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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ______________.
Commission File Number: 1-8833
BIG O TIRES, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0392481
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
11755 East Peakview Avenue, Suite A
ENGLEWOOD, COLORADO 80111
(Address of Principal Executive Offices and Zip Code)
Registrant's Telephone Number, Including Area Code: (303) 790-2800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
$0.10 PAR VALUE COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the registrant's voting stock held as of March
26, 1996, by nonaffiliates of the registrant was $40,214,816.
As of March 26, 1996, the registrant had 3,317,840 shares of its $0.10 par
value common stock outstanding.
The information required by Part III hereof will be filed either as an
amendment to this Annual Report on Form 10-K or it will be filed with the
definitive Proxy Statement for the 1996 Annual Meeting of Shareholders.
Total Pages 213.
Exhibit Index Page 56.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
(a) (1) GENERAL. The primary business of Big O Tires, Inc. (the "Company")
is to franchise Big O retail stores ("Retail Stores") and supply Retail
Stores with tires and related automotive products. On a limited basis, the
Company engages in site selection and real estate development for new Retail
Stores and owns and operates Retail Stores. As used herein, the term Retail
Stores also includes the Company-owned Retail Stores unless a distinction is
warranted for clarification. Each independently owned corporation,
partnership and sole proprietorship that has entered into a Franchise
Agreement with the Company is hereinafter referred to as a "Franchisee" or
collectively as the "Franchisees."
As shown below, at January 31, 1996, the Company had 387 Retail Stores, 382
of which were franchised and 5 of which were Company-owned. The Company also
distributes its products at wholesale prices to 37 unaffiliated retail tire
stores in British Columbia, Canada (the "Canadian Licensees"), with which the
Company has a user agreement.
The Company sells to its Franchisees and Canadian Licensees an exclusive line
of premium private label Big O brand passenger, light truck, recreational and
high performance tires that are primarily manufactured by The
Kelly-Springfield Tire Company (a division of The Goodyear Tire & Rubber
Company ("Goodyear")) ("Kelly-Springfield") and by Continental General Tire,
Inc. (a subsidiary of Continental AG) ("General"). The Company currently
distributes tires, its exclusive ProComp high performance wheels and other
automotive products through its Regional Sales and Service Centers ("RSC")
located in the states of Idaho, Indiana and Nevada. During the first half
of 1995, the Company consolidated two (2) of its RSCs into a single facility
located near Las Vegas, Nevada (the "Las Vegas RSC").
The following table sets forth the number of Retail Stores, by marketing
region, as of January 31, 1996:
<TABLE>
<CAPTION>
REGION # OF FRANCHISEE # OF JOINT VENTURE # OF COMPANY OWNED TOTAL
------ OWNED STORES STORES * STORES -----
--------------- ----------------- ------------------
<S> <C> <C> <C> <C>
SOUTHWEST REGION
(includes Arizona, southern California, 102 1 1 104
southern Nevada; and southern Utah)
WESTERN REGION
(northern California and western Nevada) 95 1 0 96
NORTHWEST REGION
(Idaho, Montana, northern Nevada, Oregon, 77 1 2 80
Utah, Washington and Wyoming)
CENTRAL REGION
(includes Colorado, Nebraska, New Mexico, 70 0 0 70
Oklahoma, South Dakota, Texas and Wyoming)
SOUTHEAST REGION
(includes Indiana, Kentucky and North 35 0 2 37
Carolina)
TOTAL 379 3 5 387
</TABLE>
* THE COMPANY, THROUGH ITS WHOLLY-OWNED SUBSIDIARY, BIG O RETAIL
ENTERPRISES, INC., A COLORADO CORPORATION, HAS ENTERED INTO RETAIL JOINT
VENTURES WITH EXISTING FRANCHISEES SO THAT ADDITIONAL RETAIL STORES COULD BE
OPENED AND, IN CERTAIN SELECTED CASES, MAY BUY AN INTEREST IN EXISTING RETAIL
STORE(S) THROUGH AN EXISTING JOINT VENTURE. THE COMPANY LOOKS TO ITS JOINT
VENTURE PARTNER TO MANAGE THE RETAIL STORE AND TO PURCHASE THE RETAIL STORE
FROM THE JOINT VENTURE AFTER THREE (3) YEARS OF OPERATION USING A FORMULA
ALLOWING FOR A DETERMINATION OF THE PURCHASE PRICE TO BE PAID TO THE COMPANY.
In 1995, twenty-one (21) Franchisee owned Retail Stores were opened and
twelve (12) were closed. The Company acquired one (1) previously franchised
Retail Store in the state of Washington, which continues to be operated as a
Company owned Retail Store. The Company continues to look to convert
existing retail tire stores and retail tire store chains to the Big O system
as part of its growth strategy, but has met with limited success using this
growth strategy. The Company has not emphasized the use of Company-owned
Retail Stores as part of its business, but in certain circumstances the
Company may acquire tire stores and/or retail tire store chains as a means to
grow its business.
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SHAREHOLDER PROPOSAL. At the Annual Meeting of Shareholders held in June
1994, the shareholders adopted a resolution requesting the Company to engage
an investment banker to explore all alternatives to enhance the value of the
Company. In implementing this resolution, the Company's Board of Directors
established the Investment Committee of the Board which retained PaineWebber
Incorporated ("PaineWebber") to assist in fulfilling this shareholder
proposal. In September 1994, the proponent of the June 1994 shareholder
proposal, upon invitation by the Board, began assisting the Investment
Committee in this process. In December 1994, the Company announced that the
Investment Committee had agreed to enter into a period of exclusive
negotiations with, and agreed to pay certain expenses of, a group of Company
officers, managers and Franchisees ("Dealer-Management Group") that made an
offer to acquire the outstanding shares of the Company for $18.50 per share,
subject to certain conditions including the Dealer-Management Group's ability
to obtain the necessary financing. The proposed transaction would have taken
the Company private and was led by the Company's President, other officers
and managers and Franchisees acting on behalf of certain of the Company's
Franchisees. In February 1995, the Company was notified that the
Dealer-Management Group elected not to continue negotiations to acquire the
Company due to the difficulties in obtaining commitments for the elements of
financing necessary to consummate the acquisition and the inability of the
representatives of the Franchisees and management to reach mutual
understandings on certain fundamental issues relating to the acquisition.
At the time the Dealer-Management Group withdrew the offer to acquire the
Company, the Company was also informed by representatives of management that
they continued to be interested in completing a purchase of the Company on
mutually agreeable terms to shareholders, management, certain Franchisees and
the Board. The Company advised the management representatives that it would
consider carefully credible proposals but the Board of Directors would
continue to review alternatives to enhance the value of the Company.
In April 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 1994 proposal. The
Investment Committee determined not to accept the $16 per share and advised
the Dealer Management Group that it would be open to further negotiations at
a more favorable price. In June 1995, the Company's Board of Directors
approved in principle a proposal to recommend to the Company's shareholders
that the shareholders sell at a price of $16.50 per share to a group
consisting of a group of the Company's franchised dealers and senior managers
(the "Acquisition Group"). In July 1995, the Company entered into an
Agreement and Plan of Merger ("Merger Agreement") with BOTI Holdings, Inc.
and BOTI Acquisition Corp., (collectively "Purchaser"), companies formed by
the Acquisition Group to accomplish the merger. The Merger Agreement was
subject to approval of the Company's stockholders. Among other conditions,
the consummation of the merger was also subject to the receipt of fairness
opinions, the Acquisition Group obtaining acceptable financing, participation
in the acquisition by not less than 80% of the shares held by the Company's
ESOP and participation in the acquisition by not less than 85% of the
franchised Big O Tire stores as of the date of the Merger Agreement, which
later was reduced to 82%. In March 1996, the Acquisition Group provided the
Company a review as to the status of all of these conditions and requested an
additional 180 day exclusive period in order to complete the transaction
contemplated by the Merger Agreement. On March 13, 1996, the Company
terminated the Merger Agreement.
In September 1995, TBC Corporation ("TBC") and certain members of the
Acquisition Group discussed TBC's potential interest in acquiring an interest
in the Company. In December 1995, TBC expressed its desire to perform due
diligence regarding the Company. Effective December 20, 1995, the Company, the
Purchaser and TBC entered into an agreement whereby the Company, at the
request of the Purchaser, agreed to facilitate TBC's investigation of the
Company. The Company also agreed to indemnify TBC against any claims,
expenses and costs that TBC may incur by reason of its investigation of the
Company and agreed, without making TBC whole for TBC's costs and expenses of
investigation, not to solicit or participate in any discussions with or
provide any information to any person or group (other than the Dealer
Management Group) regarding the acquisition of the Company until the earlier
of TBC's announcement that TBC did not wish to acquire the Company or March 20,
1996. TBC and the Company also agreed to hold in confidence nonpublic
information received by each from the other. Thereafter, the Company
provided information to TBC and its advisors. The Company entered into a
Letter of Intent with TBC dated March 13, 1996 relating to TBC's proposed
acquisition of all the outstanding shares of the Company in a transaction in
which the Company would be merged into a subsidiary of TBC.
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Under the terms of the Letter of Intent, Company shareholders would receive a
cash price of $16.50 a share, subject to possible reductions based on a final
tabulation of transaction costs and other expenses, which the Company does
not believe will result in material adjustments, if any. The consummation of
the transaction is subject to certain conditions including the execution of a
Definitive Merger Agreement by April 15, 1996, unless extended, the Company
and TBC complying with any required regulatory filings; the execution of
employment agreements between TBC and certain officers of the Company; TBC
obtaining financing for the transaction; extensions of certain franchise
agreements expiring prior to 2001, and the approval of the merger by the
Company's shareholders.
(a) (2) INFORMATION REQUIRED FROM REGISTRANTS ON FORM S-1
Not applicable.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
During the three years ended December 31, 1995, over ninety percent (90%) of
the Company's revenues, operating profit and identifiable assets have been
attributable to one industry segment, i.e., ownership, operation and
franchising of Retail Stores and the related wholesale and retail marketing
of tires and other automotive aftermarket products to or through such Retail
Stores. During this same three year period, less than ten percent (10%) of
the Company's revenues, operating profit and identifiable assets have been
attributable to the Company's development of real estate sites for Retail
Stores through its wholly-owned subsidiary, Big O Development, Inc.
("Development"), and one partnership.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The Company's principal business is franchising of Retail Stores and
supplying these stores with tires and related automotive aftermarket products
through the Company's RSCs. The Retail Stores are located primarily in the
western United States as indicated on the chart on page 2. The Company also
distributes its products to the 37 Canadian Licensees (see "Canadian
Operations" on page 6).
The Company has been a member of Summit Tire and Battery, Inc. ("Summit"),
an independently owned buying group based in Brandon, Florida, since March
1994. In certain parts of the country, Summit provides the Company exclusive
access to the Heritage line of passenger and light truck tires. The Heritage
brand is manufactured by Kelly-Springfield.
Subject to certain Company established limitations for development
activities, the Company has a real estate development program involving
Retail Store site selection and development by one of the Company's
subsidiaries, and the subsequent sale of these developed store sites to
Franchisees that qualify for Small Business Administration ("SBA") guaranteed
loans. In certain instances, the Company may provide subordinated loans (as
to collateral) not to exceed $50,000 for the prospective Franchisee to
qualify for this SBA guaranteed funding. The Company anticipates that this
financing will be repaid to the Company by the Franchisee, amortized over a
period not to exceed five (5) years. During 1995, permanent financing had
been approved for ten development projects through AT&T Capital Corporation
("AT&T"). The agreement with AT&T was terminated in August 1995. While the
Company plans on continuing this real estate development program, the extent
of this development has been reduced significantly. The Company anticipates
funding future projects through its revolving line of credit, joint ventures
or directly with or through developers.
The Company has also assisted in obtaining financing for new Retail Store
development with an unrelated third party financing company by providing debt
guarantees for joint ventures. The Company also has provided lease
guarantees to developers on behalf of Franchisees and straight financing for
Retail Stores developed internally.
In February 1995, the Company acquired the Las Vegas RSC at a total cost of
approximately $7.7 million. Expenditures for new equipment, including
computer hardware and software to operate this facility totaled approximately
$1.3 million in 1995. The Company is financing this equipment through its
existing line of credit.
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(i) PRODUCTS, SERVICES AND MARKETING.
FRANCHISE OPERATIONS:
With respect to the Company's franchise operations, the primary products
provided and services related thereto are described in the franchise
agreement with each Franchisee (the "Franchise Agreement"). The Franchise
Agreement essentially grants to the Franchisee a ten (10) year license to
sell Big O brand tires and to use Company trademarks and trade secrets in
the operation of a Retail Store at a specific location within a trade area
defined in the Franchise Agreement.
Franchisees are generally required to capitalize their business with
$157,500 to $366,600 which covers the initial franchise fee, inventories,
equipment, working capital, certain deposits and initial advertising costs.
Initial franchise fees range between $7,000 to $21,000 depending on the
Company's classification of the prospective Franchisee, as defined in the
Franchise Agreement. In addition to the initial franchise fee, all
Franchisees are required to pay monthly royalty fees of 2% of each Retail
Store's prior month's gross sales, as defined in the Franchise Agreement.
The Company offers a unique franchise program characterized by high
standards, quality products and ongoing support designed to establish and
grow successful Retail Stores. Most Franchisees are owner/operators,
instead of passive investors. Management believes that a Franchisee's
active involvement in the day-to-day operation of a Retail Store enhances
its performance. The Company provides (i) training to the Franchisee and
its supervisory personnel, (ii) assistance in store design and site and
equipment selection, (iii) assistance in store construction and
development, (iv) insurance programs, standardized manuals and computerized
accounting systems, (v) Big O brand and other approved tires and related
automotive aftermarket products, and (vi) continuing support with respect
to operations, marketing, merchandising and new product introductions. The
Company also promotes regional accounting centers, which may be nonprofit
corporations, cooperatives, mutual benefit corporations, or trusts designed
to provide assistance to the Franchisees. In an effort to build
efficiencies in the Company's franchise program on a national basis, a
nationally based advertising fund called Impact Advertising, Inc.
("Impact") is promoted by the Company to collect advertising fees from
participating Franchisees and disburse these funds for advertising
expenditures, which includes the development of advertising campaigns.
The Company also provides certain materials, e.g., broadcast and print
advertising materials, point of sale materials, equipment, uniforms and
other wearables and services to each Franchisee at varying costs and
assistance in obtaining financing through unaffiliated financing companies
and SBA qualified lenders.
The Company has established and requires Franchisees to meet certain
uniform guidelines for physical characteristics, inventories, efficiency,
speed and courteous service. Each new Franchisee or manager is required to
attend formal training covering sales, service, financial management,
personnel, business ethics, legal compliance, merchandising and other
management skills. In addition, Franchisees are to perform in accordance
with written standards outlined in manuals provided pursuant to the
Franchise Agreement. After the initial training requirements are met, the
Company offers regional training classes to maintain and improve this
expertise.
The Company's growth depends to a large measure on its ability to attract,
retain and maintain good relationships with Franchisees. Changes in that
relationship could cause existing Franchisees to purchase less merchandise
from the Company and more from its competitors or to decline to renew their
franchises upon expiration. Factors beyond the Company's control may
adversely affect the Company's relationship with its Franchisees. In
addition, there is no assurance that the Company will be able to continue
to attract and retain suitable Franchisees. The Company also loses
franchises from time to time due to financial and other problems of
Franchisees. Accordingly, while a significant part of the Company's
strategy is to increase the number of its franchised Retail Stores, there
is no assurance that it will be able to do so. In 1995, six (6) Franchise
Agreements expired and two (2) of these franchisees reapplied for a new
franchise agreement and were renewed and four (4) were transferred between
Franchisees resulting in new Franchise Agreements being executed. During
1996, one (1) Franchise Agreement is due to expire, and in 1997, four
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(4) Franchise Agreements are due to expire, with the remaining Franchise
Agreements expiring in the eight years thereafter, including 101 Franchise
Agreements which will expire in 1999.
