UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________.
Commission File Number: 1-8833
BIG O TIRES, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0392481
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
11755 East Peakview Avenue
Englewood, Colorado 80111
(Address of Principal Executive Offices)
(303) 790-2800
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
The number of shares of registrant's common stock outstanding on
August 10, 1995 was 3,317,840.
The total number of pages is 32.
BIG O TIRES, INC.
CONSOLIDATED BALANCE SHEETS
(000s)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
Unaudited ------------
-----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 989 $ 4,882
Trade accounts receivable,
net of allowance for
doubtful accounts 10,806 8,165
Other receivables 551 2,905
Current portion of notes
receivable 638 733
Inventories 20,935 14,219
Deferred income taxes 2,236 2,126
Other current assets 764 688
--------- ---------
Total current assets 36,919 33,718
--------- ---------
NOTES RECEIVABLE, net of
current portion 3,652 3,193
--------- ---------
PROPERTY, PLANT AND EQUIPMENT 25,363 17,177
Less accumulated depreciation
and amortization (5,235) (5,146)
--------- ---------
20,128 12,031
--------- ---------
INTANGIBLE AND OTHER ASSETS,
Distribution rights 8,938 9,077
Equity in joint ventures and
unconsolidated subsidiaries 1,106 1,129
Other 2,765 2,820
--------- ---------
12,809 13,026
--------- ---------
TOTAL ASSETS $ 73,508 $ 61,968
========= =========
</TABLE>
-See notes to consolidated financial statements-
BIG O TIRES, INC.
CONSOLIDATED BALANCE SHEETS
(000s)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
Unaudited ------------
---------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,831 $ 650
Accrued expenses 1,758 2,485
Warranty reserve 4,100 3,850
Current portion of long-term debt
and capital lease obligations 1,620 2,066
--------- ---------
Total current liabilities 17,309 9,051
--------- ---------
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS,
net of current portion 18,088 15,906
--------- ---------
OTHER LONG-TERM LIABILITIES 1,330 1,433
--------- ---------
EMPLOYEE STOCK OWNERSHIP
PLAN OBLIGATIONS 184 449
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock 335 334
Capital contributed in
excess of par 15,445 15,418
Retained earnings 21,353 20,419
--------- ---------
37,133 36,171
Less: Employee stock ownership
plan obligations (184) (449)
Deferred stock grant
compensation (231) (472)
Treasury stock (121) (121)
--------- ---------
36,597 35,129
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 73,508 $ 61,968
========= =========
</TABLE>
-See notes to consolidated financial statements-
BIG O TIRES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(000s except for share and per share amounts)
<TABLE>
<CAPTION>
For the three For the six
months ended months ended
June 30, June 30,
1995 1994 1995 1994
---------------------- -------------------
<S> <C> <C> <C> <C>
NET SALES: $ 34,438 $ 31,087 $ 63,591 $ 57,480
Product and
franchising 3,339 -- 3,339 --
--------- --------- --------- ---------
37,777 31,087 66,930 57,480
--------- --------- --------- ---------
COST OF SALES: 26,337 23,004 48,750 43,112
Product and
franchising 3,197 -- 3,197 --
--------- --------- --------- ---------
29,534 23,004 51,947 43,112
--------- --------- --------- ---------
GROSS PROFIT:
Product and
franchising 8,101 8,083 14,841 14,368
Real estate 142 -- 142 --
--------- --------- --------- ---------
8,243 8,083 14,983 14,368
--------- --------- --------- ---------
EXPENSES, net:
Selling &
administrative 5,058 5,205 9,637 10,139
Product delivery
expense 1,090 750 1,941 1,275
Interest expense 437 395 833 667
Shareholder pro-
posal expense 227 -- 548 99
Loss on sale or
closure of
retail stores -- 604 95 702
Warehouse consol-
idation costs 320 -- 320 --
--------- --------- --------- ---------
7,132 6,954 13,374 12,882
--------- --------- --------- ---------
INCOME BEFORE
INCOME TAXES 1,111 1,129 1,609 1,486
--------- --------- --------- ---------
PROVISION FOR
INCOME TAXES:
Current 540 678 788 892
Deferred (74) (199) (113) (261)
--------- --------- --------- ---------
466 479 675 631
--------- --------- --------- ---------
NET INCOME $ 645 $ 650 $ 934 $ 855
========= ========= ========= =========
EARNINGS PER SHARE $ .19 $ .19 $ .28 $ .26
========= ========= ========= =========
WEIGHTED AVERAGE
SHARES AND COMMON
STOCK EQUIVALENTS
OUTSTANDING 3,375,036 3,339,764 3,375,430 3,332,669
========= ========= ========= =========
</TABLE>
-See notes to consolidated financial statements-
BIG O TIRES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000s)
<TABLE>
<CAPTION>
For the six months
ended June 30,
1995 1994
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 934 $ 855
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 611 605
Amortization of intangibles 200 208
Other 111 (155)
Cash flows from changes in
working capital 1,192 (6,272)
--------- ---------
Total adjustments 2,114 (5,614)
--------- ---------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES 3,048 (4,759)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable (153) (135)
Payments received on notes
receivable 248 575
Proceeds from sales of property
and equipment 788 516
Equity investments in affiliates (112) (142)
Purchase of property and equipment (9,254) (2,270)
Increase in retail store constr-
uction in progress (130) --
Purchase of retail stores (141) (410)
--------- ---------
NET CASH USED BY
INVESTING ACTIVITIES (8,754) (1,866)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt 3,285 16,168
Principal payments on long-term debt
and capital lease obligations (1,580) (5,023)
Proceeds from sale of common stock
and stock options exercised 108 73
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,813 11,218
--------- ---------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS (3,893) 4,593
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 4,882 1,113
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 989 $ 5,706
========= =========
</TABLE>
-See notes to consolidated financial statements-
BIG O TIRES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(000s)
<TABLE>
<CAPTION>
For the six months
ended June 30,
1995 1994
-------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 890 $ 575
Income taxes 1,186 755
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Accounts receivable transferred to
long-term notes receivable 459 173
Inventories received in
satisfaction of long-term
notes receivable -- 454
Decrease in employee stock
ownership plan obligations 265 546
Restricted stock grants
cancelled 80 --
</TABLE>
-See notes to consolidated financial statements-
BIG O TIRES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1994
UNAUDITED
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
REFERENCE TO ANNUAL REPORT:
These financial statements should be read in conjunction with the
Annual Report on Form 10-K for the year ended December 31, 1994,
since certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the United States
Securities and Exchange Commission ("SEC"). These interim
financial statements reflect all adjustments which are, in the
opinion of Management, necessary for a fair presentation of the
financial position, results of operations and cash flows of the
Company for the interim periods. Such adjustments are of a normal
recurring nature. Operating results for the three and six months
ended June 30, 1995, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1995.
STOCK OPTION PLAN:
On January 1, 1995, the Company granted options for 4,943 shares of
the Company's $.10 par value common stock (Common Stock) to certain
directors and employees who elected to participate in the Big O
Tires, Inc. Director and Employee Stock Option Plan ("Plan"). As
of June 30, 1995, the liability for the options granted on January
1, 1995 pursuant to the Plan was approximately $39,000.
