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:
[ ] Preliminary Proxy Statement [ ] Confidential for use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[X] 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).
[ ] 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: 3,317,916
shares plus options to purchase 216,232 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: $56,699,798 (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 3,317,916 shares of Common Stock of the Registrant at a price of
$16.50 in cash per share and the cancellation of options to purchase an
aggregate of 216,232 shares of Common Stock of the Registrant, which options
have exercise prices ranging from approximately $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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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 the offices of Holme Roberts & Owen
LLC, Suite 4100, 1700 Lincoln Street, Denver, Colorado 80203, on Wednesday, July
10, 1996, at 10:00 a.m., Mountain Daylight 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 April 30, 1996 (the "Merger Agreement"), by and
among the Company, TBC Corporation, a Delaware corporation (the "Parent"), and
TBCO Acquisition, Inc., a Nevada corporation and a wholly-owned subsidiary of
the Parent (the "Purchaser"), and the transactions contemplated thereby. The
Merger Agreement (without the exhibits 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 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
$16.47, 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 consists only of directors who are not employees of the
Company, 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. In
connection with a previous merger proposal from a group consisting of certain
franchised dealers and certain members of senior management of the Company,
PaineWebber Incorporated ("PaineWebber"), the financial advisor to the
Investment Committee, rendered a written opinion dated November 14, 1995, to the
Board to the effect that, as of the date of such opinion, the payment of a cash
price of $16.50 per share to the holders of the Common Stock was fair from a
financial point of view. That opinion and certain qualifications are described
in the Proxy Statement. You are urged to read the Proxy Statement in its
entirety for important information regarding the Merger.
IT IS VERY IMPORTANT THAT YOUR SHARES 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.
Sincerely,
John E. Siipola
Chairman of the Board of Directors
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BIG O TIRES, INC.
11755 East Peakview Avenue, Suite A
Englewood, Colorado 80111
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 10, 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 the offices of Holme Roberts & Owen LLC, Suite 4100, 1700 Lincoln
Street, Denver, Colorado 80203, on Wednesday, July 10, 1996, at 10:00 a.m.,
Mountain Daylight Time, for the purpose of considering and voting upon a
proposal to approve the Agreement and Plan of Merger, dated as of April 30, 1996
(the "Merger Agreement"), by and among the Company, TBC Corporation , a Delaware
corporation (the "Parent"), and TBCO Acquisition Inc., 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 of
the Company's Common Stock will be converted into the right to receive a cash
payment of $16.47, 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. The Merger may be terminated before closing under certain
circumstances, including termination by the Purchaser if certain transaction
costs and expenses less the $106,024 by which the aggregate Merger Consideration
has already been reduced, exceed $1,900,000. See "The Merger
Agreement--Description of the Merger Agreement."
Only stockholders of record as of the close of business on May 17, 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
Philip J. Teigen, Secretary
June 10, 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 the offices of Holme Roberts & Owen LLC, Suite 4100,
1700 Lincoln Street, Denver, Colorado 80203, on Wednesday, July 10, 1996, at
10:00 a.m., Mountain Daylight 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 April 30, 1996 (the
"Merger Agreement"), by and among the Company, TBC Corporation, a Delaware
corporation (the "Parent"), and TBCO Acquisition, Inc., 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"), will be
converted into the right to receive a cash payment of $16.47, 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").
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 May 2, 1996, announcement of the signing of the
Merger Agreement and over the approximately $11.53 per share book value of the
Company on March 31, 1996. In connection with a previous merger proposal from a
group consisting of certain franchised dealers and certain members of senior
management of the Company, PaineWebber Incorporated ("PaineWebber"), the
financial advisor to the Investment Committee, rendered a written opinion dated
November 14, 1995, to the Board to the effect that, as of the date of such
opinion, the payment of a cash price of $16.50 per share to the holders of the
Common Stock was fair from a financial point of view. The Board considered such
opinion and other matters discussed herein under "Special Factors." The Board
does not consider the $0.03 per share difference in the Merger Consideration to
be material to the fairness of the price.
The affirmative vote of the holders of a majority of the Common Stock
outstanding on May 17, 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 June 10, 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 ...............................
Purposes and Reasons for 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.
Opinion of Financial Advisor Delivered in Connection
With Dealer Management Group Merger Agreement ............
Certain Effects of the Merger................................
Federal Income Tax Consequences .............................
Accounting Treatment of the Merger ..........................
Regulatory Approvals ........................................
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 .........................
INTEREST OF CERTAIN PERSONS IN THE MERGER ........................
INFORMATION PERTAINING TO THE PARENT
AND THE PURCHASER ................................................
General .....................................................
Security Ownership of TBC in Company ........................
DOCUMENTS INCORPORATED BY REFERENCE ..............................
STOCKHOLDER PROPOSALS ............................................
APPENDIX A AGREEMENT AND PLAN OF MERGER DATED AS OF APRIL 30, 1996, BY AND AMONG
TBC CORPORATION, TBCO ACQUISITION, INC. AND BIG O TIRES, INC. (WITHOUT
EXHIBITS)
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 will receive $16.47 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.
TBC CORPORATION, a Delaware corporation (the "Parent"), is an independent
marketer and distributor of tires and other automotive aftermarket products. See
"Information Pertaining to the Parent and the Purchaser." The mailing address of
the principal executive offices of both the Parent and the Purchaser is 4770
Hickory Hill Road, P. O. Box 18342, Memphis, Tennessee 38181-0342, and their
telephone number is (901) 363-8030.
TBCO ACQUISITION, INC., 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 and the Purchaser."
THE DATE AND PLACE OF THE SPECIAL MEETING
The Special Meeting is to be held at the offices of Holme Roberts & Owen
LLC, Suite 4100, 1700 Lincoln Street, Denver, Colorado 80203, on Wednesday, July
10, 1996, at 10:00 a.m., Mountain Daylight 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 May 17, 1996, the Record Date, 3,317,916
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 Special 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 DISSENTERS' RIGHTS
Stockholders do not have appraisal or dissenters' 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. 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."
Immediately prior to the Effective Time each outstanding option to purchase
shares of Common Stock 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 $16.47 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. All of the Company's stock option, stock appreciation or
other such 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 including, 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). 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
Articles 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
Articles 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 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
$15.00 closing sale price of the Common Stock on April 24, 1996, the day prior
to the Board's approval of the Merger Agreement, and over the $11.53 per share
book value of the Company on March 31, 1996; (d) the results of their market
solicitation to determine whether there were other buyers for the Company; (e) a
review of possible alternatives to the sale of the Company, including continuing
to operate the Company as a publicly-owned entity; and (f) the written opinion
of PaineWebber, rendered in connection with a previous merger proposal, to the
effect that, as of November 14, 1995, the payment of a cash price of $16.50 per
share to the holders of the Common Stock was fair from a financial point of
view. 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 general partner of a
substantial stockholder in the Company, participated in various meetings of the
Investment Committee and conferred from time to time
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with members of the Investment 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
certain financial matters by PaineWebber. Because the members of the Investment
Committee have no relationship with the Parent or the Purchaser, and are 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. In connection with a previous
merger proposal from a group consisting of certain franchised dealers and
certain members of senior management of the Company, PaineWebber, the financial
advisor to the Investment Committee, rendered a written opinion (the "November
1995 Opinion") dated November 14, 1995, to the Board to the effect that, as of
the date of such opinion, the proposed consideration of $16.50 per share in cash
to the holders of the Common Stock was fair from a financial point of view, to
such holders (other than members of the acquisition group and related parties).
The full text of the November 1995 Opinion, 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. ALTHOUGH THE
INVESTMENT COMMITTEE CONSIDERED THE PAINEWEBBER OPINION IN CONNECTION WITH ITS
APPROVAL OF THE MERGER, SUCH OPINION RELATES TO A TRANSACTION PROPOSED IN
NOVEMBER 1995 THAT WAS NOT CONSUMMATED. SUCH OPINION DOES NOT RELATE TO THE
MERGER. ACCORDINGLY, THE COMPANY IS UNABLE TO RECOMMEND WHETHER OR NOT
STOCKHOLDERS SHOULD RELY ON SUCH OPINION AND SUGGESTS THAT EACH STOCKHOLDER
REVIEW THE OPINION BEFORE MAKING ANY DETERMINATION WHETHER TO RELY ON SUCH
OPINION. See "Special Factors -- Opinion of Financial Advisor Delivered in
Connection With Dealer Management Group Merger Agreement."
PAINEWEBBER HAS NOT BEEN REQUESTED TO, AND DID NOT RENDER A FAIRNESS
OPINION RELATING TO THE MERGER, AND HAS NOT UPDATED THE REVIEW AND OTHER
PROCEDURES FOLLOWED IN CONNECTION WITH THE RENDERING OF ITS NOVEMBER 1995
OPINION. THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE NOVEMBER 1995
OPINION ARE DIFFERENT, AND COULD BE MATERIALLY DIFFERENT, FROM THE ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW THAT
WOULD HAVE BEEN UNDERTAKEN IF A FAIRNESS OPINION WERE TO BE RENDERED IN
CONNECTION WITH THE MERGER. See "Special Factors -- Opinion of Financial Advisor
Delivered in Connection With Dealer Management Group Merger Agreement."
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 the 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 immediately began 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 Parent to obtain financing, and to obtain the requisite stockholder and
other approvals.
TBC believes that its acquisition of the Company offers substantial growth
opportunities for TBC in distribution channels not now being served by TBC and
will enhance TBC's stockholder value.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Messrs. John B. Adams, Steven P. Cloward and Thomas L. Staker, who are all
directors and/or officers of the Company, are expected to be involved in the
management and operation of the Company following the Merger. They have entered
into letter agreements with Parent which provide that Parent will cause the
Company to enter into employment agreements with them upon the merger of
Purchaser into the Company. Messrs. Mehlfeldt and Siipola have agreed to resign
their positions with the Company at the Effective Time and will receive certain
benefits following the Merger. Messrs. Adams and Cloward, 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, the interests of Messrs. Adams, Cloward, Staker,
Mehlfeldt and Siipola, and the interests of all of the Company's directors, by
virtue of their employment agreements, and the interests of all of the Company's
directors, by virtue of their indemnification rights, may be deemed to be
separate from or adverse to the interests of the remaining stockholders. As of
the Record Date, Messrs. Adams, Cloward and Staker held of record or
beneficially (excluding 80,147 shares underlying options) 114,140 shares of
Common Stock or 3.44% of the issued and outstanding Common Stock. It is expected
that the shares of Common Stock owned by Messrs. Adams, Cloward and Staker will
be voted in favor of the Merger. See "Information Pertaining to the Parent and
the Purchaser," "The Merger Agreement," and "Interest of Certain Persons in the
Merger."
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 .................................. 15 1/4 12 1/2
Second Quarter (through June 5, 1996) .......... 16 1/8 14 1/4
</TABLE>
On May 31, 1995, June 6, 1995, March 13, 1996 and May 2, 1996, the last
days the Common Stock traded prior to the public announcements that (i) the
Company had received a merger proposal at $16.50 per share of Common Stock from
a group consisting of certain franchised dealers and certain members of senior
management of the Company (ii) the Investment Committee approved in principle
the $16.50 per share merger proposal from a group consisting of certain
franchised dealers and certain members of senior management of the Company,
(iii) the Company entered into a letter of intent with the Parent for the Merger
and (iv) the Company entered into the Merger Agreement providing for the Merger
of Purchaser into the Company at a consideration of $16.50 per share of Common
Stock, subject to possible reduction based on final tabulation of transaction
costs and other expenses, the closing sale prices of the shares of Common Stock
(as reported on the NASDAQ National Market System) were $13.75, $14.25, $13.81
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and $15.25, respectively. The closing sale price of the shares of Common Stock
(as reported on the NASDAQ National Market System) was $15.625 on June 5, 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."
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 the offices of Holme
Roberts & Owen LLC, Suite 4100, 1700 Lincoln Street, Denver, Colorado 80203, on
Wednesday, July 10, 1996, at 10:00 a.m., Mountain Daylight 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 will receive $16.47 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 May 17, 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 3,317,916 shares of Common Stock. 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 Secretary of the Company, Philip J.
Teigen, 11755 East Peakview Avenue, Suite A, Englewood, Colorado 80111, prior to
the Special Meeting; (2) giving written notice of such revocation to the
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 Merger and Exchanges of Interest 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 a merger to which
the corporation, in which the stockholder holds shares, is a party. However,
there is no right of dissent under the Nevada Merger and Exchanges of Interest
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 they 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
exhibits 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 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.
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<PAGE>
BACKGROUND AND NEGOTIATIONS REGARDING THE MERGER
PRELIMINARY NOTE. The following discussion describes significant events
occuring prior to, 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. Pavia concerning various aspects of Company operations and membership
of its Board during the several months before the Company received Mr. Pavia's
proposal. At his request, the following resolution (the "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.
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<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 stockholders 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 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.
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.
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 discussions 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,
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 franchised dealers of the Company (the "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 LLP
("KPMG") to act as their financial advisor. Mr. Adams advised the Investment
Committee that certain members of senior management of the Company ("Senior
Management"), which included Messrs. Adams and Cloward, were also investigating
possible participation with certain of the Dealers in an offer to purchase the
Company, and that certain representatives of the Dealers and Senior Management
(collectively the "Dealer Management Group") 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 Company's Employee Stock Ownership Plan (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
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the respective requests for a period of exclusive negotiations. The Investment
Committee also agreed to reimburse the Dealer Management Group for up to an
aggregate of $175,000 of reasonable expenses, provided that the Dealer
Management Group agreed to withdraw a request to adjust the proposed purchase
price by an amount equal to the transaction fee due PaineWebber and that it
proceed immediately to prepare and submit a definitive merger agreement.
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 each 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 transaction, 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 negotiations 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
21
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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 with companies formed by the Dealer Management Group (the "Dealer
Management Group Merger Agreement"). The Investment Committee met on July 18,
1995, with Holme Roberts to review the Dealer Management Group Merger Agreement
and provided final, technical comments.
On July 21, 1995, the Investment Committee met with PaineWebber and Holme
Roberts and approved signing the Dealer Management Group 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 Dealer Management Group 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 proposed by
the Dealer Management Group to the Board as being in the best interest of the
Company and its stockholders. The Investment Committee also determined, based
upon its own analysis of the consideration and taking into consideration the
presentation of PaineWebber at the meeting, that the transactions contemplated
by the Dealer Management Group Merger Agreement, based on information presently
known, were in the best interest of and, subject to the receipt of the fairness
opinions as described in the Dealer Management Group 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 Dealer Management Group Merger Agreement.
22
<PAGE>
Thereafter, on July 21, 1995, the Board met with Hopper and Kanouff, Holme
Roberts and PaineWebber and again approved signing the Dealer Management Group
Merger Agreement and certain amendments to the Stockholder Rights Plan necessary
to permit the signing of the Dealer Management Group Merger Agreement and the
consummation of the merger pursuant to the Dealer Management Group Merger
Agreement. 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 Dealer Management Group
Merger Agreement. The Dealer Management Group Merger Agreement was signed on
July 24, 1995.
On July 24, 1995, prior to executing the Dealer Management Group Merger
Agreement, the Company changed the Stockholder Rights Plan by amending the
Rights Agreement between the Company and Interwest Transfer Co., Inc., to permit
the transactions contemplated by the Dealer Management Group Merger Agreement.
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 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 Dealer Management Group
Merger Agreement, if prior to October 2, 1995, the Dealer Management Group had
not satisfied or waived the contingency in the Dealer Management Group 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").
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 Dealer Management Group
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.
23
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On October 15, 1995, the Company received notice from the Dealer Management
Group that the Dealer Management Group elected to waive the Dealer Participation
Contingency. The Dealer Management Group advised the Company that dealers owning
82% of the Company's franchised Big O Retail Stores, as of the date of the
Dealer Management Group 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 to be paid by the Dealer Management Group was fair,
from a financial point of view, to the holders of Common Stock.
At the meeting held on November 14, 1995, the Board (other than those
directors who were 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 pursuant to the Dealer Management Group Merger
Agreement.
By letter dated January 12, 1996, the companies formed by the Dealer
Management Group 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 Dealer Management Group Merger Agreement
to March 31, 1996. On January 23, 1996, the Investment Committee met and
discussed the requests but took no action. By letter dated January 25, 1996, to
the Dealer Management Group, the Investment Committee requested confirmation
that the Dealer Management Group was proceeding with the merger pursuant to the
Dealer Management Group Merger Agreement.
On January 30, 1996, representatives of the Dealer Management Group and
Gibson, Dunn & Crutcher had a telephone conference with the Investment Committee
and a representative of Holme Roberts to discuss the status of the merger
pursuant to the Dealer Management Group Merger Agreement.
After February 28, 1996, the Dealer Management Group Merger Agreement could
be terminated by either party if the closing had not yet occurred. The Board met
on February 28, 1996, and determined that it would not terminate the Dealer
Management Group Merger Agreement at that time.
On March 12, 1996, the Investment Committee met with representatives of
PaineWebber and Holme Roberts to discuss the status of the Dealer Management
Group Merger Agreement, the status of Parent's interest in a possible
transaction with the Company, and certain reimbursements requested by the Dealer
Management Group. Mr. Cloward subsequently joined the meeting to discuss the
status of financing for the Dealer Management Group. He was requested by the
Investment Committee to submit a status report by the end of the business day
regarding consummation of the Dealer Management Group Merger Agreement. The
Investment Committee declined a request to change the amount of reimbursable
expenses.
On March 13, 1996, the Investment Committee and Board met again with
representatives of PaineWebber and Holme Roberts and reviewed a letter from the
Dealer Management Group with respect to the status of various matters relating
to the Dealer Management Group Merger Agreement. In the letter, the Dealer
Management Group advised the Company that various of its commitments for
financing had expired and that the Dealer Management Group was experiencing
difficulty in renewing them because of the possibility of a termination of the
Dealer Management Group Merger Agreement by the Company and the fact that the
Company was discussing a possible acquisition of the Company by a third party
(see "TBC Corporation" below). The letter summarized the status of discussions
with each of the Dealer Management Group's lenders, all of whom had reportedly
indicated orally a continued willingness to participate in the transaction;
however, no binding commitments had been received from them and the terms of the
renewals or extensions of their commitments were not established in writing. The
Dealer Management Group also advised that, because of certain changes in the
role of participants in the Company's ESOP in connection with the proposed
acquisition of the Company, it would be necessary to provide the Company's
Dealers who had agreed to participate as part of the Dealer Management Group
with a right to rescind their agreements to participate and to reconsider
whether they would participate. The letter also reported that certain other
equity participation in the Dealer Management Group had not been finalized. The
Dealer Management Group also advised that it had not yet received a required
fairness opinion with respect to the fairness of the transaction to participants
in the Company's ESOP who were to have received shares in the acquiring company
instead of cash for their shares in the Company. The Dealer Management Group
also expressed some concern about the probability of receiving the agreement
that 80 percent or more of the shares of the Company held by the ESOP would be
exchanged for securities in the acquiring company (a condition to the
participation by another equity participant).
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The Dealer Management Group also advised that it had limited finances and
would need additional resources to complete the transaction. The Dealer
Management Group requested an extension of the Dealer Management Group Merger
Agreement for at least 180 days, which would include an exclusivity clause.
After reviewing the letter with a representative of the Dealer Management Group,
the Investment Committee and the Board decided to terminate the Dealer
Management Group Merger Agreement immediately pursuant to its terms.
On April 30, 1996, constituent members of the Dealer Management Group,
including BOTI Holdings, Inc., BOTI Acquisition Corp., Big O Tire Dealers of
America, the Company, and certain individuals who were members of Senior
Management or Dealers, executed an Acknowledgement, Agreement and Release which
provided various releases and cross indemnifications in connection with the
termination of the Dealer Management Group Merger Agreement.
TBC CORPORATION. On September 26, 1995, Mr. Cloward spoke by telephone with
Mr. Louis DiPasqua, the President and Chief Executive Officer of the Parent, who
indicated to Mr. Cloward that the Parent might be interested in acquiring an
interest in the Company. Later the same day, Messrs. Cloward and Adams
telephoned Mr. DiPasqua and discussed the Parent'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, Mr.
Ronald E. McCollough and Mr. Bob M. Hubbard, representatives of the Parent, to
discuss the Parent's interest in an acquisition of the Company. The
representatives of the Parent indicated that the Parent did not intend to
interfere with the merger pursuant to the Dealer Management Group Merger
Agreement, but the Parent would move ahead simultaneously until its interest
could be defined. The Parent's potential interest in the Company was not
communicated to the Investment Committee.
In October 1995, Messrs. Cloward and Adams advised Mr. DiPasqua that they
would provide the Parent with the Company's public filings. On December 12,
1995, Mr. DiPasqua telephoned Mr. Cloward and indicated that the Parent's
acquisition committee had met and approved moving forward, and reaffirmed the
Parent's interest in ownership of the Company. Mr. DiPasqua reiterated that the
Parent did not want to interfere with the merger pursuant to the Dealer
Management Group Merger Agreement.
