of the Obligations.
14.6. Any notice, request, consent and demand which is required or
given hereunder shall be in writing and shall be deemed effective and received
(a) upon personal delivery to the proper party, (b) on the day transmitted by
telecopier, if on a business day, and if not transmitted on a business day, the
first business day thereafter, to the proper party via the telecopier number
stated on the first page hereof, (c) three (3) business days after deposit in
the United States mail by registered or certified mail, postage prepaid, return
receipt requested, addressed to the proper party at the address stated on the
first page hereof, or (d) one (1) business day after deposit with an air express
carrier, fare prepaid, addressed to the proper party at the address stated on
the first page hereof. Each of the parties hereto may designate such other
address and/or telecopier number as either of such parties may hereafter specify
in writing to the other party.
14.7. A carbon, photographic or other reproduction of this Agreement or
a financing statement shall be sufficient as a financing statement.
14.8. All of the rights of Secured Party under this Agreement shall be
cumulative and shall inure to the benefit of its successors and assigns. All
obligations of Debtor hereunder shall be binding upon the heirs, legal
representatives, successors or assigns of Debtor.
14.9. Any provision hereof contrary to, prohibited by, or invalid under
applicable laws or regulations shall be inapplicable and deemed omitted
herefrom, but shall not invalidate the remaining provisions hereof. Debtor
acknowledges receipt of a true copy and waives acceptance hereof.
14.10. This Agreement may be signed in one or more counterparts, each
of which shall have the effect of an original, but all such counterparts shall
be deemed one and the same agreement.
14.11. This Agreement shall be construed under and governed by the laws
of the state of California.
14.12. This Agreement represents the entire agreement and understanding
between Secured Party and Debtor and supersedes all prior agreements. Any
modification or amendments to this Agreement shall be in writing and signed by
the party to be charged.
DATED: __________________
DEBTOR:
C.S.B. PARTNERSHIP,
a California general partnership
Federal Tax I.D. #33-0235374
By: C.E.P. Developments, Inc.,
a California corporation,
as general partner
33791 Glocamora Lane
San Juan Capistrano, California 92675
Federal Tax I.D.# 33-0255435
By: /s/ Christopher R. Phillips
Christopher R. Phillips, President
By: Someday, Inc.,
a California corporation,
as general partner
729 Red Arrow Trail
Palm Desert, CA 92211
Federal Tax I.D.# 68-0127269
By: /s/ Ronald D. Asher
Ronald D. Asher, President
By: Four Kyles, Inc.,
a California corporation,
as general partner
35 Ticknor Place
Laguna Miguel, California 92677
Federal Tax I.D.# 68-0193761
By: /s/ Virgil Kyle Kyle
Virgil Kyle Kyle, III, President
By: J.M.C., Inc.,
a California corporation,
as general partner
845 Sunningdale Drive
Oceanside, California 92056
Federal Tax I.D.# 33-0366139
By: /s/ John Connelly
John Connelly, President
/s/ Christopher R. Phillips /s/ Emiko J. Phillips
Phillips, Christopher, Individually Phillips, Emiko J., Individually
33791 Glocamora Drive 33791 Glocamora Drive
San Juan Capistrano, California 92675 San Juan Capistrano, California 92675
S.S.# ###-##-#### S.S.# ###-##-####
/s/ Ronald D. Asher /s/ Andria Asher
Asher, Ronald D., Individually Asher, Andria, Individually
729 Red Arrow Trail 729 Red Arrow Trail
Palm Desert, CA 92211 Palm Desert, CA 92211
S.S.# ###-##-#### S.S.# ###-##-####
/s/ Virgil Kyle Kyle, III /s/ Diane Kyle
Kyle, Virgil Kyle, III, Individually Kyle, Diane, Individually
35 Ticknor Place 35 Ticknor Place
Laguna Miguel, California 92677 Laguna Miguel, California 92677
S.S.# ###-##-#### S.S.# ###-##-####
/s/ John L. Connelly /s/ Monika Connelly
Connelly, John Lawrence, Individually Connelly, Monika, Individually
845 Sunningdale Drive 845 Sunningdale Drive
Oceanside, California 92056 Oceanside, California 92056
S.S.# ###-##-#### S.S.# ###-##-####
SECURED PARTY:
DATED: 8-11-95 BIG O TIRES, INC.,
a Nevada corporation
BY: /s/ John B. Adams
John B. Adams, Executive Vice President
<PAGE>
EXHIBIT G
LETTER
[Letterhead]
VIA CERTIFIED MAIL
[Name and address of creditor of the Joint Venture]
___________________
___________________
Re: Notice of Dissolution of BIG O/C.S.B. JOINT VENTURE, a CALIFORNIA JOINT
VENTURE, AND APPOINTMENT OF LIQUIDATING JOINT VENTURER
Gentlemen:
BIG O/C.S.B. JOINT VENTURE, a California Joint Venture (the "Joint
Venture"), which Joint Venture has carried on its businesses at the locations
set forth on the attached Schedule (the "Joint Venture Big O Stores") was
dissolved by mutual consent of its joint venturers, C.S.B. Partnership, a
California general partnership, and Big O Retail Enterprises, Inc., a Colorado
corporation, effective October 1, 1994. After that date, no joint venturer in
the Joint Venture has authority to bind the Joint Venture, except for C.S.B.
