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 [X]
FILED BY THE PARTY OTHER THAN THE REGISTRANT [ ]
Check the appropriate box:
[X] 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
[X] 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.
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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 (without the attachments
thereto) 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
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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 February 16,
1996, 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
____________, 1996
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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 electing and qualified 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 been qualified and 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 stockholder 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 February 16, 1996 (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 __________________, 1996.
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TABLE OF CONTENTS
INTRODUCTION ....................................................
SUMMARY .........................................................
General Information ........................................
The Parties ................................................
The Date and Place of the Special Meeting ..................
No Appraisal or Dissenter's Rights .........................
The Merger .................................................
Exchange of Certificates ...................................
Recommendations for the Merger .............................
Opinion of Financial Advisor ...............................
Opinion of Financial Advisor to the ESOP ...................
Purposes and Reasons For the Merger ........................
Plans for the Company After the Merger .....................
Interests of Certain Persons in the Merger .................
Accounting Treatment of the Merger .........................
Federal Income Tax Consequences ............................
Price Range of Company Common Stock and Dividend History ...
THE SPECIAL MEETING ..............................................
General .....................................................
Record Date and Voting ......................................
Vote Required to Approve the Merger .........................
Proxy Information; Revocation ...............................
Absence of Appraisal Rights and Right to Dissent ............
Proxy Solicitation ..........................................
SPECIAL FACTORS ..................................................
The Merger ..................................................
Background and Negotiations Regarding the Merger ............
Recommendation of the Board of Directors; the Company's Purpose
and Reasons for and Belief as to the Fairness of the Merger.
The Parent's Purposes and Reasons for the Merger ............
Opinion of Financial Advisor ................................
Certain Effects of the Merger................................
Plans for the Company After the Merger ......................
Federal Income Tax Consequences .............................
Accounting Treatment of the Merger ..........................
Regulatory Approvals ........................................
Financing of the Merger .....................................
Expenses of the Merger ......................................
PRINCIPAL STOCKHOLDERS OF THE COMPANY ............................
SECURITY OWNERSHIP OF THE COMPANY'S MANAGEMENT ...................
PRICE RANGE OF COMPANY COMMON STOCK AND DIVIDEND HISTORY .........
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY ..............
THE MERGER AGREEMENT .............................................
Parties to the Merger Agreement .............................
Description of the Merger Agreement .........................
Terms of the Merger .........................................
Stock Options ...............................................
Conditions to the Merger ....................................
Representations and Warranties ..............................
Conduct of Business Pending Merger ..........................
Additional Agreements .......................................
Fees and Expenses ...........................................
Modification and Waiver .....................................
Termination of the Merger Agreement .........................
Exchange of Certificates ....................................
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY ..................
INTEREST OF CERTAIN PERSONS IN THE MERGER ........................
Indemnification by the Parent and the Company ...............
INFORMATION PERTAINING TO THE PARENT,
THE PURCHASER AND RELATED PERSONS ................................
General .....................................................
Certain Information Pertaining to BOTDA .....................
Security Ownership of Management of BOTDA in Company ........
Certain Past Contacts, Transactions or Negotiations with
Company....................................................
RECENT TRANSACTIONS BY THE COMPANY IN THE COMMON STOCK ...........
DOCUMENTS INCORPORATED BY REFERENCE ..............................
STOCKHOLDER PROPOSALS ............................................
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. (WITHOUT ATTACHMENTS)
APPENDIX B PAINEWEBBER INCORPORATED -- FAIRNESS OPINION
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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 February 16, 1996, 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."
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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." The negotiation of the Merger Agreement
did not include participation on behalf of the Company by a representative of
the stockholders, as such, although Kenneth W. Pavia, Sr., a substantial
stockholder in the Company, participated in various meetings of the Investment
Committee and conferred from time to time with members of the Investment
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Committee. The Investment Committee consists of disinterested directors who at
all times have been represented by counsel separate from the Company's counsel,
and have been advised with respect to financial matters by PaineWebber. Because
the members of the Investment Committee were not participants in the Purchaser,
or the Purchaser, and were not employees of the Company, the Investment
Committee believes that it had no conflicts of interest that would interfere
with its ability to protect the interests of the Company's stockholders.
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, since its formation
in June 1994, has 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.
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<PAGE>
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 stockholders 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
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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>
<CAPTION>
HIGH LOW
<S> <C> <C>
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 ................................. 15 1/8 12
1996
First Quarter (through _______, 1996) ..........
</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
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shares of Common Stock (as reported on the NASDAQ National Market System) was
$____________ on _________________, 1996.
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 February 16, 1996. 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.
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<PAGE>
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. In lieu of dissenters' rights, the stockholders may
have nonstatutory rights under common law to oppose the Merger, including
derivative claims or suits for damages or to enjoin the Merger. Consequently,
except as set forth above, 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 (without the
attachments thereto) 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
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<PAGE>
coincidental to other conversations on business matters unrelated to the Merger.
The following discussion describes significant events during and after the
negotiation of the Merger Agreement and material issues discussed during the
negotiation of its terms.