The Company is developing a master franchise program whereby the Company
intends to sell master franchises for specific areas where the master
franchisee will be authorized to offer franchises for Retail Stores, be
required to provide certain services in the specific area, and have the
opportunity to function as a distributor of the Company's products. The
Company anticipates that the master franchise program will be used
primarily to expand Retail Stores in areas of the eastern United States
where the Company does not yet have established franchised stores and
distribution, and possibly to expand internationally. As of March 22,
1996, the Company had not sold any master franchises.
CANADIAN OPERATIONS:
Since 1962, certain Canadian retail tire stores within the Province of
British Columbia, Canada, have been using the Company's trade name and
previous versions of the Company's trademarks, logos and colors. As of
March 22, 1996, 37 Canadian Licensees have signed user agreements for the
Company's new trademark, logo and colors, and efforts continue to sign
additional Canadian tire stores. While the Company has invited the
Canadian Licensees to become Franchisees under the Company's franchise
system, the Canadian Licensees have chosen to look to the Company only as a
wholesale supplier.
During 1995, the Company sold $85,000 in goods to 37 Canadian Licensees.
In November 1995, the Company began distributing to the Canadian Licensees
through its Boise, Idaho, RSC. Canadian sales were previously being
distributed by a subsidiary of the Goodyear Tire and Rubber Company.
DISTRIBUTION:
The Company distributes Big O branded passenger and light truck tires,
other approved brands of tires and automotive aftermarket products and
certain material and equipment used in the operation of Retail Stores.
Retail Stores may stock and sell other tires and automotive aftermarket
products which have been previously approved by the Company even though
such products are not distributed by the Company. The Company does not
manufacture any of the products it sells. During 1995, approximately 97%
of the Big O branded tires were manufactured by Kelly-Springfield, with the
remainder produced primarily by General. The termination of the May 1993
Marketing Agreement provided that General was to continue to discharge its
obligation to the Company and its Franchisees under a special warranty
program until July 26, 1995. Thereafter, all subsequent adjustments will
be subject to General's then current warranty adjustment policy. In 1995,
General continued to provide and sell private brand tires, but not Big O
brand tires to Tire Marketers Association ("TMA"), a former division of the
Company that supplied tires to distributors predominantly based in the
eastern United States. Effective March 31, 1995, the Company closed on a
cash sale of the assets, trademarks and copyrights of TMA to an unrelated
third party. TMA had been an operating division of the Company that
marketed non-Big O branded products to retailers outside the Big O system,
and was acquired by the Company in June 1993.
During 1995, the Company continued its membership with Summit, an
independently owned buying group. This agreement provides that Summit will
provide the Company exclusive access to the Heritage line of passenger and
light truck tires, manufactured by Kelly-Springfield.
In August 1991, the Company entered into a supply agreement with Kelly-
Springfield for the manufacture and sale to the Company of Big O branded
tires (the "Kelly Supply Agreement"). The term of the Kelly Supply
Agreement is a calendar year, which is automatically renewed for the next
calendar year unless either party elects to terminate upon three (3) months
prior written notice. The Kelly Supply Agreement was automatically renewed
for 1993, 1994, 1995 and 1996. Under the Kelly Supply Agreement, the
Company is required to provide Kelly-Springfield with monthly non-binding
estimates of the Company's tire requirements, by line and type, for the
succeeding three months, and on August 1 of each year, an itemized non-
binding forecast of the quantities of tires the Company will require during
the next calendar year.
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The Company believes that it has adequate supply arrangements to meet
anticipated demand, subject to industry wide shortages or disaster.
However, the Kelly Supply Agreement only commits Kelly-Springfield to fill
those portions of the Company's monthly orders that Kelly-Springfield
agrees to fill. The obligation of Kelly-Springfield is also subject to
circumstances causing delay that are outside of its reasonable control.
BIG O BRAND MARKETING PROGRAM:
During 1995, the Company continued its Cost-U-LessTM marketing
program, a reduction in the cost of Big O brand tires to the Company's
Franchisees (with a small reduction in cost from the Company's suppliers).
This allowed the Franchisees to offer Big O brand products to retail
customers at lower retail pricing which generally allowed the Franchisees
to be more competitive in their markets.
In order to differentiate the Company's products in a commodity market,
Big O brand tires are sold with a "Premium Tire Service Policy" and a
"Limited Warranty for Free Replacement" (certain exceptions apply to non-
recreational vehicle light truck tires).
The Premium Tire Service Policy provides certain services and products free
of charge, which are generally provided at an additional charge from other
tire stores. These include free mounting and balancing of the new tires,
free wheel weights and new rubber valve stems, free flat repair, free
rotations and any necessary rebalancing throughout the Big O brand tire's
life.
The Limited Warranty for Free Replacement provides "no charge" service for
mounting, balancing, new valve stems, lifetime rebalancing service,
lifetime flat repair service, free rotations and free replacement during
the (i) first three years of ownership on certain quality Big O brand
tires; (ii) first four years of ownership of certain premium Big O brand
tires, and (iii) and the entire life of the tire on certain ultra premium
Big O brand tires that fail during the life of the tire tread due to
workmanship, material defects or road hazards.
The Company's suppliers have financial responsibility for workmanship and
material defect claims during the first 2/32 of an inch of tread in the
case of Kelly-Springfield supplied tires, and the first 10% of the tread
life in the case of General supplied tires, with prorations to the Company
thereafter. The Kelly Supply Agreement provides maximum limits on
workmanship and material defects for which the Company will have any
financial responsibility on each line and size of Big O branded products.
The Company or the Retail Stores have financial responsibility for
substantially all of the other costs associated with the Premium Tire
Service Policy and Limited Warranty for Free Replacement programs beyond
these prorations.
The Company's sales by product in 1995 were as follows (in thousands):
% OF TOTAL
UNITS REVENUES PRODUCT SALES
----- -------- -------------
Big O brand tires 1,570 $90,795 70%
Other brand tires 588 $22,059 17%
Wheels, shocks and other accessories 1,208 $16,088 13%
The Company believes that a Franchisee's decision to purchase Big O brand
products is based on several factors, including product profitability,
knowledge of Big O products, services and programs, the level of product
support provided by the Company, and the availability of products that meet
the quality demands of the Retail Store's customers. The Company plans to
meet these requirements and thereby increase sales of Big O brand products
to Retail Stores by continuing to provide (i) a broad line of quality
products that command higher margins for Retail Stores and that meet
changing consumer demands, (ii) extensive training for store personnel,
(iii) support of Retail Store operations, marketing, merchandising, and new
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product introductions, and (iv) upgraded product quality, particularly as
measured by the industry's Uniform Tire Quality Grading Standards. Unit
sales of Big O brand tires increased by 11.4% in 1995 as compared to 1994,
following 1994's Big O brand unit sales increase of 6.5% as compared to
1993.
(ii) STATUS OF PRODUCT OR SEGMENT.
The Company has made no announcement of, nor has the Company otherwise made
public any information about any new product or industry segment requiring
investment of a material amount of the Company's total assets or which is
otherwise material to the Company's operations, other than its ongoing
investment in new product lines to meet Retail Store needs and its
consolidation of some of its warehouse facilities.
(iii) RAW MATERIALS.
The Company does not manufacture any products. The Company orders Big O
brand tires anywhere from 18 - 180 days before the beginning of the month
in which they are produced. Manufacturers normally produce these tires and
ship them directly to the appropriate RSCs thereby eliminating
manufacturers' inventories of Big O brand product. Because of the lack of
"safety stock," any unforecasted change in sales trends or interruptions in
production schedules may result in inventory shortages or outages.
If the Company should lose Kelly-Springfield as a supplier at a time when
there is sufficient production capacity within the tire manufacturing
industry, management believes the Company could accomplish a rapid and
orderly transition to a new supplier(s). If, however, production capacity
were limited, such as was experienced in 1988 and 1989, a change in
suppliers could be extremely difficult and could cause the Company to again
experience significant product shortages.
While the Company cannot completely assess the impact on its financial
performance if an industry-wide shortage, labor strike or natural disaster
should occur, such circumstances might result in higher costs, higher sales
prices and possibly lower demand.
In 1995, the Company received an approximate 3% price increase from its
suppliers on tires and other products. The Company has received notice of
a possible price increase from its suppliers of tires and other products to
be implemented in 1996. However, this increase has yet to be implemented
due to the current competitive pressures within the industry. Since price
increases are initiated by manufacturers and are then subject to
competitive pressures, the original announced increases are sometimes
reduced or rolled back. An increase in cost, over a sustained period, may
be significant to the overall cost of sales and working capital
requirements of the Company, particularly if sales decrease. However, the
tire industry in general, and the Company specifically raises prices in
response to such increases. As the cost of raw materials increases for all
manufacturers, the resulting costs are passed through, in the form of
higher prices, to the manufacturers' customers, i.e., distributors and
retailers, such as the Company. Such distributors and retailers, in turn,
increase their prices, and therefore the price increases are ultimately
borne by the consumer.
Should price increases occur, management believes that these increases will
be borne proportionately throughout the industry, as the pricing formula
used usually results in percentage margins which actually increase gross
profit (dollars) for distributors and retailers.
(iv) PATENTS, TRADEMARKS, LICENSES, AND FRANCHISES.
At January 31, 1996, the Company had 382 franchised Retail Stores operating
pursuant to Franchise Agreements. Please refer to "Products, Services and
Marketing" above, for a further explanation of the Company's franchises and
"Canadian Operations" above, for a further explanation of the Canadian
Licensees. The existence of the Franchise Agreements is of extreme
importance to the Company since almost all of the Company's revenue is
generated from sales to these Franchisees and from monthly royalty fees.
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The Company is the owner of various United States, Canadian and state
trademark and service mark registrations and applications for marks used in
connection with the Company's tires and tire retailing concepts. These
trademarks and service marks include "Big O", and numerous secondary marks
for individual products and advertising slogans.
The Company is aware that two retail tire companies operating "Big 10"
outlets in the states of Alabama, Florida, Georgia, Louisiana and
Mississippi have raised issues regarding the Company's use of "Big O" in
such areas. After Big 10's national trademark registration expired, Big 10
attempted to obtain reinstatement and the Company has opposed this request.
The Company does not currently have any Retail Stores operating in
territories served by the other companies and the matter does not affect
the Company's ability to use the name "Big O" where currently used. Should
the Company begin franchising operations that overlap or are proximate to
those served by the Big 10 companies, it is possible that such companies
may contest usage of the Company's trade name and trademarks in such areas.
The Company does not own any United States or foreign issued patents or
pending patent applications.
(v) SEASONALITY.
The Retail Stores experience some seasonal variation in product sales
because tire sales are generally greater during the summer than in the
winter months. The Company generally experiences some seasonality,
although not to the same extent that the Retail Stores do, as the Company
maintains sales to certain Retail Stores, e.g., snow tires, that offset the
trend on a national basis.
(vi) WORKING CAPITAL ITEMS.
The Company's trade accounts receivable increased by $1,090,000 in 1995.
Approximately half of this increase resulted from the increased sales
associated with the Cost-U-LessTM marketing program. The remaining
increase in receivables balance is associated with slower payments from the
Company's customers. As a whole, the tire industry generally sells product
on varying extended payment terms, up to 180 days. The standard credit
terms extended by the Company to the Retail Stores are 3%/15, 2%/30,
COD/31. Through arrangements with manufacturers regarding struts, the
Company has arranged terms to encourage Retail Stores to stock sufficient
quantities and varieties to meet market demands. For certain items,
primarily snow tires, the Company provides extended payment terms similar
to those offered by wholesalers.
Of the Company's $3,171,000 in notes receivable at December 31, 1995,
$579,000 relate to the sale of Company-owned Retail Stores to Franchisees.
$2,075,000 of these notes receivable relates to trade receivables that have
been placed on notes as a financial strategy to maintain sales to
financially limited, franchised Retail Stores. By placing these Retail
Stores on level monthly payments, and with the development of a business
plan for each such Retail Store, management is attempting to assist the
Franchisees in reaching financial success while improving repayment
options. In 1995, the Company sold approximately $1,014,000 of long term
notes receivable.
The Company targets a 45-day inventory of Big O brand tires, and lesser
inventory levels for other tires, wheels, and related automotive
aftermarket products. Big O brand inventory levels are greater than those
normally carried by tire distributors because of the limited availability
due to production scheduling and lack of supplier floor stocks. The
Company has and will increase its Big O brand inventory due to anticipated
shortages, potential strikes and minimum production runs required by
suppliers. In lieu of obtaining extended payment terms generally provided
by manufacturers, the Company has negotiated lower net pricing from
suppliers. The Company periodically obtains extended payment terms on
purchases while maintaining this lower net pricing.
9
<PAGE>
As part of the Company's warranty and marketing programs, Retail Stores
have the right to return certain merchandise to the RSCs for credit. The
Company believes that its warranty program provides certain significant
marketing advantages, but it also results in higher warranty expense to the
Company than is normal in the industry. Some of this expense has been and
will be offset by payments from manufacturers.
The increase in warranty expense in 1995 appears to have primarily been the
result of a higher ratio of road hazard type failures in the current
product lines as a percent of production, than was experienced with
previous product lines. This higher percent of failure, coupled with
increased Big O brand product sales, resulted in a greater number of tires
replaced under warranty than was anticipated. The Company does not receive
compensation from the manufacturers for road hazard tire failures.
Subject to Company established limitations, the Company has a real estate
development program involving Big O retail store site selection and
development by one of the Company's subsidiaries, and the subsequent sale
of these developed store sites to Franchisees that qualify for Small
Business Administration ("SBA") guaranteed loans. In certain instances,
the Company may provide subordinated loans (as to collateral and payment)
not to exceed $50,000 for the prospective Franchisee to qualify for this
SBA guaranteed funding. The Company anticipates that this financing will
be repaid to the Company by the Franchisee, amortized monthly over five (5)
years. During 1995, permanent financing had been approved for ten
development projects through AT&T Capital Corporation ("AT&T"). The
agreement with AT&T was terminated in August 1995. While the Company plans
on continuing this real estate development program, the extent of this
development has been reduced significantly. The Company anticipates funding
future projects through its revolving line of credit, joint ventures or
directly with developers. At December 31, 1995, Development had $4,861,000
invested in acquisition and construction in progress for fourteen (14)
sites, which was primarily financed from the earlier sale of notes
receivable and the Company's revolving credit agreement.
As additional Retail Stores are added, additional working capital for
accounts receivable, inventories, and certain real estate financing will be
needed. Accounts receivable financing is anticipated to be supplied
through the Company's existing credit facilities; inventory growth will be
financed partially by the Company's suppliers and partially through the
Company's existing credit facilities; and real estate financing will be
provided by a combination of the Company's revolving line of credit and
limited permanent (term) financing.
(vii) CUSTOMER DEPENDENCE.
Since the Company primarily sells its products to 382 Franchisees and 37
Canadian Licensees, its customer group is very limited. Of this customer
group, the Company does not depend upon a single customer, or a limited
number of customers, for its revenues, the loss of any one or more of which
would have a material adverse effect on the Company. However, certain
Franchisees (and Franchisee groups) continue their individual growth and
are becoming more significant customers.