Partnership, who, as the Liquidating Joint Venturer, has authority only to wind
up and liquidate the Joint Venture's affairs. From and after the Effective
Date, the businesses of the joint venturer (the Joint Venture Big O Stores) will
be owned and operated by C.S.B. Partnership.
Yours truly,
BIG O/C.S.B. JOINT VENTURE, a California Joint Venture
By: C.S.B. PARTNERSHIP, a California
general partnership, Joint Venturer
By: C.E.P. DEVELOPMENTS, INC.,
a California corporation,
General Partner
By:________________________
Christopher R. Phillips
Its: President
By: BIG O RETAIL ENTERPRISES, INC.,
a Colorado
corporation, Joint Venturer
By:________________________
<PAGE>
EXHIBIT H
NOTICE OF DISSOLUTION AND LACK OF AUTHORITY
<PAGE>
NOTICE OF DISSOLUTION AND LACK OF AUTHORITY
Notice is hereby given pursuant to Section 15035.5 of the California
Corporations Code that BIG O/C.S.B. JOINT VENTURE, a California joint venture
partnership (the "Joint Venture"), which Joint Venture has carried on its
businesses at the locations set forth on the attached Schedule (the "Joint
Venture Big O Stores"), was dissolved by mutual consent of its joint venturers,
C.S.B. Partnership, a California general partnership and Big O Retail
Enterprises, Inc., a Colorado corporation, effective October 1, 1994 (the
"Effective Date").
After that date, no joint venturer of the Joint Venture has authority to
bind the Joint Venture, except for C.S.B. Partnership, who has authority only to
wind up and liquidate the Joint Venture's affairs.
From and after the Effective Date, the businesses of the Joint Venture (the
Joint Venture Big O Stores) will be owned and operated by C.S.B. Partnership, a
California general partnership.
BIG O/C.S.B. JOINT VENTURE,
a California Joint Venture
By: C.S.B. PARTNERSHIP, a California
general partnership, Joint
Venturer
By: C.E.P. DEVELOPMENTS, INC.,
a California corporation,
General Partner
By: /s/ Christopher R. Phillips
Christopher R. Phillips
Its: President
Signatures continued on next page.
By: BIG O RETAIL ENTERPRISES, INC.,
a Colorado corporation, Joint
Venturer
By: /s/ John B. Adams
Its: Vice President
<PAGE>
EXHIBIT I
BILL OF SALE AND ASSIGNMENT
For good and valuable consideration, the receipt of which is hereby
acknowledged and pursuant to the terms of that certain AGREEMENT FOR PURCHASE
AND SALE OF JOINT VENTURE INTERREEST; DISSOLUTION OF JOINT VENTURE; AND
CONTINUATION OF BUSINESS BY ACQUIRING JOINT VENTURER DATED AS OF OCTOBER 1, 1994
(the "Agreement") BIG O RETAIL ENTERPRISES, INC., a Colorado corporation
("Seller") hereby sells, transfers and delivers to C.S.B. PARTNERSHIP, a
California general partnership ("Purchaser") its fifty percent (50%) joint
venture interest in BIG O/C.S.B. JOINT VENTURE, a California joint venture (the
"Joint Venture").
Seller hereby represents and warrants that it has full, clear and
merchantable title to Seller's Interest which is the subject of this Bill of
Sale and Assignment subject to those liabilities set fort hin the Balance Sheet
of the Joint Venture as of September 30, 1994, attached hereto as EXHIBIT A and
made a part hereof and such other "Assumed Liabilities" specified in the
Agreement; and agrees to defend Purchaser's title to Seller's interest hereby
conveyed against claims and demands of all persons whomsoever.
This Bill of Sale and Assignment is executed pursuant to the Agreement and
is subject to the terms, conditions and limitations therein contained.
Dated: August 11, 1995
ACKNOWLEDGED AND APPROVED: SELLER:
C.S.B. PARTNERSHIP, a BIG O RETAIL ENTERPRISE, INC.,
California partnership a Colorado corporation
By: C.E.P. DEVELOPMENTS, By: /s/ John B. Adams
INC., a California Its Vice President
corporation, General
Partner
By: /s/ Christopher R. Phillips
Its President
SIGNATURES CONTINUED ON NEXT PAGE
By: SOMEDAY, INC., a
California corporation,
General Partner
By: /s/ Ronald D. Asher
Ronald D. Asher
Its President
By: J.M.C., INC., a
California corporation,
General Partner
By: /s/ John Connelly
John Connelly
Its President
By: FOUR KYLES, INC., a
California corporation,
General Partner
By: /s/ Virgil Kyle Kyle, III
Virgil Kyle Kyle
Its President
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 854000
<SECURITIES> 0
<RECEIVABLES> 14904000
<ALLOWANCES> 1356000
<INVENTORY> 17751000
<CURRENT-ASSETS> 35564000
<PP&E> 23969000
<DEPRECIATION> (4874000)
<TOTAL-ASSETS> 69846000
<CURRENT-LIABILITIES> 13811000
<BONDS> 0
<COMMON> 335000
0
0
<OTHER-SE> 36825000
<TOTAL-LIABILITY-AND-EQUITY> 69846000
<SALES> 40742000
<TOTAL-REVENUES> 40742000
<CGS> 32790000
<TOTAL-COSTS> 32790000
<OTHER-EXPENSES> 6703000
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