STOCKHOLDER 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 stockholders' Meeting. The Company's management had several discussions
with Mr. Paia 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 "Stockholder Proposal")
and a supporting statement were included in the Company's proxy statement for
its 1994 Annual Meeting of stockholders ("Annual Meeting").
"RESOLVED: That the stockholders 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 Stockholder Proposal. At the Company's Annual Meeting held on June 8, 1994,
the Stockholder Proposal was adopted and approved by the vote of holders of
approximately 46% of the then outstanding Common Stock. Such vote constituted
the requisite majority of the voting power present at the Annual Meeting which,
under the Nevada General Corporation Law, was the vote required to approve the
Stockholder Proposal. Approximately 38% of the then outstanding Common Stock was
voted against the Stockholder 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 Stockholder
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
Stockholder 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 Stockholder 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.
13
<PAGE>
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 stockholder 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.
STOCKHOLDER RIGHTS PLAN. The Board had begun in early 1994 to consider
adopting a stockholder rights plan and other mechanisms designed to prevent the
acquisition of the Company under circumstances that would not result in its
stockholders 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 stockholder 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 a presentation relating to the Board's
consideration of a stockholder rights plan. In such presentation, PaineWebber,
among other things: (i) reviewed the Company's historical and projected summary
financial information; (ii) compared the Company's historical price-to-earnings
("P/E") multiples with the P/E multiples of certain indices of publicly traded
companies PaineWebber deemed relevant; (iii) compared certain financial and
operating statistics of the Company with those of other publicly traded
companies PaineWebber deemed relevant; (iv) reviewed the potential effect of the
proposed rights plan on the Company's capitalization; (v) reviewed the rights
plans of certain companies that had completed a redemption of such rights; (vi)
reviewed the price and trading histories of certain publicly traded companies
that had adopted rights plans; and (vii) reviewed the terms and structure of
rights plans as adopted by certain other publicly traded companies.
As a part of its presentation, PaineWebber estimated the range of implied
stock prices for the Common Stock in the year 2004 (the "2004 Estimated Range").
The 2004 Estimated Range was calculated by applying a range of multiples of 16x
to 24x to the future earnings per share of Common Stock in the year 2004, as
estimated by the Company's management. The 2004 Estimated Range was made solely
for use in determining the initial exercise price of the rights to be issued
under a stockholder 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
stockholder rights plan (the "Stockholder 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 Stockholder
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 stockholder 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 presentation to the
Investment Committee as to strategic alternatives for the Company. In its
presentation, PaineWebber reviewed the Company's existing business plan,
including estimates by the Company's management of future Retail Store openings
and closings as well as financial forecasts prepared by the Company's
management. Based upon these estimates of future performance, PaineWebber
performed a discounted cash flow analysis, using discount rates in the range of
14% to 17% and terminal multiples in the range of 14x to 22x, resulting in
implied equity values of $9.69 to $35.23 per share.
PaineWebber reviewed the potential effects of certain strategic
alternatives under consideration by the Company's Board of Directors. First,
PaineWebber reviewed such potential effects of a repurchase by the Company of
625,000 shares of Common Stock at $16.00 per share. This analysis resulted in
implied equity values of $10.09 to $17.87. Second, PaineWebber reviewed the
potential effects of a $10 million extraordinary dividend to the holders of
Common Stock. This analysis resulted in implied equity values of $11.17 to
$17.53 per share. Third, PaineWebber reviewed the potential effects of a
leveraged buyout or management buyout of the Company, assuming (i) minimum
interest coverage (pro forma EBITDA/interest expense) of 2.5x; (ii) an interest
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rate on subordinated debt financing of such buyout of 13% per annum; and (iii) a
required total rate of return for subordinated debt (including related warrants)
of 20% per annum. This analysis resulted in implied equity values of $8.07 to
$15.63 per share. Finally, PaineWebber reviewed the potential effects of a sale
to or merger with a strategic buyer assuming (i) minimum interest coverage (pro
forma EBITDA/interest expense) of 2.5x; (ii) acquisition bank financing at an
interest rate of 9% per annum; and (iii) resulting synergies and cost savings of
25% of corporate selling, general and administrative expenses. This analysis
resulted in implied equity values of $11.93 to $37.00 per share. The PaineWebber
presentation to the Investment Committee has been filed as an exhibit to the
Schedule 13E-3.
PaineWebber also 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.
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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 Stockholder 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
stockholders of the Company seeking to enjoin a transaction with the Dealer
Management Group, enjoin implementation of the Stockholders 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, and 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
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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.
Following the December 8, 1994 meeting of the Investment Committee, Messrs.
Mehlfeldt and Siipola met with Mr. Cloward and Mr. Adams to inquire as to the
intended structure of the Dealer Management Group, how it would finance its
purchase of the Company and when the Dealer Management Group anticipated it
would be prepared to sign a definitive merger agreement. Messrs. Cloward and
Adams advised that the Dealer Management Group was in the process of being
formed and was working out structural issues among the participants, that the
Dealer Management Group was discussing with its financial advisor the sources
and terms of financing and was preparing proposals to prospective lenders and
equity investors, and that the Dealer Management Group expected to be ready to
sign a definitive agreement in early 1995.
