BIG O TIRES, INC. SPECIAL MEETING
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [ ]
FILED BY THE PARTY OTHER THAN THE REGISTRANT [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ]Confidential for use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
BIG O TIRES, INC.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which the transaction applies:
Common Stock, par value $0.10 per share.
(2) Aggregate number of securities to which transaction applies: 3,317,840
shares plus options to purchase 216,308 shares of common stock, par value $0.10
per share.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined): $16.50 in cash.
(4) Proposed maximum aggregate value of transaction: $56,699,686 (F1)
(5) Total fee paid: $11,339.94
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
(F1) For purposes of calculating the filing fee only. This amount is based upon
the purchase of 3,317,840 shares of Common Stock of the Registrant at a price of
$16.0 in cash per share and the cancellation of options to purchase an aggregate
of 216,308 shares of Common Stock of the Registrant, which options have exercise
prices ranging from $0.32 to $15.88, in consideration for a payment equal to the
excess of $16.50 over the exercise prices multiplied by the number of shares
subject to such options. The amount of the filing fee, calculated in accordance
with Exchange Act Rule 0-11(c)(1), equals 1/50th of one percent of the proposed
cash payment to the holders of the Common Stock and options.
<PAGE>
PRELIMINARY COPY
BIG O TIRES, INC.
11755 East Peakview Avenue, Suite A
Englewood, Colorado 80111
To Our Stockholders:
You are invited to attend the Special Meeting of Stockholders of Big O
Tires, Inc. (the "Company") to be held at _________________________________, on
___________, 1996, at ___:___ _.m., Mountain Standard Time. At the Special
Meeting, you will be asked to consider and vote upon a proposal to approve the
Agreement and Plan of Merger, dated as of July 24, 1995, as amended (the "Merger
Agreement"), by and among the Company, BOTI Holdings, Inc., a Nevada corporation
(the "Parent"), and BOTI Acquisition Corp., a Nevada corporation and a
wholly-owned subsidiary of the Parent (the "Purchaser"), and the transactions
contemplated thereby. The Parent and the Purchaser were formed by certain
members of the Company's senior management and some of the Company's franchised
dealers to acquire the Company. The Merger Agreement is included in the
accompanying Proxy Statement as APPENDIX A. Pursuant to the terms of the Merger
Agreement, Purchaser will merge with and into the Company, with the Company
remaining as the surviving corporation (the "Merger"). The result of the Merger
will be that the Company will become a wholly owned subsidiary of the Parent and
each outstanding share (except for certain "Excluded Shares," as defined in the
accompanying Proxy Statement) of the Company's common stock, par value $0.10 per
share (the "Common Stock"), will be converted into the right to receive a cash
payment of $16.50, without interest (the "Merger Consideration"). The Merger
Consideration includes $0.01 per share for the redemption of rights issued
pursuant to the Company's Rights Agreement dated as of August 26, 1994.
Consummation of the Merger is subject to certain conditions, including, without
limitation, the approval and adoption of the Merger Agreement by holders of at
least a majority of the outstanding shares of Common Stock.
The Board of Directors of the Company (the "Board"), based on the unanimous
recommendation of the Investment Committee of the Board (the "Investment
Committee"), which consisted only of directors who were neither employees of the
Company nor franchised dealers participating in the acquisition, has determined
that the Merger is fair to, and in the best interests of, the Company and its
stockholders and has approved the Merger Agreement. The Board recommends that
you vote "FOR" approval of the Merger Agreement. PaineWebber Incorporated
("PaineWebber"), the financial advisor to the Investment Committee in connection
with the Merger, has rendered a written opinion to the Board to the effect that
the Merger Consideration is fair from a financial point of view to the holders
of the Common Stock (other than holders of Excluded Shares). You are urged to
read the Proxy Statement in its entirety for important information regarding the
Merger.
IT IS VERY IMPORTANT THAT YOU BE REPRESENTED AT THE SPECIAL MEETING, EVEN
IF YOU ARE NOT ABLE TO ATTEND IN PERSON. THE AFFIRMATIVE VOTE OF AT LEAST A
MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK IS REQUIRED TO APPROVE THE
MERGER. CONSEQUENTLY, THE FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR
TO VOTE IN PERSON AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER. IF INSTRUCTIONS ARE SPECIFIED ON A PROXY CARD, SUCH PROXY
CARD WILL BE VOTED IN ACCORDANCE THEREWITH, AND IF NO SPECIFICATIONS ARE MADE,
SUCH PROXY CARD WILL BE VOTED FOR THE MERGER AGREEMENT. PLEASE TAKE TIME TO
CONSIDER AND VOTE UPON THIS SIGNIFICANT MATTER.
Please mark, sign and date each proxy card you receive and return it
promptly in the enclosed, postage-paid envelope even if you plan to attend the
Special Meeting in person. Returning a marked proxy card will not prevent you
from voting in person at the Special Meeting, but will assure that your vote is
counted if you are unable to attend. If you wish to attend the Special Meeting
in person, you will need to present proof of your ownership of shares of Common
Stock. If you hold your shares through a bank, broker or other nominee, you
must obtain evidence of ownership from such nominee prior to your attendance at
the Special Meeting.
DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME. YOU WILL RECEIVE
INSTRUCTIONS REGARDING EXCHANGING YOUR COMMON STOCK FOR THE MERGER CONSIDERATION
AFTER THE SPECIAL MEETING.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Sincerely,
John E. Siipola
Chairman of the Board of Directors
<PAGE>
PRELIMINARY COPY
BIG O TIRES, INC.
11755 East Peakview Avenue, Suite A
Englewood, Colorado 80111
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _______________, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Big O Tires, Inc., a Nevada corporation (the "Company"), will be
held at ___________________, on _____________, 1996, at __:__ _.m., Mountain
Standard Time, for the purpose of considering and voting upon a proposal to
approve the Agreement and Plan of Merger dated as of July 24, 1995, as amended
(the "Merger Agreement"), by and among the Company, BOTI Holdings, Inc., a
Nevada corporation (the "Parent"), and BOTI Acquisition Corp., a Nevada
corporation and a wholly-owned subsidiary of the Parent (the "Purchaser"), and
the transactions contemplated by the Merger Agreement and such other business as
lawfully may come before the Special Meeting.
As more fully described in the Proxy Statement, of which this notice forms
a part, pursuant to the Merger Agreement, the Purchaser will merge with and into
the Company, with the Company remaining as the surviving corporation (the
"Merger"). The result of the Merger will be that the Company will become a
wholly-owned subsidiary of the Parent and each issued and outstanding share
(except for certain "Excluded Shares," as defined in the Proxy Statement) of the
Company's Common Stock will be converted into the right to receive a cash
payment of $16.50, without interest (the "Merger Consideration"). The Merger
Consideration includes $0.01 per share for the redemption of rights issued
pursuant to the Company's Rights Agreement dated as of August 26, 1994.
Consummation of the Merger is subject to certain conditions, including, without
limitation, the approval and adoption of the Merger Agreement by holders of at
least a majority of the outstanding shares of the Company's Common Stock.
If the Merger is consummated, stockholders will not have appraisal or
dissenter's rights and consequently will be required to accept payment of the
Merger Consideration.
Only stockholders of record as of the close of business on ______________,
1995, will be entitled to notice of and to vote at the Special Meeting and at
any adjournment or postponement thereof.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST A MAJORITY OF THE
OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK IS REQUIRED TO APPROVE THE
MERGER. IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU OWN. EVEN IF YOU PLAN TO ATTEND THE
SPECIAL MEETING, YOU ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENVELOPE PROVIDED AS PROMPTLY AS POSSIBLE. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY
PROXY GIVEN MAY BE REVOKED BY YOU AT ANY TIME PRIOR TO THE EXERCISE THEREOF IN
THE MANNER DESCRIBED IN THE PROXY STATEMENT. IF YOU WISH TO ATTEND THE SPECIAL
MEETING IN PERSON, YOU WILL NEED TO PRESENT PROOF OF YOUR OWNERSHIP OF SHARES OF
COMMON STOCK.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
YOU WILL RECEIVE INSTRUCTIONS REGARDING EXCHANGING YOUR COMMON
STOCK FOR THE MERGER CONSIDERATION AFTER THE SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
Susan D. Hendee, Assistant Secretary
____________, 1995
<PAGE>
PRELIMINARY COPY
BIG O TIRES, INC.
11755 East Peakview Avenue, Suite A
Englewood, Colorado 80111
PROXY STATEMENT
___________________________
INTRODUCTION
This proxy statement is being furnished in connection with the solicitation
of proxies by the Board of Directors ( the "Board") of Big O Tires, Inc. (the
"Company") to be used at the Special Meeting of Stockholders (the "Special
Meeting") to be held at __________________________________________, on
______________, 1996, at __:__.m., Mountain Standard Time, and at any
adjournment or postponement thereof.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve an Agreement and Plan of Merger dated as of July 24, 1995, as
amended, (the "Merger Agreement") by and among the Company, BOTI Holdings, Inc.,
a Nevada corporation (the "Parent"), and BOTI Acquisition Corp., a Nevada
corporation and a wholly-owned subsidiary of the Parent (the "Purchaser"), and
the transactions contemplated by the Merger Agreement and such other business as
lawfully may come before the Special Meeting.
Pursuant to the Merger Agreement, the Purchaser will merge into and with
the Company (the "Merger"), with the Company remaining as the surviving
corporation. As more fully described herein under "The Merger Agreement," the
result of the Merger will be that the Company will become a wholly-owned
subsidiary of the Parent and each issued and outstanding share of common stock
of the Company, par value $0.10 per share (the "Common Stock"), except certain
Excluded Shares described herein, will be converted into the right to receive a
cash payment of $16.50, without interest (the "Merger Consideration"). The
Merger Consideration includes $0.01 per share for the redemption of rights
issued pursuant to the Company's Rights Agreement dated as of August 26, 1994
(the "Rights").
A group comprised of certain of the franchised dealers of the Company (the
"Dealers") and certain members of senior management of the Company ("Senior
Management") will utilize the Parent and the Purchaser for the purpose of
effecting the Merger. Those Dealers who have indicated that they will
participate in the acquisition and Senior Management are hereinafter sometimes
collectively referred to as the "Dealer Management Group." See "Directors and
Executive Officers of the Company" and "Information Pertaining to the Parent,
the Purchaser and Related Persons."
THE BOARD, AND THE INVESTMENT COMMITTEE OF THE BOARD (THE "INVESTMENT
COMMITTEE"), BOTH RECOMMEND THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT. The Board believes that the Merger presents an opportunity to
maximize shareholder value. The Merger will allow the Company's stockholders to
receive a cash price representing a premium over the market prices of the Common
Stock prevailing prior to the July 24, 1995, announcement of the signing of the
Merger Agreement and over the approximately $11.20 per share book value of the
Company on September 30, 1995. PaineWebber Incorporated ("PaineWebber"), the
financial advisor to the Investment Committee in connection with the Merger, has
rendered its opinion to the Board to the effect that, as of the date of such
opinion, the Merger Consideration is fair, from a financial point of view, to
the holders of the Common Stock (other than holders of Excluded Shares). The
Board also considered the other matters discussed herein under "Special
Factors."
The affirmative vote of the holders of a majority of the Common Stock
outstanding on ______________, 1995 (the "Record Date") is required for approval
of the Merger Agreement. Only holders of record of shares of Common Stock on
the Record Date are entitled to notice of, and to vote at, the Special Meeting
and any adjournment or postponement thereof.
You are requested to sign and date the accompanying proxy card and promptly
return it to the Company in the enclosed postage-paid, addressed envelope, even
if you plan to attend the Special Meeting. Failure to return a properly
executed proxy card or to vote at the Special Meeting will have the same effect
as a vote against the Merger.
DO NOT FORWARD ANY STOCK CERTIFICATES AT THIS TIME. YOU WILL RECEIVE
INSTRUCTIONS REGARDING EXCHANGING YOUR COMMON STOCK FOR THE MERGER CONSIDERATION
AFTER THE SPECIAL MEETING.
The enclosed proxy card, the accompanying Notice of Special Meeting of
Stockholders and this Proxy Statement are being mailed to stockholders of the
Company on or about __________________, 1995.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Date and Place of the Special Meeting . . . . . . . . . . . . . . . . . . 5
No Appraisal or Dissenter's Rights. . . . . . . . . . . . . . . . . . . . . . 6
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Exchange of Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Recommendations for the Merger. . . . . . . . . . . . . . . . . . . . . . . . 7
Opinion of Financial Advisor. . . . . . . . . . . . . . . . . . . . . . . . . 7
Opinion of Financial Advisor to the ESOP. . . . . . . . . . . . . . . . . . . 7
Purposes and Reasons For the Merger . . . . . . . . . . . . . . . . . . . . . 8
Plans for the Company After the Merger. . . . . . . . . . . . . . . . . . . . 8
Interests of Certain Persons in the Merger. . . . . . . . . . . . . . . . . . 9
Accounting Treatment of the Merger. . . . . . . . . . . . . . . . . . . . . . 9
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . 10
Price Range of Company Common Stock and Dividend History. . . . . . . . . . . 10
THE SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Record Date and Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Vote Required to Approve the Merger . . . . . . . . . . . . . . . . . . . . . 11
Proxy Information; Revocation . . . . . . . . . . . . . . . . . . . . . . . . 11
Absence of Appraisal Rights and Right to Dissent. . . . . . . . . . . . . . . 12
Proxy Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SPECIAL FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Background and Negotiations Regarding the Merger. . . . . . . . . . . . . . . 12
Recommendation of the Board of Directors; the Company's Purpose
and Reasons for and Belief as to the Fairness of the Merger . . . . . . . . 23
The Parent's Purposes and Reasons for the Merger. . . . . . . . . . . . . . . 25
Opinion of Financial Advisor. . . . . . . . . . . . . . . . . . . . . . . . . 25
Plans for the Company After the Merger. . . . . . . . . . . . . . . . . . . . 29
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . 29
Accounting Treatment of the Merger. . . . . . . . . . . . . . . . . . . . . . 31
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Financing of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Expenses of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
PRINCIPAL STOCKHOLDERS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . 33
SECURITY OWNERSHIP OF THE COMPANY'S MANAGEMENT . . . . . . . . . . . . . . . . . . 33
PRICE RANGE OF COMPANY COMMON STOCK AND DIVIDEND HISTORY . . . . . . . . . . . . . 36
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY . . . . . . . . . . . . . . . 37
THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Parties to the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . 39
Description of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . 39
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Conditions to the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . 41
Conduct of Business Pending Merger. . . . . . . . . . . . . . . . . . . . . . 41
Additional Agreements.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Modification and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Termination of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . 44
Exchange of Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. . . . . . . . . . . . . . . . . . 46
INTEREST OF CERTAIN PERSONS IN THE MERGER. . . . . . . . . . . . . . . . . . . . . 50
Indemnification by the Parent and the Company . . . . . . . . . . . . . . . . 51
INFORMATION PERTAINING TO THE PARENT,
THE PURCHASER AND RELATED PERSONS. . . . . . . . . . . . . . . . . . . . . . . . . 52
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Certain Information Pertaining to BOTDA . . . . . . . . . . . . . . . . . . . 53
Security Ownership of Management of BOTDA in Company. . . . . . . . . . . . . 55
Certain Past Contacts, Transactions or Negotiations with Company. . . . . . . 56
RECENT TRANSACTIONS BY THE COMPANY IN THE COMMON STOCK . . . . . . . . . . . . . . 57
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . . . . . . . . . 57
STOCKHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
APPENDIX A AGREEMENT AND PLAN OF MERGER DATED AS OF JULY 24, 1995, WITH
AMENDMENTS, BY AND AMONG BOTI ACQUISITION CORP., BOTI HOLDINGS,
INC. AND BIG O TIRES, INC.
APPENDIX B PAINEWEBBER INCORPORATED -- FAIRNESS OPINION
<PAGE>
SUMMARY
The following is a brief summary of information included elsewhere in this
Proxy Statement. The summary is necessarily incomplete and is qualified in its
entirety by the more detailed information in this Proxy Statement, its
Appendices and the documents incorporated by reference and referred to in this
Proxy Statement. Capitalized terms used and not defined in the summary have the
meanings as defined elsewhere in this Proxy Statement.
YOU SHOULD READ THE ENTIRE PROXY STATEMENT AND THE APPENDICES PRIOR TO
TAKING ANY ACTION WITH RESPECT TO THE MERGER PROPOSAL.
GENERAL INFORMATION
This Proxy Statement relates to the proposed merger of the Purchaser with
and into the Company pursuant to the Merger Agreement by and among the Company,
the Parent and the Purchaser. The result of the Merger will be that each holder
of Common Stock (other than Excluded Shares) will receive $16.50 per share in
exchange for such Common Stock.
THE PARTIES
BIG O TIRES, INC., a Nevada corporation (the "Company"), is engaged
primarily in the business of franchising Big O Tire retail stores (the "Retail
Stores") and supplying Retail Stores with tires and related automotive products
for sale. The Company also owns and operates Retail Stores and, on a limited
basis, engages in site selection and real estate development for Retail Stores.
The mailing address of the Company's principal executive offices and corporate
headquarters is 11755 East Peakview Avenue, Suite A, Englewood, Colorado 80111
and its telephone number is (303) 790-2800.
BOTI HOLDINGS, INC., a Nevada corporation (the "Parent"), is a holding
company organized in January 1995 to participate in the Merger and to acquire
all of the capital stock of the Company. See "Information Pertaining to the
Parent, the Purchaser and Related Persons." The Parent has engaged in no other
business activities since its inception other than those related to the
acquisition of the Company. The mailing address of the principal executive
offices of both the Parent and the Purchaser is the same as the Company's
address, 11755 East Peakview Avenue, Suite A, Englewood, Colorado 80111, and
their telephone number is (303) 790-2800.
BOTI ACQUISITION CORP., a Nevada corporation (the "Purchaser"), has been
organized as a wholly-owned subsidiary of the Parent for the purpose of
effecting the Merger and has engaged in no other business activities other than
those related to the acquisition of the Company. See "Information Pertaining to
the Parent, the Purchaser and Related Persons."
THE DATE AND PLACE OF THE SPECIAL MEETING
The Special Meeting is to be held at ________________________________, on
______________, 1996, at __:__.m., Mountain Standard Time. At the Special
Meeting and at any adjournment or postponement thereof, the stockholders of the
Company will be asked to consider and vote upon the proposal to approve the
Merger Agreement and the transactions contemplated thereby.
RECORD DATE; REQUIRED VOTE. As of ____________, 1995, the Record Date,
_________ shares of Common Stock were issued and outstanding, each of which is
entitled to one vote on each matter to be acted upon at the Special Meeting.
Only stockholders of record at the close of business on the Record Date will be
entitled to notice of and to vote at the Meeting. The presence of a majority of
the outstanding shares of Common Stock will constitute a quorum for purposes of
the Special Meeting. The affirmative vote of the holders of a majority of the
Common Stock outstanding on the Record Date is required for approval of the
Merger Agreement.
The failure to return a properly executed proxy card, to vote in person at
the Special Meeting or, with respect to shares held of record by a broker or
other nominee, to provide such broker or nominee with voting instructions
(resulting in a broker non-vote) or abstaining from voting, will have the same
effect as a vote against the Merger. Proxies may be revoked, subject to the
procedures described herein, at any time up to and including the date of the
Special Meeting. See "The Special Meeting -- Vote Required to Approve the
Merger."
NO APPRAISAL OR DISSENTER'S RIGHTS
Stockholders do not have appraisal or dissenter's rights in connection with
the Merger under Nevada law. Consequently, if the Merger is consummated, their
shares of Common Stock will be canceled and they will be required to accept the
Merger Consideration. See "The Special Meeting -- Absence of Appraisal Rights
and Right to Dissent."
THE MERGER
The Company, the Parent and the Purchaser have entered into the Merger
Agreement whereby the Purchaser will merge with and into the Company. The
Company will remain as the surviving corporation. The result of the Merger will
be that the Company will become a wholly-owned subsidiary of the Parent. With
the exception of shares of Common Stock held by Senior Management, shares of
Common Stock held by the Company's Employee Stock Ownership Plan (the "ESOP")
that are converted into securities of the Parent, and any shares of Common Stock
held by or under contract to be acquired by the Parent, the Purchaser or the
Company or any direct or indirect subsidiary thereof or any stockholder of the
Parent or the Purchaser (collectively the "Excluded Shares") which either shall
be canceled or converted into common stock of the Parent as described below,
each share of Common Stock will be canceled and converted into the right to
receive the Merger Consideration. Each issued and outstanding share of the
Purchaser will be converted into one share of Common Stock of the Company at the
Effective Time (as defined below), the separate corporate existence of the
Purchaser will cease and the name of the Company will remain "Big O Tires, Inc."
At the Effective Time each option to purchase shares of Common Stock held
by holders who are directors of the Company, except options held by Messrs.
Steven P. Cloward and John B. Adams (see "Information Pertaining to the Parent,
the Purchaser and Related Persons"), and, except as stated below, options held
by current and former employees of the Company who are not members of Senior
Management or directors of the Company, will be canceled. Each holder thereof
will be entitled to receive, in lieu of each share which such holder otherwise
would have received upon exercise of the option, cash equal to the extent (if
any) by which $16.50 exceeds the exercise price per share payable pursuant to
such option or such lower amount as is provided for in the plan pursuant to
which the option was granted. However, if the holder has agreed to convert or
exchange the options for securities of the Parent, no payment will be made upon
cancellation of the options. All of the Company's stock option, stock
appreciation or compensation plans or arrangements will be terminated as of the
Effective Time. See "The Merger Agreement -- Stock Options."
The effectiveness of the Merger is conditioned upon the satisfaction or
waiver of certain conditions. The conditions that have not yet been satisfied
or waived, include, without limitation, approval of the Merger by the holders of
a majority of the outstanding Common Stock (which is being sought pursuant to
this Proxy Statement) and the conversion of at least 80% of the shares of the
Common Stock held by the ESOP into the common stock of the Parent. If the
Merger is approved by the requisite vote of the Company's stockholders, and all
remaining conditions are satisfied or waived, the Merger will become effective
upon the filing of the Certificate of Merger with the Secretary of State of the
State of Nevada (the "Effective Time"). If the Merger is approved, the Company
expects to file the Certificate of Merger on or shortly after the date of the
Special Meeting. See "The Merger Agreement -- Description of the Merger
Agreement."
EXCHANGE OF CERTIFICATES
Upon consummation of the Merger, each share of Common Stock owned by the
stockholders of the Company, other than Excluded Shares, will be canceled and
converted into the right to receive the Merger Consideration. See "The Merger
Agreement" and APPENDIX A. If the Merger is consummated, the stockholders of
the Company will be required to surrender their stock certificates in proper
form as a condition to receipt of payment. Stock certificates should not be
surrendered with the proxies. Promptly after the Merger occurs, a transmittal
letter with instructions will be sent to stockholders to be used by them to
surrender their share certificates. See "The Merger Agreement -- Exchange of
Certificates."
RECOMMENDATIONS FOR THE MERGER
THE BOARD AND THE INVESTMENT COMMITTEE RECOMMEND THAT THE STOCKHOLDERS VOTE
FOR THE MERGER. The Board and the Investment Committee base their
recommendation on the following factors: (a) the terms and conditions of the
Merger Agreement that were determined by arms length negotiations between the
parties; (b) the assets, obligations, operations, earnings and prospects of the
Company and of the retail tire and automotive products industry generally; (c)
recent market prices for the Common Stock, recent trading activity and the fact
that the Merger Consideration to be paid to stockholders represents a premium
over the $14.375 closing sale price of the Common Stock on July 20, 1995, the
day prior to the Board's approval of the Merger Agreement, and over the $11.03
per share book value of the Company on June 30, 1995; (d) a comparison of the
approximately $11.20 per share book value of the Company on September 30, 1995,
to the Merger Consideration; (e) the results of their market testing to
determine whether there were other buyers for the Company; (f) a review of
possible alternatives to the sale of the Company, including continuing to
operate the Company as a publicly-owned entity and the recent attempts to locate
an alternate buyer; and (g) the written opinion of PaineWebber to the effect
that, as of the date thereof, the Merger Consideration was fair, from a
financial point of view, to the holders of Common Stock (other than holders of
Excluded Shares). See "Special Factors."
OPINION OF FINANCIAL ADVISOR
PaineWebber has acted as financial advisor to the Company in connection
with the Merger. PaineWebber assisted the Investment Committee in its
negotiation of the terms of the Merger Agreement and assisted the Board in its
examination of the fairness, from a financial point of view, to the holders of
Common Stock (other than holders of Excluded Shares) of the Merger
Consideration. PaineWebber has delivered a written opinion stating that, as of
the date thereof, the Merger Consideration was fair, from a financial point of
view, to the holders of Common Stock (other than holders of Excluded Shares).
The full text of the written opinion of PaineWebber, which sets forth the
assumptions made, procedures followed, matters considered and limitations on the
review undertaken, is attached as APPENDIX B to this Proxy Statement.
STOCKHOLDERS OF THE COMPANY ARE URGED TO READ SUCH OPINION CAREFULLY IN ITS
ENTIRETY. See "Special Factors -- Opinion of Financial Advisor."
Opinion of Financial Advisor to the ESOP
The Merger Agreement also requires that the financial advisor to the ESOP
deliver an opinion that the consideration to be received by the participants in
the ESOP who elect to convert the Common Stock allocated to their accounts in
the ESOP into an investment in the common stock of the Parent, is fair from a
financial point of view to such participants. On ________, George K. Baum &
Company delivered its written opinion to the ESOP stating that the consideration
to be provided pursuant to such conversion is fair to the ESOP participants from
a financial point of view. See "Special Factors."
PURPOSES AND REASONS FOR THE MERGER
The Company's purpose and reason for the Merger are to allow the
stockholders of the Company to sell their shares in the Company at a price that
the Investment Committee and Board believe is fair to and in the best interest
of such stockholders. After a stockholder proposal that recommended that the
Board engage the services of a nationally recognized investment banker to
explore all alternatives to enhance the values of the Company was approved in
June 1994, the Company began immediately considering various alternatives to
enhance stockholder value. The timing of the Merger has been determined based
on the time required to review various alternatives to enhance stockholder value
for the Company, to solicit indications from persons who might be interested in
acquiring the Company, to negotiate the terms of the Merger Agreement, to allow
the Dealer Management Group to obtain financing, and to obtain the requisite
stockholder and other approvals.
The Parent is engaging in the Merger in order to concentrate the ownership
of the Company in those parties who will be actively engaged in its operation,
will have a long-term perspective and will be highly motivated toward the
building of a successful operation. The Parent's desire to effect the Merger is
based upon the expected realization of the Merger benefits described in the
following paragraph. Having identified those expected benefits of the Merger,
the Parent believes that the achievement of those benefits should be pursued at
the present time because the Company's Investment Committee has for
approximately 18 months been exploring strategic alternatives which, if
accomplished, would either make the acquisition of the Company by the Parent
impossible or unattractive.
The Parent believes that the Company, which will be a wholly-owned
subsidiary of the Parent after the Merger, will benefit from the Merger because
(i) the Company's management will be free to devote itself to building long-term
values for the Company without concern that such efforts may adversely affect
short-term results and the market price for the Common Stock; (ii) the Merger
will eliminate the need for the Company to comply with the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), to
maintain its current listing on the NASDAQ National Market System, and to
continue an investor relations program, the aggregate cost of which the Company
estimates amounts to approximately $190,000 annually (primarily consisting of
the preparation of the annual report to stockholders, accounting and legal fees
and investor program costs); (iii) the Company will be able to pursue the common
goals of the Dealers and the Company's employees; and (iv) the ownership of the
Company will be concentrated in those parties who will be actively engaged in
its operation, will have a long-term perspective and will be highly motivated
toward the building of a successful operation.
The form of the Merger was selected by the Parent to accomplish in a single
step its acquisition of the outstanding shares of Common Stock not already owned
by the Parent's stockholders. That structure was deemed preferable to a tender
offer, which probably would have resulted in less than 100% ownership by the
Parent unless followed by a subsequent merger. The Parent offered cash
consideration in the Merger because this was the only method which would
accomplish the goal of eliminating public ownership and establishing the desired
unification of the owners and operators of the Company.
PLANS FOR THE COMPANY AFTER THE MERGER
The Parent expects to continue the business and operations of the Company
substantially as they are currently being conducted by the Company and its
subsidiaries. However, the Dealer Management Group will continue to evaluate
the business and operations of the Company and will make such changes as are
deemed appropriate.
The Parent is exploring ways to raise cash for working capital and other
general corporate purposes in addition to the financing sources discussed under
the heading "Financing of the Merger". Although no agreement or arrangement has
been entered into with respect to any transaction, the types of transactions
under consideration by the Parent include the sale of certain parcels of
undeveloped real property adjacent to certain of the Company's regional service
center locations and certain Retail Store sites. There can be no assurance that
an agreement with respect to any transaction will be reached or, if reached,
that any such transaction will be consummated. It is anticipated that the
Company will not pay any cash dividends on its securities after the Merger.
Except for the possible merger or liquidation of several subsidiaries of
the Company into the Company, the Parent does not have any present plans or
proposals which relate to or would result in an extraordinary corporate
transaction, such as a merger, reorganization, liquidation, relocation of any
operations of the Company or any changes in the Company's present
capitalization, corporate structure or business or, except as described above,
the sale or transfer of a material amount of assets involving the Company or any
of its subsidiaries or the composition of the Company's management. The Parent
will from time to time be reviewing additional information and reviewing
possible options with respect to the Company and may propose or develop
additional or new plans or proposals or may propose the acquisition or
disposition of assets or other changes in the Company's business, corporate
structure, capitalization, management or dividend policy.
It is also anticipated that the officers (other than Messrs. Siipola and
Mehlfeldt) and most key employees of the Company will continue as employees of
the Company after the Merger. Those officers who are shareholders of the Parent
(other than solely as a result of their participation in the ESOP) will be
compensated at substantially the levels of compensation they received in 1995,
with the exception of Mr. Cloward, whose compensation will revert in 1996 to the
level he was receiving as of January 1, 1995, and with the exception of Ms.
O'Reilly, whose 1996 compensation will be based on her compensation level in
1995. It is expected that in most situations such persons will have
substantially equivalent positions with the Company. In connection with the
consummation of the Merger, Messrs. Siipola and Mehlfeldt will not continue as
employees, officers, nor directors of the Company. The Merger Agreement
provides that the board of directors of the Purchaser will become the board of
directors of the Company at the Effective Time.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Senior Management are stockholders, officers and/or
directors of the Parent and, in conjunction with others in the Dealer Management
Group, are expected to be involved in the management and operation of the
Company following the Merger. Certain of these persons, by virtue of their
roles as directors of the Company, will, along with all other current directors
of the Company, be entitled to certain indemnification rights under the Merger
Agreement. Consequently, as to such indemnification rights and their
participation in the Parent, their interests may be deemed to be separate from
or adverse to the interests of the remaining stockholders. As of the Record
Date, Senior Management held of record ________ shares of Common Stock or ____%
of the issued and outstanding Common Stock. It is expected that the shares of
Common Stock owned by these members of Senior Management will be voted in favor
of the Merger. See "Information Pertaining to the Parent, the Purchaser and
Related Persons" and "The Merger Agreement."
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be treated, for financial statement purposes, as a sale by
the Company's stockholders to Parent for cash. Accordingly, no gain or loss
will be recognized by the Company as a result of the Merger. The Merger will be
accounted for by the Parent as a purchase.
FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash by a stockholder of the Company pursuant to the Merger
Agreement will be a taxable transaction to such stockholder for federal income
tax purposes and may also be a taxable transaction under applicable state, local
or other laws. Each stockholder is urged to consult his or her own tax advisor
as to the particular tax consequences to such stockholder. See "Special Factors
- -- Federal Income Tax Consequences."
PRICE RANGE OF COMPANY COMMON STOCK AND DIVIDEND HISTORY
The shares of Common Stock are traded on the NASDAQ National Market System
under the symbol "BIGO." The following table sets forth the high and low
prices, as reported by the NASDAQ National Market System, for each quarter
commencing January 1, 1993. These quotations have been rounded to the nearest
eighth, reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. Stockholders are urged to
obtain current quotations.
<TABLE>
HIGH
LOW
<S>
1993
First Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<C>
14 1/4
16 3/8
17 1/4
16 1/2
<C>
11 1/8
10 7/8
13 1/4
13 1/2
1994
First Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16 3/4
16 3/4
16 3/4
17 7/8
12 3/4
13 1/8
14 1/2
15 1/4
1995
First Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter (through ______, 1995). . . . . . . . . . . . . . . . . . . . . .
16 1/4
15 1/4
15 1/4
12 7/8
12 1/2
12 3/4
</TABLE>
On May 31, 1995, June 6, 1995 and July 21, 1995, the last days the Common
Stock traded prior to the public announcements that the Company had (i) received
the Merger proposal at $16.50 per share of Common Stock from Senior Management
and the Dealers (ii) the Investment Committee approved in principle the $16.50
per share Merger proposal, and (iii) the Company entered into the Merger
Agreement providing for the Merger of Purchaser into the Company at
consideration of $16.50 per share of Common Stock, the closing sale prices of
the shares of Common Stock (as reported on the NASDAQ National Market System)
were $13.75, $14.25, and $14.375, respectively. The closing sale price of the
shares of Common Stock (as reported on the NASDAQ National Market System) was
$____________ on _________________, 1995.
The Company has never paid any cash dividends on its shares of Common
Stock. See "Price Range of Company Common Stock and Dividend History" and
"Special Factors -- Financing of the Merger."
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to holders of the Company's Common
Stock in connection with the solicitation of proxies by the Company's Board of
Directors for use at the Special Meeting to be held at
_______________________________________________, on ______________, 1996, at
_____ __.m., Mountain Standard Time, and at any adjournment or postponement
thereof.
At the Special Meeting, holders of the Company's Common Stock will consider
and vote upon a proposal to merge the Purchaser with and into the Company
pursuant to the Merger Agreement. The result of the Merger will be that each
holder of Common Stock (other than the Excluded Shares) will receive $16.50 per
share in exchange for such Common Stock.
Information contained in this Proxy Statement with respect to the Parent,
the Purchaser, and plans for the Company after the consummation of the Merger
has been provided by the Parent. All other information contained herein has
been provided by the Company.
RECORD DATE AND VOTING
The Record Date for determination of the Company's stockholders entitled to
notice of and to vote at the Special Meeting has been fixed as the close of
business on ________________, 1995. Accordingly, only holders of record of
shares of Common Stock on the Record Date will be entitled to notice of and to
vote at the Special Meeting. As of the Record Date, the outstanding voting
securities of the Company consisted of _________ shares of Common Stock that
were held of record by _____ holders. Each stockholder of record as of the
Record Date is entitled to one vote on each matter for each share then held.
The holders of a majority of the issued and outstanding shares of Common Stock
attending the meeting in person or by proxy will constitute a quorum for the
conduct of business at the Special Meeting, and all adjournments and
postponements thereof, notwithstanding that less than a quorum may remain after
commencement of the Special Meeting.
VOTE REQUIRED TO APPROVE THE MERGER
The affirmative vote of the holders of a majority of the Common Stock
outstanding on the Record Date is required for approval of the Merger Agreement.
Consequently, the failure to return a properly executed proxy card or to vote in
person at the Special Meeting will have the same effect as a vote against the
Merger. Similarly, abstentions and "broker non-votes" (referring to instances
where a broker or other nominee physically indicates on the proxy that, because
it has not received instructions from beneficial owners, it does not have
discretionary authority as to certain shares of Common Stock to vote on the
Merger) will have the same effect as a vote against the Merger. The proxies
named in the enclosed proxy card may, at the direction of the Board, vote to
adjourn or postpone the Special Meeting to another time or place for the purpose
of soliciting additional proxies necessary for approval of the Merger.
PROXY INFORMATION; REVOCATION
Any stockholder has the power to revoke his or her proxy before its
exercise at the Special Meeting or any adjournment or postponement by (1) giving
written notice of such revocation to the Assistant Secretary of the Company,
Susan D. Hendee, 11755 East Peakview Avenue, Suite A, Englewood, Colorado
80111, prior to the Special Meeting; (2) giving written notice of such
revocation to the Assistant Secretary of the Company at the Special Meeting; or
(3) signing and delivering a proxy bearing a later date. The dates contained on
the forms of proxy presumptively determine the order of execution, regardless of
the postmark dates on the envelopes in which they are mailed. The mere presence
at the Special Meeting of a stockholder who has executed and delivered a valid
proxy will not revoke such proxy. The powers of the proxyholders with respect
to the shares of a particular stockholder will be suspended if the stockholder
executing the proxy is present at the Special Meeting and elects to vote in
person. Subject to such revocation or suspension, each properly executed proxy
received by the proxyholders will be voted at the Special Meeting (whether or
not instructions are specified thereon). If instructions are specified thereon,
such proxy will be voted in accordance therewith, and if no specifications are
made, such proxy will be voted for the Merger Agreement.
ABSENCE OF APPRAISAL RIGHTS AND RIGHT TO DISSENT
The Nevada General Corporation Law generally provides that a stockholder is
entitled to dissent from a merger and obtain payment of the fair value of such
stockholder's shares of stock in the event of merger to which the corporation,
in which the stockholder holds shares, is a party. However, there is no right
of dissent under the Nevada General Corporation Law with respect to a plan of
merger of a corporation the shares of any class of stock of which on the record
date were listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system operated by the
National Association of Securities Dealers Inc. ("NASDAQ") unless the
stockholders will receive anything except cash and/or shares of the surviving
corporation in exchange for their shares. Because the Common Stock is quoted on
the NASDAQ National Market System and because of the composition of the Merger
Consideration, stockholders of the Company have no right to dissent upon
consummation of the Merger. Accordingly, if the Merger is consummated,
stockholders will have their rights as stockholders terminated and their shares
will be canceled and, except for stockholders holding Excluded Shares, will have
only the right to receive the Merger Consideration in exchange for such canceled
shares.
PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company. The Company
may request brokers, fiduciaries, custodians and nominees to send proxies, proxy
statements and other material to their principals at the expense of the Company.
In addition, directors, officers or other employees of the Company may, without
additional compensation therefor, solicit proxies in person or by telephone.
SPECIAL FACTORS
THE MERGER
The Company has entered into the Merger Agreement, a copy of which is
attached as APPENDIX A to this Proxy Statement, with the Parent and the
Purchaser. Pursuant to the terms of the Merger Agreement, the Purchaser will
merge with and into the Company with the Company continuing as the surviving
corporation. Upon consummation of the Merger, each outstanding share of Common
Stock (other than Excluded Shares) will be converted into the right to receive,
upon surrender of such share of Common Stock, the Merger Consideration.
Stockholders do not have any appraisal or dissenters rights under Nevada law.
See "The Special Meeting -- Absence of Appraisal Rights and Right to Dissent"
and "The Merger Agreement." At the same time, each share of the outstanding
common stock of the Purchaser, all of which is owned by the Parent, will be
converted into one share of Common Stock of the Company. Thus, after the
Merger, all of the then outstanding Common Stock of the Company will be owned by
the Parent.
BACKGROUND AND NEGOTIATIONS REGARDING THE MERGER
PRELIMINARY NOTE. Because of the close working relationship among Senior
Management, the Dealers and certain members of the Board, there were many
incidental conversations between representatives of Purchaser and
representatives of the Company relating to the Merger Agreement, often
coincidental to other conversations on business matters unrelated to the Merger.
The following discussion describes significant events during the negotiation of
the Merger Agreement and material issues discussed during the negotiation of its
terms.