Approximately 28% of the Company's sales were made to Retail Stores located
in the State of California, which includes sales made to the Company's
largest Franchisee who is affiliated with 28 Retail Stores. Total
California Retail Stores constitute about 38% of the total Retail Stores.
As a result, a high portion of the Company's receivables and credit risks
are concentrated in California with the result that adverse conditions or
adverse publicity affecting retail operations in California could more
significantly affect the operating results of the Company than if the
stores were more geographically diversified. In addition, at December 31,
1995, receivables and financial guarantees totaling approximately
$7,320,000 were associated with six (6) Franchisees who own and operate
multiple Big O Retail Stores. Of these six Franchisees, receivables and
financial guarantees totaling approximately $3,960,000 were associated with
one multiple store owner. Adverse financial results with these Franchisees
could adversely affect the Company more significantly than if the credit
risks were less concentrated.
10
<PAGE>
(viii) BACKLOG OF ORDERS.
At March 22, 1996 and March 24, 1995, there were no material backlogs of
orders. Any sustained backlog the Company experiences with its suppliers
creates a backlog in fulfilling orders from the Retail Stores and Canadian
Licensees.
(ix) GOVERNMENT CONTRACTS.
The Company is not involved with any contracts or subcontracts with the
government which may allow for the renegotiation of profits or the
termination of such contracts at the election of the government.
(x) COMPETITION.
Since the Company is primarily a distributor to its Retail Stores and the
Canadian Licensees, its success depends on the retail success of its
Franchisees and Canadian Licensees. Both the tire aftermarket and under-
car service businesses are highly competitive. Through the Retail Stores
and Canadian Licensees, the Company competes with major tire manufacturers
who have retail tire stores, national and regional tire chains, traditional
department stores, independent merchants, and general, full range, discount
and warehouse club stores. Many of the Company's competitors are larger in
terms of sales volume, have access to greater capital and management
resources, and have been operating longer in particular geographic areas.
Management believes that price competition in the geographical markets
served by the Company continues to intensify.
Retail competition comes in the form of price, service, warranty, product
performance, product innovation, location or differing variations of each
of these issues. Although competition varies by geographic area, the
Company believes that it generally has a favorable competitive position in
terms of price, product line, value, merchandising, warranty and customer
service. With the implementation of the Company's Cost-U-LessTM program
and the continuation of the Premium Tire Service Policy and the Limited
Warranty for Free Replacement, the Company believes that its marketing
programs are equal to or exceed any such programs offered by its
competitors.
Franchise sales are also highly competitive as the Company competes with
other franchisors, some of which are larger, have better name recognition
and access to larger capital resources and have been operating longer than
the Company. Management believes that the competition for the sale of
franchises has increased and will intensify due, in part, to the entry of
new franchisors and the growth of existing franchisors.
The competitive conditions for real estate development differ substantially
from those the Company faces in the retail tire and franchise markets. The
success of the Company's real estate development lies in obtaining sites
that can be developed into store facilities that meet Franchisees'
requirements at reasonable rental rates or sales prices. Since the prime
customers for the Company's real estate development are its Franchisees,
development of real estate can affect the growth of Retail Stores.
Competition for real estate development comes from many sources, including
other retail tire companies, other franchisors, e.g., fast food restaurants
and gas stations, other retailers, and other businesses.
(xi) RESEARCH AND DEVELOPMENT.
The Company does not engage in any significant research and development
activities, and no material amount was spent by the Company on research and
development activities.
(xii) ENVIRONMENTAL REGULATIONS.
The Company is subject to the ever expanding purview of federal, state and
local environmental laws relating to spillage, noise, air quality and
disposal of waste products. The Company believes it is in general
compliance with all applicable environmental laws and has adopted a policy
of requiring Phase I
11
<PAGE>
environmental studies associated with any new real estate projects or
the acquisition of any existing locations before such transactions are
consummated. The Company is not aware of any requirements to develop
environmental control facilities and has not made any material capital
expenditures for such facilities and does not anticipate doing so at
this time. The Company has periodically been involved with minor
clean-ups associated with certain Retail Stores in which the Company
has been a tenant or subtenant. Generally, the costs of these
clean-ups have not been material. Many states have enacted specific
tire disposal laws that, among other requirements, assess fees for
each tire disposed and designate specific locations for tire disposal.
This impacts the Company, its Franchisees and the retail customers as
such costs are usually passed on to the customers.
(xiii) EMPLOYEES.
At March 22, 1996, the Company employed 210 persons on a full-time basis
and 32 persons on a part-time basis.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Sales to Canadian Licensees totaled $85,000, $72,000 and $994,000, which
resulted in gross profits of $17,000, $8,000 and $97,000 in 1995, 1994 and
1993, respectively. In November 1995, the Company began distributing its Big O
branded product through its Boise, Idaho RSC, such product was previously being
distributed by a subsidiary of The Goodyear Tire & Rubber Company. While
distributing Big O branded product through a subsidiary of The Goodyear Tire &
Rubber Company, the Company did not recognize sales to its Canadian Licensees.
The Company has not maintained any identifiable assets in Canada.
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
MORTGAGE
AMOUNT # OF STORES
SQUARE OWNED/ (IF ANY) AT SERVED
DESCRIPTION/LOCATION FOOTAGE LEASED 3/22/96 AT 3/22/96
-------------------- ------- ------ ----------- ----------
<S> <C> <C> <C> <C>
Boise, Idaho RSC(1)(4) 100,000 Owned $ - 0 - 117(2)
New Albany, Indiana RSC(3) 80,000 Owned $1,350,000 37
Las Vegas, Nevada RSC(4)(5) 300,000 Owned $ - 0 - 270
</TABLE>
(1) The Company owns, in fee simple, approximately seven acres of land
immediately adjacent to this RSC. Of those seven acres, 6.24 acres are
under contract to be sold in 1996, leaving approximately .76 acres for
expansion.
(2) Includes distribution to 37 Canadian Licensees.
(3) The New Albany, Indiana, RSC is servicing the Retail Stores located in
Indiana, Kentucky and North Carolina. The cost of land acquisition and
construction of this facility was $1,985,000.
(4) The Boise, Idaho and Las Vegas, Nevada, properties serve as collateral for
$8 million of senior, secured notes sold by the Company in April 1994. The
proceeds from these notes were used to pay the previous mortgage on the
Boise, Idaho RSC, to pay a term loan with the Company's previous lender,
and the balance (approximately $4.2 million) to provide financing for the
acquisition of the Las Vegas RSC.
(5) The Las Vegas RSC contains approximately 294,000 square feet of warehouse
space and 6,000 square feet of office space. It services the Retail Stores
which had been serviced by the Denver, Colorado, and Ontario and
Vacaville, California RSCs. The Company continues to own in fee simple,
approximately five acres of land immediately adjacent to the Vacaville
warehouse facility. In March 1995, the Company closed its RSC in Denver,
Colorado, and consolidated its operations into the newly opened Las Vegas
RSC. Ontario RSC operations were fully converted to the Las Vegas RSC in
May 1995. While the Company is obligated under the lease for the Ontario
warehouse through May 1998, it sublet this property in June 1995 to an
unrelated third party for the remainder of the lease term.
12
<PAGE>
The Company also has a lease for a 35,000 square foot warehouse and general
office space in Santa Ana, California, which was assigned to a joint venture
in which a subsidiary of the Company was a 50% joint venture partner. The
initial term of this lease expires in October 1996. In 1993, the subsidiary
of the Company agreed to sell its 50% interest in the joint venture to the
other joint venturer which assumed all obligations under this lease through
1996. Thus the Company will remain contingently liable for this lease
obligation through October 1996.
As of March 15, 1996, the Company is also responsible for leases on
approximately sixty-one (61) Retail Store locations, of which thirty-four
(34) locations are subleased to Franchisees or third parties, six (6)
locations are operated as Company owned or joint venture Retail Stores and
the leases for fifteen (15) Retail Stores are guaranteed by the Company. The
Company, in accordance with lease guaranty provisions, is also responsible
for the lease obligations on six (6) closed Retail Store locations.
ITEM 3. LEGAL PROCEEDINGS
As a franchisor and wholesale distributer, the Company licenses the use of
its trade names, service marks and trademarks to the Company's Franchisees
and other licensees and distributes tire products manufactured by the
Company's suppliers ("Suppliers") under the Company's trade names and
trademarks. As a result, the Company has been named as a defendant in a
number of lawsuits alleging negligent acts and/or omissions by the Company's
Franchisees or alleged defective workmanship and/or materials of the products
produced by the Suppliers. As of December 31, 1995, there were forty-two
such lawsuits pending in which the Company was named as a defendant. Of
those forty-two lawsuits, only five directly involve the Company. The other
thirty seven involve Franchisees of the Company or alleged tire failures of
the Company's Suppliers. In most of the forty-two lawsuits in which the
Company is named as a defendant, the claims for damages are not specific.
The Company believes that it is reasonably possible that a judgment may be
rendered against the Company in one or more of these lawsuits but the Company
is unable to estimate the amount of any such possible judgments. Over the
past five years, the judgments that have been rendered against the Company
and settlements made by the Company in lawsuits similar to the forty-two
lawsuits have not resulted in material losses to the Company. Therefore,
based upon such history, the Company does not believe that the Company will
suffer any material loss as a result of the forty-two lawsuits pending
against the Company as of December 31, 1995.
The Company requires that both the Company's Franchisees and Suppliers
indemnify and protect the Company against claims resulting from the alleged
negligent acts and/or omissions of the Franchisees and the alleged defects in
workmanship and/or materials of its Suppliers. In addition, the Company
carries its own insurance. The forty-two lawsuits referred to above are
being defended by attorneys who have been retained by the applicable
insurance companies and the Company is not actively involved in the defense
thereof. Historically, the Company has been able to rely upon its
Franchisees and Suppliers and their insurance carriers to defend, protect and
indemnify the Company against such types of lawsuits. Accordingly, even if a
judgment is rendered against the Company in any of these lawsuits, because of
the insurance and indemnities described above, management does not believe
that the Company will incur any material loss as a result of any such
judgment.
The Company is also a defendant in three additional lawsuits which are
incidental to the Company's business and for which the Company does not
believe it is liable, but which are not covered by insurance. Thus the
Company is directly and actively involved in its own defense and has
sufficient information to form a judgment on the likely outcome and exposure
of such cases. Based on this analysis, the Company believes that the
ultimate outcome of these cases will not have a material adverse effect on
the Company's financial statements.
As described in the Company's Annual Report on Form 10-K, for the year ended
December 31, 1994, in December 1994, the Company and its nine directors were
named in two proposed stockholder class action lawsuits (Knopf vs. Big O
Tires, Inc., et al. and Zucker, et al. vs. Big O Tires, Inc.,et al., Second
Judicial District Court of the State of Nevada, County of Washoe). By motion
filed by plaintiff's counsel, both actions were dismissed without prejudice
by the Court on March 31, 1995.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1995, the Company did not submit any matters to
a vote of the Company's security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The Company's Common Stock is reported on the NASDAQ National Market System.
The principal market for the stock is the over-the-counter market.
The quotations in the table below were obtained from NASDAQ and reflect high
and low bid prices of the Company's Common Stock. The prices reflect
inter-dealer prices without retail mark-up, mark-down or commission. The
prices have been rounded to the nearest eighth and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ---- ---
<S> <C> <C>
01/01/94--03/31/94 16 3/4 12 3/4
04/01/94--06/30/94 16 3/4 13 1/8
07/01/94--09/30/94 16 3/4 14 1/2
10/01/94--12/31/94 17 7/8 15 1/4
01/01/95--03/31/95 16 1/4 12 7/8
04/01/95--06/30/95 15 1/4 12 1/2
07/01/95--09/30/95 15 1/4 12 3/4
10/01/95--12/31/95 15 1/8 12
</TABLE>
________________
(b) HOLDERS
As of March 22, 1996, the Company had 702 shareholders of record as
indicated on the Company's transfer records.
(c) DIVIDENDS
The Company has not declared cash dividends on its Common Stock during the
last two fiscal years and there is no present intent to pay a cash dividend.
Certain covenants contained in the credit agreements with the Company's
primary lender preclude the general declaration or payment of cash dividends
and preclude the general purchase, redemption, retirement or other
acquisition of the Company's capital stock, or the return of capital or
distribution of assets to its shareholders, without the prior written consent
of the lender.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data concerning the Company,
which should be read in conjunction with the financial statements appearing
elsewhere herein. Amounts are in thousands (000's) except per share data.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales $142,122 $127,678 $122,960 $119,799 $113,836
Net income 1,543 2,691 1,595 2,783 1,751
Earnings per share(1) .46 .80 .47 .80 .50
Cash dividends per share .00 .00 .00 .00 .00
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Working capital(2) $22,041 $26,836 $11,885 $17,333 $20,661
Total assets(3) 63,394 61,968 56,607 57,679 57,111
Non-current portion of
long-term debt, obligations
under capital leases and
guarantee of ESOP obligation 14,052 16,355 12,012 10,636 16,305
</TABLE>
(1) Adjusted to reflect the 1 for 5 reverse split of the Company's $0.10 par
value common stock that was effective June 15, 1992.
(2) Working capital for 1994 has been restated to reflect the reclassification
of retail stores under development.
(3) Total assets for years prior to 1992 have been restated to reflect the
reclassification of vendor receivables to accounts payable.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
SALES. Sales in 1995 were $142.1 million which represented an increase of
$14.4 million (or 11.3%) over 1994. This increase in sales was primarily due
to higher sales of Big O brand tires which resulted from the Company's
"Cost-U-LessTM" marketing program that was implemented on July 1, 1994, and
$5.5 million of real estate sales. Cost-U-LessTM provided a significant
reduction in the cost of Big O brand tires to the Company's Franchisees (with
a small reduction in cost from the Company's primary supplier). This allowed
the Franchisees to offer Big O brand products to their customers at lower
retail pricing which generally enabled the Franchisees to be more price
competitive in their markets.
Wholesale sales of Big O brand tires increased by approximately 160,000 units
(11.4%) in 1995. This unit increase, combined with an increase in the
average selling price of $.75 per unit (1.3%), increased revenues by $10.4
million in 1995. The sale of other new tires decreased by approximately
58,000 units or 9.0% as compared to 1994, resulting in decreased sales of
$2.2 million. The sale of wheels, shocks, and other accessories decreased by
approximately 131,000 units or 9.8% which was offset by an increase in the
average selling price of accessories of $1.62 per unit, thereby increasing
revenues by $.4 million in 1995.
15
<PAGE>
During 1995, the Company continued its efforts to improve the operations of
its existing Retail Stores and add new stores to its distribution system.
During the year, 21 new Retail Stores were reopened or added, but 12 existing
Retail Stores were closed. Accordingly, sales to newly opened franchised
Retail Stores increased by $5.9 million, sales to previously existing
franchised retail stores increased by $3.4 million, and the higher retail
sales generated a $.3 million increase in royalty fees. Offsetting these
sales increases were reductions in sales of $.3 million at Company-owned
Retail Stores, $1.1 million from the closure of nine (9) franchised Retail
Stores, and $.3 million from a decrease in other wholesale sales.
The Company also receives royalties from the Extra Care service program at
Retail Stores which consists of alignment, brake work, front-end repair,
shock absorber and strut replacement, lubrication and oil changes. Extra
Care service program royalty fees in 1995 were $2.07 million, up $.07 million
or 4.6% from 1994. While these fees continued to increase, they are growing
at a slower rate than the Company's overall revenues.