Mr. Adams and PaineWebber attempted to reach AKH through AKH's financial
advisor to discuss the AKH offer. The AKH financial advisor advised that it was
not prepared to discuss other terms of AKH's offer. Accordingly, no discussions
occurred.
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. This reimbursement included the
$175,000 amount discussed at the December 8, 1994 meeting and the $100,000
amount discussed at the December 5, 1994 meeting. The Dealer Management Group
sent a proposed draft merger agreement to the Company.
Thereafter, Mr. Mehlfeldt and representatives of PaineWebber and Holme
Roberts discussed with Gibson, Dunn & Crutcher and KPMG the forms of
representations and warranties, conditions to closing and similar technical
matters relating to a form of merger agreement. They also discussed the amount
of expenses that it would be appropriate to reimburse the Dealer Management
Group. The Dealer Management Group asked for reimbursement of all expenses
during the terms of the exclusivity and the Company requested a limit on
reimbursements. 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.
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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 Dealer Management Group confirmed the offer of $18.50 per share.
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 proposed terms of the definitive merger
agreement. The Dealer Management Group requested that topping fees be paid in
the event another offer were later made and accepted by the Company. The
Investment Committee took the position that such a topping fee should not exceed
$1,000,000. The Dealer Management Group asked for reimbursement of all expenses
incurred in connection with the transaction. The Investment Committee insisted
that a maximum limit of expenses be inserted in the definitive agreement. The
Investment Committee also took the position that various contingencies to the
Dealer Management Group's obligations should be minimized, and that the
contingencies related to financing and participation by the Company's franchised
dealers should be subject to early review at which time the contingencies should
be satisfied or waived. Other discussions as to the scope of representations and
warranties and contract language, none of which is material to the substance of
the Merger Agreement, were conducted by the respective parties through Gibson,
Dunn & Crutcher and Holme Roberts.
The Investment Committee determined to reimburse the Dealer Management
Group for its expenses because it believed that the Dealer Management Group
could structure an offer for the Company that would be competitive with any
other offers, but that the Dealer Management Group, consisting of employees of
the Company and certain franchised dealers, lacked sufficient resources to pay
the cost in preparing such an offer. Accordingly, it appeared to the Investment
Committee that no sale to the Dealer Management Group would be possible without
the Company's agreement to reimburse its costs in pursuing its offer and that it
would be in the best interest of the stockholders of the Company to encourage an
offer by the Dealer Management Group. The Company also believed that reimbursing
expenses was important in maintaining good relations with the Company's
franchised dealers. In return for reimbursing expenses between $500,000 and the
maximum of $750,000, the Company required that at least 85% of the Company's
franchised dealers whose franchise agreements expired before July 1, 1999,
extend their agreements through the earlier of July 1, 2002 or three years from
when their agreements would have expired. The Company believed that this
extension would be a substantial benefit to the Company. AKH's decision not to
pursue an offer precluded any subsequent negotiations with AKH. The Company
encouraged AKH's participation in the efforts to acquire the Company, but AKH
never initiated significant substantive discussions with the Company.
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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 proposed draft of
the 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
concerning 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.
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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.
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 under California law to
represent the Dealers' interest in the Dealer Management Group. It was
determined that BOTDA would represent the Dealers in negotiation by the Dealer
Management Group with the Company. 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.
The Company requested PaineWebber to contact any persons that it had
contacted before which it believed continued to have an interest in the Company.
PaineWebber reported that it had made various contacts, none of which indicated
a continuing interest to purchase the Company. In addition, the status of the
Dealer Management Group offer was widely publicized through press releases by
the Company and the Dealer Management Group and the Company did not receive
serious inquiries during this period from prospective purchasers.
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 franchised dealers of the Company
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
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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
representatives of KPMG, PaineWebber, Holme Roberts and Wendel Rosen Black &
Dean ("Wendel Rosen"), which was now counsel for BOTDA. The Dealer Management
Group stated they believed the $16 offer was adequate in light of the Company's
prospects and historic earnings. The Investment Committee stated that it
believed that a $16 per share offer was inadequate and that it would not
recommend a $16 per share offer to the Board of Directors.
By letter 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 BOTDA 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. The Dealer Management Group stated that it did not
believe that it could obtain financing at a price above $16.00 per share based
upon the Company's historical performance and its projections.
Following receipt of the Dealer Management Group's second offer, the
Company contacted AKH to request whether it had any continuing interest in
purchasing the Company. The Company was advised that AKH would not pursue the
purchase of the Company.
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
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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 BOTDA 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 stockholders 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 stockholders 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.
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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 Stockholder 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 Stockholder 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.
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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 Big O 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 presentation 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 BOTDA or the Dealers who abstained) voted to recommend that the
stockholders vote for the Merger.