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, Hubbard and Stanley
Freedman, a director of Parent and its General Counsel, in Memphis, Tennessee.
The discussions centered around why the Parent 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 the Parent indicated again that they did not
want to interfere with the timing of the merger pursuant to the Dealer
Management Group Agreement, but would rather pursue an approach that would
permit the Parent to perform its own due diligence on the Company while the
Dealer Management Group moved forward with the merger pursuant to the Dealer
Management Group Merger Agreement.
On December 16 and December 17, 1995, Mr. Cloward advised Messrs. Carney
and Wernholm of the Parent's interest.
On December 19, 1995, Mr. Siipola contacted Mr. DiPasqua to verify the
Parent's interest and Mr. DiPasqua confirmed that the Parent desired to perform
due diligence regarding the Company.
Effective December 20, 1995, the Company, the companies formed by the
Dealer Management Group and the Parent entered into an agreement whereby the
Company, at the request of the companies formed by the Dealer Management Group,
agreed to facilitate the Parent's investigation of the Company. The Company also
agreed to indemnify the Parent against any claims, expenses and costs that the
Parent may incur by reason of its investigation of the Company and agreed,
without making the Parent whole for the Parent'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 the Parent's
announcement that the Parent did not wish to acquire the Company or March 20,
1996. The Parent and the Company also agreed to hold in confidence nonpublic
information received by each from the other. Thereafter, the Company provided
information to the Parent 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 the
Parent'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, after which the Dealer
Management Group and the Parent moved ahead simultaneously.
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In early January 1996, Messrs. Cloward and DiPasqua discussed a potential
trip that would permit representatives of the Parent 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.
In January 1996, the Dealer Management Group agreed that the Company could
discuss a potential acquisition with Parent.
On January 22, 1996, the Company and the Parent issued a press release
describing the Parent's potential interest in acquiring the Company.
From January 22, 1996 through January 29, 1996, Messrs. Cloward and Staker
and Messrs. DiPasqua and Hubbard toured certain of the Company's franchised
Retail Stores and warehouses.
On February 2, 1996, Messrs. Cloward and DiPasqua had a telephone
conversation in which Mr. DiPasqua indicated that the Parent'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 with
Parent's personnel and advisors 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 the
Parent.
On February 15, 1996, the Board, including Messrs. Cloward and Adams, the
Investment Committee, Mr. Teigen, and representatives of PaineWebber, Holme
Roberts and Hopper and Kanouff met with representatives of the Parent. The
Parent presented an offer to the Investment Committee to acquire the Company's
outstanding stock and options for a combination of cash and stock. The package
presented by the Parent consisted of $11.25 cash and .288 shares of the Parent's
common stock valued by the Parent at $2.31 (assuming a market value of $8.00 per
share of the Parent's stock) in exchange for each share of the Company's Common
Stock. The Parent valued the total package at $13.56 per share prior to an
acquisition by the Parent and $15.00 per share post-acquisition, based upon the
assumption that the Parent's common stock would have an intrinsic value of at
least $13.00 per share following an acquisition by the Parent of the Company.
Following the presentation, the Investment Committee met to consider the offer.
The Board and advisors reconvened and, based upon the recommendation of the
Investment Committee, the Board, with Messrs. Cloward and Adams abstaining,
rejected the offer.
On February 26, 1996, the Investment Committee received a draft letter of
intent from Parent setting forth the general terms of a proposed merger,
including a price of $16.50 per share, subject to reductions, initially, for
expenses in excess of $1,300,000.
The Investment Committee met on February 28, 1996, with representatives of
Holme Roberts and PaineWebber. The Investment Committee instructed Holme Roberts
to negotiate certain terms of the letter of intent with respect to reimbursement
of expenses if the transaction did not proceed and with respect to certain
contingencies in the letter of intent.
On March 6, 1996, the Board met with representatives of PaineWebber and
Holme Roberts to discuss the status of the negotiations with Parent. They
discussed the effect of a downward adjustment of the $16.50 per share price for
expenses exceeding a specified amount and reviewed the status of transaction
expenses with Company management.
On March 8, 1996, members of the Investment Committee and Messrs. Siipola,
Mehlfeldt and Cloward, with representatives of Holme Roberts, participated in a
telephone conference with representatives of Parent and Parent's attorneys to
request that the $1,300,000 limitation on expenses and a $300,000 severance
agreement limitation proposed by Parent be changed to an aggregate limit for all
such matters of $1,900,000, and that certain obligations to reimburse Parent if
a definitive agreement were not signed be deleted.
On March 11, 1996, Parent submitted to the Company a proposed letter of
intent incorporating the requested changes. At the meeting on March 12, 1996,
with representatives of PaineWebber and Holme Roberts, the Investment Committee
reviewed the terms of the revised letter of intent with Parent and approved the
transaction in concept subject to approval of the Dealer Management Group of a
consent to the transaction and waiver of claims against the Company. At the
meeting on March 13, 1996, the Investment Committee and the Board, after
deciding to terminate the Dealer Management Group Merger Agreement, approved
entering into the letter of intent with Parent, with four directors affiliated
with the Dealer Management Group abstaining from voting. The Company and Parent
executed the letter of intent on March 14, 1996 and March 13, 1996,
respectively, with an effective date of March 13. 1996
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On April 11, 1996, the Investment Committee met and reviewed with Holme
Roberts the terms of a draft of the Merger Agreement. The Investment Committee
requested that certain modifications be made with respect to the termination
provisions of the agreement and considered whether to request an updated
fairness opinion from PaineWebber in connection with the Merger Agreement. The
Investment Committee had been advised that the cost of such an opinion might
reduce the Merger Consideration, because estimated expenses might exceed the
$1,900,000 maximum permitted amount. The Investment Committee discussed with
Messrs. Adams, Cloward, Mehlfeldt and Siipola developments in the retail tire
industry and the Company's financial performance since the date of the November
1995 Opinion of PaineWebber. They reported that the Company's performance had
not exceeded expectations for the 1995 fiscal year. In the third and fourth
quarter of 1995 the Company opened 10 new stores but closed seven existing
stores and had not experienced the gain in franchise stores which was part of
the Company's growth plan. They also advised that competitive pressures had
increased during the past several months with retail price discounting
continuing. The result was that the Company was experiencing difficulty in
maintaining margins. The Big O brand, which has produced the Company's highest
margins, experienced slower growth in 1995 than 1994. Additionally, management
reported that the Company's 5-year financial plan had not been updated for six
months, and if it were, it would be expected to result in a less favorable
outlook for the future of the Company. The Investment Committee determined that,
because the November 1995 Opinion was less than six months old and that because
of circumstances with respect to the Company and the industry as a whole, it
would not request a new fairness opinion. If the closing occurred after the
reporting of the Company's results for the second quarter of 1996, the
Investment Committee would reconsider whether it was appropriate to request an
additional fairness opinion. The Investment Committee noted that, under the
circumstances, the cost of the opinion would reduce the consideration payable to
the Company's stockholders.
On April 25, 1996, the Board met by telephone conference and reviewed a
revised draft of the Merger Agreement with representatives of Holme Roberts. The
Board approved the form of the Merger Agreement presented to the directors at
the meeting based on the recommendation of the Investment Committee and taking
into consideration the November 1995 Opinion of PaineWebber, subject to final
approval by the Executive Committee. The Board also approved certain amendments
to the Stockholders Rights Plan necessary to permit the signing of the Merger
Agreement and consummation of the Merger. Certain members of the Board abstained
from voting on the proposals based on the intention of Parent and certain
directors to continue as employees of the Company following the consummation of
the Merger and based on certain directors' existing relationships with current
franchisees of the Company. All other directors voted to approve the Merger
Agreement as indicated above.
On April 30, 1996, the Executive Committee met by telephone conference with
representatives of Holme Roberts and on May 1, 1996, members of the Investment
Committee participated in telephone conferences with the Parent and its
representatives to discuss final proposed language changes to the Merger
Agreement. The Executive Committee approved a revised form of the Merger
Agreement with such final language changes made on April 30, 1996, including a
provision that Purchaser may terminate the Merger Agreement before the Effective
Time if, among other things, the Company's expenses and certain other
transaction costs incurred since September 30, 1995, less the amount by which
the proposed aggregate Merger Consideration of $16.50 would be reduced as
determined at least three days before the date of this Proxy Statement
("Specified Transaction Expenses") exceed $1,900,000. On May 2, 1996, the
parties signed the Merger Agreement effective as of April 30, 1996. Prior to the
execution of the Merger Agreement, the Company and Interwest Transfer Co., Inc.
executed an amendment to the Stockholder Rights Plan effective as of April 30,
1996, to permit execution of the Merger Agreement.
Subsequent to April 30, 1996, the Company submitted to Parent information
with respect to the Specified Transaction Expenses incurred in connection with
the Merger. Such expenses totaled approximately $106,024 in excess of the
$1,900,000. Pursuant to the Merger Agreement, on June 3, 1996, the Merger
Consideration was adjusted downward in the aggregate amount of $106,024 of such
expenses and transaction costs to $16.47 per share. The Merger Consideration is
not subject to any further adjustments and the Parent may terminate the Merger
Agreement if Specified Transaction Expenses exceed $1,900,000. See "Description
of the Merger Agreement."
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 Messrs.
Adams and Cloward, who will have employment agreements with the Company, and
Messrs. Adams, Asher and Lallatin, who have interests in Retail Stores, all of
whom considered the terms and structure of the Merger but 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 and recommend that stockholders vote for the proposal
to approve the Merger Agreement. Included in the directors who voted for the
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recommendation were all of the directors who are not employees of the Company.
Each member of the Board has advised the Company that he intends to vote his
shares in favor of the adoption of the Merger Agreement at the Special Meeting
of Stockholders. On the Record Date the directors and members of their families
beneficially owned an aggregate of 109,170 outstanding shares (approximately
3.29% of the outstanding shares of the Common Stock) of Common Stock (not
including approximately 164,459 shares underlying outstanding options).
THE COMPANY'S 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 Parent 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 9.8% premium over the
$15.00 last reported sale price of the Common Stock on April 24, 1996. The book
value of the Company as of March 31, 1996, was approximately $11.53 per share.
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 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 Dealer Management Group Merger
Agreement, which provided for a $16.50 per share merger consideration, and the
Company through PaineWebber contacted approximately 17 prospective purchasers of
the Company. As of the date of this Proxy Statement, the Company has not
received any additional proposals.
OTHER TRANSACTIONS. The Investment Committee and the Board did not believe,
based upon the July 1995 analysis of PaineWebber and its own determination of
acceptable debt levels for the Company, that extraordinary dividends or share
repurchases would enhance stockholder value. The Board considered the advice of
PaineWebber with respect to various alternatives to enhance shareholder value
and PaineWebber's related presentation on July 21, 1995.
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, subject to the limitations
contained in their respective franchise agreements, 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 the Merger
Consideration price per share.
FAIRNESS OPINION. On November 14, 1995, in connection with the Dealer
Management Group Merger Agreement, PaineWebber delivered the November 1995
Opinion to the effect that, as of the date of such opinion, the payment of a
cash price of $16.50 per share to the holders of the Common Stock was fair from
a financial point of view. The Board and the Investment Committee considered the
lapse of time between the delivery of the November 1995 Opinion and the date of
the Board's and the Investment Committee's recommendation (which is made as of
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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 November 1995 Opinion weight in determining to make their
recommendation because they believed that there had not been any material
favorable changes in the underlying business or assets of the Company or its
prospects since the date of the November 1995 Opinion, and they were unaware of
any trends in the retail tire industry as a whole which would indicate that the
prospects for the Company were materially different from what they had been six
months before. The Board and the Investment Committee were not aware of any
reason why they could not continue to consider the November 1995 Opinion. Nevada
Revised Statute 78.138(2) provides that in performing their duties, directors
and officers are entitled to rely on information, opinions, reports or
statements that are prepared or presented by counsel, public accountants or
other persons as to matters reasonably believed to be within the presenter's
professional competence. A director is not allowed to rely if such director has
knowledge concerning the matter in question that would cause reliance thereon to
be unwarranted. This statute is a codification of an element of the Nevada
"business judgment rule" which insulates directors from liability for decisions
in good faith and in accord with their duty of loyalty and duty of care. The
Board and the Investment Committee have no knowledge that would lead them to
believe their consideration of the November 1995 Opinion would be unwarranted.
In the absence of such knowledge, the Board and the Investment Committee in good
faith believed that decisions made on the basis of the November 1995 Opinion
would be considered by Nevada courts within the scope of protection of the
Nevada business judgment rule.
The Board did not request PaineWebber to render a fairness opinion in
connection with the Merger because of the cost involved. Moreover, the Board and
the Investment Committee do not believe that the $0.03 per share difference
between the initial amount of the Merger Consideration and the adjusted Merger
Consideration is material to the fairness of the Merger Consideration.
The Investment Committee and the Board of Directors have not assigned
relative weights to the factors described above.
OPINION OF FINANCIAL ADVISOR DELIVERED IN CONNECTION WITH DEALER MANAGEMENT
GROUP MERGER AGREEMENT
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. PaineWebber has consented to the inclusion of the November 1995
Opinion in 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 the November 1995 Opinion.
The Company retained PaineWebber as financial advisor to the Investment
Committee with respect to the Dealer Management Group Merger Agreement and to
render an opinion as to whether or not the payment of a cash price of $16.50 per
share to the holders of Common Stock was fair, from a financial point of view,
to such holders (other than members of the acquisition group and related
parties).
ALTHOUGH THE INVESTMENT COMMITTEE CONSIDERED THE PAINEWEBBER OPINION IN
CONNECTION WITH ITS APPROVAL OF THE MERGER, SUCH OPINION RELATES TO A
TRANSACTION PROPOSED IN NOVEMBER 1995 THAT WAS NOT CONSUMMATED AND DOES NOT
RELATE TO THE MERGER.
ACCORDINGLY, THE COMPANY DOES NOT MAKE ANY RECOMMENDATION WHETHER OR NOT
STOCKHOLDERS SHOULD RELY ON SUCH OPINION AND SUGGESTS THAT EACH STOCKHOLDER
REVIEW THE OPINION BEFORE MAKING ANY DETERMINATION WHETHER TO RELY ON SUCH
OPINION. The Board and the Investment Committee believe that their consideration
of the November 1995 Opinion is based on the depth of their familiarity with (i)
the business of the Company, (ii) the retail tire industry, (iii) market
conditions, (iv) the Company's prospects, and other similar factors, gained
because of their close, continued association with the Company. Because of this
familiarity, the Board and the Investment Committee believe that they are able
to determine whether the November 1995 Opinion remains relevant based upon their
observations since it was rendered. See "Fairness Opinion" above. Because the
Company's stockholders to not have the same familiarity with the Company, the
Board and the Investment Committee believe that the November 1995 Opinion
provides stockholders with additional information which they may use in
evaluating the merits of the proposed Merger.
PAINEWEBBER HAS NOT BEEN REQUESTED TO, AND DID NOT ISSUE A FAIRNESS OPINION
RELATING TO THE MERGER AND HAS NOT UPDATED THE REVIEW AND OTHER PROCEDURES
FOLLOWED IN CONNECTION WITH THE RENDERING OF ITS NOVEMBER 1995 OPINION.
THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE NOVEMBER 1995
OPINION ARE DIFFERENT, AND COULD BE MATERIALLY DIFFERENT, FROM THE ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW THAT
WOULD HAVE BEEN UNDERTAKEN IF A FAIRNESS OPINION WERE TO BE RENDERED IN
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CONNECTION WITH THE MERGER. FOR EXAMPLE: (A) THE STOCK TRADING HISTORIES
CONSIDERED WOULD RELATE TO A DIFFERENT 52-WEEK PERIOD, (B) THE RELEVANT
MULTIPLES, REVENUES, NET INCOME AND RELATED RESULTS USED IN THE SELECTED
COMPARATIVE PUBLIC COMPANY ANALYSIS WOULD HAVE BEEN BASED ON RESULTS FROM
DIFFERENT TIME PERIODS, (C) THE DISCOUNTED CASH FLOW ANALYSIS WOULD HAVE BEEN
BASED ON AN UPDATED FINANCIAL FORECAST FOR THE COMPANY PROVIDED BY COMPANY
MANAGEMENT, AND (D) THE PREMIUMS PAID ANALYSIS WOULD HAVE BEEN BASED UPON
ADDITIONAL TRANSACTIONS, IF RELEVANT, THAT HAVE OCCURRED SUBSEQUENT TO NOVEMBER
1995. THERE CAN BE NO ASSURANCE THAT THE CONCLUSION OF THE NOVEMBER 1995 OPINION
WOULD REMAIN THE SAME AFTER MAKING SUCH ASSUMPTIONS, FOLLOWING SUCH PROCEDURES,
CONSIDERING SUCH MATTERS AND IMPOSING SUCH LIMITATIONS.
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, that the payment of a cash price of
$16.50 per share to the holders of Common Stock was fair from a financial point
of view. 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 render a fairness opinion in connection with, or to make any
recommendation as to the form or amount of consideration to be paid pursuant to,
the Merger Agreement.
In rendering the November 1995 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 Dealer Management Group Merger
Agreement and compared such terms with the financial terms of certain other
mergers and acquisitions which PaineWebber deemed relevant; (vii) reviewed the
Dealer Management Group Merger Agreement and a draft of the proxy statement
relating to the Dealer Management Group Merger Agreement 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 the November 1995 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 did not
independently verify 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
was based on the regulatory, economic, monetary and market conditions existing
on the date thereof.
PaineWebber's opinion was 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 any potential transactions or
business strategies discussed by the Board of Directors of the Company or the
Investment Committee as alternatives to the Merger or the decision of the Board
of Directors of the Company to proceed with the Merger.
PaineWebber assumed that there had been no material changes in the
Company's assets, financial condition, results of operations, business or
prospects since the date of the last financial statements made available to
PaineWebber prior to the date of its opinion. 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.
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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 the Parent
(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 EPS multiple of 7.6x for the
Comparative Companies.
PaineWebber applied the multiples of revenues, EBITDA, EBIT, net income,
book value, estimated 1995 EPS and estimated 1996 EPS calculated above to the
respective results of the Company which resulted in a range of possible equity
values for the Company based on the comparative company analysis of $11.87 to
$16.32 per fully diluted share of Common Stock. PaineWebber then applied a
control premium of 30%, based on the Retail Industry Transactions premium
described in "Special Factors -- Opinion of Financial Advisor --Premiums Paid
Analysis," to such valuation range to determine a range of possible equity
values assuming a control premium. Based on this analysis, PaineWebber derived a
range of possible equity values of $15.43 to $21.22 per fully diluted share of
Common Stock.
DISCOUNTED CASH FLOW ANALYSIS. A discounted cash flow analysis is a
traditional valuation methodology used to derive a valuation of a corporate
entity by capitalizing the estimated future earnings and calculating the
estimated future free cash flows of such corporate entity and discounting such
aggregated results back to the present. PaineWebber performed a discounted cash
flow analysis of the Company based on the fiscal 1995 to 2000 financial forecast
for the Company provided by the Company management (the "Financial Forecast").
Using the information set forth in the Financial Forecast, PaineWebber
calculated the estimated "free cash flow" based on projected unleveraged net
income adjusted for: (i) certain projected non-cash items (i.e., depreciation
and amortization); (ii) projected capital expenditures; and (iii) projected
non-cash working capital investment.
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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 $16.50 per share cash price 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 Dealer
Management Group 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 $16.50 per share cash price 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 $16.50 per share cash
price 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 $16.50 per share cash price over the closing stock price one
day, one week and four weeks prior to the Balboa 13-D Filing were 22.2%, 26.9%
and 22.2%, respectively. PaineWebber noted that the premiums set forth in (i)
above reflected the announcement of the $18.00 per share AKH offer and the
premiums set forth in (ii) and (iii) above were based on stock prices that
prevailed over 22 months prior to the date of its opinion.
PaineWebber compared the premiums calculated above with the historical
median premium paid in retail industry (as defined by Securities Data
Corporation ("SDC")) transactions announced between January 1, 1990, and
November 3, 1995 (the "Retail Industry Transactions"). PaineWebber determined,
based on information obtained from SDC, that the median of the premium of
offered price to closing stock price for the Retail Industry Transactions one
day, one week and four weeks prior to announcement of such transactions was
25.7%, 28.7% and 33.7%, respectively.
Pursuant to an engagement letter between the Company and PaineWebber,
PaineWebber has been paid fees of $850,000 by the Company. PaineWebber is also
being 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 and 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.
32
<PAGE>
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 the Parent. Current stockholders of the Company will no longer own
any interest in the Company. Such stockholders 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.
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 Parent 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. 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.
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%.
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
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations thereunder (the "HSR Act"), provide that acquisition transactions
such as the Merger may not be consummated unless certain information has been
furnished to the Antitrust Division of the United States Department of Justice
and the Federal Trade Commission and certain waiting period requirements have
been satisfied. The Company and the Parent filed information and material with
the Department of Justice and the Federal Trade Commission with respect to the
Merger on May 3, 1996, and early termination of the applicable waiting period
was granted on May 15, 1996. At any time before or after the consummation of the
Merger, the Department of Justice, the Federal Trade Commission or some other
person could seek to enjoin or rescind the Merger on antitrust grounds.