STOCK APPRECIATION RIGHTS:
In February 1995, the Company's Board of Directors granted Stock
Appreciation Rights ("SAR") to each of the three members of the
Office of the Chief Executive. Each SAR agreement provides that
each member receive a grant of 100,000 share equivalent units, each
of which represents an equal undivided interest in the future
appreciation in the value of a share of the Company's Common Stock.
The SAR agreement provides, subject to certain vesting
requirements, that each unit shall entitle each member to receive,
in cash only, the difference between the base value (as defined in
the agreement) and the market value of a share of Common Stock on
the exercise date. As of June 30, 1995, the amount of the
liability under this plan was not material.
In July 1995, the three members of the Office of the Chief
Executive signed a letter agreement stating that the SAR agreements
will terminate upon the consummation of the merger and any
unexercised SARs pursuant to the agreements will be forfeited as to
all units, vested and non-vested. (See discussion of the proposed
merger under Liquidity and Capital Resources).
CREDIT FACILITY:
On January 23, 1995 the Company replaced its previously existing
credit facility with a $20 million Revolving Credit Agreement which
expires January 22, 1998. Borrowings under the agreement (limited
to a portion of eligible collateral) were $6,000,000 at June 30,
1995. The agreement contains various covenants and restrictions
(including a restriction which precludes the payment of cash
dividends or the return of capital to shareholders) with which the
Company was in compliance at June 30, 1995.
SENIOR SECURED NOTES:
In April 1994, the Company sold 8.71% Senior Secured Notes in the
aggregate principal amount of $8,000,000, at par, which will mature
in 1998 - 2004. At June 30, 1995, the notes are collateralized by
a deed of trust on land and buildings located in Nevada and Idaho.
UNEARNED STOCK COMPENSATION:
On August 5, 1994, the Company made restricted stock grants for
28,478 shares (net of subsequent cancellation of 5,188 shares) of
the Company's Common Stock and granted options for an additional
41,942 shares of the Company's common stock to certain officers in
accordance with the Big O Tires, Inc. Long Term Incentive Plan (LTI
Plan).
In connection with the restricted stock grant, unearned stock
compensation of $520,000 was recorded which represents the non-
vested portion of the restricted stock grants based upon the market
price of the stock at the grant date. Compensation expense is
being recognized over a vesting period of three to five years in
accordance with the provisions of the LTI Plan. Compensation
expense recognized for the three and six months ended June 30, 1995
was approximately $91,000 and $160,000, respectively.
FRANCHISE AND ROYALTY FEES:
The Company receives initial franchise fees and continuing royalty
fees from its franchised Big O dealers. The initial franchise fees
and royalty fees were $1,836,000 and $3,393,000 for the three and
six months ended June 30, 1995, respectively, and $1,642,000 and
$3,085,000 for the three and six months ended June 30, 1994,
respectively.
SHAREHOLDER PROPOSAL EXPENSE:
At the Annual Meeting of Shareholders held in June 1994, the
shareholders adopted a resolution calling for the Company to engage
an investment banker to evaluate all alternatives for enhancing the
value of the Company. The cost associated with the implementation
of the shareholder proposal for the three and six months ended June
30, 1995 was $227,000 and $548,000, respectively.
EARNINGS PER SHARE:
Earnings per share is computed using the weighted-average number of
outstanding shares during each period presented. Common stock
equivalents are included but did not have a material effect on the
computation.
LITIGATION:
As a franchisor and wholesale distributor, the Company licenses the
use of its trade names, service marks and trademarks to the
Company's franchisees and other licensees and distributes tire
products manufactured by the Company's suppliers ("Suppliers")
under the Company's trade names and trademarks. As a result, the
Company has been named as a defendant in a number of lawsuits
alleging negligent acts and/or omissions by the Company's
franchisees or alleged defective workmanship and/or materials of
the products produced by the Suppliers. As of June 30, 1995, there
were thirty-nine such lawsuits pending in which the Company was
named as a defendant. Of those thirty-nine lawsuits, only two
directly involve the Company. The other thirty-seven involve
franchisees of the Company or alleged tire failures of its
Suppliers. In most of the thirty-nine lawsuits in which the
Company is named as a defendant, the claims for damages are not
specific. The Company believes that it is reasonably possible that
a judgment may be rendered against the Company in one or more of
these lawsuits but the Company is unable to estimate the amount of
any such possible judgments. Over the past five years, the
judgments that have been rendered against the Company and
settlements made by the Company in lawsuits similar to the thirty-
nine lawsuits have not resulted in material losses to the Company.
Therefore, based upon such history, the Company does not believe
that the Company will suffer any material loss as a result of the
thirty-nine lawsuits pending against the Company on June 30, 1995.
The Company requires that both the Company's franchisees and
Suppliers indemnify and protect the Company against claims
resulting from the alleged negligent acts and/or omissions of the
franchisees and the alleged defects in workmanship and/or materials
of its Suppliers. In addition, the Company carries its own
insurance. The thirty seven lawsuits referred to above are being
defended by attorneys who have been retained by the applicable
insurance companies and the Company is not actively involved in the
defense thereof. Historically, the Company has been able to rely
upon its franchisees and Suppliers and their insurance carriers to
defend, protect and indemnify the Company against such types of
lawsuits. Accordingly, even if a judgment is rendered against the
Company in any of these lawsuits, because of the insurance and
indemnities described above, management does not believe that the
Company will incur any loss as a result of any such judgment.
The Company is also a defendant in seven additional lawsuits which
are incidental to the Company's business and for which the Company
does not believe it is liable, but which are not covered by
insurance. Thus the Company is directly and actively involved in
its own defense and has sufficient information to form a judgment
on the likely outcome and exposure of such cases. Based on this
analysis, the Company believes that the ultimate outcome of these
cases will not have a material adverse effect on the Company's
financial statements.
The Company previously reported the pendency of two class action
lawsuits naming the Company and its nine directors as defendants
(Knopf vs. Big O Tires, Inc., et al. and Zucker, et al. vs. Big O
Tires, Inc., et al., Second Judicial District Court of the State of
Nevada, County of Washow). By motion filed by plaintiffs' counsel,
both actions were dismissed without prejudice by the Court on March
31, 1995.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS:
LIQUIDITY AND CAPITAL RESOURCES:
Shareholder Proposal
In June 1994, the shareholders adopted a proposal requesting the
Company to engage an investment banker to evaluate all alternatives
to enhance the value of the Company. In implementing this
shareholder proposal, the Board of Directors established the
Investment Committee of the Board which retained PaineWebber
Incorporated (PaineWebber) to fulfill this shareholder proposal.