SHAREHOLDER PROPOSAL. By letter dated December 20, 1993, Kenneth W. Pavia,
Sr., general partner of Balboa Investment Group, L.P. ("Balboa") which reported
that it then owned approximately 9.6% of the outstanding Common Stock, advised
the Company that he intended to introduce a proposal at the Company's 1994
Annual Shareholders' Meeting. The Company's management had several discussions
with Mr. Pavia concerning various aspects of Company operations and membership
of its Board during the several months before the Company received Mr. Pavia's
proposal. At his request, the following resolution (the "Shareholder Proposal")
and a supporting statement were included in the Company's proxy statement for
its 1994 Annual Meeting of Shareholders ("Annual Meeting").
"RESOLVED: That the shareholders of the Company recommend
and deem it desirable and in their best interest that the Board
of Directors immediately engage the services of a nationally
recognized investment banker to explore all alternatives to
enhance the values of the Company. Those alternatives should
include, but not be limited to, the possible sale, merger, or
go-private transaction involving the Company, or the return to
conducting business as a cooperative."
The Company included in its proxy statement a statement in opposition to
the Shareholder Proposal. At the Company's Annual Meeting held on June 8, 1994,
the Shareholder Proposal received the approval of holders of approximately 46%
of the then outstanding Common Stock. Approximately 38% of the then outstanding
Common Stock was voted against the Shareholder Proposal.
THE INVESTMENT COMMITTEE. Immediately following the Annual Meeting, the
directors of the Company who were not then employees of the Company met to form
the Investment Committee to begin the process of implementing the Shareholder
Proposal, including engaging an investment banking firm as provided in the
proposal. The Investment Committee consisted of Messrs. Carney, Johnston,
Mehlfeldt, Siipola, Weiger, and Wernholm, all of whom currently are and at that
time were directors of the Company and none of whom were employees of the
Company or owners of interests in franchised Retail Stores. Mr. Asher, a
director of the Company who owns an interest in a company that owns franchised
Retail Stores, was invited to participate as a non-voting member of the
Investment Committee.
In the ensuing 12 days, the members of the Investment Committee contacted
or were contacted by approximately 25 investment banking firms and merchant
banking firms to discuss providing assistance to the Company in implementing the
Shareholder Proposal. The Investment Committee met on June 20, 1994, to review
informal proposals received from three investment banking firms. At the
meeting, the Investment Committee determined to request formal presentations
from three investment banking firms and to request one additional firm to submit
information concerning its services.
On June 29, 1994, the Investment Committee met and heard presentations from
four investment banking firms, Donaldson, Lufkin & Jenrette Securities Corp.,
Kidder, Peabody & Co. Incorporated, PaineWebber, and Bear, Stearns & Co., Inc.
The Investment Committee met again on July 1, 1994, and selected
PaineWebber as the investment banker to advise the Investment Committee with
respect to carrying out the Shareholder Proposal. On July 5, 1994, the Company
issued a press release regarding the selection of PaineWebber and advised Mr.
Pavia of the selection of PaineWebber.
The Investment Committee met on July 13, 1994, with Steven P. Cloward,
President and then Chief Executive Officer, John B. Adams, Executive Vice
President and Chief Financial Officer, Philip J. Teigen, General Counsel and
Secretary, and Susan D. Hendee, Assistant Counsel and Assistant Secretary of the
Company, together with representatives of PaineWebber. At that meeting the
Investment Committee discussed the process by which PaineWebber would work with
the Investment Committee to analyze alternatives for enhancing the value of the
Company, how PaineWebber would conduct due diligence with respect to the Company
and other organizational matters relating to facilitating PaineWebber's
preparation of a report to the Investment Committee.
The Investment Committee, Mr. Adams, Mr. Cloward and Ms. Hendee met again
on July 27, 1994, with representatives of PaineWebber to hear a progress report
from PaineWebber with respect to its work. PaineWebber advised that it was
preparing financial analyses and developing a list of alternatives that might
enhance shareholder value.
In addition, the Company retained M. Kane & Company, Inc. ("Kane & Co.") in
May 1994 to assist in locating retail tire store chains that might be suitable
for acquisition by the Company. Kane & Co. discussed several possible
acquisitions with the Company, none of which resulted in substantive
negotiations with prospective acquisition candidates.
SHAREHOLDER RIGHTS PLAN. The Board had begun in early 1994 to consider
adopting a shareholder rights plan and other mechanisms designed to prevent the
acquisition of the Company under circumstances that would not result in its
shareholders realizing fair value for their Common Stock. On April 14, 1994,
the Board met with Holme Roberts & Owen LLC, Denver, Colorado ("Holme Roberts"),
special counsel, and with PaineWebber to review such mechanisms and to consider
adopting a shareholder rights plan which was intended to have the practical
effect of ensuring that a fair price would be paid to Company shareholders for
their shares in the event of an acquisition. At the April 14, 1994, Board
meeting, PaineWebber delivered to the Company a presentation containing
information about shareholder rights plans generally, certain publicly available
information about the Company and certain other companies in similar or
substantially similar businesses, and a range of implied stock prices for the
Common Stock in the year 2004 (the "2004 Estimated Range"). The 2004 Estimated
Range was made solely for use in determining the initial exercise price of the
rights to be issued under a shareholder rights plan, and was not intended in any
respect as an indicator of the Company's actual value. The analyses delivered
at the April 14, 1994, Board meeting have been filed as exhibits to the Schedule
13E-3 relating to the Merger filed by the Parent and the Company with the
Securities and Exchange Commission (the "Schedule 13E-3").
The Board met again on August 26, 1994, with representatives of Holme
Roberts and PaineWebber and, after additional consideration, adopted a
shareholder rights plan (the "Shareholder Rights Plan") and declared a dividend
of one right for each share of Common Stock outstanding on September 12, 1994,
and for each share of Common Stock issued thereafter. Under the Shareholder
Rights Plan, on the tenth day following the public announcement of the
acquisition of or an offer to acquire specified percentages of the Common Stock,
the rights, if not redeemed, would become exercisable. Under certain
circumstances, holders of the rights would be entitled to purchase, for half the
then current market price, Common Stock of the Company or of an entity acquiring
the Company. The Company also adopted changes to the Company Bylaws with
respect to shareholder meetings and proposals and director nominations. The
analyses delivered at the August 26, 1994, Board meeting have been filed as
exhibits to the Schedule 13E-3.
INITIAL PAINEWEBBER PRESENTATION. On September 12, 1994, the Investment
Committee, together with Messrs. Cloward and Adams and Ms. Hendee, met with
representatives of PaineWebber. PaineWebber provided a written presentation to
the Investment Committee as to strategic alternatives for the Company.
PaineWebber discussed the Company's operating plans and financial projections.
PaineWebber reviewed with the Investment Committee a share repurchase program
and an extraordinary dividend to shareholders which were not viewed as
advantageous in view of the substantial borrowing required and the adverse
effect of increased leverage on future operations of the Company. PaineWebber
also discussed with the Investment Committee the possibility of a leveraged
buyout by management and the acquisition of the Company by a strategic buyer or
a financial buyer, including a preliminary report as to the relative advantages
or disadvantages of such a combination given the Company's projections of future
performance and possible prices that a buyer might offer. The Investment
Committee discussed on a preliminary basis maintaining the Company as an
independent entity, including implementing critical elements of the Company's
business plan which were intended to enhance profitability. The PaineWebber
presentation to the Investment Committee of alternatives to enhance shareholder
value has been filed as an exhibit to the Schedule 13E-3.
PaineWebber reported that it had received informal inquiries from persons
expressing an interest in acquiring the Company. The Investment Committee
directed PaineWebber to conduct further discussion with those which had
expressed a preliminary interest so that the Investment Committee could select a
list of qualified potential buyers.
On September 13, 1994, the Investment Committee reported to the Board
concerning its activities. The Board determined that, in view of the
substantial activities of the Investment Committee, it would be advisable for
Mr. Mehlfeldt, who has significant experience in the tire industry, to serve
substantially full time assisting the Investment Committee in evaluating
strategic alliances, mergers, sales and acquisitions. On September 22, 1994,
Mr. Mehlfeldt entered into a consulting agreement with the Company reporting to
the Investment Committee. Mr. Mehlfeldt was paid fees of $47,250 in 1994 and
$3,750 in 1995. The amounts paid were based on the days for which Mr. Mehlfeldt
provided consulting services. The arrangement was terminated on February 15,
1995, when Mr. Mehlfeldt became an employee of the Company.
Also, at its September 13, 1994 meeting, the Board decided to invite Mr.
Pavia to join the Board as a director. In the event that Mr. Pavia declined the
invitation to join the Board, the Board authorized the Chairman of the
Investment Committee to invite Mr. Pavia to attend Investment Committee
meetings. Mr. Pavia did not join the Board, and on September 22, 1994, the
Company announced that Mr. Pavia would assist the Investment Committee in its
efforts to evaluate alternatives to enhance the Company's value. In September
1994, Mr. Pavia and Balboa signed a confidentiality agreement with the Company.
The Investment Committee next met on October 11, 1994, with Messrs. Adams,
Cloward, Teigen and Ms. Hendee, representatives of PaineWebber, and Mr. Pavia.
PaineWebber reported that it had conversations with persons who had expressed an
interest in acquiring the Company, including possible strategic buyers and
financial buyers. PaineWebber advised that all persons who had expressed an
interest had been supplied with confidentiality agreements as a condition to the
Company providing due diligence information.
THE AKH OFFER. On October 11, 1994, AKH Company, Inc. ("AKH"), which owns
retail tire dealerships and is based in California, sent the Company a letter
proposing a merger in which the Company would be acquired for a cash payment of
$18 per share, subject to due diligence, financing and various other conditions.
The AKH proposal also required a 90-day period of exclusivity during which the
Company could not carry on discussions or negotiations with any third parties
regarding a sale or combination of the Company. The Company had been approached
by AKH earlier in 1994 to determine the interest in the possible acquisition of
AKH by the Company. The Company had not pursued discussions with AKH at that
time after determining that many of AKH's retail stores were within territories
served by existing Company franchised Retail Stores.
The Company asked AKH to enter into a confidentiality agreement with the
Company, and, because of concerns about AKH's financial ability to acquire the
Company, to demonstrate its financial capacity to conclude a transaction. The
Company also advised AKH that it was unwilling to grant a period of exclusivity.
In mid-November, 1994, AKH and the Company entered into confidentiality
agreements. On November 1, 1994, AKH announced publicly that it had made a
proposal to acquire the Company for an unspecified amount of cash.
The Investment Committee met on October 24, 1994, with Mr. Adams, Ms.
Hendee, Mr. Teigen and representatives of PaineWebber. The Investment Committee
was advised that a group of Dealers had appointed a committee to review
alternatives available to the Dealers in acquiring the Company and that the
Dealers had retained KPMG Peat Marwick L.P. ("KPMG") to act as their financial
advisor. Mr. Adams advised the Investment Committee that certain members of
Senior Management were also investigating possible participation with certain of
the Dealers in an offer to purchase the Company, and that certain
representatives of Dealers and Senior Management had met to determine whether to
make an offer to the Company. He advised that KPMG and a representative of the
Dealers had signed confidentiality agreements and that Senior Management and the
Dealers had retained Gibson, Dunn & Crutcher, Denver, Colorado, as their legal
counsel. In view of the Dealers' interest in a possible transaction with the
Company, Mr. Asher, who has interests in, and beneficially owns interests in,
several Retail Stores, resigned from the Investment Committee.
Soon thereafter, the Investment Committee determined to retain Holme
Roberts as special counsel to the Investment Committee. Holme Roberts had
previously represented ad hoc committees of the Board and had from time to time
performed legal services for the Company, primarily in connection with adopting
its Shareholder Rights Plan, but was not regularly retained as counsel for the
Company.
The Investment Committee met on November 4, 1994, with representatives of
PaineWebber and Holme Roberts, and Mr. Pavia and Ms. Hendee. PaineWebber
advised the Investment Committee of contacts that it had made and discussions
that had occurred with ten possible strategic buyers and five financial buyers,
several of whom had expressed no interest in continuing discussions with the
Company.
The Investment Committee met again on November 17, 1994, with
representatives of PaineWebber, Holme Roberts, Mr. Pavia and Ms. Hendee.
Mr. Mehlfeldt and PaineWebber provided the Investment Committee with an update
as to discussions or contacts on the potential strategic and financial buyers
lists. The Investment Committee requested PaineWebber and Mr. Mehlfeldt to
intensify discussions with AKH and the Dealer Management Group and to follow-up
with one other party who had expressed a preliminary interest in an attempt to
bring the discussions to some form of resolution.
DEALER MANAGEMENT GROUP'S FIRST OFFER. On December 2, 1994, the Company
received a letter from the Dealer Management Group that proposed to commence
negotiations to acquire the outstanding shares of the Company for $18.50 per
share. The proposal was subject to various contingencies, including
participation in the buying group by at least 90% of the Common Stock held in
the ESOP and by the owners of 90% of franchised Retail Stores. The Dealer
Management Group also requested a period of exclusivity of 120 days during which
the Company would negotiate only with the Dealer Management Group.
The Investment Committee met on December 5, 1994, with Mr. Pavia and
representatives of PaineWebber and Holme Roberts to discuss the Dealer
Management Group offer. At that meeting, the Investment Committee also
discussed the status of the AKH offer and what implications, if any, acceptance
of the AKH offer might have on the Big O franchised dealers as a group. During
the meeting, PaineWebber and Mr. Mehlfeldt discussed with the Investment
Committee the status of contacts made by PaineWebber on behalf of the Company
with other prospective purchasers. Based upon this presentation, the Investment
Committee determined that only AKH and the Dealer Management Group continued to
evidence an active interest in a transaction to acquire the Company.
At that meeting, the Investment Committee also considered a request by the
Dealer Management Group for payment of its expenses in connection with pursuing
an offer to buy the Company. The Investment Committee decided to agree to cover
the Dealer Management Group's expenses up to $100,000 incurred to prepare,
document and finance its acquisition proposal, including, without limitation,
preparation of a definitive merger agreement. The Investment Committee directed
Mr. Mehlfeldt and PaineWebber to request the Dealer Management Group to prepare
a form of definitive merger agreement to determine if acceptable terms could be
arranged. The Company did not agree to a period of exclusivity pending receipt
of a satisfactory form of merger agreement.
On December 6, 1994, two class-action lawsuits were filed in Nevada by
shareholders of the Company seeking to enjoin a transaction with the Dealer
Management Group, enjoin implementation of the Shareholders Rights Plan, and
various other forms of relief. The two cases, which were consolidated, were
dismissed by the plaintiffs without prejudice on March 31, 1995.
During November and December 1994, the Company forwarded to the financial
advisor for AKH certain requested information in connection with AKH's due
diligence investigation, and representatives of AKH spent one day at the
Company's headquarters conducting due diligence investigations. A due diligence
meeting between the Company and representatives of AKH was scheduled for
December 12 to 14, 1994, but was canceled by AKH through its financial advisor.
On December 7, 1994, Mr. Mehlfeldt and representatives of PaineWebber met
with Messrs. Adams and Cloward, representing Senior Management, Wesley E.
Stephenson and William H. Spencer, representing the Dealers, and a
representative of KPMG to discuss the terms of the Dealer Management Group's
letter of intent to purchase the Company. Senior Management was authorized to
contact the Company's lenders to discuss the proposal.
On December 8, 1994, the Investment Committee met with representatives of
PaineWebber and Holme Roberts. The Investment Committee decided to request that
AKH and the Dealer Management Group evidence their continuing interest in
acquiring the Company, by reaffirming their proposed prices, providing
information as to their respective financing contingencies, and setting forth
their due diligence requirements and a timetable for closing, by 12:00 Noon on
Friday, December 16, 1994, at which time the Investment Committee would review
the respective requests for a period of exclusive negotiations. The Investment
Committee also agreed to reimburse the Dealer Management Group for up to an
aggregate of $175,000 of reasonable expenses, provided that the Dealer
Management Group agreed to withdraw a request to adjust the proposed purchase
price by an amount equal to the transaction fee due PaineWebber and that it
proceed immediately to prepare and submit a definitive merger agreement.
During the next few days representatives of the Investment Committee
discussed the terms of their offer with representatives of the Dealer Management
Group. They also attempted to reach AKH through its financial advisor to
discuss its offer.
On December 13, 1994, the Company and the Dealer Management Group signed a
letter agreement pursuant to which the Company agreed to reimburse the Dealer
Management Group for up to $100,000 of costs incurred prior to December 8, 1994,
in connection with its acquisition proposal and agreed to reimburse up to
$75,000 of additional costs for a period beginning December 8, 1994, and ending
on the earlier of execution of a definitive merger agreement, termination of the
acquisition proposal, or December 31, 1994. On December 14, 1994, the Dealer
Management Group sent a draft merger agreement to the Company.
Thereafter, Mr. Mehlfeldt and representatives of PaineWebber and Holme
Roberts discussed with Gibson, Dunn & Crutcher and KPMG the form of merger
agreement and the terms of a proposed exclusivity agreement and agreement to
reimburse certain expenses of the Dealer Management Group. The Company also
received a letter from AKH to the effect that it would not proceed with its
proposal until the Dealer Management Group proposal was no longer being
considered.
The Investment Committee met on December 16, 1994, with Mr. Pavia and
representatives of PaineWebber and Holme Roberts. They were advised by Mr.
Pavia that AKH had advised him that AKH had elected not to pursue a transaction
with the Company because of the difficulty in competing with Company franchised
dealers whose goodwill they would need if they were to acquire the Company, as
well as its inability to conduct due diligence in a timely manner. The
Investment Committee discussed the AKH response and discussed AKH's due
diligence efforts with PaineWebber and members of the Investment Committee who
had been dealing with AKH. The Investment Committee determined that there was
not a serious interest on the part of AKH to continue to pursue its offer.
The Investment Committee also reviewed with PaineWebber the status of
discussions with other prospective purchasers and determined that there did not
appear to be active interest in acquiring the Company on the part of any
prospective purchaser except the Dealer Management Group. The Investment
Committee then authorized Mr. Siipola and Mr. Mehlfeldt to negotiate with the
Dealer Management Group with respect to an exclusive negotiation period until
January 20, 1995, and to pay 80% of costs and expenses of the Dealer Management
Group, except in cases where the transaction was terminated for reasons other
than the group's unilateral decision not to proceed. Messrs. Mehlfeldt and
Siipola and representatives of Holme Roberts and Gibson, Dunn & Crutcher
negotiated the terms of an exclusivity agreement and modified arrangement
regarding reimbursement of expenses during the ensuing week.
On December 22, 1994, the Company signed a letter agreement with the Dealer
Management Group pursuant to which the Company agreed that it would not solicit
or initiate, or, subject to the fiduciary duties of its Board of Directors,
participate in discussions with, any person concerning the acquisition of the
Company. The period of exclusivity would terminate upon the later of execution
of a definitive merger agreement, termination of negotiations and January 20,
1995.
The December 22, 1994 letter amended the December 13, 1994 letter with
respect to expenses and provided that the Company could terminate the
arrangement upon 24-hours notice with respect to expenses not yet incurred. The
Dealer Management Group agreed that if it did not consummate the proposed merger
for any reason other than because (i) financing was unavailable, or (ii) the
Investment Committee failed to recommend or withdraw the recommendation of the
consummation of the transaction because of another transaction under certain
circumstances, the Dealer Management Group would reimburse the Company for 20%
of the expenses incurred. The Company also agreed to indemnify and hold
harmless the Dealer Management Group for all costs and expenses arising out of
claims relating to the proposed transaction.
Thereafter, discussions occurred between Messrs. Siipola and Mehlfeldt on
behalf of the Investment Committee and Messrs. Cloward and Adams on behalf of
Senior Management and with Messrs. Stephenson, Spencer and Richard Miller on
behalf of the Dealers with respect to terms of the definitive merger agreement.
These discussions primarily related to topping fees, reimbursement of expenses
and contingencies to the Dealer Management Group's obligations. Other
discussions about the merger agreement were conducted by the respective parties
through Gibson, Dunn & Crutcher and Holme Roberts.
On January 19, 1995, Messrs. Spencer, Siipola and Mehlfeldt met with
representatives of KPMG, Gibson, Dunn & Crutcher, Holme Roberts and PaineWebber
to discuss the status of the negotiations. KPMG described the status of the
group's efforts to obtain an equity participant from various tire manufacturers
and the status of other negotiations with respect to financings. The
representatives of the Company inquired as to progress in forming various
entities to be owned by the Dealer Management Group and were advised that
definitive agreements among the members of the Dealer Management Group had not
been completed.
On January 20, 1995, the Investment Committee met with Mr. Pavia and
representatives of PaineWebber and Holme Roberts to review a draft merger
agreement. Mr. Cloward and representatives of KPMG and Gibson, Dunn & Crutcher
also met with the Investment Committee during a portion of the meeting to advise
that certain negotiations with respect to equity participations in their group
were continuing and that open issues remained between Senior Management and the
Dealer Management Group with respect to their relative participation in the
purchasing entity. The Investment Committee resolved to recommend to the Board
that the form of merger agreement be signed.
Subsequently, on January 20, 1995, Messrs. Cloward, Adams and Spencer and
representatives of Gibson, Dunn & Crutcher met with Messrs. Mehlfeldt, Siipola
and representatives of Holme Roberts and PaineWebber. The Dealer Management
Group advised the Investment Committee that in view of the unresolved issues
among them and the inability to obtain the necessary elements of financing, the
Dealer Management Group was not prepared to sign a merger agreement. They
requested an extension under the December 22, 1994 letter agreement until
February 8, 1995, to sign the merger agreement, which the Company approved. At
the close of business on January 20, 1995, Messrs. Cloward and Adams advised
Holme Roberts that they had received a negative response to the proposed price
of $18.50 per share from one of the possible equity participants with the Dealer
Management Group and advised that the group would not hold the Company to the
extension until February 8, 1995. Following discussions between Mr. Cloward and
Mr. Siipola as to the status of negotiations, the Company reaffirmed its belief
that the transaction should be financeable and determined to honor the extension
agreement while the Dealer Management Group continued to seek financing.
The Investment Committee met with Mr. Pavia and representatives of
PaineWebber and Holme Roberts on February 8, 1995. It reviewed three letters
dated February 7, 1995. The first letter was from the Dealer Management Group
which advised that the group had elected not to continue negotiations at that
time in light of the difficulties it had experienced in obtaining the elements
of its financing necessary to consummate the acquisition and the resulting
inability of the Dealer Management Group to reach agreement on certain issues
relating to the acquisition.
The second letter was from the Dealers and advised that the Dealers
intended to form an association to be known as "Big O Tire Dealers of America"
which was to be organized to deal cooperatively with respect to matters concern-
ing Big O franchisees. The letter contained a copy of a Dealer's "Declaration
of Interdependence" which set forth a four-part purpose of the association,
including the protection and advancement of Dealers' common interests in
preserving the continuity of operations as they currently existed, including
distribution systems, product supply, and operational philosophy at the retail
level.
The third letter also dated February 7, 1995, from Messrs. Cloward and
Adams, requested a period of exclusivity for negotiating a transaction on behalf
of Senior Management and others who might provide financing. Representatives of
Senior Management informed the Company that they continued to be interested in
completing a purchase of the Company on mutually acceptable terms. The
Investment Committee did not grant the period of exclusivity requested. The
Investment Committee began to discuss a restructuring plan for the Company
presented in very general terms by Messrs. Siipola and Mehlfeldt. On February
8, 1995, the Company publicly announced that the Dealer Management Group had
elected not to pursue the proposed transaction due to the inability to secure
financing.
On February 9, 1995, Mr. Cloward requested that the Company continue to pay
certain expenses of Senior Management in pursuing a possible acquisition. The
Investment Committee declined the request.
From February 11, 1995, to February 15, 1995, the Company's franchised
dealers met for their annual convention in Las Vegas. Numerous informal
conversations and meetings occurred among members of the Dealers, Senior
Management and members of the Investment Committee, some of which concerned in
general terms whether a transaction might be possible.
At a Board meeting on February 15, 1995, the Board approved a revised
management structure. The objective of the revised management structure was to
allow Mr. Cloward time to continue working on a transaction to acquire the
Company and to enable Messrs. Siipola and Mehlfeldt to manage the Company while
exploring alternatives to enhance the value of the Company should a transaction
with the Dealers and Senior Management not occur. Mr. Siipola remained as
Chairman and Mr. Mehlfeldt was elected Vice Chairman of the Company. Messrs.
Siipola and Mehlfeldt were retained to work for the Company substantially full
time pursuant to salary and incentive arrangements. Mr. Cloward would continue
as President of the Company. Messrs. Siipola, Mehlfeldt and Cloward became
members of the Office of the Chief Executive. Because of the complexity of
organizing the Dealer Management Group proposals, the Board advised Mr. Cloward
that it would have no objection if he continued to devote substantially all of
his business time to an attempt to organize a group of Dealers and Senior
Management to acquire the Company.
On February 7, 1995, Big O Tire Dealers of America ("BOTDA"), a California
nonprofit mutual benefit corporation was incorporated. Thereafter, BOTDA took
an active role in representing the Dealers' interests as a part of the Dealer
Management Group. At a Board meeting on February 15, 1995, the Board considered
adding a representative of the Dealers to the Board.
At a Board meeting held on February 24, 1995, the Board approved amendments
to the Company's Bylaws so as to accommodate the concept of a three-person Chief
Executive Office and to also recognize the new office of Vice Chairman of the
Board.
Discussions continued periodically during February and March, 1995 with the
Dealer Management Group and various members of the Investment Committee. These
discussions related primarily to whether the Dealers and Senior Management would
make another offer to purchase the Company and, if so, at what price such offer
might be made.
The Dealer Management Group's Second Offer. On April 6, 1995, the Company
received a proposal from the Dealer Management Group to acquire the Company for
a cash price of $16 per share and on substantially the same other terms as the
December proposal, including contingencies of signing a definitive merger
agreement, obtaining financing to complete the purchase, participation in the
acquisition by holders of at least 80% of the shares held by the Company's ESOP,
and participation in the purchasing group by franchise dealers having at least
85% of the Retail Stores. On April 12, 1995, the Investment Committee met with
PaineWebber and Holme Roberts. The Investment Committee authorized
reimbursement of expenses by the Dealer Management Group through February 8,
1995. The Investment Committee considered a request for certain reimbursement
of expenses by Senior Management subsequent to February 8, 1995, and determined
not to provide any additional reimbursements. The Investment Committee reviewed
the details of the debt and equity financing that the Dealer Management Group
had provided to the Company in connection with the offer to assess the
likelihood that financing to complete the purchase would be available. The
Investment Committee determined not to accept the $16 per share offer, decided
not to reimburse additional expenses of the group in pursuing the proposal, and
expressed the Investment Committee's concern about the contingency concerning
the ESOP's participation in the transaction. The Investment Committee advised
the Dealer Management Group of its determination, and also that the Investment
Committee would be open to further negotiations at a more favorable price. The
Investment Committee's response was announced publicly.
On April 24, 1995, the Investment Committee met with representatives of the
Dealers and Senior Management including Messrs. Stephenson and Spencer and
others on behalf of the Dealers and Messrs. Cloward and Adams, and represen-
tatives of KPMG, PaineWebber, Holme Roberts and Wendel Rosen Black & Dean
("Wendel Rosen"), which was now counsel for the Dealers. The Dealer Management
Group discussed why they believed the $16 offer was adequate. After the meeting
adjourned, various members of the Investment Committee met with representatives
of the Dealers. In the ensuing days, members of the Investment Committee had
conversations with members of the Dealer Management Group with respect to
various matters relating to Company management as well as the status of the
Dealer Management Group's offer.
By notice dated May 5, 1995, the Dealer Management Group advised the
Company of its desire to have two proposals brought before the Company's Annual
Meeting of Stockholders scheduled for June 7, 1995. The first proposal was to
recommend that the Company's Board of Directors take all actions necessary to
eliminate the Stockholder Rights Plan. The second proposal was to recommend
that the Company's Board of Directors begin the good faith reconsideration of,
and, if appropriate, negotiation of, the previously rejected cash offer of $16
per share made on April 6, 1995, through a committee comprised exclusively of
non-employee directors. Because the Dealers and Senior Management believed that
adequate progress was being made in negotiations with the Investment Committee
prior to the Annual Meeting of Stockholders, no attempt was made to solicit
votes for the proposals and they were not presented at the Annual Meeting of
Stockholders.
Due to the fact that they had become employees of the Company, on May 10,
1995, Messrs. Siipola and Mehlfeldt resigned from the Investment Committee and
thereafter did not participate in the Investment Committee's deliberations. Mr.
Carney was elected Chair of the Investment Committee.
On May 22, 1995, representatives of the Dealer Management Group and their
advisors met with the Investment Committee, PaineWebber and Holme Roberts to
discuss the price at which the Dealer Management Group believed a transaction
could be accomplished. Although the Dealer Management Group did not raise its
offer above $16.00, it explored with the Investment Committee, the Investment
Committee's advisors and the advisors to the Dealer Management Group, the
possibility of reducing certain costs associated with the transaction so that
the offer price could be increased. The meeting ended with the Investment
Committee indicating that although the Dealer Management Group would have to
negotiate any such cost savings on its own, the Investment Committee would be
receptive to an acquisition offer for the Company at a price of $16.50 per
share.
On June 5, 1995, the Company announced that it had received a letter from
the Dealer Management Group proposing to acquire the Company at a price of
$16.50 per share, subject to a number of conditions. In conjunction with the
Company's Annual Meeting of Shareholders, the Investment Committee met on June
6, 1995, with PaineWebber and Holme Roberts to discuss the status of
negotiations with the Dealer Management Group, including timing of a transaction
and the terms of reimbursement of their expenses. The Investment Committee met
the following morning with Holme Roberts and representatives from Senior
Management, and the Dealers including Messrs. Cloward, Adams, Stephenson,
Spencer, a representative of Wendel Rosen and other members of the Dealer
Management Group to discuss terms of a definitive agreement. On June 7, 1995,
the Investment Committee met with Holme Roberts and decided to recommend that
the Company enter into a letter agreement with the Dealer Management Group with
respect to an offer at $16.50 per share subject to obtaining financing,
participation in the Purchaser of at least 80% of the shares held by the
Company's ESOP, participation in the Purchaser of not less than 85% of the
franchised Big O Dealers, and negotiation of a definitive merger agreement. The
Company agreed to pay up to $750,000 of the Purchaser's expenses (including
those previously reimbursed in connection with the December 1994 proposal), if
85% of the franchised stores owned by Dealers participating in the Dealer Group
with franchises expiring before July 1, 1999, extended their franchise
agreements at least through the earlier of (a) July 1, 2002, or (b) the date
three years after such franchise agreements would expire. If they did not do
so, the reimbursement would not exceed $500,000. The Investment Committee also
agreed to reimburse up to $217,000 of financing fees and commitments. The Board
met following that meeting and approved the letter agreement. The letter
agreement was signed on June 7, 1995, by the Company and the Dealer Management
Group, a press release announcing the signing of the letter agreement was
released on June 7, 1995, and the signing of the letter agreement was announced
at the Annual Meeting of Shareholders held on the evening of June 7, 1995.
During the ensuing month the parties negotiated a definitive merger
agreement. The Investment Committee met on July 18, 1995, with Holme Roberts to
review the Merger Agreement and provided final, technical comments.
On July 21, 1995, the Investment Committee met with PaineWebber and Holme
Roberts and approved signing the Merger Agreement. Representatives of
PaineWebber reviewed the terms of the transaction, including its work with the
Company over the past year. The Investment Committee then reviewed language of
the draft Merger Agreement and its representations concerning the Investment
Committee's determination with respect to the fairness of the transaction and
the likelihood of receiving a fairness opinion. The Investment Committee
determined to recommend the Merger to the Board as being in the best interest of
the Company and its shareholders for the reasons set forth below in
"Recommendation of the Board; the Company's Purpose and Reasons for and Belief
as to the Fairness of the Merger." The Investment Committee also determined,
based upon its own analysis of the Merger Consideration and taking into
consideration the presentation of PaineWebber at the meeting, that the
transactions contemplated by the Merger Agreement, based on information
presently known, are in the best interest of and, subject to the receipt of the
fairness opinions as described in the Merger Agreement, fair to the
disinterested shareholders of the Company. The Investment Committee also
determined that it was unaware of any reason why the Company would not receive a
fairness opinion as provided in the Merger Agreement.
Thereafter, on July 21, 1995, the Board met with Hopper and Kanouff, Holme
Roberts and PaineWebber and again approved signing the Merger Agreement and
certain amendments to the Shareholder Rights Plan necessary to permit the
signing of the Merger Agreement and the consummation of the Merger. Members of
the Board who were participating in the transaction as Senior Management or
Dealers abstained from voting because of such participation. All other
directors voted to approve the Merger Agreement. The Merger Agreement was
signed on July 24, 1995.
On July 24, 1995, prior to executing the Merger Agreement, the Company
changed the Shareholder Rights Plan by amending the Rights Agreement between the
Company and Interwest Transfer Co., Inc., to specifically exclude from the
definition of an "Acquiring Person," the following: (i) BOTI Holdings, Inc.;
(ii) BOTI Acquisition Corp.; (iii) an entity to be formed directly or indirectly
by persons who are currently franchisees of the Company; (iv) any other person
who may be deemed to be the beneficial owner of the Common Stock because of the
execution and delivery of the Merger Agreement; and (v) any group consisting of
two or more of the foregoing, so long as such persons are not the beneficial
owners of any capital stock of the Company other than (a) Common Stock acquired
pursuant to the Merger Agreement; (b) Common Stock owned or subject to stock
options held by such persons prior to the date of the Merger Agreement; (c)
Common Stock acquired by any of such persons from any other of such persons; (d)
Common Stock or other securities acquired by such persons in transactions or
types of transactions that are approved in advance by the Investment Committee;
and (e) any other person that beneficially owned Common Stock as of July 24,
1995, but does not thereafter become the beneficial owner of any additional
Common Stock not exceeding 1% of the share of Common Stock then outstanding.
On August 16, 1995, the Dealer Management Group presented to the Investment
Committee 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 Dealer Management Group's financing
commitments, in the aggregate, were for amounts sufficient to provide funds to
pay the Merger Consideration.
On August 31, 1995, the Company agreed to a request made by the Dealer
Management Group to extend until October 2, 1995, the date on which the Company
or the Dealer Management Group could terminate the Merger Agreement, if prior to
October 2, 1995, the Dealer Management Group had not satisfied or waived the
contingency in the Merger Agreement that required participation in the Dealer
Management Group by the Company's dealers owning not less than 85% of the
franchised Big O Retail Stores ("Dealer Participation Contingency"). As a part
of the agreement, the Dealer Management Group 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 ESOP in connection with the
proposed Merger. See the Merger Agreement, as amended, attached to this Proxy
Statement as APPENDIX A.
On October 2, 1995, the Company agreed to a request made by the Dealer
Management Group to extend until October 16, 1995, the date on which the Company
or the Dealer Management Group could terminate the Merger Agreement, if prior to
October 16, 1995, the Dealer Management Group had not satisfied or waived the
Dealer Participation Contingency. As part of the agreement, the Dealer
Management Group agreed that the Company would not further extend such deadline
and 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. See the Merger
Agreement, as amended, attached to this Proxy Statement as APPENDIX A.
On October 15, 1995, the Company received notice from the Parent and the
Purchaser that the Parent and the Purchaser elected to waive the Dealer
Participation Contingency. The Parent and the Purchaser advised the Company
that dealers owning 82% of the Company's franchised Retail Stores, as of the
date of the Merger Agreement, had elected to participate indirectly in the
acquisition of the Company.
On November 14, 1995, the Board met with Hopper and Kanouff, Holme Roberts,
PaineWebber and Lentz Evans and King, P.C., legal counsel to the ESOP. At the
meeting, PaineWebber rendered its opinion to the effect that, as of such date,
the Merger Consideration was fair, from a financial point of view, to the
holders of Common Stock (other than holders of Excluded Shares). See "Special
Factors -- Opinion of Financial Advisor." The analysis of PaineWebber delivered
at the November 14, 1995, Board meeting has been filed as an exhibit to the
Schedule 13E-3.
At the meeting held on November 14, 1995, the Board approved various
amendments to the ESOP most of which will only take effect after the
consummation of the Merger. Included in such amendments is an amendment that
sets forth the procedures as to how the Common Stock held by the ESOP is to be
voted on the Merger. See "Principal Stockholders of the Company -- Note 1."
Also, on November 14, 1995, the Board, upon the unanimous recommendation of the
Investment Committee, approved amendments to the Merger Agreement to clarify the
mechanics of how the conversion of the Common Stock held by the ESOP which is to
be converted into shares of the Parent is to be accomplished.
At the meeting held on November 14, 1995, the Board (other than those
directors who are participating in the acquisition as members of Senior
Management or the Dealers who abstained) voted to recommend that the
stockholders vote for the Merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS; THE COMPANY'S PURPOSE AND REASONS FOR
AND BELIEF AS TO THE FAIRNESS OF THE MERGER
RECOMMENDATION. The Investment Committee and the Board (excluding the
directors who will be stockholders of the Purchaser, all of whom abstained from
voting) of the Company have considered the terms and structure of the Merger,
have reviewed the financial and legal aspects of the Merger with financial and
legal advisors, have considered the financial and operational considerations
related to the Merger, believe that the Merger is fair to and in the best
interest of the Company's stockholders who are not affiliated with Senior
Management or the Dealers and recommend that stockholders vote for the proposal
to approve the Merger Agreement. Included in the directors who voted for the
recommendation were all of the directors who are not employees of the Company or
Dealers. Each member of the Board of Directors has advised the Company that he
intends to vote his shares in favor of the adoption of the Merger Agreement. On
the Record Date those directors (including members of Senior Management) and
members of their families owned an aggregate _______ outstanding shares
(approximately ____% of the outstanding shares of the Common Stock).
PURPOSE AND REASONS FOR THE MERGER AND FOR THE TIMING OF THE MERGER. The
Company's purpose and reason for the Merger are to allow all stockholders of the
Company to sell their shares in the Company at a price that the Investment
Committee and Board believe is fair to and in the best interests of the
stockholders. After the Stockholder Proposal was approved in June 1994 the
Company began immediately considering various alternatives to fulfill the
mandate to take action directed toward enhancing stockholder value. The timing
of the Merger has been determined by the time required to review various
alternatives to enhance stockholder value for the Company, to solicit
indications from persons who might be interested in acquiring the Company, to
negotiate the terms of the Merger Agreement, for the Dealer Management Group to
obtain financing, and to obtain the requisite stockholder and other approvals.
FAIRNESS. The Board and the Investment Committee began considering various
alternatives in response to the Stockholder Proposal and after considering all
of the factors described below, determined that the Merger was fair to and in
the best interest of the Company's stockholders who would receive the Merger
Consideration.
MERGER PRICE. The Merger Consideration constitutes a 14.8% premium over
the $14.375 last reported sale price of the Common Stock on July 20, 1995.
MARKET TEST. After extensive testing of the market to determine whether
there were buyers for the Company, the Board and the Investment Committee
determined that the Merger Consideration represents the best transaction that
would be available for the Company in the foreseeable future. The Board and
Investment Committee believe the market test was conducted fairly and
thoroughly. The marketplace was aware that the Company would be receptive to
offers for more than 10 months prior to the execution of the Merger Agreement
and the Company through PaineWebber contacted approximately 17 prospective
purchasers of the Company.
OTHER TRANSACTIONS. The Investment Committee and the Board did not
believe, based upon the analysis of PaineWebber and its own determination of
acceptable debt levels for the Company, that extraordinary dividends or share
repurchases would enhance stockholder value.
LIQUIDATION VALUE. The Board did not believe that the Company's
stockholders would receive an amount per share exceeding the Merger
Consideration if the Company were liquidated. The Board determined that
liquidation would be less favorable to the Company's stockholders than the
Merger Consideration because of taxes that would be payable at the Company level
before distributions to stockholders could be paid and the fact that the
Company's assets were not separately as valuable as the Company as a going
concern.