There are no other federal or state regulatory requirements that must be
complied with or remaining approvals that must be obtained in connection with
the Merger other than the approval of the Company's stockholders as required by
the Nevada Merger and Exchanges of Interest Law.
35
<PAGE>
EXPENSES OF THE MERGER
It is estimated by the Company that the expenses incurred by the Company in
connection with the Merger will be approximately $3,600,000 in the aggregate.
The aforementioned amount includes expenses incurred in connection with the
previously proposed merger pursuant to the Dealer Management Group Merger
Agreement. 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 May
17, 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.
Employee Stock Ownership Plan ("ESOP")
11755 East Peakview Avenue
Englewood, Colorado 80111 ......................... 496,185 14.95%
Balboa Investment Group, L.P.
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 .............. 309,500 9.33%
Maurice D. Sabbah, et al.
262 East Moorehead Street
P. O. Box 700
Burlington, North Carolina 27216 .................. 190,265(3) 5.73%
- -------------------
(1) Of the 496,185 shares of Common Stock in the ESOP, approximately
459,711 shares of Common Stock have been allocated to participants'
accounts and approximately 36,474 shares of Common Stock were not
allocated to participants' accounts as of the Record Date, but are
anticipated to be allocated prior to the Special Meeting. 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.
(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, 1993, the Company was notified
that these persons held these shares of Common Stock.
37
<PAGE>
</TABLE>
SECURITY OWNERSHIP OF THE COMPANY'S MANAGEMENT
The following table shows, as of May 17, 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 ..................... 55,109(2)(8)(9) 1.65%
Ronald D. Asher ................... 16,520(3)(8) *
Frank L. Carney ................... 1,780(8) *
Steven P. Cloward ................. 122,578(4(8)(9) 3.64%
Everett H. Johnston ............... 1,452(8) *
Robert K. Lallatin ................ 369(5) *
Horst K. Mehlfeldt ................ 4,522(8) *
John E. Siipola ................... 5,193(8) *
Ralph J. Weiger ................... 3,414(8) *
C. Thomas Wernholm ................ 19,589(6) *
Donald D. Flanders ................ -0- *
Dennis J. Fryer ................... 11,855(7)(9) *
Allen E. Jones .................... 17,016(7)(9) *
Ronald H. Lautzenheiser ........... 23,762(7)(9) *
Kelley A. O'Reilly ................ 6,183(7)(9) *
Gregory L. Roquet ................. 16,378(7)(9) *
Thomas L. Staker .................. 16,599(7)(9) *
Philip J. Teigen .................. 13,445(7)(8)(9) *
Bruce H. Ware ..................... 18,686(7)(8)(9) *
All Current Directors and
Executive Officers as
a Group (19 persons) ............ 354,452(2)(3)(4) 10.17%
(5)(6)(7)(8)(9)
- -------------------
* Percent of shares of Common Stock beneficially owned by this director or
officer 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 18,073 shares of Common
Stock that have been allocated or are expected to be 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 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 39,159 shares that have been allocated
or are expected to be 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 2,952 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 expected to be allocated to the following executive officers
who participate in the ESOP, over which shares these executive
officers will have sole voting power:
<CAPTION>
NAME NO. OF SHARES*
-------- -------------
<S> <C>
Dennis J. Fryer ........................ 7,628
Allen E. Jones ......................... 7,214
Ronald H. Lautzenheiser ................ 11,218
Kelley A. O'Reilly ..................... 4,118
Gregory L. Roquet ...................... 6,241
Thomas L. Staker ....................... 7,085
Philip J. Teigen ....................... 6,017
Bruce H. Ware .......................... 8,321
- -------------------
* 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:
<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
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
- -------------------
(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 directors and executive officers have
sole voting power, and includes shares of Common Stock underlying
presently exercisable options granted under the Long Term Incentive
Plan:
<CAPTION>
NAME NO. OF SHARES NO. OF OPTIONS
- ---- ------------- --------------
<S> <C> <C>
John B. Adams .......................... 7,552 23,251
Steven P. Cloward ...................... 11,370 34,655
Dennis J. Fryer ........................ 1,716 2,496
Everett H. Johnston .................... -0- 1,452
Allen E. Jones ......................... 1,716 7,180
Ronald H. Lautzenheiser ................ 3,495 9,049
Kelley A. O'Reilly ..................... 2,065 0
Gregory L. Roquet ...................... 1,907 8,230
Thomas L. Staker ....................... 4,479 5,035
Philip J. Teigen ....................... 1,634 4,961
Bruce H. Ware .......................... 1,764 7,899
- -------------------
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.
</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 ........................... 15 1/4 12 1/2
Second Quarter (through June 5, 1996) ... 16 1/8 14 1/4
</TABLE>
On May 31, 1995, June 6, 1995, March 13 1996 and May 2, 1996, the last days
the Common Stock traded prior to the public announcements that (i) the Company
had received a merger proposal at $16.50 per share of Common Stock from the
Dealer Management Group, (ii) the Investment Committee approved in principle the
$16.50 per share merger proposal from the Dealer Management Group, (iii) the
Company entered into a letter of intent with the Parent for the Merger and (iv)
the Company entered into the Merger Agreement providing for the Merger of
Purchaser into the Company at a consideration of $16.50 per share of Common
Stock, subject to downward adjustment for certain expenses of the Merger, the
closing sale prices of the shares of Common Stock (as reported on the NASDAQ
National Market System) were $13.75, $14.25, $13.81 and $15.25 respectively. The
closing sale price of the shares of Common Stock (as reported on the NASDAQ
National Market System) was $15.625 on June 5, 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 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 three (3) month periods ended March 31, 1996, and 1995,
and for, and as of the end of, each of the years in the five-year period ended
December 31, 1995, 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, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995, appearing in the Company's Annual Report on Form
10-K for the year ended December 31, 1995, 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>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
(in thousands except share information)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Operating revenues,
net .............................. $ 33,171 $ 29,153 $ 142,122 $ 127,678 $ 122,960 $ 119,799 $ 113,836
Income before income
taxes and
cumulative effect of
change in accounting
principle ........................ 1,105 498 2,724 4,641 3,280 4,766 3,139
Provision for income
tax .............................. 465 209 1,181 1,950 1,400 1,983 1,388
Income before
cumulative effect of
change in accounting
principle ........................ 640 289 1,543 2,691 1,880 2,783 1,751
Cumulative effect of
change in
accounting principle .............. -- -- -- -- 285 -- --
Net income ........................ 640 289 1,543 2,691 1,595 2,783 1,751
PER SHARE DATA(1):
Income before
cumulative effect
of change in
accounting principle ............. $ .19 $ .09 $ .46 $ .80 $ .55 $ .80 $ .50
Net income ........................ $ .19 $ .09 $ .46 $ .80 $ .47 $ .80 $ .50
Weighted average
shares outstanding (1) ........... 3,368,111 3,381,330 3,377,429 3,347,892 3,409,962 3,497,044 3,506,024
43
<PAGE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
---------------- ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
(in thousands, except per share amounts)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets(2) ................. $ 35,337 $ 33,153 $ 32,639 $ 35,887(3)$ 24,136 $ 29,494 $ 29,684
Total assets(2) ................... 66,262 70,735 63,394 61,968 56,607 57,679 57,111
Current liabilities(2) ............ 14,078 11,148 10,598 9,051 12,251 12,161 9,023
Long-term debt and
capital lease obliga-
tions, net of current
portion ........................... 12,593 22,144 13,860 15,906 11,037 9,359 14,648
ESOP obligations .................. 0 180 192 449 975 1,277 1,656
Other long-term
liabilities ....................... 1,321 1,428 1,337 1,433 856 692 852
Stockholders' equity .............. 38,269 35,835 37,407 35,129 31,488 34,190 30,932
- ------------------
(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) Amount for 1994 has been restated to reflect the reclassification of
Retail Stores under development.
The per share book values of the Common Stock on March 31, 1996, March 31,
1995, December 31, 1995, and December 31, 1994, were $11.53, $10.82, $11.27 and
$10.62, 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 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.
44
<PAGE>
TBC CORPORATION, a Delaware corporation (the "Parent"), is an independent
marketer and distributor of tires and other automotive aftermarket products. See
"Information Pertaining to the Parent and the Purchaser." The mailing address of
the principal executive offices of both the Parent and the Purchaser is 4770
Hickory Hill Road, P. O. Box 18342, Memphis, Tennessee 38181-0342, and their
telephone number is (901) 363-8030.
TBCO ACQUISITION, INC., 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 and the Purchaser."
DESCRIPTION OF THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MERGER AGREEMENT, THE FULL TEXT OF WHICH
(WITHOUT THE EXHIBITS 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 Articles
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 Purchaser as in effect immediately prior to the
Effective Time until thereafter amended, will be the Articles of Incorporation
and Bylaws of the Company. 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 treasury
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 will be made promptly after the Effective Time upon surrender by holders
of their certificates, together with the appropriate transmittal form, to the
Exchange Agent referred to below. See "The Merger Agreement -- Exchange of
Certificates." Any treasury shares will be cancelled. 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.
45
<PAGE>
The Company expects the Effective Time to occur on July 10, 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 will be required to
accept the Merger Consideration.
STOCK OPTIONS AND SARS. The Company is required by the Merger Agreement to
cancel immediately prior to the Effective Time each option to purchase shares of
Common Stock (collectively, the "Options") which have been granted under any
Company stock or compensation plan or arrangements. 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 $16.47 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. The Company
is not permitted to grant any additional Options. On or before the Effective
Time, the Company will cause all of its stock option plans to be terminated.
Under the Merger Agreement, prior to the Effective Time, the Company is required
to cancel and settle all agreements providing for stock appreciation rights. See
"Interest of Certain Persons in the Merger."
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 or pending proceeding which would prevent the consummation of
the Merger or seek damages with respect thereto; and (iii) receipt 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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<PAGE>
Parent and Purchaser having received, on terms satisfactory to them, financing
sufficient to consummate the Merger and to replace certain of the indebtedness
of the Company; (iv) cancellation and settlement of all Options and stock
appreciation rights; (v) redemption of the Rights; (vi) execution of employment
agreements between the Company and Messrs. Cloward, Adams and Staker; (vii)
receipt of an opinion of counsel to the Company with respect to certain matters
relating to the Company and the Merger; (viii) receipt of a letter from Deloitte
& Touche LLP, the Company's independent public accountants, with respect to the
interim financial statements of the Company; (ix) receipt of evidence of payment
by the Company of all expenses incurred in connection with the Stockholder
Proposal since 1992, the transactions contemplated by the Dealer Management
Group Merger Agreement, and the transactions contemplated by the Merger
Agreement; and (x) compliance with applicable Nevada law. 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."
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 certain other agreements,
instruments, the consents and approvals that must be obtained in connection with
the Merger, their organizational documents, 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 stockholders; (e) the existence
and status of material contracts, proprietary rights, properties and
environmental matters, (f) existence and status of employee benefit plans; and
(g) the payment of taxes.
CONDUCT OF BUSINESS PENDING MERGER. In the Merger Agreement, the Company
covenants and agrees that, prior to the Effective Time, unless the Parent and
the Purchaser otherwise agree 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 or joint ventures 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.
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The Company has also agreed that, unless the Parent and the Purchaser
otherwise agree in writing, neither the Company nor any of its subsidiaries or
joint ventures 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 or any assets or liabilities of any
subsidiary or joint venture, except in the ordinary course of business and
consistent with past practice; (v) adopt a plan of liquidation or resolutions
providing for the liquidation, dissolution, merger, consolidation or other
reorganization of the Company except the Merger; or (vi) 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, unless the Parent and the
Purchaser otherwise agree in writing, neither the Company nor any of its
subsidiaries or joint ventures 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 its capital stock or any other
equity securities, 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 or
pursuant to existing lending arrangements, 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;
(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 $25,000; (vi) take any action
involving possible expenditures, contingent liabilities or the acquisition or
disposition of assets other than the purchase or sale of inventory in the
ordinary course of business, in each case in excess of $25,000; or (vii)
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 and joint
ventures 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 the Company, each subsidiary of the Company and
their respective directors, officers, and authorized agents will not, and will
not authorize or direct any other person to, directly or indirectly, (i)
participate in discussions or negotiations with or provide any confidential
information regarding the Company to any person for the purpose of soliciting,
encouraging, or enabling any corporation, partnership, person, entity or "group"
(as that term is used in Section 13(d)(3) of the Exchange Act), including the
Company or any of its subsidiaries but excluding the Parent, the Purchaser or
any of their affiliates and excluding any group of which the Parent, the
Purchaser or any of their affiliates is a member ("Another Person"), to propose
an acquisition of any of the capital stock of the Company (other than pursuant
to the outstanding Options) or all or any substantial portion of the assets or
business of the Company (collectively, "Acquisition Proposal"), or (ii) solicit
from, encourage, negotiate with, or accept from Another Person an Acquisition
Proposal. Notwithstanding the foregoing, if the Board of Directors of the
Company, in the exercise of its fiduciary duties, makes a good faith
determination that the Board of Directors' failure to permit the Company to take
any such action would constitute a breach of its fiduciary duties (based as to
the legal issues involved on the written opinion of legal counsel), the Company
shall so advise the Parent and the Purchaser and, thereafter, the taking of any
such action shall not be a violation of the above prohibition.
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 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.
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If the Merger Agreement is terminated (A) by the Parent and the Purchaser
because of a breach of the Company's representations or warranties, because
certain conditions to the obligations of the Parent, the Purchaser and the
Company to consummate the Merger are not satisfied solely because the Company
has failed to fulfill the Company's obligations under the Merger Agreement,
because the Company provides confidential information to a third party who may
be interested in acquiring the Company, the Company announces its intention to
enter into another acquisition transaction, or another acquisition transaction
is commenced, or because the Specified Transaction Expenses exceed $1,900,000 or
(B) by the Company if the Board of Directors withdraws its recommendation to the
Company's stockholders to approve the Merger or changes its recommendation in a
manner adverse to Parent and Purchaser, and by April 30, 1997, (i) Another
Person shall have acquired or agreed to acquire all or a substantial portion of
the assets of the Company or consummated or agreed to consummate a merger or
consolidation with, or other acquisition of, the Company, (ii) Another Person
shall have acquired or agreed to acquire beneficial ownership (as defined in
Rule 13d-3 under the Exchange Act) of 35% or more of the shares of Common Stock
then outstanding, or (iii) a "change in control" of the Company involving
Another Person within the meaning of Item 1 of Form 8-K under the Securities
Exchange Act of 1934 shall have occurred, the Company must, within five (5)
business days after consummation of any transaction referred to in clauses (i),
(ii) or (iii) above, pay to the Parent and Purchaser (by transfer of same-day
funds to an account designated by the Parent 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 following paragraph; provided such
amount shall be payable by the Company with respect to any such transaction
referred to in clauses (i), (ii) and (iii) 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 equal to or in excess of $16.47 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 disinterested
members of the Board of Directors of the Company fails to make a good faith
determination that, to the stockholders of the Company from a financial point of
view, such transaction is not comparable to or more favorable than the Merger.
Also, with certain exceptions, if the Merger Agreement is terminated under
any of the circumstances described in (A) or (B) of the preceding paragraph, the
Company will, within five (5) business days after notice by the Purchaser to the
Company, reimburse the Parent and 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 Parent and the Purchaser are obligated to reimburse,
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and other fees and expenses incurred in connection with arranging financing for
the Merger, legal fees and expenses, appraisal fees, fees and expenses of
financial advisors and fees and expenses for accountants) incurred by the
Purchaser or the Parent, or on their behalf in connection with the preparation
or negotiation of the Merger Agreement or the transactions contemplated thereby
or otherwise incurred in contemplation of the Merger Agreement, provided that
the Company is not obligated to pay under this paragraph any additional amounts
under this paragraph if the Parent and the Purchaser have been paid by the
amount provided under the above paragraph. The Company has the right to review
all expense receipts (other than receipts which contain privileged or
confidential information).
MODIFICATION AND WAIVER. The Merger Agreement may be amended by action of
the Boards of Directors of the Company (including the Investment Committee), the
Purchaser and the Parent, set forth in an instrument in writing signed on behalf
of the Company, the Parent and the Purchaser, 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 Parent, 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 the Effective Time has not occurred by July
31, 1996, 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.
The Company may terminate the Merger Agreement for failure by the Parent or
the Purchaser to perform in any material respect any of its obligations under
the Merger Agreement, if the representations and warranties of the Parent and
the Purchaser set forth in the Merger Agreement are not true and correct in all
material respects prior to the Effective Time, if the Company's Board of
Directors, in the exercise of its fiduciary duty under the circumstances
described above, withdraws its recommendation to the stockholders of the Company
to adopt and approve the Merger or changes such recommendation in any manner
adverse to Parent and Purchaser, or if the Parent and the Purchaser shall not
have deposited the Merger Consideration with the Exchange Agent (as described
below) on the closing date of the Merger. The Purchaser may terminate the Merger
Agreement if the Company takes any action regarding an Acquisition Proposal as
described above, regardless of whether the taking of such action is permitted in
the exercise of the fiduciary duties of the Company's Board of Directors; if
there occurs, or the Company enters into or publicly announces its intention to
enter into an agreement with Another Person to cause to occur, a transaction of
the type described in clauses (i), (ii) or (iii) in the second paragraph under
"Fees and Expenses" described above, or Another Person shall have commenced or
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<PAGE>
publicly announced an intention to commence a tender or exchange offer for the
Company's Common Stock; if the Company fails to perform in any material respects
its obligations under the Merger Agreement or the representations and warranties
of the Company set forth in the Merger Agreement are not true and correct in all
material respects prior to the Effective Time; or if the Specified Transaction
Expenses exceed $1,900,000. Although the Company does not expect such expenses
to exceed $1,900,000, there can be no assurance thereof. 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 fees and 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. Promptly after the Effective Time, the First
National Bank of Boston, (the "Exchange Agent" as defined in the Merger
Agreement), 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 Merger Consideration. Until
surrendered with the letter of transmittal duly executed and completed, 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
and letter of transmittal duly executed and completed.
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INTEREST OF CERTAIN PERSONS IN THE MERGER
The Company entered into Stock Appreciation Rights Agreements (the "SAR
Agreements") with John E. Siipola, Horst K. Mehlfeldt and Steven P. Cloward, all
of whom are officers and directors of the Company, 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.
Each individual's right to exercise 16,662 of the units vested on August 16,
1995, and vest 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.
On April 11, 1996, the Board of the Company agreed that if the Merger is
consummated, Messrs. Siipola and Mehlfeldt will resign their positions with the
Company and will receive lump sum payments of $208,613 and $186,654,
respectively, rather than fifteen (15) months of severance pay in accordance
with the Company's previously adopted Executive Management Severance Pay Policy.
In addition, the Board of Directors of the Company agreed that the Company would
repurchase the 66,648 units under each of the SAR Agreements of Messrs. Siipola
and Mehlfeldt for a total amount of $174,951 each and that the Company would
continue to provide medical and dental insurance benefits to Messrs. Siipola and
Mehlfeldt and their eligible dependents for fifteen (15) months after the
Effective Time or until they obtain other employment, whichever is earlier.
Effective April 30, 1996, the Company and Messrs. Siipola and Mehlfeldt entered
into agreements regarding these matters and confirming that Messrs. Siipola and
Mehlfeldt would have their Options repurchased in accordance with the Merger
Agreement.
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.
On April 30, 1996, Parent entered into letter agreements with Messrs.
Cloward, Adams and Staker, respectively, providing, among other things, in
substance, that upon the merger of Purchaser into the Company, Parent will cause
the Company to enter into employment agreements with them. Each such agreement
will be for a period of three years, until June 30, 1999, subject to termination
by the Company on 30 days notice prior to a date one year after execution of the
agreements. Mr. Cloward will be employed as President and Chief Executive
Officer of the Company at an annual salary of $180,000 and will be paid a one
time transition bonus in the amount of $50,000. Mr. Adams will be employed as
Executive Vice President at an annual salary of $150,500. Mr. Staker will be
employed as Senior Vice President Operations at an annual salary of $129,500. In
addition, Messrs. Cloward, Adams and Staker are to participate in the Company's
Management By Objective incentive compensation plan, as it may be modified for
1996, and subsequent incentive compensation plans for future years, to
participate also in TBC's stock option plan, and to receive certain fringe
benefits.
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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, to the fullest extent
permitted by applicable law, 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 or officer 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.
INFORMATION PERTAINING TO THE PARENT
AND THE PURCHASER
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.
Parent is a Delaware corporation primarily engaged in the distribution of
tires and other automotive aftermarket products. The Parent's Common Stock is
traded on the Nasdaq National Market System under the symbol TBCC.
Purchaser is a Nevada corporation organized as a wholly-owned subsidiary of
Parent specifically for the purpose of effecting the Merger. It is not
anticipated that Purchaser will have any significant assets or liabilities
(other than its rights and liabilities under the Merger Agreement) or engage in
any activities other than those incidental to its formation, the Merger
Agreement, or the Merger.