By letter dated January 12, 1996, the Parent and the Purchaser requested
that the Investment Committee consider increasing the expense reimbursement to
the Dealer Management Group by $250,000 and consider extending the termination
date in the Merger Agreement to March 31, 1996. On January 23, 1996, the
Investment Committee met and discussed the requests but took no action on the
requests indicating that the Investment Committee needed confirmation that the
Parent and the Purchaser were proceeding with the Merger. The Investment
Committee's position was confirmed in a letter dated January 25, 1996 from the
Company to the Parent and the Purchaser.
On January 30, 1996, the Board of Directors of Parent and a representative
of Gibson, Dunn & Crutcher had a telephone conference with the Investment
Committee and a representative of Holme Roberts to discuss the status of the
Merger and the refiling of the Company's proxy materials.
TBC CORPORATION. On September 26, 1995, Mr. Cloward spoke by telephone with
Lou DiPasqua, the President of TBC Corporation ("TBC"), who indicated to Mr.
Cloward that TBC might be interested in acquiring an interest in the Company.
Later the same day, Messrs. Cloward and Adams telephoned Mr. DiPasqua and
discussed TBC's potential interest and indicated to Mr. DiPasqua that Messrs.
Cloward and Adams would advise BOTDA if there were an interest.
On September 28, 1995, Messrs. Cloward and Adams met with Mr. DiPasqua, Ron
McCollough and Bob Hubbard, representatives of TBC, to discuss TBC's interest.
The representatives of TBC indicated that it was not TBC's intent to interfere
with the Merger, but would choose to move ahead on a dual track basis until
TBC's interest could be defined.
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In October 1995, Messrs. Cloward and Adams advised Mr. DiPasqua that they
would provide TBC with the Company's public filings. On December 12, 1995, Mr.
DiPasqua telephoned Mr. Cloward and indicated that the TBC acquisition committee
had met and approved moving forward, and reaffirmed TBC's interest in ownership
of the Company. Mr. DiPasqua reiterated that TBC did not want to interfere with
the Merger.
On December 14, 1995, Messrs. Cloward, Adams, Stephenson, Scott E,
Klossner, Michael E. Lyons, Philip J. Teigen and a representative of Gibson,
Dunn & Crutcher met with Messrs. DiPasqua, McCollough and Hubbard in Memphis,
Tennessee. The discussions centered around why TBC was interested in acquiring
the Company, what that meant for the Company's franchised dealers, and what
impact it may have on pricing, supply and other issues pertaining to the
Company's products. The representatives of TBC indicated again that they did not
want to interfere with the timing of the Merger but would rather pursue an
approach that would permit TBC to perform its own due diligence on the Company
while the Dealer Management Group moved forward with the Merger.
On December 16 and December 17, 1995, Mr. Cloward advised Messrs. Carney
and Wernholm of TBC's interest.
On December 19, 1996, Mr. Siipola contacted Mr. DiPasqua to verify TBC's
interest and Mr. DiPasqua confirmed that TBC desired to perform due diligence
regarding the Company.
Effective December 20, 1995, the Company, the Parent, the Purchaser and TBC
entered into an agreement whereby the Company, at the request of the Parent and
the Purchaser, agreed to facilitate TBC's investigation of the Company. The
Company also agreed to indemnify TBC against any claims, expenses and costs that
TBC may incur by reason of its investigation of the Company and agreed, without
making TBC whole for TBC's costs and expenses of investigation, not to solicit
or participate in any discussions with or provide any information to any person
or group (other than the Dealer Management Group) regarding the acquisition of
the Company until the earlier of TBC's announcement that TBC did not wish to
acquire the Company or March 20, 1996. TBC and the Company also agreed to hold
in confidence nonpublic information received by each from the other.
Thereafter, the Company has provided information to TBC and its advisors.
On December 29, 1995, Messrs. Cloward and Adams met in Memphis, Tennessee
with Messrs. DiPasqua, McCollough and Hubbard to further discuss both TBC's and
the Dealer Management Group's interest in acquiring the Company. On the same
date, Messrs. Cloward, Adams, DiPasqua, McCollough and Hubbard had a telephone
conversation with the BOTDA Board of Directors which resulted in a decision that
the Dealer Management Group and TBC would move ahead simultaneously.
On January 3, or January 4, 1996, Messrs. Cloward and DiPasqua discussed a
potential trip that would permit representatives of TBC to meet with selected
Dealers, visit selected Retail Stores, tour the Company's three warehouses, meet
the rest of the Company's management group and gain a better understanding of
the Company's franchise system.
On January 22, 1996, the Company and TBC issued a press release describing
TBC's potential interest in acquiring the Company.
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Between January 22, 1996 and January 29, 1996, Messrs. Cloward and Staker
and Messrs. DiPasqua and Hubbard toured certain of the Company's Retail Stores
and warehouses.
On February 2, 1996, Messrs. Cloward and DiPasqua had a telephone
conversation in which Mr. DiPasqua indicated that TBC's acquisition committee
had met again and, based upon due diligence conducted, had decided to continue
its investigation. He also indicated that another set of meetings was scheduled
for February 8 and February 9, 1996. Mr. DiPasqua asked Mr. Cloward to provide
additional information regarding the Company that Mr. DiPasqua could present to
the acquisition committee of TBC.