STATUS QUO. The Investment Committee considered continuing to operate the
Company without any specific transaction and determined that a transaction for
the Merger Consideration was advisable. The retail tire business is extremely
competitive with relatively low margins. In addition, the Company depends upon
continued strong purchases from Retail Stores that are free to buy their retail
inventory elsewhere. The uncertainty of future successful performance by the
Company was considered to be outweighed by the assurance of $16.50 per share.
FAIRNESS OPINION. The Board considered the advice of PaineWebber with
respect to various alternatives to enhance shareholder value, PaineWebber's
presentation on July 21, 1995, and the opinion of PaineWebber delivered on
November 14, 1995, to the effect that, as of the date of such opinion, the
Merger Consideration is fair, from a financial point of view, to the holders of
Common Stock (other than holders of Excluded Shares).
CONTINUING RELATIONSHIP WITH DEALERS. The Company's primary customers are
the Retail Stores. It became apparent during the course of reviewing
alternatives for the Company that a sale of the Company or other action that the
Dealers did not support could adversely affect the value of the Company and
could seriously affect the price obtainable for the Company's shares in an
alternative transaction. The most significant assets of the Company are its
franchises and relationships with its group of franchised dealers and any
proposed sale of the Company or other action that diminishes the value of those
assets could seriously affect the value of the Company.
The Investment Committee and the Board of Directors have not assigned
relative weights to the factors described above.
THE PARENT'S PURPOSES AND REASONS FOR THE MERGER
The Parent is engaging in the Merger in order to concentrate the ownership
of the Company in those parties who will be actively engaged in its operation,
will have a long-term perspective and will be highly motivated toward the
building of a successful operation. The Parent's desire to effect the Merger is
based upon the expected realization of the Merger benefits described in the
following paragraph. Having identified those expected benefits of the Merger,
the Parent believes that the achievement of those benefits should be pursued at
the present time because the Company's Investment Committee has for
approximately 18 months been exploring strategic alternatives which, if
accomplished, would either make the acquisition of the Company by the Parent
impossible or unattractive.
The Parent believes that the Company, which will be a wholly-owned
subsidiary of the Parent after the Merger, will benefit from the Merger because
(i) the Company's management will be free to devote itself to building long-term
values for the Company without concern that such efforts may adversely affect
short-term results and the market price for the Common Stock; (ii) the Merger
will eliminate the need for the Company to comply with the reporting
requirements of the Exchange Act, to maintain its current listing on the NASDAQ
National Market System, and to continue an investor relations program, the
aggregate cost of which the Company estimates amounts to approximately $190,000
annually (primarily consisting of the preparation of the annual report to
stockholders, accounting and legal fees and investor program costs); (iii) the
Company will be able to pursue the common goals of the Dealers and the Company's
employees; and (iv) the ownership of the Company will be concentrated in the
hands of those parties who will be actively engaged in its operation, will have
a long-term perspective and will be highly motivated toward the building of a
successful operation.
The form of the Merger was selected by the Parent to accomplish in a single
step its acquisition of the outstanding shares of Common Stock of the Company
not already owned by the Parent's stockholders. That structure was deemed
preferable to a tender offer, which probably would have resulted in less than
100% ownership by the Parent unless followed by a subsequent merger. The Parent
offered cash consideration in the Merger because this was the only method which
would accomplish the goal of eliminating public ownership and establishing the
desired unification of the owners, substantial suppliers and employees of the
Company.
OPINION OF FINANCIAL ADVISOR
The full text of the opinion of PaineWebber dated November 14, 1995, which
sets forth the assumptions made, procedures followed, matters considered and
limitations on the review undertaken, is attached as APPENDIX B to this Proxy
Statement. Stockholders of the Company are urged to read such opinion carefully
in its entirety. The summary of the PaineWebber opinion set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of such
opinion.
The Company retained PaineWebber as financial advisor to the Investment
Committee with respect to the Merger and to render an opinion as to whether or
not the Merger Consideration is fair, from a financial point of view, to the
holders of Common Stock (other than holders of Excluded Shares).
PaineWebber has delivered to the Board its written opinion to the effect
that, as of November 14, 1995, and based on its review and assumptions and
subject to the limitations summarized below, the Merger Consideration is fair,
from a financial point of view, to the holders of Common Stock (other than
holders of Excluded Shares). PaineWebber's opinion does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote with respect to the Merger.
In rendering its opinion, PaineWebber, among other things: (i) reviewed,
among other public information, the Company's Annual Reports, Forms 10-K and
related financial information for the five fiscal years ended December 31, 1994,
and a draft of the Company's Form 10-Q and the related unaudited financial
information for the nine months ended September 30, 1995; (ii) reviewed certain
information, including financial forecasts, relating to the business, earnings,
cash flow, assets and prospects of the Company, furnished to PaineWebber by the
Company; (iii) conducted discussions with members of senior management of the
Company concerning the Company's businesses and prospects; (iv) reviewed the
historical market prices and trading activity for the Common Stock and compared
such price and trading history with that of certain other publicly traded
companies which PaineWebber deemed relevant; (v) compared the financial position
and operating results of the Company with those of certain other publicly traded
companies which PaineWebber deemed relevant; (vi) reviewed the proposed
financial terms of the Merger and compared such terms with the financial terms
of certain other mergers and acquisitions which PaineWebber deemed relevant;
(vii) reviewed the Merger Agreement and a draft of this Proxy Statement as
proposed to be filed with the Securities and Exchange Commission; and (viii)
reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as PaineWebber deemed
appropriate, including its assessment of general economic, market and monetary
conditions.
In preparing its opinion, PaineWebber relied on the accuracy and
completeness of all information that was publicly available or supplied or
otherwise communicated to it by or on behalf of the Company, and it has not
independently verified such information. PaineWebber assumed that the financial
forecasts examined by it were reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the management of the
Company as to the future performance or the Company. PaineWebber did not
undertake, and was not provided with, an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of the Company and assumed
that all material liabilities (contingent or otherwise, known or unknown) of the
Company are as set forth in the Company's consolidated financial statements.
PaineWebber, at the request of the Company, solicited third party indications of
interest with respect to the acquisition of the Company. PaineWebber's opinion
is based on the regulatory, economic, monetary and market conditions existing on
the date thereof.
PaineWebber's opinion is directed to the Board of Directors of the Company
and does not constitute a recommendation to any stockholder of the Company as to
how any such stockholder should vote with respect to the Merger. PaineWebber's
opinion does not address the relative merits of the Merger and any other
potential transactions or business strategies discussed by the Board of
Directors of the Company or the Investment Committee as alternatives to the
Merger or the decision of the Board of Directors of the Company to proceed with
the Merger.
PaineWebber assumed that there had been no material changes in the
Company's assets, financial condition, results of operations, business or
prospects since the date of the last financial statements made available to
PaineWebber. PaineWebber assumed no responsibility to revise or update its
opinion if there is a change in the financial condition or prospects of the
Company from that disclosed or projected in the information PaineWebber reviewed
as set forth above or in general economic or market conditions. In rendering
its opinion, PaineWebber was not engaged to act as an agent or fiduciary of, and
the Company has expressly waived any duties or liabilities PaineWebber may
otherwise be deemed to have had to, the Company's stockholders or any other
third party.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses and
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Furthermore, in arriving at its fairness opinion, PaineWebber did
to attribute any particular weight to any analysis or factor considered by it.
Accordingly, PaineWebber believes that its analysis must be considered as a
whole and that considering any portion of such analysis and of the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying its opinion. In its
analyses, PaineWebber made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of the Company. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than as set
forth therein, and neither the Company nor PaineWebber assumes any
responsibility for their accuracy. In addition, analyses relating to the value
of businesses do not purport to be appraisals or to reflect the price at which
businesses may actually be sold.
The following paragraphs summarize the significant analyses performed by
PaineWebber in arriving at the opinion of PaineWebber, dated November 14, 1995,
presented to the Board of Directors of the Company.
STOCK TRADING HISTORY. PaineWebber reviewed the history of the trading
prices and volume for the Common Stock, both separate and in relation to market
indices and the comparative company index. The comparative company index
comprised four companies which PaineWebber deemed relevant including Bandag
Incorporated, Brad Ragan, Inc., Republic Automotive Parts, Inc. and TBC
Corporation (the "Comparative Companies").
SELECTED COMPARATIVE PUBLIC COMPANY ANALYSIS. Using publicly available
information, PaineWebber compared selected historical and projected financial,
operating and stock market performance data of the Company to the corresponding
data of the Comparative Companies.
With respect to the Company and the Comparative Companies, PaineWebber
compared multiples of latest 12 months revenues, EBITDA, EBIT, net income, book
value, estimated (by International Brokers Estimate System or "IBES") 1995
earnings per share ("EPS") and estimated (by IBES) 1996 EPS. PaineWebber noted
that, based on closing stock prices as of November 9, 1994, the Company's
revenue multiple was 0.45x versus a median revenue multiple of 0.46x for the
Comparative Companies; the Company's EBITDA multiple was 6.4x versus a median
EBITDA multiple of 6.5x of the Comparative Companies; the Company's EBIT
multiple was 7.7x versus a median EBIT multiple of 8.0x for the Comparative
Companies; the Company's net income multiple was 12.5x versus a median net
income multiple of 11.5x for the Comparative Companies; the Company's book value
multiple was 1.32x versus a median book value multiple of 1.51x for the
Comparative Companies; the Company's 1995 EPS multiple was 11.9x versus a median
1995 EPS multiple of 10.2x for the Comparative Companies; and the Company's 1996
EPS multiple was 10.5x versus a median 1996 EPSA multiple of 7.6x for the
Comparative Companies.
PaineWebber applied the multiples of revenues, EBITDA, EBIT, net income,
book value, estimated 1995 EPS and estimated 1996 EPS calculated above to the
respective results of the Company which resulted in a range of possible equity
values for the Company based on the comparative company analysis of $11.87 to
$16.32 per fully diluted share of Common Stock. PaineWebber then applied a
control premium of 30%, based on the Retail Industry Transactions premium
described in "Special Factors -- Opinion of Financial Advisor --Premiums Paid
Analysis," to such valuation range to determine a range of possible equity
values assuming a control premium. Based on this analysis, PaineWebber derived
a range of possible equity values of $15.43 to $21.22 per fully diluted share of
Common Stock.
DISCOUNTED CASH FLOW ANALYSIS. A discounted cash flow analysis is a
traditional valuation methodology used to derive a valuation of a corporate
entity by capitalizing the estimated future earnings and calculating the
estimated future free cash flows of such corporate entity and discounting such
aggregated results back to the present. PaineWebber performed a discounted cash
flow analysis of the Company based on the fiscal 1995 to 2000 financial forecast
for the Company provided by the Company management (the "Financial Forecast").
Using the information set forth in the Financial Forecast, PaineWebber
calculated the estimated "free cash flow" based on projected unleveraged net
income adjusted for: (i) certain projected non-cash items (i.e., depreciation
and amortization); (ii) projected capital expenditures; and (iii) projected
non-cash working capital investment.
PaineWebber analyzed the Financial Forecast and discounted the stream of
free cash flows provided in such projections back to December 31, 1995 using
discount rates of 13.0% to 17.0%. To estimate the residual value of the Company
at the end of the Financial Forecast period, PaineWebber applied terminal
multiples of 6.0x to 7.0x to the projected fiscal 2000 EBITDA and discounted
such value estimates back to December 31, 1995, using discount rates of 13.0% to
17.0%. Based on this analysis, PaineWebber derived a range of possible equity
values of $14.95 to $20.32 per fully diluted share of Common Stock.
PREMIUMS PAID ANALYSIS. Using publicly available information, PaineWebber
calculated the premiums represented by the Merger Consideration based on the
Company's closing stock price one day, one week and four weeks prior to public
announcement of : (i) the $18.50 per share offer from the Parent on December 5,
1994 (the "$18.50 Management Offer"); (ii) the Balboa shareholder proposal on
December 31, 1993 (the "Balboa Shareholder Proposal"); and (iii) Balboa's
initial 13-D filed on February 17, 1993, in which Balboa stated that it had
discussions with management regarding methods of increasing sales, cash flow and
profitability, and that it intended to continue such discussions with the
intention of assisting the Company in enhancing shareholder value (the "Balboa
13-D Filing"). PaineWebber determined that: (i) the premiums of the Merger
Consideration over the closing stock price one day, one week and four weeks
prior to the $18.50 Management Offer (which was made after the October 1994 AKH
offer of $18 per share) were 3.1%, 3.9% and a negative 0.8%, respectively; (ii)
the premiums of the Merger Consideration over the closing stock price one day,
one week and four weeks prior to the Balboa Shareholder Proposal were 18.9%,
15.8% and 14.8%, respectively; and (iii) the premiums of the Merger
Consideration over the closing stock price one day, one week and four weeks
prior to the Balboa 13-D Filing were 22.2%, 26.9% and 22.2%, respectively.
PaineWebber noted that the premiums set forth in (i) above reflected the
announcement of the $18.00 per share AKH offer and the premiums set forth in
(ii) and (iii) above were based on stock prices that prevailed over 22 months
prior to the date of its opinion.
PaineWebber compared the premiums calculated above with the historical
median premium paid in retail industry (as defined by Securities Data
Corporation ("SDC")) transactions announced between January 1, 1990, and
November 3, 1995 (the "Retail Industry Transactions"). PaineWebber determined,
based on information obtained from SDC, that the median of the premium of
offered price to closing stock price for the Retail Industry Transactions one
day, one week and four weeks prior to announcement of such transactions was
25.7%, 28.7% and 33.7%, respectively.
Pursuant to an engagement letter between the Company and PaineWebber,
PaineWebber was paid a retainer fee of $50,000 at the commencement of its
engagement, a monthly retainer fee of $25,000 from August 31, 1994, and a fee of
$300,000 payable upon rendering its opinion on November 14, 1995, and will be
paid a fee of $600,000 upon the closing of the Merger against which the $300,000
fairness opinion fee and $250,000 of monthly retainer fees will be credited.
PaineWebber will also be reimbursed for its related expenses. The Company has
also agreed to indemnify PaineWebber, its affiliates and each of their
respective directors, officers, agents and employees, and each person, if any,
controlling PaineWebber or any of its affiliates, against certain liabilities,
including liabilities under federal securities laws.
PaineWebber has previously provided investment banking services to the
Company had may provide financial advisory or other investment banking services
to the Company in the future. In the normal course of its business, PaineWebber
may from time to time trade the debt or equity securities of the Company for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities.
PaineWebber is a prominent investment banking and financial advisory firm
with experience in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements and valuations for corporate
purposes. The Company retained PaineWebber primarily because of the experience
of the PaineWebber personnel in evaluating businesses and seeking candidates to
acquire companies and because of the Investment Committee's perception of such
persons' overall understanding of the Shareholder Proposal.
A COPY OF THE PAINEWEBBER FAIRNESS OPINION IS INCLUDED HEREIN AS APPENDIX
B. STOCKHOLDERS ARE URGED TO READ CAREFULLY THE PAINEWEBBER FAIRNESS OPINION IN
ITS ENTIRETY.
PLANS FOR THE COMPANY AFTER THE MERGER
The Parent expects to continue the business and operations of the Company
substantially as they are currently being conducted by the Company and its
subsidiaries. The Dealer Management Group of the Company, however, will
continue to evaluate the business and operations of the Company and will make
such changes as are deemed appropriate.
The Parent is exploring ways to raise cash for working capital and other
general corporate purposes in addition to the financing sources discussed under
the heading "Financing of the Merger". Although no agreement or arrangement has
been entered into with respect to any transaction, the types of transactions
under consideration by the Parent include the sale of certain parcels of
undeveloped real property adjacent to certain of the Company's regional service
center locations and certain Retail Store sites. There can be no assurance that
an agreement with respect to any transaction will be reached or, if reached,
that any such transaction will be consummated. It is anticipated that the
Company will not pay any cash dividends on its securities after the Merger.
Except for the possible merger or liquidation of several subsidiaries of
the Company into the Company, the Parent does not have any present plans or
proposals which relate to or would result in an extraordinary corporate
transaction, such as a merger, reorganization, liquidation, relocation of any
operations of the Company or any changes in the Company's present
capitalization, corporate structure or business or, except as described above,
the sale or transfer of a material amount of assets involving the Company or any
of its subsidiaries or the composition of the Company's management. The Parent
will from time to time be reviewing additional information and reviewing
possible options with respect to the Company and may propose or develop
additional or new plans or proposals or may propose the acquisition or
disposition of assets or other changes in the Company's business, corporate
structure, capitalization, management or dividend policy.
It is also anticipated that the officers (other than Messrs. Siipola and
Mehlfeldt) and key employees of the Company will continue as employees of the
Company after the Merger. Those officers who are shareholders of the Parent
(other than solely as a result of their participation in the ESOP) will be
compensated at substantially the levels of compensation they received in 1995,
with the exception of Mr. Cloward, whose compensation will revert in 1996 to the
level he was receiving as of January 1, 1995, and with the exception of Ms.
O'Reilly, whose 1996 compensation will be based on her compensation level in
1995. It is expected that in most situations such persons will have
substantially equivalent positions with the Company. In connection with the
consummation of the Merger, Messrs. Siipola and Mehlfeldt will not continue as
employees, officers, nor directors of the Company. The Merger Agreement
provides that the board of directors of the Purchaser will become the board of
directors of the Company at the Effective Time.
Following the consummation of the Merger, the registration of the Common
Stock under the Exchange Act will be terminated.
FEDERAL INCOME TAX CONSEQUENCES
The discussion of federal tax consequences set forth below is directed
primarily toward individual taxpayers who are citizens or residents of the
United States. However, because of the complexities of federal, state and local
income tax laws it is recommended that the Company's stockholders consult their
own tax advisors concerning the federal, state and local tax consequences of the
Merger. Persons who are trusts, tax-exempt entities, corporations subject to
specialized income tax rules (for example, insurance companies) or non-United
States citizens or residents are particularly cautioned to consult their tax
advisors in considering the tax consequences of the Merger.
GENERAL. The following is a summary of the material federal income tax
consequences of the Merger to the Company and its stockholders. This summary is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), the rules
and regulations promulgated thereunder, current administrative interpretations
and court decisions. No assurance can be given that future legislation,
regulations, administrative interpretations or court decisions will not
significantly change these authorities, possibly with A retroactive effect. No
rulings have been requested or received from the Internal Revenue Service (the
"IRS") as to the matters discussed herein and there is no intent to seek any
such ruling. Accordingly, no assurance can be given that the IRS will not
challenge the tax treatment of certain matters discussed in this summary or, if
it does challenge the tax treatment, that it will not be successful.
FEDERAL INCOME TAX CONSEQUENCES TO THE PARENT, THE PURCHASER AND THE
COMPANY. The merger of the Purchaser into the Company, with the Company
surviving and with the Company's stockholders receiving solely cash in the
transaction, constitutes a taxable reverse subsidiary merger which will be
treated for federal income tax purposes as a direct purchase by the Parent of
the Common Stock from the Company's stockholders in exchange for cash and as
such the transitory existence of the Purchaser as the wholly-owned subsidiary
will be disregarded for federal income tax purposes. Because the Company will
be treated as purchasing the Common Stock directly from the Company's
stockholders, unless a Code Section 338 election is made to treat the purchase
by the Parent of the Company's Common Stock as a purchase of the Company's
assets resulting in a stepped up basis in the Company's assets, no gain or loss
will be recognized by the Company as a result of the Merger. Further, no gain
or loss will be recognized by Parent upon the receipt of the shares of the
Company's Common Stock from the Company's stockholders in exchange for cash, or
in the case of the ESOP and certain other of the Company's stockholders, in
exchange for shares of the Parent's common stock. The payment by the Parent of
the Merger Consideration, which will be transferred by the Company to the
Company's stockholders upon surrender by them of their shares of Common Stock,
will be treated as a contribution by the Parent to the Company's capital and as
such the Parent's tax basis in the Common Stock will equal the amount of such
capital contribution.
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY'S STOCKHOLDERS. Consistent
with the analysis described in the preceding paragraph, a stockholder of the
Company (other than a tax exempt trust or other tax exempt organization which
owns shares of the Company's Common Stock) will recognize gain or loss as a
result of the Merger, measured by the difference between such stockholder's
amount realized and its basis in the Common Stock.
To the extent that the ESOP receives shares of the Parent's common stock in
exchange for the shares of the Common Stock currently held by the ESOP, the
Company's management believes that the shares of the Parent's common stock
received and subsequently held by the ESOP should constitute a "qualifying
employer security" for federal income tax purposes which may be held by the
ESOP. Even though the exchange of the shares of the Common Stock held by the
ESOP for shares of the Parent may not constitute a tax free reorganization under
the Code if integrated with the purchase for cash by the Parent of the Common
Stock held by the Company's stockholders as contemplated under the Merger
Agreement, the Company's management believes that because the ESOP, which will
hold the shares of the Parent's common stock, is a qualified trust under Code
Section 401(a), which is a tax exempt organization under Code Section 501(a),
the ESOP will not be required under Code Section 512(b)(5) to recognize gain or
loss as a result of such exchange transaction which would otherwise be taxable
under the Code.
For noncorporate stockholders of the Company who hold Common Stock as a
capital asset, gain or loss recognized as a result of the Merger will be treated
as a capital gain or loss, provided that the Company is not treated for federal
income tax purposes as a "collapsible corporation." In the opinion of the
Company's management, the Company is not a collapsible corporation for federal
income tax purposes. Under the current provisions in effect as of the date
hereof, net capital gains (i.e., the excess of net long-term capital gain for
the taxable year over net short-term capital loss for such year) of an
individual stockholder will be taxed at a maximum rate of 28% in contrast to
items taxable as ordinary income which are subject to rates of up to 39.6%. The
U. S. Congress is considering in connection with its proposed balanced budget
legislation a provision which would reduce the maximum tax rate on net capital
gains. President Clinton has declared his intention to veto such legislation.
The legislation, if any, which ultimately is enacted with respect to the
taxation of net capital gains and the effective date of any such legislation is
uncertain at this time.
In the case of a corporate stockholder, capital losses are allowed only to
the extent of capital gains. In the case of a noncorporate stockholder, capital
losses are allowed only to the extent of capital gains plus the lesser of (i)
$3,000 ($1,500 in the case of a married individual filing a separate return) or
(ii) the excess of losses over such gains. Generally, a corporation may carry
its excess capital loss back three years or forward five years, subject to
limitation in the Code. Generally, in the case of a noncorporate taxpayer,
excess capital losses may be carried forward indefinitely and used each year,
subject to the $3,000 limitation ($1,500 in the case of a married individual
filing a separate return), until the loss is exhausted.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be treated, for financial statement purposes, as a sale by
the Company's stockholders to the Parent for cash. Accordingly, no gain or loss
will be recognized by the Company as a result of the Merger. The Merger will be
accounted for by the Parent as a purchase.
REGULATORY APPROVALS
There are no federal or state regulatory requirements that must be complied
with or approvals that must be obtained in connection with the Merger other than
the approval of the Company's stockholders as required by the Nevada General
Corporation Law.
FINANCING OF THE MERGER
The Purchaser's obligation to consummate the Merger is conditioned upon,
among other things, the availability of sufficient funds to pay the Merger
Consideration and to replace certain existing indebtedness of the Company. The
total amount of funds required for such purposes is approximately $65.1 million.
Of this amount, approximately $46.8 million will be used to pay the aggregate
Merger Consideration. See "Information Pertaining to the Parent, the Purchaser
and Related Persons" for a description of the equity contributions to be made to
the Parent.
Set forth below is a summary description of the financing for the Merger.
Consummation of such financing is subject to, among other things, the
negotiation and execution of definitive financing agreements on terms
satisfactory to the parties thereto. Because definitive financing agreements
relating to such financing have not been finalized, there can be no assurance
that the terms set forth below will be contained in such agreements or that such
financing will be obtained.
The Purchaser has executed a commitment letter (the "Senior Commitment")
pursuant to which The First National Bank of Chicago ("First Chicago") has
committed to provide the Purchaser senior secured loans of up to $40,000,000
(the "Senior Loans"). The Senior Commitment will expire on November 30, 1995,
unless definitive loan documents are executed on or before such date. The
Purchaser has submitted a written request to First Chicago to extend the Senior
Commitment expiration date.
The Senior Loans will bear interest at a rate equal to, at the Purchaser's
option, either: (1) First Chicago's Alternate Base Rate plus 1.75% per annum,
or (2) the Eurodollar Rate plus 3.0% per annum. First Chicago's Alternate Base
Rate is the higher of (i) First Chicago's corporate base rate, or (ii) the
federal funds rate plus 1/2% per annum. The Eurodollar Rate is the rate offered
by First Chicago in the London interbank market. The Senior Loans will be
(a) secured by a first perfected security interest in, with certain exceptions,
all of the Company's assets, (b) subject to mandatory prepayment upon a sale of
equity or assets and upon the generation of cash exceeding certain targets to be
set forth in the definitive credit agreement, and (c) subject to a number of
conditions including, but not limited to, negotiation and execution of loan
documents which will include representations, warranties and covenants which are
satisfactory to First Chicago, completion of First Chicago's due diligence,
First Chicago's satisfaction with other components of the Merger including the
consideration to be paid, the equity contributions and the other debt
arrangements. The Senior Loan consists of two facilities: (1) a $20,000,000
term loan (the "Term Loan"), and (2) a $20,000,000 revolving credit (the
"Revolving Credit"). The Term Loan will (a) mature after six years, and (b) be
repaid in quarterly installments which shall be $500,000 per quarter in the
first year of the Term Loan, $750,000 per quarter in the second and third years
of the Term Loan, and $1,000,000 per quarter in the fourth through sixth years
of the Term Loan. The Revolving Credit will mature in six years.
On September 8, 1995, the Purchaser executed a commitment letter (the
"Mezzanine Commitment") pursuant to which BancBoston Capital Inc. ("BBC")
committed to provide up to $10,000,000 of mezzanine financing (the "Mezzanine
Loan"). The Mezzanine Loan will (a) bear interest at the rate of 12.5% per
annum, (b) mature in eight years (with quarterly payments of principal in the
amount of $833,333 commencing in the first quarter of the sixth year of the
Mezzanine Loan), (c) provide BBC with the right to appoint a board member to the
Board of the Parent, and (d) be subject to a number of conditions, including but
not limited to, negotiation and execution of loan documents satisfactory to BBC,
BBC's satisfaction with the other components of the Merger including the equity
to be contributed, the terms of the other debt and the execution of a number of
inter-creditor agreements. In addition, the Mezzanine Commitment requires the
Purchaser to (a) provide a $50,000 non-refundable deposit, (b) pay a break-up
fee of $500,000 if the Purchaser consummates the Merger without utilizing the
Mezzanine Loan within one year of receiving the Mezzanine Commitment, (c)
maintain certain restrictive covenants, (d) execute acceptable loan and
inter-creditor agreements, (d) prepare an acceptable actuarial study of the
Company's
ESOP repurchase obligations, and (e) issue a warrant to BBC to purchase 12% of
the equity in the Parent. The warrant will provide BBC with (a) the right to
put the warrant to the Parent and (b) certain registration rights.
The Company has also entered into agreements to refinance and extend some
of its existing debt in connection with the Merger. Copies of the Senior
Commitment and the Mezzanine Commitment have been filed as Exhibits to the
Schedule 13E-3. The Company intends to repay all such borrowed funds with funds
generated by the Company's operations.
EXPENSES OF THE MERGER
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, $890,000 for financial advisory fees in
connection with the services of PaineWebber and $60,000 (one-third paid each by
the Company, the Parent and the ESOP) in connection with the services of Baum,
$350,000 for legal fees, $48,000 for solicitation expenses, $25,000 for
directors' fees and expenses, and $16,000 for miscellaneous expenses including
printing, mailing and other distribution costs. In addition to the foregoing,
the Company has agreed to reimburse the Purchaser up to $750,000 for its costs
and expenses in consummating the Merger and $217,000 for expenses incurred in
arranging the financing of the Merger. See "The Merger Agreement -- Fees and
Expenses."
PRINCIPAL STOCKHOLDERS OF THE COMPANY
The following persons are the only persons known to the Company who, on
October 30, 1995, owned beneficially more than 5% of the outstanding shares of
the Company's Common Stock:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
Big O Tires, Inc. 537,588 (1) 16.20%
Employee Stock Ownership Plan ("ESOP")
11755 East Peakview Avenue
Englewood, Colorado 80111
Balboa Investment Group, L.P. 309,500 (2) 9.33%
a California limited partnership and
Mr. Kenneth W. Pavia, Sr., the sole general
partner of this partnership
1101 East Balboa Boulevard
Newport Beach, California 92661-1313
(1) Of the 537,588 shares of Common Stock in the ESOP, approximately
501,114.78 shares of Common Stock have been allocated to participants'
accounts and approximately 36,473.22 shares of Common Stock have not
been allocated to participant's accounts. Pursuant to the provisions
of the ESOP, each participant has the right to direct the ESOP Trustee
as to how to vote the shares of Common Stock allocated to the
participant's account. The ESOP Trustee is required to vote all
allocated shares, the voting instructions for which are not timely
communicated to the Trustee, and all unallocated shares on the Merger
Agreement in the same proportion as the allocated shares for which the
Trustee receives timely voting instructions are voted.
(2) In a Schedule 13D dated May 31, 1995, as amended, the Company was
notified that these persons held these shares of Common Stock.
SECURITY OWNERSHIP OF THE COMPANY'S MANAGEMENT
The following table shows, as of October 30, 1995, the shares of the
Company's outstanding Common Stock beneficially owned by each director of the
Company and the shares of the Company's outstanding Common Stock beneficially
owned by all executive officers and directors of the Company as a group:
NAME OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)10) OF CLASS(10)
John B. Adams 42,004(2)(8)(9) 1.26%
Ronald D. Asher 16,109(3)(8) *
Frank L. Carney 754(8) *
Steven P. Cloward 103,969(4)(8)(9) 3.11%
Everett H. Johnston 904(8) *
Robert K. Lallatin 570(5) *
Horst K. Mehlfeldt 3,154(8) *
John E. Siipola 4,782(8) *
Ralph J. Weiger 3,003(8) *
C. Thomas Wernholm 20,914(6) *
All Current Directors and
Executive Officers as
a Group (18 persons) 292,824(2)(3)(4)(5)(6)(7)(8)(9) 8.54%
___________________
* Percent of shares of Common Stock beneficially owned by this director
does not exceed 1% of the Company's outstanding Common Stock.
(1) Unless otherwise indicated, the shares are held directly in the names
of the beneficial owners and each person has sole voting and sole
investment power with respect to the shares.
(2) Includes 1,311 shares of Common Stock owned jointly by Mr. Adams and
his wife, over which shares Mr. Adams may be deemed to have shared
voting and investment power, and includes 17,165 shares of Common
Stock that have been allocated to Mr. Adams in the ESOP, over which
shares Mr. Adams has sole voting power.
(3) Includes beneficial ownership by R&A Asher, Inc., a California
corporation ("R&A"), of 156 shares of Common Stock. Mr. Asher and his
wife each own 50% of the issued and outstanding capital stock of R&A,
and Mr. Asher may be deemed to have shared voting and investment power
over the 156 shares. Includes approximately 470 shares owned by a
retirement trust in which Mr. Asher and his wife are co-trustees.
(4) Includes 25,110 shares owned directly by Mr. Cloward's wife, over
which shares Mr. Cloward may be deemed to have shared voting and
investment power, and includes 38,250 shares that have been allocated
to Mr. Cloward in the ESOP, over which shares Mr. Cloward has sole
voting power.
(5) Includes 410 shares owned by B & G Tire, Inc. of which Mr. Lallatin is
the President and 51% owner.
(6) Includes 4,688 shares of Common Stock owned jointly by Mr. Wernholm
and his wife and over which shares Mr. Wernholm may be deemed to have
shared voting and investment power over such shares.
(7) Includes the following shares of Common Stock that have been allocated
or are to be allocated to the following executive officers not named
above who participate in the ESOP, over which shares these executive
officers will have sole voting power:
NAME NO. OF SHARES*
Dennis J. Fryer 6,963
Allen E. Jones 6,620
Ronald H. Lautzenheiser 10,369
Kelley A. O'Reilly 3,487
Gregory L. Roquet 5,600
Thomas L. Staker 6,177
Philip J. Teigen 5,415
Bruce H. Ware 7,694
___________________
* The share numbers have been rounded up or down to the nearest whole
share.
(8) Included in the above are shares of Common Stock underlying presently
exercisable options granted under the Big O Tires, Inc. Director and
Employee Stock Option Plan owned by the following directors and
executive officers:
NO. OF SHARES
UNDERLYING PRESENTLY
NAME EXERCISABLE OPTIONS
John B. Adams 4,922
Ronald D. Asher 15,483
Frank L. Carney 754
Steven P. Cloward 12,284
Everett H. Johnston 904
Allen E. Jones 632
Horst K. Mehlfeldt 3,154
John E. Siipola 3,782
Philip J. Teigen 833
Bruce H. Ware 302
Ralph J. Weiger 1,356
C. Thomas Wernholm 16,226
(9) Included in the above share figures are shares of restricted Common
Stock granted under the Big O Tires, Inc. Long Term Incentive Plan,
over which shares the following executive officers have sole voting
power, and includes shares of Common Stock underlying presently
exercisable options granted under the Long Term Incentive Plan:
NAME NO. OF SHARES NO. OF OPTIONS
John B. Adams 7,552 11,054
Steven P. Cloward 11,370 16,955
Dennis J. Fryer 1,716 0
Allen E. Jones 1,716 4,684
Ronald H. Lautzenheiser 3,495 3,804
Kelley A. O'Reilly 2,065 0
Gregory L. Roquet 1,907 4,684
Thomas L. Staker 4,479 3,681
Philip J. Teigen 1,634 1,841
Bruce H. Ware 1,764 4,684
(10) The beneficial ownership and percentages for each person and the group
have been reported and calculated as if the presently exercisable
options owned by each person or the group referred to in the preceding
footnotes had been exercised.
PRICE RANGE OF COMPANY COMMON STOCK AND DIVIDEND HISTORY
The shares of Common Stock are traded on the NASDAQ National Market System
under the symbol "BIGO." The following table sets forth the high and low
prices, as reported by the NASDAQ National Market System, for each quarter
commencing January 1, 1993. These quotations have been rounded to the nearest
eighth, reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. Stockholders are urged to
obtain current quotations.
HIGH LOW
1993
First Quarter 14 1/4 11 1/8
Second Quarter 16 3/8 10 7/8
Third Quarter 17 1/4 13 1/4
Fourth Quarter 16 1/2 13 1/2
1994
First Quarter 16 3/4 12 3/4
Second Quarter 16 3/4 13 1/8
Third Quarter 16 3/4 14 1/2
Fourth Quarter 17 7/8 15 1/4
1995
First Quarter 16 1/4 12 7/8
Second Quarter 15 1/4 12 1/2
Third Quarter 15 1/4 12 3/4
Fourth Quarter
(through ____, 1995)
On May 31, 1995, June 6, 1995 and July 21, 1995, the last days the Common
Stock traded prior to the public announcements that the Company had (i) received
the Merger proposal at $16.50 per share of Common Stock from Senior Management
and the Dealers (ii) the Investment Committee approved in principle the $16.50
per share Merger proposal and (iii) the Company entered into the Merger
Agreement providing for the Merger of Purchaser into the Company for the Merger
Consideration, the closing sale prices of the shares of Common Stock (as
reported on the NASDAQ National Market System) were $13.75, $14.25 and $14.375
per share, respectively. The closing sale price of the shares of Common Stock
(as represented on the NASDAQ National Market System) was $_______________ on
__________________, 1995.
The Company has never paid any cash dividends on its shares of Common
Stock. Currently, the Company is subject to various covenants and restrictions
under loan agreements with First Chicago, AT&T Capital Corporation,
The Kelly-Springfield Tire Company ("Kelly") and other lenders and holders of
long term
notes previously issued by the Company. These restrictions limit or prohibit
the Company from, among other things, paying cash dividends on its capital
stock. One or more of these loan or credit facilities will be refinanced or
restructured in connection with the financing of the Merger, but it is unknown
whether the restrictions on payment of dividends will be modified. See "Special
Factors -- Financing of the Merger."
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following table sets forth consolidated financial data for, and as of
the end of each of the nine (9) month periods ended September 30, 1995, and
1994, and for, and as of the end of, each of the years in the five-year period
ended December 31, 1994, and are derived from the consolidated financial
statements of the Company and its subsidiaries. The consolidated financial
statements of the Company as of December 31, 1994 and 1993, and for each of the
three years in the period ended December 31, 1994, appearing in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, which
accompanies this Proxy Statement, have been audited by Deloitte & Touche LLP,
independent auditors, as set forth in their report thereon appearing therein.
The Company does not expect Deloitte & Touche LLP to be present at the Special
Meeting.
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- --------------------------------------------
1995 1994 1994 1993 1992 1991 1990
(in thousands except share information)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Operating Revenues,
net $107,672 $94,132 $127,678 $122,960 $119,799 $113,836 $106,902
Income before income
taxes and
cumulative effective of
change in accounting
principle 2,492 2,506 4,641 3,280 4,766 3,139 1,264
Provision for income
tax 1,047 1,052 1,950 1,400 1,983 1,388 557
Income before
cumulative effect of
change in accounting
principle 1,445 1,454 2,691 1,880 2,783 1,751 707
Cumulative effect of
change in
accounting principle --- --- --- 285 --- --- ---
Net income 1,445 1,454 2,691 1,595 2,783 1,751 707
PER SHARE DATA
Income before
cumulative effect
of change in
accounting principle $ .43 $ .44 $ .80 $ .55 $ .80 $ .50 $ .20
Net income $ .43 $ .44 $ .80 $ .47 $ .80 $ .50 $ .20
Weighted average
shares outstanding (1) 3,777,083 3,337,539 3,347,892 3,409,962 3,497,044 3,506,024 3,502,924
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
----------------- --------------------------------------------
1995 1994 1994 1993 1992 1991 1990
(in thousands)
BALANCE SHEET DATA
Current assets(2) $ 35,564 $36,351 $ 33,718 $ 24,136 $ 29,494 $ 29,684 $ 36,202
Total assets(2) 69,846 70,195 61,968 56,607 57,679 57,111 63,176
Current liabilities(2) 13,808 14,426 9,051 12,251 12,161 9,023 19,707
Long-term debt and
capital lease obliga-
tions, net of current
portion 17,376 20,307 15,906 11,037 9,359 14,648 11,883
Other long-term
liabilities 1,311 1,449 1,433 856 692 852 951
ESOP obligations 188 449 449 975 1,277 1,656 ---
Stockholders' equity 37,163 33,574 35,129 31,488 34,190 30,932 30,635
_______________________
</TABLE>
(1) Adjusted to reflect the 1-for-5 reverse split of the Company's Common
Stock that was effective June 15, 1992.
(2) Amounts for years prior to 1992 have been restated to reflect the
reclassification of vendor receivables to accounts
payable.
(3) The per share book values of the Common Stock on September 30, 1995,
and December 31, 1994, were $11.20 and $10.62,
respectively.
(4) The ratios of earnings to fixed charges for the nine month periods
ended September 30, 1995 and 1994, and for the years
ended December 31, 1994 and 1993, were _____, _____, _____ and _____,
respectively.
<PAGE>
THE MERGER AGREEMENT
PARTIES TO THE MERGER AGREEMENT
BIG O TIRES, INC., a Nevada corporation (the "Company"), is engaged
primarily in the business of franchising Big O Tire retail stores (the "Retail
Stores") and supplying Retail Stores with tires and related automotive products
for sale. The Company also owns and operates Retail Stores and, on a limited
basis, engages in site selection and real estate development for Retail Stores.
The mailing address of the Company's principal executive offices and corporate
headquarters is 11755 East Peakview Avenue, Suite A, Englewood, Colorado 80111
and its telephone number is (303) 790-2800.