The principal executive offices of Parent and Purchaser are located at 4770
Hickory Hill Road, P. O. Box 18342, Memphis, Tennessee 38181-0342, and their
telephone number is (901) 363-8030.
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SECURITY OWNERSHIP OF TBC IN COMPANY
As of June 10, 1996, TBC did not own any Common Stock of the Company.
Should TBC acquire any Common Stock prior to the Merger, the Merger Agreement
provides that such Common Stock would be cancelled at the Effective Time.
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, 1995, as amended;
(ii) the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996; and (iii) the Company's Current Report on Form 8-K dated March 18, 1996.
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.
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This Proxy Statement is accompanied by copies of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, as amended, and
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996. 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 other reports of the Company that
have been incorporated herein by reference. Requests for such copies should be
directed to Beth Hayne, Director, Investor Relations, at the Company at its
principal offices, 11755 East Peakview Avenue, Suite A, Englewood, Colorado
80011, or by telephone at (303) 790-2800. Such requests should be made by
June 27, 1996, 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
January 2, 1997.
By Order of the Board of Directors
Philip J. Teigen, Secretary
Englewood, Colorado
June 10, 1996
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PRELIMINARY COPY
PROXY
BIG O TIRES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 10, 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 the offices of Holme
Roberts & Owen LLC, Suite 4100, 1700 Lincoln Street, Denver, Colorado 80203, on
Wednesday, July 10, 1996, at 10:00 a.m., Mountain Daylight Time, and at all
adjournments thereof for the following purposes:
1. Approval of the Agreement and Plan of Merger dated as of April 30, 1996,
by and among the Company, TBC Corporation and TBCO Acquisition, Inc. and the
Merger of TBCO Acquisition, Inc. 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, and the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, as amended, and the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996.
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
57
AGREEMENT AND PLAN OF MERGER
by and among
TBC CORPORATION,
TBCO ACQUISITION, INC.,
and
BIG O TIRES, INC.
Dated as of April 30, 1996
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TABLE OF CONTENTS
ARTICLE I - THE MERGER...................................................... 2
1.1 The Merger..................................................... 2
1.2 Effects of the Merger.......................................... 2
1.3 Consummation of the Merger..................................... 2
1.4 Articles; Bylaws; Directors and Officers; Name................. 2
1.5 Conversion of Shares........................................... 3
1.6 Stock Options.................................................. 4
1.7 Adjustment of the Merger Consideration ........................ 4
1.8 Exchange of Certificates....................................... 5
1.9 Taking of Necessary Action; Further Action..................... 6
1.10 Certain Definitions ........................................... 6
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF PARENT AND
THE PURCHASER............................................... 8
2.1 Organization and Qualification................................. 8
2.2 Capitalization................................................. 9
2.3 Authorization; Binding Agreement............................... 9
2.4 Compliance..................................................... 9
2.5 Brokers and Finders........................................... 10
2.6 Proxy Statement............................................... 10
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 11
3.1 Subsidiaries, Joint Ventures, Organization and
Qualification.................................................. 11
3.2 Capitalization................................................ 12
3.3 Authorization; Binding Agreement............................... 13
3.4 Compliance..................................................... 14
3.5 Commission Filings............................................. 15
3.6 Changes........................................................ 15
3.7 Approval by Board of Directors
and Investment Committee....................................... 17
3.8 Prior Transaction Costs........................................ 17
3.9 Litigation..................................................... 17
3.10 Material Contracts............................................. 17
3.11 Proprietary Rights............................................. 19
3.12 Taxes.......................................................... 20
3.13 Employee Benefit Plans......................................... 22
3.14 Proxy Statement ............................................... 24
3.15 Compliance with Laws and Orders ............................... 25
3.16 Labor Matters ................................................. 26
3.17 Undisclosed Liabilities ....................................... 26
3.18 Title to Properties; Absence of Liens, Etc. ................... 26
3.19 Receivables; Inventory ........................................ 27
3.20 Insurance ..................................................... 27
3.21 Environmental Matters ......................................... 28
3.22 Disclosure ................................................... 29
ARTICLE IV - CONDUCT OF BUSINESS PENDING THE MERGER......................... 29
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ARTICLE V - ADDITIONAL AGREEMENTS........................................... 31
5.1 Proxy Statement.................................................... 31
5.2 Meeting of Stockholders of the Company ............................ 32
5.3 Cancellation of Stock Options and Stock
Appreciation Rights; Certain Employee Terminations................. 33
5.4 Fees and Expenses.................................................. 33
5.5 Further Assurances................................................. 35
5.6 No Solicitation.................................................... 36
5.7 Notification of Certain Matters.................................... 36
5.8 Access to Information.............................................. 37
5.9 Directors' Indemnification......................................... 37
ARTICLE VI - CONDITIONS..................................................... 38
6.1 Conditions to Obligation of Each Party to
Effect the Merger.................................................. 38
6.2 Additional Conditions to the Obligation of
the Parent and Purchaser to Effect the Merger ..................... 39
6.3 Additional Condition to the Obligation of
the Company to Effect the Merger .................................. 42
ARTICLE VII - CLOSING....................................................... 42
7.1 Time and Place..................................................... 42
7.2 Deliveries at the Closing.......................................... 42
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER............................ 43
8.1 Termination........................................................ 43
8.2 Effect of Termination.............................................. 44
8.3 Amendment.......................................................... 45
8.4 Waiver............................................................. 45
ARTICLE IX - GENERAL PROVISIONS ............................................ 45
9.1 Public Statements ................................................. 45
9.2 Notices ........................................................... 45
9.3 Interpretation .................................................... 47
9.4 Representations and Warranties .................................... 47
9.5 Headings .......................................................... 47
9.6 Successors and Assigns ............................................ 47
9.7 Counterparts ...................................................... 47
9.8 Miscellaneous ..................................................... 47
EXHIBIT A - Form of Indemnification Agreement
EXHIBIT B - Form of Opinion of Lionel Sawyer & Collins/Hopper
and Kanouff
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INDEX TO DEFINED TERMS
Defined Term Defined in Section
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Acquisition Proposal ................................. 5.6(a)
Agreement ............................................ Introduction
Another Person ....................................... 5.4(b)
Articles of Merger ................................... 1.3
BOTI ................................................. 1.10(a)
Certificates ......................................... 1.8(a)
Closing .............................................. 1.3
Closing Date ......................................... 7.1
Code ................................................. 3.12(e)
Commission ........................................... 1.10(a)
Company .............................................. Introduction
Constituent Entities ................................. 1.1
Corporation Law ...................................... Recitals
Current Financial Statements 3.5
Current Transactions ................................. 1.10(b)
Current Transaction Costs ............................ 1.10(f)
Disclosure Certificate ............................... 1.10(h)
Dissenting Shares .................................... 1.5(d)
Effective Time ....................................... 1.3
Employee Benefit Plans ............................... 3.13(a)
Environmental Law .................................... 3.21(a)
ERISA ................................................ 3.13(a)
ERISA Affiliate ...................................... 3.13(j)
Exchange Act ......................................... 2.4
Exchange Agent ....................................... 1.8(a)
Fairness Opinion .................................... 6.1(e)
Franchise Laws ....................................... 3.15(b)
Hart-Scott-Rodino Act ................................ 1.10(f)
Hazardous Substance .................................. 3.21(b)
Interested Parties ................................... 1.10(c)
IRS .................................................. 3.13(e)
Investment Committee ................................. Recitals
Joint Venture ........................................ 3.1(a)
Letter of Intent ..................................... 5.4(d)
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Mailing Date ......................................... 1.7(a)
Material Adverse Effect .............................. 3.1(b)
Material Contracts ................................... 3.10(b)
Merger ............................................... Recitals
Merger Consideration ................................. 1.5(a)
Merger Law ........................................... Recitals
Multiemployer Plan ................................... 3.13(b)
Options .............................................. 1.6
Option Plans ......................................... 1.6
Option Settlement Amount ............................. 1.6
Parent ............................................... Introduction
Payments ............................................. 1.10(d)
Pension Pan .......................................... 3.13(a)
Post-September 30 Transaction Expenses ............... 1.10(g)
Prior Merger Agreement ............................... 1.10(a)
Prior Transactions ................................... 1.10(a)
Prior Transaction Costs .............................. 1.10(e)
Proprietary Rights ................................... 3.11
Proxy Statement ...................................... 5.1(a)
Purchaser ............................................ Introduction
Real Property ........................................ 3.18(a)
Representatives ...................................... 5.8
Rights ............................................... 3.2(e)
Rights of Purchase ................................... 3.2(e)
SAR Agreements ....................................... 3.2(c)
SEC Filings .......................................... 3.5
Shares ............................................... 1.5(a)
Special Meeting ...................................... 5.2
Stock Appreciation Rights ............................ 3.2(c)
Subsidiary ........................................... 3.1(a)
Surviving Corporation ................................ 1.1
Taxes ................................................ 3.12(h)
Welfare Plan ......................................... 3.13(a)
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DISCLOSURE CERTIFICATE
CONTENTS
Description Section Reference
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Subsidiaries, Organization,
and Qualification ..................................... 3.1
Capitalization ........................................ 3.2
Compliance ............................................ 3.4
Changes ............................................... 3.6
Approval .............................................. 3.7
Prior Transaction Costs ............................... 3.8
Litigation ............................................ 3.9
Material Contracts .................................... 3.10
Proprietary Rights .................................... 3.11
Taxes ................................................. 3.12
Employee Benefit Plans ................................ 3.13
Compliance with Laws and Orders ....................... 3.15
Labor Matters ......................................... 3.16
Properties ............................................ 3.18
Insurance ............................................. 3.20
Environmental Matters ................................. 3.21
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of April 30,
1996, is among TBC Corporation, a Delaware corporation with principal executive
offices at 4770 Hickory Hill Road, Memphis, Tennessee 38141 ("Parent"), TBCO
Acquisition, Inc., a Nevada corporation and a wholly owned subsidiary of Parent,
with principal executive offices at 4770 Hickory Hill Road, Memphis, Tennessee
38141 (the "Purchaser"), and BIG O Tires, Inc., a Nevada corporation with
principal executive offices at 11755 East Peakview Avenue, Englewood, Colorado
80111 (the "Company").
RECITALS
A. The respective Boards of Directors of the Purchaser, Parent and the
Company have approved Parent's acquisition of the Company pursuant to the terms
of this Agreement.
B. A special committee appointed by the Board of Directors of the Company
and consisting of four directors who are not employed by the Company (the
"Investment Committee") has recommended that the Board of Directors of the
Company approve the merger of the Purchaser into the Company, in accordance with
the General Corporation Law of the State of Nevada (the "Corporation Law") and
the Merger and Exchanges of Interest Law of the State of Nevada (the "Merger
Law"), upon the terms and subject to the conditions set forth herein (the
"Merger"), and has determined that the Merger is in the best interests of and
fair to the stockholders of the Company.
C. The respective Boards of Directors of the Purchaser, Parent and the
Company have duly approved the Merger, and the Board of Directors of the Company
has resolved to recommend the Merger to the Company's stockholders.
AGREEMENT
This Agreement constitutes the Plan of Merger referred to in Section
92A.100 of the Merger Law.
In consideration of the premises and the mutual covenants herein contained
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Parent, the Purchaser and the Company hereby agree as
follows:
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ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3 hereof),
in accordance with this Agreement, the Corporation Law, and the Merger Law, the
Purchaser shall be merged with and into the Company, the separate existence of
the Purchaser (except as may be continued by operation of law) shall cease, and
the Company shall continue as the surviving corporation (the "Surviving
Corporation"). The Surviving Corporation is a corporation organized under the
laws of the State of Nevada whose address is 11755 East Peakview Avenue,
Englewood, Colorado 80111. The Company and the Purchaser are sometimes referred
to herein as the "Constituent Entities."
1.2 Effects of the Merger. The Merger shall have the effects set forth in
the Merger Law. As of the Effective Time, the Company shall be a wholly owned
subsidiary of Parent.
1.3 Consummation of the Merger. As soon as is practicable after the
satisfaction or waiver of the conditions set forth in Article VI hereof, the
parties hereto will cause the Merger to be consummated by filing with the
Secretary of State of the State of Nevada articles of merger in such form as
required by, and executed in accordance with, the relevant provisions of the
Corporation Law and the Merger Law (the "Articles of Merger") and take all such
further actions as may be required by law to make the Merger effective. The
Merger shall occur immediately upon the filing of the Articles of Merger with
the Secretary of State of the State of Nevada (the date and time of such filing
being referred to herein as the "Effective Time"). As contemplated by Section
92A.200 of the Merger Law, the Articles of Merger shall refer to this Agreement
for the procedure set forth in Section 1.8 below regarding the exchange of
certificates representing the Company's Common Stock. The closing of the Merger
and the transactions contemplated by this Agreement (the "Closing") shall take
place as specified in Article VII.
1.4 Articles; Bylaws; Directors and Officers; Name. At the Effective Time,
(a) the Articles of Incorporation of the Purchaser, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation of the
Surviving Corporation, until thereafter amended as provided by law, the Articles
of Incorporation of the Surviving Corporation shall be amended and restated
accordingly, and a statement to this effect shall be included in the Articles of
Merger; (b) the Bylaws of the Purchaser, as in effect immediately prior to the
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Effective Time, shall be the Bylaws of the Surviving Corporation, until
thereafter amended as provided by law; (c) the directors of the Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, until their successors are elected; (d) the officers of
the Purchaser shall be the initial officers of the Surviving Corporation, in
each case, until their successors are elected and qualified; and (e) the
corporate name of the Company immediately prior to the Effective Time shall be
the name of the Surviving Corporation.
1.5 Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the Purchaser, the Company, the Surviving
Corporation or the holders of any of the following securities:
(a) Each share of the Company's Common Stock, par value $0.10 per
share (the "Shares"), which is issued and outstanding immediately prior to the
Effective Time (other than (i) Dissenting Shares (as defined below in Section
1.5(d)), if any, and (ii) Shares held by, or which are under contract to be
acquired by Parent or the Purchaser) shall be cancelled and extinguished and be
converted into and become a right to receive from Parent a cash payment of
$16.50 per Share, without interest (which payment shall include $0.01 per share
for the redemption of the Rights, as defined in Section 3.2(e) hereof). Such per
share cash payment, which is hereinafter referred to as the "Merger
Consideration," shall be subject to reduction as provided in Section 1.7 hereof.
(b) Each Share which is issued and owned by the Company or by any
Subsidiary (as defined in Section 3.1(a) hereof) immediately prior to the
Effective Time shall be cancelled, and no payment shall be made with respect
thereto.
(c) Each share of Common Stock, par value $0.01 per share, of the
Purchaser issued and outstanding immediately prior to the Effective Time shall
be converted into and become one validly issued, fully paid and nonassessable
share of Common Stock, par value $0.10 per share, of the Surviving Corporation.
(d) Notwithstanding anything to the contrary in this Agreement, if
appraisal rights are available to holders of the Shares pursuant to Sections
92A.300-92A.500 of the Merger Law, each outstanding Share, the holder of which
has demanded and perfected his rights for appraisal of such Shares in accordance
with all of the requirements of the Merger Law and has not effectively withdrawn
or lost his right to such appraisal (the "Dissenting Shares"), shall not be
converted into the Merger Consideration, but shall be deposited with the
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Surviving Corporation (which is the "subject corporation" under Section 92A.440
of the Merger Law) and the holders of any Dissenting Shares shall be entitled
only to such rights as are granted by the Merger Law.
1.6 Stock Options. The Company shall have entered into binding agreements
with the holders of all options to purchase Shares (collectively, the "Options")
which have been granted and are then outstanding under any stock option plan or
other option arrangement of the Company (collectively, the "Option Plans"),
pursuant to which agreements the holders of such Options agree that the Options
shall be cancelled immediately prior to the Effective Time and settled by cash
payment to the holders to be mailed within three business days after the
Effective Time. The cash payment to the holder of each cancelled Option shall be
an amount equal to the excess, if any, of the Merger Consideration (which shall
be subject to reduction as provided in Section 1.7) over the per Share exercise
price of such Option, multiplied by the number of Shares for which such Option
was granted, regardless of whether such Option is then exercisable (the "Option
Settlement Amount"), less all deductions required by the respective Option Plan
and any income tax withholding required in connection therewith; provided,
however, that if the terms of any Option Plan or any Option allow such Option to
be cancelled for an amount less than the Option Settlement Amount, then the
Company shall cancel such Option for a cash payment of such lesser amount.
1.7 Adjustment of the Merger Consideration. (a) In the event that the
Company's Post-September 30 Transaction Expenses (as defined in 1.10(g) below)
exceed $1,900,000, the Merger Consideration shall be reduced by an amount equal
to the amount of such excess divided by the sum of the number of issued and
outstanding Shares on the date of this Agreement and the number of Shares
subject to Options outstanding on the date of this Agreement. Any reduction of
the Merger Consideration pursuant to this Section 1.7 shall be calculated not
later than three business days prior to the date the Company's definitive Proxy
Statement (as defined in Section 5.1(a) hereof) is first mailed to its
stockholders (the "Mailing Date"), and no further reductions pursuant to this
Section 1.7 shall thereafter be made.
(b) To enable the parties to determine whether any reduction of the
Merger Consideration is to be made pursuant to this Section 1.7, the Company
shall, no later than four business days prior to the Mailing Date, furnish to
Parent and Purchaser a true and complete list of all Post-September 30
Transaction Expenses known to the Company as of such date, together with (i) all
information then available to the Company with respect to any other
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Post-September 30 Transaction Expenses which the Company may incur or for which
any Interested Party (as defined in Section 1.10(c) hereof) has indicated an
intention to present a claim, and (ii) letters or other correspondence from each
Interested Party to whom any known Post-September 30 Transaction Expenses were
paid or are payable, which letters or other correspondence shall confirm the
amount thereof and that the Company has no other liability or obligation to such
Interested Party except as the Parent and Purchaser shall have consented to in
writing.
1.8 Exchange of Certificates. (a) From and after the Effective Time, a bank
or trust company to be designated by the Purchaser and approved by the
Investment Committee (the "Exchange Agent") shall act as exchange agent in
effecting the exchange of the Merger Consideration for certificates representing
Shares entitled to payment pursuant to Section 1.5 (the "Certificates"). As part
of the closing of the Merger, the Purchaser shall deposit with the Exchange
Agent an amount necessary to enable the Exchange Agent to exchange the Merger
Consideration for all Shares to be converted into Merger Consideration.
(b) Promptly after the Effective Time, the Exchange Agent shall mail
to each record holder of Shares as of the Effective Time a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass only upon proper delivery of the Certificates to
the Exchange Agent) and instructions for use in surrendering Certificates and
receiving the Merger Consideration therefor. Upon the surrender of each
Certificate, together with such letter of transmittal duly executed and
completed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor an amount equal to
the Merger Consideration multiplied by the number of Shares represented by such
Certificate, and such Certificate shall be cancelled. Until so surrendered and
exchanged, each Certificate shall represent solely the right to receive an
amount equal to the Merger Consideration multiplied by the number of Shares
represented by such Certificate. No interest shall be paid or accrued on the
Merger Consideration upon the surrender of the Certificates. If any Merger
Consideration is to be paid to a person other than the person in whose name the
Certificate surrendered in exchange therefor is registered, it shall be a
condition to such exchange that the person requesting such exchange shall pay to
the Exchange Agent any transfer or other taxes required by reason of the payment
of such Merger Consideration to a person other than that of the registered
holder of the Certificate surrendered, or such person shall establish to the
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satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of Shares for any Merger Consideration
delivered to a public official pursuant to applicable abandoned property,
escheat and similar laws.
(c) Promptly following the date which is 180 days after the Effective
Time, the Exchange Agent's duties shall terminate. Thereafter, each holder of a
Certificate may surrender the Certificate to the Surviving Corporation and
(subject to applicable abandoned property, escheat and similar laws) receive in
exchange therefor an amount equal to the Merger Consideration multiplied by the
number of Shares represented by such Certificate, without any interest thereon,
but shall have no greater rights against the Surviving Corporation than may be
accorded to general unsecured creditors of the Surviving Corporation.
(d) After the Effective Time, there shall be no transfers of any
Shares on the stock transfer books of the Surviving Corporation. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Exchange Agent, they shall be cancelled and exchanged for the applicable Merger
Consideration, as provided in this Article I.
1.9 Taking of Necessary Action; Further Action. The Purchaser and the
Company shall each take all such reasonable and lawful action as may be
necessary or appropriate in order to effectuate the Merger as promptly as
possible. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to and of all
assets, property, rights, privileges, powers, and franchises of either of the
Constituent Entities, the officers and directors of such corporations are fully
authorized in the name of their respective corporation or otherwise to take, and
shall take, all such lawful and necessary action.