The Company's revenues are dependent on sales to its network of Retail
Stores. The continuation of these franchises during the ten year term of each
Franchise Agreement is extremely important to the Company as is the renewal
of these franchises upon their expiration period. In 1995, six (6) Franchise
Agreements expired; two (2) of these were renewed and four (4) were
transferred between franchisees resulting in new franchise agreements being
executed. During 1996, one (1) Franchise Agreement is due to expire. In
1997, four (4) Franchise Agreements are due to expire.
The Company's Franchisees are independent business operators who are entitled
to establish their own policies within certain guidelines established by the
Company and who are directly responsible for supervision of their employees.
Of the 382 franchised Retail Stores at December 31, 1995, three (3) are owned
by partnerships in which a subsidiary of the Company owns a 50% interest but
has no managerial control over day-to-day operations. The Company prescribes
certain operating procedures in business and ethical standards; however,
Franchisees are responsible for complying with these procedures and standards
as well as all applicable laws and regulations.
GROSS PROFIT. Cost of goods sold consists primarily of the cost of products and
equipment sold and the cost of real estate projects sold. Gross profit in 1995
was $30.7 million, an increase of $.5 million or 1.8% over 1994. Gross profit
derived from the sale of real estate projects generated an increase of $18,000.
Product and franchising gross profit increased by $.5 million or 1.7% over that
of 1994. Increased sales volumes generated an increase in gross profit of $2
million, which was offset by a decrease in gross profit of $1.5 million due to
the decrease in gross margin.
The product and franchising gross margin was 22.4% in 1995 as compared to 23.6%
in 1994. This decrease in gross margin was primarily due to the increased
warranty expenses in 1995 over 1994 and a decrease in margin related to the
Company's "Cost-U-LessTM" marketing program. The increase in warranty expense in
1995 appears to have primarily been the result of a higher ratio of road hazard
type failures in the current product lines as a percent of production, than was
experienced with previous product lines. This higher percent of failure,
coupled with increased Big O brand product sales, resulted in a greater number
of tires replaced under warranty than was anticipated, resulting in increased
warranty expenses in 1995 over 1994.
EXPENSES. Expenses increased by $2.5 million, or 9.6%, to $27.9 million in
1995. An increase in expenses of $1.1 million was associated with the
implementation of the shareholder proposal, and increased expenses of $.3
million resulted from costs incurred to consolidate the Company's Colorado and
California warehouse operations into a single facility near Las Vegas, Nevada.
Expenses decreased $.6 million due to a smaller loss associated with the sale or
closure of Retail Stores.
Expenses also increased by $.8 million in product delivery expense which
primarily resulted from the additional freight costs associated with the
Company's consolidation of its warehouse operations, $.9 million which resulted
from an increase in the provision for uncollectible receivables, and $.8 million
increased from payroll costs. These increases were partially offset by
decreases in financing costs, legal fees and travel and entertainment expenses.
16
<PAGE>
Expenses excluding offering costs, warehouse consolidation costs, shareholder
proposal expense, and loss on sale or closure of retail stores ("Operating
Expense") in 1995 were 17.8% of net sales, down from 18.6% in 1994. The Company
anticipates that Operating Expense in 1996 will decrease due to the
consolidation of the Colorado and California warehouse operations into a new
distribution facility near Las Vegas, Nevada, which began operations in March
1995. However, increased ownership of Retail Stores may add significantly to
the growth of Operating Expense as each store can add as much as $.6 million of
Operating Expense annually. While the Company's current strategic plan does not
contemplate the operation of additional Company-owned Retail Stores, beyond the
five (5) Retail Stores presently in operation, the Company recognizes that it
will generally operate some Company-owned Retail Stores until such stores can be
sold to Franchisees. In 1994, five (5) Company-owned Retail Stores were sold to
Franchisees which resulted in a pretax loss of $.1 million; none were sold in
1995.
The Company's primary growth strategy is to significantly increase the number of
franchised Retail Stores. This will cause expenditures for advertising and
locating and developing new franchised locations. However, the Company believes
that development of these new stores, especially based on its fixed overhead
structure, could increase profitability and margins as these fixed costs are
spread over more units sold due to increased outlets. To the extent that new
store openings do not materialize, these additional expenses may reduce overall
profitability and reduce the Company's return on assets.
Interest expense decreased slightly (1.6%) in 1995 to $1.4 million. This
decrease resulted primarily from the elimination of the Denver Regional Sales
and Service Center (RSC) mortgage loan, which was assumed by the buyer in
December 1994. This decrease was offset somewhat by increased borrowings under
the Company's line of credit during 1995 and higher interest rates in 1995
compared to 1994.
1994 COMPARED TO 1993
SALES. Sales in 1994 were $127.7 million which represented an increase of $4.7
million (or 3.8%) over 1993. This increase in sales was primarily due to higher
sales of Big O brand tires which resulted from the Company's "Cost-U-Less-TM-"
marketing program that was implemented on July 1, 1994. Sales to new franchised
Retail Stores increased by $5.3 million, sales to existing franchised retail
stores increased by $4.1 million, and higher retail sales generated a $.7
million increase in royalty fees. Offsetting these sales increases were
reductions in sales of $2.1 million at Company-owned Retail Stores, $1.2 million
from the closure of nine (9) franchised Retail Stores, $.9 million from
decreased sales to the Canadian licensees, and $1.1 million from a decrease in
other wholesale sales. Royalties from the Extra Care service program in 1994
were $2 million, up $.2 million or 10.6% from 1993.
GROSS PROFIT. Gross profit in 1994 was $30.1 million, an increase of $2.5
million or 9.0% over 1993. Gross profit increased $1.1 million due to increased
sales volumes, and increased $1.4 million due to the 1.1% increase in gross
margin. Also contributing to this 1.1% increase in gross margin was an increase
in continuing royalties, additional cash discounts earned, and increased profits
associated with price changes. Partially offsetting these increases were
additional purchasing incentives provided to Franchisees and a decrease in
promotional funds provided by the Company's suppliers.
The gross margin was 23.6% in 1994 as compared to 22.5% in 1993. An increase of
.8% in the gross margin was attributable to the increase in sales of Big O brand
tires which carry higher gross margins than other tire products.
Warranty adjustment expense decreased by 3.2% in 1994 to $4.7 million. The
product quality produced by the Company's present supplier has continued to
reduce the Company's financial exposure for workmanship and material warranty
claims. In addition, products that have shown excessive adjustments have been
discontinued and on-hand inventories have been returned to suppliers for
liquidation outside existing market areas or distribution channels.
EXPENSES. Expenses increased by $1.1 million or 4.7% to $25.5 million in 1994.
An increase in expenses of $.7 million was associated with the implementation of
the shareholder proposal, and increased expenses of $.7 million resulted from an
increased loss on the sale or closure of Retail Stores.
17
<PAGE>
Expenses also increased by $.6 million in product delivery expense which
primarily resulted from the additional freight costs associated with the
Company's consolidation of its warehouse operations in California, $.8 million
which resulted from increased promotional expense in connection with the
Company's new marketing program, and $.8 million which resulted from the
operation of Company-owned Retail Stores. However, these increases were
partially offset by a decrease of $1.9 million in expenses related to Company-
owned Retail Stores which were sold, and a reduction of $.1 million in the
provision for uncollectible receivables. In 1994, five (5) Company-owned Retail
Stores were sold to Franchisees which resulted in a pretax loss of $.1 million.
Interest expense increased by 20.2% in 1994 to $1.5 million. Although interest
expense decreased due to reduced borrowings resulting from lower working capital
requirements, this reduction was offset by an increase in interest expense
attributable to an increase in the "prime" rate and, therefore, in the Company's
borrowing rate, and the sale of 8.71% Senior Secured Notes in the aggregate
principal amount of $8 million in April 1994.
LIQUIDITY AND CAPITAL RESOURCES
SHAREHOLDER PROPOSAL. In June 1994, the Company's shareholders adopted a
proposal requesting that the Board of Directors engage an investment banker to
evaluate alternatives to enhance the value of the Company. The Board of
Directors established the Investment Committee and retained PaineWebber,
Incorporated (PaineWebber) to fulfill this shareholder request. The Company has
received three offers to acquire the Company, none of which have been completed
as of March 22, 1996. The Company is currently negotiating with TBC Corporation
(TBC) pursuant to a letter of intent dated March 13, 1996. In the event that
TBC acquires the Company, then the Company's liquidity and need for capital
resources may change dramatically, although the exact extent and nature of such
changes cannot be predicted at this time. In the event that a transaction is
not consummated with TBC, then it is presently expected that the Company will
continue its current operations, but accelerate operations to achieve more rapid
growth in order to enhance the value of the Company. The Board of Directors is
aware of the limited capital resources available while developing strategies and
growth plans pursuant to this alternative.
WORKING CAPITAL. The Company's working capital (defined as current assets less
current liabilities) decreased by approximately $4.8 million in 1995, finishing
the year at $22.0 million. Sources of working capital included earnings,
payments received on and sale of notes receivable, and sales of property. Uses
of working capital included purchases of property and equipment (most notably
the Las Vegas RSC) and principal payments on long-term debt.
Significant changes in the components of working capital consisted of the
following:
i. Trade accounts receivable, net of allowances, increased by $1.09
million. This increase was primarily attributable to the addition of
franchise retail stores, increased sales, and slower collections from
the Company's customers.
ii. Other receivables decreased by $2.66 million in 1995, primarily as a
result of the change in payment structure and rebates for annual
volume bonuses (AVB's) from the Company's primary supplier. This
resulted in lower net pricing to the Company, with a corresponding
decrease in the AVB.
iii. Inventories decreased by $.97 million during 1995. A portion of this
was attributable to reduced wheel inventories, primarily resulting
from the cooperative marketing arrangements with one of the Company's
wheel suppliers. In addition, the Company continues its development
of ordering systems providing for reduced inventories, but relying
more heavily on production commitments from the Company's suppliers.
iv. Retail Stores under development increased by $2.69 million in 1995,
primarily as a result of the real estate development program described
below.
v. Accounts payable increased by approximately $1.23 million. This
increase was primarily attributable to the above mentioned change in
the AVB rebate from the Company's primary supplier.
18
<PAGE>
vi. The Company's warranty reserve increased by $.5 million. This
resulted from the recognition of future warranty obligations on
additional sales volumes.
The Company anticipates that it will meet its 1996 working capital needs through
internal generation of funds from operations and from financing available from
its primary lender (see EXISTING CREDIT FACILITIES). Financing for the
Company's real estate development programs is planned to come from the Company's
existing credit facilities and proceeds from sales of real estate generally
financed by Small Business Administration (SBA) guaranteed loans (see REAL
ESTATE DEVELOPMENT).
The Company transferred $.77 million of accounts receivable to long-term notes
receivable in 1995. Such refinancings have been generally successful in
assisting financially distressed Franchisees. Nevertheless, this program limits
the Company's access to cash that would have been generated from earlier
collection of these receivables. The Company sold approximately $1.01 million
of notes receivable in 1995. No plans presently exist for the sale of
additional notes.
REAL ESTATE DEVELOPMENT. In 1995, the Company moved forward with its Real
Estate Development Program. This program was developed to provide store growth
while minimizing the need for Company-provided guarantees, particularly as they
relate to real estate leases. Required performance under prior real estate
guarantees, or leases, resulted in the recognition of $.55 million expense in
1995, which is reported as a component of loss on sale or closure of retail
stores.
Under the Company's Real Estate Development Program, the Company secures
approved sites, develops such sites with a retail store, and generally, during
the development process, secures a Franchisee for ownership of the real estate
and business. Generally, such sales are financed through SBA guaranteed loans.
In certain instances, the Company has provided, and may continue to provide,
subordinated notes in an amount not to exceed $50,000 to the Franchisee to
qualify for this SBA guaranteed funding. In addition, certain providers of the
SBA funding may require the Company to guarantee the first 12-18 monthly
payments pursuant to such loans. The Company executed 6 of these guarantees in
1995, obligating the Company to $.7 million of additional financial guarantees.
At December 31, 1995, the Company's real estate subsidiary had $4.86 million
invested in retail stores under development for fourteen (14) sites. These
sites were primarily financed from the sale of notes receivable in 1994 and 1995
and the Company's revolving line of credit (Revolver). This program carries
considerable developmental risk as the Company will be required to hold these
assets, and related liabilities, if the properties cannot be sold.
The Board of Directors has established certain financial limitations for these
developmental activities. Accordingly, future development is limited to the
extent that funding can be obtained, developed retail store sites sold, and
generally, the criteria established by the Board of Directors met.
In 1995, 25 projects were terminated as a result of the Agreement and Plan of
Merger dated July 24, 1995 (Merger Agreement). The Company incurred charges
totaling $.27 million in 1995 as a result of the termination of these projects.
In addition, the Company's commitment for financing from AT&T Capital
Corporation (AT&T) was terminated in August 1995. As a result, projects that
are retained by the Company are now financed through the Revolver.
The Company sold ten (10) retail store and development sites during 1995. Two
(2) existing retail stores sites were sold for $.8 million, resulting in a net
income of $.09 million. Two (2) land sites were sold for $.5 million, resulting
in a net loss of $.21 million. The remaining six (6) sites were developed and
sold to franchisees. Gross sales on these sites were $4.2 million, resulting in
a net income of $.14 million.
19
<PAGE>
EXISTING CREDIT FACILITIES. The Company's operations are primarily financed
through the Revolver with the First National Bank of Chicago (First Chicago).
First Chicago provides a $20 million Revolver, which was initiated in January
1995. This loan matures in January 1998. In 1995, the Revolver had a sublimit
of $6 million which could be used for construction and permanent financing
pursuant to the Real Estate Development Program described above. In 1996, this
sublimit was increased to $8 million, and will increase to $10 million for 1997.
As noted above, the real estate and retail store joint venture financing program
previously provided by AT&T was terminated in August 1995. Certain prepayments
are associated with existing loans maintained under this program, unless an SBA
guaranteed loan is placed with AT&T's Small Business Lending Unit. At December
31, 1995, $4.9 million was outstanding under this AT&T facility. $.4 million
was included as a liability on the Company's books, with the remaining $4.5
million being a contingent liability of the Company.
Advances from First Chicago are limited to a portion of eligible collateral as
defined in the Revolving Credit Agreement and are further reduced by the amount
of any outstanding letters of credit issued on behalf of the Company. The
Company anticipates that short-term cash needs can be met through this credit
facility as well as limited real estate development costs. However, financing
through this facility is subject to a formula borrowing base and certain
covenant limitations. Financing beyond these needs, principally for capital
expenditures, will need to be obtained through other credit facilities.
The Company sold $8 million of senior, secured notes in April 1994, which
provide for quarterly interest only payments through July 1998 and then equal
principal payments of $333,000, plus interest, per quarter with the unpaid
balance due May 2004.
The Company is financing the Indiana RSC with a permanent loan obtained in 1994.
This loan amortizes in monthly installments over seven years.
In 1993, the Company borrowed $6 million from Kelly-Springfield to finance the
acquisition and retirement of certain common stock and warrants of the Company
previously held by General. Payments under this note extend through November
1997 and are based on scheduled principal reductions.
Management's discretion with respect to certain business matters is limited by
financial and other covenants contained in the Revolver, loan agreements with
AT&T, the senior note holders, and Kelly-Springfield. These covenants, among
other things, limit or prohibit the Company from (i) paying dividends on its
capital stock, (ii) incurring additional indebtedness, (iii) creating liens on
or selling certain assets, (iv) making certain loans, investments, or
guarantees, (v) violating certain financial ratios, (vi) repurchasing shares of
its common stock, or (vii) making certain capital expenditures. At December 31,
1995, the Company was in compliance with all of these covenants.