In June 1995, the Company's Board of Directors approved in
principle a proposal to recommend to the Company's shareholders
that the shareholders sell at a price of $16.50 per share to a
group consisting of management personnel of the Company and Big O
Tire Dealers of America, a group of franchise dealers, (the
"Acquisition Group"). In July 1995 the Company entered into an
Agreement and Plan of Merger (Merger Agreement) with BOTI Holdings,
Inc. and BOTI Acquisition Corp. The Merger Agreement is subject to
contingencies including the purchasers obtaining acceptable
financing, participation in the acquisition group by not less than
80% of the shares held by the Company's Employee Stock Ownership
Plan ESOP and participation in the group by not less than 85% of
the franchised Big O Tire dealers. The Merger Agreement is subject
to approval by the Company's stockholders.
By its terms, the Merger Agreement puts certain constraints on the
Company's conduct of business pending the merger. These
constraints provide that neither the Company nor any of its
subsidiaries shall take any action except in the ordinary course of
business and consistent with past practices. The Merger Agreement
also provides that any one member of a management committee,
consisting of the members of the Office of the Chief Executive and
the Executive Vice President of the Company, has the right to
object to expenditures, contingent liabilities or the acquisition
or disposition of assets which exceed $100,000 prior to the Company
being legally bound. If the management committee cannot then
unanimously agree to such expenditures or asset dispositions or
acquisition, the Merger Agreement provides that approval may be
obtained from BOTI Holdings, Inc. and the Company.
Working Capital
At June 30, 1995, the Company had $19,610,000 in working capital
(defined as current assets less current liabilities), which
represented a net decrease of $5,057,000 from December 31, 1994.
Primary uses of working capital included the purchase of the Las
Vegas distribution facility for $7,972,000 and equipment of
$1,282,000 totalling $9,254,000 and principal payments on long-term
debt and capital lease obligations of $1,580,000. These uses were
partially offset by working capital derived from borrowings on the
Company's line of credit and other long-term debt of $3,285,000 and
working capital provided by operations of $3,048,000.
The Company's net trade receivables at June 30, 1995 increased by
$2,641,000 as compared to December 31, 1994. This increase
resulted from the effect of opening six new stores (net of
closures) during the first six months of 1995 and normal seasonal
increases.
Inventories at June 30, 1995 increased by $6,716,000 as compared to
inventories at December 31, 1994. This increase resulted primarily
from higher inventory levels needed to support the increased sales
due to the impact of the Company's Cost-U-LessTM program, which was
implemented in July 1994, the six additional stores opened during
the first six months of 1995, and the normal, seasonal increase in
stocking levels to provide an adequate supply of products to meet
anticipated higher sales volumes which normally occur during the
third quarter of each year. Accounts payable at June 30, 1995
increased $9,181,000 from December 31, 1994, as a result of the
increased inventory levels and extended payment terms offered by
the Company's primary supplier.
Las Vegas RSC Conversion
In May 1994, the Company closed its RSC in Vacaville, California
and consolidated its operations into the Ontario RSC. The
Vacaville warehouse was leased to an unrelated third party. In
July 1995 the company sold this warehouse facility. The cash
proceeds from the sale were used to reduce the outstanding loan
balance with First National Bank of Chicago (First Chicago).
In March 1995, the Company closed its RSC in Denver, Colorado and
consolidated its operations into the newly opened Las Vegas RSC.
The Denver RSC was sold to an unrelated third party in December
1994 (See discussion under "Financial Commitments" below). Ontario
RSC operations were fully converted to the new Las Vegas RSC in May
1995. While the Company is obligated under the lease for the
Ontario warehouse through May 1998, it has subleased this property
to an unrelated third party for the remainder of the lease term
starting June 1995. After all operations have been successfully
consolidated at the new Las Vegas RSC in the second quarter, 1995,
management anticipates that selling and administrative expense will
be reduced.
The results for the second quarter 1995 (and six months ended June
30, 1995) include a $320,000 charge associated with the conclusion
of this warehouse consolidation. This charge resulted primarily
from the sale of the Vacaville RSC facility at a price less than
previously anticipated as well as certain other costs that exceeded
expectations.
Real Estate Development
The Company's real estate development program which involves Big O
retail store site selection and development by one of the Company's
subsidiaries, and the subsequent sale of these developed store
sites to Franchisees that qualify for Small Business Administration
(SBA) guaranteed loans. Significant financing is required by the
Company, which is planned to be repaid as the SBA guaranteed
financing is obtained by the prospective Franchisee. As of July
1995, permanent financing had been approved for ten development
projects through AT&T Capital Corporation (AT&T). Due to the
possible merger as described above, the agreement with AT&T was
terminated in August 1995. While the Company plans on continuing
this real estate development program, the extent of this
development may be cut back significantly. The Company anticipates
funding future projects through its revolving line of credit or
through joint ventures or directly with developers.
The Company completed the sales of six real estate holdings during
the second quarter of 1995. Three of these real estate sales
involved projects developed under the Company's real estate
development program, one related to a land sale from a site the
Company elected not to develop, and two sales related to retail
properties previously held as investments that the Company elected
to sell.
Capital Expenditures
At June 30, 1995, the Company's subsidiary that is implementing the
real estate development program and financing through the SBA had
approximately $2.2 million invested in construction in progress for
Big O retail store sites, an increase of $.2 million since December
31, 1994. Additional capital expenditures are anticipated in
connection with these real estate development activities, which are
anticipated to be funded through the Company's revolving line of
credit or through joint ventures or directly with developers.
In February 1995, the Company acquired the Las Vegas RSC at a total
cost of approximately $7,972,000. New equipment, including
computer hardware and software to operate this facility, will
require approximately $1,200,000 in additional 1995 capital
expenditures of which approximately $880,000 has been incurred as
of June 30, 1995. The Company is financing this equipment through
its existing revolving line of credit.
Financial Commitments
The Company's current operations are primarily funded through its
revolving line of credit with First Chicago which has a 1995 sub-
limit of $6 million for construction and permanent financing
pursuant to the Company's real estate development program.
Limited financing for the Company's real estate development was
previously provided by AT&T through an $11.75 million revolving
credit line. In August 1995 the Company and AT&T mutually agreed
to terminate this credit line for all projects unfunded at that
time.
In the fourth quarter of 1994 the Company sold approximately $3
million of long term notes receivable. The Company successfully
negotiated the sale of an additional $.8 million of long term notes
receivable in July 1995 and plans an additional sale of $.2 million
in August 1995.
Management's discretion with respect to certain business matters is
limited by financial and other covenants contained in loan
agreements with First Chicago, AT&T, the senior note holders,
Kelly-Springfield Tire Company (a division of The Goodyear Tire &
Rubber Company) and other lenders. These covenants, among other
things, limit or prohibit the Company from (i) paying dividends on
its capital stock, (ii) incurring additional indebtedness, (iii)
creating liens on or selling certain assets, (iv) making certain
loans, investments, or guarantees, (v) violating certain financial
ratios, (vi) repurchasing shares of its common stock, (vii) making
certain capital expenditures, and (viii) merging or selling
substantially all of its assets. At June 30, 1995, the Company was
in compliance with all of these covenants.
The Company has received notice from the Senior note holders that
the completion of proposed merger will be an event of default, thus
creating a covenant violation. It is the Company's understanding
that the Acquisition Group is seeking replacement financing at this
time. In compliance with the terms of the Merger Agreement, the
Company is contacting its other current lenders and lessors where
necessary in order to obtain the consents necessary for the
consummation of the merger.