On February 15, 1996, representatives of the Company, the Investment
Committee, PaineWebber, Holme Roberts, and Hopper and Kanouff met with
representatives of TBC. TBC presented an offer to the Company to acquire the
Company's outstanding stock and options for a combination of cash and stock.
Based on the recommendation of the Investment Committee, the Board of Directors
of the Company did not accept the offer.
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 or BOTDA 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. The book
value of the Company as of September 20, 1995, was approximately $11.20 per
share.
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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 Investment Committee did not believe that the
Company's stockholders would receive an amount per share exceeding the Merger
Consideration if the Company were liquidated. The Investment Committee
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). The Board and the
Investment Committee considered the lapse of time between the delivery of the
fairness opinion and the date of the Board's and the Investment Committee's
recommendation (which is made as of the date of this Proxy Statement). Although
the public trading price of the Common Stock has fluctuated during that period,
the Board and the Investment Committee gave the fairness opinion significant
weight in determining to make their recommendation because there has not been a
material favorable change in the underlying business or assets of the Company or
its prospects since the date of the fairness opinion.
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 diminished 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.
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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, since its formation
in June 1994, has 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).
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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. PaineWebber did not, and was not
requested by the Investment Committee, to make any recommendation as to the form
or amount of consideration to be paid pursuant to the Merger Agreement.
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.
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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.
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
not 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.
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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.
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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 all fees and
retainers paid after June 30, 1995, 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 Stockholder 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.
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the Company will become a wholly-owned
subsidiary of Parent. Current shareholders of the Company (other than those who
will participate in the ownership of Parent as described under "Information
Pertaining to the Parent, the Purchaser and Related Persons") will no longer own
any interest in the Company. Such shareholders will not share in any future
earnings or growth of the Company. The Common Stock will no longer be traded on
the NASDAQ National Market System or any other securities exchange or registered
under the Exchange Act. The Company will no longer be subject to the reporting
and other requirements of the Exchange Act.
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.
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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.
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.
33
<PAGE>
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.
34
<PAGE>
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 February 28, 1996,
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.
35
<PAGE>
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 $1,540,000 in the aggregate, comprised of
approximately $11,000 for filing fees, $1,050,000 for financial advisory fees
and expenses in connection with the services of PaineWebber and $30,000 in
connection with the services of Baum, $460,000 for legal fees, $7,000 for
accounting fees, $25,000 for solicitation expenses, $30,000 for directors' fees
and expenses, and $22,000 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."
36
<PAGE>
PRINCIPAL STOCKHOLDERS OF THE COMPANY
The following persons are the only persons known to the Company who, on
February 16, 1996, owned beneficially more than 5% of the outstanding shares of
the Company's Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- -------------------- -------------------- --------
<S> <C> <C>
Big O Tires, Inc. ................................. 502,208 15.14%
Employee Stock Ownership Plan ("ESOP")
11755 East Peakview Avenue
Englewood, Colorado 80111
Balboa Investment Group, L.P....................... 309,500 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
Maurice D. Sabbah, et al........................... 190,265(3) 5.73%
262 East Moorehead Street
P. O. Box 700
Burlington, North Carolina 27216
Big O Senior Management and ....................... 209,278(4) 6.32%
Dealer Group
c/o William Spencer
IFC Limited
1099 18th Street
Denver, Colorado 80202
- -------------------
<FN>
(1) Of the 502,280 shares of Common Stock in the ESOP, approximately
465,806 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.
(3) In a Schedule 13D dated December 6, 1994, the Company was notified
that these persons held these shares of Common Stock.
[/FN]
37
<PAGE>
<FN>
(4) In a Schedule 13D, as amended, the Company was notified that these
persons held these shares of Common Stock. These persons consist of a
group of Company officers led by Company President, Steven P. Cloward,
managers and Company franchisees ("Dealer Management Group") that made
an offer to acquire the outstanding shares of the Company. The shares
reported in this Schedule 13D, as amended, include the shares for the
aforementioned officers disclosed in the "Security Ownership of the
Company's Management" section of this proxy statement.