BOTI HOLDINGS, INC., a Nevada corporation (the "Parent"), is a holding
company organized in January 1995 to participate in the Merger and to acquire
all of the capital stock of the Company. See "Information Pertaining to the
Parent, the Purchaser and Related Persons." The Parent has engaged in no other
business activities since its inception other than those related to the
acquisition of the Company. The mailing address of the principal executive
offices of both the Parent and the Purchaser is the same as the Company's
address, 11755 East Peakview Avenue, Englewood, Colorado 80111, and their
telephone number is (303) 790-2800.
BOTI ACQUISITION CORP., a Nevada corporation (the "Purchaser"), has been
organized as a wholly-owned subsidiary of the Parent for the purpose of
effecting the Merger and has engaged in no other business activities other than
those related to the acquisition of the Company. See "Information Pertaining to
the Parent, the Purchaser and Related Persons."
DESCRIPTION OF THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MERGER AGREEMENT, THE FULL TEXT OF WHICH
IS INCLUDED HEREIN AS APPENDIX A. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE MERGER AGREEMENT. STOCKHOLDERS ARE URGED TO READ THE MERGER
AGREEMENT IN ITS ENTIRETY FOR A MORE COMPLETE DESCRIPTION OF THE MERGER. THE
FOLLOWING DESCRIPTION ALSO CONTAINS OTHER INFORMATION ABOUT THE MERGER.
TERMS OF THE MERGER. Pursuant to the Merger Agreement, the Purchaser will
merge into and with the Company, with the Company continuing as the surviving
corporation. The Merger will occur immediately upon the filing of the
Certificate of Merger with the Secretary of State of the State of Nevada (the
date and time of such filing referred to herein as "Effective Time"). The name
of the Company will remain "Big O Tires, Inc." At the Effective Time, the
Articles of Incorporation and Bylaws of the Company as in effect immediately
prior to the Effective Time until thereafter amended, will be the Articles of
Incorporation and Bylaws of the Purchaser. The officers and directors of the
Purchaser immediately prior to the Effective Time will be the initial officers
and directors of the Company until their successors are elected and qualified,
as the case may be. At the Effective Time, all issued and outstanding shares of
Common Stock owned by the stockholders of the Company other than the Excluded
Shares will be canceled and extinguished, and will be converted into the right
to receive the Merger Consideration. Payments of cash to stockholders of the
Company and to option holders will be made as soon as possible after the
Effective Time upon surrender by holders of their certificates (in the case of
stockholders), together with the appropriate transmittal form, to the Exchange
Agent referred to below. See "The Merger Agreement -- Exchange of
Certificates." Each Excluded Share owned will be exchanged for one share of the
Parent's common stock. In the Merger, each share of $.01 par value common stock
of the Purchaser which is issued and outstanding immediately prior to the
Effective Time will be converted into and become one share of Common Stock of
the Surviving Corporation. As a result of the Merger, the separate corporate
existence of the Purchaser will cease and the Company will continue to operate
as a wholly-owned subsidiary of the Parent.
All properties and assets of every kind held by the Company and the
Purchaser at the Effective Time will become property and assets of the Company,
and the Company will continue to be liable for all of its obligations, debts and
other liabilities, as well as those, if any, of the Purchaser.
The Company expects the Effective Time to occur before ________________,
1996. The Effective Time cannot occur until all conditions to the Merger have
been satisfied or waived. See "The Merger Agreement -- Conditions to the
Merger."
The Merger Agreement provides for the exercise of appraisal or other rights
as may be available under Nevada law. However, no appraisal rights or right to
dissent are available for the Merger under Nevada law. See "The Special Meeting
- -- Absence of Appraisal Rights and Right to Dissent." Consequently, if the
Merger is consummated, holders of all shares of Common Stock (other than holders
of Excluded Shares) will be required to accept the Merger Consideration.
STOCK OPTIONS. The Company is required by the Merger Agreement to make all
reasonable efforts to cancel and settle immediately prior to the Effective Time
each option to purchase shares of Common Stock or stock appreciation rights
(collectively, the "Options") which have been granted under any Company stock or
compensation plan or arrangements to all current or former employees of the
Company who are not directors, unless the holder has agreed to convert or
exchange without receipt of payment therefor, the Options for options or shares
of the stock of the Parent, the Purchaser or the Company. Holders who are
directors of the Company, except Messrs. Steven P. Cloward and John B. Adams,
will have their Options canceled and will be entitled to receive only a cash
payment. Each holder of an Option will be entitled to receive, in lieu of each
share which such holder otherwise would have received upon exercise of the
Option, cash equal to the amount (if any) by which $16.50 exceeds the exercise
price per share payable pursuant to such Option ("Option Settlement Amount")
provided that the Company is required to cancel for a lesser amount any Option
issued under a plan which allows the Option to be canceled for less than the
Option Settlement Amount. Taxes and other required withholdings will be
deducted from the cash payments. Messrs. Cloward and Adams, as stockholders of
the Parent and part of Senior Management, will convert their Options into
options to purchase the common stock of the Parent. See "Information Pertaining
to the Parent, the Purchaser and Related Persons." The Company is not permitted
to grant any additional Options except certain options that the Company may
grant on January 1, 1996, pursuant to the Company's Director and Employee Stock
Option Plan. On or before the Effective Time, the Company will cause all of its
stock option, stock appreciation and compensation plans to be terminated.
CONDITIONS TO THE MERGER. The obligations of the Parent, the Purchaser and
the Company to effect the Merger are conditioned on, among other things (i) the
Merger Agreement receiving the requisite approval of the Company's stockholders
(see "The Special Meeting -- Vote Required to Approve the Merger"); (ii) there
being no preliminary or permanent injunction or other order, decree, ruling or
law or regulation which would prevent the consummation of the Merger; and (iii)
and receipt by the Company of all material consents or authorizations from
governmental authorities or parties to contracts.
The obligations of the Company to effect the Merger additionally are
conditioned on (i) the performance in all material respects by the Parent and
the Purchaser of the obligations to be performed by them at or prior to the
Effective Time; and (ii) the truth and correctness in all material respects of
the representations and warranties of the Parent and the Purchaser contained in
the Merger Agreement.
The obligations of the Parent and the Purchaser to effect the Merger
additionally are conditioned on (i) the performance in all material respects by
the Company of the obligations to be performed by it under the Merger Agreement;
(ii) the truth and correctness in all material respects of the representations
and warranties of the Company contained in the Merger Agreement; (iii) the
Purchaser having received financing sufficient to consummate the Merger; (iv)
cancellation and settlement of all stock options except Senior Management
Options; (v) redemption of the Rights; (vi) compliance with applicable Nevada
law; and (vii) at least 80% of the shares of the Common Stock held by the ESOP
being converted into the common stock of the Parent. The terms of the Merger
Agreement may be modified or waived, subject to certain restrictions. See "The
Merger Agreement -- Modification and Waiver."
The Merger Agreement also requires that the financial advisor to the ESOP
deliver an opinion that the consideration to be received by the participants in
the ESOP who elect to convert the Common Stock allocated to their accounts in
the ESOP into an investment in the common stock of the Parent, is fair from a
financial point of view to such participants. On ________, George K. Baum &
Company delivered its written opinion to the ESOP stating that the consideration
to be provided pursuant to such conversion is fair to the ESOP participants from
a financial point of view. See "Special Factors."
REPRESENTATIONS AND WARRANTIES. The Company, the Parent and the Purchaser
have made certain representations and warranties to each other in the Merger
Agreement, including, among other things, representations and warranties
relating to their respective organizations, qualifications and capitalizations,
authorizations to enter into the Merger Agreement, that the Merger and Merger
Agreement do not conflict or fail to comply with any other agreements,
instruments, their organizational documents, the consents and approvals that
must be obtained in connection with the Merger, and the absence of brokers or
finders.
The Company has made certain additional representations and warranties
(which representations and warranties are subject, in certain cases, to
specified exceptions), including representations and warranties as to the
following: (a) the accuracy of the Company's filings with the United States
Securities and Exchange Commission and the financial statements of the Company;
(b) the absence of any material adverse change to the Company before the
Effective Time; (c) the absence of undisclosed material liabilities or
litigation; (d) fairness of the transaction to disinterested stockholders; (e)
existence and status of employee benefit plans; and (f) the payment of taxes.
CONDUCT OF BUSINESS PENDING MERGER. The Merger Agreement provides that
neither the Purchaser nor the Parent will have any claim against the Company for
any breach of the covenants regarding the conduct of the Company's business
pending the Merger unless the action which resulted in the breach was approved
by the Board or Investment Committee and no attempt was made at a later date by
the body approving such action to prevent its occurrence, or was known of by a
member of the Investment Committee or the Chairman or Vice Chairman of the Board
and no attempt was made by the Investment Committee to prevent its occurrence.
In the Merger Agreement, the Company covenants and agrees that, prior to the
Effective Time, unless the Purchaser otherwise agrees in writing, or except as
disclosed in the Disclosure Certificate to the Merger Agreement or as otherwise
expressly contemplated by the Merger Agreement, neither the Company nor any of
its subsidiaries will take any action except in the ordinary course of business
and consistent with past practices, and the Company will use its best efforts to
maintain and preserve its business organization, assets, prospects, employees
and advantageous business relationships. Even if the action proposed to be
taken would not violate the provisions described in the preceding sentence, but
would involve possible expenditures, contingent liabilities or the acquisition
or disposition of assets exceeding $100,000, any member of a committee
consisting of Messrs. John B. Adams, Steven P. Cloward, Horst K. Mehlfeldt and
John E. Siipola (the "Management Committee") has the right to object in writing
to the taking of such action prior to the time the Company is legally bound to
the taking thereof. Any notice of objection must be delivered to all members of
the Management Committee and the contemplated action is not to be taken unless
the members of the Management Committee unanimously approve the taking of such
action. If the action proposed to be taken would violate the provisions
described in the second sentence of this paragraph and would involve
expenditures or the acquisition or disposition of assets exceeding $100,000 in
value, the Management Committee is to be given advance written notice of all
such actions. If any member of the Management Committee objects in writing
within five (5) days after written notice of such action is given to any such
noticed action, such action only is to be taken if the members of the Management
Committee unanimously approve the taking of such action or, failing such
approval, the Parent and the Company approve in writing the taking of such
action.
The Company has also agreed that neither the Company nor any of its
subsidiaries will, directly or indirectly, do any of the following: (i) incur
any expenses in contemplation of a reorganization or restructuring of the
Company; (ii) amend its Articles of Incorporation or Bylaws or similar
organizational documents; (iii) split, combine or reclassify any shares of its
capital stock or declare, set aside or pay any dividend or make any
distribution, payable in cash, stock, property or otherwise with respect to its
capital stock; (iv) transfer the stock of any subsidiary to any other subsidiary
or any assets or liabilities to any new subsidiary or, except in the ordinary
course of business and consistent with past practice, to any existing
subsidiary; (v) adopt a plan of liquidation or resolutions providing for the
liquidation, dissolution, merger, consolidation or other reorganization of the
Company except the Merger; (vi) amend, modify, change or replace the engagement
letter of PaineWebber; or (vii) authorize or propose any of the foregoing, or
enter into any contract, agreement, commitment or arrangement to do any of the
foregoing.
In addition, the Company has agreed that neither the Company nor any of its
subsidiaries will, directly or indirectly: (i) issue, sell, pledge, encumber or
dispose of, or authorize, propose or agree to the issuance, sale, pledge,
encumbrance or disposition of, any shares of, or any options, warrants or rights
of any kind to acquire any shares of, or any securities convertible into or
exchangeable for any shares of, its capital stock or any other equity
securities, or any other securities in respect of, in lieu of, or in
substitution for shares of Common Stock outstanding on the date of the Merger
Agreement except for shares of Common Stock issuable upon exercise of Options
outstanding on that date and which by their terms are or become exercisable at
or prior to the Effective Time; (ii) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof or make any material investment either by
purchase of stock or securities, contributions to capital, property transfer or
purchase of any material amount of property or assets, in any other individual
or entity; (iii) other than indebtedness incurred from borrowings made pursuant
to existing lending arrangements and other than as set forth in the Disclosure
Schedule to the Merger Agreement, incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee, endorse (other than to a Company
account) or otherwise as an accommodation become responsible for, the
obligations of any other individual or entity, or make any loans or advances,
except for advances to dealers and guarantees of leases made in the ordinary
course of business and consistent with past practice; (iv) release or relinquish
any material contract right; (v) settle or compromise any pending or threatened
suit, action or claim by or against the Company involving a payment by the
Company exceeding $100,000; or (vi) authorize or propose any of the foregoing,
or enter into or modify any contract, agreement, commitment or arrangement to do
any of the foregoing.
The Company has also agreed that the Company and its subsidiaries will use
their best efforts to keep in place their current insurance policies, including
but not limited to director and officer liability insurance, which are material
(either individually or in the aggregate), and notwithstanding such efforts, if
any such policy is canceled, the Company will use its best efforts to replace
such policy or policies.
The Company has agreed that neither the Company nor any of its subsidiaries
will, and the Company will use its best efforts to cause its affiliates,
officers, directors, employees, representatives and agents not to, directly or
indirectly, solicit, initiate or participate in discussions or negotiations
with, or provide any information to, any corporation, partnership, person or
other entity or group (other than the Purchaser or an affiliate or an associate
of the Purchaser) concerning, or enter into any agreement providing for, any
merger, sale of all or substantially all assets, sale of shares of capital stock
or similar transactions involving the Company or any subsidiary or division of
the Company, provided that the Investment Committee on behalf of the Company may
furnish or cause to be furnished information and may participate in such
discussions or negotiations and enter into such agreement if it believes in good
faith, after consultation with its financial adviser and the receipt of written
advice of counsel as to the legal considerations involved, that the failure to
provide such information or participate in such discussions or negotiations or
enter into such agreement would be likely to involve the members of the
Investment Committee in a breach of their fiduciary duties.
The Purchaser and the Company have each agreed to take all such reasonable
and lawful action as may be necessary or appropriate in order to effectuate the
Merger as promptly as possible.
ADDITIONAL AGREEMENTS. In the Merger Agreement, the Company, the Purchaser
and the Parent have agreed to certain other matters, including the preparation
of all documents required to be submitted under federal and state law to
stockholders and federal or state agencies; to submit the proposed Merger to a
vote of the stockholders of the Company, subject to the right of the Investment
Committee and the Board of Directors to withdraw their recommendations based on
the written advice of legal counsel or in accordance with the exercise of their
fiduciary responsibilities; the cancellation, settlement, conversion or exchange
of all outstanding Options as well as termination of all plans pursuant to which
such options are granted or issued; the payment of certain fees as set forth
below and to provide indemnification to certain directors and officers of the
Company and any of its subsidiaries. See "Directors and Executive Officers of
the Company."
FEES AND EXPENSES. All costs and expenses, except as described below,
incurred in connection with the Merger are to be paid by the party incurring
such expenses.
If (i) the Merger Agreement is terminated for any reason (ii) prior to such
termination (x) any Person (as defined below) (A) makes a written proposal to
engage in any transaction described in clauses (u) (v) or (w) of clause (iii) of
this paragraph (an "Acquisition Proposal") to the Company or any authorized
director, officer or agent or (B) publicly announces an Acquisition Proposal, or
(y) the Company or any authorized director, officer or agent of the Company
participates in discussions or negotiations with, or provides confidential
information to, any Person concerning an Acquisition Proposal, and (iii) within
one (1) year from the date of the Merger Agreement (u) any corporation,
partnership, person, entity or "group" (as that term is used in Section 13(d)(3)
of the Securities Exchange Act of 1934), including the Company or any of its
subsidiaries but excluding the Parent, the Purchaser or any of their affiliates
and excluding any group of which Parent, the Purchaser or any of their
affiliates is a member (a "Person"), shall have acquired all or a substantial
portion of the assets of the Company or consummated a merger or consolidation
with, or other acquisition of, the Company (v) any Person shall have acquired
beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of 35% or more of the shares of Common Stock then outstanding, or (w) a
"change in control" of the Company involving a Person within the meaning of Item
1 of Form 8-K under the Securities Exchange Act of 1934 shall have occurred, the
Company must promptly, but in no event later than five (5) business days after
consummation of any transaction referred to in clauses (u) (v) or (w) above, pay
to the Purchaser (by transfer of same-day funds to an account designated by the
Purchaser for such purpose) an amount equal to (i) $1,000,000, less (ii) any
funds paid by the Company to the Purchaser pursuant to the provisions described
in the second following paragraph; provided such amount shall be payable by the
Company with respect to any such transaction referred to in clauses (u) (v) and
(w) above only if (a) the transaction provides for the Company or the holders of
any shares of Common Stock being purchased in such transaction to receive
consideration per share having an indicated value in excess of $16.50 per share,
or (b) the amount of consideration received in such transaction is not readily
determinable on a per share basis and the Investment Committee or another
committee of one or more disinterested members of the Board of Directors of the
Company fails to make a good faith determination that such transaction is less
favorable to the stockholders of the Company from a financial point of view than
the Merger ((a) or (b) being a "Higher Offer").
Prior to the execution of the Merger Agreement, the Company agreed to
advance up to $175,000 to the organizers of the Purchaser to cover their
expenses related to the formation of the Purchaser, the formulation of a
proposal to acquire the shares of Common Stock and the preparation and
negotiation of the Merger Agreement. The Company also has agreed that it will
within five (5) business days after receipt of each notice of the incurrence
thereof by the Purchaser to the Company, advance to the Purchaser all
Reimbursable Expenses (as defined in the next paragraph); provided that the
Company is not obligated to pay under this paragraph in excess of an aggregate
amount of $750,000 (including the $175,000 referred to above, but excluding all
funds advanced or reimbursed with respect to Financing Fees (as defined in the
next paragraph), which expenses are not subject to such limit, but shall not
exceed $217,000; provided further, that the Company is not obligated to pay
under this paragraph in excess of an aggregate of $500,000 (including any
amounts advanced or reimbursed under the provisions described in this paragraph,
but excluding all funds advanced or reimbursed with respect to Financing Fees
which expenses are not subject to such limit, but shall not exceed $217,000)
unless 85% of the stores owned by the franchised dealers of the Company who
directly or indirectly are stockholders of the Purchaser and whose franchise
agreements expire prior to July 1, 1999 have extended the term of their
franchise agreements at least through the earlier of (x) July 1, 2002, or (y)
the date three (3) years after such franchise agreement would have expired;
provided that such franchised dealers will not be required to pay any fees in
connection with such extension. Any franchised dealer of the Company who
directly or indirectly is a stockholder of the Purchaser and whose franchise
agreement expires on or after July 1, 1999, has the right to extend such
agreement for up to three (3) additional years without the payment of any fee in
connection with such extension.
If the Merger Agreement is terminated or the Merger is not consummated for
any reason, the Company will, within five (5) business days after notice by the
Purchaser to the Company, reimburse the Purchaser for all reasonable
out-of-pocket costs and expenses (including, without limitation, reasonable
commitment
fees, reasonable termination fees, reasonable attorney fees and expenses
incurred by potential lenders which the Purchaser is obligated to reimburse, and
other fees and expenses incurred in connection with arranging financing for the
Merger (collectively "Financing Fees"), legal fees and expenses, appraisal fees,
fees and expenses of financial advisors and fees and expenses for accountants)
incurred by the Purchaser, the Parent, or on their behalf in connection with the
preparation or negotiation of the Merger Agreement or of the transactions
contemplated hereby or otherwise incurred in contemplation of the Merger
Agreement, the Merger or the other transactions contemplated by the Merger
Agreement which have not otherwise been reimbursed by the Company ("Reimbursable
Expenses"), provided that (i) the Company is not obligated to pay under this
paragraph in excess of an aggregate of $750,000 (including any amounts advanced
or reimbursed under the above paragraph, but excluding all funds advanced or
reimbursed with respect to Financing Fees which expenses are not subject to such
limit but shall not exceed $217,000) (ii) except for the reimbursement or
advance of expenses related to Financing Fees, the Company is not obligated to
pay any additional amount under this paragraph if the Purchaser has been paid
the amount provided in the second paragraph above (iii) the Company has the
right to review all expense receipts (other than receipts which contain
privileged or confidential information), and (iv) the Company is not obligated
to pay under this paragraph in excess of an aggregate of $500,000 (including any
amounts advanced or reimbursed under the above paragraph, but excluding all
funds advanced or reimbursed with respect to Financing Fees which expenses are
not subject to such limit, but shall not exceed $217,000) unless 85% of the
franchised dealers of the Company who directly or indirectly are stockholders of
the Purchaser and whose franchise agreements expire prior to July 1, 1999, have
extended the term of their franchise agreements at least through the earlier of
(x) July 1, 2002, or (y) the date three years after such franchise agreement
would have expired; provided that such franchised dealers will not be required
to pay any fees in connection with such extension.
MODIFICATION AND WAIVER. The Merger Agreement may be amended by a written
instrument executed by each of the Boards of Directors of the Company (including
the Investment Committee), the Purchaser and the Parent, or the time for
performance of any obligation or act or compliance with any agreement or
condition may be extended or waived by a party, provided that no amendment which
would materially adversely affect the stockholders of the Company may be made
without further approval of the stockholders after approval of the Merger by the
stockholders has been obtained.
Termination of the Merger Agreement. The Merger Agreement may be
terminated at any time prior to the Effective Time, notwithstanding approval of
the Merger by the stockholders of the Company, by mutual written consent of the
Boards of Directors of the Purchaser and the Company (including the Investment
Committee in the case of the Company). The Company or the Purchaser may
terminate the Merger Agreement if: (i) the Effective Time has not occurred by
February 28, 1996; (ii) a condition of the Merger has not been satisfied by the
Effective Time, provided that the right to terminate is not available to a party
whose failure to fulfill any obligation under the Merger Agreement has caused or
resulted in the failure of the Effective Time to occur; or (iii) the Company has
received a bona fide Higher Offer which is not matched or exceeded by the
Purchaser within five business days and the Investment Committee withdraws or
changes in a manner adverse to the Purchaser its recommendation of the Merger.
The Company may terminate the Merger Agreement for failure by the Purchaser
to perform its obligations under the Merger Agreement in any material way or if
the representations and warranties of the Purchaser are not true in any material
respect. The Purchaser may terminate the Merger Agreement if the Company enters
into or announces its intention to enter into another acquisition proposal which
would not qualify as a Higher Offer or anyone publicly announces or commences a
tender exchange or offer for the Company's Common Stock; or if certain
conditions of the Merger Agreement are unfulfilled by Company. If the Merger
Agreement is terminated it will become void and have no effect except with
respect to obligations of the parties to maintain confidentiality of information
and with respect to payment of certain expenses. See "The Merger Agreement --
Fees and Expenses." However, a party will remain liable for willful default of
its obligations under the Merger Agreement.
Exchange of Certificates. As soon as practicable after the Effective Time,
Interwest Transfer Co., Inc. (the "Exchange Agent") will mail to each record
holder of certificates representing shares of Common Stock ("Certificates") that
were converted into the right to receive cash, a letter of transmittal advising
the holders of the procedure for surrendering Certificates for payment of the
applicable Merger Consideration. Until surrendered, the Certificates will
represent only the right to receive the amount of Merger Consideration, without
interest, applicable to those shares represented by the Certificates. If
payment of the Merger Consideration is to be made to a person other than the
person in whose name the Certificate surrendered for payment is registered, that
person will be responsible for paying, or establishing the payment or
non-applicability of any transfer or other taxes required. After 180 days
following
the Effective Date, a holder of Certificates may surrender the Certificates for
payment of the Merger Consideration only to the Company, but will have no
greater rights to payment than a general unsecured creditor of the Company.
After the Effective Time, no transfers of Common Stock on the transfer books of
the Company will be made. Certificates presented after the Effective Time will
be canceled and exchanged only for the applicable Merger Consideration. From
and after the Effective Time, holders of Certificates will cease to have any
other rights with respect to the Common Stock, including rights to dividends or
voting rights.
Upon surrender and exchange of a Certificate, the holder will be paid,
without interest, the applicable Merger Consideration, less any amounts required
to be withheld under applicable federal income tax backup withholding
regulations. A holder who is a United States citizen and resident (other than a
corporation) may be able to avoid backup withholding by providing the Exchange
Agent with a correct taxpayer identification number in accordance with
instructions in the letter of transmittal. Certificates should not be
surrendered until the letter of transmittal is received.
No interest will accrue or be paid on the Merger Consideration upon
surrender of the Certificates.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following is certain information pertaining to the current directors of
the Company:
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
RESIDENCE OR AND MATERIAL OCCUPATIONS
NAME BUSINESS ADDRESS DURING LAST FIVE YEARS
<S> <C> <C>
John B. Adams 11755 East Peakview Avenue
Englewood, Colorado 80111
Executive Vice President of
the Company since April 1990;
also a part owner of CAPS Tire
Limited Liability Company,
8151 E. Arapahoe Road,
Englewood, Colorado 80112, a
limited liability company that
has owned a franchised Big O
Tires retail store in Colorado
since November 1993; Chief
Financial Officer of the
Company since November 1988;
Vice President -- Finance of
the Company from November 1988
until April 1990; Secretary of
the Company from November 1989
until December 1990; Treasurer
of the Company since April
1987; Assistant Secretary of
the Company since December
1990; Treasurer and a Director
of the Parent and the
Purchaser since July 1995 and
January 1995, respectively.
Ronald D. Asher 729 Red Arrow Trail
Palm Desert, California
92211 Owner of interests in
approximately 28 franchised
Big O Tires retail stores in
California and Arizona that
are owned by C.S.B.
Partnership ("C.S.B.") 27131
Calle Arroyo, Suite 1703, San
Juan Capistrano, California
92675, and by a joint venture
consisting of the Company and
S.A.N.D.S. Partnership 27131
Calle Arroyo, Suite 1703, San
Juan Capistrano, California
92675.
Frank L. Carney 4849 1960 West
Houston, Texas 77066 President of Papa Johns, 4849
1960 West, Houston, Texas
77066, a limited liability
company since February 1994;
Vice Chairman, Secretary and
Director of TurboChef, Inc.,
10500 Metric Drive, #128,
Dallas, Texas 75243, a
corporation engaged in the
design, development, assembly
and marketing of commercial
ovens, since January 1994;
Chairman of the Board of
WesterN SizzliN Inc., 17090
Dallas Parkway, Dallas, Texas
75248, from November 1988 to
December 1993 and served as
its President and Chief
Executive Officer from
November 1990 to December
1993; Director of Intrust
Bank, N.A. P.O. Box 1,
Wichita, Kansas 67201, a bank,
since December 1973, and
Intrust Financial Corporation
P.O. Box 1, Wichita, Kansas
67201, a bank, since August
1982.
Steven P. Cloward 11755 East Peakview Avenue
Englewood, Colorado 80111 Member of the Office of the
Chief Executive of the Company
since February 1995 and
President of the Company since
1986; Chief Executive Officer
of the Company from 1986 to
February 1995; also a part
owner of OK Tires, Inc., 2830
West 3500 South, West Valley
City, Utah 84119, a Utah
corporation that has owned a
franchised Big O Tires retail
store in Utah since October,
1994; President and a Director
of the Parent and the
Purchaser, since July 1995 and
January 1995, respectively.
Everett H. Johnston P.O. Box 1954
45275 Mar Vista
Mendocino, California 95460 Real estate investor since
1989; Chief Financial Officer,
Secretary, Treasurer and a
Director of Simpson
Manufacturing Co., Inc. 4637
Chabot, #200, Pleasanton,
California 94588, a
manufacturer of structural
building products, from 1983
to 1989, at which time Mr.
Johnson retired.
Robert K. Lallatin Box 7373
Jackson, Wyoming Member of the Big O Tires,
Inc. Dealer Planning Board
11755 East Peakview Avenue,
Englewood, Colorado 80111,
representing franchisees of
the Company in Idaho, Montana,
western Wyoming and northern
Nevada since March 1990;
Chairman of the Personnel
Training Committee of the
Dealer Planning Board since
July 1993; part owner of B & G
Tire, Inc., 265 Northgate
Mile, Idaho Falls, Idaho
83401, an Idaho corporation,
that has owned a franchised
Big O Tires retail store in
Idaho since November 1981 and
acquired a second franchised
Big O Tires retail store in
Idaho in August 1989; B & G
Tire, Inc., also owned two Big
O Tires retail stores in
Montana, one of which was sold
in March 1990 and the other
was closed in December 1993;
also a part owner of B & G
Jackson Partnership 530 S.
Highway 89, Jackson, Wyoming
83001, an Idaho general
partnership, that has owned a
franchised Big O Tires retail
store in Wyoming since
February 1992 as a partner
with one of the Company's
subsidiaries. This store was
purchased by B & G Jackson
Partnership effective December
31, 1994.
Horst K. Mehlfeldt 11755 East Peakview Avenue
Englewood, Colorado 80111 Vice Chairman and Member of
the Office of the Chief
Executive of the Company since
February 1995; Consultant to
the Company providing
investment advisory services
from September 1994 to
February 1995; Senior Vice
President and Chief Financial
Officer of Continental General
Tire, Inc., 1800 Continental
Blvd., Charlotte, North
Carolina 28273, a tire
manufacturer and marketer,
from January 1992 to February
1994; Vice President and
Treasurer of Continental
General Tire, Inc. from
January 1989 until December
1991.
John E. Siipola 11755 East Peakview Avenue
Englewood, Colorado 80111 Member of the Office of the
Chief Executive of the Company
since February 1995; Chairman
of the Board of the Company
since December 1991; President
and owner of Barrett
Publishing, Inc., a publishing
company, 2533 North Carson
Street, Suite 1147, Carson
City, Nevada 89706, since
January 1993; consultant and
investor since May 1991;
President of the Barrett
Group, 110 Sutter Street,
Suite 909, San Francisco,
California 94104, a personnel
consulting firm, from November
1988 until May 1991.
Ralph J. Weiger 79 North French Place
Prescott, Arizona 86303 Chairman and owner of the
Moneco Group, 7E East Hanover
Avenue, Morristown, New Jersey
07962-1518, an advisor to
franchise business clients,
international marketing
companies and investment and
commercial banking clients,
from March 1982 to July 1995;
Chairman of the Board of
America's Carpet Gallery, 4395
Electric Road, S.W., Roanoke,
Virginia 24018, a franchised
upscale carpet store, from
1991 to October 1993.
Chairman, President and Chief
Executive Officer of Midas
International Corp., 225 N.
Michigan Avenue, Chicago,
Illinois 60601, a franchisor
of exhaust, brake and
suspension services for
vehicles, from 1971 until 1978
and Vice Chairman and
President of Jiffy Lube
International, Inc., P.O. Box
2967, Houston, Texas 77252-2967, a franchisor of fast oil
change systems for vehicles,
from 1983 until 1985. A
director of the International
Franchise Association from
1976 until 1979 and President
in 1979.
C. Thomas Wernholm 435 Reflections Circle #22
San Ramon, California 94583 President and Chief Executive
Officer for D. Wernholm &
Sons, Industrial Contractors,
an industrial painting
contractor; Chairman of the
Board of Loomis Industries, a
company owned primarily by the
Wernholm family that
manufactures paraline
instruments. The address of
both companies is 927 A 40th
Avenue, Oakland, California
94601.
</TABLE>
The following is certain information pertaining to the current executive
officers of the Company who are not also directors of the Company:
PRESENT PRINCIPAL OCCUPATION
RESIDENCE OR AND MATERIAL OCCUPATIONS
NAME BUSINESS ADDRESS DURING LAST FIVE YEARS
Dennis J. Fryer 11755 East Peakview Avenue
Englewood, Colorado 80111 Regional Vice President -
Central Region of the Company
Since October 1992; New Store
Opening Specialist of the
Company from January 1990 to
October 1992.
Allen E. Jones 640 Park East Boulevard
New Albany, Indiana 47151 Regional Vice President -
Southeast Region of the
Company since December 1990.
Ronald H.
Lautzenheiser 11755 East Peakview Avenue
Englewood, Colorado 80111 Vice President - Business
Development of the Company
since November 1993; Vice
President - Marketing of the
Company from March 1990 to
November 1993, and employee of
the Company since December
1989.
Kelley A. O'Reilly 11755 East Peakview Avenue
Englewood, Colorado 80111 Vice President - Marketing of
the Company since November
1993; Director, President and
Treasurer of Impact
Advertising, Inc., 11755 East
Peakview Avenue, Englewood,
Colorado 80111, an
advertising agency for the
Company's franchised dealers,
since August 1994; Marketing
Director of the Company from
July 1991 to October 1993;
Advertising Director for
Western Washington Advertising
Trust, 1901 Auburn Way North,
Suite A, Auburn, Washington
98002, an advertising trust,
from March 1990 to June 1991.
Gregory L. Roquet 3333 Vaca Valley
Parkway Suite 100
Vacaville, California 95688 Regional Vice President - West
Central Region of the Company
since May 1993 and Regional
Vice President - Southwest
Region of the Company since
July 1991; Regional Director
of Operations - Southwest
Region of the Company from
December 1990 to July 1991.
Thomas L. Staker 11755 East Peakview Avenue
Englewood, Colorado 80111 Senior Vice President -
Operations of the Company
since January 1993; also a
part owner in OK Tires, Inc.,
2830 West 3500 South, West
Valley City, Utah 84119, a
Utah corporation, that owns a
franchised Big O Tires retail
store in Utah since October
1994; Vice President -
Operations of the Company from
December 1991 to December
1992; President and Director
of Staker Management, Inc.,
6043 West 10930 North,
Highland, Utah 84004, a
provider of consulting
services to the Company's
franchisees, from March 1991
to December 1991; President
and Director of Willow
Investments, Inc., 954
Westfield Road, Alpine, Utah
84003, a wholesaler and
manufacturer of clothing, from
October 1988 to November 1991;
25% stockholder, Secretary and
Director of Tad Tire, Inc.,
3000 Valmont, Boulder,
Colorado 80301, a franchisee
of the Company, from August
1982 to the present.
Philip J. Teigen 11755 East Peakview Avenue
Englewood, Colorado 80111 Secretary of the Company since
December 1990; General Counsel
of the Company since August
1990; Secretary of the Parent
and the Purchaser since July
1995.
Bruce H. Ware 3511 South T.K. Avenue
Boise, Idaho 83706 Regional Vice President -
Northwest Region of the
Company since December 1990
and Acting Corporate Manager
of Purchasing of the Company
since December 1995.
All of the directors and executive officers of the Company are citizens of
the United States except for Horst K. Mehlfeldt who is a citizen of the Federal
Republic of Germany.
INTEREST OF CERTAIN PERSONS IN THE MERGER
As described below under the heading "Information Pertaining to the Parent,
the Purchaser and Related Persons," Steven P. Cloward and John B. Adams, both of
whom are directors and officers of the Company, will be shareholders, officers
and directors of the Parent. In addition, Ronald D. Asher and Robert K.
Lallatin, directors of the Company, will be indirect shareholders of the
Parent.
Finally, Ms. O'Reilly and Messrs. Findlay, Fryer, Jones, Lautzenheiser, Roquet,
Staker, Teigen and Ware, who are officers of the Company, will be shareholders
or shareholders and officers of the Parent.
The Company has entered into Stock Appreciation Rights Agreements (the "SAR
Agreements") with John E. Siipola, Horst K. Mehlfeldt and Steven P. Cloward
effective February 15, 1995. Each SAR Agreement grants each person 100,000
share equivalent units. Each unit entitles each person to receive, in cash
only, the difference between $13.875 per share and the market value of a share
of common stock on the exercise date. The right to exercise any units does not
vest until August 16, 1995. Thereafter, each individual's right to exercise any
units vests at a rate of 16,662 units on August 16, 1995, and at a rate of 2,777
units on the 16th day of each month thereafter until the 16th day of January,
1998, at which time the 2,805 unvested units vest. Such vesting shall occur
only if the person is in the full-time employ of the Company or any subsidiary
of the Company on each vesting date.
By letters dated March 24, 1995, the Company confirmed to John E. Siipola
and Horst K. Mehlfeldt that, if a change in control of the Company took place
between February 15, 1995 and August 16, 1995, the Company would pay each a lump
sum payment of $150,000 if their positions with the Company terminated as a
result of such change in control. The Company also confirmed to Steven P.
Cloward that any severance will be determined in accordance with the Company's
severance pay guidelines in effect on February 12, 1995 as it applied to his
1995 compensation (salary and bonus) program in effect as of February 12, 1995,
if his employment terminated before August 16, 1995. The Company has now
entered into letter agreements with Messrs. Siipola and Mehlfeldt that provide
that Messrs. Siipola and Mehlfeldt each will receive a severance package
consisting solely of a lump sum payment of $150,000 minus any amounts they may
realize from the exercise of rights granted to them in the SAR Agreements if
the Merger is consummated and if their employment with the Company terminates
within 285 days after the date of the Merger is effective or if during that
period their salary is reduced from the salary in effect on the date the Merger
is consummated. Messrs. Siipola and Mehlfeldt have agreed that on the effective
date of the Merger, their SAR Agreements will terminate. The Company also
entered into a letter with Mr. Cloward that provides that his severance
arrangement will continue through the effective date of the Merger provided he
agrees upon the effective date of the Merger that his SAR Agreement will
terminate. The Board of Directors of the Company has authorized the extension
to a future date that will coincide with the Effective Time, as such time is
defined in the Merger Agreement, of temporary living and travel arrangements for
John E. Siipola.
Steven P. Cloward and John B. Adams are participants in the Company's
Supplemental Executive Retirement Plan (the "Plan"). Pursuant to the Plan, upon
a change in control of the Company such as will occur as a result of the Merger,
each participant will be entitled to receive all amounts credited to the
participant's account. Messrs. Cloward and Adams have elected to take their
distributions in lump sum payments rather than in monthly installments over 5 to
10 years. The aggregate distributions to them will be $11,632.50 plus any
amount credited in 1996 for 1995.
INDEMNIFICATION BY THE PARENT AND THE COMPANY. The Merger Agreement
provides that Parent and the Company will enter into indemnification agreements
with each present director of the Company as of the Effective Time. Regardless
of whether the Merger becomes effective, the Company will indemnify and hold
harmless each present and former director and officer of the Company and its
subsidiaries, including the members of the Investment Committee, from all
expenses, judgments, fines, penalties and penalties incurred in connection with
the defense or settlement, or successful disposition, of a proceeding in which
the indemnitee was involved by reason of being a director of the Company or
serving at the request of the Company as a principal of another entity.
Indemnification is conditioned upon the indemnitee providing notice to the
Company. Expenses may be advanced with the agreement of the indemnitee to repay
the advances if it is later determined that the indemnitee was not entitled to
such indemnification. The Company is required to purchase an insurance policy
to be in effect for three years in order to provide coverage for the indemnitee
similar to that provided by for the Company's directors.
INFORMATION PERTAINING TO THE PARENT,
THE PURCHASER AND RELATED PERSONS
GENERAL
Pursuant to the Merger, the Purchaser will merge with and into the Company
and the Company will remain as the surviving corporation. The result of the
Merger will be that the Company will become a wholly-owned subsidiary of the
Parent. The Merger Agreement provides that the Board of Directors of Purchaser
will become the Board of Directors of the Company at the Effective Time. As of
the date hereof, Steven P. Cloward and John B. Adams, both of whom are officers
and directors of the Company, and Scott E. Klossner, Michael E. Lyons and Wesley
E. Stephenson are the directors of the Purchaser and of the Parent. In
addition, Messrs. Cloward and Adams and Philip J. Teigen, who is also an officer
of the Company, are the only officers of the Purchaser and of the Parent. For
information pertaining to Messrs. Cloward, Adams and Teigen see "Directors and
Executive Officers of the Company."
Upon consummation of the Merger, it is currently contemplated that the
equity ownership of the Parent will be as follows: Big O Dealers, L.P. (the
"Dealer LP"), a California limited partnership, 50%; the ESOP, 35%; and Senior
Management, 15% (excluding the Management Restricted Stock [as defined below],
the shares "issuable" pursuant to the Dealer Warrant [as defined below], the
Sub-Debt Warrant, the ESOP Contributions [as defined below], and the Dealer
Purchase Bonus [as defined below] and assuming that the Management Options are
exercised as described below).