The Company's continuing guarantees at June 30, 1995 were comprised
principally of the following:
Retail store financing $ 3.9 million
Notes receivable guarantees 1.4 million
Real estate lease guarantees 4.0 million
Employee Stock Ownership Plan .2 million
Denver RSC mortgage loan 2.8 million
Seasonality
The franchised and Company-owned retail stores experience some
seasonal variation in product sales because the sale of tires,
wheels, and related automotive products are generally greater
during the summer months than in the winter months. The Company
generally experiences some seasonality, although not to the same
extent as the retail stores, since the Company maintains sales to
certain retail stores on a regional basis (e.g., snow tires and
chains) that offset the trend on a national basis.
Environmental Issues
The Company and its franchisees are subject to federal and state
environmental regulations regarding the disposal of tires and used
oil, and the handling and storage of certain other substances.
Such regulations have not previously had a material effect on the
Company's operations, and Management does not believe that they
will have a material effect in the future since the Company has
adopted a policy of requiring Phase I environmental studies
associated with any new projects or the acquisition of any existing
locations before such transactions are consummated.
Accounting Standards
The Company adopted Statement of Financial Accounting Standard
(FAS) No. 114, Accounting by Creditors for Impairment of a Loan,
effective January 1, 1995. The adoption of this FAS did not have
a material effect on the Company's financial position nor results
of operations for the six months ended June 30, 1995.
The Financial Accounting Standards Board (FASB) has issued
Statement of Financial Accounting Standard No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of, which is required to be implemented for the Company's
fiscal year ending December 31, 1996. The earlier adoption of this
FAS would not have materially affected the Company's financial
position or results of operations for the six months ended June 30,
1995.
RESULTS OF OPERATIONS:
Revenues
Net sales for the second quarter, 1995 increased by $6,690,000 as
compared to the second quarter 1994 and net sales for the first six
months 1995 increased by $9,450,000 over the first six months of
1994. The sale of Big O brand units increased by approximately
167,000 units (an increase of 29.1%) during the first six months of
1995 as compared to the corresponding period for 1994, and the sale
of other new tires decreased by approximately 57,000 units (a
decrease of 18.7%) during the same period. The average selling
price of Big O brand units decreased by $2.40 per unit (a decrease
of 4.1%) for the first six months of 1995 as compared to the first
six months of 1994. This decrease was primarily due to the
Company's Cost-U-LessTM marketing program. The average selling
price of other new tires decreased by $1.35 (a decrease of 4.6%)
during the first six months of 1995 as compared to the
corresponding period in 1994. This decrease was in response to the
increased competitive nature of the industry.
Net sales for the second quarter of 1995 increased $6,690,000 as
compared to the second quarter of 1994, of which $3,339,000 related
to the sale of six Company real estate holdings during the second
quarter 1995. Three of these real estate sales involved projects
developed by the Company for franchisees, one related to a land
sale from a site the Company elected not to develop, and two sales
related to retail properties previously held as investments that
the Company elected to sell. Other increases included an increase
of $1,580,000 in sales to existing dealers, additional sales to new
franchisees of $2,131,000 and an increase in royalty revenues of
$194,000. These increases were partially offset by a decrease of
$217,000 which resulted from the closing of franchisee and Company-
owned retail stores which were operating during the second quarter
of 1994 but not 1995 and a decrease of $322,000 related to the sale
of Company-owned retail stores.
The increase in sales of $9,450,000 for the first six months of
1995 included the increase of $3,339,000 related to real estate
sales discussed above, an increase of $3,560,000 in sales to
existing dealers, additional sales to new franchisees of $3,425,000
and an increase of $308,000 in royalty revenues. These increases
were partially offset by decreases in sales of $645,000 related to
the closing of franchisee and Company-owned retail stores and
$469,000 related to the sale of Company-owned retail stores.
Gross Profit
Gross profit for the second quarter 1995 increased by $160,000 as
compared to the second quarter of 1994, primarily due to an
increase of $142,000 related to real estate sales. The Company's
product and franchising gross margin was 23.5% for the second
quarter of 1995 which represented a 2.50% decrease as compared to
the second quarter of 1994. This decrease in gross margin
generated a decrease in gross profit of $770,000, which was offset
by an increase in gross profit of $788,000 attributable to the
higher product and franchising sales volumes. The decrease in
gross margin was primarily due to the Company's Cost-U-LessTM
program.
Gross profits for the first six months of 1995 increased by
$615,000 as compared to the first six months of 1994 which included
the gross profit related to real estate sales of $142,000. The
Company's product and franchising gross margin was 23.3% for the
first six months of 1995, a decrease of 1.7% from the first six
months of 1994. An increase in gross profits of $1,427,000 was
attributable to the higher product and franchising sales volumes
during the first six months of 1995 as compared to the same period
in 1994. This increase was partially offset by the decrease of
$954,000 due to the decrease in the gross margin related to the
Company's Cost-U-LessTM marketing program.
Net Expenses
Net expenses increased $178,000 for the second quarter of 1995 from
the second quarter of 1994 and $492,000 for the first half of 1995
from the first half of 1994. Product delivery costs increased
primarily due to increased sales and the increased delivery
expenses associated with the Las Vegas RSC. Net expenses increased
due to expenses related to the implementation of the shareholder
proposal which was approved at the June 1994 Shareholder Meeting.
The increase for the second quarter included a $320,000 charge
associated with the conclusion of the consolidation of three of the
Company's RSC's into its new Las Vegas RSC. This charge resulted
primarily form the sale of the Vacaville RSC facility at a price
less than previously anticipated as well as certain other costs
that exceeded previous expectations. These increases in net
expenses were partially offset by a decrease in expenses associated
with the sale or closure of retail stores which resulted from fewer
stores closed during the three and six months ended June 30, 1995
as compared to the same periods of 1994.
Selling and administrative expenses decreased by $147,000 during
the second quarter of 1995 as compared to the second quarter of
1994 and by $502,000 during the first six months of 1995 as
compared to the first six months of 1994. These decreases were
primarily due to decreases related to the sale of closure of
Company-owned retail stores and decreases in the Company's
proportionate share in joint venture losses. These decreases were
offset by selling and administrative expenses associated with
closing the Denver and Ontario RSC's and start up of the new Las
Vegas, RSC during 1995 with successful consideration of operations
into the new Las Vegas RSC in the first half of 1995, selling and
administrative expense is anticipated to be reduced.
Interest expense increased by $42,000 for the second quarter of
1995 as compared to the same period for 1994 and by $166,000 for
the first six months of 1995 as compared to the same period for
1994. These increases were primarily due to increased borrowing
under the Company's line of credit during 1995 due to higher
interest rates and financing needs for the consolidation of three
of the Company's RSC's into the new Las Vegas RSC.