1.10 Certain Definitions. As used in this Agreement:
(a) "Prior Transactions" shall mean and include any proposals made by
any stockholder of the Company since 1992; the transactions contemplated by the
Agreement and Plan of Merger, dated July 24, 1995, as amended (the "Prior Merger
Agreement"), among the Company and BOTI Acquisition Corp. and BOTI Holdings,
Inc. (collectively, "BOTI"); the financing commitments sought or obtained by any
person or entity in connection with the transactions contemplated by the Prior
Merger Agreement; and any other matters or events described under the heading
"Background and Reasons for the Merger" in the Company's preliminary proxy
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statement filed with the Securities and Exchange Commission (the "Commission")
on February 21, 1996 in connection with the transactions contemplated by the
Prior Merger Agreement.
(b) "Current Transactions" shall mean and include the discussions
between the Company and Parent occurring after December 11, 1995; the
negotiation and execution of the letter of intent between Parent and the
Company, dated March 13, 1996; the negotiation and execution of this Agreement;
and the consummation of the transactions contemplated hereby.
(c) "Interested Parties" shall mean and include each and every broker,
finder, investment banking firm, accounting firm, valuation company, law firm,
other consultant or adviser, bank or financial institution, printer or other
person or entity involved in, or providing services to the Company or any other
person or entity in connection with, any Prior Transaction or Current
Transaction. Interested Parties shall include, without limitation, BOTI, Big O
Tire Dealers of America, and each and every director, officer, stockholder, or
partner of any of them.
(d) "Payments" shall mean and include all amounts paid or payable for
or in connection with services rendered to the Company or any Interested Party
and shall include, without limitation, fees, commissions, costs, expenses, and
"topping," "breakup," or "bust-up" fees or similar payments or compensation.
(e) "Prior Transaction Costs" shall mean and include all Payments
which the Company has made or is obligated to make to any Interested Party in
connection with or arising out of any Prior Transaction or for which the Company
has reimbursed or agreed to reimburse any Interested Party in connection with or
arising out of any Prior Transaction.
(f) "Current Transaction Costs" shall mean and include all Payments
which the Company has made or is obligated to make to any Interested Party in
connection with or arising out of any Current Transaction or for which the
Company has reimbursed or agreed to reimburse any Interested Party in connection
with or arising out of any Current Transaction, other than filing fees (if any)
of the Company under the Hart-Scott- Rodino Antitrust Improvements Act of 1976
and the rules and regulations thereunder (the "Hart-Scott-Rodino Act") and the
costs of the accountant's letter described in Section 6.2(n) of this Agreement.
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(g) "Post-September 30 Transaction Expenses" shall mean the sum of (i)
all Prior Transaction Costs which were not reflected in the Company's financial
statements appearing in its Report on Form 10-Q for the quarter ended September
30, 1995 or had not been reflected in the Company's financial statements for
periods ended prior to September 30, 1995; (ii) all Current Transaction Costs;
and (iii) all amounts paid or payable by the Company or any Subsidiary to
Messrs. Siipola or Mehlfeldt with respect to the cancellation and settlement of
their SAR Agreements (as defined in Section 3.2(c) hereof) and with respect to
any severance or other obligation owing to them as a result of their employment
by the Company or any Subsidiary or the termination of that employment as
contemplated by Section 5.3(d), other than amounts paid in cancellation and
settlement of outstanding Options.
(h) "Disclosure Certificate" shall mean the certificate of the Company
of even date herewith which is being delivered simultaneously with the execution
and delivery of this Agreement. The Disclosure Certificate sets forth data
relevant to the Merger, in each case identified by the Section of this Agreement
to which the same pertains. The Disclosure Certificate is signed on behalf of
the Company, and individually, by John E. Siipola, Horst K. Mehlfeldt and Steven
P. Cloward, who are all of the members of the Office of Chief Executive Officer
of the Company, and by John B. Adams, Chief Financial Officer of the Company,
provided that each such officer shall have no liability to Parent and Purchaser
after the Closing except as provided in Section 6.2(m) hereof. The Disclosure
Certificate constitutes a part of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Each of Parent and the Purchaser represents and warrants to the Company as
follows (i) as of the date of this Agreement and (ii) as of the time of the
Closing (as defined in Section 7.1) with the same force and effect as if such
representations and warranties were made at and as of the time of the Closing:
2.1 Organization and Qualification. Each of Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and has the requisite corporate power and
authority to carry on its business as now being conducted. Each of Parent and
the Purchaser is duly qualified as a foreign corporation to do business, and is
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in good standing, in each jurisdiction where the character of its properties,
owned or leased, or the nature of its activities makes such qualification
necessary, except for failures to be so qualified or in good standing which
would not, in the aggregate, have a material adverse effect on Parent or the
Purchaser. Each of Parent and the Purchaser has delivered to the Company
complete and correct copies of their respective Certificate or Articles of
Incorporation and Bylaws, as in effect on the date hereof.
2.2 Capitalization. The authorized capital stock of the Purchaser consists
of 250,000 shares of Common Stock, par value $0.10 per share, 100 shares of
which are issued and outstanding. All issued and outstanding shares of
Purchaser's Common Stock are validly issued, fully paid, nonassessable and free
of preemptive rights, and are owned by Parent.
2.3 Authorization; Binding Agreement. Each of Parent and the Purchaser has
the requisite corporate power and authority to enter into this Agreement and to
perform its respective obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent and
the Purchaser and the consummation by Parent and the Purchaser of the
transactions contemplated hereby have been duly and validly authorized by all
necessary action of their respective Boards of Directors and stockholders, and
no other corporate proceeding on the part of Parent or the Purchaser is
necessary to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Parent and the Purchaser and constitutes a
legal, valid and binding obligation of Parent and the Purchaser, enforceable
against each of them in accordance with its terms.
2.4 Compliance. Neither the execution and delivery of this Agreement by
Parent or the Purchaser nor the consummation of the transactions contemplated
hereby nor compliance by Parent or the Purchaser with any of the provisions
hereof will (i) violate, conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Parent or the
Purchaser under, any of the terms, conditions or provisions of (x) the
Certificate or Articles of Incorporation or Bylaws of Parent or the Purchaser,
or (y) any material note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Parent or the
Purchaser is a party or to which it, or any of its properties or assets,
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may be subject, or (ii) subject to compliance with the statutes and regulations
referred to in the last sentence of this paragraph, violate any judgment,
ruling, order, writ, injunction, decree, statute, rule or regulation applicable
to Parent or the Purchaser or any of their respective properties or assets,
except in the case of each of clauses (i) and (ii) above, for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances, which, in the aggregate,
would not have a material adverse effect on the financial condition, business or
operations of Parent and the Purchaser and their subsidiaries taken as a whole,
or which are cured, waived or terminated prior to the Effective Time. Other than
in connection with or in compliance with the provisions of the Corporation Law,
the Merger Law, the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder (the "Exchange Act"), the "takeover" or "blue sky"
laws of various states, and the Hart- Scott-Rodino Act, no notice to, filing
with, or authorization, consent or approval of, any domestic or foreign public
body or authority is necessary for the consummation by Parent or the Purchaser
of the transactions contemplated by this Agreement.
2.5 Brokers and Finders. Neither Parent nor the Purchaser has engaged any
broker, finder or other intermediary which engagement would require the payment
of any brokerage, finder's or other similar fees or commissions by Parent or the
Purchaser in connection with this Agreement or the transactions contemplated
hereby.
2.6 Proxy Statement. None of the information supplied or to be supplied in
writing by Parent or Purchaser for inclusion or included or incorporated by
reference in (a) the Proxy Statement (as defined in Section 5.1(a) hereof),
including any amendment or supplement thereto, or (b) any other documents to be
filed with the Commission or any other governmental agency in connection with
the transactions contemplated hereby, will, at the respective time such
documents are filed, and at the time of the Special Meeting (as defined in
Section 5.2) or at the time of mailing of the Proxy Statement to the Company's
stockholders, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not false or misleading or necessary to correct any statement in any
earlier communication which has become false or misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser as follows (i)
as of the date of this Agreement and (ii) as of the time of the Closing with the
same force and effect as if such representations and warranties were made at and
as of the time of the Closing:
3.1 Subsidiaries, Joint Ventures, Organization, and Qualification. (a) Set
forth in the Disclosure Certificate is the name, jurisdiction of organization,
and percentage of ownership by the Company, of (i) each corporation (a
"Subsidiary") of which the Company owns, directly or indirectly, 50% or more of
the capital stock or other equity interests therein, the holders of which are
generally entitled to vote for the election of directors or other governing body
thereof; and (ii) each joint venture or other partnership in which the Company
or any Subsidiary holds, directly or indirectly, an equity interest (a "Joint
Venture"). Except as set forth in the Disclosure Certificate, the Company does
not, directly or indirectly, have any investment in or own any securities of any
corporation, business, enterprise, joint venture, partnership, entity, or
organization other than (i) its interests in the Subsidiaries and the Joint
Ventures listed in the Disclosure Certificate, or (ii) certificates of deposit,
commercial paper, or similar instruments.
(b) Each of the Company, the Subsidiaries, and the Joint Ventures is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has the requisite power and authority to
own, lease and operate its properties and assets and to carry on its business as
it is now being conducted. Each of the Company, the Subsidiaries, and the Joint
Ventures is duly qualified as a foreign corporation or partnership to do
business, and is in good standing, in the respective jurisdictions listed for
each in the Disclosure Certificate, which jurisdiction are the only
jurisdictions where the character of its properties owned or leased or the
nature of its activities makes such qualification necessary, except for failures
to be so qualified or in good standing which would not, in the aggregate, have a
material adverse effect on the condition (financial or otherwise), business,
operation or prospects of the Company, the Subsidiaries, and the interests of
the Company and the Subsidiaries in the Joint Ventures, all taken as a whole
("Material Adverse Effect").
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(c) The Company has heretofore made available, and will upon request
deliver, to Parent true and complete copies of the Certificate or Articles of
Incorporation and Bylaws of the Company and of each Subsidiary, all as currently
in effect. The respective minute books of the Company and each of the
Subsidiaries have been made available to Parent by the Company. Such minute
books contain accurate and complete records of all meetings and other corporate
actions of the respective stockholders and directors (and committees thereof).
The respective stock books maintained by the Company and each of the
Subsidiaries are complete and accurately disclose all issuances and transfers of
stock of the Company and each of the Subsidiaries.
3.2 Capitalization. (a) The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock, par value $0.10 per share. As of
the date of this Agreement, (i) 3,317,916 Shares were issued and outstanding;
(ii) 31,261 Shares were held in the treasuries of the Company and the
Subsidiaries; and (iii) 216,232 Shares are issuable upon the exercise of
outstanding Options heretofore granted under the Option Plans. All of the issued
and outstanding Shares were validly issued and are fully paid, nonassessable,
and free of preemptive rights. Since June 30, 1995, the Company has not issued
(i) any shares of Common Stock, except pursuant to the exercise of Options, or
(ii) any Options.
(b) Set forth on the Disclosure Certificate is a complete list of all
holders of Options, the number of Options held by each holder, the Option Plan
under which such Options were granted, the number of Shares subject thereto, per
share exercise prices, and the dates of grant and expiration. True and complete
copies of all Option Plans and any other agreements or instruments defining the
rights of holders of Options have been made available, and will upon request be
delivered, to Parent.
(c) Set forth on the Disclosure Certificate is a complete list of all
outstanding agreements or commitments of the Company or any Subsidiary ("SAR
Agreements") which entitle the holders thereof to receive payments based upon
the amount of appreciation occurring in the value of the Shares or any other
Subsidiary (collectively, "Stock Appreciation Rights"), together with the names
of the holders thereof, the number of Stock Appreciation Rights held by each
holder, the SAR Agreement under which such Stock Appreciation Rights were
granted, the number of Shares subject thereto, the base value per share
established under each SAR Agreement, and the dates of grant and expiration.
True and complete copies of all SAR Agreements and any other agreements or
instruments defining the rights of holders of any Stock Appreciation Rights have
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been made available, and will upon request be delivered, to Parent. All of the
SAR Agreements provide that any appreciation in value payable to the holders
thereof will be paid in cash, not in Shares or other equity securities of the
Company, and neither the Company nor any Subsidiary is a party to any agreement
which entitles any party to receive amounts payable thereunder in Shares or
other equity securities of the Company or any Subsidiary.
(d) Except as set forth in the Disclosure Certificate, all issued and
outstanding shares of capital stock of each of the Subsidiaries and the
interests of the Company and the Subsidiaries in the Joint Ventures are owned by
the Company or another wholly owned Subsidiary free and clear of all liens,
charges, encumbrances, claims and options of any nature.
(e) Except for rights outstanding pursuant to the Rights Agreement
dated as of August 26, 1994, between the Company and Interwest Transfer Co.,
Inc. as Rights Agent (the "Rights"), and except as set forth in the Disclosure
Certificate, there are no, and at the Effective Time there will be no, (i)
Shares or other equity securities of the Company outstanding other than the
Shares referred to in Section 3.2(a) and any Shares issued pursuant to the
Options described in Section 3.2(b), and no outstanding options, warrants,
rights to subscribe (including any preemptive rights), calls or commitments of
any character whatsoever to which the Company, any of its Subsidiaries, or any
of the Joint Ventures is a party or may be bound requiring the issuance or sale
of Shares, other equity securities of the Company or any of the Subsidiaries,
ownership interests in any of the Joint Ventures, or securities or rights
convertible into or exchangeable for such shares, other equity securities, or
ownership interests (collectively, "Rights of Purchase"); and (ii) contracts,
commitments, understandings or arrangements by which the Company, any of the
Subsidiaries, or any of the Joint Ventures is or may become bound (x) to issue,
sell or transfer any Right of Purchase or (y) which restrict the transfer of or
otherwise encumber any Shares, other than restrictions pursuant to securities
laws and restrictions in regard to 37,698 restricted Shares issued pursuant to
the Company's Long Term Incentive Plan.
3.3 Authorization; Binding Agreement. The Company has the requisite
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and, subject to stockholder approval, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of the Company, and except for the approval of the Merger by the
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Company's stockholders in accordance with the Corporation Law and the Merger
Law, no other corporate proceeding on the part of the Company is necessary to
authorize the execution, delivery and performance of this Agreement and the
transactions contemplated hereby. The Board of Directors of the Company has
taken all action necessary to cause the provisions of Sections 78.411 to 78.444
of the Corporation Law to be inapplicable to the Parent's acquisition of the
Shares pursuant to the Merger or any of the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
3.4 Compliance. Except as set forth in the Disclosure Certificate, neither
the execution and delivery of this Agreement by the Company, nor the
consummation of the transactions contemplated hereby, nor compliance by the
Company with any of the provisions hereof will (i) violate, conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of the Subsidiaries or Joint Ventures
under, any of the terms, conditions or provisions of (x) the Certificate or
Articles of Incorporation or Bylaws of the Company or any Subsidiary, or (y) any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company, any Subsidiary, or any
Joint Venture is a party or to which they or any of their respective properties
or assets may be subject, or (ii) subject to compliance with the statutes and
regulations referred to in the last sentence of this paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute or law, rule or
regulation applicable to the Company, the Subsidiaries, or the Joint Ventures,
or any of their respective properties or assets, except in the case of each of
clauses (i) and (ii) above, for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security interests, charges
or encumbrances which, in the aggregate, would not have a Material Adverse
Effect. Other than in connection with or in compliance with the provisions of
the Corporation Law, the Merger Law, the Exchange Act, the "takeover" or "blue
sky" laws of the various states, and the Hart-Scott- Rodino Act, no notice to,
filing with, or authorization, consent or approval of, any domestic or foreign
public body or authority is necessary for the consummation by the Company of the
transactions contemplated by this Agreement.
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3.5 Commission Filings. Since January 1, 1993, the Company has filed all
reports, registrations and statements, including amendments thereto, that the
Company was required to file with the Commission. The Company has made available
to the Parent and Purchaser the Company's (i) Annual Reports on Form 10- K for
the years ended December 31, 1993, December 31, 1994, and December 31, 1995, as
filed with the Commission, (ii) Quarterly Reports on Form 10-Q for the quarters
ended March 31, June 30, and September 30, 1995, (iii) proxy statements relating
to all of the Company's meetings of stockholders (whether annual or special)
since January 1, 1994, (iv) all other reports or registration statements filed
by the Company with the Commission since January 1, 1995, and (v) all amendments
and supplements to the foregoing (collectively, the "SEC Filings"). As of their
respective dates, the SEC Filings (including all exhibits and schedules thereto
and documents incorporated by reference therein) complied in all material
respects with all rules and regulations promulgated by the Commission and did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading.
The audited consolidated financial statements and unaudited consolidated interim
financial statements of the Company and the Subsidiaries included or
incorporated by reference in the SEC Filings, have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto),
and fairly present the consolidated assets, liabilities and financial position
of the Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and changes in financial position for
the periods then ended. The audited consolidated financial statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995 are
hereinafter referred to as the "Current Financial Statements."
3.6 Changes. Except as expressly contemplated by this Agreement or as
disclosed in the Disclosure Certificate, since December 31, 1995 the Company,
the Subsidiaries, and the Joint Ventures have carried on their respective
businesses in the ordinary and usual course consistent with their prior
practices, and none of the following has occurred:
(a) anything which has had, or would be reasonably likely to have, a
Material Adverse Effect;
(b) a change in accounting methods, principles or practices by the
Company materially affecting its assets, liabilities, or business or the
valuation thereof;
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(c) any damage, destruction or loss of any assets used in the business
of the Company or any of the Subsidiaries or Joint Ventures, which damage,
destruction or loss has had or would be reasonably likely to have a Material
Adverse Effect;
(d) any declaration, setting aside for payment or payment of dividends
or distributions, redemption, purchase or other acquisition by the Company or
any Subsidiary of any capital stock of the Company or any Subsidiary;
(e) any issuance or sale by the Company or any Subsidiary of any
capital stock of the Company or any Subsidiary;
(f) any issuance or grant of any Option, Stock Appreciation Right, or
other Right of Purchase with respect to the capital stock of the Company or any
Subsidiary or the equity of any Joint Venture which is not listed in the
Disclosure Certificate; or any agreement giving any holder the right to exercise
any Option or Stock Appreciation Right prior to the dates specified in the
original instrument creating the same;
(g) any sale, assignment, transfer, or other disposition by the
Company, any Subsidiary, or any Joint Venture of any of its properties or assets
having a book value of $25,000 or more, other than sales of inventory in the
ordinary course of business;
(h) any purchase or other acquisition by the Company, any Subsidiary,
or any Joint Venture of assets constituting any other line of business or any
properties or assets having a book value of $25,000 or more, other than the
purchase of inventory in the ordinary course of business;
(i) any increase in the rate of compensation of, or payment of any
bonus to, any director or officer or, except in the ordinary course of business
and in compliance with existing practice and procedure, any other employee, of
the Company or any Subsidiary not required under existing Employee Benefit Plans
(as defined in Section 3.13); any collateralization or funding of any Employee
Benefit Plan not previously collateralized or funded; or any termination or
material modification of any Employee Benefit Plan;
(j) any execution, termination, or material amendment or modification
of any Material Contract (as defined in Section 3.10) outside the ordinary
course of business;
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(k) any existing, pending, or threatened termination or cancellation
of or change in the business relationship of the Company, any Subsidiary, or
Joint Venture with any supplier or customer which would be reasonably likely to
have a Material Adverse Effect;
(l) any agreement by the Company, any Subsidiary, or any Joint Venture
to do any of the things described in the preceding clauses (a) through (k) other
than as expressly provided for herein.
3.7 Approval by Board of Directors and Investment Committee. The Board of
Directors of the Company and the Investment Committee each has duly and
unanimously, except as otherwise indicated in the Disclosure Certificate, (i)
approved and adopted this Agreement, the Merger and the other transactions
contemplated hereby on the material terms and conditions set forth herein (or,
in the case of the Investment Committee, has recommended that the Board of
Directors of the Company do so), (ii) determined that the Merger Consideration
is in the best interests of and fair to the Company's stockholders and (iii)
recommended that the Company's stockholders approve and adopt this Agreement and
the transactions contemplated hereby.
3.8 Prior Transaction Costs. Set forth in the Disclosure Certificate is a
complete description of all Prior Transaction Costs known to the Company on the
date hereof, together with the name of the Interested Party to whom the Payment
thereof has been made or is owing, and the amount of the same.
3.9 Litigation. Except as set forth in the Company's Form 10-K for the year
ended December 31, 1995 or in the Disclosure Certificate, there are no actions,
suits or proceedings pending or, to the best knowledge of the Company,
threatened against the Company or any of the Subsidiaries or Joint Ventures, nor
is the Company or any of the Subsidiaries or Joint Ventures subject to any
order, judgment or decree, except for individual matters in which the only
relief sought is damages from the Company, the Subsidiary, or the Joint Venture
which, in the aggregate, would not have a Material Adverse Effect.
3.10 Material Contracts. (a) Set forth in the Disclosure Certificate is a
complete list of all Material Contracts (as defined in Section 3.10(b)) of the
Company and its Subsidiaries and Joint Ventures in force and effect on the date
of this Agreement. The Company has made available, and will upon request
deliver, to Parent true and complete copies of all such Material Contracts and
will make available and upon request deliver to Parent true and complete copies
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of all MaterialContracts executed after the date of this Agreement. To the best
knowledge of the Company, except as set forth in the Disclosure Certificate, all
of the Material Contracts are valid, binding, and in full force and effect.