The Dealer LP will be formed prior to the Effective Time, and its address
will be 1111 Broadway, 24th Floor, Oakland, California 94607. Big O Tire
Dealers of America ("BOTDA"), a California corporation with its principal office
at 1111 Broadway, 24th Floor, Oakland, California 94607, is the general partner
of the Partnership.
The Dealer LP (i) will contribute to the Parent an aggregate of $10,000,000
consisting of cash and shares of Common Stock (valued at $16.50 per share), (ii)
has encouraged certain of its members to extend their franchise agreements with
the Company, and (iii) has committed (on behalf of its members) to certain
minimum tire purchases the attainment of which will entitle the Dealer LP to
additional shares of stock ("Dealer Purchase Bonus"). Providing and conditional
upon the dealers attaining certain minimum tire purchases, Parent will issue to
the Dealer LP, bonus shares of the common stock of Parent ("Parent Common
Stock") in an amount equal to the number of shares issuable to the ESOP for the
years 1996, 1997, 1998, 1999, and 2000. The number of shares shall be
determined based on the ESOP contribution for such year divided by the most
recent appraisal price for the stock if the stock is not traded on an exchange
or the bid price if publicly traded ("Appraised Price"). At the Effective Time,
the Dealer LP will own 569,801 shares (50.00% assuming the Management Options
are exercised) of Parent Common Stock. In addition, the Dealer LP will be
provided warrants to purchase an additional 120,000 shares of Parent Common
Stock exercisable five (5) years after consummation of the Merger at the
Appraised Price.
Pursuant to a Confidential Private Placement Memorandum ("Memorandum"),
qualified franchised Dealers have been given the opportunity to subscribe to
invest in the Dealer LP, and thus, the opportunity to participate in the
acquisition of the Company pursuant to the terms of the Merger Agreement.
On August 10, 1995, Steven P. Cloward and Wesley E. Stephenson received a
commitment letter from Kelly to loan the Dealer LP $5,000,000 (the "Dealer
Loan"). The Dealer Loan is subject to a number of contingencies including, but
not limited to, the completion of Kelly's due diligence, contribution of at
least $1,300,000 in equity by the Dealers to the Dealer LP, the participation of
80% of the Dealers in the Dealer LP and, execution of an agreement requiring the
Dealers to cause the Company to meet certain minimum tire purchases.
It is anticipated that the Dealer LP will purchase the Common Stock it will
contribute to the Parent in a series of private transactions, as follows:
As part of its required equity contribution to Parent, and in
addition to the Dealer Loan, BOTDA has, on behalf of the Dealer LP,
made a proposal to Balboa and Mr. Pavia to purchase the approximately
309,500 shares of Common Stock owned and held by Balboa (the "Balboa
Shares") at a price of $16.00 per share. In addition, the Dealer LP
has proposed to reimburse Balboa for expenses incurred by Balboa in
putting together proposals for certain stockholder actions and
resolutions to the stockholders of the Company in 1993 and 1994 by way
of proxy solicitations and related actions, which actions included
proposals that the Company explore all alternatives to enhance the
value of the Company (the "Reimbursement"); provided that the Dealer
LP's Reimbursement obligation to Balboa shall not exceed the sum of
$619,000. Part of the purchase price for the Balboa Shares and the
Reimbursement will be paid in cash with the remainder payable by way
of a secured promissory note with interest of ___% per annum, fully
amortized over a six-year period. A copy of a draft stock purchase
agreement with respect to the Balboa shares is attached as an exhibit
to the Schedule 13E-3.
In addition to the Dealer Loan and the proposal made to Balboa,
and also as part of its required equity contribution to Parent, BOTDA
has, on behalf of the Dealer LP, made proposals to certain current
stockholders of the Company, thereby offering to purchase such
stockholders' Common Stock at the price of $16.50 per share, payable
partly in cash or equivalent with the remainder payable by way of a
secured promissory note fully amortized over a six-year period. A
copy of a draft form of stock purchase agreement is attached as an
exhibit to the Schedule 13E-3.
The participants in the ESOP will also be offered the opportunity to become
shareholders of the Parent. The Company has been advised that at or about the
same time the Company mails this Proxy Statement to the Company's stockholders,
the Parent will offer participants in the ESOP the opportunity to exchange, at
the Effective Time, the shares allocated to the participants' respective
accounts for shares of Parent Common Stock. The ESOP shares will be exchanged
on the basis of one share of Parent Common Stock for one share of Common Stock.
Unless waived by the Purchaser, one of the conditions to the Merger is that at
least 80% of the shares of Common Stock held by the ESOP be exchanged for shares
of the Parent Common Stock. If such minimum exchange level is achieved, the
ESOP will own approximately _____% of the outstanding Parent Common Stock.
The Company has amended the ESOP to provide for mandatory contributions to
the ESOP by the Company of at least 5% of the qualified earnings. These
contributions will be made in the form of cash or Parent Common Stock (the "ESOP
Contributions").
Senior Management will contribute 64,094 shares of Common Stock to the
Parent. At the Effective Time, Senior Management will own an aggregate of
100,477 shares (9.39%) of Parent Common Stock. In addition, members of Senior
Management currently hold Options to purchase 163,678 shares of Common Stock
which at the Effective Time will be converted into options to purchase the same
number of shares of Parent Common Stock which will allow the optionee to pay for
the exercise of an option by forfeiting other options (the "Management
Options"). If Senior Management were to exercise all such options immediately
after the Effective Time and pay the exercise price of such options through the
cancellation of other options, Senior Management would own approximately 14.0%
of the outstanding Parent Common Stock. This would reduce the percentage
holdings in the Parent of the Dealer LP and the ESOP to 50.0% and 35.1%,
respectively.
As part of their employment compensation, Senior Management will receive
120,000 shares of restricted Parent Common Stock (the "Management Restricted
Stock"). The Management Restricted Stock will vest over a period of five years.
As described above, it is also anticipated that the Parent will issue the
Sub-Debt Warrant to BBC. The Sub-Debt Warrant will provide BBC the right to
purchase 12% of the equity in Parent.
CERTAIN INFORMATION PERTAINING TO BOTDA
The following is certain information pertaining to the current directors
and executive officers of BOTDA:
PRESENT PRINCIPAL OCCUPATION
RESIDENCE OR AND MATERIAL OCCUPATIONS
NAME BUSINESS ADDRESS DURING LAST FIVE YEARS
Guide Bertoli 420 Mowry Avenue
Fremont, CA 94536 Owner of three franchised
Big O Tire retail stores in
Fairfield, Fremont and Santa
Cruz, California since 1991
(two stores) and 1994; member
of Company's Dealer Planing
Board since 1994; Director of
BOTDA since 1995.
Bryan K. Edwards 377 East Cypress
Redding, CA 96002 Owner of a franchised Big O
Tire retail store in Redding,
California since 1987; member
of the Company's Dealer
Planning Board from 1989-1991;
Chief Financial
Officer/Treasurer and Director
of BOTDA since 1995.
Scott E. Klossner 3120 South Highland Drive
Salt Lake City, UT 84106 President and 100% owner of
K&B Corp., which has owned a
franchised Big O Tire retail
store in Utah since 1990;
Director of BOTDA since 1995;
member of the Company's Dealer
Planning Board in 1993, 1994
and 1995.
O. Kenneth Little 1625 Countryshire Avenue
Lake Havasu City, AZ 86403 Owner of franchised Big O Tire
retail store in Lake Havasu
City, Arizona since 1993; from
1987 to 1992, president and
owner of CLLBP, Inc., which
owned two Big O Tire retail
stores in California; member
of Company's Dealer Planning
Board since 1994.
Michael E. Lyons 1205 S. Main
Longmont, CO 80234 Sole owner of Myklyn Tires,
Inc., which has owned a
franchised Big O Retail store
in Longmont, Colorado since
1982; since 1995, 14.286%
owner of Brighton Automotive
Services, L.L.C., which owns a
franchised Big O Retail store
in Brighton, Colorado; since
1995, 100% owner of Lyons
Enterprises which owned a Big
O Retail Store in Louisville,
Colorado from 1992 to 1993;
member of Company's Dealer
Planning Board since 1985;
Vice President and director of
BOTDA since August 1995;
Director of Silverheels
Southwest Grill since 1995.
Louis Martinez 5200 Central SE
Albuquerque, NM 87108 Owner and manager of three
franchised Big O Retail stores
in New Mexico (since 1972,
1978 and 1991, respectively);
Director of BOTDA since 1995;
member of the Company's Dealer
Planning Board from 1972-1975,
1978-1981, and from 1993-
present.
Kenneth A. Roetto 216 E. Fairview Avenue
Meridian, ID 83680 Since 1986, owner and
president of Ken's Tire, Inc.,
which owns a franchised Big O
Tire retail in Meridian,
Idaho; Secretary and Director
of BOTDA since 1995; member of
the Company's Dealer Planning
Board from 1986-1995.
P. Thomas Staker 215 Clifty Drive
Madison, IN 47250 Since 1993, co-owner (50%) and
since 1990, manager, of T.M.S,
Inc., which owns a franchised
Big O Tire retail store in
Madison, Indiana; member of
Company's Dealer Planning
Board since 1994; Assistant
Vice President and Director or
BOTDA since 1995.
Wesley E.
Stephenson 4520 N. Rancho Road
Las Vegas, NV 89130 Since 1980, vice president of
operations and since 1978, 50%
owner of Spring Valley Tires,
Inc., which owns four
franchised Big O Tires retail
stores in Nevada; since 1991,
35% owner and vice president
of operations of Rancho Sierra
Tires, L.L.C., which owns one
franchised Big O Tires retail
store in Nevada; since 1994,
50% owner and vice president
of operations of Pahrump
Valley Tires, Inc., which owns
one franchised Big O Tires
retail store in Nevada;
President and Director of
BOTDA since 1995; member of
the Company's Dealer Planning
Board since 1992.
All of the directors and executive officers of the Parent, the Purchaser
and BOTDA are citizens of the United States.
SECURITY OWNERSHIP OF MANAGEMENT OF BOTDA IN COMPANY
The following table shows, as of October 30, 1995, the shares of the
Company's outstanding stock owned by each director or executive director of
BOTDA, and the shares of the Company's common stock owned by all the directors
and executive officers of BOTDA as a group.
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
Guido A. Bertoli 3,000 *
Bryan K. Edwards 102 *
Scott E. Klossner 82 *
O. Kenneth Little 1,000 *
Michael E. Lyons 308 *
Louis Martinez 761 *
Kenneth A. Roetto 230 *
P. Thomas Staker 87 *
Wesley E. Stephenson 50(2) *
_________________
* Percent of shares of Common Stock beneficially owned by this person does
not exceed 1% of the outstanding Common Stock.
(1) Unless otherwise indicated, the shares are held directly in the names of
the beneficial owners and each person has sole voting and sole investment
power with respect to such shares.
(2) Shares are held in the name of Rancho Sierra Tires, L.L.C., of which this
person is a 20% equity owner.
CERTAIN PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH COMPANY.
Since January 1, 1993, no transactions involving more than 1% of the
Company's consolidated revenues for the Company's fiscal years ended December
31, 1993 or 1994, or for the nine months ended September 30, 1995, have occurred
or been entered into between the Company and any director or executive officer
of BOTDA, any director or executive officer of the Parent or any director or
executive officer of the Purchaser, except as follows:
1. Each director and executive officer of BOTDA is expected to become a
limited partner of Dealer LP. Dealer LP will acquire an interest in Parent, a
party to the Merger Agreement. The interest in Dealer LP to be owned by each
such person cannot be determined at this time.
2. Pursuant to the terms of the franchise agreements between the Company
and those entities of which Mr. Stephenson has an ownership interest, the
following amounts were paid to the Company in the form of franchise fees,
royalties and product purchases:
YEAR AMOUNT
1993 $3,335,048
1994 $3,680,324
1995 (1/1-9/30) $3,667,215
3. Pursuant to the terms of the franchise agreement between the Company
and Mr. Martinez, the following amounts were paid to the Company in the form of
franchise fees, royalties and product purchases:
YEAR AMOUNT
1993 $ 951,886
1994 $1,107,612
1995 (1/1-9/30) $ 887,718
4. In June 1995, the Company loaned $75,000 to Brighton Automotive
Services, L.L.C., a limited liability company, that owns a franchised Big O
Retail Store in Brighton, Colorado, and in which Michael E. Lyons is a 14.286%
owner. The loan bears interest at prime plus 2% and is payable in monthly
installments of principal and interest through June 20, 1998.
5. In August 1995, the Company loaned $59,160 to K & B Corp., of which
Scott E. Klossner is the 100% owner. The loan bears interest at prime plus 2%
and is payable in equal monthly installments of interest only until April 1,
1996, at which time monthly installments of principal and interest are payable
through August 1, 1998.
RECENT TRANSACTIONS BY THE COMPANY IN THE COMMON STOCK
In May 1993, the Company consummated agreements with Continental General
Tire, Inc. ("General") resulting in the Company's repurchase of 400,000 shares
of the Company's Common Stock owned by General. The agreements also resulted in
the repurchase and cancellation of warrants held by General to purchase up to
1,000,000 shares of the Company's Common Stock. The repurchase price for the
Common Stock and warrants was $6,100,000. General previously held 11.27% of the
Company's outstanding Common Stock and no longer has any ownership interest in
the Company. The agreement between General and the Company also resulted in the
repayment of revolving financing supplied by General in the amount of
$1,764,000, the termination of the existing supply agreement between the Company
and General and the termination of other related agreements. Concurrent with
the termination of the supply and related agreements, the Company and General
entered into a marketing agreement whereby General agreed to continue to supply
Big O branded tires to the Company. In January 1994, the Company and General
agreed to terminate the marketing agreement.
In June 1993, the Company sold 93,333 shares of the Company's Common Stock
to an unaffiliated person at a price of $12.75 per share. After deducting the
concession paid to the broker-dealer that placed the shares and after deducting
the expenses of the offering, the Company realized approximately $1,100,000 from
the sale of the shares. The Company used approximately $788,000 of such
proceeds to satisfy obligations related to the Company's 1988 acquisition of Big
O Tires of Louisville, Inc. The balance of the net proceeds of approximately
$312,000 was used by the Company for general corporate purposes.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the Securities
and Exchange Commission are incorporated herein by reference: (i) the Company's
Annual Report on Form 10-K for the year ended December 31, 1994 and the
amendment thereto; (ii) the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1995, June 30, 1995 and September 30, 1995; and (iii)
the Company's Current Reports on Form 8-K and Form 8-K/A dated April 6, 1995,
April 13, 1995, June 5, 1995, June 9, 1995, July 25, 1995, July 27, 1995, August
17, 1995, September 5, 1995, October 4, 1995, October 18, 1995, and November 17,
1995. All documents filed by the Company pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 after the date of this Proxy Statement and
prior to the Special Meeting (or any adjournments or postponements thereof)
shall be deemed to be incorporated into this Proxy Statement by reference and to
be a part hereof from the date of filing of such documents.
This proxy statement is accompanied by a copy of the Company's Annual
Report on Form 10-K, as amended, for the fiscal year ended December 31, 1994.
The Company will provide without charge to each person to whom a copy of this
Proxy Statement has been delivered, on the written or oral request of such
person, by first class mail or equally prompt means, within one business day of
the receipt of such request, copies of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995, that has been incorporated herein
by reference and copies of any document filed as an exhibit to the Schedule
13E-3 and not included in this Proxy Statement. Requests for such copies
should be
directed to Beth Hayne, Director, Investor Relations, at the Company at its
principal offices, 11755 East Peakview Avenue, Englewood, Colorado 80011, or by
telephone at (303) 790-2800. Such requests should be made by _________________
to ensure delivery prior to the Special Meeting.
STOCKHOLDER PROPOSALS
It is currently anticipated that the Company's next annual meeting of
stockholders will occur after the Effective Time and accordingly the Company's
existing stockholders will not be entitled to participate in such meeting unless
the Merger is not consummated. If the Merger is not consummated, proposals of
stockholders intended to be presented at the next annual meeting of the
Company's stockholders must be received by the Company within a reasonable time
prior to the mailing of the proxy statement for such meeting but no later than
___________________, 1995.
By Order of the Board of Directors
Susan D. Hendee, Assistant Secretary
Englewood, Colorado
__________, 1995
PRELIMINARY COPY
PROXY
BIG O TIRES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD __________, 1996
The undersigned hereby constitutes and appoints John E. Siipola, Horst K.
Mehlfeldt, Steven P. Cloward, and each of them, the true and lawful attorneys
and proxies of the undersigned with full power of substitution and appointment,
for and in the name, place and stead of the undersigned, to act for and to vote
all of the undersigned's shares of common stock of Big O Tires, Inc. ("Company")
at the Special Meeting of Stockholders to be held at _________________
_________________________ Colorado __________ on _____________, 1996, at ______:
__.m., Mountain Standard Time, and at all adjournments thereof for the following
purposes:
1. Approval of the Plan of Merger dated July 24, 1995, as amended, by and
among the Company, BOTI Holdings, Inc. and BOTI Acquisition Corp. and the Merger
of BOTI Acquisition Corp. into the Company, all as described in the accompanying
Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN FROM VOTING
2. In their discretion, the Proxies are authorized to vote upon such
other business as lawfully may come before the meeting.
The undersigned hereby revokes any proxies as to said shares heretofore
given by the undersigned and ratifies and confirms all that said attorneys and
proxies lawfully may do by virtue hereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THEN THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
AT THE MEETING FOR APPROVAL OF THE MERGER.
It is understood that this proxy confers discretionary authority in respect
to matters not known or determined at the time of the mailing of the Notice of
Special Meeting of Stockholders to the undersigned. The proxies and attorneys
intend to vote the shares represented by this proxy on such matters, if any, as
determined by the Board of Directors.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders and the Proxy Statement furnished therewith.
Dated and Signed:
__________________________________________, 1996
___________________________________________
___________________________________________
Signature(s) should agree with the name(s) stenciled
hereon. Executors, administrators, trustee, guardians
and attorneys should so indicate when signing.
Attorneys should submit powers of attorney
AGREEMENT AND PLAN OF MERGER
by and among
BOTI ACQUISITION CORP.,
BOTI HOLDINGS, INC.
and
BIG O TIRES, INC.
Dated as of July 24, 1995
TABLE OF CONTENTS
Page
ARTICLE I - THE MERGER
1.1 The Merger 1
1.2 Effects of the Merger 1
1.3 Consummation of the Merger 2
1.4 Articles; Bylaws; Directors and Officers; Name 2
1.5 Conversion of Shares 2
1.6 Stock Options 3
1.7 Exchange of Certificates 4
1.8 Taking of Necessary Action; Further Action 5
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF
PARENT AND THE PURCHASER
2.1 Organization and Qualification 5
2.2 Capitalization 5
2.3 Authorization; Binding Agreement 5
2.4 Compliance 6
2.5 Brokers and Finders 6
2.6 Representations and Warranties of the Company 6
2.7 Proxy Statement, Schedule 13E-3 6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
3.1 Organization and Qualification 7
3.2 Capitalization 7
3.3 Authorization; Binding Agreement 8
3.4 Compliance 8
3.5 Commission Filings 9
3.6 Changes 9
3.7 Fairness Opinion and Approval by Board of Directors
and Investment Committee 10
3.8 Brokers and Finders 10
3.9 Litigation 11
3.10 Material Agreements 11
3.11 Servicemarks, Trade Names 11
3.12 Taxes 11
3.13 Employee Benefit Plans 12
Page
ARTICLE IV - CONDUCT OF BUSINESS PENDING THE MERGER 13
ARTICLE V - ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement 15
5.2 Meeting of Stockholders of the Company 16
5.3 Cancellation of Stock Options 16
5.4 Fees and Expenses 17
5.5 Further Assurances 19
5.6 No Solicitation 19
5.7 Notification of Certain Matters 19
5.8 Access to Information 20
5.9 Directors' Indemnification 20
ARTICLE VI - CONDITIONS
6.1 Conditions to Obligation of Each Party to Effect the Merger
21
6.2 Additional Conditions to the Obligation of the Purchaser
to Effect the Merger 21
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER
7.1 Termination 22
7.2 Effect of Termination 24
7.3 Amendment 24
7.4 Waiver 24
ARTICLE VIII - GENERAL PROVISIONS
8.1 Public Statements 24
8.2 Notices 24
8.3 Interpretation 26
8.4 Representations and Warranties 26
8.5 Headings 26
8.6 Successors and Assigns 26
8.7 Counterparts 26
8.8 Forum 26
8.9 Miscellaneous 26
8.10 Actual Knowledge 27
ANNEX A - INDEMNIFICATION AGREEMENT
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"),
dated as of July 24, 1995, is between BOTI Holdings, Inc., a
Nevada corporation ("Parent"), BOTI Acquisition Corp., a Nevada
corporation and a wholly owned subsidiary of Parent (the
"Purchaser"), and BIG O Tires, Inc., a Nevada corporation (the
"Company").
RECITALS
A. The respective Boards of Directors of the Purchaser,
Parent and the Company have approved the acquisition of the
Company pursuant to the terms of this Agreement.
B. A special committee appointed by the Board of Directors
of the Company and consisting of the four directors who are not
employed by the Company and will not have an interest in the
Purchaser (the "Investment Committee") has recommended that the
Board of Directors of the Company approve the merger of the
Purchaser into the Company, in accordance with the General
Corporation Law of the State of Nevada (the "Corporation Law"),
upon the terms and subject to the conditions set forth herein
(the "Merger"), and has determined that the Merger is in the best
interests of and, subject to the receipt of the Fairness Opinion
(as defined in Section 6.1(f)), fair to the public stockholders
of the Company;
C. The respective Boards of Directors of the Purchaser,
Parent and the Company have duly approved the Merger, and the
Board of Directors of the Company has resolved to recommend the
Merger to the Company's stockholders.
AGREEMENT
In consideration of the premises and the mutual
covenants herein contained and for other good and valuable
consideration the receipt and adequacy of which are hereby
acknowledged, Parent, the Purchaser and the Company hereby agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in
Section 1.3 hereof), in accordance with this Agreement and the
Corporation Law, the Purchaser shall be merged with and into the
Company, the separate existence of the Purchaser (except as may
be continued by operation of law) shall cease, and the Company
shall continue as the surviving corporation (the "Surviving
Corporation"). The Company and the Purchaser are sometimes
referred to herein as the "Constituent Corporations."
1.2 Effects of the Merger. The Merger shall have the
effects set forth in the Corporation Law. As of the Effective
Time, the Company shall be a wholly owned subsidiary of Parent.
1.3 Consummation of the Merger. As soon as is
practicable after the satisfaction or waiver of the conditions
set forth in Article VI hereof, the parties hereto will cause the
Merger to be consummated by filing with the Secretary of State of
the State of Nevada a certificate of merger in such form as
required by, and executed in accordance with, the relevant
provisions of the Corporation Law and take all such further
actions as may be required by law to make the Merger effective.
The Merger shall occur immediately upon the filing of the
certificate of merger with the Secretary of State of the State of
Nevada (the date and time of such filing being referred to herein
as the "Effective Time"). The closing of the Merger shall take
place at the offices of Gibson, Dunn & Crutcher, 1801 California
Street, Suite 4200, Denver, Colorado 80202, or at such other
place as the parties may mutually agree.
1.4 Articles; Bylaws; Directors and Officers; Name.
At the Effective Time, (a) the Articles of Incorporation of the
Surviving Corporation shall be the Articles of Incorporation of
the Purchaser, as in effect immediately prior to the Effective
Time, until thereafter amended as provided by law; (b) the Bylaws
of the Surviving Corporation shall be the Bylaws of the
Purchaser, as in effect immediately prior to the Effective Time,
until thereafter amended as provided by law; (c) the directors of
the Purchaser immediately prior to the Effective Time will be the
initial directors of the Surviving Corporation, until their
successors are elected; (d) the officers of the Purchaser will be
the initial officers of the Surviving Corporation, in each case,
until their successors are elected and qualified; and (e) the
name of the Surviving Corporation shall be the corporate name of
the Company immediately prior to the Effective Time.
1.5 Conversion of Shares. At the Effective Time, by
virtue of the Merger and without any action on the part of the
Purchaser, the Company, the Surviving Corporation or the holder
of any of the following securities:
(a) Each share of the Company's Common Stock, par
value $0.10 per share (the "Shares"), which is issued and
outstanding immediately prior to the Effective Time (other than
(i) Dissenting Shares (as defined below in Section 1.5(e)),
(ii) Shares held by, or which are under contract to be acquired
by, any shareholder of Parent or of the Purchaser, (iii) Shares
held by, or which are under contract to be acquired by, Parent,
the Purchaser, the Company or any direct or indirect subsidiary
of the Company, Parent or the Purchaser and (iv) shares held by
the ESOP (as defined below) for the benefit of any shareholder
who has elected to have such shares converted into shares of
Parent) shall be canceled and extinguished and be converted into
and become a right to receive a cash payment of $16.50 per Share,
without interest (which payment shall include $0.01 per share for
the redemption of the Rights as described in Section 6.2(e)).
Such cash payment shall hereinafter be referred to as the "Merger
Consideration."
(b) Each Share which is issued immediately prior
to the Effective Time and owned by the Company or by any direct
or indirect subsidiary of the Company immediately prior to the
Effective Time shall be canceled, and no payment shall be made
with respect thereto.
(c) Each Share which is issued and outstanding
immediately prior to the Effective Time and owned by or which is
under contract to be acquired by the parties listed in clauses
(ii), (iii) and (iv) in the parenthetical contained in
subsection (a) of this Section 1.5, shall be canceled and
retired, and no payment shall be made with respect thereto.
(d) Each share of Common Stock, par value $0.01
per share, of the Purchaser issued and outstanding immediately
prior to the Effective Time shall be converted into and become
one validly issued, fully paid and nonassessable share of Common
Stock, par value $0.10 per share, of the Surviving Corporation.
(e) Notwithstanding anything to the contrary in
this Agreement, if appraisal rights are available to holders of
the Shares pursuant to Sections 78.471-482 of the Corporation
Law, each outstanding Share, the holder of which has demanded and
perfected his rights for appraisal of such Shares in accordance
with all of the requirements of the Corporation Law and has not
effectively withdrawn or lost his right to such appraisal (the
"Dissenting Shares"), shall not be converted into the Merger
Consideration, but shall be canceled and the holders of any
Dissenting Shares shall be entitled only to such rights as are
granted by the Corporation Law.
1.6 Stock Options. The Company shall use all
reasonable efforts to cancel and settle immediately prior to the
Effective Time, by cash payment to the holders thereof, all the
outstanding options to purchase Shares or stock appreciation
rights (collectively, the "Options") which have been granted
under any stock option, stock appreciation or compensation plan
or arrangement of the Company (collectively, the "Plans") to all
current or former employees of the Company who are not Directors
of the Company unless the holder thereof and Parent or the
Purchaser have agreed to (i) convert such Options into options to
purchase the stock of Parent, the Purchaser or the Surviving
Corporation ("Exchange Options") or (ii) exchange such Options
(to the extent such Options are options to purchase Shares or
stock appreciation rights granted prior to February 1, 1995) for
shares of the stock of Parent, the Purchaser or the Surviving
Corporation, in any of which case the Company shall cancel such
converted or exchanged Options without payment. Immediately
prior to the Effective Time, the Company shall cancel and settle,
by cash payment to the holders thereof, all Options granted under
Plans to Directors of the Company other than Messrs. Steven P.
Cloward and John B. Adams. In canceling an Option by cash
payment, the Company shall make, immediately prior to the
Effective Time and as full settlement for such Options, a cash
payment to the holder of each such canceled Option, in an amount
equal to the excess, if any, of the Merger Consideration over the
per Share exercise price of such Option, multiplied by the number
of Shares for which such Option was granted, regardless of
whether such Option is then exercisable, less all deductions
required by any Plan (the "Option Settlement Amount"); provided,
however, that if the terms of any Plan or an Option allow such
Option to be canceled for an amount less than the Option
Settlement Amount, then the Company shall cancel such Option for
a cash payment of such lesser amount. Except for Options that
the Company may grant on January 1, 1996 pursuant to the Big O
Tires, Inc. Director and Employee Stock Option Plan, the Company
shall not grant, pursuant to the Plans or otherwise, any options
to purchase Shares as of and following the date hereof.
1.7 Exchange of Certificates.
(a) From and after the Effective Time, a bank or
trust company to be designated by the Purchaser and approved by
the Investment Committee (the "Exchange Agent") shall act as
exchange agent in effecting the exchange of the Merger
Consideration for certificates representing Shares entitled to
payment pursuant to Section 1.5 (the "Certificates"). As part of
the closing of the Merger, the Purchaser shall deposit with the
Exchange Agent an amount necessary to enable the Exchange Agent
to exchange the Merger Consideration for all outstanding shares
to be converted into Merger Consideration.
(b) Promptly after the Effective Time, the
Exchange Agent shall mail to each record holder of Shares a
letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the
Exchange Agent) and instructions for use in surrendering
Certificates and receiving the Merger Consideration therefor.
Upon the surrender of each Certificate, together with such letter
of transmittal duly executed and completed in accordance with the
instructions thereto, the holder of such Certificate shall be
entitled to receive in exchange therefor an amount equal to the
Merger Consideration multiplied by the number of Shares
represented by such Certificate, and such Certificate shall be
canceled. Until so surrendered and exchanged, each such
Certificate shall represent solely the right to receive an amount
equal to the Merger Consideration multiplied by the number of
Shares represented by such Certificate. No interest shall be
paid or accrued on the Merger Consideration upon the surrender of
the Certificates. If any Merger Consideration is to be paid to a
person other than the person in which the Certificate surrendered
in exchange therefor is registered, it shall be a condition to
such exchange that the person requesting such exchange shall pay
to the Exchange Agent any transfer or other taxes required by
reason of the payment of such Merger Consideration to a person
other than that of the registered holder of the Certificate
surrendered, or such person shall establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not
applicable. Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to a holder of Shares
for any Merger Consideration delivered to a public official
pursuant to applicable abandoned property, escheat and similar
laws.
(c) Promptly following the date which is 180 days
after the Effective Time, the Exchange Agent's duties shall
terminate. Thereafter, each holder of a Certificate may
surrender Certificates to the Surviving Corporation and (subject
to applicable abandoned property, escheat and similar laws)
receive in exchange therefor an amount equal to the Merger
Consideration multiplied by the number of Shares represented by
such Certificate, without any interest thereon, but shall have no
greater rights against the Surviving Corporation than may be
accorded to general unsecured creditors of the Surviving
Corporation.
(d) After the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving
Corporation of any Shares. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the
Exchange Agent, they shall be canceled and exchanged for the
applicable Merger Consideration, as provided in this Article I.
1.8 Taking of Necessary Action; Further Action. The
Purchaser and the Company shall each take all such reasonable and
lawful action as may be necessary or appropriate in order to
effectuate the Merger as promptly as possible. If, at any time
after the Effective Time, any such further action is necessary or
desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession
to all assets, property, rights, privileges, powers, and
franchises of either of the Constituent Corporations, the
officers and directors of such corporations are fully authorized
in the name of their corporation or otherwise to take, and shall
take, all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
In order to induce the Company to enter into this
Agreement, each of Parent and the Purchaser represent and warrant
to the Company as follows:
2.1 Organization and Qualification. Each of Parent
and the Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Nevada and has the requisite corporate power and authority to
carry on its business as now being conducted. Each of Parent and
the Purchaser is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the
character of its properties, owned or leased, or the nature of
its activities makes such qualification necessary, except for
failures to be so qualified or in good standing which would not,
in the aggregate, have a material adverse effect on Parent or the
Purchaser. Each of Parent and the Purchaser has delivered to the
Company complete and correct copies of their respective
Certificates of Incorporation and Bylaws, as in effect on the
date hereof.
2.2 Capitalization. The authorized capital stock of
Parent on the Effective Date will consist of 10,000,000 shares of
Common Stock, par value $0.01 per share ("Parent Common Stock").
The authorized capital stock of the Purchaser consists of 1,000
shares of Common Stock, par value $0.01 per share ("Purchaser
Common Stock"). As of the date hereof, one share of Purchaser
Common Stock is validly issued, fully paid, nonassessable and
free of preemptive rights. The one issued and outstanding share
of Purchaser Common Stock is owned by Parent.
2.3 Authorization; Binding Agreement. Each of Parent
and the Purchaser has the requisite corporate power and authority
to enter into this Agreement and to perform its respective
obligations hereunder and to consummate the transactions
contemplated hereunder. The execution and delivery of this
Agreement by Parent and the Purchaser and the consummation by
Parent and the Purchaser of transactions contemplated hereby have
been duly and validly authorized by their respective Boards of
Directors and stockholders, and no other corporate proceeding on
the part of Parent or the Purchaser is necessary to authorize the
execution, delivery and performance of this Agreement and the
transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Parent and the Purchaser
and constitutes a legal, valid and binding obligation of Parent
and the Purchaser, enforceable against each of them in accordance
with its terms.
2.4 Compliance. Neither the execution and delivery of
this Agreement by Parent or the Purchaser nor the consummation of
the transactions contemplated hereby nor compliance by Parent or
the Purchaser with any of the provisions hereof will (i) violate,
conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result
in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Parent or the
Purchaser under, any of the terms, conditions or provisions of
(x) the Articles of Incorporation or Bylaws of Parent or the
Purchaser, or (y) any material note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or
obligation to which Parent or the Purchaser is a party, or to
which it, or any of its properties or assets, may be subject, or
(ii) subject to compliance with the statutes and regulations
referred to in the last sentence of this paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule
or regulation applicable to Parent or the Purchaser or any of
their respective properties or assets except in the case of each
of clauses (i) and (ii) above, for such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances, which, in the
aggregate, would not have a material adverse effect on the
financial condition, business or operations of Parent or the
Purchaser and their subsidiaries taken as a whole, or which are
cured, waived or terminated prior to the Effective Time. Other
than in connection with or in compliance with the provisions of
the Corporation Law, the Exchange Act, the "takeover" or "blue
sky" laws of various states, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules and regulations thereunder
(the "Hart-Scott-Rodino Act"), no notice to, filing with, or
authorization, consent or approval of, any domestic or foreign
public body or authority is necessary for the consummation by
Parent or the Purchaser of the transactions contemplated by this
Agreement.
2.5 Brokers and Finders. Neither Parent nor the
Purchaser has engaged any broker, finder or investment banker
which engagement would require the payment of any brokerage,
finders or other fees or commissions by Parent or the Purchaser
in connection with this Agreement or the transactions
contemplated hereby or in connection with any transaction
involving the Company, except for the engagement of KPMG Peat
Marwick LLP ("KPMG"), pursuant to the letter agreements dated
October 18 and 19, 1994 and May 11, 1995, complete and accurate
copies of which have been furnished to the Investment Committee.
2.6 Representations and Warranties of the Company. As
of the date of this Agreement, neither Parent nor the Purchaser
has any actual knowledge of any representation or warranty of the
Company contained in this Agreement not being true and correct in
any material respect, and has no reason to believe that they will
not continue to be true and correct in all material respects
until the closing.
2.7 Proxy Statement, Schedule 13E-3. None of the
information supplied or to be supplied by Purchaser or any of its
representatives or affiliates for inclusion, or included or
incorporated by reference in (a) the Proxy Statement or any
amendment or supplement thereto, or (b) any Schedule 13E-3 or any
amendment or supplement thereto, or (c) any other documents to be
filed with the Securities and Exchange Commission (the
"Commission") or any other regulatory agency in connection with
the transactions contemplated hereby, will, insofar as such
schedule and documents relate to the Purchaser, its affiliates,
agents and representatives at the respective time such documents
are filed, and at the time of the meeting of the Company's
shareholders to vote upon this Agreement or at the time of
mailing of the Proxy Statement to the Company's shareholders, be
false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements
therein, at the time and in light of the circumstances under
which they were made, not false or misleading or necessary to
correct any statement in any earlier communication with respect
to the solicitation of any proxy for the Company shareholders'
meeting. The Schedule 13E-3 and any related documents, if
required in connection with the transactions contemplated
hereunder, will comply as to form in all material respects with
the requirements of law insofar as such schedule and documents
relate to Purchaser, its affiliates and agents and
representatives.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce Parent and the Purchaser to enter
into this Agreement, the Company represents and warrants to
Parent and the Purchaser as set forth below. Under no
circumstances will Parent or the Purchaser have any claim against
the Company for any inaccuracy or incompleteness of any of the
following representations and warranties (except for the
representations and warranties contained in Section 3.7 and any
inaccuracy which is within the actual knowledge of any of the
members of the Investment Committee, the Chairman of the Board of
the Company or the Vice Chairman of the Board of the Company at
the time of execution of this Agreement), which are given for the
sole purpose of defining the scope of Section 6.2(b) of this
Agreement.
3.1 Organization and Qualification. Each of the
Company and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate
power and authority to carry on its business as it is now being
conducted. Each of the Company and its subsidiaries is duly
qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its
properties owned or leased or the nature of its activities makes
such qualification necessary, except for failures to be so
qualified or in good standing which would not, in the aggregate,
have a material adverse effect on the Company and such
subsidiaries taken as a whole.
3.2 Capitalization. The authorized capital stock of
the Company consists of 100,000,000 shares of Common Stock, par
value $0.10 per share. As of June 30, 1995, (i) 3,348,936
Shares, were validly issued and outstanding, fully paid,
nonassessable and free of preemptive rights; (ii) 165 Shares were
to be issued as a result of the exercise of an Option prior to
June 30, 1995, (iii) 31,261 Shares were held in the treasuries of
the Company and its subsidiaries; (iv) 216,308 Shares were
reserved for issuance pursuant to outstanding Options heretofore
granted under the Plans; and (v) an additional number of Shares
were to be reserved for issuance under Options which may be
granted on January 1, 1996, under the Big O Tires, Inc. Director
and Employee Stock Option Plan. Since June 30, 1995, the Company
has not issued (i) any shares of Common Stock, except pursuant to
the exercise of Options, or (ii) any Options. Set forth on the
Disclosure Certificate is a list of all holders of Options
(including stock appreciation rights), the number of options and
rights held by each individual and the Plan under which such
options or rights existed as of June 30, 1995. All issued and
outstanding shares of capital stock of the subsidiaries of the
Company are owned by the Company or a wholly owned subsidiary of
the Company free and clear of all liens, charges, encumbrances,
claims and options of any nature. Except as contemplated by
clauses (i) through (iii) above, and except for rights
outstanding pursuant to the Rights Agreement dated as of August
26, 1994, between the Company and Interwest Co., Inc. as Rights
Agent (the "Rights"), and except as set forth in a certificate of
the Company of even date herewith (the "Disclosure Certificate"),
there are no, and at the Effective Time there will be no, other
Shares or other equity securities of the Company outstanding, and
no other outstanding options, warrants, rights to subscribe to
(including any preemptive rights), calls or commitments of any
character whatsoever to which the Company or any of its
subsidiaries is a party or may be bound, requiring the issuance
or sale of Shares or other equity securities of the Company or
any of its subsidiaries or securities or rights convertible into
or exchangeable for such shares or other equity securities, and
except as set forth on the Disclosure Certificate, there are no
contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound
(x) to issue, sell or transfer additional Shares or other equity
securities or options, warrants or rights to purchase or acquire
any additional Shares or other equity securities or securities
convertible into or exchangeable for such shares or other equity
securities or (y) which restricts the transfer of or otherwise
encumbers any Shares, other than restrictions pursuant to
securities laws and restrictions in regard to 37,698 restricted
Shares issued pursuant to the Company's Long Term Incentive Plan.