PROPOSED FINANCING. Due to the uncertain circumstances resulting from the
shareholder proposal, other than SBA guaranteed financing, the Company is
currently not pursuing any financing proposals to provide additional financing
for the Company's Franchisees.
FINANCIAL COMMITMENTS. The Company has provided financial guarantees on behalf
of certain franchised retail stores, which, at December 31, 1995, approximated
$8.1 million. The Company has also guaranteed approximately 50% of the balance
of notes sold since 1994. At December 31, 1995, this amounted to an additional
$2.2 million. Lease guarantees provided to landlords approximated $4.9 million
at December 31, 1995.
The Company guaranteed a promissory note on behalf of the Big O Tires, Inc.
Employee Stock Ownership Plan (ESOP) in November 1993. The last annual payment
under this note is due April 1996, in the amount of $180,000 plus accrued
interest. The Company is required to make contributions to the ESOP in an
amount equal to such principal and interest payments. The current year
contribution is sufficient to meet this debt service requirement.
20
<PAGE>
In 1994, the Company sold its Denver RSC for a down payment, certain rent
concessions, and the assignment of the Company's promissory note and mortgage on
the facility. The continuing financial obligations under this mortgage were not
released, resulting in the Company's continued obligation of $2.7 million. The
Company will use a portion of this space for its corporate offices, pursuant to
the aforementioned rent concessions, through June 1998.
LAS VEGAS RSC CONVERSION. During the second quarter 1995, the Company completed
its announced plan to consolidate three of its RSCs (Vacaville, California,
Ontario, California, and Denver, Colorado) into a 300,000 square foot facility
located near Las Vegas, Nevada.
In May 1994, the Company closed the Vacaville RSC and consolidated operations
into the Ontario RSC. The Vacaville warehouse was leased to an unrelated third
party. In July 1995, the land, warehouse, and lease were sold to the tenant.
Proceeds from the sale were used to reduce the outstanding loan balance with
First Chicago. The Denver RSC operations were converted to the Las Vegas RSC in
the first quarter 1995. As noted above, the Denver land and warehouse were sold
in December 1994. The operations of the Ontario RSC were converted to the Las
Vegas RSC in the second quarter 1995. While the Company is obligated under this
warehouse lease until May 1998, the space was sublet to an unrelated third
party. This lease commenced June 1995.
CAPITAL EXPENDITURES. In February 1995, the Company acquired the Las Vegas RSC
at a total cost of approximately $7.7 million. Additional equipment, computer
hardware, and software to operate this facility on a more efficient basis
resulted in $1.3 million of capital expenditures in 1995.
Additional capital expenditures are anticipated in connection with real estate
development activities as described above. Presently, the proposed expansion of
the Boise RSC has been deferred. Management anticipates that significant
investments in new computer hardware, software, and other technologies will be
required. The Company's 1996 capital budget for this expenditure amounts to $.8
million although it is expected that significant additions in capital
expenditures will be required for these and other projects in future years.
ADDITIONAL ISSUES THAT COULD IMPACT LIQUIDITY. Expenses associated with the
warranty program offered by the Company have had a significant impact on
profitability. Negotiated programs with suppliers have assisted the Company in
reducing the financial impact of this warranty program, however many of these
agreements with the Company's previous supplier have expired or are limited as
to future application. The Company now has 97% of its private brand product
produced by Kelly-Springfield and it is anticipated that this percentage will
remain over 95% through 1996.
A significant portion of the Company's customers are located in California. The
Company continues to add Franchisees in this significant market, but it is also
looking to expand retail store development into other states. In 1993, the
Company and its Franchisees experienced adverse publicity in the state of
California, which may have had an impact on retail sales during 1994 and 1995.
Retail sales, and the ability to franchise new locations within California, may
be impacted in the future, although the exact extent, if any, cannot be forecast
at this time.
Given the continued competitive pressures and the economic environment, most
notably in California, the Company has noticed a weakness in collections from
its customers. Continued competitive pressures and weak sales environments
could cause continued deterioration of collections from its customers, although
the exact extent of such problems cannot be predicted.
The Company experienced one environmental issue in 1995, which was settled at a
cost of approximately $50,000. The Company has periodically been involved with
minor clean-ups associated with certain retail stores in which the Company has
been a tenant, subtenant, or guarantor. Generally, the cost of these clean-ups
has been less than $10,000, although two situations, including the 1995 clean-
up, have each been approximately $50,000. There is no assurance that such
environmental remediations can be limited to this amount in the future, if any
occur. As a result of environmental concerns, the Company's real estate
development strategy requires that all new sites have Phase One environmental
studies conducted before the project is approved and the location acquired.
21
<PAGE>
Market risks associated with changes in interest rates could have an impact on
the Company's profitability due to the significant amounts of financing tied to
variable interest rates. Increases in consumer interest rates could have an
adverse effect on the sale of the Company's product to its Retail Stores, since
such Retail Stores sell a portion of their products and services to the consumer
on credit. The previous credit card system offered through American General
Finance, Inc. has been terminated. The Company is recommending to its
Franchisees that they work with Norwest Financial as an alternative for such
credit sales. There is no assurance that this finance company, or any finance
company, will continue to offer an acceptable financing program to the
Franchisees.
Lease guarantees and obligations can have a significant financial impact on the
Company's operations and cash flows. Over the past two years, the Company has
accrued for lease guarantees that have been expensed; however, the cash flow
requirements from these leases will continue until each lease has expired.
Further, the failure of any Retail Store for which the Company is currently a
tenant, subtenant, or guarantor, will result in reduced financial performance
and the resulting impact on future cash flows.
SEASONALITY
The Retail Stores experienced some seasonal variation of product sales because
tire sales are generally greater during the summer than in the winter months.
The Company generally experiences some degree of seasonality, although not to
the same extent that Retail Stores do, as the Company maintains sales to certain
Retail Stores that offset this trend on a national basis through the sale of
such products as snow tires and chains. The Company has historically generated
operating losses or lower profits during the first quarter of each fiscal year
because of lower sales volumes and higher expenses as a percentage of sales.
INFLATION AND PRICE CHANGES
As a matter of past industry practice, most tire distributors adjust the selling
price of inventories when prices increase (decrease) which results in gross
profit increases (decreases) associated with the sale of existing inventories at
these higher (lower) prices. Management notes that certain "discount"
distributors may defer this price increase on their existing inventory in an
effort to increase market share. Management has also noted increased price
competition among distributors, wherein price increases are not passed onto
customers, nor accepted from suppliers.
Price increases contributed approximately $450,000, $360,000 and $90,000 to the
Company's gross profits for 1995, 1994 and 1993, respectively. The Company
received an approximate 3% price increase from its suppliers on tires and other
products in 1995. The Company has received notice of a possible 1996 price
increase from its suppliers of tires and other products. Management is unsure
as to whether this price increase, if implemented, will be supported by the
industry. Since price increases are initiated by manufacturers and are then
subject to competitive pressures, management cannot predict any future
increases.
ACCOUNTING STANDARDS
ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standard (FAS) No. 114,
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, effective January 1, 1995.
The adoption of this FAS did not have a material effect on the Company's
financial position or results of operations for the year ended December 31,
1995.
The Financial Accounting Standards Board (FASB) has issued FAS No. 119,
DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS, which is required to be implemented for the Company's fiscal year
ending December 31, 1996. At December 31, 1995, the Company did not hold any
derivative financial instruments for trading or other purposes, and the Company
did not purchase any such instruments during the year then ended. Accordingly,
the earlier adoption of this FAS would not have materially affected the
Company's financial position or results of operations for the year ended
December 31, 1995.
22
<PAGE>
The FASB has also issued Statement of Financial Accounting Standard No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, which is required to be implemented for the Company's fiscal
year ending December 31, 1996. The earlier adoption of this FAS would not have
materially affected the Company's financial position or results of operations
for the year ended December 31, 1995.
The FASB has also issued FAS No. 123 ACCOUNTING FOR STOCK BASED COMPENSATION,
which is required to be implemented for the Company's fiscal year ending
December 31, 1996. The Company is continuing to evaluate the provisions of FAS
No. 123 and, as such, has not yet determined the effect the earlier adoption of
this FAS would have on the Company's financial position or results of operations
for the year ended December 31, 1995.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All Financial Statements and Financial Statement Schedules required to be filed
hereunder are listed under Item 14 and are attached hereto following the
signature page.
(a) Selected Quarterly Financial Data (unaudited) (in thousands except per
share data):
<TABLE>
1995
QUARTER ENDED
-----------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $ 29,153 $ 37,777 $ 40,742 $ 34,450
Gross Profit 6,740 8,243 7,952 7,731
Income Tax 209 466 372 134
Net Income 289 645 511 98
Net Income Per
Common Share .09 .19 .15 .03
</TABLE>
<TABLE>
1994
QUARTER ENDED
-----------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $ 26,393 $31,087 $ 36,652 $ 33,546
Gross Profit 6,285 8,083 7,561 8,202
Income Tax 152 479 421 898
Net Income 205 650 599 1,237
Net Income Per
Common Share .06 .19 .18 .37
</TABLE>
_________________
(b) Information about Oil and Gas Producing Activities
Not applicable.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
23
<PAGE>
PART III
Items 10 through 13 of this Form 10-K are omitted by the Company and will either
be filed as an amendment to this Annual Report on Form 10-K or will be
incorporated by reference to the Company's definitive Proxy Statement for the
Company's 1996 Annual Meeting of Shareholders which will be filed with the
United States Securities and Exchange Commission not later than 120 days after
the close of the Company's fiscal year.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) LIST OF FINANCIAL STATEMENTS
The following is a list of financial statements which, along with the auditors'
report, accompany this Form 10-K:
- Independent Auditors' Report - Deloitte & Touche LLP
- Consolidated Balance Sheets
December 31, 1995 and 1994
- Consolidated Statements of Income
Years Ended December 31, 1995, 1994, and 1993
- Consolidated Statements of Shareholders' Equity
Years ended December 31, 1995, 1994, and 1993
- Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994, and 1993
- Notes to Consolidated Financial Statements
(a) (2) LIST OF SCHEDULES REQUIRED BY ITEM 8 AND ITEM 14 (D)
None.
(a) (3) LIST OF EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
EXHIBIT
NUMBER
(3.1) Certificate of Amendment to Restated Articles of Incorporation of
Big O Tires, Inc. dated June 10, 1992 and Restated Articles of
Incorporation of Big O Tires, Inc. dated August 17, 1987
(incorporated by reference to Exhibit 3 to Quarterly Report on
Form 10-Q for quarter ended June 30, 1992).
(3.2) Third Amendment and Restated Bylaws of Big O Tires, Inc. dated
December 5, 1995.
(4.1) Rights Agreement dated as of August 26, 1994, between Big O
Tires, Inc. and Interwest Co., Inc., as Rights Agent
(incorporated by reference to Exhibit 1 to Current Report on Form
8-K dated August 26, 1994).
(4.2) Amendment to Rights Agreement dated as of July 24, 1995, is between
Big O Tires, Inc., a Nevada corporation, and Interwest Co., Inc.,
a Utah corporation (incorporated by reference to Exhibit 10.2 to
Big O Tires, Inc.'s Current Report on Form 8-K dated July 25,
1995).
(10.1) 1994 Restatement of Employee Stock Ownership Plan and Trust Agreement
of Big O Tires, Inc. (incorporated by reference to Exhibit 10.3
to Big O Tires, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994).
(10.2) Big O Tires, Inc. Director and Employee Stock Option Plan
(incorporated by reference to Exhibit 10.11 to Big O Tires,
Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
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<PAGE>
(10.3) First Amendment to the Big O Tires, Inc. Director and Employee Stock
Option Plan (incorporated by reference to Exhibit 10.10 to Big O
Tires, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1989).
(10.4) Amendment No. 2 to the Big O Tires, Inc. Director and Employee Stock
Option Plan (incorporated by reference to Exhibit 10.16 to Big O
Tires, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1992).
(10.5) Ultimate Net Loss Agreement between Big O Tires, Inc. and FBS Business
Finance Corporation dated January 13, 1989 (incorporated by
reference to Exhibit 10.34 to Big O Tires, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1988).
(10.6) Purchase Agreement effective June 30, 1987, and related documents
including Promissory Notes, Modification Agreements, Security
Agreements, Guaranty Agreement, and Subleases in connection with
a purchase by C.S.B. Partnership and three individuals including
Ronald D. Asher, of three Big O Franchise Retail Stores in
California from Security/Cal, Inc., a wholly-owned subsidiary of
the Company, and H.R.I., Inc., a wholly-owned subsidiary of
Security/Cal, Inc. (incorporated by reference to Exhibit 10.63 to
Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1987).
(10.7) Purchase Agreement effective November 1, 1987, and related documents
including Promissory Notes, Security Agreements, Guaranty
Agreements, Subleases, and Franchise Agreements in connection
with a purchase by C.S.B. Partnership and its three general
partners, including Ronald D. Asher, of two Big O Franchise
Retail Stores in California from Security/Cal, Inc. and H.R.I.,
Inc. (Seller) (incorporated by reference to Exhibit 10.45 to Big
O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
(10.8) Purchase Agreements effective July 5, 1988, October 1, 1988, and
November 14, 1988, and related documents including Promissory
Notes, Security Agreements, Guaranty Agreements, and Subleases in
connection with a purchase by C.S.B. Partnership and three
individuals including Ronald D. Asher of three Big O Franchise
Retail Stores in California from Big O Tires, Inc., Security/Cal,
Inc., a wholly-owned subsidiary of the Company, and H.R.I., Inc.,
a wholly-owned subsidiary of Security/Cal, Inc. (incorporated by
reference to Exhibit 10.46 to Big O Tires, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1988).
(10.9) Agreement and Release dated October 31, 1989, and related documents
including Promissory Note, related Subleases, Assignment of Lease
Rights, and Performance Guarantee in connection with the purchase
by C.S.B. Partnership and its general partners, including Ronald
D. Asher, of two (2) Big O franchise Retail Stores in California,
owned by GEM Tire, Inc. from the Company (incorporated by
reference to Exhibit 10.57 to Big O Tires, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1989).
(10.10) Ultimate Net Loss Agreement, dated as of December 1, 1990, by and
between Big O Tires, Inc. and Northcross Financial Services,
Inc., ICON Capital Corp., in its individual capacity and on
behalf of ICON Cash Flow Partners, L.P., Series A, ICON Cash Flow
Partners, L.P., Series B and any future partnerships on which it
may be the general partner and/or manager (incorporated by
reference to Exhibit 10.70 to Big O Tires, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1990).
(10.11) Agreement of Joint Venture of Big O/C.S.B. Joint Venture dated as of
June 1, 1992, by and between Big O Retail Enterprises, Inc., a
wholly-owned subsidiary of Big O Tires, Inc., and C.S.B.
Partnership, a California general partnership (incorporated by
reference to Exhibit 10.70 to Big O Tires, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1991).
(10.12) 1995 Incentive Bonus Plans (incorporated by reference to Exhibit 10.71
to Big O Tires, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
25
<PAGE>
(10.13) Purchase Agreement for Private Brand Name Tires between Big O Tires,
Inc. and The Kelly-Springfield Tire Co., dated August 16, 1992
(incorporated by reference to Exhibit 10.71 to Big O Tires,
Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1991).
(10.14) Big O Tires, Inc. Long Term Incentive Plan (incorporated by reference
to Exhibit 55 to Big O Tires, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1992).