Neither the Company, any Subsidiary, nor any Joint Venture nor, to the best
knowledge of the Company, any other party thereto is in default under any
Material Contract, which default is reasonably likely to have, in the aggregate,
a Material Adverse Effect, and there has not occurred any event that with the
lapse of time or the giving of notice or both would constitute such a default.
Except as set forth in the Disclosure Certificate, the Company's execution and
delivery of this Agreement and the consummation of the Merger will not violate
or breach any Material Contract, will not place the Surviving Corporation in
breach of or default under any Material Contract, and do not require the consent
of any party to any Material Contract in order to avoid any such violation or
breach.
(b) As used in this Agreement, "Material Contracts" shall mean and
include all of the following which the Company or any Subsidiary or Joint
Venture is a party to, is bound or affected by, receives any benefits under, or
by which any property or assets of any of them may be bound: (i) all real
property leases; (ii) all leases of equipment having an original acquisition
cost in excess of $25,000; (iii) all franchise, dealer, or other distribution
agreements pursuant to which the Company or any Subsidiary or Joint Venture
sells or otherwise distributes its products or services or pursuant to which any
person sells or otherwise distributes products or services of the Company or any
Subsidiary or Joint Venture; (iv) all supply contracts or other such agreements
or understandings pursuant to which the Company or any Subsidiary or Joint
Venture purchased in its last fiscal year, or expects to purchase in this fiscal
year, in excess of $50,000 worth of products; (v) any agreement, arrangement, or
commitment which materially restricts the conduct of any line of business,
including without limitation, all standstill or noncompete agreements; (vi) any
contract, agreement or other arrangement (other than pursuant to the Employee
Benefit Plans, as defined in Section 3.13(a) hereof) providing for the
furnishing of services to or by, providing for the rental of real or personal
property to or from, or otherwise requiring payments to or from, any director,
officer, or one percent (1%) stockholder of the Company or any Subsidiary, any
family member of any such director, officer or stockholder, or any entity in
which any of the foregoing holds, directly or indirectly, a substantial
interest; (vii) any agreement, indenture or other instrument relating to the
borrowing of money by the Company or any Subsidiary or Joint Venture (other than
trade payables and instruments relating to transactions entered into in the
ordinary course of business); (viii) any agreement pursuant to which the
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Company or any Subsidiary or Joint Venture is obligated to lend money or make
advances, or has lent money or made advances which are still outstanding, to any
person (other than routine travel advances to any employee not to exceed $5,000
or deposits or advances in respect of products purchased in the ordinary course
of business); (ix) any agreement, arrangement, or commitment to indemnify or
exonerate from liability any Interested Party in connection with any Prior
Transaction or Current Transaction; (x) any other agreement, arrangement or
commitment to guarantee the obligations of or to indemnify or exonerate from
liability any person, including any Subsidiary or Joint Venture, or the
directors or officers of the Company or any Subsidiary (other than pursuant to
the Certificate or Articles of Incorporation or Bylaws of the Company or the
Subsidiary, or applicable law), or any partner or co-joint venturer; (xi) any
power of attorney presently in effect giving any person or entity the right to
act on behalf of the Company or any Subsidiary or Joint Venture; (xii) any
partnership or joint venture agreement to which the Company or any Subsidiary or
Joint Venture is a party; (xiii) any confidentiality or secrecy agreement to
which the Company or any Subsidiary or Joint Venture is a party; (xiv) any
consulting agreement to which the Company or any Subsidiary or Joint Venture is
a party; (xv) any other contract, commitment, agreement, or understanding,
whether written or oral, which involves more than $25,000 and is not terminable
without penalty upon not more than 90 days' notice; and (xvi) any other contract
or agreement that would be required to be filed as an exhibit to a Form 10-K
filed by the Company with the Commission.
3.11 Proprietary Rights. Set forth in the Disclosure Certificate is a
complete list of all patents, trademarks, trade names, and copyrights, and all
pending applications for any of the same, used in or necessary for the conduct
of the businesses of the Company or the Subsidiaries or Joint Ventures
(collectively, "Proprietary Rights"), together with a summary description of and
full information concerning the filing, registration, issuance, or licensing
thereof. Except as set forth in the Disclosure Certificate, the Company owns all
such Proprietary Rights, the use of the Proprietary Rights by the Company and
the Subsidiaries and Joint Ventures does not infringe upon the rights of any
other party, and no claim of such infringement is pending or, to the best
knowledge of the Company, threatened. No licenses, sublicenses, or agreements
with respect to the Proprietary Rights have been granted or entered into by the
Company or the Subsidiaries or Joint Ventures except as described in the
Disclosure Certificate. Except as set forth in the Disclosure Certificate, to
the best knowledge of the Company, no third party is infringing upon any of the
Proprietary Rights.
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3.12 Taxes. (a) Except as set forth in the Disclosure Certificate, the
Company and each of the Subsidiaries and Joint Ventures have, since December 31,
1990 (i) timely filed all returns, schedules and declarations (including
withholding and information returns) relating to Taxes (as defined in Section
3.12(h) hereof), required to be filed by any jurisdictions to which they are or
have been subject, all of which Tax returns, schedules and declarations are
complete, accurate and correct, (ii) paid in full all Taxes required to be paid
in respect of the periods covered by such returns and made any deposits of Tax
required by such taxing authorities, (iii) fully accrued on the Company's
financial statements or, in the case of the Joint Ventures, on the Joint
Venture's financial statements, all Taxes for any prior period that are not yet
due, the information set forth on such financial statements being accurate and
correct, and (iv) made timely payments of the Taxes required to be deducted and
withheld from the wages paid to their respective employees or contractors. The
Company has made available, and will upon request deliver, to the Parent and
Purchaser true and complete copies of all Tax returns of the Company and each
Subsidiary and Joint Venture filed with any federal or state taxing authority
since December 31, 1990.
(b) Except as set forth in the Disclosure Certificate, since December
31, 1990, neither the Company nor any Subsidiary or Joint Venture has been
delinquent in the payment of any Tax or has requested any extension of time
within which to file any Tax returns that have not been filed, and no
deficiencies for any Tax have been claimed, proposed or assessed. Except as
disclosed in the Disclosure Certificate, neither the Company nor any Subsidiary
or Joint Venture has agreed to any currently effective extension of time for the
assessment or payment of, or has waived any applicable statute of limitations
with respect to, any Taxes payable by it.
(c) Except as set forth in the Disclosure Certificate, there are no
pending or, to the best of the Company's knowledge, threatened Tax audits,
investigations or claims for or relating to any liability in respect of Taxes,
and there are no matters under discussion with any governmental authorities with
respect to Taxes that, in the reasonable judgment of the Company, are likely to
result in a further Tax liability.
(d) The Disclosure Certificate sets forth, since December 31, 1990 (i)
those Tax years for which the Tax returns of the Company and the Subsidiaries
and Joint Ventures have been reviewed or audited by applicable federal, state,
local and foreign taxing authorities, (ii) those Tax years for which such Tax
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returns have received clearances or other indications of approval from
applicable federal, state, local and foreign taxing authorities; (iii) those Tax
years which remain subject to review or audit by applicable federal, state,
local or foreign taxing authorities. Except as set forth in the Disclosure
Certificate, since December 31, 1990, to the best knowledge of the Company, no
issue or issues have been raised in connection with any prior or pending review
or audit of any Tax return that have not been resolved or which the Company
reasonably believes may be expected to be raised in the future by such taxing
authorities in connection with the audit or review of the Tax returns of the
Company or any Subsidiary or Joint Venture.
(e) The Disclosure Certificate lists (i) all elections with respect to
Taxes that have been made by the Company or any Subsidiary, including without
limitation, any election under Section 341(f) of the Internal Revenue Code of
1986, as amended, and the rules and regulations thereunder (the "Code"); (ii)
the amount of any net operating loss, net capital loss, unused investment,
minimum, or other credit, or excess charitable contribution deduction of the
Company or any Subsidiary; (iii) all expenses that have been paid or accrued
through December 31, 1995 but have not yet been deducted for Tax purposes; and
(iv) the aggregate amount of net Section 1231 losses incurred since January 1,
1991 under the Code that has been deducted or is expected to be deducted by the
Company or any Subsidiary.
(f) Except as otherwise set forth on the Disclosure Certificate: (i)
the Company and each Subsidiary has not made any payments, is not obligated to
make any payments and is not a party to any agreement that could obligate it to
make any payments, that will not be deductible under Sections 280G or 162(m) of
the Code or such other compensation that must be capitalized under Section 263
of the Code; (ii) the Company and the Subsidiaries have not taken any position
on their federal income Tax returns (and are not considering taking a position
on a federal income Tax return required to be filed before or after the Closing
Date) that would subject them to an underpayment of federal income Tax within
the meaning of Section 6662 of the Code or any corresponding provision of state,
local, or foreign tax law; (iii) the Company and the Subsidiaries are not
parties to any Tax allocation or Tax sharing agreement; (iv) the Company and the
Subsidiaries have not agreed to make, nor are they required to make, any
adjustment under Section 481 of the Code by reason of a change in accounting
method, accounting period, or otherwise; (v) the Company and the Subsidiaries
have not engaged in a transfer of assets with a Subsidiary that would have
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resulted in gain pursuant to Section 311 of the Code, but which gain was treated
as a deferred intercompany gain pursuant to the Code; and (vi) the Company and
the Subsidiaries have not deferred any gain from the sale of assets pursuant to
Section 453 of the Code.
(g) After the date of this Agreement, neither the Company nor any
Subsidiary or Joint Venture shall make any election with respect to Taxes
without the prior written consent of the Parent.
(h) As used in this Agreement, "Taxes" shall mean all federal, state,
local, or foreign income, franchise, sales, use, excise, real and personal
property, transfer, employment, social security, unemployment, withholding, and
other taxes, assessments, charges, fees, or levies, and any interest or
penalties on any of the foregoing.
3.13 Employee Benefit Plans. (a) The Disclosure Certificate lists each (i)
employee pension benefit plan within the meaning of Section 3(2) of the Employee
Retirement Income Security Act of 1974 and the rules and regulations thereunder
("ERISA"), covered by Part 2 of Title I of ERISA ("Pension Plan") in which
employees of the Company or any of the Subsidiaries or Joint Ventures
participate, (ii) employee welfare benefit plan within the meaning of Section
3(1) of ERISA ("Welfare Plan") in which employees of the Company or any of the
Subsidiaries or Joint Ventures participate and (iii) each other employee stock
ownership, stock purchase, savings, severance, profit sharing, group insurance,
bonus, deferred compensation, stock option, severance pay, insurance, pension or
retirement plan or written agreement relating to employment or fringe benefits
for or of employees, officers or directors of the Company or any Subsidiary or
Joint Venture (together with the Pension Plans and Welfare Plans, the "Employee
Benefit Plans"). The Company has provided Purchaser with access to true and
complete copies of all Employee Benefit Plans, including amendments thereto.
Except as disclosed in the Disclosure Certificate, no individual will accrue or
receive additional benefits (other than additional accruals under the normal
formula in effect prior to and without regard to the transactions contemplated
hereby) as a direct result of the transactions contemplated by this Agreement.
(b) There are no qualified defined benefit plans (as defined in
Section 414(j) of the Code), voluntary employees beneficiary associations, as
described in Section 501(c)(9) of the Code, or multiemployer plans within the
meaning of Section 3(37) of ERISA ("Multiemployer Plans") in which employees of
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the Company, any Subsidiary, any Joint Venture, or any ERISA Affiliate (as
defined in Section 3.13(j) below) have participated or to which the Company or
any ERISA Affiliate currently has an obligation to contribute.
(c) Each Employee Benefit Plan has been maintained, operated and
administered in substantial compliance with its terms. None of the Employee
Benefit Plans has participated in, engaged in or been a party to any prohibited
transaction, as defined in Section 406 of ERISA or Section 4975 of the Code,
and, to the best knowledge of the Company, no officer, director or employee of
the Company or any Subsidiary or Joint Venture or fiduciary of any such Plan has
committed a material breach of any of the responsibilities or obligations
imposed upon fiduciaries by Title I of ERISA.
(d) Except as set forth in the Disclosure Certificate, there are no
claims, pending or overtly threatened, involving any Employee Benefit Plan by a
current or former employee (or beneficiary thereof) of the Company or any
Subsidiary or Joint Venture or a current or former ERISA Affiliate, nor is there
any reasonable basis to anticipate any claims involving any such Plans which
would likely be successfully maintained against the Company, the Subsidiaries,
or the Joint Ventures.
(e) Each Employee Benefit Plan currently complies, and has at all
relevant times complied, in all material respects with ERISA and the Code. There
are no violations of any material reporting and disclosure requirements with
respect to any Employee Benefit Plans and no such Plans have violated applicable
law, including but not limited to ERISA and the Code.
(f) The Company has delivered or made available to the Purchaser a
copy of the most recently filed IRS Form 5500, if applicable, and accountant's
opinion, if applicable, of the three most recent plan years for each Employee
Benefit Plan disclosed in the Disclosure Certificate. All information provided
by the Company or any Subsidiary or Joint Venture to any actuary in connection
with the preparation of such actuarial valuation report was true, correct and
complete in all material respects.
(g) The Company has delivered or made available to the Purchaser a
copy of (i) in the case of each Pension Plan described in the Disclosure
Certificate intended to qualify under Section 401(a) of the Code, the most
recent IRS letter as to the qualification of such Plan under Section 401(a) of
the Code; (ii) in the case of each Welfare Plan described in the Disclosure
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Certificate, the most recent IRS letter as to the tax exempt status of such Plan
under Section 501(c)(9) of the Code, if applicable; and (iii) the current
summary plan description, if applicable, for each Employee Benefit Plan
disclosed in the Disclosure Certificate and evidence that the same has been
filed with the U.S. Department of Labor.
(h) Except as set forth in the Disclosure Certificate, no current or
former Employee Benefit Plan provides benefits, including without limitation,
death or medical benefits (whether or not insured), with respect to current or
former employees of the Company or any Subsidiary or Joint Venture beyond their
retirement or other termination of service, other than (i) temporary coverage
mandated by applicable law, (ii) death benefits or retirement benefits under any
Pension Plan, (iii) deferred compensation benefits accrued as liabilities on the
books of the Company or the Subsidiary or Joint Venture, or (iv) benefits the
full cost of which are borne by the current or former employee (or his or her
beneficiary).
(i) With respect to each Employee Benefit Plan, all required
contributions have been made, except for current contributions not yet due and
payable, all of which have been accrued and are reflected on the Company's
financial statements, and all other employee benefit liabilities are reflected
on the Company's financial statements in a manner satisfying the requirements of
Financial Accounting Standards No. 87 and 88.
(j) For purposes of this Section 3.13, "ERISA Affiliate" shall mean
any company which, as of the relevant measuring date under ERISA, is a member of
a controlled group of corporations or trades or businesses (as defined in
Sections 414(b) and (c) of the Code) of which the Company or any Subsidiary or
Joint Venture is a member.
(k) With respect to each Employee Benefit Plan, (i) no event has
occurred and no condition exists that would subject the Company or the
Subsidiaries or Joint Ventures to any Tax under Section 4971 through 4980B of
the Code or to a fine or liability under Section 502 of ERISA; (ii) no provision
of such Plan prevents the Company or the Subsidiaries or Joint Ventures from
terminating or amending it; and (iii) all forms, documents and other materials
have been filed with the Commission or otherwise distributed as required by the
Securities Act of 1933 or any regulation promulgated thereunder or the Exchange
Act.
3.14 Proxy Statement. With the exception of the information supplied or to
be supplied in writing by Parent or Purchaser (as to which the Company makes no
representation or warranty), the Proxy Statement and any other documents to be
filed with the Commission or any other governmental agency in connection with
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the transactions contemplated hereby will not, at the respective time such
documents are filed, and at the time of the Special Meeting or at the time of
mailing of the Proxy Statement to the Company's stockholders, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not false or misleading or
necessary to correct any statement in any earlier communication which has become
false or misleading.
3.15 Compliance with Laws and Orders. (a) Except as disclosed in the
Disclosure Certificate, the businesses of the Company and the Subsidiaries and
Joint Ventures are not being conducted, and to the best knowledge of the
Company, have not been conducted since December 31, 1990, in violation of any
law, ordinance, regulation, judgment, order, decree, license or permit of any
governmental entity (including without limitation, federal and state franchise,
business opportunity, dealer protection, and similar laws and regulations
(collectively, "Franchise Laws"), zoning ordinances, building codes,
Environmental Laws (as defined in Section 3.21(b) below), wages and hours law,
and occupational health and safety laws and regulations), except for possible
violations which in the aggregate do not, and, insofar as reasonably can be
foreseen, in the future will not, have a Material Adverse Effect. Except as set
forth in the Disclosure Certificate, no investigation or review by any
governmental entity with respect to the Company or any Subsidiary or Joint
Venture is pending, or to the best knowledge of the Company, threatened, nor has
the Company received notice that any governmental entity intends to conduct the
same.
(b) Set forth in the Disclosure Certificate is a true and complete
list of all registrations, exemptions, and other filings under the Franchise
Laws of any and all states in which the Company or any of its Subsidiaries or
Joint Ventures has sold or solicited the sales of franchises, business
opportunities, or similar arrangements since January 1, 1995, together with the
status, effective date, and expiration date of such filings. The Company has
made available, and will upon request deliver, to Parent true and complete
copies of all offering circulars, disclosure documents, earnings claims, and any
other disclosure materials currently in use in connection with any and all
applicable Franchise Laws. To the best knowledge of the Company, neither the
Company nor any Subsidiary or Joint Venture violated any Franchise Law in
soliciting or entering into any Material Contract.
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(c) None of the Company, a Subsidiary, a Joint Venture or any
stockholder, director, officer, agent, employee or other person or entity
associated with or acting on behalf of any of the foregoing has used any
corporate funds for unlawful contributions, payments, gifts, entertainment or
other unlawful expenses relating to political activity or made any direct or
indirect unlawful payments to governmental officials or others.
3.16 Labor Matters. Except as shown on the Disclosure Certificate, there
are no controversies pending between the Company or any Subsidiary or Joint
Venture and any of their respective employees, other than routine individual
grievances which will not have a Material Adverse Effect. No employee of the
Company or any Subsidiary or Joint Venture is represented by any labor union
and, to the best knowledge of the Company, no labor union is attempting any such
representation.
3.17 Undisclosed Liabilities. (a) Except as and to the extent disclosed,
reflected or reserved against in the Current Financial Statements, the Company
and the Subsidiaries did not have, as of the respective dates thereof, any
material liabilities or obligations (whether known or unknown, accrued,
absolute, contingent or otherwise) of the type required to be reflected on a
balance sheet prepared in accordance with generally accepted accounting
principles or disclosed in the notes thereto, and there was no material loss
contingency, as defined in paragraph 1 of Statement of Financial Accounting
Standards No. 5, of the Company or any Subsidiary which was not so reflected or
disclosed as required by paragraphs 8 to 12, inclusive, of such Statement. Since
December 31, 1995, neither the Company nor any Subsidiary has incurred any such
material liability or obligation, and no such material loss contingency has
arisen.
(b) To the best knowledge of the Company, the warranty reserve set
forth on the most recent balance sheet included in the SEC Filings is adequate
to satisfy in full all present and future warranty claims with respect to
products or services sold by the Company and the Subsidiaries prior to the date
of such balance sheet.
3.18 Title to Properties; Absence of Liens, Etc. (a) Set forth in the
Disclosure Certificate is a complete list of all real property owned by the
Company or any Subsidiary or Joint Venture (collectively, the "Real Property").
(b) Except as disclosed in the Disclosure Certificate, the Company and
the Subsidiaries and Joint Ventures have good and marketable title to all the
Real Property and all of their other properties and assets, including without
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limitation, those assets and properties reflected in the Current Financial
Statements, free and clear of all liens, except (i) the lien of current taxes
not yet due and payable; (ii) properties and assets disposed of since the dates
of such Current Financial Statements in the ordinary course of business; (iii)
the lien of such secured indebtedness as is disclosed in the SEC Filings or the
Current Financial Statements; and (v) liens and imperfections of title which are
not substantial in character, amount or extent. The Company and the Subsidiaries
and Joint Ventures own, or have valid and enforceable rights as lessees to
possess and use, all properties and assets used in the conduct of their
respective businesses since January 1, 1995, other than any properties or assets
disposed of since such date in the ordinary course of business.
(c) Except as disclosed in the Disclosure Certificate, all buildings
and other improvements located on any Real Property or any real property leased
by the Company or any Subsidiary or Joint Venture conform in all material
respects to all applicable building codes, zoning ordinances, other statutes and
regulations, restrictive covenants, and deed restrictions applicable thereto.