PART II
OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders took place on June 7,
1995. The Directors who were elected at the meeting and the
respective voting results were as follows:
<TABLE>
<CAPTION>
Term Expires
Annual
Votes Votes Meeting of
Director Class For Withheld Shareholders
<S> <C> <C> <C> <C>
Steven P. Cloward II 2,953,282 187,370 1998
Ralph J. Weiger II 2,581,765 558,887 1998
C. Thomas Wernholm II 2,986,612 154,040 1998
Robert K. Lallatin IV 2,966,094 174,558 1996
</TABLE>
The terms of the following Directors continued subsequent to the
Annual Meeting: John B. Adams, Ronald D. Asher, Frank L. Carney,
Horst K. Mehlfeldt, Everett H. Johnston and John E. Siipola.
The Shareholders approved an amendment to the Big O Tires, Inc.
Long Term Incentive Plan (LTI Plan) to increase the number of
shares available for issuance under the LTI Plan by 100,000 shares.
The respective voting results to amend the LTI Plan were as
follows:
<TABLE>
<CAPTION>
Votes Votes
Proposal For Against Abstentions
<S> <C> <C> <C>
Amendment to LTI Plan 2,661,571 408,632 421,412
</TABLE>
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
(10.1) Letter Agreement and Indemnification Agreement
dated January 20, 1995, between Big O Tires, Inc.
and PaineWebber Incorporated.
(10.2) Three memos from PaineWebber Incorporated to the
Company amending certain fees dated June 9, 1995,
June 16, 1995 and June 30, 1995.
(10.3) Letter Agreement between Big O Tires, Inc. and
John E. Siipola dated July 21, 1995, pertaining
to new severance package terms and terminating
the March 24, 1995 Letter Agreement regarding
severance.
(10.4) Letter Agreement between Big O Tires, Inc. and
Horst K. Mehlfeldt dated July 21, 1995,
pertaining to new severance package terms and
terminating the March 24, 1995 Letter Agreement
regarding severance.
(10.5) Letter Agreement between Big O Tires, Inc. and
Steven P. Cloward dated July 21, 1995, regarding
a modification to Mr. Cloward's severance
package.
(27.1) Big O Tires, Inc.'s Financial Data Schedule.
b. Reports on Form 8-K
On June 6, 1995, the Company filed a Current Report on
Form 8-K dated June 5, 1995, announcing under Item 5
that it had received a letter from a group of its
management and Big O Tire Dealers of America, a group of
franchise dealers, proposing to acquire the Company (the
"Acquisition Group") at a price of $16.50 per share (the
"Acquisition Proposal"). The Company also filed under
Item 7, a copy of the Acquisition Proposal submitted to
the Company's Investment Committee of the Board of
Directors.
On June 9, 1995, the Company filed a Current Report on
Form 8-K, dated June 9, 1995 announcing under Item 5
that the Company approved in principle the Acquisition
Proposal submitted by the Acquisition Group. The
Company also agreed to advance or reimburse certain of
the expenses of the Acquisition Group in connection with
the proposed merger. The Company only agreed to such
advancement or reimbursement provided that under certain
conditions franchised Big O Tire Dealers participating
in the transaction agree to extend the term of their
franchise agreements with the Company. The Company also
filed under Item 7, a copy of the Acquisition Proposal
submitted to the Investment Committee of the Board of
Directors and signed by the Company on June 7, 1995.
On July 25, 1995, as amended on July 27, 1995, the
Company filed a Current Report on Form 8-K/A announcing
under Item 5 that on July 24, 1995, the Company entered
into an Agreement and Plan of Merger ("Merger
Agreement") with BOTI Holdings, Inc. and BOTI
Acquisition Corp. The Merger Agreement provides that
BOTI Holdings, Inc., through its subsidiary BOTI
Acquisition Corp., will acquire the Company in a merger
in which the Company's shareholders will receive a cash
price of $16.50 per share. The merger is subject to the
approval of the Company's stockholders.
The Company also reported that it amended the Rights
Agreement dated August 26, 1994 between the Company and
Interwest Co., Inc. to specifically exclude from the
definition of an "Acquiring Person", BOTI Holdings,
Inc., BOTI Acquisition Corp., an entity to be formed
directly or indirectly by persons who are currently
franchisees of the Company, any other person who may be
deemed to be the beneficial owner of the Company's
Common Stock because of the execution and delivery of
the Merger Agreement and any group consisting of two or
more of the foregoing.
The Company also filed under Item 7 of Form 8-K/A the
Agreement and Plan of Merger dated July 24, 1995 and the
Amendment to Rights Agreement dated as of July 24, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: August 10, 1995
BIG O TIRES, INC.
By: /s/ John B. Adams
--------------------------------
John B. Adams
Executive Vice President,
Principal Financial Officer
and Principal Accounting
Officer
EXHIBIT INDEX
Exhibit Page No.
(10.1) Letter Agreement and Indemnification Agreement 18
dated January 20, 1995, between Big O Tires, Inc.
and PaineWebber Incorporated.
(10.2) Three memos from PaineWebber Incorporated to the 26
Company amending certain fees dated June 9, 1995,
June 16, 1995 and June 30, 1995.
(10.3) Letter Agreement between Big O Tires, Inc. and 29
John E. Siipola dated July 21, 1995, pertaining
to new severance package terms and terminating
the March 24, 1995 Letter Agreement regarding
severance.
(10.4) Letter Agreement between Big O Tires, Inc. and 30
Horst K. Mehlfeldt dated July 21, 1995,
pertaining to new severance package terms and
terminating the March 24, 1995 Letter Agreement
regarding severance.
(10.5) Letter Agreement between Big O Tires, Inc. and 31
Steven P. Cloward dated July 21, 1995, regarding
a modification to Mr. Cloward's severance
package.
(27.1) Big O Tires, Inc.'s Financial Data Schedule. 32
Exhibit 10.1 to the Form 10-Q
For the Quarter ended June 30, 1995
Investment Banking Division
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
212 713-2000
PaineWebber
January 20, 1995
CONFIDENTIAL
Investment Committee of the
Board of Directors
Big O Tires, Inc.
11755 East Peakview Avenue
Englewood, CO 80111
Gentlemen:
Big O Tires, Inc. (the "Company") proposes to enter into an
agreement (the "Merger Agreement") with BOTI Acquisition
Corporation (the "Purchaser") pursuant to which the Purchaser shall
be merged with and into the Company (the "Merger"). The Board of
Directors of the Company may request that PaineWebber Incorporated
("PaineWebber") render an opinion (the "Opinion") as to whether or
not the proposed consideration to be received in the merger by the
holders of the Company's Common Stock, other than the Purchaser, is
fair, from a financial point of view, to such holders. PaineWebber
and the Company are partisan to a separate agreement, dated July
12, 1994 (the "1994 Agreement") pursuant to which the Company
engaged PaineWebber to act as financial advisor to the Company, on
the terms and conditions set forth therein. Not withstanding the
execution and delivery of this Agreement, the 1994 Agreement (and
the related Indemnification Agreement) shall remain in full force
and effect.
As compensation for PaineWebber's services in rendering the
Opinion, the Company agrees to pay PaineWebber a fee of $300,000
which will be payable in cash on the date PaineWebber delivers the
Opinion. Any fee paid pursuant to this Agreement will be credited
against any transaction fee paid pursuant to the 1994 Agreement.