(10.15) Amendment No. 1 to Big O Tires, Inc. Long Term Incentive Plan
(incorporated by reference to Exhibit 56 to Big O Tires, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
(10.16) Amendment No. 2 to Big O Tires, Inc. Long Term Incentive Plan
(incorporated by reference to Exhibit 57 to Big O Tires, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
(10.17) Agreement of Joint Venture of Big O/S.A.N.D.S. Joint Venture
(incorporated by reference to Exhibit 58 to Big O Tires, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
(10.18) Commitment Letters dated July 22, 1992, from AT&T Capital Corporation
(incorporated by reference to Exhibit 64 to Big O Tires, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
(10.19) Agreement dated as of November 15, 1992, among Peerless Trading
Company, Limited, Delaware Liquidators, Inc. dba Trade Center
Imports, and Big O Tires, Inc.; Purchase Money Non-Negotiable
Promissory Note dated as of November 15, 1992, from Peerless
Trading Company, Limited to Big O Tires, Inc.; and amendment
dated January 19, 1993 to the Agreement dated November 15, 1992
(incorporated by reference to Exhibit 66 to Big O Tires, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
(10.20) Marketing Agreement for Private Brand Tires between Big O
Tires, Inc. and General Tire, Inc., dated May 14, 1993
(incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s
Current Report on Form 8-K dated April 30, 1993).
(10.21) Inventory Financing Agreement between The Kelly-Springfield Tire
Company and Big O Tires, Inc. and/or Big O Tire of Idaho, Inc.
and/or Big O Retail Enterprises, Inc., dated May 14, 1993
(incorporated by reference to Exhibit 10.4 to Big O Tires, Inc.'s
Current Report on Form 8-K dated April 30, 1993).
(10.22) Demand Note in the original principal amount of $6,000,338.67
with The Kelly-Springfield Tire Col. as Holder and Big O Tires,
Inc., Big O Retail Enterprises, Inc. and Big O Tire of Idaho,
Inc. as Maker (incorporated by reference to Exhibit 10.50 to Big
O Tires, Inc.'s Annual Report on Form 10-K dated April 30, 1993).
(10.23) Consolidation and Modification Agreement among Big O Tires, Inc.
(successor in interest to H.R.I., Inc. and Security/Cal, Inc.)
and Big O Retail Enterprises, Inc. and C.S.B. Partnership
(incorporated by reference to Exhibit 10.51 to Big O Tires,
Inc.'s Registration Statement No. 33-65852).
(10.24) Modification of Consolidation and Modification Agreement by and
between C.S.B. Partnership and Big O Tires, Inc. (incorporated by
reference to Big O Tires, Inc.'s Form 10-K for the year ended
December 31, 1993).
(10.25) Registration Rights Agreement dated June 28, 1993, between the
Selling Shareholder and Big O Tires, Inc. (incorporated by
reference to Exhibit 10.52 to Big O Tires, Inc.'s Registration
Statement No. 33-65852).
26
<PAGE>
(10.26) Loan Agreement and Promissory Note in the original principal
amount of $155,000.00 with C.S.B. Partnership as Maker
(incorporated by reference to Exhibit 10.44 to Big O Tires,
Inc.'s Form 10-K for the fiscal year ended December 31, 1993).
(10.27) Loan Agreement and Promissory Note in the original principal
amount of $70,000.00 with Big O/C.S.B Joint Venture as Maker
(incorporated by reference to Exhibit 10.45 to Big O Tires,
Inc.'s Form 10-K for the fiscal year ended December 31, 1993).
(10.28) Loan Agreement and Promissory Note in the original principal
amount of $75,000.00 with Big O/S.A.N.D.S. Joint Venture as Maker
(incorporated by reference to Exhibit 10.46 to Big O Tires,
Inc.'s Form 10-K for the fiscal year ended December 31, 1993).
(10.29) Commercial Note and Loan Agreement, Commercial Mortgage and
Environmental Certificate between Big O Development, Inc. and
National City Bank, Kentucky, and Guaranty Agreement of Big O
Tires, Inc. guaranteeing the obligations of Big O Development,
Inc. to National City Bank, Kentucky in connection with the
borrowing of $1,500,000 for construction of the Company's
Regional Sales and Service Center in New Albany, Indiana
(incorporated by reference to Exhibit 10.47 to Big O Tires,
Inc.'s Form 10-K for the fiscal year ended December 31, 1993).
(10.30) Construction Agreement between Big O Development, Inc. and
Koetter Construction, Inc. to construct the Regional Sales and
Service Center in Floyd, County, Indiana (incorporated by
reference to Exhibit 10.48 to Big O Tires, Inc.'s Form 10-K for
the fiscal year ended December 31, 1993).
(10.31) Letter dated January 26, 1994 from General Tire, Inc. to the Company
terminating the Marketing Agreement for Private Brand Name Tires
between Big O Tires, Inc. and General Tire, Inc. dated May 14,
1993 (incorporated by reference to Exhibit 10.52 to Big O Tires,
Inc.'s Form 10-K for the fiscal year ended December 31, 1993).
(10.32) Purchase Agreement by and between Caps Tire Limited Liability
Company and Intermountain Big O Realty for the Big O Tires Retail
Store located at 8151 East Arapahoe Road, Englewood, Colorado
incorporated by reference to Exhibit 10.53 to Big O Tires, Inc.'s
Form 10-K for the fiscal year ended December 31, 1993).
(10.33) Third and Fourth Amendments to Loan and Security Agreement by and
between Big O Tires, Inc. and its primary lender (incorporated by
reference to Exhibit 10.54 to Big O Tires, Inc.'s Form 10-K for
the fiscal year ended December 31, 1993).
(10.34) Limited Partnership Agreement by and between Donald J. Horton,
General Partner, Thomas L. Staker, General Partner, and Big O
Tires, Inc., Limited Partner, dated as of December 31, 1993
(incorporated by reference to Exhibit 10.56 to Big O Tires,
Inc.'s Form 10-K for the fiscal year ended December 31, 1993).
(10.35) Loan Agreement and Guaranty, Promissory Note and Security
Agreement with Big O Tires, Inc. Employee Stock Ownership Plan
("ESOP") as Borrower, Big O Tires, Inc., as Guarantor, and Key
Bank of Wyoming, as Lender, in connection with the refinancing of
the ESOP debt in the amount of $960,000 (incorporated by
reference to Exhibit 10.57 to Big O Tires, Inc.'s Form 10-K for
the fiscal year ended December 31, 1993).
(10.36) Amendment to Partnership Agreement dated August 25, 1994, by and
between Big O Development, Inc., a Colorado corporation, a
wholly-owned subsidiary of Big O Tires, Inc. and Mill Creek
Associates, Ltd., a Colorado limited partnership (incorporated by
reference to Exhibit 10.2 to Big O Tires, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994).
(10.37) Agreement dated July 1, 1994, by and between General Tire, Inc.,
an Ohio corporation and Big O Tires, Inc. (incorporated by
reference to Exhibit 10.4 to Big O Tires, Inc.'s Quarterly Report
on Form 10-Q dated September 30, 1994).
27
<PAGE>
(10.38) Consulting Agreement by and between Big O Tires, Inc., and Horst
K. Mehlfeldt (incorporated by reference to Exhibit 10.5 to Big O
Tires, Inc.'s Quarterly Report on Form 10-Q dated September 30,
1994).
(10.39) Letter Agreement dated January 10, 1995, amending the Consulting
Agreement by and between Big O Tires, Inc. and Horst K. Mehlfeldt
(incorporated by reference to Exhibit 10.3 to Big O Tires, Inc.'s
Current Report on Form 8-K dated January 10, 1995).
(10.40) Letter Agreement dated July 12, 1994, by and between Big O Tires,
Inc. and PaineWebber Incorporated (incorporated by reference to
Exhibit 10.6 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q
dated September 30, 1994).
(10.41) Letter Agreement dated March 23, 1994, by and between Big O
Tires, Inc. and The CIT Group/Equipment Financing, Inc., a New
York corporation (incorporated by reference to Exhibit 10.7 to
Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated September
30, 1994).
(10.42) Ultimate Net Loss Agreement dated October 21, 1994, by and
between Big O Tires, Inc. and The CIT Group/Equipment Financing,
Inc., a New York corporation (incorporated by reference to
Exhibit 10.8 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q
dated September 30, 1994).
(10.43) Fifth Amendment to Loan and Security Agreement by and between Big
O Tires, Inc. and its former lender dated April 29, 1994
(incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s
Quarterly Report on Form 10-Q dated September 30, 1994).
(10.44) Agreement by the Investment Committee of the Board of Directors
and the Management/Dealer participants dated December 22, 1994
(incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s
Current Report on Form 8-K dated December 6, 1994).
(10.45) Letter dated December 13, 1994, to the Investment Committee of
Big O Tires, Inc. and the Management participants and Dealer
representatives (incorporated by reference to Exhibit 10.2 to Big
O Tires, Inc.'s Current Report on Form 8-K dated December 6,
1994).
(10.46) Letter dated February 7, 1995, from the Dealer/Management Group
to the Company's Board Chairman (incorporated by reference to
Exhibit 10.1 to Big O Tires, Inc.'s Current Report on Form 8-K
dated January 10, 1995).
(10.47) Agreement between the Company and the Management/Dealer
participants dated January 20, 1995 (incorporated by reference to
Exhibit 10.2 to Big O Tires, Inc.'s Current Report on Form 8-K
(10.48) Multi-Tenant Lease NNN dated December 1, 1994 between Botac VI
Leasing L.L.C., a Utah Limited Liability Company and Big O
Development, Inc. (incorporated by reference to Exhibit 10.62 to
Big O Tires, Inc.'s Annual Report on Form 10-K for fiscal year
ended December 31, 1994).
(10.49) Assignment and Assumption Agreement dated December 2, 1994 by Big
O Development, Inc., Big O Tires, Inc. and Botac VI Leasing,
L.L.C. and Allstate Life Insurance Company (incorporated by
reference to Exhibit 10.63 to Big O Tires, Inc.'s Annual Report
on Form 10-K for fiscal year ended December 31, 1994).
(10.50) Guarantee Agreement dated December 2, 1994 by Big O Tires, Inc.,
Big O Development, Inc. and Allstate Life Insurance Company
(incorporated by reference to Exhibit 10.64 to Big O Tires,
Inc.'s Annual Report on Form 10-K for fiscal year ended December
31, 1994).
(10.51) Closing Agreement dated December 2, 1994 by Big O Development,
Inc., Big O Tires, Inc., Botac VI Leasing, L.L.C., and Allstate
Life Insurance Company (incorporated by reference to Exhibit
10.65 to Big O Tires, Inc.'s Annual Report on Form 10-K for
fiscal year ended December 31, 1994).
28
<PAGE>
(10.52) Commercial Contract to Buy and Sell Real Estate dated March 17,
1994 between Bailey's Moving and Storage and Big O Tires, Inc.
(incorporated by reference to Exhibit 10.66 to Big O Tires,
Inc.'s Annual Report on Form 10-K for fiscal year ended December
31, 1994).
(10.53) Confidentiality Agreement dated September, 1994 between Big O
Tires, Inc. and Kenneth W. Pavia, Sr. (incorporated by reference
to Exhibit 10.67 to Big O Tires, Inc.'s Annual Report on Form
10-K for fiscal year ended December 31, 1994).
(10.54) Amendment No. 1 to the Big O Tires, Inc. Employee Stock Ownership
Plan and Trust Agreement dated September 12, 1994 (incorporated
by reference to Exhibit 10.68 to Big O Tires, Inc.'s Annual
Report on Form 10-K for fiscal year ended December 31, 1994).
(10.55) Development Management Agreement dated September, 1994 between
Ross Development Management Group, Inc. and Big O Development,
Inc. and Big O Tires, Inc. (incorporated by reference to Exhibit
10.69 to Big O Tires, Inc.'s Annual Report on Form 10-K for
fiscal year ended December 31, 1994).
(10.56) Letter Agreement dated February 20, 1995 terminating the
Consulting Agreement between Big O Tires, Inc. and Horst K.
Mehlfeldt (incorporated by reference to Exhibit 10.70 to Big O
Tires, Inc.'s Annual Report on Form 10-K for fiscal year ended
December 31, 1994).
(10.57) Commitment Letter dated February 16, 1994 between Big O Tires,
Inc. and AT&T Commercial Finance Corporation for real estate
financing (incorporated by reference to Exhibit 10.72 to Big O
Tires, Inc.'s Annual Report on Form 10-K for fiscal year ended
December 31, 1994).
(10.58) Commitment Letter dated February 16, 1994 between Big O Tires,
Inc. and AT&T Commercial Finance Corporation for equipment
financing (incorporated by reference to Exhibit 10.73 to Big O
Tires, Inc.'s Annual Report on Form 10-K for fiscal year ended
December 31, 1994).
(10.59) Extension letter dated December 9, 1994 between Big O Tires, Inc.
and AT&T Commercial Finance Corporation to extend existing lines
of credit through December 31, 1995 (incorporated by reference to
Exhibit 10.74 to Big O Tires, Inc.'s Annual Report on Form 10-K
for fiscal year ended December 31, 1994).
(10.60) Resignation letter dated February 27, 1995 from Robert L. Puckett
(incorporated by reference to Exhibit 10.75 to Big O Tires,
Inc.'s Annual Report on Form 10-K for fiscal year ended December
31, 1994).
(10.61) Resignation letter dated February 24, 1995 from David W. Dwyer
(incorporated by reference to Exhibit 10.76 to Big O Tires,
Inc.'s Annual Report on Form 10-K for fiscal year ended December
31, 1994).
(10.62) Revolving Credit Agreement dated January 23, 1995 between Big O
Tires, Inc. and The First National Bank of Chicago (incorporated
by reference to Exhibit 10.77 to Big O Tires, Inc.'s Annual
Report on Form 10-K for fiscal year ended December 31, 1994).
(10.63)
Consent, Acknowledgement and Access Agreement dated January 23,
1995 between The Bank of Cherry Creek, N.A., Kenneth B. Buckius
and The First National Bank of Chicago (incorporated by reference
to Exhibit 10.78 to Big O Tires, Inc.'s Annual Report on Form
10-K for fiscal year ended December 31, 1994).
(10.64) Note Purchase Agreement dated April 27, 1994 between Big O Tires,
Inc. and USG Annuity & Life Company and Republic Western
Insurance Company (incorporated by reference to Exhibit 10.79 to
Big O Tires, Inc.'s Annual Report on Form 10-K for fiscal year
ended December 31, 1994).
(10.65) Franchise Agreement dated October 7, 1994 between Big O Tires,
Inc. and OK Tires, Inc. for the Retail Store located at 2830 West
3500 South, West Valley City, Utah 84119 (incorporated by
reference to Exhibit 10.80 to Big O Tires, Inc.'s Annual Report
on Form 10-K for fiscal year ended December 31, 1994).
29
<PAGE>
(10.66) Franchise Agreement dated November 26, 1993 between Big O Tires,
Inc and CAPS Tire Limited Liability Company for the Retail Store
located at 8151 East Arapahoe Road, Englewood, Colorado 80112
(incorporated by reference to Exhibit 10.81 to Big O Tires,
Inc.'s Annual Report on Form 10-K for fiscal year ended December
31, 1994).
(10.67) Form of Confidentiality Agreement signed by dealers dated October
19, 1994 (incorporated by reference to Exhibit 10.82 to Big O
Tires, Inc.'s Annual Report on Form 10-K for fiscal year ended
December 31, 1994).