3.19 Receivables; Inventory. (a) All of the accounts, notes and other
receivables which are reflected in the most recent balance sheet included in the
SEC Filings were acquired in the ordinary and regular course of business and,
except to the extent reserved against on such balance sheet, have been collected
in full, or, to the best knowledge of the Company, will be collected in full, in
the ordinary and regular course of business.
(b) All of the inventory reflected on the most recent balance sheet
included in the SEC Filings consisted or, to the best knowledge of the Company,
will consist, except as indicated thereon, of items of a quantity and quality
useable or saleable without discount in the ordinary and regular course of
business.
3.20 Insurance. Set forth in the Disclosure Certificate is a list
(including applicable deductible amounts and limitations) of all insurance
maintained by the Company or any Subsidiary or under which any of them is
entitled to coverage or benefits. True and complete copies of such insurance
policies have previously been made available, and will upon request be
delivered, to Parent and Purchaser. Except as set forth in the Disclosure
Certificate, to the best knowledge of the Company, the Company has in place
adequate insurance coverage with respect to all litigation pending against the
Company or any Subsidiary.
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3.21 Environmental Matters. (a) For purposes of this Agreement,
"Environmental Law" means any applicable federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity related to (i) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
ground water, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances (as defined in
Section 3.21(b) below). The term Environmental Law includes, without limitation:
the Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. ss.9601, et seq.; the Resource Conservation and Recovery Act,
as amended, 42 U.S. C. ss.6901, et seq.; the Clean Air Act, as amended, 42
U.S.C. ss.7401, et seq.; the Federal Water Pollution Control Act, as amended, 33
U.S. C. ss.1251, et seq.; the Toxic Substances Control Act, as amended, 15
U.S.C. ss.2601, et seq.; the Emergency Planning and Community Right to Know Act,
42 U.S.C. ss.11001, et seq.; the Safe Drinking Water Act, 42 U.S.C. ss.300f, et
seq.; all comparable state and local laws; and any common law (including without
limitation, common law that may impose strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Substance.
(b) As used in this Agreement, "Hazardous Substance" means any
substance presently listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated, under any Environmental
Law, whether by type or by quantity, including any material containing any such
substance as a component. Hazardous Substances include, without limitation,
petroleum or any derivative or by-product thereof, asbestos, radioactive
material, polychlorinated biphenyls, and battery acids.
(c) Except as set forth in the Disclosure Certificate, (i) neither the
Company nor any Subsidiary or Joint Venture nor any real property previously or
currently owned by any of them, has been or is in violation of, or liable for
remediation costs or any other damages or penalties under, any Environmental
Law, except for any such violations or liabilities which would not reasonably be
expected, in the aggregate, to have a Material Adverse Effect; and (ii) to the
best knowledge of the Company, there are no actions, suits, demands, notices,
claims, investigations or proceedings under any Environmental Law pending or
threatened against the Company or any Subsidiary or Joint Venture or relating to
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any real property previously or currently owned or occupied by the Company or
any Subsidiary or Joint Venture or at which Hazardous Substances alleged to have
been generated by the Company or any Subsidiary or Joint Venture were treated,
stored, or disposed, including without limitation, any notices, demand letters
or requests for information from any governmental entity making inquiries
relating to any Environmental Law.
(d) Set forth in the Disclosure Certificate is a complete list of all
reports, assessments, evaluations, surveys, or other such documents relating to
the Company's compliance with any Environmental Law, any Subsidiary's compliance
with any Environmental Law, any Joint Venture's compliance with any
Environmental Law, or Environmental Law matters affecting or involving any real
property previously or currently owned or occupied by the Company or any
Subsidiary or Joint Venture which, to the best knowledge of the Company, have
been prepared since December 31, 1990. The Company has made available, and will
upon request deliver, to Parent true and complete copies of all such reports,
assessments, evaluations, surveys, or other such documents in the Company's
possession.
3.22 Disclosure. All information and documents provided prior to the date
of this Agreement, and all information and documents subsequently provided, to
Parent or Purchaser or their Representatives (as defined in section 5.8) by or
on behalf of the Company or the Subsidiaries or Joint Ventures, to the best
knowledge of the Company, are or contain, or will be or will contain as to
subsequently provided information or documents, true, accurate and complete
information with respect to the subject matter thereof and are, or will be as to
subsequently provided information or documents, fully responsive to any specific
request made by or on behalf of Parent or Purchaser or their Representatives. In
furtherance and not in limitation of the foregoing, the representations and
warranties of the Company contained in this Agreement and the information set
forth in the Disclosure Certificate do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
The Company covenants and agrees that, prior to the Effective Time, unless
Parent and Purchaser shall otherwise agree in writing, or except as disclosed in
the Disclosure Certificate as of the date hereof or as otherwise expressly
contemplated by this Agreement:
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(a) Neither the Company nor any of the Subsidiaries or Joint Ventures
shall take any action except in the ordinary course of business and consistent
with past practices, and the Company shall use its best efforts to maintain and
preserve its business organization, franchisee network, assets, prospects,
employees and advantageous business relationships.
(b) Neither the Company nor any of the Subsidiaries or Joint Ventures
shall, directly or indirectly, do any of the following: (i) incur any expenses
in contemplation of a reorganization or restructuring of the Company; (ii) amend
its Certificate or 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 any stock or any assets or liabilities of any Subsidiary or Joint
Venture except in the ordinary course of business and consistent with past
practice; (v) adopt a plan of liquidation or resolutions providing for the
liquidation, dissolution, merger, consolidation or other reorganization of the
Company except the Merger; or (vi) authorize or propose any of the foregoing, or
enter into any contract, agreement, commitment or arrangement to do any of the
foregoing.
(c) Neither the Company nor any of the Subsidiaries or Joint Ventures
shall, directly or indirectly: (i) issue, sell, pledge, encumber or dispose of,
or authorize, propose or agree to the issuance, sale, pledge, encumbrance or
disposition of, any shares of its capital stock or any other equity securities
or any Rights of Purchase with respect thereto, except for Shares issuable upon
exercise of Options outstanding on the date hereof and which by their terms are
or become exercisable at or prior to the Effective Time; (ii) acquire (by
merger, consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or make any
material investment either by purchase of stock or securities, contributions to
capital, property transfer or purchase of any material amount of property or
assets, in any other individual or entity; (iii) other than as set forth in the
Disclosure Certificate or other than indebtedness incurred from borrowings made
pursuant to existing lending arrangements set forth in the Disclosure
Certificate, incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee, endorse (other than to a Company account) or
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otherwise as an accommodation become responsible for, the obligations of any
other individual or entity, or make any loans or advances, including without
limitation, advances to dealers or franchisees and guarantees of leases,
regardless of whether made in the ordinary course of business or 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 $25,000; (vi)
take any action involving possible expenditures, contingent liabilities or the
acquisition or disposition of assets other than the purchase or sale of
inventory in the ordinary course of business, in each case in excess of $25,000;
or (vii) authorize or propose any of the foregoing, or enter into or modify any
contract, agreement, commitment or arrangement to do any of the foregoing.
(d) Each of the Company and the Subsidiaries and Joint Ventures shall
use its best efforts to keep in place its current insurance policies, including
but not limited to director and officer liability insurance, which are material
(either individually or in the aggregate); and notwithstanding such efforts, if
any such policy is cancelled, the Company shall use its best efforts to replace
such policy or policies.
(e) Except in accordance with the provisions of this Article IV,
neither the Company nor any of the Subsidiaries or Joint Ventures shall enter
into any agreement or otherwise agree to do anything, which to the Company's
best knowledge at the time of such action, would make any representation or
warranty of the Company in this Agreement untrue or incorrect in any material
respect as of the date hereof and as of the Closing.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement. (a) As promptly as practicable after execution of this
Agreement, the Company shall prepare a proxy statement for use in connection
with the Special Meeting (the "Proxy Statement") and file a preliminary copy of
the same with the Commission. The Company will notify the Parent and Purchaser
promptly of the receipt of any comments from the Commission or its staff and of
any request by the Commission or its staff for amendments or supplements to the
Proxy Statement or for additional information and will supply the Parent and
Purchaser with copies of all correspondence between the Company or any of its
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representatives, on the one hand, and the Commission or its staff, on the other
hand, with respect to the Proxy Statement or the Merger. If at any time prior to
the Effective Time there shall occur any event that should be set forth in an
amendment of, or supplement to, the Proxy Statement, the Company will promptly
prepare and mail to its stockholders such an amendment or supplement. The
Company will not distribute or file the Proxy Statement, or any amendment
thereof or supplement thereto, to which the Parent and Purchaser reasonably
objects; provided that the Company shall have the right to distribute or file
any amendments or supplements required in the written opinion of counsel to the
Company to be made by applicable law. The Company shall take all reasonable
action required so that the Proxy Statement and all amendments and supplements
thereto will comply as to form in all material respects with the provisions of
the Exchange Act.
(b) The Company shall cause the definitive Proxy Statement to be
mailed to the Company's stockholders at the earliest practicable time.
5.2 Meeting of Stockholders of the Company. The Company shall promptly take
all action necessary, in accordance with the Corporation Law, the Merger Law,
and its Articles of Incorporation and Bylaws, to convene a special meeting of
the stockholders of the Company as promptly as practicable to consider and vote
upon the Merger pursuant to the terms of this Agreement (the "Special Meeting").
Neither the Company nor the Board of Directors shall take any action which would
make any approval of the Merger necessary, other than the approval of the
holders of Shares representing a majority of the outstanding Shares. The Proxy
Statement shall contain at all times up to and including the date of the Special
Meeting, the recommendation of the Board of Directors of the Company and of the
Investment Committee that the stockholders of the Company vote to adopt and
approve the Merger, subject to the right of the Investment Committee and the
Board of Directors to withdraw such recommendations if, by a majority vote,
either the Investment Committee or the Board of Directors in the exercise of its
fiduciary duties makes a good faith judgment, based as to the legal issues
involved on the written advice of legal counsel, that failure to withdraw such
recommendation would constitute a breach of its fiduciary duties. Subject to
such right of the Investment Committee and the Board of Directors to withdraw
its recommendation of the Merger in accordance with the exercise of its
fiduciary duties, the Company and the Board of Directors shall use their best
efforts to obtain the necessary approvals of the stockholders of the Company and
shall take all other action necessary or, in the reasonable judgment of the
Parent and Purchaser, helpful to secure the vote or consent of stockholders of
the Company.
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5.3 Cancellation of Stock Options and Stock Appreciation Rights; Certain
Employee Terminations. (a) The Company shall cancel all outstanding Options
issued pursuant to the Option Plans or otherwise to the extent required by
Section 1.6 hereof, and shall comply with all requirements regarding income tax
withholding in connection therewith.
(b) The Company shall cancel and settle all SAR Agreements effective
as of the Effective Date and shall comply with all requirements regarding income
tax withholding in connection therewith.
(c) The Company shall cause the Option Plans to be terminated
effective as of the Effective Time and shall establish to the reasonable
satisfaction of the Parent and Purchaser that no person or entity (whether or
not a participant in any Option Plan or SAR Agreement) has or will have any
right to acquire any interest in the Company, the Surviving Corporation or the
Purchaser as a result of the exercise of Options, Stock Appreciation Rights or
other Rights of Purchase on or after the Effective Time.
(d) Effective as of the Effective Time, the Company shall terminate
the employment of (i) John E. Siipola, as Chairman and a Member of the Office of
Chief Executive Officer of the Company, and (ii) Horst K. Mehlfeldt, as Vice
Chairman and Member of the Office of Chief Executive Officer of the Company.
5.4 Fees and Expenses. (a) Except as provided in Section 5.4(c), all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
(b) (i) If this Agreement is terminated (A) by Purchaser and the
Parent pursuant to Section 8.1(b)(ii) or 8.1(d)(iii), but limited only to a
termination based solely on a failure of the condition set forth in Section
6.2(b) or the failure by the Company to fulfill any of its obligations
hereunder, or (B) by the Company pursuant to Section 8.1(c)(iii), or (C) by
Purchaser and the Parent pursuant to Section 8.1(d)(i), 8.1(d)(ii), or
8.1(d)(iv), and (ii) within one year from the date of this Agreement (A) any
corporation, partnership, person, entity or "group" (as that term is used in
Section 13(d)(3) of the Exchange Act), including the Company or any of the
Subsidiaries but excluding Parent, the Purchaser or any of their affiliates and
excluding any group of which Parent, the Purchaser or any of their affiliates is
a member ("Another Person"), shall have acquired or agreed to acquire all or a
substantial portion of the assets of the Company or consummated or agreed to
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consummate a merger or consolidation with, or other acquisition of, the Company,
(B) Another Person shall have acquired or agreed to acquire beneficial ownership
(as defined in Rule 13d-3 under the Exchange Act) of 35% or more of the Shares
then outstanding, or (C) a "change in control," within the meaning of Item 1 of
Form 8-K under the Exchange Act, of the Company involving Another Person shall
have occurred, the Company shall, within five business days after consummation
of the transaction referred to in clause (ii) above, pay to Parent and Purchaser
(by transfer of same-day funds to an account designated by Parent for such
purpose) an amount equal to $1,000,000, less any funds paid by the Company to
the Parent or Purchaser pursuant to Section 5.4(c); provided such amount shall
be payable by the Company with respect to any such transaction only if (y) the
transaction provides for the Company or the holders of any Shares being
purchased in such transaction to receive consideration per Share having an
indicated value per Share which is equal to or greater than the Merger
Consideration (as the same may have been reduced as provided in Section 1.7), or
(z) the amount of consideration received or to be received in such transaction
is not readily determinable on a per Share basis and the Investment Committee or
another committee of disinterested members of the Board of Directors of the
Company fails to make a good faith determination that, to the stockholders of
the Company from a financial point of view, the transaction is not comparable to
the Merger or more favorable than the Merger.
(c) If this Agreement is terminated (i) by Purchaser and the Parent
pursuant to Section 8.1(b)(ii) or 8.1(d)(iii), but limited only to a termination
based solely on (A) a failure of the condition set forth in Section 6.2(b)
otherwise than by an act of God occurring subsequent to the date of this
Agreement, or (B) the failure by the Company to fulfill any of its obligations
hereunder, or (ii) by the Company pursuant to Section 8.1(c)(iii), or (iii) by
Purchaser and the Parent pursuant to Section 8.1(d)(i), 8.1(d)(ii), or
8.1(d)(iv), the Company will, within five business days after notice by the
Parent and the Purchaser to the Company, reimburse the Parent and 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 Parent or
Purchaser is obligated to reimburse, and other fees and expenses incurred in
connection with arranging financing for the Merger, legal fees and expenses,
appraisal fees, fees and expenses of financial advisors and fees and expenses of
accountants) incurred by the Purchaser or Parent or on their behalf in
connection with the preparation or negotiation of this Agreement or of the
transactions contemplated hereby or otherwise incurred in contemplation of this
Agreement, the Merger or the other transactions contemplated by this Agreement;
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provided that (y) the Company shall not be obligated to pay any additional
amounts under this Section 5.4(c) if Parent and Purchaser have been paid the
amount provided in Section 5.4(b) above, and (z) the Company shall have the
right to review all expense receipts (other than receipts which contain
privileged or confidential information).
(d) Notwithstanding anything to the contrary set forth in Section
5.4(c), the Company shall not be obligated to pay any amounts under Section
5.4(c) if this Agreement is terminated by the Purchaser and the Parent pursuant
to Section 8.1(d)(iii) as a result of the failure by Parent and Purchaser to (i)
approve the terms and conditions of either (y) any employment agreement
described in Section 6.2(g) pursuant to which the employee would receive a
salary and incentive bonus opportunities which are substantially similar to
those presently afforded to him as an employee of the Company, or (z) any
indemnification and release contemplated by Section 6.2(o) that contains
provisions which are not inconsistent with those set forth in paragraph 5 of the
letter of intent between Parent and the Company, dated March 13, 1996 and
thereafter amended (the "Letter of Intent"); or (ii) fulfill the condition set
forth in Section 6.2(c).
5.5 Further Assurances. Subject to the terms and conditions herein
provided, including those contained in Section 5.6, each of the parties hereto
agrees to use all reasonable efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, and to cooperate with each other in connection
with the foregoing, including, but not limited to, using reasonable efforts (a)
to obtain all necessary waivers, consents and approvals from other parties to
Material Contracts, (b) to obtain all necessary consents, approvals and
authorizations as are required to be obtained under any federal, state or
foreign law or regulations, (c) to defend all lawsuits or other legal
proceedings challenging this Agreement or the transactions contemplated hereby,
(d) to lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby, (e) to effect all necessary filings, including, but not
limited to, filings with the Commission, under the Hart-Scott-Rodino Act and
under the rules or regulations of any other governmental authorities, (f) to
fulfill all conditions to this Agreement and to any agreements related to the
financing contemplated by Section 6.2(c), and (g) to keep the other parties
reasonably apprised of the status of all such efforts.
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5.6 No Solicitation. (a) The Company, each Subsidiary, and their respective
directors, officers, and authorized agents shall not, and shall not authorize or
direct any other person to, directly or indirectly, (i) participate in
discussions or negotiations with or provide any confidential information
regarding the Company to any person for the purpose of soliciting, encouraging,
or enabling Another Person to propose an acquisition of any of the capital stock
of the Company (other than pursuant to the presently outstanding Options) or all
or any substantial portion of the assets or business of the Company
(collectively, an "Acquisition Proposal"), or (ii) solicit from, encourage,
negotiate with, or accept from Another Person an Acquisition Proposal.
(b) Notwithstanding the foregoing, if the Board of Directors of the
Company, in the exercise of its fiduciary duties, makes a good faith
determination that the Board of Directors' failure to permit the Company to take
any action described in Section 5.6(a) would constitute a breach of its
fiduciary duties (based as to the legal issues involved on the written opinion
of legal counsel), the Company shall so advise Parent and Purchaser and,
thereafter, the taking of any such action shall not be a violation of Section
5.6(a). In the event that the Company receives an Acquisition Proposal or any
communication with respect thereto from Another Person or in the event that the
Company takes any action described in Section 5.6(a), the Company shall
immediately give to Parent and Purchaser written notice of the substance of such
Acquisition Proposal or communication, or the nature and substance of the
information furnished or the action taken, as the case may be, and thereafter
keep Parent and Purchaser fully informed with respect thereto.
5.7 Notification of Certain Matters. The Company shall give prompt notice
to the Parent and Purchaser, and the Parent and Purchaser shall give prompt
notice to the Company, of (a) the occurrence, or failure to occur, of any event
which occurrence or failure would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time, (b) any material
failure of the Company or the Parent or Purchaser or any of their respective
affiliates, as the case may be, or of any of their respective officers,
directors, employees or agents, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, (c) any material claims, actions, proceedings or investigations
commenced or, to the best of its or their knowledge, threatened, involving or
affecting the Company or any of the Subsidiaries or Joint Ventures or any of
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their properties or assets, or, to the best of its or their knowledge, against
any employee, consultant, director, officer or stockholder of the Company or any
of the Subsidiaries or Joint Ventures, in his, her or its capacity as such and
(d) any material adverse change in the condition (financial or otherwise),
business or prospects of the Company and the Subsidiaries and Joint Ventures,
taken as a whole, or the occurrence of an event known to the Company which, so
far as reasonably can be foreseen at the time of its occurrence, would result in
any such change; provided, however, that no such notification shall affect the
representations or warranties of the parties or the conditions to the
obligations of the parties hereunder.
5.8 Access to Information. From the date hereof to the Effective Time, the
Company shall, and shall cause the Subsidiaries and Joint Ventures and the
officers, directors, employees and agents of the Company and each Subsidiary and
Joint Venture to, afford the officers, employees, advisors and agents of the
Parent or Purchaser and the banks or other financial institutions arranging or
providing the financing contemplated by Section 6.2(c) (collectively, the
"Representatives") complete access at all reasonable times to its officers,
employees, agents, properties, books, records and contracts, and shall furnish
the Parent, Purchaser, and the Representatives with such operating and other
data and information as they may reasonably request. Subject to the requirements
of law, the Parent and Purchaser shall, and shall use reasonable efforts to
cause the Representatives to, hold in confidence and not use all such nonpublic
information until such time as such information is otherwise publicly available
other than through a breach of this Section 5.8, and, if this Agreement is
terminated, the Parent and Purchaser will, and will use reasonable efforts to
cause the Representatives to, deliver to the Company all documents, work papers
and other material (including copies, extracts and summaries thereof) obtained
by or on behalf of any of them directly or indirectly from the Company as a
result of this Agreement or in connection herewith, whether so obtained before
or after the execution hereof. No investigation pursuant to this Section 5.8
shall affect any representations or warranties of the parties herein or the
conditions to the obligations of the parties hereto.
5.9 Directors' Indemnification. The Parent and the Surviving Corporation
will enter into Indemnification Agreements, substantially in the form set forth
in Exhibit A hereto (with such changes therein as the Company and the Purchaser
may agree) with each present director of the Company as of the Effective Time.
The Company shall, to the fullest extent permitted under applicable law and
regardless of whether the Merger becomes effective, provide like indemnification
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for each present and former director and officer of the Company or any of the
Subsidiaries, including, without limitation, each member of the Investment
Committee; provided, however, that such indemnification shall not be available
to those officers of the Company specified in Section 6.2(m) for liability
incurred as a result of such officer's knowledge that his Certificate under
Section 6.2(m) was false in any material respect when executed.