3.3 Authorization; Binding Agreement. The Company has
the requisite corporate power and authority to enter into this
Agreement, to perform its obligations hereunder and, subject to
shareholder approval, to consummate the transactions contemplated
hereunder. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by the
Board of Directors of the Company, and except for the approval of
the Merger by the Company's stockholders in accordance with the
Corporation Law, no other corporate proceeding on the part of the
Company is necessary to authorize the execution, delivery and
performance of this Agreement and the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by the Company and constitutes a legal, valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms.
3.4 Compliance. Except as set forth in the Disclosure
Certificate, neither the execution and delivery of this Agreement
by the Company, nor the consummation of the transactions
contemplated hereby nor compliance by the Company with any of the
provisions hereof will (i) violate, conflict with, or result in a
breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate
the performance required by, or result in a right of termination
or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of its subsidiaries
under, any of the terms, conditions or provisions of (x) their
respective charters or bylaws or (y) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which the Company or any such
subsidiary is a party or to which they or any of their respective
properties or assets may be subject, or (ii) subject to
compliance with the statutes and regulations referred to in the
last sentence of this paragraph, violate any judgment, ruling,
order, writ, injunction, decree, statute or law, rule or
regulation applicable to the Company and its subsidiaries or any
of their respective properties or assets except in the case of
each of clauses (i) and (ii) above, for such violations,
conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances,
which, in the aggregate, would not have a material adverse effect
on the financial condition, business or operations of the Company
or any such subsidiary taken as a whole. Other than in
connection with or in compliance with the provisions of the
Corporation Law, the Exchange Act, the "takeover" or "blue sky"
laws of the various states, and the Hart-Scott-Rodino Act, no
notice to, filing with, or authorization, consent or approval of,
any domestic or foreign public body or authority is necessary for
the consummation by the Company of the transactions contemplated
by this Agreement.
3.5 Commission Filings. The Company has made
available to the Purchaser the Company's (i) Annual Reports on
Form 10-K for the years ended December 31, 1993 and December 31,
1994, as filed with the Commission, (ii) Quarterly Report on
Form 10-Q for the first calendar quarter of 1995, (iii) proxy
statements relating to all of the Company's meetings of
stockholders (whether annual or special) since January 1, 1994,
(iv) all other reports or registration statements filed by the
Company with the Commission since January 1, 1995, and (v) all
amendments and supplements to the foregoing (collectively, the
"SEC Filings"). As of their respective dates, the SEC Filings
(including all exhibits and schedules thereto and documents
incorporated by reference therein) did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements made, in light of the circumstances under which they
were made, not misleading. The audited consolidated financial
statements and unaudited consolidated interim financial
statements of the Company and its subsidiaries included or
incorporated by reference in the SEC Filings, have been prepared
in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto), and fairly present the
consolidated assets, liabilities and financial position of the
Company and its consolidated subsidiaries as of the dates thereof
and the consolidated results of their operations and changes in
financial position for the periods then ended. The audited
consolidated financial statements in the Company's Annual Report
for the year ended December 31, 1994 are hereinafter referred to
as the "Current Financial Statements."
3.6 Changes. Except as expressly contemplated by this
Agreement or as disclosed in the Disclosure Certificate or in the
SEC Filings, since December 31, 1994 none of the following has
occurred:
(a) any material adverse change, or any
development which has had, or would be likely to have, a material
adverse change, in the condition (financial or other), business
or prospects of the Company and its subsidiaries taken as a
whole;
(b) a change in accounting methods, principles or
practices by the Company materially affecting its assets,
liabilities or business;
(c) damage, destruction or loss materially
adversely affecting the condition (financial or other), business
or prospects of the Company and its subsidiaries taken as a
whole;
(d) any declaration, setting aside for payment or
payment of dividends or distributions in respect of any capital
stock of the Company or any redemption, purchase or other
acquisition of any of its securities;
(e) entering into by the Company or any of its
subsidiaries any material transactions except as expressly
permitted by this Agreement;
(f) agreement by the Company to do any of the
things described in the preceding clauses (a) through (e) other
than as expressly provided for herein.
3.7 Fairness Opinion and Approval by Board of
Directors and Investment Committee. The Board of Directors of
the Company and the Investment Committee thereof have by
resolution duly adopted (unanimously, in the case of the
Investment Committee), at meetings duly called and held, each
(i) approved and adopted this Agreement, the Merger and the other
transactions contemplated herein on the material terms and
conditions set forth herein (or, in the case of the Investment
Committee, has recommended that the Board of Directors of the
Company do so), (ii) determined that the Merger Consideration is
in the best interests of and, subject to the receipt of the
Fairness Opinion, fair to the Company's disinterested
stockholders and (iii) recommended that the Company's
stockholders approve and adopt this Agreement and the
transactions contemplated herein. The Board of Directors of the
Company has received an oral report from PaineWebber Incorporated
(the "Financial Advisor"), as financial advisor to the Investment
Committee, that it has no reason to believe, based upon
information reviewed by it as of the date of this Agreement and
subject to the assumptions and limitations summarized orally and
to be described in writing by the Financial Advisor in the
Fairness Opinion (as defined in Section 6.1(f)), that the Merger
Consideration is not fair to the disinterested stockholders of
the Company from a financial point of view, and the Board of
Directors is unaware of any reason why such oral report is not
correct and will not be confirmed in writing in the Fairness
Opinion.
3.8 Brokers and Finders. Except as set forth in the
Disclosure Certificate, neither the Company nor any subsidiary
has engaged any broker, finder or investment banker which
engagement would require the payment of any brokerage, finder's
or other fee or commission in connection with this Agreement or
the transactions contemplated hereby or in connection with any
transaction involving the Company based upon arrangements made by
or on behalf of the Company, except for the fees payable to the
Financial Advisor pursuant to a letter agreement dated as of July
12, 1994, January 20, 1995, June 9, 1995, June 16, 1995 and
June 29, 1995, copies of which have been delivered to the
Purchaser (collectively, the "Engagement Letter"). Except as
provided in this Agreement and the payment to the Financial
Advisor pursuant to such letter agreement, no claim, whether
matured or contingent, against the Company exists for payment of
any expenses or "topping," "break-up" or "bust-up" fees or
similar payments or compensation as a result of the transactions
contemplated hereby.
3.9 Litigation. Except as set forth in the Company's
Form 10-K for the year ended December 31, 1994 or in the
Disclosure Certificate, there are no actions, suits or
proceedings pending or, to the best knowledge of the Company,
threatened against the Company or any of its subsidiaries, nor is
the Company or any of its subsidiaries subject to any order,
judgment or decree, except for individual matters in which the
only relief sought is damages from the Company and its
subsidiaries which, in the aggregate, would not have a material
adverse effect on the condition (financial or other), business or
prospects of the Company and its subsidiaries, taken as a whole.
3.10 Material Agreements. Neither the Company nor any
of its subsidiaries is currently in default under any material
agreement of the Company or any of its subsidiaries except for
such defaults which have not been waived and as, in the
aggregate, would not have a material adverse effect on the
condition (financial or other), business or prospects of the
Company and its subsidiaries, taken as a whole.
3.11 Servicemarks, Trade Names. The Company or its
subsidiaries own, or are licensed to use, all servicemarks, trade
names and copyrights, know-how and processes used in the conduct
of their respective businesses as currently conducted which are
material to the condition of the Company and its subsidiaries
taken as a whole.
3.12 Taxes.
(a) Except as set forth in the Disclosure
Certificate, the Company and each of its subsidiaries have, since
December 31, 1990 (i) timely filed all tax returns, schedules and
declarations (including withholding and information returns)
required to be filed on or before the date of this Agreement by
any jurisdictions to which they are or have been subject, all of
which tax returns, schedules and declarations are complete,
accurate and correct, (ii) paid in full all taxes required to be
paid in respect of the periods covered by such returns and any
interest and penalties with respect thereto and made any deposits
of tax required by such taxing authorities, (iii) fully accrued
on the Company's March 31, 1995 balance sheet heretofore
delivered to the Purchaser all taxes for any period through that
date that are not yet due, the information in the March 31, 1995
statement of income, including the footnotes thereto, with
respect to taxes being accurate and correct and (iv) made
payments of the taxes required to be deducted and withheld from
the wages paid to their respective employees.
(b) Except as set forth in the Disclosure
Certificate, since December 31, 1990, neither the Company nor any
subsidiary has been delinquent in the payment of any tax,
assessment or governmental charge or has requested any extension
of time within which to file any tax returns that have not been
filed, and no deficiencies for any tax, assessment or
governmental charge have been claimed, proposed or assessed.
Except as disclosed in the Disclosure Certificate, neither the
Company nor any subsidiary has agreed to any currently effective
extension of time for the assessment or payment of any taxes
payable by it.
(c) Except as set forth in the Disclosure
Certificate, there are no pending or, to the best of the
Company's knowledge, threatened tax audits, investigations or
claims for or relating to any liability in respect of taxes, and
there are no matters under discussion with any governmental
authorities with respect to taxes that, in the reasonable
judgment of the Company, are likely to result in a further tax
liability.
(d) The Disclosure Certificate sets forth, since
December 31, 1990 (i) those tax years for which the tax returns
of the Company and the subsidiaries have been reviewed or audited
by applicable federal, state, local and foreign taxing
authorities, (ii) those tax years for which such tax returns have
received clearances or other indications of approval from
applicable federal, state, local and foreign taxing authorities
and (iii) those tax years which remain subject to review or audit
by applicable federal, state, local or foreign taxing
authorities. Except as set forth in the Disclosure Certificate,
since December 31, 1990, to the best knowledge of the Company, no
issue or issues have been raised in connection with any prior or
pending review or audit of such federal, state, local or foreign
tax returns that have not been resolved or which the Company
reasonably believes may be expected to be raised in the future by
such taxing authorities in connection with the audit or review of
the tax returns of the Company or any subsidiary.
(e) Neither the Company nor any of its
subsidiaries has made an election under Section 341(f) of the
Internal Revenue Code of 1986, as amended (the "Code").
3.13 Employee Benefit Plans.
(a) The Disclosure Certificate lists each
(i) employee pension benefit plan within the meaning of
Section 3(2) of the Employee Retirement Income Security Act of
1974 ("ERISA"), covered by Part 2 of Title I of ERISA and
excluding multiemployer plans within the meaning of Section 3(37)
of ERISA ("Pension Plan") in which employees of the Company or
any of its subsidiaries participate, (ii) employee welfare
benefit plan within the meaning of Section 3(1) of ERISA
("Welfare Plan") in which employees of the Company or any of its
subsidiaries participate and (iii) each other profit sharing,
group insurance, bonus, deferred compensation, stock option,
severance pay, insurance, pension or retirement plan or written
agreement relating to employment or fringe benefits for
employees, officers or directors of the Company or any subsidiary
(together with the Pension Plans and Welfare Plans, the "Employee
Benefit Plans"). There is no multiemployer plan within the
meaning of Section 3(37) of ERISA ("Multiemployer Plan") to which
the Company or any current ERISA Affiliate (as defined in
Section 3.13(i) below) currently has an obligation to contribute.
The Company has provided Purchaser with access to true and
complete copies of all such Employee Benefit Plans, including
amendments thereto. Except as disclosed in the Disclosure
Certificate, with respect to any Employee Benefit Plan listed in
the Disclosure Certificate, no individual shall accrue or receive
additional benefits, service or accelerated rights to payment of
benefits (other than additional accruals under the normal formula
in effect prior to and without regard to the transactions
contemplated hereby) as a direct result of the transactions
contemplated by this Agreement.
(b) There are no qualified defined benefit plans
(as defined in Section 414(j) of the Code) or Multiemployer Plans
in which employees of the Company or any subsidiary have
participated since January 1, 1982.
(c) None of the Employee Benefit Plans so listed
in the Disclosure Certificate has participated in, engaged in or
been a party to any prohibited transaction as defined in ERISA or
the Code, and, to the best knowledge of the Company, no officer,
director or employee of the Company or any subsidiary has
committed a material breach of any of the responsibilities or
obligations imposed upon fiduciaries by Title I of ERISA.
(d) Except as set forth in the Disclosure
Certificate, there are no claims, pending or overtly threatened,
involving any Employee Benefit Plan listed in the Disclosure
Certificate by a current or former employee (or beneficiary
thereof) of the Company or a current or former ERISA Affiliate,
nor is there any reasonable basis to anticipate any claims
involving any such plans which would likely be successfully
maintained against the Company or its subsidiaries.
(e) There are no violations of any material
reporting and disclosure requirements with respect to any
Pension, Employee Benefit and Welfare Plans listed in the
Disclosure Certificate and no such plans have violated applicable
law, including but not limited to ERISA and the Code.
(f) The Company has delivered or made available
to the Purchaser a copy of the most recently filed IRS Form 5500
and accountant's opinion, if applicable, for each Pension Plan
and Welfare Plan disclosed in the Disclosure Certificate. All
information provided by the Company or any subsidiary to any
actuary in connection with the preparation of such actuarial
valuation report was true, correct and complete in all material
respects.
(g) The Company has delivered or made available
to the Purchaser a copy of (i) in the case of each Pension Plan
described in the Disclosure Certificate intended to qualify under
Section 401(a) of the Code, the most recent Internal Revenue
Service letter as to the qualification of such Plan under
Section 401(a) of the Code and (ii) in the case of each Welfare
Plan described in the Disclosure Certificate, the most recent
Internal Revenue Service letter as to the qualification of such
Plan under Section 501(c)(9) of the Code, if applicable.
(h) For purposes of this Section 3.13, "ERISA
Affiliate" shall mean any company which, as of the relevant
measuring date under ERISA, is a member of a controlled group of
corporations or trades or businesses (as defined in
Sections 414(b) and (c) of the Code) of which the Company or any
subsidiary is a member.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
Under no circumstances will the Purchaser or Parent
have any claim against the Company for any breach of the
covenants set forth below in this Article IV, unless the action
alleged to breach, or to have resulted in a breach, of such
covenant (i) was approved by the Company's Board of Directors or
the Investment Committee and no attempt was made at a later date
by the body approving such action to prevent its occurrence, or
(ii) was known of by a member of the Investment Committee, the
Chairman of the Board of the Company or the Vice Chairman of the
Board of the Company and no attempt was made by the Investment
Committee to prevent its occurrence.
The Company covenants and agrees that, prior to the
Effective Time, unless Purchaser shall otherwise agree in
writing, or except as disclosed in the Disclosure Certificate as
of the date hereof or as otherwise expressly contemplated by this
Agreement; neither the Company nor any of its subsidiaries shall
take any action except in the ordinary course of business and
consistent with past practices, and the Company shall use its
best efforts to maintain and preserve its business organization,
assets, prospects, employees and advantageous business
relationships. Even if the action proposed to be taken would not
violate the provisions of the preceding sentence, but would
involve possible expenditures, contingent liabilities or the
acquisition or disposition of assets exceeding $100,000, any
member of a committee consisting of Messrs. John B. Adams, Steven
P. Cloward, Horst K. Mehlfeldt and John E. Siipola (the
"Management Committee") shall have the right to object in writing
to the taking of such action prior to the time the Company is
legally bound to the taking thereof. Any notice of objection
shall be delivered to all members of the Management Committee and
the contemplated action shall not be taken unless the members of
the Management Committee unanimously approve the taking of such
action or, failing such approval, the Parent and the Company
approve in writing the taking of such action. If the action
proposed to be taken would violate the provisions of the first
sentence of this paragraph and would involve expenditures or the
acquisition or disposition of assets exceeding $100,000 in value,
the Management Committee shall be given advance written notice of
all such actions. If any members of the Management Committee
objects in writing within five (5) days after written notice of
such action is given to any such noticed action, such action
shall only be taken if the members of the Management Committee
unanimously approve the taking of such action or, failing such
approval, the Parent and the Company approve in writing the
taking of such action.
(a) Neither the Company nor any of its
subsidiaries shall, directly or indirectly, do any of the
following: (i) incur any expenses in contemplation of a
reorganization or restructuring of the Company; (ii) amend its
Articles of Incorporation or Bylaws or similar organizational
documents; (iii) split, combine or reclassify any shares of its
capital stock or declare, set aside or pay any dividend or make
any distribution, payable in cash, stock, property or otherwise
with respect to its capital stock; (iv) transfer the stock of any
subsidiary to any other subsidiary or any assets or liabilities
to any new subsidiary or, except in the ordinary course of
business and consistent with past practice, to any existing
subsidiary; (v) adopt a plan of liquidation or resolutions
providing for the liquidation, dissolution, merger, consolidation
or other reorganization of the Company except the Merger;
(vi) amend, modify, change or replace the Engagement Letter; or
(vii) authorize or propose any of the foregoing, or enter into
any contract, agreement, commitment or arrangement to do any of
the foregoing.
(b) Neither the Company nor any of its
subsidiaries shall, directly or indirectly: (i) issue, sell,
pledge, encumber or dispose of, or authorize, propose or agree to
the issuance, sale, pledge, encumbrance or disposition of, any
shares of, or any options, warrants or rights of any kind to
acquire any shares of, or any securities convertible into or
exchangeable for any shares of, its capital stock or any other
equity securities, or any other securities in respect of, in lieu
of, or in substitution for Shares outstanding on the date hereof
except for Shares issuable upon exercise of Options outstanding
on the date hereof and which by their terms are or become
exercisable at or prior to the Effective Time; (ii) acquire (by
merger, consolidation or acquisition of stock or assets) any
corporation, partnership or other business organization or
division thereof or make any material investment either by
purchase of stock or securities, contributions to capital,
property transfer or purchase of any material amount of property
or assets, in any other individual or entity; (iii) other than
indebtedness incurred from borrowings made pursuant to existing
lending arrangements and other than as set forth in the
Disclosure Schedule, incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee, endorse (other
than to a Company account) or otherwise as an accommodation
become responsible for, the obligations of any other individual
or entity, or make any loans or advances, except for advances to
dealers and guarantees of leases made in the ordinary course of
business and consistent with past practice; (iv) release or
relinquish any material contract right; (v) settle or compromise
any pending or threatened suit, action or claim by or against the
Company involving a payment by the Company exceeding $100,000; or
(vi) authorize or propose any of the foregoing, or enter into or
modify any contract, agreement, commitment or arrangement to do
any of the foregoing.
(c) Each of the Company and its subsidiaries
shall use its best efforts to keep in place its current insurance
policies, including but not limited to director and officer
liability insurance, which are material (either individually or
in the aggregate); and notwithstanding such efforts, if any such
policy is canceled, the Company shall use its best efforts to
replace such policy or policies.
(d) Except in accordance with the provisions of
this Article IV, neither the Company nor any of its subsidiaries
shall enter into any agreement or otherwise agree to do (i) any
of the things described in clauses (a) through (d) or (ii)
anything, which to the Company's best knowledge at the time of
such action, would make any representation or warranty of the
Company in this Agreement untrue or incorrect in any material
respect as of the date hereof and as of the Effective Time, as if
made on such date.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement. As promptly as
practicable after receipt by the Company from the Purchaser of
one or more commitments that in the aggregate commit to provide
to the Purchaser financing that the Investment Committee in its
good faith judgment determines will permit the Purchaser to pay
the Merger Consideration and otherwise have the financial
resources available in a timely manner to complete the
transactions contemplated by this Agreement, the Company will
prepare and file a preliminary proxy statement with the
Commission and will use its best efforts to respond to any
comments of the Commission and, to cause the final proxy
statement (the "Proxy Statement") to be mailed to the Company's
stockholders at the earliest practicable time. The Company will
notify the Purchaser and the Investment Committee promptly of the
receipt of any comments from the Commission or its staff and of
any request by the Commission or its staff for amendments or
supplements to the Proxy Statement or for additional information
and will supply the Purchaser and the Investment Committee with
copies of all correspondence between the Company or any of its
representatives, on the one hand, and the Commission or its
staff, on the other hand, with respect to the Proxy Statement or
the Merger. If at any time prior to the Effective Time there
shall occur any event that should be set forth in an amendment
of, or a supplement to, the Proxy Statement, the Company will
promptly prepare and mail to its stockholders such an amendment
or supplement. The Company will not distribute or file the Proxy
Statement, or any amendment thereof or supplement thereto, to
which the Purchaser reasonably objects; provided that the Company
shall have the right to distribute or file any amendments or
supplements required in the written opinion of counsel to the
Investment Committee to be made by applicable law. The Company
and Purchaser shall prepare and file with the Commission a
Schedule 13E-3 which shall be filed together with the Proxy
Statement. The Company and Purchaser will take all reasonable
action required so that the Proxy Statement, the Schedule 13E-3,
and all amendments and supplements thereto will comply as to form
in all material respects with the provisions of the Exchange Act
and the rules and regulations promulgated thereunder. None of
the Schedule 13E-3, the Proxy Statement, nor any amendments
thereof or supplements thereto, will, on the date the Proxy
Statement is first mailed to stockholders of the Company, contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
5.2 Meeting of Stockholders of the Company. After
receipt by the Company from the Purchaser of one or more
commitments that in the aggregate commit to provide to the
Purchaser financing that the Investment Committee in its good
faith judgment determines will permit the Purchaser to pay the
Merger Consideration and otherwise have the financial resources
available in a timely manner to complete the transactions
contemplated by this Agreement, the Company shall promptly take
all action necessary, in accordance with the Corporation Law and
its Articles of Incorporation and Bylaws, to convene a special
meeting of the stockholders of the Company (the "Special
Meeting") as promptly as practicable to consider and vote upon
the Merger pursuant to the terms of this Agreement. Neither the
Company nor the Board of Directors shall take any action which
would make any approval of the Merger necessary, other than the
approval of the holders of Shares representing a majority of the
outstanding Shares. The Proxy Statement shall contain, at all
times up to and including the date of the Special Meeting, the
recommendation of the Board of Directors of the Company and the
unanimous recommendation of the Investment Committee that the
stockholders of the Company vote to adopt and approve the Merger,
subject to the right of the Investment Committee and the Board of
Directors to withdraw such recommendations if, by a majority
vote, the Investment Committee in the exercise of its fiduciary
duties makes a good faith judgment, based as to the legal issues
involved on the written advice of legal counsel, that failure to
withdraw such recommendation would constitute a breach of its
fiduciary duty. Subject to such right of the Investment
Committee to withdraw its recommendation of the Merger in
accordance with the exercise of its fiduciary duties, the Company
and the Board of Directors shall use their best efforts to obtain
the necessary approvals of the stockholders of the Company and
shall take all other action necessary or, in the reasonable
judgment of the Purchaser, helpful to secure the vote or consent
of stockholders of the Company.
5.3 Cancellation of Stock Options. The Company and
its subsidiaries shall cancel, settle, convert or exchange all
outstanding Options issued pursuant to the Plans or otherwise to
the extent required by Section 1.6 hereof, and shall comply with
all requirements regarding income tax withholding in connection
therewith; provided however, that the failure of the Company to
cancel, settle, convert or exchange any Option if the
requirements of Section 1.6 are met, shall not be deemed to be a
breach of this Agreement by the Company. In addition to the
foregoing, the Company shall cause the Plans to be terminated on
or prior to the Effective Time, and shall establish to the
reasonable satisfaction of the Purchaser that no person or entity
(whether or not a participant in any Plans) has or will have any
right to acquire any interest in the Company, the Surviving
Corporation or the Purchaser as a result of the exercise of
options or other rights on or after the Effective Time.
5.4 Fees and Expenses.
(a) Except as provided in paragraphs (b), (c),
and (d) of this Section 5.4, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
(b) If (i) this Agreement is terminated for any
reason, (ii) prior to such termination (x) any Person (as defined
below) (A) makes a written proposal to engage in any transaction
described in clauses (u), (v) or (w) of clause (iii) of this
Section 5.4(b) (an "Acquisition Proposal") to the Company or any
authorized director, officer or agent or (B) publicly announces
an Acquisition Proposal, or (y) the Company or any authorized
director, officer or agent of the Company participates in
discussions or negotiations with, or provides confidential
information to, any Person concerning an Acquisition Proposal,
either in compliance with, or in violation of, Section 5.6, and
(iii) within one year from the date of this Agreement (u) any
corporation, partnership, person, entity or "group" (as that term
is used in Section 13(d)(3) of the Exchange Act), including the
Company or any of its subsidiaries but excluding Parent, the
Purchaser or any of their affiliates and excluding any group of
which Parent, the Purchaser or any of their affiliates is a
member (a "Person"), shall have acquired all or a substantial
portion of the assets of the Company or consummated a merger or
consolidation with, or other acquisition of, the Company, (v) any
Person shall have acquired beneficial ownership (as defined in
Rule 13d-3 under the Exchange Act) of 35% or more of the Shares
then outstanding, or (w) a "change in control" of the Company
involving a Person within the meaning of Item 1 of Form 8-K under
the Exchange Act shall have occurred, the Company shall promptly,
but in no event later than five business days after consummation
of any transaction referred to in clauses (u), (v) or (w) above,
pay to Purchaser (by transfer of same-day funds to an account
designated by Purchaser for such purpose) an amount equal to
(i) $1,000,000, less (ii) any funds paid by the Company to the
Purchaser pursuant to Section 5.4(d); provided such amount shall
be payable by the Company with respect to any such transaction
referred to in clauses (u), (v) and (w) above only if (a) the
transaction provides for the Company or the holders of any Shares
being purchased in such transaction to receive consideration per
Share having an indicated value in excess of $16.50 per Share, or
(b) the amount of consideration received in such transaction is
not readily determinable on a per Share basis and the Investment
Committee or another committee of one or more disinterested
members of the Board of Directors of the Company fails to make a
good faith determination that such transaction is less favorable
to the stockholders of the Company from a financial point of view
than the Merger (in the case of either (a) or (b), a "Higher
Offer").
(c) Prior to the execution of this Agreement, the
Company agreed to advance up to $175,000 to the organizers of
Purchaser to cover their expenses related to the formation of
Purchaser, the formulation of a proposal to acquire the Shares
and the preparation and negotiation of this Agreement. The
Company further agrees that it shall within five business days
after receipt of each notice of the incurrence thereof by the
Purchaser to the Company, advance to the Purchaser all
Reimbursable Expenses (as defined in Section 5.4(d)); provided
that the Company shall not be obligated to pay under this Section
5.4(c) in excess of an aggregate amount of $750,000 (including
the $175,000 referred to above, but excluding all funds advanced
or reimbursed with respect to Financing Fees (as defined in
Section 5.4(d)), which expenses shall not be subject to such
limit, but shall not exceed $217,000); provided further, that the
Company shall not be obligated to pay under this Section 5.4(c)
in excess of an aggregate of $500,000 (including any amounts
advanced or reimbursed under this Section 5.4(c), but excluding
all funds advanced or reimbursed with respect to Financing Fees
which expenses shall not be subject to such limit, but shall not
exceed $217,000) unless 85% of the stores owned by the franchised
dealers of the Company who directly or indirectly are
shareholders of Purchaser and whose franchise agreements expire
prior to July 1, 1999 shall have extended the term of their
franchise agreements at least through the earlier of (x) July 1,
2002, or (y) the date three years after such franchise agreement
would have expired; provided that such franchised dealers shall
not be required to pay any fees in connection with such
extension. Any franchised dealer of the Company who directly or
indirectly is a shareholder of Purchaser and whose franchise
agreement expires on or after July 1, 1999, shall have the right
to extend such agreement for up to three additional years without
the payment of any fee in connection with such extension.
(d) If this Agreement is terminated or the Merger
is not consummated for any reason, the Company will, within five
business days after notice by the Purchaser to the Company,
reimburse the Purchaser for all reasonable out-of-pocket costs
and expenses (including, without limitation, reasonable
commitment fees, reasonable termination fees, reasonable attorney
fees and expenses incurred by potential lenders which the
Purchaser is obligated to reimburse, and other fees and expenses
incurred in connection with arranging financing for the Merger
(collectively, "Financing Fees"), legal fees and expenses,
appraisal fees, fees and expenses of financial advisors and fees
and expenses of accountants) incurred by the Purchaser, Parent,
or on their behalf in connection with the preparation or
negotiation of this Agreement or of the transactions contemplated
hereby or otherwise incurred in contemplation of this Agreement,
the Merger or the other transactions contemplated by this
Agreement which have not otherwise been reimbursed by the Company
("Reimbursable Expenses"); provided that (i) the Company shall
not be obligated to pay under this Section 5.4(d) in excess of an
aggregate of $750,000 (including any amounts advanced or
reimbursed under Section 5.4(c), but excluding all funds advanced
or reimbursed with respect to Financing Fees which expenses shall
not be subject to such limit but shall not exceed $217,000),
(ii) except for the reimbursement or advance of expenses related
to Financing Fees, the Company shall not be obligated to pay any
additional amounts under this Section 5.4(d) if Purchaser has
been paid the amount provided in Section 5.4(b) above, (iii) the
Company shall have the right to review all expense receipts
(other than receipts which contain privileged or confidential
information) and (iv) the Company shall not be obligated to pay
under this Section 5.4(d) in excess of an aggregate of $500,000
(including any amounts advanced or reimbursed under Section
5.4(c), but excluding all funds advanced or reimbursed with
respect to Financing Fees which expenses shall not be subject to
such limit, but shall not exceed $217,000) unless the franchised
dealers of the Company who directly or indirectly are
shareholders of Purchaser and whose franchise agreements expire
prior to July 1, 1999 shall have extended the term of their
franchise agreements at least through the earlier of (x) July 1,
2002, or (y) the date three years after such franchise agreement
would have expired; provided that such franchised dealers shall
not be required to pay any fees in connection with such
extension.
5.5 Further Assurances. Subject to the terms and
conditions herein provided, including those contained in
Section 5.6, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, and
to cooperate with each other in connection with the foregoing,
including, but not limited to, using reasonable efforts (a) to
obtain all necessary waivers, consents and approvals from other
parties to material loan agreements, leases and other contracts,
(b) to obtain all necessary consents, approvals and
authorizations as are required to be obtained under any federal,
state or foreign law or regulations, (c) to defend all lawsuits
or other legal proceedings challenging this Agreement, or the
transactions contemplated hereby, (d) to lift or rescind any
injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the
transactions contemplated hereby, (e) to effect all necessary
filings, including, but not limited to, filings with the
Commission, under the Hart-Scott-Rodino Act and under the rules
or regulations of any other governmental authorities, (f) to
fulfill all conditions to this Agreement and to any agreements
related to the financing contemplated by Section 6.2(c), and (g)
to keep the other parties reasonably apprised of the status of
all such efforts.
5.6 No Solicitation. Neither the Company nor any of
its subsidiaries shall, and the Company shall use its best
efforts to cause its affiliates, officers, directors, employees,
representatives and agents not to, directly or indirectly,
solicit, initiate or participate in discussions or negotiations
with, or provide any information to, any corporation,
partnership, person or other entity or group (other than the
Purchaser or an affiliate or an associate of the Purchaser)
concerning, or enter into any agreement providing for, any
merger, sale of all or substantially all assets, sale of shares
of capital stock or similar transactions involving the Company or
any subsidiary or division of the Company, provided that the
Investment Committee on behalf of the Company may furnish or
cause to be furnished information and may participate in such
discussions or negotiations and enter into such agreement if it
believes in good faith, after consultation with its Financial
Adviser and the receipt of written advice of counsel as to the
legal considerations involved, that the failure to provide such
information or participate in such discussions or negotiations or
enter into such agreement would be likely to involve the members
of the Investment Committee in a breach of their fiduciary
duties. The Investment Committee on behalf of the Company will
promptly communicate to the Purchaser the terms of any proposal
received or the fact that the Company has received inquiry with
respect to, or has participated in discussions or negotiations in
respect of, any such transaction of which a member of the
Investment Committee is aware.
5.7 Notification of Certain Matters. The Company
shall give prompt notice to the Purchaser, and the Purchaser
shall give prompt notice to the Company, of (a) the occurrence,
or failure to occur, of any event which occurrence or failure
would be likely to cause any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time,
(b) any material failure of the Company or the Purchaser or any
of their respective affiliates, as the case may be, or of any of
their respective officers, directors, employees or agents, to
comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement, (c) any
material claims, actions, proceedings or investigations commenced
or, to the best of its knowledge, threatened, involving or
affecting the Company or any of its subsidiaries or any of their
properties or assets, or, to the best of its knowledge, against
any employee, consultant, director, officer or stockholder of the
Company or any of its subsidiaries, in his, her or its capacity
as such and (d) any material adverse change in the condition
(financial or otherwise), business or prospects of the Company
and its subsidiaries, taken as a whole, or the occurrence of an
event known to the Company which, so far as reasonably can be
foreseen at the time of its occurrence, would result in any such
change; provided, however, that no such notification shall affect
the representations or warranties of the parties or the
conditions to the obligations to the parties hereunder.
5.8 Access to Information. From the date hereof to
the Effective Time, the Company shall, and shall cause its
subsidiaries, officers, directors, employees and agents to,
afford the officers, employees and agents of the Purchaser and
its affiliates and the banks, other financial institutions and
investment bankers arranging or providing the financing
contemplated by Section 6.2(c) complete access at all reasonable
times to its officers, employees, agents, properties, books,
records and contracts, and shall furnish the Purchaser and its
affiliates and the banks, other financial institutions and
investment bankers arranging or providing the financing all
financial, operating and other data and information as the
Purchaser or its affiliates and the banks, other financial
institutions and investment bankers arranging or providing the
financing, through their respective officers, employees or
agents, may reasonably request. Subject to the requirements of
law, the Purchaser and its affiliates shall, and shall use
reasonable efforts to cause their officers, employees and agents,
and the banks, other financial institutions and investment
bankers who obtain such information, to hold in confidence and
not use all such nonpublic information until such time as such
information is otherwise publicly available other than through a
breach of this Section 5.8, and, if this Agreement is terminated,
the Purchaser and its affiliates will, and will use reasonable
efforts to cause their officers, employees and agents, and the
banks, other financial institutions and investment bankers who
obtain such information, to deliver to the Company all documents,
work papers and other material (including copies, extracts and
summaries thereof) obtained by or on behalf of any of them
directly or indirectly from the Company as a result of this
Agreement or in connection herewith, whether so obtained before
or after the execution hereof. No investigation pursuant to this
Section 5.8 shall affect any representations or warranties of the
parties herein or the conditions to the obligations of the
parties hereto.
5.9 Directors' Indemnification. The Parent and the
Surviving Corporation will enter into Indemnification Agreements,
substantially in the form set forth in Annex A hereto (with such
changes to which the Company and the Purchaser may agree) with
each present director of the Company as of the Effective Time.
It is understood and agreed that the Company shall, to the
fullest extent permitted under applicable law and regardless of
whether the Merger becomes effective, indemnify and hold
harmless, each present and former director and officer of the
Company or any of its subsidiaries, including, without
limitation, each member of the Investment Committee.
ARTICLE VI
CONDITIONS
6.1 Conditions to Obligation of Each Party to Effect
the Merger. The respective obligations of each party to effect
the Merger shall be subject to the fulfillment or waiver at or
prior to the Effective Time of the following conditions:
(a) Stockholder Approval. The Merger pursuant to
the terms of this Agreement shall have been approved and adopted
by the requisite vote of the stockholders of the Company;
(b) Hart-Scott-Rodino Act. Any waiting period
(and any extension thereof) applicable to the consummation of the
Merger under the Hart-Scott-Rodino Act shall have expired or been
terminated;
(c) No Injunction. No preliminary or permanent
injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or
administrative agency or commission nor any statute, rule,
regulation or executive order promulgated or enacted by any
governmental authority shall be in effect, which would make the
acquisition or holding by the Purchaser of the Shares illegal or
would make illegal or otherwise prevent the consummation of the
Merger;
(d) Consents. The Company and the Purchaser
shall have obtained such licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Purchaser and the
Company and its subsidiaries as are necessary for consummation of
the Merger, excluding licenses, permits, consents, approvals,
authorizations, qualifications or orders, the failure to obtain
which, in the aggregate, will not have a material adverse effect
on the Purchaser or the Company and its subsidiaries taken as a
whole;
(e) New Laws. There shall have been no law,
statute, rule or regulation, domestic or foreign, enacted or
promulgated which would make consummation of the Merger illegal;
(f) Delivery of Fairness Opinion. The Company
shall have received from PaineWebber Incorporated a written
opinion addressed to the Company for inclusion in the Proxy
Statement that the Merger Consideration is fair, from a financial
point of view, to the disinterested stockholders of the Company
(the "Fairness Opinion");
(g) Delivery of ESOP Fairness Opinion. The ESOP
(as defined below) shall have received an opinion from its
financial advisor that the consideration to be received by
participants in the ESOP who elect to convert their shares held
by the ESOP into shares of Parent is fair, from a financial point
of view, to such participants.
6.2 Additional Conditions to the Obligation of the
Purchaser to Effect the Merger. The obligation of the Purchaser
to effect the Merger is also subject to the satisfaction at or
prior to the Effective Time of the following additional
conditions, unless waived by the Purchaser:
(a) Performance of Obligations of the Company.
The Company shall have performed in all material respects all
obligations and agreements required to be performed by it under
this Agreement prior to the Effective Time;
(b) Representations and Warranties. The
representations and warranties of the Company set forth in this
Agreement which are qualified as to materiality shall be true and
correct, and any such representations and warranties not so
qualified shall be true and correct in all material respects, at
and as of the Effective Time as if made at and as of such time,
except as expressly contemplated by this Agreement;
(c) Financing. The Purchaser shall have obtained
financing necessary to pay the aggregate Merger Consideration and
to replace certain of the existing indebtedness of the Company in
the aggregate amount of $77 million on terms acceptable to
Purchaser in its sole discretion;
(d) Cancellation of Stock Options. The Company
shall have canceled and settled Options to the extent required by
Sections 1.6 and 5.3;
(e) Redemption of Rights. The Company shall have
taken all necessary actions to cause the Rights to be
extinguished or redeemed effective at the Effective Date;
(f) Compliance with the Nevada Business
Combination Statute. The Purchaser shall be satisfied in its
sole discretion that the Board of Directors of the Company shall
have taken all actions required under the Nevada General
Corporation Law to render the restrictions on combinations with
interested stockholders of Section 78.438 of such Law
inapplicable to the Merger;
(g) ESOP Participation. The holders of at least
80% of the shares held by the Company's Employee Stock Ownership
Program (the "ESOP") shall have elected to "roll over" their
existing ESOP accounts into investments in the securities of
Parent; and
(h) Dealer Participation. Dealers owning at
least 85% of the Company's franchised tire stores as of the date
of this Agreement shall have elected to participate in the
acquisition.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at
any time prior to the Effective Time, whether prior to or after
approval of the Merger by the stockholders of the Company:
(a) By mutual written consent of the Boards of
Directors of the Purchaser and the Company (which, in the case of
the Company, shall include the approval of the Investment
Committee);
(b) By the Company or the Purchaser if (i) the
Effective Time shall not have occurred on or before February 28,
1996, or (ii) any of the conditions set forth in Section 6.1
hereof shall not be met at the Effective Time; provided, however,
that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose failure
to fulfill any obligation under this Agreement has been the cause
of, or resulted in, the failure of the Effective Time to occur on
or before such date;
(c) By the Company or the Purchaser if (i) any
Person shall have made a bona fide proposal which the Investment
Committee believes, in good faith after consultation with the
Financial Advisor, is for a Higher Offer, (ii) the Purchaser does
not make, within five business days of the Purchaser's receiving
notice of such third party proposal, an offer which is at least
as favorable to the Company's stockholders as such third party
proposal, and (iii) the Investment Committee withdraws its
recommendation of the Merger or changes its recommendation in a
manner adverse to the Purchaser;
(d) By the Company:
(i) If the Purchaser fails to perform in any
material respect any of its obligations under this
Agreement;
(ii) If the representations and warranties of
the Purchaser set forth in this Agreement are not true
and correct in any material respect at any time prior
to the Effective Time; or
(iii) On August 15, 1995, if the
Purchaser has failed to deliver to the Company prior to
August 15, 1995, one or more commitments that in the
aggregate commit to provide to the Purchaser financing
that the Investment Committee in its good faith
judgment determines will permit the Purchaser to pay
the Merger Consideration and otherwise have the
financial resources available in a timely manner to
complete the transactions contemplated by this
Agreement.