In addition, the Company agrees to reimburse PaineWebber, upon
request made from time to time, for all of its out-of-pocket
expenses incurred in connection with this engagement, including the
fees, disbursements and other charges of its legal counsel. The
Company's obligations to pay PaineWebber's compensation (and
reimburse PaineWebber for fees and expenses) as set forth herein
shall be without regard to the conclusion set forth in the Opinion
or whether PaineWebber determines that a favorable Opinion cannot
be delivered.
It is understood that the Opinion, if rendered, will be dated as
of a date reasonably proximate to the date of the proxy statement
to be mailed to the shareholders of the Company in connection with
the Merger. If the Opinion is included in such proxy statement, it
will be reproduced therein in full, and any description of or
reference to PaineWebber or summary of the Opinion will be in a
form acceptable to PaineWebber and its counsel and shall state that
the Board of Directors has agreed that PaineWebber, in rendering
such Opinion, was not engaged to act as an agent or fiduciary of,
and that the Board of Directors has expressly waived any duties or
liabilities PaineWebber may otherwise be deemed to have had to, the
Company's equity holders or any other third party. Except as
provided in this letter, the Opinion will not be reproduced,
summarized, described or referred to or otherwise made public
without PaineWebber's prior written consent.
The Company will furnish PaineWebber (and will request that the
Purchaser furnish PaineWebber) with such information as PaineWebber
believes appropriate to its assignment (all such information so
furnished being the "Information"). The Company recognizes and
confirms that PaineWebber (a) will use and rely primarily on the
Information and on information available from generally recognized
public sources in rendering the Opinion and does not assume any
responsibility to independently verify the same, (b) does not
assume responsibility for the accuracy or completeness of the
Information and such other information and (c) will not make an
appraisal of any assets of the Purchaser or the Company. To the
best of the Company's knowledge, the Information to be furnished by
the Company, when delivered, will be true and correct in all
material respects and will not contain any material misstatement of
fact or omit to state any material fact necessary to make the
statements contained therein not misleading. The Company will
promptly notify PaineWebber if it learns of any material inaccuracy
or misstatement in, or material omission from, any Information
theretofore delivered to PaineWebber.
It is understood that PaineWebber is being engaged hereunder
solely to provide the services described above to the Board of
Directors, and that PaineWebber is not acting as an agent or
fiduciary of, and shall have no duties or liability to, the equity
holders of the Company or any other third party in connection with
its engagement hereunder, all of which are hereby expressly waived.
The Company agrees to the indemnification and other agreements
set forth in the Indemnification Agreement attached hereto the
provisions of which are incorporated herein by reference and shall
survive the termination, expiration or supersession of this
Agreement.
This Agreement will be governed by, and construed in accordance
with, the laws of the State of New York applicable to agreements
made and to be performed entirely in such State.
Each of the Company and PaineWebber agree that any action or
proceeding based hereon, or arising out of PaineWebber's engagement
hereunder, shall be brought and maintained exclusively in the
courts of the State of New York located in the City and County of
New York or in the United States District Court for the Southern
District of New York. The Company and PaineWebber each hereby
irrevocably submit to the jurisdiction of the courts of the State
of New York located in the City and County of New York and of the
United States District Court for the Southern District of New York
for the purpose of any such action or proceeding as set forth above
and irrevocably agree to be bound by any judgment rendered thereby
in connection with such action or proceeding. Each of the Company
and PaineWebber hereby irrevocably waive, to the fullest extent
permitted by law, any objection which it may have or hereafter may
have to the laying of venue of any such action or proceeding
brought in any such court referred to above and any claim that any
such action or proceeding has been brought in an inconvenient
forum.
The Company (for itself, anyone claiming through it or its name,
and on behalf of its equity holders) and PaineWebber each hereby
irrevocably waive any right they may have to a trial by jury in
respect of any claim based upon or arising out of this Agreement or
the transactions contemplated hereby. This Agreement may not be
assigned by either party without the prior written consent of the
other party.
This Agreement (including the attached Indemnification Agreement)
embodies the entire agreement and understanding between the parties
hereto relating to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject
matter. If any provision of this Agreement is determined to be
invalid or unenforceable in any respect, such determination will
not affect such provision in any other respect or any other
provision of this Agreement, which will remain in full force and
effect. This Agreement may not be amended or otherwise modified or
waived except by an instrument in writing signed by both
PaineWebber and the Company.
If the foregoing correctly sets forth our agreement, please so
indicate by signing and returning to us the enclosed duplicate
original copy of this Agreement and the Indemnification Agreement.
Very truly yours,
PAINEWEBBER INCORPORATED
By: /s/ Robert A. Hastings
Robert A. Hastings
Managing Director
Accepted and Agreed
to as of the date first
written above:
BIG O TIRES, INC.
By: /s/ John E. Siipola
John E. Siipola
Chairman of the Board
PaineWebber
Indemnification
Agreement
PaineWebber Indemnification Agreement
Date January 20, 1995
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
Gentlemen:
In connection with the engagement of PaineWebber Incorporated
("PaineWebber") to advise and assist the undersigned (referred to
herein as "we", "our" or "us") with the matters set forth in the
Agreement dated January 20, 1995 between us and PaineWebber, we
hereby agree to indemnify and hold harmless PaineWebber, its
affiliated companies, and each of PaineWebber's and such affiliated
companies' respective officers, directors, agents, employees and
controlling persons (within the meaning of each of Section 20 of
the Securities Exchange Act of 1934 and Section 15 of the
Securities Act of 1933) (each of the foregoing, including
PaineWebber, being hereinafter referred to as an "Indemnified
Person") to the fullest extent permitted by law from and against
any and all losses, claims, damages, expenses (including reasonable
fees, disbursements and other charges of counsel), actions
(including actions brought by us or our equity holders or
derivative actions brought by any person claiming through us or in
our name), proceedings, arbitrations or investigations (whether
formal or informal), or threats thereof (all of the foregoing being
hereinafter referred to as "Liabilities"), based upon, relating to
or arising out of such engagement or any Indemnified Person's role
therein; provided, however, that we shall not be liable under this
paragraph: (a) for any amount paid in settlement of claims without
our consent, unless our consent is unreasonably withheld, or (b) to
the extent that it is finally judicially determined, or expressly
stated in an arbitration award, that such Liabilities resulted
primarily from the willful misconduct or gross negligence of the
Indemnified Person seeking indemnification. If multiple claims are
brought against any Indemnified Person in an arbitration or other
proceeding and at least one such claim is based upon, relates to or
arises out of the engagement of PaineWebber by us or any
Indemnified Person's role therein, we agree that any award,
judgment and other Liabilities resulting therefrom shall be deemed
conclusively to be based on, relate to or arise out of the
engagement of PaineWebber by us or any Indemnified Person's role
therein, except to the extent that such award or judgment expressly
states that the award or judgment, or any portion thereof, is based
solely upon, relates to or arises out of other matters for which
indemnification is not available hereunder. In connection with our
obligation to indemnify for expenses as set forth above, we further
agree to reimburse each Indemnified Person for all such expenses
(including reasonable fees, disbursements and other charges of
counsel) as they are incurred by such Indemnified Person; provided,
however, that if an Indemnified Person is reimbursed hereunder for
any expenses, the amount so paid shall be refunded if and to the
extent it is finally judicially determined, or expressly stated in
an arbitration award, that the Liabilities in question resulted
primarily from the willful misconduct or gross negligence of such
Indemnified Person. We hereby also agree that neither PaineWebber
nor any other Indemnified Person shall have any liability to us (or
anyone claiming through us or in our name) in connection with
PaineWebber's engagement by us except to the Extent that such
Indemnified Person has engaged in willful misconduct or been
grossly negligent.