</FN>
</TABLE>
SECURITY OWNERSHIP OF THE COMPANY'S MANAGEMENT
The following table shows, as of February 16 1996, the shares of the
Company's outstanding Common Stock beneficially owned by each director and
executive officer 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:
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)10) OF CLASS(10)
- ------------------ ------------------------- -----------
<S> <C> <C>
John B. Adams ..................... 42,004(2)(8)(9) 1.26%
Ronald D. Asher ................... 16,520(3)(8) *
Frank L. Carney ................... 1,780(8) *
Steven P. Cloward ................. 103,969(4(8)(9) 3.11%
Everett H. Johnston ............... 1,452(8) *
Robert K. Lallatin ................ 364(5) *
Horst K. Mehlfeldt ................ 4,522(8) *
John E. Siipola ................... 5,193(8) *
Ralph J. Weiger ................... 3,414(8) *
C. Thomas Wernholm ................ 21,325(6) *
Donald D. Flanders ................ -0- -0-
Dennis J. Fryer ................... 8,694(7)(9) *
Allen E. Jones .................... 13,926(7)(9) *
Ronald H. Lautzenheiser ........... 17,668(7)(9) *
Kelley A. O'Reilly ................ 5,552(7)(9) *
Gregory L. Roquet ................. 12,191(7)(9) *
Thomas L. Staker .................. 14,337(7)(9) *
Philip J. Teigen .................. 9,723(7)(8)(9) *
Bruce H. Ware ..................... 14,844(7)(8)(9) *
All Current Directors and
Executive Officers as
a Group (19 persons) ............ 297,483(2)(3)(4) 8.66%
(5)(6)(7)(8)(9)
- -------------------
<FN>
* Percent of shares of Common Stock beneficially owned by this director
does not exceed 1% of the Company's outstanding Common Stock.
38
<PAGE>
(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:
</FN>
<CAPTION>
NAME NO. OF SHARES*
-------- -------------
<S> <C>
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
- -------------------
<FN>
* The share numbers have been rounded up or down to the nearest whole
share.
39
<PAGE>
(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:
</FN>
<CAPTION>
NO. OF SHARES
UNDERLYING PRESENTLY
NAME EXERCISABLE OPTIONS
------------ -------------------
<S> <C>
John B. Adams ..................... 4,922
Ronald D. Asher ................... 15,894
Frank L. Carney ................... 1,780
Steven P. Cloward ................. 12,284
Everett H. Johnston ............... 1,452
Allen E. Jones .................... 906
Horst K. Mehlfeldt ................ 4,522
John E. Siipola ................... 4,193
Philip J. Teigen .................. 833
Bruce H. Ware ..................... 302
Ralph J. Weiger ................... 1,767
C. Thomas Wernholm ................ 16,637
- -------------------
<FN>
(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:
</FN>
<CAPTION>
NAME NO. OF SHARES NO. OF OPTIONS
- ---- ------------- --------------
<S> <C> <C>
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
- -------------------
<FN>
40
<PAGE>
(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.
</FN>
</TABLE>
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>
<CAPTION>
HIGH LOW
---- -----
<S> <C> <C>
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 .......................... 15 1/8 12
1996
First Quarter (through ----------1996)...
</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 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
__________________, 1996.
41
<PAGE>
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.
42
<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
43
<PAGE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
------------------- ---------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
(in thousands)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
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
----------
- ------------------
(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 2.8:1, 3.1:1, 4.0:1 and 3.8:1, respectively.
</TABLE>
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.
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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
(WITHOUT THE ATTACHMENTS THERETO) 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.
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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
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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" and "Special Factors -- Background
and Negotiations Regarding the Merger."
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
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<PAGE>
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.
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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
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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
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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
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tender exchange or offer for the Company's Common Stock; or if certain
conditions of the Merger Agreement shall not have been satisfied on the
Effective Time. 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.
As permitted by applicable Nevada law, no interest will accrue or be paid
on the Merger Consideration upon surrender of the Certificates. The Company
expects that the Merger Consideration will be paid to a Stockholder as promptly
as possible following receipt by the Company of the Stockholder's Certificate.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following is certain information pertaining to the current directors of
the Company:
<TABLE>
<CAPTION>
RESIDENCE OR PRESENT PRINCIPAL OCCUPATION
BUSINESS AND MATERIAL OCCUPATIONS
NAME AGE ADDRESS DURING LAST FIVE YEARS
- ---- --- ------------ --------------------------------
<S> <C> <C> <C>
John B. Adams 41 11755 East Peakview Avenue Executive Vice President of the Company
Englewood, Colorado 80111 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 58 729 Red Arrow Trail Managing his various business interests
Palm Desert, California for over the last five years; owner of
92211 interests in approximately 28 franchised
Big O Tires retail stores in
California and Arizona that are owned by
C.S.B. Partnership ("CSB") 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.
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Frank L. Carney 57 4849 1960 West President of Papa Johns, 4849 1960 West,
Houston, Texas 77066 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 48 11755 East Peakview Avenue Member of the Office of the Chief Execu-
Englewood, Colorado 80111 tive 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. 56 P.O. Box 1954 Real estate investor since 1989; Chief
Johnston 45275 Mar Vista Financial Officer, Secretary, Treasurer
Mendocino, California and a Director of Simpson Manufacturing
95460 Co., Inc., 4637 Chabot, #200, Pleasanton,
California 94588, a manufacturer of
structural building products, from 1983
to 1989, at which time Mr. Johnson
retired.
54
<PAGE>
Robert K. Lallatin 47 Box 7373 Member of the Big O Tires, Inc. Dealer
Jackson, Wyoming 83001 Planning Board 11755 East Peakview
Avenue, Englewood, Colorado 80111, repre-
senting 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 56 11755 East Peakview Avenue Vice Chairman and Member of the Office of
Englewood, Colorado 80111 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.