(e) By the Purchaser:
(i) If there occurs, or the Company enters
into or publicly announces its intention to enter into
an agreement with any Person to cause to occur, a
transaction of the type described in clauses (u), (v)
or (w) of Section 5.4(b)(iii) hereof, but which would
not qualify as a Higher Offer, or any Person shall have
commenced or publicly announced an intention to
commence a tender or exchange offer for the Company's
Shares;
(ii) If any of the conditions set forth in
Section 6.2 hereof shall not be satisfied on the
Effective Time; or
(iii) On August 15, 1995, if the
Purchaser has failed to deliver to the Company prior to
August 15, 1995, one or more commitments that in the
aggregate commit to provide to the Purchaser financing
that the Purchaser in its good faith judgment
determines will permit the Purchaser to pay the Merger
Consideration and otherwise have the financial
resources available in a timely manner to complete the
transactions contemplated by this Agreement.
(f) By the Company or Purchaser on September 1,
1995, if prior to September 1, 1995, the Purchaser has not
satisfied the condition set forth in Section 6.2(h) and Purchaser
has not waived, in writing, such condition.
7.2 Effect of Termination. In the event of the
termination of this Agreement as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no
liability or obligation on the part of the Company or Purchaser
or its affiliates except (i) as set forth in Sections 5.4 and
5.8, and (ii) that a party shall be liable for willful defaults
of its obligations hereunder.
7.3 Amendment. This Agreement may not be amended
except by action of the Boards of Directors of each of the
parties hereto (which, in the case of the Company, shall include
the approval of the Investment Committee) set forth in an
instrument in writing signed on behalf of each of the parties
hereto; provided, however, that after approval of the Merger by
the stockholders of the Company, no amendment may be made without
the further approval of the stockholders of the Company which
would alter or change any of the terms or conditions of this
Agreement if any of the alterations or changes, alone or in the
aggregate, would materially adversely affect the stockholders of
the Company.
7.4 Waiver. At any time prior to the Effective Time,
whether before or after the stockholder approval, any party
hereto, by action taken by its Board of Directors (which, in the
case of the Company, shall include the approval of the Investment
Committee), may (i) extend the time for the performance of any of
the obligations or other acts of any other party hereto or
(ii) subject to the provision contained in Section 7.3, waive
compliance with any of the agreements of any other party or with
any conditions to its own obligations. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of
such party by a duly authorized officer.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Public Statements. The parties agree to consult
with each other and their respective counsel prior to issuing any
public announcement or statement with respect to this Agreement
or the Merger.
8.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or sent by cable, telegram,
telecopy or telex to the parties at the following addresses or at
such other addresses as shall be specified by the parties by like
notice:
(a) If to Parent or the Purchaser:
BOTI Acquisition Corp.
11755 East Peakview Avenue
Englewood, Colorado 80111
Attn: Steven P. Cloward
Fax #: (303) 790-6064
with copies to:
Gibson, Dunn & Crutcher
1801 California Street, Suite 4100
Denver, Colorado 80202
Attn: Richard M. Russo, Esq.
Fax #: (303) 296-5310
and:
Wendel, Rosen, Black & Dean
1111 Broadway, 24th Floor
Oakland, California 94607
Attn: Richard P. Waxman, Esq.
Fax #: (510) 834-1928
(b) If to the Company:
Big O Tires, Inc.
11755 East Peakview Avenue
Englewood, Colorado 80111
Attn: Horst Mehlfeldt
Fax #: (303) 790-0225
with a copy to:
Holme Roberts & Owen
1700 Lincoln
Suite 4100
Denver, Colorado 80203
Attn: W. Dean Salter, Esq.
Fax #: (303) 866-0200
and
Hopper and Kanouff, P.C.
1610 Wynkoop Street, Suite 200
Denver, Colorado 80202
Attn: Thomas S. Smith, Esq.
Fax #: (303) 892-0457
8.3 Interpretation. When a reference is made in this
Agreement to subsidiaries of the Purchaser or the Company, the
word "subsidiaries" means any corporation more than 50 percent of
whose outstanding voting securities, or any partnership, joint
venture or other entity more than 50 percent of whose total
equity interest, is directly or indirectly owned by the Purchaser
or the Company, as the case may be. As used in the Agreement,
the masculine, feminine and neuter genders and the plural and
singular numbers shall be deemed to include the others in all
cases where they would so apply. "Includes" and "including" are
not limiting, and "or" is not exclusive.
8.4 Representations and Warranties. The respective
representations and warranties of the Company and the Purchaser
contained herein shall expire with, and be terminated and
extinguished upon, consummation of the Merger, and thereafter
neither the Company nor the Purchaser nor any officer, director
or employee thereof shall be under any liability whatsoever with
respect to any such representation or warranty. This Section 8.4
shall have no effect upon any other obligation of the parties
hereto, whether to be performed before or after the consummation
of the Merger.
8.5 Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
8.6 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto.
8.7 Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of
which together shall constitute one and the same agreement.
8.8 Forum. The sole forum for resolving disputes
arising under or relating in any way to this Agreement are the
District Court for the City and County of Denver, Colorado, or
the United States District Court for the District of Colorado,
and all related appellate courts, and the parties hereby consent
to the jurisdiction of such courts.
8.9 Miscellaneous. This Agreement (including the
Annexes and instruments referred to herein): (i) constitutes the
entire agreement and supersedes all other prior agreements and
undertakings, both written and oral, among the parties, or any of
them, with respect to the subject matter hereof; (ii) except for
Section 5.9 hereof, is not intended to confer upon any person
other than a party hereto any rights or remedies hereunder;
(iii) shall not be assigned, except by the Purchaser or Parent to
a directly or indirectly wholly owned subsidiary of the Purchaser
or Parent which, in a written instrument shall agree to assume
all of such party's obligations hereunder and be bound by all of
the terms and conditions of this Agreement; and (iv) shall be
governed in all respects, including validity, interpretation and
effect, by the internal laws of the State of Nevada, without
giving effect to the principles of conflict of laws thereof.
8.10 Actual Knowledge. As used herein the term "actual
knowledge" shall mean the knowledge of the individual at the time
of making a statement without any requirement that an
investigation be made prior to making such statement.
IN WITNESS WHEREOF, Parent, the Purchaser and the
Company have caused this Agreement to be executed as of the date
first written above by their duly authorized respective officers.
PARENT: BOTI HOLDINGS, INC.
By: /s/ John B. Adams
John B. Adams
Its: Treasurer
PURCHASER: BOTI ACQUISITION CORP.
By: /s/ John B. Adams
John B. Adams
Its: Treasurer
COMPANY: BIG O TIRES, INC.
By: /s/ Horst K. Mehlfeldt
Horst K. Mehlfeldt
Its: Vice Chairman
By:
Its:
EA950370.031/37+
DISCLOSURE CERTIFICATE
to
Agreement and Plan of Merger
by and among
BOTI Acquisition Corp.,
BOTI Holdings, Inc.
and
Big O Tires, Inc.
As of June 30, 1995
Section 3.2 - Options and Rights
Attached is the information required by Section 3.2 of the Agreement and
Plan of Merger.
Supplemental Executive Retirement Plan ("SERP")
and
Stock Appreciation Rights ("SARs")
Name of Holder # of SARs # of SERP/SARs Grant Value
or
Base Price
John B. Adams 203 $15.25
Steven P. Cloward 502 $15.25
Steven P. Cloward 100,000 $13.875
Horst K. Mehlfeldt 100,000 $13.875
John E. Siipola 100,000 $13.875
<PAGE>
Section 3.4 - Compliance
i. The First National Bank of Chicago Revolving Credit
Agreement. The Revolving Credit Agreement between the
Company, and certain of its subsidiaries, and The
First National Bank of Chicago ("First Chicago"),
contains a covenant restricting the Company, or its
subsidiary companies, from being able to merge or
consolidate with or into any other person except that
the Company and its subsidiaries may merge with each
other. A violation of this covenant constitutes an
event of default under the revolving credit agreement
unless First Chicago consents to such a transaction.
Also, a change in control of the Company (20% change)
constitutes an event of default under the revolving
credit agreement unless First Chicago waives the
default.
ii. Senior Secured Notes. The Indenture, Mortgage, Deed
of Trust, Security Agreement and Financing Statement
(fixture filing) between the Company, certain of its
subsidiaries, and the Bank of Cherry Creek, N.A., as
indenture trustee, and Kenneth Buckius, as individual
trustee, dated as of April 27, 1994, as amended on
January 30, 1995, for the benefit of the holders of
the Company's 8.71% Senior Secured Notes due 2004,
restricts the Company and its subsidiaries from
entering into any transaction or merger or
consolidation with any other corporation, except that:
(i) The Company may merge with one or
more of its subsidiaries (provided
the Company is the surviving
corporation); and
(ii) Any subsidiary may sell, lease,
transfer or otherwise dispose of its
assets to the Company or any other
subsidiary; and
(iii) The Company may merge or consolidate
with any other corporation or sell
all or substantially all of its
assets provided that:
1) The continuing or surviving
entity expressly assumes the
punctual payment of the notes
and observance of all of the
covenants of the notes;
2) The surviving entity shall be
incorporated in the United
States;
3) An Event of Default with
regard to the surviving entity
shall not have occurred
immediately after the merger
and be continuing on the
Notes; and
4) The surviving entity can incur
at least $1 of additional
Debt.
(iv) A violation of this covenant
constitutes a default under the
indenture unless the trustees and
note holders consent to such a
transaction.
iii. Various Store/Office Leases in Chandler, Arizona;
Glendale, Arizona; Corona, California; Porterville,
California; Vacaville, California; Colorado Springs,
Colorado; Renton, Washington, and Seattle, Washington.
These leases covering the Company's regional offices
or store sites contain provisions that a change in
control of lessee shall constitute an assignment
requiring lessor's consent.
iv. Loan with AT&T. The Trust Deed, Grant of Easement and
Security Agreement (including fixture filing and
assignment of rents) given to AT&T Commercial Finance
Corporation to secure payment and performance of
various loans for equipment and real estate, contains
a provision which states:
"If Grantor or any guarantor of the obligations
secured hereby (hereinafter called "Guarantor") is a
corporation, the sale, pledge or assignment by the
shareholders of Grantor or Guarantor of any shares of
stock of Grantor or Guarantor without the prior
written consent of noteholder or the transfer of more
than 20% of the value of Grantor's or Guarantor's
assets not in the ordinary course of Grantor's or
Guarantor's business, the merger or consolidation of
Grantor or Guarantor with another company or entity,
[constitutes a default]."
Without the prior written consent of noteholder, the Merger would
constitute a default.
In its loan commitment to the Company, AT&T Commercial Finance
Corporation indicates that the commitment is being issued in reliance on
the present management and financial condition of Borrower and
Guarantor. If there is any material change in either the management or
financial conditions, lender may, at its option, void the commitment and
the Company believes that this may occur.
v. The loan agreement and guarantee with Key Bank of
Wyoming, covering the Big O Tire, Inc. Employee Stock
Ownership Plan contains the following provision
stating:
"Ownership. Make or permit any material change in the
composition, executive management or form of business
activity of the borrower or guarantor, or the
ownership of the Stock, except as allowed or required
by the ESOP."
This is a negative covenant that will require the consent and/or waiver
of Key Bank of Wyoming.
vi. Equitable Insurance of Iowa and Republic Western.
Equitable Insurance of Iowa, holder of approximately
$5MM in Senior Secured Notes and Republic Western
Insurance Company, holder of approximately $3MM in
Senior Secured Notes will be unable to hold notes of
the Company after the Merger because the Merger will
cause the Company's investment rating to drop below
what is required by regulation. As a result, the
Company will be required to call the Notes pursuant to
their terms. Verbal notice has been given to
Equitable Insurance of Iowa.
<PAGE>
Section 3.6 - Changes
(i) Business Prospects
(a) AT&T Commercial Finance Corporation has
agreed to fund certain existing real estate
projects, but as a result of the contemplated
Merger intends to retract any commitment in
excess of such projects.
(b) Because the Merger will cause the
Company's investment rating to drop, and because
of regulatory concerns, the Company will be
forced to call approximately $8MM of Senior
Secured Notes held by Equitable Insurance of
Iowa and Republic Western Insurance Company.
(c) U.S. Bancorp had given a loan commitment
to assist in the financing of the Las Vegas
Equipment Lease. Upon learning of the Merger,
U.S. Bancorp has withdrawn its commitment.
(d) The Company has consolidated three of its
warehouses into one warehouse located in the
area surrounding Las Vegas, Nevada.
(e) The Company has changed its management
structure, renaming the positions of Chairman of
the Board, Vice-Chairman of the Board and
President as a committee of three individuals,
known as the Office of the Chief Executive.
(f) The Company plans to report a charge
against earnings of approximately $250,000
during the quarter ended June 30, 1995, as a
result of final expenses incurred in connection
with the Company's warehouse consolidation
project.
(g) A franchisee of the Company has settled a
proceeding with the California Bureau of
Automotive Repair, the publicity of which might
negatively impact the Company's sales in
California and elsewhere.
(h) The Company has become aware that Small
Business Administration financing for current or
prospective franchisees of the Company could be
delayed or curtailed which could adversely
effect franchisee store openings and real estate
development of stores by the Company.
(i) From December 31, 1994, through June 30,
1995, the Company and/or its franchisees closed
five stores and opened eleven stores.
(j) The Company is aware that a majority of
its tire suppliers have announced price
increases of approximately 3% to take effect in
July, 1995.
(k) The Company periodically records reserves
for losses associated with leases in which the
Company is a tenant or guarantor.
(l) The Company anticipates recording a
reserve of approximately $100,000 associated
with the value of two Company-owned retail
stores in Lexington, Kentucky in the quarter
ended June 30, 1995.
(b) Accounting
The Company has changed the method in which it reports the
profits, losses, income and expenses from its real estate
holdings. This change will result in the reporting of real estate
transactions as additional transactions and cost of sales as
opposed to the present reporting of the net gain or loss as a
component of selling and administrative expense.
(c) Loss
American General Financial, Inc., a provider of the Big Card,
alleges fraud in connection with credit applications generated by
one California franchisee through two retail tire store outlets.
American General claims approximately $300,000 in damages due
from the Company pursuant to the Company's obligations under
repurchase agreements. (See Section 3.8 - Potential Litigation)
The Company has reserved for a liability of approximately $60,000
that will be expensed for the quarter ended June 30, 1995, such
liability having been incurred in connection with an environmental
matter in Huntington Beach, California.
(d) Transactions
(1) Under the Company's Incentive Management Purchase Contract
program, management of Company-owned retail stores are entitled to
a percentage of profits, and then are eligible to buy the store by
paying to the Company 25% of the net worth of the store, and
giving a promissory note for the remainder of the purchase price.
The manager of the Orem, Utah store entered into this program
between December 31, 1994, and June 30, 1995.
(2) An agreement in principle has been negotiated with the co-
joint venturer in the Big O/CSB Joint Venture (relating to 8
stores in California) for the purchase of the Company's joint
venture interest prior to the Effective Time. (See Section 4 -
Assets to be Sold)
(3) The co-joint venturer in the Big O/[Jackson] Joint Venture
has purchased the Company's joint venture interest as of December
31, 1994 and closed on the transaction on May 20, 1995. (See
Section 4 - Assets to be Sold)
(4) The Company's real estate transactions connected to business
development are ongoing. As of June 30, 1995, the Company had 4
sites under construction, 13 sites under contract to acquire the
real estate and 8 real estate sites for which the Company is
negotiating the acquisition. The Company will continue this
activity.
(5) The Company has entered into a sublease of its warehouse in
Ontario, California with Bridgestone/Firestone for the remaining
term of the Company's original lease.
(6) The Company has entered into a contract for the sale of its
warehouse in Vacaville, California to Simpson Manufacturing Co.,
Inc. for a purchase price of $2,343,000. (See Section 4 - Assets
to be Sold)
(7) The Company sold two retail tire store properties in Ogden,
Utah in June, 1995.
(8) The Company will continue to attempt to sell Company owned
stores prior to the Effective Time.
(9) The Company will continue to pursue the sale/lease back of
its warehouse in Las Vegas, Nevada, the sale/lease back of its
warehouse in Boise, Idaho and the sale of the vacant land in
Boise, Idaho, all on terms deemed acceptable by the Board of
Directors of the Company, in its sole discretion.
(10) The Company sold its 51% interest in a company owning a
franchised store in American Fork, Utah, during the second quarter
ended June 30, 1995.
(11) The Company may chose to sell its joint venture interest in
the Big O/Herb Hawley joint venture prior to the exercise of its
three (3) year put option.
(e) Other Agreements
(1) The Company is seeking a buyer for two Company-owned stores
in Lexington, Kentucky. A buyer has been identified, but no
contract has been signed. (See Section 4 - Assets to be Sold)
(2) The Company might (together with others) retain George K.
Baum & Company to provide the Company's Employee Stock Ownership
Plan with a fairness opinion regarding the Merger, which will be
executed and delivered before the Effective Time, together with an
Indemnification Agreement between the Company and George K. Baum &
Company regarding the same.
(3) The Board of Directors of the Company has authorized
amendments to the agreements with John E. Siipola, Horst K.
Mehlfeldt and Steven P. Cloward as described in Section 3.13
hereof.
<PAGE>
Section 3.8 - Brokers and Finders
The Company might (together with others) retain George K. Baum & Company to
provide the Company's Employee Stock Ownership Plan with a fairness opinion
regarding the Merger, which will be executed and delivered before the
Effective Time, together with an Indemnification Agreement between the Company
and George K. Baum & Company regarding the same.<PAGE>
Section 3.9 - Litigation
(1) See attached log of current pending litigation and known claims.
<PAGE>
BIG O TIRES, INC.
LITIGATION DOCKET
June 30, 1995
Anderson, Barbara Lee et al vs. Big O Tires, Inc. et al;
Case No. 94C08989; Municipal Court of California, County of
Sacramento. Plaintiff seeks judgment for general damages, medical
expenses, lost earnings, damages to vehicle, pre-judgment
interest, costs of suit incurred and other and further relief as
the Court deems just and proper. Plaintiff claims breach of
implied warranty, negligence and strict liability. Plaintiff
alleges that brakework done by a Big O Tires store in North
Highlands was not of good quality and/or parts used were not the
type or quality required. Plaintiff's brakes failed and caused an
accident, in which Plaintiff suffered injuries and damages. Big O
has forwarded the complaint to TransAmerica Insurance with the
request that it retain counsel on Big O's behalf. (Big O is
Defendant and is covered by insurance.)
Big O Tires, Inc. v. Apollo Tire, Inc., C.T. Bar Enterprises, Inc. and Henry
J. Heeber III;
Case No. LC010476; Superior Court of California, County of Los Angeles.
Big O seeks damages of past rent and costs from all three above-named
Defendants. Apollo Tire, Inc. subleased from C.T. Bar Enterprises, Inc.
and Henry J. Heeber, III in October, 1984. C.T. Bar Enterprises, Inc.
and Henry J. Heeber, III had subleased from Security/Cal, Inc., which
was a predecessor in interest to Big O Tires, Inc. Apollo continued
with the landlord after Big O's lease expired and Apollo was evicted on
January, 1992 for delinquent rent. Apollo has now filed bankruptcy
under Chapter 11. Landlord states that it has a bid of $9,000 to clean
up pollution on the property which is the result of oil draining into a
clarifier. Landlord states the $9,000 bid is only to test and clean up
what is visible, will be getting additional bids and will be contacting
the appropriate parties for reimbursement. This case has been dropped
by Big O and consideration whether to refile is continuing. (Big O is
Plaintiff)
Big O Tires / Big 10 Tires;
Trademark Dispute - Big O Tires, Inc. has filed an opposition to Big 10
Tires' application for a national trademark registration. This case
originated when Big O Tires considered opening several retail stores in
the Atlanta, Georgia area, an area where Big 10 Tires is strong. Big 10
objected to the opening of these stores on the basis that there would be
a likelihood of confusion because of similar names and logos. Prior to
Big 10's objection, their trademark registration had lapsed. Upon
discovering this, Big 10 attempted to apply for a national trademark
registration, which Big O is opposing on the grounds of likelihood of
confusion. Big 10 now argues that there is no likelihood of confusion.
Counsel in this matter is Sheridan, Ross & McIntosh. Discovery in this
case has been ongoing. The proceedings in this case were suspended
pending settlement negotiations which had been reinstated. However, Big
O has submitted a proposed settlement agreement to Big 10 and has
received no comment in return. Big 10 did not accept Big O's first
settlement proposal. (Big O is Plaintiff)
Big O Tires, Inc. v. Fresh Tire, Incorporated, a California corporation;
Robert Michael Freshly, an individual; Patricia Edwards, an individual; and
Does 1 through 20, inclusive;
Case No. 662364; Superior Court of the State of California for the
County of Los Angeles. Big O is seeking a collection of accounts
receivables and to foreclose on its security interest in connection with
Defendant's operation of a Big O Tires retail store. Defendant has
cross-complained against Plaintiff, alleging that Plaintiff caused
Defendant to participate in illegal activity by requiring that Defendant
participate in an advertising trust, and that when Defendant ceased to
pay the advertising trust because he knew its activities were illegal,
his retail store was not included in advertising thereby causing him to
go out of business. Defendant recently amended its cross-complaint
claiming damages for exposure to toxic substances due to leaking
hydraulic lifts. Trial occurred in August, 1994 and Big O obtained a
judgment for $52,691.75, interest and attorneys' fees and costs, yet to
be determined, but estimated to be $50,000. Big O received directed
verdict on cross claims. Defendeant and Cross Claimant has now filed
notices of appeal. (Big O is Plaintiff and Cross Defendant. Some of
the cross-claims against Big O may be covered by insurance.)
Bostic, Richard Jr. v. Big O Tire
HRC # 07-94-0825; EEOC #24H940268; Lexington-Fayette Urban County Human
Rights Commission. Mr. Bostic has alleged that he was terminated from
his sales position on July 17, 1994 in violation of the Age
Discrimination in Employment Act due to his age of 51 years old. Bud
Brandon, manager of the Lexington, Kentucky store located at 1116
Winchester Road, stated that Mr. Bostic was terminated due to the
elimination of his position. (Big O is Defendant and is not covered by
insurance.)
Brown, Eileen v. Big O Tires, Inc., a Nevada corporation, Uniroyal Goodrich
Tire Co., a Delaware corporation, and Does I through X, Inclusive
Case No. A318654; District Court, Clark County, Nevada. Plaintiff seeks
judgment for general and consequential damages, pain and suffering and
for medical expenses due to an automobile accident allegedly caused by
the tread separating from one of the tires on the automobile. Plaintiff
claims the tread wrapped around the axle and caused the wheel of the
vehicle to lock up, resulting in the vehicle rolling over several times.
This lawsuit has been referred to Big O's insurance with the request
that they retain counsel in defense of Big O. (Big O is Defendant and
covered by insurance.)
Carver, Robert vs. Uniroyal, Inc. et al incl. Big "O" Tire Store.
Case No. N64081. Superior Court of California, County of San Diego.
Plaintiff alleges that he sustained personal injuries as a direct result
of an accident caused by a tire produced by Uniroyal, Inc. Big O has
forwarded the complaint to TransAmerica Insurance with the request that
it retain counsel on Big O's behalf. (Big O is Defendant and is covered
by insurance.)
Chenault, Minnie v. Big O Tires, Inc.;
No. 93CI03401. Circuit Court of the County of Jefferson, Commonwealth of
Kentucky. Plaintiff alleges that Big O's agents, servants and/or
employees were negligent and/or grossly negligent in the use,
maintenance, ownership, operation, occupation and control of its
premises located and known as 3930 Can Run Road, Louisville, Kentucky,
which is a franchised Big O Tire store. Although the complaint is
sketchy, it appears that the franchisee should be named in this case
rather than Big O. Big O has forwarded the complaint to TransAmerica
Insurance with the request that it retain counsel on Big O's behalf.
The franchisee involved has agreed to accept Big O's tender of defense.
(Big O is Defendant and is covered by insurance.)
Danford, Jeffrey and Jessica v. Big O Tires, Inc.
Case No. 39D01-9405-CT-82; The Jefferson Superior Court, State of
Indiana. Plaintiff purchased two tires from a franchised Big O retail
tire store. Plaintiff alleges that the tires were not properly
installed which caused one of the tires to fall off and subsequently
cause an accident. Boehl, Stopher & Graves have agreed to tender our
defense. (Big O is Defendant and is covered by insurance.)
Davis, Debra Pltf. vs. The Uniroyal Goodrich Tire Company et. al. including
Big O Tires, Inc., et. al. Defendants.
Case No. A333429; District Court, Clark County, Nevada. Plaintiff
alleges that a tire produced by Uniroyal Goodrich and sold to her by Big
O Tires was defective. The tire blew out which caused Plaintiff to lose
control of her vehicle resulting in severe injuries. Big O has
forwarded the complaint to TransAmerica Insurance with the request that
it retain counsel on Big O's behalf. (Big O is Defendant and is covered
by insurance.) Insurance company has tendered this to Uniroyal for
representation, defense and indemnify.
Dishneau, Ruby E. and Garneau D. Dishneau, husband and wife, Plaintiffs vs.
Big O Tires, Inc., a Nevada corporation; ABC Corporation I-X; XYZ Partnerships
I-X; John and Jane Does I-X, husbands and wives, respectively, Defendants.
Case No. CV 95-02493; Superior Court of the State of Arizona in and for
the County of Maricopa. Claim shows that on or about March 1, 1993,
Ruby Dishneau went to the Big O Tires store in Kingman, Arizona to
purchase tires. She alleges that she entered the restroom and fell in a
hole which was nine to ten inches deep. She is claiming she suffered
damages including medical expenses, future medical expenses for
indeterminate period of time, paine, suffering, annoyance,
embarrassment, permanent and residual disabilities and a loss of
consortium. Based upon the allegations of this claim, it would appear
that Big O Tires, Inc. should not be a defendant in this case and
therefore, a copy of the claim was sent to the franchisee, asking that
they notify their insurance company of this claim. (Big O is Defendant
and is covered by insurance.)
Ford, Andoria v. Kumho U.S.A., Inc., D & C Tires, Inc., d/b/a Big O Tires, and
Does 1 to 20;
Case No. 519317; Municipal Court, County of Alameda - Oakland - Piedmont
- Emeryville Judicial District. Complaint seeks unspecified damages for
wage loss, hospital and medical expenses, property damages, loss of use
of property, general damage and $10,000 in punitive and exemplary
damages from Kumho U.S.A. D & C Tires, Inc. counsel stated that damage
limit for municipal court is $25,000. Counsel has requested that Kumho
tender a defense. (Big O is Defendant and covered by insurance.)
Frader v. Big O Tires, Inc.;
Case No. CV93-16114; Superior Court of the State of Arizona in and for
the County of Maricopa. Plaintiffs' daughter was involved in an
accident in a Ford Bronco allegedly caused by tread separation of a Big
O branded tire which resulted in her death. Plaintiffs allege wrongful
death due to the negligence of defendants. Case has been forwarded to
Big O's insurer with the request that they assign counsel to provide
defense. (Big O Defendant and covered by insurance.)
Gallivan, Daniel T., Pltf. vs. Big O Tires, Inc., Def.
Case No. CV95-00372 SC; Tempe Justice Court. Mr. Gallivan filed a Small
Claims Complaint and is seeking to recover $898.97 because he alleges
that while his car was in the shop for an oil change, damage was done to
his vehicle. He claims that he has an invoice with a statement signed
by the manager stating the damages they did. This complaint was sent to
the attention of Chris Phillips, representative for the managing partner
of Big O/C.S.B., requesting that he or someone on his behalf appear to
defend this case. (Big O is Defendant and is covered by insurance.)
<PAGE>
Graham, Deborah and Robert v. Big O/CSB Joint Venture dba Big O Tire Stores,
J.M.C., Inc., a California Corporation; Four Kyles, Inc., a California
corporation; Someday, Inc., a California corporation; C.E.P. Developments,
Inc., a California corporation; Big O Retail Enterprises, Inc., a business
entity, form unknown; Big O Tires/C.S.B. Partnership, a business entity, form
unknown, and Does 7-10, Inclusive;
Case No. EC008223; Superior Court of the State of California, County of
San Diego, El Cajon Judicial District. Plaintiff alleges that she broke
her ankle after stepping in a floor drain in the restroom of a Big O
Tires retail store. Complaint seeks damages due to negligence and
premises liability. (Big O is Defendant and covered by insurance).
Hart, Jack and Kentucky Farm Bureau Mutual Insurance Company, Plaintiffs vs.
Bradley Turner and Big O Tires, Inc., Defendants;
Case No. 95C-00136; Jessamine District Court, Civil Branch. On April
10, 1995, Big O was served through agent for service. Plaintiff alleges
that on October 22, 1994, an employee of the Big O Retail store located
in Nicholasville, Kentucky, negligently operated a motor vehicle and
collided with a vehicle owned by Mr. Jack Hart, causing $557.62. It
would appear that Plaintiff's claim is really against the franchisee
that owns and operates that store. (Big O is Defendant and covered by
insurance).
Hightower, Deann and Mercedes Hightower, a minor by and through her Guardian
ad Litem, Deann Hightower, Plaintiffs, vs. Big O Tire, Form Unknown, Ameri
Tech, Form Unknown, and Does 1 through 100, inclusive, Defendants;
Case No. BCV 01526, Superior Court of the State of California for the
County of San Bernardino. Plaintiff alleges that she purchased a tire
from one of our franchised dealers and it "explodes", causing personal
injury and damages. Plaintiff seeks judgment for general damages
according to proof, special damages according to proof, interest and
prejudgment interest according to law, attorneys' fees and costs,
exemplary damages in sums sufficient to punish Defendants and to set an
example, civil penaltiespursuant to California Civil Code S1794
according to proof and further relief as the court shall deem just and
proper. This case should be indemnified by the manufacturer of the
tire. AIG Claims Services has taken over defense on behalf of their
insured, Rancho Sierra Tires, Inc. (Big O is Defendant and covered by
insurance.)
Jeantete, Denise v. Todd Martinez, John Doe, an unknown and Big O Tires, Inc.,
a Nevada corporation;
Case No. 93-168CV; Eight Judicial District Court, County of Taos, State
of New Mexico. Plaintiff was involved in an accident that was allegedly
caused by Defendant Martinez, an employee of a Big O Tire store.
Defendant Martinez was not employed by Big O Tires, Inc., and it is,
therefore, assumed that he was employed by a franchised Big O Tire
location. This case has been forwarded to the insurance carrier with
the request that counsel be assigned for defense. (Big O is Defendant
and covered by insurance.)
Kerr, John Timothy and Karla v. Kenny D. Raley and Jane Doe Raley; RBO, Inc.;
Big O Tires, Inc.; Uniroyal Goodrich Tire Company; John Does I through V and
XYZ Corporations I through V;
Case No. 296134; Arizona Superior Court, Pima County. Plaintiffs were
involved in a rollover accident shortly after having their Big O tires
inspected at a Big O Tire store in Arizona. Plaintiffs allege that
tread separated on one of the Big O branded tires causing the rollover
accident. Big O has submitted this claim to its insurance carrier,
TransAmerica Insurance, for handling. (Big O is defendant and covered
by insurance.)
Robert Kessler, Plaintiff, v. Toyota Motor Corporation; Toyota Motor Sales,
U.S.A., Inc., a corporation; Hertz Rent-a-Car Sales, a corporation; Big O
Tires, Inc.; Big O Tires #05-058; Does 1 - 100 inclusive, Superior Court of
the State of California, for the County of Los Angeles, Case No. YC015086;
Plaintiff claims general damages, according to proof, in excess of
$50,000 and medical and related expenses, loss of earnings and earning
capacity, and economic losses, all according to proof, reimbursement for
cost of the suit and for prejudgment interest, due to the fact that on
February 8, 1992 the Plaintiff, as a passenger in a Toyota pickup 4 X 4
suddenly and without warning veered across the roadway and up onto an
embankment and rolled. This matter has been referred to Big O's insurer
for representation. As soon as the manufacturer of the tires is
determined, Big O will ask its insurer to refer this matter to the
manufacturer for its protection and indemnification. It appears that
there was not a tire failure. Instead, Plaintiff is claiming the size
of the tires installed were not the correct size and, if this is the
case, then the Big O franchisee's acts or omissions may be the focus of
this case. The Big O franchisee has also been named in this lawsuit and
has referred the summons and complaint to its insurer. (Big O is
Defendant and is covered by insurance.)
Larry Kelley, Pam Kelley, April Kelley, a Minor, and Jonathan Kelley, a Minor,
by and through their Guardian ad Litem, Larry Kelley v. Sherry Vonne Washburn,
Big O Tires, Marvin Moreece Benson, United Couriers and Does 3 to 10,
Inclusive in the Superior Court of California, County of San Joaquin, Case No.
253848;
Damages are being sought on the basis that defendants, and each of them,
did so negligently and carelessly repair, inspect, remove, replace, and
test the left front tire on defendant Washburn's automobile as to cause
the wheel to become detached, removed, and separated from defendant's
automobile, causing the automobile to obstruct the highway so that
plaintiffs were unable to avoid a collision with defendant's automobile.
Based on the circumstances claimed, it is clear that Big O Tires, Inc.,
should not be defendant in this case. It is assumed that they are
really after one of Big O's franchisees in the Stockton, California
area. This case has been forwarded to our insurance carrier with the
request that they assign counsel for defense and that steps be taken to
dismiss Big O Tires, Inc. from this case. (Big O is Defendant and is
covered by insurance.)
Lodermeier, Matt, an individual v. Big O Tires, Inc.; C.S.B. Partnership, a
General Partnership, C.E.P. Development, Inc.; Chris Phillips, an individual;
and DOES 1 through 200, inclusive.
Case No. 733071. Plaintiff alleges fraud, deceit and misrepresentation
under Civil Code Section 3294. Plaintiff claims that pursuant to an
oral agreement between Plaintiff and all Defendants, Plaintiff was to
move into a location at 345 W. Whittier Boulevard, La Habra, California
as a new Big O franchisee but then claims that the Defendants never
intended to abide by the terms of the oral agreement. (Big O is
Defendant and not covered by insurance.)
McGuire, Kate v. Anthony Benedetti, Don Benedetti, David Randall, General
Motors Corporation, Napa Valley Glass Co., Inc., Uniroyal Goodrich Tire
Company, Big O Tires, Inc. and Does 1 to 100, Inclusive;
Case No. 64861, Superior Court of California, County of Napa. Plaintiff
seeks compensatory damages for an accident involving a 1984 Chevrolet
Blazer 4 x 4 with Big O branded tires. The complaint provides only the
date and place of the accident but provides no other facts of the case.
The case has been forwarded to our insurance carrier with the request
that they assign counsel for defense. (Big O is Defendant and covered
by insurance.)
Mondragon, Jason, et al vs. Uniroyal, Inc., et al incl. Big "O" Tire, Inc.
Case No. N64378; Superior Court of California, County of San Diego.
Plaintiff alleges strict liability and negligence involving a tire
apparently manufactured by Uniroyal-Goodrich which caused an accident
resulting in personal injuries and wrongful death. The Plaintiff asks
for judgment against the defendants. (Big O is Defendant and is covered
by insurance.)
Mustafa, Khalid J. v. Enrique L. Rodriguez; Barbara Lee Anderson; Big O Tires,
Inc., a Nevada corporation; Big O Tires Store #42; Gene D. Misket,
Individually d/b/a Big O Tires Store #42 and Does #1-20.
Case No. 95AS02553; Sacramento County Superior Court. Plaintiff claims
that brakes and the pertinent systems and assemblies were installed,
assembled, tested and manufactured by the defendants and that the brake
system failed and contributed substantially to an automobile accident.
Big O Tires, Inc. would not have any legal responsibility for a claim of
this nature; it would appear that the Plaintiff should look to the
vendor/supplier of the Big O Tires Store #42. (Big O is Defendant and
is covered by insurance.)
Nevil, Jill Mock and Jamie v. Ford Motor Company and General Tire, Inc.;
Case No. CV294-15, United States District Court, Southern District of
Georgia. The Company is not a party to this lawsuit. The President,
the National Director - Quality Assurance and the Company have been
subpoenaed to produce documents on warranty claims experience with
regard to products manufactured by General Tire, Inc. The Company is
contesting the subpoenas as it is believed that this information is not
relevant to this lawsuit and the effort and cost to produce such
information would be prohibited. (Big O is not Defendant and will look
to General Tire, Inc. to reimburse it for legal costs.)
Newsome, Larry vs. Big O Tires, Inc., and Does 1 to 25;
Case No. SCV 17524; Superior Court of the State of California, County of
San Bernardino. Plaintiff is seeking damages for alleged negligence
resulting in personal injuries. Plaintiff alleges that on May 11, 1994
at Big O Tire store in San Bernardino, California, he had lift kit, 4
wheels and 4 tires installed on 1990 Jeep Wrangler. Said installation
was negligent and careless in that after installation the left rear
wheel violently wobbled. Plaintiff returned vehicle to store on May
12th and again on May 13th for adjustment and repair and work again was
negligent so as to cause the left rear wheel to fall off while being
operated on a freeway, which incident caused Plaintiff severe personal
injuries and damages. Big O has forwarded copy of complaint to
insurance company and to owner of retail store, Jerry Rogers. Jerry
Rogers' carrier has agreed to defend and indemnify Big O Tires, Inc.
(Big O is Defendant and is covered by insurance.)
Nguyen, Do, Plaintiff, v. Big O Tires, Inc., a Nevada corporation; Ohtsu Tire
and Rubber Co., Ltd., a foreign corporation doing business in Arizona and Does
I-XX, Defendant;
Case No. CV 95042722, Superior Court of the State of Arizona in and for
the County of Pinal. Plaintiff alleges that a tire produced by Ohtsu
and sold to her by Big O Tires was defective and as a result caused a
blow-out on June 17, 1993. Plaintiff claims that as a result, he
sustained permanent personal injuries, suffering and inconvenience,
medical expenses, loss of earnings and damage to property. The suit
does not state which Big O Tires store this tire was purchased from.
Ohtsu produced a few lines of tires for Big O Tires, Inc. between the
years of 1988 and 1991. (Big O is Defendant and is covered by
insurance.)
Charles A. Phipps, an individual v. Big O Tires, Inc., a corporation; Greg
Hatch, an individual, and Does 1 through 200, inclusive.
Superior Court of the State of California for the County of Orange, Case
No. 742157. On March 8, 1995, Big O received a summons and complaint
for this lawsuit, whereby the Plaintiff, Phipps, is alleging fraud,
deceit and misrepresentation, breach of contract, negligent infliction
of emotion distress, intentional infliction of emotion distress and
intentional interference with protected property rights on the part of
Big O and Big O's employee, Mr. Hatch. Plaintiff apparently thought he
was purchasing from our existing Big O Tires franchisee a Big O Tires
store in La Habra, California and was precluded from doing so. Big O
had mutually agreed with the existing franchisee to terminate the
existing Big O Tires franchise agreement, and was not aware of the
intentions of Plaintiff. Plaintiff is seeking damages of an unspecified
amount. Big O intends to vigorously defend against this lawsuit on the
basis that it is wholly without merit. (Big O is Defendant and may not
be covered by insurance.)
Ramos, Rito v. Salvador Joe Artola, Big O Tires;
Case No. 92C01599; Municipal Court of California, Pamona Judicial
District, County of Los Angeles, California. Plaintiff seeks $2,500 for
injuries, property loss and compensation due to an automobile accident
involving a Big O Tire truck and Big O Tire employee. Case has been
forwarded to insurance carrier with a request to assign counsel and
tender a defense. (Big O is Defendant and covered by insurance.)