Promptly after PaineWebber receives notice of the commencement
of any action or other proceeding in respect of which
indemnification or reimbursement may be sought hereunder,
PaineWebber will notify us thereof; but the omission so to notify
us shall not relieve us from any obligation hereunder unless, and
only to the extent that, such omission results in our forfeiture of
substantive rights or defenses. If any such action or other
proceeding shall be brought against any Indemnified Person, we
shall, upon written notice given reasonably promptly following your
notice to us of such action or proceeding, be entitled to assume
the defense thereof at our expense with counsel chosen by us and
reasonably satisfactory to such Indemnified Person; provided,
however, that any Indemnified Person may at its own expense retain
separate counsel to participate in such defense. Notwithstanding
the foregoing, such Indemnified Person shall have the right to
employ separate counsel at our expense and to control its own
defense of such action or proceeding if, in the reasonable opinion
of counsel to such Indemnified Person, (i) there are or may be
legal defenses available to such Indemnified Person or to other
Indemnified Persons that are different from or additional to those
available to us, or (ii) a difference of position or potential
difference of position exists between us and such Indemnified
Person that would make such separate representation advisable;
provided, however, that in no event shall we be required to pay
fees and expenses under this indemnity for more than one firm of
attorneys (in addition to local counsel) in any jurisdiction in any
one legal action or group of related legal actions. We agree that
we will not, without the prior written consent of PaineWebber,
settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding relating to the
matters contemplated by PaineWebber's engagement (whether or not
any Indemnified Person is a party thereto) unless such settlement,
compromise or consent includes an unconditional release of
PaineWebber and each other Indemnified Person from all liability
arising or that may arise out of such claim, action or proceeding.
If the indemnification of an Indemnified Person provided for
hereunder is finally judicially determined by a court of competent
jurisdiction to be unenforceable, then we agree, in lieu of
indemnifying such Indemnified Person, to contribute to the amount
paid or payable by such Indemnified Person as a result of such
Liabilities in such proportion as is appropriate to reflect the
relative benefits received, or sought to be received, by us on the
one hand and by PaineWebber on the other from the transactions in
connection with which PaineWebber has been engaged. If the
allocation provided in the preceding sentence is not permitted by
applicable law, then we agree to contribute to the amount paid or
payable by such Indemnified Person as a result of such Liabilities
in such proportion as is appropriate to reflect not only the
relative benefits referred to in such preceding sentence but also
the relative fault of us and of such Indemnified Person.
Notwithstanding the foregoing, in no event shall the aggregate
amount required to be contributed by all Indemnified Persons taking
into account our contributions as described above exceed the amount
of fees actually received by PaineWebber pursuant to such
engagement. The relative benefits received or sought to be
received by us on the one hand and by PaineWebber on the other
shall be deemed to be in the same proportion as (a) the total value
of the transactions with respect to which PaineWebber has been
engaged bears to (b) the fees paid or payable to PaineWebber with
respect to such engagement.
The rights accorded to Indemnified Persons hereunder shall be
in addition to any rights that any Indemnified Person may have at
common law, by separate agreement or otherwise.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. WE
HEREBY CONSENT, SOLELY FOR THE PURPOSE OF ALLOWING AN INDEMNIFIED
PERSON TO ENFORCE ITS RIGHTS HEREUNDER, TO PERSONAL JURISDICTION
AND SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM FOR WHICH
INDEMNIFICATION MAY BE SOUGHT HEREUNDER IS BROUGHT AGAINST
PAINEWEBBER OR ANY OTHER INDEMNIFIED PERSON. We and PaineWebber
also hereby irrevocably waive any right we and PaineWebber may have
to a trial by jury in respect of any claim based upon or arising
out of this agreement. This agreement may not be amended or
otherwise modified except by an instrument signed by both
PaineWebber and us. If any provision hereof shall be determined to
be invalid or unenforceable in any respect, such determination
shall not affect such provision in any other respect or any other
provision of this agreement, which shall remain in full force and
effect. If there is more than one indemnitor hereunder, each
indemnifying person agrees that its liabilities hereunder shall be
joint and several. Each Indemnified Person is an intended
beneficiary hereunder.
The foregoing indemnification agreement shall remain in effect
indefinitely, notwithstanding any termination of PaineWebber's
engagement.
Very truly yours,
/s/ John E. Siipola
Name of Client
By:
Name:
Title:
Acknowledged and Agreed to:
PAINEWEBBER INCORPORATED
By: /s/ Robert A. Hastings
Name: Robert A. Hastings
Title: Managing Director
Exhibit 10.2 to the
Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1995
Investment Banking
PaineWebber Incorporated
725 South Figueroa Street, Suite 4100
Los Angeles, CA 90017
213 972-1740
Gregory R. Brundage
Managing Director
PaineWebber
Memorandum
DATE: June 9, 1995
TO: Steve Cloward
FROM: Greg Brundage
RE: Big O Tires, Inc.
Per our conversation 5/30/95, we confirm that we agree to reduce
our success fee to $600,000 (net) payable at the closing plus
reimbursement of out of pocket expenses. This takes into account
and limits an aggregate of $250,000 in monthly fees credited
against overall fees.
(Handwritten statement "Needs to be capped @ $850,000)
Memorandum
DATE: June 16, 1995
TO: Steve Cloward
FROM: Greg Brundage
RE: Big O Tires, Inc.
Per our conversation on June 12, 1995 we are prepared to alter our
compensation as follows: from June 30 on, we will continue to be
paid $25,000 per month - all of which will be credited against our
$600,000 success fee. We also will be reimbursed for out-of-pocket
expenses.
cc: Bob Hastings
Memorandum
DATE: June 30, 1995
TO: Steve Cloward
FROM: Greg Brundage
RE: Big O Tires, Inc.
Per our conversation 6/29/95, the fairness opinion is included in
our $600,000 transaction fee.
Exhibit 10.3 to the
Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1995
BIG O TIRES
Big O Tires, Inc.