(10.68) Ultimate Net Loss Agreement dated November 30, 1994, by and
between Big O Tires, Inc. and The CIT Group/Equipment Financing,
Inc., a New York corporation (incorporated by reference to
Exhibit 10.83 to Big O Tires, Inc.'s Annual Report on Form 10-K
for fiscal year ended December 31, 1994).
(10.69) Inventory Financing Agreement together with a Demand Note dated
September 30, 1994, by and between The Kelly-Springfield Tire
Company and Big O Tires, Inc., Big O Retail Enterprises, Inc. and
Big O Tire of Idaho, Inc. (incorporated by reference to Exhibit
10.84 to Big O Tires, Inc.'s Annual Report on Form 10-K for
fiscal year ended December 31, 1994).
(10.70) Supplemental Executive Retirement Plan dated December 7, 1994, by
Big O Tires, Inc., effective January 1, 1994 (incorporated by
reference to Exhibit 10.85 to Big O Tires, Inc.'s Annual Report
on Form 10-K for fiscal year ended December 31, 1994).
(10.71) Forms of Stock Appreciation Rights Agreement dated February 15,
1995, between Big O Tires, Inc. and the Members of the Chief
Executive Office (incorporated by reference to Exhibit 10.86 to
Big O Tires, Inc.'s Annual Report on Form 10-K for fiscal year
ended December 31, 1994).
(10.72) Letter Agreement dated March 24, 1995, regarding severance
package, between Big O Tires, Inc. and John E. Siipola
(incorporated by reference to Exhibit 10.87 to Big O Tires,
Inc.'s Annual Report on Form 10-K for fiscal year ended December
31, 1994).
(10.73) Letter Agreement dated March 24, 1995, regarding severance
package, between Big O Tires, Inc. and Horst K. Mehlfeldt
(incorporated by reference to Exhibit 10.88 to Big O Tires,
Inc.'s Annual Report on Form 10-K for fiscal year ended December
31, 1994).
(10.74) Letter dated February 7, 1995, from the Dealer-Management Group
to the Company's Board Chairman (incorporated by reference to
Exhibit 10.1 to Big O Tires, Inc.'s Current Report on Form 8-K
dated January 10, 1995).
(10.75) Agreement between the Company and the Management Dealer
Participants dated January 20, 1995 (incorporated by reference to
Exhibit 10.2 to Big O Tires, Inc.'s Current Report on Form 8-K
dated January 10, 1995).
(10.76) Letter Agreement dated January 10, 1995, amending the Consulting
Agreement by and between Big O Tires, Inc. and Horst K. Mehlfeldt
(incorporated by reference to Exhibit 10.3 to Big O Tires, Inc.'s
Current Report on Form 8-K dated January 10, 1995).
(10.77) Purchase Agreement dated March 22, 1995 effective March 31, 1995
by and between Tire Marketers Association, a division of Big O
Tires, Inc. and Carr's Tire Service, Inc., a Virginia corporation
(incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s
Quarterly Report on Form 10-Q dated March 31, 1995).
(10.78) Acquisition Proposal to the Investment Committee of the Board of
Directors from certain member of management and a representative
of certain Big O Tires, Inc.'s franchisees dated April 6, 1995
(incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s
Current Report on Form 8-K dated April 6, 1995).
30
<PAGE>
(10.79) Acquisition Proposal to the Investment Committee of the Board of
Directors from certain member of management and a representative
of certain Big O Tires, Inc.'s franchisees dated June 2, 1995
(incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s
Current Report on Form 8-K dated June 5, 1995).
(10.80) Acquisition Proposal to the Investment Committee of the Board of
Directors from certain members of management and a representative
of Big O Tire Dealers of America dated June 2, 1995, and signed
by the Company on June 7, 1995 (incorporated by reference to
Exhibit 10.1 to Big O Tires, Inc.'s Current Report on Form 8-K
dated June 9, 1995).
(10.81) Letter Agreement and Indemnification Agreement dated January 20,
1995, between Big O Tires, Inc. and PaineWebber Incorporated.
Acquisition Proposal to the Investment Committee of the Board of
Directors from certain member of management and a representative
of certain Big O Tires, Inc.'s franchisees dated April 6, 1995
(incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s
Quarterly Report on Form 10-Q dated June 30, 1995).
(10.82) Three memos from PaineWebber Incorporated to the Company amending
certain fees dated June 9, 1995, June 16, 1995 and June 30, 1995
(incorporated by reference to Exhibit 10.2 to Big O Tires, Inc.'s
Quarterly Report on Form 10-Q dated June 30, 1995).
(10.83) Letter Agreement between Big O Tires, Inc. and John E. Siipola
dated July 21, 1995, pertaining to new severance package terms
and terminating the March 24, 1995 Letter Agreement regarding
severance (incorporated by reference to Exhibit 10.3 to Big O
Tires, Inc.'s Quarterly Report on Form 10-Q dated June 30, 1995).
(10.84) Letter Agreement between Big O Tires, Inc. and Horst K. Mehlfeldt
dated July 21, 1995, pertaining to new severance package terms
and terminating the March 24, 1995 Letter Agreement regarding
severance (incorporated by reference to Exhibit 10.4 to Big O
Tires, Inc.'s Quarterly Report on Form 10-Q dated June 30, 1995).
(10.85) Letter Agreement between Big O Tires, Inc. and Steven P. Cloward
dated July 21, 1995, regarding a modification to Mr. Cloward's
severance package (incorporated by reference to Exhibit 10.5 to
Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated June 30,
1995).
(10.86) Agreement and Plan of Merger dated July 24, 1995, between BOTI
Holdings, Inc., a Nevada corporation, BOTI Acquisition Corp., a
Nevada corporation and a wholly owned subsidiary of BOTI
Holdings, Inc., and Big O Tires, Inc. (incorporated by reference
to Exhibit 10.1 to Big O Tires, Inc.'s Current Report on Form 8-K
dated July 25, 1995).
(10.87) Letter Agreement dated August 31, 1995, by and among Big O Tires,
Inc., BOTI Acquisition Corp., and BOTI Holdings, Inc.
(incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s
Current Report on Form 8-K dated September 5, 1995).
(10.88) Agreement for Purchase and Sale of Joint Venture Interest;
Dissolution of Joint Venture; and Continuation of Business by
Acquiring Joint Ventures dated effective October 1, 1994, by and
between Big O Retail Enterprises, Inc., a Colorado corporation
("Seller") and C.S.B. Partnership, a California general
partnership ("Purchaser") (incorporated by reference to Exhibit
10.1 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q dated
September 30, 1995).
(10.89) Letter Agreement dated October 2, 1995, by and among Big O Tires,
Inc., BOTI Acquisition Corp., and BOTI Holdings, Inc.
(incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s
Current Report on Form 8-K dated October 4, 1995).
(10.90) Letter dated October 15, 1995, from BOTI Acquisition Corp. and
BOTI Holdings, Inc., to Big O Tires, Inc. (incorporated by
reference to Exhibit 10.1 to Big O Tires, Inc.'s Current Report
on Form 8-K dated October 18, 1995).
31
<PAGE>
(10.91) Second Amendment to Employee Stock Ownership Plan and Trust
Agreement of Big O Tires, Inc., dated ___ November, 1995
(incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s
Current Report on Form 8-K dated November 17, 1995).
(10.92) Amendment to Agreement and Plan of Merger dated as of November
14, 1995, between BOTI Holdings, Inc., a Nevada corporation (the
"Parent"), BOTI Acquisition Corp., a Nevada corporation and a
wholly owned subsidiary of the Parent (the"Purchaser"), and Big O
Tires, Inc., a Nevada corporation (the "Company"), and amends the
Agreement and Plan of Merger dated as of July 24, 1995
(incorporated by reference to Exhibit 10.2 to Big O Tires, Inc.'s
Current Report on Form 8-K dated November 17, 1995).
(10.93) Second Amendment to Employee Stock Ownership Plan and Trust
Agreement of Big O Tires, Inc., dated November 14, 1995
(incorporated by reference to Exhibit 10.1 to Big O Tires, Inc.'s
Current Report on Form 8-K dated December 15, 1995).
(10.94) 1996 Incentive Bonus Plans.
(10.95) Form of Franchise Agreement currently in use.
(10.96) Promissory Note in the original principal amount of $250,000.00
with C.S.B Partnership as Maker and related security documents.
(20.1) Opinion Letter from PaineWebber Incorporated to the
Board of Directors of Big O Tires, Inc. dated November 14, 1995
(incorporated by reference to Exhibit 20.1 to Big O Tires, Inc.'s
Current Report on Form 8-K dated November 17, 1995).
(21.1) Big O Tires, Inc. Subsidiaries
(23.1) Consent of Deloitte & Touche
(25.1) Powers of Attorney executed by the Directors of Big O
Tires, Inc.
(27.1) Big O Tires, Inc.'s Financial Data Schedule.
__________
* All executive compensation plans and arrangements required to be filed as
exhibits to the Form 10-K pursuant to Item 601.
32
<PAGE>
(b) Reports on Form 8-K
1. On October 4, 1995, the Company filed a Current Report on Form 8-K dated
October 4, 1995 announcing under Item 5 that the Company had agreed to a
requested extension of the Merger Agreement. The Company also filed under
Item 7 the Letter Agreement dated October 2, 1995 by and among the Company,
BOTI Acquisition Corp., and BOTI Holding, Inc.
2. On October 18, 1995, the Company filed a Current Report on Form 8-K
dated October 18, 1995, announcing under Item 5 that the Company received
notice from the Purchaser that the Purchaser elected to waive the Dealer
Participation Contingency. The Company also filed under Item 7 the letter
dated October 15, 1995 from BOTI Acquisition Corp. and BOTI Holding, Inc.
3. On November 17, 1995, the Company filed a Current Report on Form 8-K
dated November 17, 1995, announcing under Item 5 that the Company received
a written opinion from PaineWebber Incorporated stating that as of the date
of the opinion, the merger consideration of $16.50 per share was fair from
a financial point of view to holders of the Company's common stock. The
Company also announced that the Board approval of various amendments to the
Company's Stock Ownership Plan and Trust Agreement. The Company also filed
under Item 7 the Second Amendment to Employee Stock Plan and Trust
Agreement, the Amendment to Agreement and Plan of Merger dated as of
November 14, 1995, between BOTI Holdings, Inc. and BOTI Acquisition Corp.,
and the Company, and the Opinion Letter from PaineWebber Incorporated dated
November 15, 1995.
4. On December 15, 1995, the Company filed a Current Report on Form 8-K/A
dated December 15, 1995, amending the Company's Current Report on Form 8-K
dated November 17, 1995 for the purpose of filing a corrected version of
the Second Amendment to Employee Stock Ownership Plan and Trust Agreement.
(c) EXHIBITS
Exhibits required by Item 601 of Regulation S-K are listed above under (a) (3)
of this Item 14.
(D) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules are listed above under (a) (2) of this Item 14.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: March 29, 1996
BIG O TIRES, INC., a Nevada corporation
By: /s/ JOHN E. SIIPOLA
----------------------------------
John E. Siipola
Member of the Office of the
Chief Executive and Chairman
By: /s/ HORST K. MEHLFELDT
----------------------------------
Horst K. Mehlfeldt
Member of the Office of the
Chief Executive and Vice-Chairman
By: /s/ STEVEN P. CLOWARD
----------------------------------
Steven P. Cloward
Member of the Office of the
Chief Executive and President
By: /s/ JOHN B. ADAMS
----------------------------------
John B. Adams
Principal Accounting Officer
34
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
DATE NAME AND TITLE SIGNATURE
- -------------------------------------------------------------------------------------
<S> <C> <C>
March 29, 1996 John E. Siipola JOHN E. SIIPOLA
Director, Member of the Office of the
Chief Executive and Chairman of the Board
Horst K. Mehlfeldt HORST K. MEHLFELDT
Director, Member of the Office of the
Chief Executive and Vice-Chairman of the Board
Steven P. Cloward STEVEN P. CLOWARD
Director, Member of the Office of the
Chief Executive and President
John B. Adams JOHN B. ADAMS
Director and Principal
Financial Officer
Ronald D. Asher RONALD D. ASHER
Director
Frank L. Carney FRANK L. CARNEY
Director
Everett H. Johnston EVERETT H. JOHNSTON
Director
Robert K. Lallatin ROBERT K. LALLATIN
Director
Ralph J. Weiger RALPH J. WEIGER
Director
C. Thomas Wernholm C. THOMAS WERNHOLM
Director
March 29, 1996
By: /s/ JOHN B. ADAMS
-------------------------
John B. Adams
Attorney-in-Fact
</TABLE>
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Big O Tires, Inc.