Roffoni, John A., Plaintiff vs. Big O Tire (Nevada Corporation);
Case No. 066398; Northern Santa Barbara County Municipal Court, Santa
Maria Division. Plaintiff is seeking $5,000 due to breach of contract
and misrepresentation. A letter has been sent to the Plaintiff seeking
information on this case. No details were given on the complaint.
Schulz, Dana and Barbara v. Big O Tires, Inc., et al.;
Case No. 92003231CV; Third Circuit Court for Salt Lake County, Utah,
filed March 5, 1992. Plaintiff claims damages of $4,539 as follows:
$2,839 to properly correct franchisee's improper engine repair and
$1,700 for rental car expenses. All work was done by one of Big O's
independent franchisees. Counsel for Big O has prepared and filed a
motion to dismiss. (Big O is Defendant and covered by insurance.)
Signet Partners v. Big O Tires, Inc. a/k/a Big "O" Tire Dealers, Inc.
Case No. 95CV230, District Court, Arapahoe County, Colorado. The
Company decided to terminate operations of a Big O Tires store in
Littleton, Colorado, because of a declining neighborhood and major
construction about to occur. The Company found a subtenant, but was not
able to obtain the Landlord's consent to sublease the premises. After
repeated unsuccessful efforts, to gain the Landlord's response, either
to consent to the sublease or permit the Company to buy out the
remaining lease term, the Company declared the lease terminated due to
the default of the Landlord. Landlord has since lost the property
through foreclosure and Signet Partners is the court-appointed receiver.
Signet seeks $123,000 in rentals for the balance of the lease, and
$184,562.77 in damages for violation of a continuous operation
requirement in the lease. As to the former, the Company was relieved of
these obligations due to the default of Landlord. As to the latter, it
is clear from the language in the lease that this penalty provision is
in lieu of percentage rent and the lease does not call for percentage
rent.
Sorkhabi, Sultana v. Mike Lenzi, Big O Tires, Does 1 - 25;
Superior Court of California, County of Contra Costa, Case No. C91-
04258. This is apparently the result of an accident which occurred on
September 7, 1990 wherein the Defendant's vehicle (Mike Lenzi) allegedly
ran into the back of the Plaintiff's vehicle, causing the Plaintiff to
strike another vehicle. This case has been referred to Big O's insurer
with a request to retain counsel. Big O was named in this suit even
though Lenzi was an employee of an independent franchisee. Franchisee's
insurance company is reviewing the indemnity agreement and then should
agree to tender defense. (Big O is Defendant and covered by insurance.)
Stewart, Pauline v. Big O Tire Corp;
Case No. SCDS48198; Municipal Court of California, Small Claims
Division, County of Contra Costa. Plaintiff claims that she is owed
$5,000 for defective auto work. In researching this matter, it has been
determined that Plaintiff had air shocks installed on her vehicle in
1990 at the Pittsburg, California Big O Tires franchised retail store.
Seven months after the air shocks were installed, the battery in
Plaintiff's vehicle failed and, allegedly, this was the first of many
batteries to fail. Plaintiff claims that the failure of the batteries
was due to the air shock fill mechanism operating at all times. The
representative at the Big O Tires retail store disagrees and has
evidence that this mechanism was installed in such a way that it is
impossible that it would continue to run after the car is turned off.
As required under the Franchise Agreement, the franchisee for the Big O
Tires retail store has agreed to attend the hearing in this case and to
defend Big O Tires, Inc. (Big O is defendant and covered by insurance.)
Taylor, Melissa Jan v. Big O Tires, Inc.;
Case No. CJ94 490-64; District Court, 7th Judicial District, Oklahoma
County, State of Oklahoma. Plaintiff seeks damages resulting from an
accident which was allegedly caused by tread separation of the right
front tire on Plaintiff's Toyota pickup truck. It is unclear whether or
not the tire was Big O branded or where it was purchased, although it
appears that the tire was purchased at a Big O retail store. (Big O is
defendant and covered by insurance.)
Thurman, Karen L. v. Big O Tires, Inc.;
Case No. CR92-01; Civil Rights Division, Department of Regulatory
Agencies, State of Colorado. This case arises from the termination of a
former black employee of Big O for violation of company policies.
Complainant filed with the Colorado Department of Labor and Employment,
which was subsequently disqualified. She then filed with the Civil
Rights Division. The case was heard by an Administrative Law Judge in
May, 1992 and an initial decision was entered in favor of the
Complainant. Big O has filed exceptions to the decision as it claims
errors in many areas of law and facts. (Big O is Defendant and not
covered by insurance.)
<PAGE>
Toney, Jerry vs. Kruse Concrete Construction, et al incl. Big O Tires;
Case No. 539248; Sacramento Superior Court, California. Plaintiff
alleges negligence resulting in personal injuries and asks for judgment
against the defendants for general damages in excess of the minimum
jurisdiction of the Sacramento Superior Court, medical expenses, loss of
wages and earning capacity, prejudgment interest, costs of this suit and
for such other and further relief as the court shall deem just. It
appears that an employee of Kruse Concrete Construction was operating a
six-wheel dump truck that was towing a compressor. The wheels of the
truck or the compressor came off and struck the plaintiff's vehicle.
Plaintiff alleges he was injured and suffered grievous and permanent
injuries to his physical, mental, emotional and nervous systems. (Big O
is Defendant and is covered by insurance.)
Trans-Allied Audit Company for Super Cal Express;
Trans-Allied Audit Company was retained to audit the freight bills of
Super Cal Express and to collect freight undercharge claims resulting
from the audit. The claim is in the amount of $33,086.33. The
undercharges were due to the original freight bills being incorrectly
rated. California Intrastate carriers are required to publish their
rates in tariffs and carriers and shippers are prohibited from deviating
from them.
Tuttle, Lise v. Bountiful City Corporation, Big O Tires, Inc. and Jake's Glass
Company;
Civil Case No. 920700154; Second Judicial District Court for Davis
County, Utah. Plaintiff stepped onto a manhole cover which apparently
gave way, causing her to fall into the manhole. The manhole was located
on the frontage of a Big O Tires Franchisee's store. The Franchisee has
been requested to tender a defense on behalf of Big O Tires, Inc. (Big
O is Defendant and covered by insurance.)
Utah Department of Transportation vs. G & R Realty Company, Oltd.; Big O
Tires, Inc.; Morris E. Anderson; First American Title Company;
Civil Case No. 950902088CD; Third Judicial District Court in and for
Salt Lake County, State of Utah. April 10, 1995 - as a sublessor for
the property located in Sandy, Utah, now leased to a Big O Tires
franchisee, Big O has been named in a condemnation suit by the Utah
Department of Transportation which seeks to expand the street right-of-
way, requiring the taking of a portion of the parking lot and the
temporary blocking of access from the street. Since Big O is the
sublessor, it really is not directly affected by this condemnation, but
its franchisee may be procluded from continuing business at this
location. Big O is the defendant and is not covered by insurance.
Whitehead, Lisa vs. Farooq A. Khan and Big O Tires, Inc.;
Small Claims Case No. 385334; North Orange County Municipal Court,
Fullerton, California. Plaintiff claims that Farooq Khan, former owner
of a Big O Tires store in La Habra, California, owes her $4,128.80 for
wages, mileage, pre-determined unjustified separation compensation and
charges from paychecks bouncing. Information on this case was sent to
the attention of Greg Roquet, RVP for Southern California, and Mike
Combe, Area Manager in Southern California and we are asking that one of
them appear on behalf of Big O Tires, Inc. to advise the court that the
Company had been erroneously named as a party to the Plaintiff's claim.
(Big O is Defendant and not covered by insurance. However, Big O will
look to former franchisee to indemnify and hold Big O harmless.)
<PAGE>
BIG O TIRES, INC.
LITIGATION DOCKET - POTENTIAL LITIGATION
June 30, 1995
Allen, D.;
Mr. Allen took his Jaguar to a franchised Big O Tire store in
Sacramento, California for work on the front end of the vehicle. He
alleges that the Big O Tire store damaged his vehicle and it now rides
2" higher than before. A representative from Big O Tires, Inc. agreed
to mediate between Mr. Allen and his attorney as well as the franchisee.
However, two days before the mediation, the franchisee canceled the
meeting and instructed Mr. Allen's attorney to speak with his attorney.
Mr. Allen's attorney has informed Big O that it will name not only the
franchisee but also Big O in a lawsuit due to the fact that "it is on
the advertising and name recognition that her (sic) client relied when
taking his car to this shop." Big O will forward this claim to its
insurance carrier for handling.
American General Finance, Inc. Claim;
American General Finance, Inc. is seeking the Company's repurchase of
fraudulent charges generated through two franchised Big O Tires Stores
in Upland and San Bernardino, California. The claim is that the credit
applications were fraudulent in that they contained the correct names,
addresses, social security numbers and drivers licenses of third parties
who had not applied for the Company's Big Card. All other information
was apparently fraudulent and each of the persons involved had
apparently not applied for the Big Card nor made the purchases under the
Big Card. It would appear that the claim could exceed $300,000. The
Company is investigating the circumstances and will determine its
appropriate response in the near future.
Big O Tires, Inc. v. Big O Detail Shop;
Big O has been informed that an automotive detail shop is operating in
Tucson, Arizona under the name "Big O Detail Shop." The detail shop had
agreed to change its name from the trademarked "Big O" if Big O pays its
costs to do so, including replacement of promotional materials. Big O
has offered to pay up to $300 to purchase new signs for the detail shop,
but otherwise has demanded that the detail shop change its name or face
a trademark infringement suit.
Big O Tires, Inc. v. Discount Tire Center;
Discount Tire Center has underpaid rent on a lease for property in
Burbank, California and has failed to respond to Big O's correspondence.
Big O is seeking past rent.
Big O Tires, Inc. v. Donsyl, Inc.; Donald A. Karlin; Sylvia Karlin; Pebbich,
Inc.; Donald Terfansky; Walt Motak; Helmut Schrader; Sharon J. Schrader; and
Does 1 - 100;
Case No. 652409, Superior Court of California, County of Orange; Filed
3/14/91. The Complaint alleges Breach of Contract in the form of a
lease on property located at 16091 Beach Blvd., Huntington Beach,
California. The Complaint seeks damages in the amount of $101,794.73
plus future rental payments through the term of the lease and for taxes
and insurance during said term as well as attorneys' fees and court
costs. This was dropped at the request of Big O due to what it feels is
mishandling by its counsel. Big O is reviewing whether or not to
forward this case to new counsel for representation.
Big O Tires, Inc. v. Intercare Benefit Systems;
Big O utilized the services of Intercare to provide services in the form
of soliciting health insurance programs and administering Big O's self-
funded plan. Big O believes that Intercare was deceptive in its
practices of retaining part of the fee paid to Intercare as a
commission, of which Big O was not aware. Big O and Intercare have
initiated negotiations for the reimbursement of the commission.
Davis Advertising, Inc. v. Big O Tires Southeast Region for Louisville ADI
Advertising Co-op and Big O Tires Southeast Region for Lexington ADI
Advertising Co-op;
The Louisville and Lexington, Kentucky advertising co-ops enlisted the
services of Davis Advertising, Inc. for local advertising. The
Compensation Agreements for each co-op were signed by Allen Jones, the
Regional Vice President - Southeast Region of Big O Tires, Inc. and were
for a period May, 1993 through October, 1993. In July, 1993, the
Lexington co-op notified Davis Advertising that it no longer wished to
use its services, this due to the fact that Davis Advertising was not
living up to expectations. In December, 1993, Louisville co-op verbally
notified Davis Advertising that it too no longer wished to use its
services. Davis Advertising alleges that neither co-op provided proper
notice under the Compensation Agreements and that it has suffered
damages due to the cancellations.
Edmund, Damarea and Sabrina;
An attorney for the Edmunds contacted Big O's RSC in Vacaville,
California notifying Big O that the Edmunds were involved in an accident
the day after they have Big O tires installed on their vehicle by a
franchised Big O Tires store. It is unclear what, exactly, caused the
accident, but the attorney states that one of the Big O tires
"exploded." Bill Becker from the Vacaville RSC contacted the attorney
and was lead to believe that it may have been a service related issue
rather than product. He has notified the attorney that the store is
independently owned and operated and feels that the attorney will name
the store instead of Big O Tires, Inc. if a suit is filed.
Environmental Clean Up Claim;
Big O is a subtenant on a lease of a former Trainer Tire store in
Huntington Beach, California, which had been converted to a carpet store
five or so years ago under a sublease from Big O. The carpet store's
subtenant defaulted and went bankrupt and Big O re-subleased the carpet
store to another carpet store company, which has now defaulted and Big O
is proceeding with collection. On March 24, 1995, Big O received notice
from its upstream sub-landlord that the in-ground hoists have been
leaking all of this time, contaminating the soils below the building.
The upstream sub-landlord claims it has incurred $55,825 and will incur
additional sums yet to be determined. The upstream sub-landlord is
seeking reimbursement from Big O for this clean-up effort. The Company
is investigating the claim. (Big O may be insured and this will be
reported to its insurance company.)
Fahey, Patrick v. Big O Tires;
Have little information except that Mr. Fahey was involved in the same
accident as Eileen Brown, which is already the subject of litigation.
We are currently seeking additional information as to whether or not
this case has been filed and what relation Mr. Fahey has to the
accident. (Big O would be defendant and would be covered by insurance.)
Frias, Conrado Del Real v. Steven P. Cloward, d/b/a Big O Tires
Case No. Unassigned; State of California Workers' Compensation Appeals
Board. Complaint seeks reimbursement for injuries which allegedly
occurred while Complainant was employed at a Big O Tires retail store in
Glendora, California which was operated by a joint venture in which a
wholly-owned subsidiary of Big O was a JV partner. Complaint questions
whether or not the JV maintained worker's compensation insurance at the
time of the incidents. Big O has retained counsel to answer and provide
a defense in this case. It has now been determined that workers'
compensation coverage applies and this case has now been accepted by the
California State Fund. (Big O is Respondent and is covered by
insurance.)
Golden, Thomas S. (Tom Golden & Associated Automotive Consultants)
Mr. Golden was an employee of Big O Tires, Inc. as a franchisee trainer.
Mr. Golden sent a letter to Mr. Tony Stubbs stating he is upset that the
shock absorber training video that is used for our franchisees and
employees uses his "likeness" and he never gave his written permission
to be shown in this video. Mr. Teigen replied with a letter to Mr.
Golden stating that his job function while employed at Big O included
the making of this video, which Mr. Golden did not object to being in,
and therefore is now the property of Big O Tires, Inc.
Griffiths, George, Sr.;
Mr. Griffiths fell from a chair in the showroom of the franchised Big O
Tire store located at 7140 East Golf Links Road, Tucson, Arizona, which
is owned and operated by R.B.O., Inc. Mr. Griffiths is requesting that
his medical bills (past and future) be paid for injuries allegedly
received from the fall. Big O has provided information to its insurance
carrier and has requested that the franchisee do the same. However, it
appears that the franchisee may not have had insurance coverage at the
time of the incident.
Kelley, Mark;
Mr. Kelley bought tires from our store in Granite Falls, NC on 8/27/94.
Tires were mounted on 9/1/94. On 10/2/94, the right front tire blew out
causing an accident. Accident caused $1200-$1400 worth of damage to his
vehicle and an undetermined amount of personal injury. This information
was sent to our insurance company. We may make offer a settlement if
the insurance company does not accept this claim.
Knopf, Michael and Norma, et al. vs. Big O Tires, Inc., et al.;
Case No. CV94-07671/Dept 7; Second Judicial District Court, Washoe
County, Nevada. This case is a shareholder class action case which also
seeks to be designated as a class action of the Company's shareholders
and seeks similar actions and remedies as that of a case listed below
(see Zucker case below). The Company was able to consolidate both cases
into one. Plaintiffs have now voluntarily dismissed case, without
prejudice.
LePore, Betty and Mary v. Big O Tires, Inc.;
Counsel has contacted Big O on behalf of Betty and Mary LePore to advise
of alleged injuries sustained as a result of an accident that occurred
on April 23, 1991, involving Mr. Frank Bever. Big O contacted its
insurance carrier, TransAmerica Insurance Group, who researched this
matter and determined that the accident allegedly occurred due to
failure of a Big O branded tire on Mr. Bever's car. TransAmerica sent
the tire to Kumho U.S.A., Inc., the manufacturer of the tire, who
determined that the alleged "blow out" was due to a cut in the tread
allowing the tire to separate. Plaintiff's counsel has been notified
that TransAmerica will not honor this claim as it is in their opinion
that Big O is not legally responsible. An official complaint has not
been filed at this time.
Roberts, Toni A. v. Big O Tires, Inc.;
A Big O employee driver failed to stop in time at a red light resulting
in a rear-end collision with no apparent injuries. No police report
filed due to Santa Ana Police Department rules regarding accidents with
no injuries. Driver's report and claim filed with Big O's insurance
carrier.
Roundy, Cody v. Big O Tires, Inc.
Mr. Roundy purchased oversized tires and wheel rims for his truck from
the Big O Tires retail store in Orem, Utah owned and operated by Apex
Tire, Inc. The wheel subsequently separated from the vehicle, allegedly
causing damage to the vehicle. The Big O Tires retail store offered to
compensation Mr. Roundy for the damage and has continued negotiations
with Mr. Roundy. However, Mr. Roundy has now decided he wishes to
replace all four wheels and that the retail store should pay for the new
wheels. The retail store will not pay for this replacement since the
wheels originally installed on Mr. Roundy's truck were of the size and
type Mr. Roundy ordered. An official complaint has not been filed at
this time.
State Compensation Insurance Fund of California;
Big O has learned that a group of California business owners intend to
file a class action against the State Compensation Insurance Fund of
California, claiming that the fund over-reserves for claims resulting in
more than $500 million a year more than is needed to cover claims. Big
O intends to be added as a Plaintiff, should the suit be filed.
Thomas, William;
William B. Thomas has advised the Company that it is his contention that
the Big O Tires, Inc. Employee Stock Ownership Plan and/or the Company
are responsible for any taxes, penalties and interest levied or assessed
against Mr. Thomas as a result of Mr. Thomas making certain income tax
elections pertaining to his distribution from and sale to the Employee
Stock Ownership Plan in 1985 and 1986. It is also possible that
Clifford Harris may make a similar claim against the Employee Stock
Ownership Plan and/or the Company.
Walker, Larissa;
Ms. Walker is seeking a claim against a Big O Tire store due to "faulty
brakes". Approximately 2 weeks before the accident, Big O installed
brakes in a vehicle, driven by Richard Alvarez, which Big O determined
to have been faulty. Store information has not yet been provided
although we have sent several letters to her attorney, Mr. W. Jen Tom at
the law offices of Goldberg & Osborne, asking for that information.
09/30/94 - Mr. Mike Sankey of TIG called to say that Goldberg & Osborne
has dropped Ms. Walker as their client. He will shelf this claim for 30
days and then consider it closed.
Worsham, Shelley;
Ms. Worsham was driving her Ford Bronco when a Legacy II allegedly
separated causing damage to Ms. Worsham's vehicle. Ms. Worsham took her
vehicle to the Big O Tire store in Winnemuca, Nevada to have the tire
adjusted, where she received a new tire and apparently purchased four
new shocks. Approximately 1-1/2 years later, Ms. Worsham's father
contacted a Big O Area Manager requesting that the damage to Ms.
Worsham's vehicle allegedly caused by the tire blow out be repaired.
Ms. Worsham did not report the damage to her vehicle to the Big O Tire
store at the time of the tire replacement. This information has been
forwarded to Big O's insurance carrier for handling.
<PAGE>
Section 3.12 - Taxes
The State of Washington has asserted claims for business and occupation taxes,
which the Company is disputing. The State of Idaho intends to audit the 1991,
1992 and 1993 state income tax returns.
The Company and subsidiary consolidated federal tax returns have been audited
through 1990. The years since then are open under the applicable statute of
limitations, but the Company has received no notice of intended audit.
The Company and its subsidiaries file consolidated state income tax returns in
eight (8) states. The Company files separate state income tax returns in two
states. One of the Company's subsidiaries files separate state income tax
returns in two states. Except for the disclosure, above, regarding the state
of Idaho, the Company is not aware of any planned audits.
The Company and its subsidiaries have filed all extension forms necessary to
extend the due date of their 1994 federal and state income tax returns to due
dates ranging from September 15, 1995 to October 15, 1995.
Reviews and Federal California Idaho Colorado Other States
Audits
(i) 1987, 1988 None 1988, 1989, None Various
1989, 1990 None 1990
(ii) 1987, 1988, None 1988, 1989, None Various
1989, 1990 1990
(iii) 1991, 1992, 1991, 1992, 1991, 1992, 1991, 1992, 1991, 1992,
1993, 1994 1993, 1994 1993, 1994 1993, 1994 1993, 1994
<PAGE>
Section 3.13 - Employee Benefit Plans
The following is a list of the current employee benefit plans of the Company:
3.13 (a) (i) "employee pension benefit plans in accordance with Section
3(2) of ERISA"
Big O Tires, Inc. Employee Stock Ownership Plan
Big O Tires, Inc. 401(k) Retirement Savings Plan
Supplemental Employee Retirement Plans for Messrs.
Adams and Cloward
(ii) "employee welfare benefit plans in accordance with Section
3(1) of ERISA"
1. Group Medical Insurance through CIGNA Group Insurance
including HMO, PPO and Regular Indemnity coverage.
2. Group Dental Insurance through CIGNA Dental Insurance
including DMO and Regular Indemnity coverage.
3. Group Life and Accidental Death and Dismemberment
Insurance through LINA, CIGNA Group Insurance.
4. Short Term Disability Wage Continuation coverage for
hourly (Non-Exempt) employees self-funded through Big
O Tires, Inc.
5. Short Term Disability Salary Continuation coverage for
salaried (Exempt) employees self-funded through Big O
Tires, Inc.
6. Long Term Disability Insurance through LINA, CIGNA
Group Insurance.
7. Stand alone Vision coverage for employees covered
under the HMO Plan.
8. The following Supplemental Benefit Plans, all of which
are completely paid by participating employees: Life
Insurance, Accidental Death and Dismemberment
Insurance, Top Hat Disability through LINA, CIGNA
Group Insurance and Vision coverage through Vision
Service Plan.
9. Supplemental Employee Retirement Plans for Messrs.
Adams and Cloward
(iii) "profit sharing" programs
1. NONE.
"group insurance" programs
1. NONE other than the plans as disclosed above.
"bonus" programs
1. MBO (Management Bonus Objective) for qualified
positions (approximately 41 employees),
2. Budget Performance Incentive Bonuses for Regional
employees only,
3. Discretionary Employee Appreciation Bonuses,
4. Spiff programs for Retail, Warehouse, Accounts
Receivable, and Obsolete Inventory,
5. Attendance Bonuses for full-time non-exempt employees,
6. Budget Buster Bonus for Regional Vice Presidents and
certain Department Heads.
"deferred compensation" programs
1. Section 125 Flexible Benefits Spending Account,
2. Big O Tires, Inc. Director and Employee Stock Option
Plan.
"stock option" programs
1. Stock Appreciation Rights Agreements as described
below,
2. Big O Tires, Inc. Long Term Incentive Plan,
3. Big O Tires, Inc. Director and Employee Stock Option
Plan.
"severance pay" programs
1. Severance Pay Guideline
2. Executive Management Severance Pay Guideline,
3. Management Severance Pay Guideline,
4. Special Severance Pay packages for a) Horst K.
Mehlfeldt, b) John E. Siipola, and c) Steven P.
Cloward.
5. Existing severance pay for six (6) terminated
employees as of 07-12-95.
"Insurance" program
1. NONE other than the plans as disclosed above.
"pension or retirement plan" programs
NONE other than as disclosed above.
"written agreement relating to employment or fringe benefits
for employees, officers or directors of the Company or any
subsidiary"
1. NONE other than plans or agreements as disclosed
above.
Section 6.2(c) of the Big O Tires, Inc. Long Term Incentive Plan
provides that in the event of a merger or consolidation of the Company with or
into another corporation, all restricted stock awards not then vested shall be
fully and completely vested.
Section 5.7 of the Big O Tires, Inc. Director and Employee Stock Option
Plan provides that, if there is a termination of directorship or a termination
of employment by an optionee before the end of the first plan year following
the grant date of an option, the optionee forfeits the options granted on that
grant date and, in lieu thereof, is entitled to receive a cash payment equal
to the lesser of:
(a) The number of shares into which such option is exercisable
multiplied by an amount determined by subtracting the exercise price
from the fair market value of the stock on the date of termination of
employment or termination of directorship, as applicable; or
(b) The pro rata portion of eligible compensation or eligible
director fees earned in the first plan year, determined by multiplying
the eligible compensation or eligible director fees subject to exchange
for options granted, by a fraction the numerator of which is the number
of full calendar months such optionee has served as a director or as an
employee in said plan year as may be applicable and the denominator of
which is twelve.
Under Section 6.3 of the Plan, the options granted are exercisable for
three months following the termination of employment or termination of
directorship of an optionee, so long as such termination is other than as the
result of death, disability or retirement.
The Company has entered into Stock Appreciation Rights Agreements
("Agreements") with John E. Siipola, Horst K. Mehlfeldt and Steven P. Cloward
effective February 15, 1995. Each Agreement grants each person 100,000 share
equivalent units. Each unit entitles each person to receive, in cash only,
the difference between $13.875 per share and the market value of a share of
common stock on the exercise date. The right to exercise any units does not
vest until August 16, 1995. Thereafter, each individual's right to exercise
any units vests at a rate of 16,662 units on August 16, 1995, and at a rate of
2,777 units on the 16th day of each month thereafter until the 16th day of
January, 1998, at which time the 2,805 unvested units vest. Such vesting
shall occur only if the employee is in the full-time employ of the Company or
any subsidiary of Big O on each vesting date.
By letters dated March 24, 1995, the Company confirmed to John E.
Siipola and Horst K. Mehlfeldt that, if a change in control of the Company
took place between February 15, 1995 and August 16, 1995, the Company would
pay each a lump sum payment of $150,000 if their positions with the Company
terminated as a result of such change in control. The Company has also
confirmed to Steven P. Cloward that any severance will be determined in
accordance with the Company's severance pay guidelines in effect on February
12, 1995 as it applied to his 1995 compensation (salary and bonus) program in
effect as of February 12, 1995, if his employment terminates before August 16,
1995. The Board of Directors of the Company has authorized the Company to
enter into letter agreements with Messrs. Siipola and Mehlfeldt that provide
that Messrs. Siipola and Mehlfeldt each will receive a severance package
consisting solely of a lump sum payment of $150,000 minus any amounts they may
realize from the exercise of rights granted to them in the Stock Appreciation
Rights Agreements ("Agreements") if the Merger is consummated and if their
employment with the Company terminates within 285 days after the date of the
Merger is effective or if during that period their salary is reduced from the
salary in effect on the date the Merger is consummated. Messrs. Siipola and
Mehlfeldt must agree that on the effective date of the Merger, their
Agreements will terminate. The Board of Directors of the Company has also
authorized the Company to enter into a letter with Mr. Cloward that provides
that his severance arrangement will continue through the effective date of the
Merger provided he agrees upon the effective date of the Merger that his Stock
Appreciation Rights Agreement will terminate.
Steven P. Cloward and John B. Adams are participants in the Company's
Supplemental Executive Retirement Plan.
Pursuant to paragraph 7(d) of the Plan, upon a change in control of the
Company, each participant will be entitled to receive all amounts credited to
the participants' account. The participants will receive distribution of all
accounts payable to them in 120 equal monthly installments (unless the
participant previously filed an election to receive payments in a lump sum or
in 60 equal monthly payments). The first distribution will be made as soon as
possible but in no event later than 30 days following a changing of control.
The Board of Directors of the Company has authorized the extension to a
future date that will coincide with the Effective Time, as such time is
defined in the Agreement, of temporary living and travel arrangements for John
E. Siipola.
<PAGE>
Section 4 - Assets to be Sold
The Company has sold approximately $3,800,000 in notes receivables to The CIT
Group/Equipment Financing and provided 50% guarantees therefor. The Company
plans to continue the sale of notes receivables and other notes, including a
note from Ronald Roalsen, and provide guarantees therefor.
The Company's former Vacaville, California RSC is under contract for sale and
the Company anticipates that the sale of that property will close in July
1995.
The Company, through a subsidiary, owns three (3) retail tire stores which it
leases to existing franchisees. The Company hopes to dispose of all of those
real estate properties to investors in 1995. This excludes all retail real
estate owned by joint ventures in which the Company or a subsidiary is a
venturer.
The Company, in accordance with lease guaranty provisions, has established
reserves for lease obligations on 12 closed retail tire store locations, which
the Company is currently subleasing or which the Company intends to sublease.
The Company intends to sell its joint subsidiaries' joint venture interests in
the following retail store joint ventures:
Big O/S.A.N.D.S. Joint Venture
Big O/C.S.B. Joint Venture (to be sold effective October 1, 1994)
Big O/CMT Joint Venture
Big O/Herb Hawley Joint Venture
The Company, through a subsidiary, owns and operates five Big O Tires retail
stores, four (4) of which it intends to sell to franchisees.
The Company will continue to attempt to sell Company-owned stores prior to the
Effective Time.
The Company will continue to pursue the sale/lease back of at its warehouse in
Las Vegas, Nevada, the sale/lease back of its warehouse in Boise, Idaho and
the
sale of the vacant land in Boise, Idaho, all on terms deemed acceptable by the
Board of Directors of the Company, in its sole discretion.
The Company sold its 51% interest in a company owning a franchise store in
American Fork, Utah, during the second quarter ended June 30, 1995.
All of the aforementioned transactions will be on such terms and conditions as
the Board of Directors deems appropriate in its sole discretion.
August 31, 1995
BOTI Acquisition Corp.
BOTI Holdings, Inc.
11755 East Peakview Avenue
Englewood, Colorado 80111
ATTENTION: Steven P. Cloward
Gentlemen:
We refer to the Merger Agreement dated as of July 24, 1995, between
you and the undersigned. You have requested that the date of September
1, 1995, in Section 7.1(f) of the Merger Agreement, be changed to
October 2, 1995.
The Investment Committee and the Board of Directors of the Company,
on behalf of the Company, have approved that request on the condition
that you agree that the Company will delay incurring additional
expenditures with respect to its proxy statement until the Company has
been advised that you have satisfied or waived the condition in Section
6.2(h) and the Company is satisfied that the fairness opinion specified
in Section 6.1(g) will be received. Such delay shall be considered to
be consistent with our responsibilities under Section 1.8 and Section
5.1 of the Merger Agreement.
Please sign your acceptance below.
Yours very truly,
BIG O TIRES, INC.
By /s/ John E. Siipola
-------------------
John E. Siipola, Chairman
ACCEPTED:
BOTI Acquisition Corp. BOTI Holdings, Inc.
By /s/ Steven P. Cloward By /s/ Steven P. Cloward
--------------------- ---------------------
Steven P. Cloward, President Steven P. Cloward, President
October 2, 1995
BOTI Acquisition Corp.
BOTI Holdings, Inc.
11755 East Peakview Avenue
Englewood, Colorado 80111
ATTENTION: Steven P. Cloward
Gentlemen:
We refer to the Agreement and Plan of Merger ("Merger Agreement") dated as
of July 24, 1995, between you and the undersigned. You have requested that the
date in Section 7.1(f) of the Merger Agreement that was previously changed to
October 2, 1995, now be changed to October 16, 1995.
The Investment Committee and the Board of Directors of the Company, on
behalf of the Company, have approved that request on the conditions that you
understand that the Company will agree to no further changes to Section 7.1(f)
and that you again agree that the Company will delay incurring additional
expenditures with respect to its proxy statement until the Company has been
advised that you have satisfied or waived the condition in Section 6.2(h). Such
delay shall be considered to be consistent with our responsibilities under
Section 1.8 and Section 5.1 of the Merger Agreement.
Please sign your acceptance below.
Yours very truly,
BIG O TIRES, INC.
By: /s/ John E. Siipola
John E. Siipola, Chairman
ACCEPTED:
BOTI Acquisition Corp. BOTI Holdings, Inc.
By: /s/ Steven P. Cloward By: /s/ Steven P. Cloward
Steven P. Cloward, President Steven P. Cloward, President
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "Amendment"),
dated as of November 14, 1995, is between BOTI Holdings, Inc., a Nevada
corporation (the "Parent"), BOTI Acquisition Corp., a Nevada corporation and a
wholly owned subsidiary of the Parent (the "Purchaser"), and Big O Tires, Inc.,
a Nevada corporation (the "Company"), and amends the Agreement and Plan of
Merger dated as of July 24, 1995 (the "Agreement").
RECITALS
The Investment Committee of the Company and the respective Boards of
Directors of the Purchaser, the Parent and the Company have approved this
Amendment in order to clarify certain provisions of the Agreement.
AGREEMENT
In consideration of the premises and the mutual covenants herein
contained and for other good and valuable consideration the receipt and adequacy
of which are hereby acknowledged, the Parent, the Purchaser and the Company
hereby agree as follows:
Article I
All capitalized terms used but not defined herein shall have the
meanings given to them in the Agreement.
Article II
Section 1.5 (a) of the Agreement shall be amended and restated to read
in its entirety as follows:
(a) Each share of the Company's Common Stock, par value $0.10
per share (the "Shares"), which is issued and outstanding
immediately prior to the Effective Time (other than (i)
Dissenting Shares (as defined below in Section 1.5(e)), (ii)
Shares held by, or which are under contract to be acquired by,
any shareholder of the Parent or of the Purchaser, (iii) Shares
held by, or which are under contract to be acquired by, the
Parent, the Purchaser, the Company or any direct or indirect
subsidiary of the Company, the Parent or the Purchaser and (iv)
shares held by the ESOP (as defined below) which are to be
converted into shares of the Parent as provided in Section
1.5(c)) shall be canceled and extinguished and be converted into
and become a right to receive a cash payment of $16.50 per Share,
without interest (which payment shall include $0.01 per share for
the redemption of the Rights as described in Section 6.2(e)).
Such cash payment shall hereinafter be referred to as the "Merger
Consideration."
Article III
Section 1.5(c) of the Agreement shall be amended and restated to read
in its entirety as follows:
(c) Each Share which is issued and outstanding immediately prior
to the Effective Time and owned by or which is under contract to
be acquired by the parties listed in clauses (ii) and (iii) in
the parenthetical contained in subsection (a) of this Section
1.5, shall be canceled and retired, and no payment shall be made
with respect thereto. Each Share which is issued and outstanding
immediately prior to the Effective Time and held by the ESOP
shall be either (i) converted into one share of the common stock
of the Parent, or (ii) canceled, extinguished and converted into
a right to receive the Merger Consideration. The number of
Shares to be converted or canceled pursuant to the preceding
sentence shall be set forth in a certificate reflecting the
number of shares in each category, which will be executed by the
ESOP Trustee and the Parent and delivered to the Company prior to
the Effective Time.
Article IV
Section 6.2(g) of the Agreement shall be amended and restated to read
in its entirety as follows:
(g) ESOP PARTICIPATION. At least 80% of the shares held by the
Company's Employee Stock Ownership Plan (the "ESOP") are to be
converted into shares of the common stock of the Parent as
provided in Section 1.5(c).
Article V
Section 1.6 of the Agreement shall be amended by inserting the
following sentence at the end of such section:
The provisions of this Section 1.6 shall be satisfied if the
Company has, prior to the Effective Time, entered into binding
agreements with the holders of all Options (other than the
Options referred to in clauses (i) and (ii) above) to cancel such
Options on the terms described above and has made provision to
deliver payment in exchange for the cancellation of such Options
within two business days after the Effective Time.
IN WITNESS WHEREOF, the Parent, the Purchaser and the Company
have caused this Agreement to be executed as of the date first written above by
their duly authorized respective officers.
PARENT: BOTI HOLDINGS, INC.
By: /s/ Steven P. Cloward
Its: President
PURCHASER: BOTI ACQUISITION CORP.
By: /s/ Steven P. Cloward
Its: President
COMPANY: BIG O TIRES, INC.
By: /s/ John E. Siipola
Its: Chairman
By: ___________________________
Its: ___________________________
Investment Banking Division
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
212 713-2000
November 14, 1995
Board of Directors
Big O Tires, Inc.
11755 East Peakview Avenue
Englewood, Colorado 80111
Gentlemen:
Big O Tires, Inc. (the "Company") has entered into an Agreement and Plan of
Merger, dated as of July 24, 1995 (the "Agreement"), with BOTI Holdings, Inc.
("Parent") and BOTI Acquisition Corp. ("Purchaser"), a wholly owned subsidiary
of Parent. Pursuant to the Agreement, Purchaser will merge with and into the
Company (the "Merger") and, at the effective time of the Merger, each
outstanding share (other than Excluded Shares (as hereinafter defined)) of
common stock, par value $.10 per share, of the Company (the "Common Stock") will
be converted into the right to receive $16.50 in cash, without interest (the
"Merger Consideration"). "Excluded Shares" means shares of Common Stock that
are (i) held by certain members of the Company's senior management, (ii) held by
certain participants in the Company's Employee Stock Ownership Plan or (iii)
held by, or under contract to be acquired by: (A) the Company, Parent or
Purchaser, (B) their respective direct or indirect subsidiaries or (C) any
stockholder or affiliate of Parent or Purchaser.
You have asked us whether or not, in our opinion, the Merger Consideration
is fair, from a financial point of view, to the holders of Common Stock (other
than holders of Excluded Shares).
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed, among other public information, the Company's Annual
Reports, Forms 10-K and related financial information for the five fiscal years
ended December 31, 1994 and a draft of the Company's Form 10-Q and the related
unaudited financial information for the nine months ended September 30, 1995;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the Company,
furnished to us by the Company;
(3) Conducted discussions with members of senior management of the Company
concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Common Stock and compared such price and trading history with that of certain
other publicly traded companies which we deemed relevant;
(5) Compared the financial position and operating results of the Company
with those of certain other publicly traded companies which we deemed relevant;
(6) Reviewed the proposed financial terms of the Merger and compared such
terms with the financial terms of certain other mergers and acquisitions which
we deemed relevant;
(7) Reviewed the Agreement and a draft of the proxy statement relating to
the Merger (the "Proxy Statement") as proposed to be filed with the Securities
and Exchange Commission; and
(8) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we deemed
appropriate, including our assessment of general economic, market and monetary
conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information that was publicly available or supplied or otherwise
communicated to us by or on behalf of the Company, and we have not independently
verified such information. We have assumed that the financial forecasts examined
by us were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the management of the Company as to the
future performance of the Company. We have not undertaken, and have not been
provided with, an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company and have assumed that all
material liabilities (contingent or otherwise, known or unknown) of the Company
are as set forth in the Company's consolidated financial statements. We have, at
the request of the Company, solicited third party indications of interest with
respect to the acquisition of the Company. Our opinion is based on the
regulatory, economic, monetary and market conditions existing on the date
hereof.
Our opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder of the Company as to how any
such shareholder should vote with respect to the Merger. This opinion does not
address the relative merits of the Merger and any other potential transactions
or business strategies discussed by the Board of Directors of the Company or the
Investment Committee thereof as alternatives to the Merger or the decision of
the Board of Directors of the Company to proceed with the Merger.
This opinion has been prepared solely for the use of the Board of Directors
of the Company and shall not be reproduced, summarized, described or referred
to, or given to any other person or otherwise made public without the prior
written consent of PaineWebber Incorporated; provided, however, that this letter
may be reproduced in full in the Proxy Statement.
PaineWebber Incorporated is currently acting as financial advisor to the
Investment Committee in connection with the Merger and will receive a fee upon
delivery of this opinion and upon consummation of the Merger. We may provide
financial advisory or other investment banking services to the Company in the
future.
In the ordinary course of our business, we may trade the securities of the
Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold long or short positions in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Merger Consideration is fair, from a financial point
of view, to the holders of Common Stock (other than holders of Excluded Shares).
Very truly yours,
PAINEWEBBER INCORPORATED
/s/ PaineWebber Incorporated