11755 E. Peakview Ave., Suite A
Englewood, CO 80111
Telephone: (303) 790-2800
FAX: (303) 790-0225
July 21, 1995
Mr. John E. Siipola
32 Upper Bay Road
Sunapee, New Hampshire 03782
Dear John:
By letter dated March 24, 1995, Big O Tires, Inc. ("Company")
agreed with you that in the event a change of control of the
Company took place between February 15, 1995, and August 16, 1995,
you would receive a lump sum payment of $150,000 if your position
within the Company terminated as a result of such change in
control. As you know, the Company is considering entering into
an Agreement and Plan of Merger ("Merger Agreement") with BOTI
Acquisition Corp. and BOTI Holdings, Inc. ("Merger"). If the
Company does enter into the Merger Agreement and the Merger is
consummated, a change in control of the Company will occur;
however, the Merger will not occur until after August 16, 1995.
Accordingly, the Board of Directors of the Company has determined
that, if you agree to the terms contained herein, the March 24,
1995 letter will be of no further force or effect.
In lieu of the arrangements set forth in the March 24, 1995,
letter, the Board of Directors of the Company has authorized the
Human Resources Committee to advise you that the Company will pay
you a severance package consisting solely of a lump sum payment of
$150,000 minus any amounts that you realize from the exercise of
rights granted to you in the Stock Appreciation Rights Agreement
dated February 15, 1995 between the Company and you, if the Merger
is consummated and if your employment with the Company terminates
within 285 days after the date the Merger is effective or if during
that period your salary is reduced from the salary in effect on the
date the Merger is consummated. In consideration for this
severance package, you must agree that upon the effective date of
the Merger, the Stock Appreciation Rights Agreement, dated as of
February 15, 1995, between the Company and you will terminate and
be of no further force and effect so that, as of the effective date
of the Merger, you will forfeit all unexercised rights as to all
units, vested and non-vested, granted you pursuant to the
Stock Appreciation Rights Agreement.
If you are in agreement with the terms contained herein, please
execute the copy of this letter where provided and return it to me.
Sincerely yours,
/s/ Frank L. Carney
Frank L. Carney
Chairman, Human Resources Committee
of the Board of Directors
John E. Siipola hereby agrees as of the date hereof with the terms
contained in this letter.
/s/ John E. Siipola
John E. Siipola
Exhibit 10.4 to the
Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1995
BIG O TIRES
Big O Tires, Inc.
11755 E. Peakview Ave., Suite A
Englewood, CO 80111
Telephone: (303) 790-2800
FAX: (303) 790-0225
July 21, 1995
Mr. Horst K. Mehlfeldt
5595 North Lariat Drive
Castle Rock, Colorado 80104
Dear Horst:
By letter dated March 24, 1995, Big O Tires, Inc. ("Company")
agreed with you that in the event a change of control of the
Company took place between February 15, 1995, and August 16, 1995,
you would receive a lump sum payment of $150,000 if your position
within the Company terminated as a result of such change in
control. As you know, the Company is considering entering into
an Agreement and Plan of Merger ("Merger Agreement") with BOTI
Acquisition Corp. and BOTI Holdings, Inc. ("Merger"). If the
Company does enter into the Merger Agreement and the Merger is
consummated, a change in control of the Company will occur;
however, the Merger will not occur until after August 16, 1995.
Accordingly, the Board of Directors of the Company has determined
that, if you agree to the terms contained herein, the March 24,
1995 letter will be of no further force or effect.
In lieu of the arrangements set forth in the March 24, 1995,
letter, the Board of Directors of the Company has authorized the
Human Resources Committee to advise you that the Company will pay
you a severance package consisting solely of a lump sum payment of
$150,000 minus any amounts that you realize from the exercise of
rights granted to you in the Stock Appreciation Rights Agreement
dated February 15, 1995 between the Company and you, if the Merger
is consummated and if your employment with the Company terminates
within 285 days after the date the Merger is effective or if during
that period your salary is reduced from the salary in effect on the
date the Merger is consummated. In consideration for this
severance package, you must agree that upon the effective date of
the Merger, the Stock Appreciation Rights Agreement, dated as of
February 15, 1995, between the Company and you will terminate and
be of no further force and effect so that, as of the effective date
of the Merger, you will forfeit all unexercised rights as to all
units, vested and non-vested, granted you pursuant to the Stock
Appreciation Rights Agreement.
If you are in agreement with the terms contained herein, please
execute the copy of this letter where provided and return it to me.
Sincerely yours,
/s/ Frank L. Carney
Frank L. Carney
Chairman, Human Resources Committee
of the Board of Directors
Horst K. Mehlfeldt hereby agrees as of the date hereof with the
terms contained in this letter.
/s/ Horst K. Mehlfeldt
Horst K. Mehlfeldt
Exhibit 10.5 to the
Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1995
BIG O TIRES
Big O Tires, Inc.
11755 E. Peakview Ave., Suite A
Englewood, CO 80111
Telephone: (303) 790-2800
FAX: (303) 790-0225
July 21, 1995
Mr. Steven P. Cloward
7732 South Glencoe Court
Littleton, Colorado 80122
Dear Steve:
By a resolution of the Board of Directors at a May 22, 1995 Board
meeting of Big O Tires, Inc. ("Company"), the Company agreed to
extend your review period to cover an additional 90 days from May
15, 1995. Furthermore, the Company agreed that should your
employment terminate during such review period, your severance
compensation would be based on the compensation you were receiving
prior to the February 15, 1995, restructuring of the Company's
management. In addition, this severance package contemplated full
vesting in all of your restricted stock grants along with the
opportunity to exercise all existing stock options.
As you know, the Company is considering entering into an Agreement
and Plan of Merger ("Merger Agreement") with BOTI Acquisition Corp.
and BOTI Holdings, Inc. ("Merger"). If the Company does enter into
the Merger Agreement and the Merger is consummated, a change in
control of the Company will occur; however, the Merger will not
occur until after the review period. Accordingly, the Board of
Directors of the Company has determined that, if you agree to
the terms contained herein, your severance package discussed above
will be modified as set forth below.
In lieu of the May 22, 1995, severance arrangement adopted by the
Company, the Board of Directors of the Company has authorized the
Human Resources Committee to advise you that, if your employment
terminates prior to the effective date of the Merger, the Company
will pay you a severance package which will be based solely on the
compensation you were receiving prior to the February 15, 1995
restructuring of the Company's management. Included in this
severance package will be the full vesting of all of your
restricted stock grants along with the opportunity to exercise all
existing stock options. The value of this severance package will
be minus any amounts that you realize from the exercise of rights
granted to you in the Stock Appreciation Rights Agreement dated
February 15, 1995 between the Company and you. In consideration
for this severance package, you must agree that upon the effective
date of the Merger, the Stock Appreciation Rights Agreement, dated
as of February 15, 1995, between the Company and you will terminate
and be of no further force and effect so that, as of the effective
date of the Merger, you will forfeit all unexercised rights as to
all units, vested and non-vested, granted you pursuant to the Stock
Appreciation Rights Agreement.
If you are in agreement with the terms contained herein, please
execute the copy of this letter where provided and return it to me.
Sincerely yours,
/s/ Frank L. Carney
Frank L. Carney
Chairman, Human Resources Committee
of the Board of Directors
Steven P. Cloward hereby agrees as of the date hereof with the
terms contained in this letter.
/s/ Steven P. Cloward
Steven P. Cloward
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<FISCAL-YEAR-END> DEC-31-1995
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