55
<PAGE>
John E. Siipola 53 11755 East Peakview Avenue Member of the Office of the Chief Execu-
Englewood, Colorado 80111 tive 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; self-employed 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 70 79 North French Place Retired since July 1995; Chairman and
Prescott, Arizona 86303 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 65 435 Reflections Circle For over the past five years, President
Wernholm #22 San Ramon, and Chief Executive Officer for D.
California 94583 Wernholm & Sons, Industrial Contractors,
an industrial painting contractor, and
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:
56
<PAGE>
<TABLE>
<CAPTION>
RESIDENCE OR PRESENT PRINCIPAL OCCUPATION
BUSINESS AND MATERIAL OCCUPATIONS
NAME AGE ADDRESS DURING LAST FIVE YEARS
- ---- --- ------------ --------------------------------
<S> <C> <C> <C>
Donald O. Flanders 46 1159 Pomona Road, Suite E Regional Vice President-Southwest
Corona, California 91720 Region of the Company since January
1996; Western Region Commercial Accounts
Representative for Kelly Brands --
Kelly-Springfield Tire Company, a tire
manufacturer, from July 1995 to January
1996; Western Region Manager for
Associate Brands -- Kelly Springfield
Tire Company from June 1993 to July
1995; Account Executive for Custom
Brands -- Kelly Springfield Tire Company
from November 1990 to June 1993.
Dennis J. Fryer 44 11755 East Peakview Avenue Regional Vice President - Central Region
Englewood, Colorado 80111 of the Company since October 1992;
New Store Opening Specialist of the Com-
pany from January 1990 to October 1992.
Allen E. Jones 46 640 Park East Boulevard Regional Vice President - Southeast
New Albany, Indiana 47151 Region of the Company since December
1990.
Ronald H. 54 11755 East Peakview Avenue Vice President - Business Development
Lautzenheiser Englewood, Colorado 80111 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 33 11755 East Peakview Avenue Vice President - Marketing of the Company
Englewood, Colorado 80111 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.
57
<PAGE>
Gregory L. Roquet 39 333 Vaca Valley Parkway Regional Vice President - West Central
Suite 100 Region of the Company since May 1993
Vacaville, California and Regional Vice President - Southwest
95688 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 47 11755 East Peakview Avenue Senior Vice President-Operations of the
Englewood, Colorado 80111 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 55 11755 East Peakview Avenue Secretary of the Company since December
Englewood, Colorado 80111 1990; General Counsel of the Company
since August 1990; Secretary of
the Parent and the Purchaser since
July 1995.
Bruce H. Ware 38 3511 South T.K. Avenue Regional Vice President - Northwest
Boise, Idaho 83706 Region of the Company since December
1990 and Acting Corporate Manager of
Purchasing of the Company since December
1995.
</TABLE>
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.
58
<PAGE>
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.
On February 12, 1996, the Board of the Company agreed that if the Company
is acquired by any person other than the Parent and the Purchaser, Messrs.
Siipola and Mehlfeldt, if they do not retain their positions with the Company,
would receive 15 months of severance pay in accordance with the Company's
previously adopted Executive Management Severance Pay policy rather than each
receiving a lump sum payment of $150,000 as described above. Also, the Board
determined that, under the same circumstances, Mr. Cloward would receive 24
months of severance pay in accordance with the Company's Executive Management
Severance pay policy. In addition, the Board of Directors of the Company agreed
that the SAR Agreements of Messrs. Siipola, Mehlfeldt and Cloward would be
amended so that if the Company is acquired by any person other than the Parent
and the Purchaser, all of the rights of Messrs. Siipola, Mehlfeldt and Cloward
to exercise any unit that were unvested prior to February 12, 1997, would vest
immediately.
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.
59
<PAGE>
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, all of whom are directors of BOTDA, 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.
It is contemplated that the Dealer LP, by and through a private placement
offering to qualified Dealers, (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) will require such electing and qualified
Dealers to execute minimum tire purchase commitments with the Company and to
make minimum annual capital contributions to the Dealer LP in connection with
such commitments. In consideration of such minimum tire purchase commitments and
extension of their franchise agreements, Parent will issue to the Dealer LP, a
warrant to purchase up to approximately 48,000 shares of the common stock of
Parent ("Parent Common Stock") which will become exercisable to purchase that
number of shares equal to the number of shares issued to the ESOP in 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 granted anti-dilution
protection to enable it to maintain a 50% ownership in the form of the right to
purchase additional shares of Parent Common Stock.
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.
60
<PAGE>
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 proposal contemplates the reimbursement to 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 on terms to be negotiated, 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 Mr.