ARTICLE VI
CONDITIONS
6.1 Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver at or prior to the Closing of the following
conditions:
(a) Stockholder Approval. The Merger pursuant to the terms of this
Agreement shall have been approved and adopted by the requisite vote of the
stockholders of the Company.
(b) Hart-Scott-Rodino Act. Any waiting period (and any extension
thereof) applicable to the consummation of the Merger under the
Hart-Scott-Rodino Act shall have expired or been terminated.
(c) No Injunction or Proceedings. No preliminary or permanent
injunction or other order, decree or filing issued by a court of competent
jurisdiction or by a governmental agency or commission, nor any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, shall be in effect which materially adversely affects the Merger, and
no suit, action, or proceeding shall be pending by or with any court or other
governmental agency which seeks to have declared illegal or would make illegal
or otherwise prevent the consummation of the Merger or seeks damages with
respect thereto.
(d) Consents. The Company, Parent, and the Purchaser shall have
obtained such licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to Material
Contracts as are necessary for consummation of the Merger, excluding licenses,
permits, consents, approvals, authorizations, qualifications or orders which the
failure to obtain will not, in the aggregate, have a Material Adverse Effect.
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(e) Fairness Opinion(s). If requested by the Company prior to the
Mailing Date, the Company shall have received from PaineWebber Incorporated a
written opinion addressed to the Company for inclusion in the Proxy Statement
that the Merger Consideration is fair, from a financial point of view, to the
stockholders of the Company (the "Fairness Opinion"). Such Fairness Opinion, if
any, and the fairness opinion delivered to the Company by PaineWebber
Incorporated on November 14, 1995 shall not have been withdrawn.
6.2 Additional Conditions to the Obligation of the Parent and Purchaser to
Effect the Merger. The obligation of the Parent and Purchaser to effect the
Merger is also subject to the satisfaction at or prior to the Closing of the
following additional conditions, unless waived by the Parent and Purchaser:
(a) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations and agreements required to be
performed by it under this Agreement prior to the Effective Time.
(b) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement which are qualified as to materiality
shall be true and correct, and any such representations and warranties not so
qualified shall be true and correct in all material respects, at and as of the
time of the Closing as if made at and as of such time, except as expressly
contemplated by this Agreement.
(c) Financing. The Parent and Purchaser shall have obtained financing
or other sources of funds necessary to pay the aggregate Merger Consideration
and to replace certain of the existing indebtedness of the Company on terms
acceptable to Parent in its sole discretion.
(d) Cancellation of Stock Options and SARs. The Company shall have
cancelled and settled all Options and Stock Appreciation Rights as required by
Sections 1.6 and 5.3(a) and (b).
(e) Redemption of Rights. The Company shall have taken all necessary
actions to cause the Rights to be extinguished or redeemed effective at the
Effective Time.
(f) Compliance with the Nevada Business Combination Statute. The
Purchaser shall be satisfied in its sole discretion that the Board of Directors
of the Company shall have taken all actions required under the Corporation Law
to render the restrictions on combinations with interested stockholders of
Section 78.438 of such Law inapplicable to the Merger.
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(g) Employment Agreements. Employment agreements between the Company
and each of Messrs. Steven P. Cloward, John B. Adams, and Thomas L. Staker, upon
terms and conditions acceptable to Parent and Purchaser, shall be in full force
and effect. Such terms and conditions shall include, in the case of Mr. Cloward,
his agreement to the cancellation and settlement of his Stock Appreciation
Rights in consideration for the execution of the employment agreement.
(h) Post-September 30 Transaction Expenses. The Company shall have
furnished to Parent and Purchaser a true and complete list of the Company's
Post-September 30 Transaction Expenses, together with letters or other
correspondence from each Interested Party to whom such Expenses were paid or are
payable, which letters or other correspondence shall confirm the amount thereof
and that the Company has no other liability or obligation to such Interested
Party except as the Parent and Purchaser shall have consented to in writing.
(i) Legal Opinion(s). Parent and Purchaser shall have received an
opinion of Lionel Sawyer & Collins or Hopper and Kanouff, counsel to the
Company, dated the Closing Date and addressed to Parent and Purchaser,
substantially in the form of Exhibit B to this Agreement.
(j) Resignations and Releases. Parent and Purchaser shall have
received letters of resignation, effective as of the Closing, executed and
tendered by (i) each of the then incumbent directors of the Company and the
Subsidiaries, (ii) any non-employee officers of the Company and the
Subsidiaries, and (iii) Messrs. Siipola and Mehlfeldt, as required by Section
5.3(d) hereof. Each such resignation shall contain an acknowledgment that the
director or officer has been paid all amounts owing to him by the Company or any
Subsidiary in connection with his services as a director or officer and, in the
cases of Messrs. Siipola and Mehlfeldt, as an employee of the Company or any
Subsidiary (including without limitation, severance obligations), and shall
release the Company and the Subsidiaries from any further liability of any
nature whatsoever to the director, officer, and/or employee, except as otherwise
provided in Section 5.9 of this Agreement.
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(k) Dissenter's Rights. The number of Shares as to which dissenters'
rights shall have been properly asserted and not withdrawn or forfeited under
applicable law shall not exceed 5% of the then outstanding Shares.
(l) Transfer Agent Certificate. Parent shall have received a
certificate of the Company's transfer agent, dated the Closing Date, setting
forth the number of issued and outstanding Shares.
(m) Officers' Certificates. The Company shall have furnished to Parent
and Purchaser Certificates, signed on behalf of the Company by Messrs. Siipola,
Mehlfeldt and Cloward, as members of its Office of Chief Executive Officer, and
by Mr. Adams, its Chief Financial Officer, and by each of them individually,
that each such person has made reasonable inquiry and based thereon certifies
that, to the best of his knowledge and belief, the conditions set forth in
Sections 6.2(a) and (b) have been satisfied as of the Closing Date and that he
understands that Parent and Purchaser are relying thereon in consummating the
Merger. Each such officer shall have no liability to Parent or Purchaser after
the Closing except to the extent, if any, that he knew that a matter, as
represented, was false in any material respect when his Certificate was
delivered.
(n) Accountant's Update Letter. At the Closing, Parent and Purchaser
shall have received a letter from Deloitte & Touche, dated the Closing Date and
addressed to Parent and Purchaser, which sets forth the results of the
procedures conducted by Deloitte & Touche on the financial statements of the
Company in accordance with S.A.S. No. 72 and 76 with respect to the period from
the last day of the then most recently completed fiscal quarter for which the
Company has filed a Quarterly Report on Form 10-Q with the Commission, to a
specified date not more than five business days prior to the Effective Time.
(o) BOTI Release. The Company and BOTI shall have executed a full and
final settlement and release with respect to all matters between them. In
connection therewith, the Company may agree to indemnify BOTI and their
directors, officers, stockholders, and agents (collectively, the "Indemnified
Parties") in connection with any legal proceedings relating to or arising out of
the Prior Merger Agreement, its termination, or the proposed acquisition of the
Company by Parent which are brought against the Company by any stockholder of
the Company who is not an Indemnified Party and in which such Indemnified Party
is joined as a party, provided that the Indemnified Party has not engaged in any
wrongful act or omission in that connection, that the Company is given prompt
notice of the involvement of such Indemnified Party, and the Company has
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been given control of the representation of such Indemnified Party therein and
the full cooperation of such Indemnified Party. Such indemnification may not
extend to amounts or claims which would be Prior Transaction Costs or which
arise under any contract or agreement to which the Company is not a party. The
form of the indemnification shall have been approved by Parent prior to its
execution by the Company, and BOTI shall have agreed that all prior
indemnification obligations of the Company to BOTI and/or the Indemnified
Parties will be superseded by the indemnification contemplated by this Section.
The Company shall also obtain BOTI's agreement that Parent shall have no
liability of any nature whatsoever to BOTI in any event, including without
limitation, in the event that the Merger is not consummated.
(p) Other Documents. Parent and Purchaser shall have received such
other certificates and documents (customary in similar transactions) relating to
the satisfaction of the conditions to the obligations of Parent and Purchaser as
either of them or their counsel shall have reasonably requested.
(q) Approval of Documents. All certificates, agreements, instruments,
and other documents required by this Agreement to be delivered by the Company or
any Subsidiary to Parent and Purchaser at the Closing shall have been approved
by counsel for Parent and Purchaser, which approval shall not be unreasonably
withheld.
6.3 Additional Condition to the Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the condition that the Parent and Purchaser shall have made the deposit
described in Section 1.8(a).
ARTICLE VII
CLOSING
7.1 Time and Place. The Closing shall take place at the offices of Holme
Roberts & Owen LLC, 1700 Lincoln, Denver, Colorado, at 2:00 p.m., local time, as
soon as practicable after satisfaction or waiver of all of the conditions
contained in Article VI or at such other place or at such other time as Parent
and the Company may mutually agree (the date of the Closing being referred to
herein as the "Closing Date").
7.2 Deliveries at the Closing. At the Closing, Parent, Purchaser and the
Company shall cause the Articles of Merger to be filed in accordance with the
applicable provisions of the Merger Law and shall take any and all other lawful
actions and do all other lawful things called for by this Agreement or necessary
to cause the Merger to become effective and to consummate the transactions
contemplated by this Agreement.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether prior to or after approval of the Merger by the
stockholders of the Company:
(a) By mutual written consent of the Boards of Directors of the
Parent, the Purchaser, and the Company (which, in the case of the Company, shall
include the approval of the Investment Committee); or
(b) By the Company or the Parent and Purchaser if (i) the Effective
Time shall not have occurred on or before July 31, 1996, or (ii) any of the
conditions set forth in Section 6.1 hereof shall not be met at the Effective
Time; provided, however, that the right to terminate this Agreement under this
Section 8.1(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date.
(c) By the Company:
(i) If the Parent or Purchaser fails to perform in any material
respect any of its obligations under this Agreement;
(ii) If the representations and warranties of the Parent and
Purchaser set forth in this Agreement are not true and correct in any
material respect at any time prior to the Effective Time;
(iii) If the Company's Board of Directors, in the exercise of its
fiduciary duty under the circumstances described in Section 5.2, shall
withdraw its recommendation to the stockholders of the Company to
adopt and approve the Merger or change such recommendation in any
manner adverse to Parent and Purchaser;
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(iv) If, at least three business days prior to the Mailing Date,
the Parent and Purchaser shall have failed to deliver to the Company
copies of executed commitment letters relating to the financing
described in Section 6.2(c); or
(v) If the condition set forth in Section 6.3 hereof shall not be
satisfied at the Effective Time.
(d) By the Parent and Purchaser:
(i) If the Company takes any action described in Section 5.6(a),
regardless of whether Section 5.6(b) permits the taking of such action
in the exercise of the fiduciary duties of the Company's Board of
Directors;
(ii) If there occurs, or the Company enters into or publicly
announces its intention to enter into an agreement with Another Person
to cause to occur, a transaction of the type described in clauses (i),
(ii) or (iii) of Section 5.4(b) hereof, or Another Person shall have
commenced or publicly announced an intention to commence a tender or
exchange offer for the Company's Shares;
(iii) If any of the conditions set forth in Section 6.2 hereof
shall not be satisfied at the Effective Time; or
(iv) If the Company's Post-September 30 Transaction Expenses,
less the total amount by which the aggregate Merger Consideration
payable for all Shares was previously reduced pursuant to Section 1.7,
exceed $1,900,000.
8.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of the Company or
Parent and Purchaser or their affiliates except (i) as set forth in Sections 5.4
and 5.8, and (ii) that a party shall be liable for willful defaults of its
obligations hereunder. Notwithstanding the foregoing, if this Agreement is
terminated by the Company pursuant to Section 8.1(c)(iv) or (c)(v), neither
Parent nor Purchaser nor their affiliates shall be liable to the Company as a
result thereof if Parent and Purchaser were unable to obtain financing or other
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sources of funds necessary to pay the aggregate Merger Consideration and to
replace certain of the existing indebtedness of the Company on terms acceptable
to Parent in its sole discretion or, in the case of any termination pursuant to
Section 8.1(c)(iv), commitments for the same.
8.3 Amendment. This Agreement may not be amended except by action of the
Boards of Directors of each of the parties hereto (which, in the case of the
Company, shall include the approval of the Investment Committee) set forth in an
instrument in writing signed on behalf of each of the parties hereto; provided,
however, that after approval of the Merger by the stockholders of the Company,
no amendment may be made without the further approval of the stockholders of the
Company which would alter or change any of the terms or conditions of this
Agreement if any of the alterations or changes, alone or in the aggregate, would
materially adversely affect the stockholders of the Company.
8.4 Waiver. At any time prior to the Effective Time, whether before or
after approval of the Merger by stockholders of the Company, any party hereto,
by action taken by its Board of Directors (which, in the case of the Company,
shall include the approval of the Investment Committee), may (i) extend the time
for the performance of any of the obligations or other acts of any other party
hereto or (ii) subject to the provision contained in Section 8.3, waive
compliance with any of the agreements of any other party or with any conditions
to its own obligations. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party by a duly authorized officer.
ARTICLE IX
GENERAL PROVISIONS
9.1 Public Statements. The parties agree to consult with each other and
their respective counsel prior to issuing any press release or public
announcement with respect to this Agreement, the Merger, or the transactions
contemplated hereby. Each shall use all reasonable efforts to give to the other
parties sufficient opportunity to review any such press release or other public
announcement in advance of release.
9.2 Notices. All notices and other communications hereunder shall be in
writing, shall be delivered personally or sent by U.S. mail, telecopy, or
overnight delivery service, to
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the parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice, and shall be deemed given when received
by the party for whom intended:
(a) If to Parent or the Purchaser:
TBC Corporation
4770 Hickory Hill Drive
P.O. Box 18342
Memphis, Tennessee 38181-0342
Attn: Louis S. DiPasqua
Fax #: (901) 541-3639
with a copy to:
Thompson Hine & Flory P.L.L.
2000 Courthouse Plaza N.E.
P.O. Box 8801
Dayton, Ohio 45401-8801
Attn: Stanley A. Freedman, Esq.
Fax #: (513) 443-6635
(b) If to the Company:
Big O Tires, Inc.
11755 East Peakview Avenue
Englewood, Colorado 80111
Attn: John E. Siipola
Fax #: (303) 790-0225
with a copy to:
Holme Roberts & Owen
1700 Lincoln
Suite 4100
Denver, Colorado 80203
Attn: W. Dean Salter, Esq.
Fax #: (303) 866-0200
and
Hopper and Kanouff, P.C.
1610 Wynkoop Street, Suite 200
Denver, Colorado 80202
Attn: Thomas S. Smith, Esq.
Fax #: (303) 892-0457
The sending party shall have the burden of proving receipt.
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9.3 Interpretation. As used in this Agreement, (i) the masculine, feminine
and neuter genders and the plural and singular numbers shall be deemed to
include the others in all cases where they would so apply; and (ii) the phrase
"to the best knowledge" of any party shall mean to the knowledge of such party
after due and appropriate inquiry.
9.4 Representations and Warranties. The respective representations and
warranties of the Company and the Parent and Purchaser contained herein shall
expire with, and be terminated and extinguished upon, consummation of the
Merger, and thereafter neither the Company nor the Parent or the Purchaser nor
any officer, director, or employee thereof shall be under any liability
whatsoever with respect to any such representation or warranty, except the
persons named in Section 6.2(m) to the extent, if any, that the Certificate of
any such person described therein was known by such person to be false when it
was made or delivered to Parent or Purchaser.
9.5 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto.
9.7 Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same agreement.
9.8 Miscellaneous. This Agreement (including the Exhibits, the Disclosure
Certificate and instruments referred to herein): (i) constitutes the entire
agreement and supersedes all other prior agreements and undertakings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof, including without limitation, the Letter of Intent; (ii) except
for Section 5.9 hereof, is not intended to confer upon any person other than a
party hereto any rights or remedies hereunder; (iii) shall not be assigned,
except by the Purchaser or Parent to a directly or indirectly wholly owned
subsidiary of the Purchaser or Parent which, in a written instrument shall agree
to assume all of such party's obligations hereunder and be bound by all of the
terms and conditions of this Agreement; and (iv) shall be governed in all
respects, including validity, interpretation and effect, by the internal laws of
the State of Nevada, without giving effect to the principles of conflict of laws
thereof.
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IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their duly
authorized respective officers.
PARENT: TBC CORPORATION
By:/s/ Louis S. DiPasqua
Louis S. DiPasqua,
President and Chief
Executive Officer
PURCHASER: TBCO ACQUISITION, INC.
By:/s/ Louis S. DiPasqua
Louis S. DiPasqua,
President
COMPANY: BIG O TIRES, INC.
By:/s/ John E. Siipola
John E. Siipola,
Chairman and Member of the
Office of Chief Executive
Officer
And:/s/ Horst K. Mehlfeldt
Horst K. Mehlfeldt,
Vice Chairman and Member
of the Office of Chief
Executive Officer
And:/s/ Steven P. Cloward
Steven P. Cloward,
President and Member
of the Office of Chief
Executive Officer
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November 14, 1995
Board of Directors
Big O Tires, Inc.
11755 East Peakview Avenue
Englewood, Colorado 80111
Gentlemen:
Big O Tires, Inc. (the "Company") has entered into an Agreement and Plan of
Merger, dated as of July 24, 1995 (the "Agreement"), with BOTI Holdings, Inc.
("Parent") and BOTI Acquisition Corp. ("Purchaser"), a wholly owned subsidiary
of Parent. Pursuant to the Agreement, Purchaser will merge with and into the
Company (the "Merger") and, at the effective time of the Merger, each
outstanding share (other than Excluded Shares (as hereinafter defined)) of
common stock, par value $.10 per share, of the Company (the "Common Stock") will
be converted into the right to receive $16.50 in cash, without interest (the
"Merger Consideration"). "Excluded Shares" means shares of Common Stock that are
(i) held by certain members of the Company's senior management, (ii) held by
certain participants in the Company's Employee Stock Ownership Plan or (iii)
held by, or under contract to be acquired by: (A) the Company, Parent or
Purchaser, (B) their respective direct or indirect subsidiaries or (C) any
stockholder or affiliate of Parent or Purchaser.
You have asked us whether or not, in our opinion, the Merger Consideration
is fair, from a financial point of view, to the holders of Common Stock (other
than holders of Excluded Shares).
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed, among other public information, the Company's Annual Reports,
Forms 10-K and related financial information for the five fiscal years ended
December 31, 1994 and a draft of the Company's Form 10-Q and the related
unaudited financial information for the nine months ended September 30, 1995;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the Company,
furnished to us by the Company;
(3) Conducted discussions with members of senior management of the Company
concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Common Stock and compared such price and trading history with that of certain
other publicly traded companies which we deemed relevant;
(5) Compared the financial position and operating results of the Company
with those of certain other publicly traded companies which we deemed relevant;
(6) Reviewed the proposed financial terms of the Merger and compared such
terms with the financial terms of certain other mergers and acquisitions which
we deemed relevant;
(7) Reviewed the Agreement and a draft of the proxy statement relating to
the Merger (the "Proxy Statement") as proposed to be filed with the Securities
and Exchange Commission; and
(8) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we deemed
appropriate, including our assessment of general economic, market and monetary
conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information that was publicly available or supplied or otherwise
communicated to us by or on behalf of the Company, and we have not independently
verified such information. We have assumed that the financial forecasts examined
by us were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the management of the Company as to the
future performance of the Company. We have not undertaken, and have not been
provided with, an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company and have assumed that all
material liabilities (contingent or otherwise, known or unknown) of the Company
are as set forth in the Company's consolidated financial statements. We have, at
the request of the Company, solicited third party indications of interest with
respect to the acquisition of the Company. Our opinion is based on the
regulatory, economic, monetary and market conditions existing on the date
hereof.
Our opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder of the Company as to how any
such shareholder should vote with respect to the Merger. This opinion does not
address the relative merits of the Merger and any other potential transactions
or business strategies discussed by the Board of Directors of the Company or the
Investment Committee thereof as alternatives to the Merger or the decision of
the Board of Directors of the Company to proceed with the Merger.
This opinion has been prepared solely for the use of the Board of Directors
of the Company and shall not be reproduced, summarized, described or referred
to, or given to any other person or otherwise made public without the prior
written consent of PaineWebber Incorporated; provided, however, that this letter
may be reproduced in full in the Proxy Statement.
PaineWebber Incorporated is currently acting as financial advisor to the
Investment Committee in connection with the Merger and will receive a fee upon
delivery of this opinion and upon consummation of the Merger. We may provide
financial advisory or other investment banking services to the Company in the
future.
In the ordinary course of our business, we may trade the securities of the
Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold long or short positions in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Merger Consideration is fair, from a financial point
of view, to the holders of Common Stock (other than holders of Excluded Shares).
Very truly yours,
PAINEWEBBER INCORPORATED
/s/ PaineWebber Incorporated