Pavia, 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 on terms to be negotiated. 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 33% 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 64,119 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
61
<PAGE>
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 14.9%
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:
<TABLE>
<CAPTION>
RESIDENCE OR PRESENT PRINCIPAL OCCUPATION
BUSINESS AND MATERIAL OCCUPATIONS
NAME AGE ADDRESS DURING LAST FIVE YEARS
- ---- --- ------------ --------------------------------
<S> <C> <C> <C>
Guido Bertoli 35 420 Mowry Owner of three franchised Big O Tires
Avenue retail stores in Fairfield, Fremont
Fremont, CA and Santa Cruz, California since 1991
94536 (Fairfield and Fremont) and 1994 (Santa
Cruz); member of Company's
Dealer Planing Board since 1994;
Director of BOTDA since 1995; prior to
1991, partner in partnership which owned
Fairfield, Newark, and Fremont
franchised Big O Tire retail stores.
Bryan K. Edwards 38 377 East Owner of a franchised Big O Tires retail
Cypress store in Redding, California since 1987,
Redding, CA which store is presently operated by a
96002 partnership of which Mr. Edwards is a
partner; President and 100% owner
of Rocksco, Inc., which owned a
franchised Big O Tires retail store in
Rock Springs, Wyoming from 1984 until
1993; member of the Company's Dealer
Planning Board from 1989-1991; Chief
Financial Officer/Treasurer and Director
of BOTDA since 1995.
62
<PAGE>
Scott E. Klossner 39 3120 South President and 100% owner of K&B Corp.,
Highland Drive which has owned a franchised Big O Tires
Salt Lake City, retail store in Utah since 1990; Director
UT 84106 of BOTDA since 1995; member of the Com-
pany's Dealer Planning Board in 1993,
1994 and 1995.
O. Kenneth Little 52 1625 Sole owner of franchised Big O Tires
Countryshire retail store in Lake Havasu City, Arizona
Avenue since 1993; from 1987 to 1992, president
Lake Havasu and owner of CLLBP, Inc., which owned
City, AZ 86403 three Big O Tires retail stores in Ontario
(until 1988), Upland (until 1992), and
Cypress (until 1992) California; member of
Company's Dealer Planning Board since
1994.
Michael E. Lyons 41 1205 S. Main President and 50% owner of Myklyn Tires
Longmont, CO Inc., which has owned a franchised Big O
80234 Tires 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 Tires retail store in
Brighton, Colorado; since 1995, 100%
owner of Lyons Enterprises which owned a
Big O Tires retail Store in Louisville,
Colorado from 1992 to 1993; 10% owner of
Silverheels Southwest Grill, a
restaurant; 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 52 5200 Central SE Owner and manager of three franchised Big
Albuquerque, O Tires Retail stores in New Mexico: (a)
NM 87108 100% owner and President of Rosmar, Inc.,
which owns a franchised Big O Tires
retail store in Albuquerque, New Mexico;
(b) 100% owner and President of Tire
Crafters, Inc., which owns a franchised
Big O Tires retail store in Belen, New
Mexico and (c) since 1978 100% owner and
President of Pitia, Inc., which has
owned a franchised Big O Tires retail
store in Albuquerque, New Mexico since
1991; 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 48 216 E. Fairview Since 1986, 100% owner and president of
Avenue Ken's Tire, Inc., which owns a franchised
Meridian, ID Big O Tires retail in Meridian, Idaho;
83680 Secretary and Director of BOTDA since
1995; member of the Company's Dealer
Planning Board from 1986- 1995.
63
<PAGE>
P. Thomas Staker 47 215 Clifty Drive Since 1993, 50% co-owner of T.M.S. Inc.,
Madison, IN which owns a franchised Big O Tires retail
47250 store in Madison, Indiana; and since
1990, employed as manager of OK Tire,
Inc., dba Big O Tires Jeffersonville,
Indiana, which owned a franchised Big O
Tires retail store in Jeffersonville,
Indiana; member of Company's Dealer
Planning Board since 1994; Assistant
Vice President and Director or BOTDA
since 1995.
Wesley E. Stephenson 38 4520 N. Rancho Since 1980, vice president of operations
Road and since 1978, 50% owner of Spring Val-
Las Vegas, NV ley Tires, Inc., which owns four fran-
89130 chised Big O Tires retail stores in
Nevada; since 1991, 35% owner and
vice president of operations of
Rancho Sierra Tires, Inc., 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.
</TABLE>
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.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
- ------------------------- ---------------------- ----------------
<S> <C> <C>
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) *
- -----------------
64
<PAGE>
<FN>
* 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.
</FN>
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1993.................. $3,335,048
1994.................. $3,680,324
1995 (1/1-9/30)....... $3,667,215
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR AMOUNT
----- -------
<S> <C>
1993.................. $ 951,886
1994.................. $1,107,612
1995 (1/1-9/30)....... $ 887,718
</TABLE>
65
<PAGE>
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. As of February 8,
1996, the remaining principal balance of the loan was $66,657.38
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. As of February 6, 1996, the remaining principal balance
of the loan was $59,160.
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, November 17,
1995 and December 15, 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.
66
<PAGE>
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
- ----------------, 1996.
By Order of the Board of Directors
Susan D. Hendee, Assistant Secretary
Englewood, Colorado
- ------------, 1996
67
<PAGE>
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
68