Englewood, Colorado
We have audited the accompanying consolidated balance sheets of Big O Tires,
Inc. as of December 31, 1995 and 1994, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1995
and 1994 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
/s/Deloitte & Touche
Denver, Colorado
March 14, 1996
<PAGE>
BIG O TIRES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(000S EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,094 $ 4,882
Trade accounts receivable, net of
allowance for doubtful accounts of
$1,421 in 1995 and $835 in 1994 9,255 8,165
Other receivables 242 2,905
Current portion of notes receivable 515 733
Inventories 13,249 14,219
Retail stores under development 4,861 2,169
Deferred income taxes 2,654 2,126
Other current assets 769 688
------ -------
Total current assets 32,639 35,887
------ -------
NOTES RECEIVABLE,
net of current portion 2,656 3,193
------ -------
PROPERTY, PLANT AND EQUIPMENT:
Furniture and equipment 7,427 6,021
Buildings and leasehold improvements 11,194 7,413
Land and land improvements 2,971 1,574
------ -------
21,592 15,008
Less accumulated depreciation and amortization (5,266) (5,146)
------ -------
16,326 9,862
------ -------
INTANGIBLE AND OTHER ASSETS:
Distribution rights, net of accumulated amortiza-
tion of $2,094 in 1995 and $1,816 in 1994 8,799 9,077
Equity in joint ventures and unconsolidated subsidiaries 877 1,129
Other 2,097 2,820
------ -------
11,773 13,026
------ -------
TOTAL ASSETS $63,394 $61,968
------ -------
------ -------
</TABLE>
See notes to consolidated financial statements
<PAGE>
BIG O TIRES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(000S EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
- ------------------------------------ ------ -------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $1,882 $ 650
Accrued payroll and benefits 1,408 1,130
Other accrued expenses 1,283 1,355
Warranty reserve 4,350 3,850
Current portion of long-term debt 1,639 2,033
Current portion of capital lease obligations 36 33
------ -------
Total current liabilities 10,598 9,051
------ -------
LONG-TERM DEBT,
net of current portion 13,729 15,739
------ -------
CAPITAL LEASE OBLIGATIONS,
net of current portion 131 167
------ -------
OTHER LONG-TERM LIABILITIES 1,337 1,433
------ -------
EMPLOYEE STOCK OWNERSHIP PLAN OBLIGATIONS 192 449
------ -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock: $ .10 par value
100,000,000 shares authorized,
shares issued: 3,349,100 in 1995
and 3,339,300 in 1994 335 334
Capital contributed in excess of par 15,544 15,418
Retained earnings 21,962 20,419
------ -------
37,841 36,171
Less: Employee stock ownership plan obligations (192) (449)
Deferred stock grant compensation (121) (472)
Treasury stock, at cost, 31,300 shares (121) (121)
------ -------
37,407 35,129
------ -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $63,394 $61,968
------ -------
------ -------
</TABLE>
See notes to consolidated financial statements
<PAGE>
BIG O TIRES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(000S EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
SALES:
Product and franchising $136,633 $127,678 $122,960
Real estate 5,489 -- --
--------- --------- ---------
142,122 127,678 122,960
COST OF SALES:
Product and franchising 105,985 97,547 95,329
Real estate 5,471 -- --
--------- --------- ---------
111,456 97,547 95,329
GROSS PROFIT 30,666 30,131 27,631
--------- --------- ---------
EXPENSES:
Selling and administrative 19,868 19,132 19,316
Product delivery expense 3,954 3,113 2,499
Interest expense 1,441 1,465 1,219
Loss on sale or closure of retail stores 547 1,106 429
Shareholder proposal expense 1,812 674 --
Offering costs -- -- 281
Warehouse consolidation costs 320 -- 607
--------- --------- ---------
27,942 25,490 24,351
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 2,724 4,641 3,280
--------- --------- ---------
PROVISION FOR INCOME TAXES:
Current 1,709 2,311 1,979
Deferred (528) (361) (579)
--------- --------- ---------
1,181 1,950 1,400
--------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 1,543 2,691 1,880
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE -- -- (285)
--------- --------- ---------
NET INCOME $1,543 $ 2,691 $1,595
--------- --------- ---------
--------- --------- ---------
EARNINGS PER SHARE:
Income before cumulative effect
of change in accounting principle $ .46 $ .80 $ .55
Cumulative effect of change in
accounting principle -- -- (.08)
--------- --------- ---------
Net income $ .46 $ .80 $ .47
--------- --------- ---------
--------- --------- ---------
WEIGHTED AVERAGE SHARES OUTSTANDING 3,377,429 3,347,892 3,409,962
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements
<PAGE>
BIG O TIRES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
($ ONLY IN 000S)
<TABLE>
<CAPTION>
EMPLOYEE
COMMON STOCK CAPITAL STOCK TREASURY STOCK
------------- CONTRIBUTED OWNERSHIP DEFERRED ----------------
NUMBER OF IN EXCESS RETAINED PLAN STOCK GRANT NUMBER OF
SHARES AMOUNT OF PAR EARNINGS OBLIGATIONS COMPENSATION SHARES AMOUNT
--------- ------- ------- -------- ----------- ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1992 3,542,700 $354 $19,099 $16,133 $(1,277) $ - 31,000 $ (119)
Net Income for 1993 1,595
Sale of Common Stock 93,300 9 1,097
Stock Issued as Compensation 1,500 19
Stock Options and Warrants Exercised 37,400 4 284
Deferred Compensation under
Discounted Stock Option Plan 90
Purchase and Retirement of
Treasury Stock and Warrants (400,000) (40) (6,060)
Treasury Stock Purchased 300 (2)
Employee Stock Ownership
Plan Obligation 302
--------- ------ ------- ------- ------- ------ ------ ------
BALANCE DECEMBER 31, 1993 3,274,900 327 14,529 17,728 (975) - 31,300 (121)
Net Income for 1994 2,691
Stock Issued as Compensation 33,700 4 516 (472)
Stock Options Exercised 30,700 3 229
Deferred Compensation under
Discounted Stock Option Plan 144
Employee Stock Ownership
Plan Obligation 526
--------- ------ ------- ------- ------- ------ ------ ------
BALANCE DECEMBER 31, 1994 3,339,300 334 15,418 20,419 (449) $(472) 31,300 (121)
Net Income for 1995 1,543
Stock Options Exercised 15,000 2 138
Restricted Stock Grants Cancelled (5,200) (1) (80) 81
Deferred Compensation Recognized 270
Deferred Compensation under
Discounted Stock Option Plan 68
Employee Stock Ownership
Plan Obligation 257
--------- ------ ------- ------- ------- ------ ------ ------
BALANCE DECEMBER 31, 1995 3,349,100 $ 335 $15,544 $21,962 $ (192) $(121) 31,300 $(121)
--------- ------ ------- ------- ------- ------ ------ ------
--------- ------ ------- ------- ------- ------ ------ ------
</TABLE>
See notes to consolidated financial statements
<PAGE>
BIG O TIRES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(000s)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,543 $2,691 $1,595
------ ------ ------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 1,240 1,215 1,168
Amortization of intangibles 395 453 390
Provision for losses on accounts and
notes receivable 1,272 356 556
(Gain)/loss on sales and retirements
of property and equipment (481) 37 40
Loss on sale or closure of retail stores 315 1,106 150
Equity in losses of affiliates 40 250 350
Deferred compensation under stock option plan
and restricted stock grants 338 224 90
Deferred gain recognized (22) (47) (35)
Deferred income taxes (528) (361) (579)
Cumulative effect of change in accounting principle -- -- 285
Other -- -- 104
Changes in assets and liabilities:
Increase in receivables (167) (4,446) (1,206)
(Increase) decrease in inventories 993 (2,253) 3,356
Increase in retail stores under development (2,392) (456) --
(Increase) decrease in other current assets (81) 161 (329)
(Increase) decrease in other assets (3) 9 (40)
Increase (decrease) in accounts payable 1,232 (2,987) 4,528
Increase in accrued expenses 100 25 278
Increase in warranty reserve 500 596 600
Decrease in other liabilities (283) (258) --
------ ------ ------
Total adjustments 2,468 (6,376) 9,706
------ ------ ------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 4,011 (3,685) 11,301
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable (139) (650) (400)
Payments received on notes receivable 647 1,170 1,184
Proceeds from sales of notes receivable 1,014 2,962 --
Equity investment in affiliates (87) (187) (673)
Acquisition of interest in joint ventures -- -- (266)
Acquisition of other assets -- -- (1,005)
Contingent payments related to business combination -- -- (788)
Net cash provided by sales of retail stores -- 204 77
Purchase of retail stores (141) (410) (435)
Purchases of property and equipment (10,114) (1,440) (1,039)
Proceeds from sales of property and equipment 3,649 1,183 42
------ ------ ------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (5,171) 2,832 (3,303)
------ ------ ------
</TABLE>
<PAGE>
BIG O TIRES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(000s)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt $2,650 $10,735 $ 560
Principal payments on long-term debt (5,385) (6,106) (4,055)
Principal payments on capital
lease obligations (33) (239) (274)
Proceeds from sale of common stock and
stock options and warrants exercised, net 140 232 1,394
Purchase and retirement of treasury stock
and warrants -- -- (6,100)
------ ------ ------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (2,628) 4,622 (8,475)
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,788) 3,769 (477)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 4,882 1,113 1,590
------ ------ ------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $1,094 $4,882 $1,113
------ ------ ------
------ ------ ------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $1,740 $1,446 $1,240
Income taxes 1,186 2,373 2,116
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Accounts receivable transferred to long-
term notes receivable and other assets $ 767 $ 478 $1,912
Employee stock ownership plan obligations 257 526 302
Non-cash equity investments in affiliates -- -- 108
Accounts payable transferred to long-term debt -- -- 6,000
Non-cash acquisition of company-owned retail stores -- -- 187
Inventories received in satisfaction of long-term
notes receivables -- 454 --
Common stock issued as unearned compensation -- 520 --
Property and equipment purchased by issuance of
long-term debt 300 2,767 --
Sale of assets through assumption of related debt -- 4,078 --
</TABLE>
See notes to consolidated financial statements
<PAGE>
BIG O TIRES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
OPERATIONS:
The primary business of the Company is to franchise Big O tire retail stores
("Franchisees") and supply those Franchisees with tires, wheels and related
replacement automotive parts. As a franchisor, the Company is active in
promoting certain programs and sales techniques to its Franchisees. On a
limited basis, the Company also engages in site selection and real estate
development for franchised retail stores, and also owns and operates a limited
number of retail stores. Franchisees are located primarily in the Midwest and
Western United States.
Under a Franchise Agreement, the Company grants the right to operate a retail
tire store using the Big O trademarks, service marks and associated logos and
symbols in exclusive marketing territories. Depending on certain
qualifications, the initial franchise fee ranges from $7,000 to a maximum of
$21,000. Assignment or transfer of a Franchise Agreement provides a transfer
fee of up to $21,000. Initial franchise fees are deferred and recognized when
all material services or conditions relating to the sale or transfer of the
franchise have been substantially completed. Franchisees also pay the Company a
continuing royalty fee of 2% of the Franchisees' monthly gross sales as that
term is defined in the Franchise Agreement. Continuing royalty fees are
recognized when the fees are earned and become receivable from the Franchisee.
The initial franchise and royalty fees included in sales were $7,068,000,
$6,772,000 and $6,116,000 for 1995, 1994 and 1993, respectively. The Franchise
Agreement also allows for the Company to collect a 1% fee to be used for
national advertising; however, this fee is currently limited to $.10 for each
Big O brand tire purchased from the Company.
One member of the Company's Board of Directors had ownership of or interests in
twenty-eight (28) Big O Retail Stores in 1995 and thirty-one (31) Big O Retail
Stores during 1994 and 1993. One officer had ownership interests in two (2) Big
O Retail Stores in 1995 and 1994 and two officers each had an ownership interest
in a Big O Retail Store in 1995, 1994 and 1993. Sales to these stores were
approximately $6,948,000, $9,372,000, and $8,122,000 during 1995, 1994 and 1993,
respectively. These sales were made under the same terms and conditions as those
with unrelated parties. As of December 31, 1995 and 1994, outstanding accounts
and notes receivable from these stores totalled $959,000 and $803,000,
respectively. The Company has also provided equipment lease guarantees to
certain of these stores totalling $327,000 at December 31, 1995. During 1993,
an officer of the Company purchased real property from a joint venture in which
the Company holds a 50% interest. The sale resulted in a pretax gain of $38,000
for the joint venture.
SIGNIFICANT ACCOUNTING POLICIES:
Consolidation and Reclassifications -
All significant majority-owned subsidiaries are consolidated and all significant
intercompany transactions are eliminated. Certain reclassifications have been
made to 1994 and 1993 financial information to make the presentation consistent
with that of the current year. These reclassifications had no impact on net
income.
Estimates -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates used by
management in the preparation of these financial statements include, but are not
limited to, the valuation of accounts receivable, the carrying value of
inventories, the useful lives and recoverability of property, plant and
equipment, the valuation of distribution rights and future warranty costs.
43
<PAGE>
Cash -
Cash and cash equivalents include time deposits, certificates of deposit and
marketable securities with original maturities of three months or less.
At December 31, 1994 cash in the amount of $4,228,000 was restricted for use by
the Company for the acquisition of the Las Vegas distribution center which was
under construction. The distribution center was completed in February 1995.
Inventories -
Inventories consist of finished goods only. New and recapped tire inventories
of Big O Tire of Idaho, Inc. ("Idaho"), a subsidiary of the Company, and the
inventories purchased pursuant to the November 1988 Louisville, Kentucky merger
(see Note 2), are valued at the lower of last-in, first-out ("LIFO") cost or
market. All other inventories are valued at the lower of first-in, first-out
("FIFO") cost or market. Inventories of $4,472,000 and $4,657,000 at December
31, 1995 and 1994, respectively, are valued at LIFO. Under the FIFO method of
inventory valuation, these inventories would have been approximately $9,000 and
$44,000 higher at December 31, 1995 and 1994, respectively.
Retail Stores Under Development -
Costs associated with developing real estate into retail stores are capitalized
and carried at the lower of each project's capitalized cost or its net
realizable value.
Property, Plant and Equipment -
Property, plant and equipment are carried at cost. Depreciation is computed
using the straight-line and double declining balance methods over estimated
useful lives of the assets ranging from three to 40 years.
Ordinary maintenance and repairs are charged to operations, while expenditures
which extend the physical or economic life of property and equipment are
capitalized. Gains and losses on disposition of property and equipment are
recognized in operations in the year of disposition and the related asset and
accumulated depreciation accounts are adjusted accordingly.
Intangible Assets -
Distribution rights, which represent the excess purchase cost over the fair
market value of net assets acquired in certain mergers and acquisitions (see
Note 2) are capitalized and are being amortized by charges to operations on a
straight line basis over 40 years. On a quarterly basis, management reviews the
carrying value of the Company's intangible assets for impairment and adjusts the
carrying value and/or amortization periods of such assets whenever events or
circumstances warrant.
Warranty Reserve -
The Company maintains a reserve for future warranty claims on Big O brand tires
based on historical experience.
Earnings Per Share -
Earnings per share is computed using the weighted-average number of outstanding
shares during each period presented. Inclusion of common stock equivalents
would not have a material effect on the computation.
2. ACQUISITIONS AND MERGERS:
In November 1988 the Company acquired Big O Tire of Louisville, Inc.
("Louisville") at a cost of $3,031,000. Louisville had the distribution rights
to the Kentucky and Indiana market of 24 Big O Retail Stores. The Company
issued 204,200 shares of its common stock and paid $1,443,000 in cash for this
acquisition. The stock was valued
44
<PAGE>
at $7.70 per share which approximated management's estimate of the market
value of such unregistered shares as of the date of the transaction. In
accordance with the purchase method of accounting, the purchase price was
allocated to the net assets acquired based on fair values at the date of
acquisition with $1,114,000 being assigned to distribution rights and
$600,000 to a non-compete agreement. In connection with this acquisition,
the Company also had an obligation to provide additional securities, or
obtain the return of a portion of those securities, based upon the trading
price of the Company's common stock at specified dates through November 1994.
In August 1990 the Company modified the agreement with the former
shareholders of Louisville whereby the Company guaranteed that the former
shareholders would receive, under certain circumstances, a value of $25.00
per share (subject to adjustment depending on when payment is received) from
the sale of the Big O common stock issued to them in connection with the
acquisition of Louisville, and the former shareholders provided the Company
with an option of paying cash in lieu of issuing additional securities
pursuant to this obligation. In 1993 and 1992, cash payments of $788,000
and $501,000, respectively, were made to the former shareholders of
Louisville under the terms of this obligation which were capitalized as
additional costs of distribution rights. In June 1993, the Company completed
an equity offering which included the sale of 81,667 shares of Big O common
stock held by the former shareholders of Louisville. With the sale of this
stock and the cash payment of $788,000, the Company's obligation to the
former shareholders was fully satisfied.
3. JOINT VENTURES:
In August 1992 the Company sold its interest in a joint venture involving a
wholly owned subsidiary, Big O Distributors, Inc. ("Distributors") and received
a five-year promissory note for $231,000 in exchange for its interest. The
Company incurred a loss of approximately $73,000 on the sale. Although the
buyer, Aspen Enterprises, Inc., is now primarily responsible for obligations
under the building lease, Distributors remains contingently liable through 1996
for up to $131,000 in future rentals if the joint venture defaults. These
future rents are not included in the future minimum rental payments disclosed in
Note 8.
Prior to 1992 the Company and one of its subsidiaries, Big O Development, Inc.
("Development"), entered into three separate joint venture agreements with
independent parties for the purpose of developing real estate sites for Big O
Retail Stores. The Company accounts for its 50% investment in these joint
ventures using the equity method. During 1993, the Company acquired the
remaining 50% interest in one of the joint ventures at a cost of $266,000. The
joint venture was then liquidated and the net assets were transferred to
Development. At December 31, 1995 and 1994, $499,000 and $573,000,
respectively, were recorded as investments in these joint ventures including
$45,000 in pretax loss for 1995 and $ 9,000 and $10,000 in net pretax income for
1994, and 1993, respectively.
In 1993 and 1992, the Company and one of its subsidiaries, Big O Retail
Enterprises, Inc., entered into separate joint venture agreements with five of
its franchisees to operate retail stores in Arizona, California, Colorado, and
Wyoming. Generally, the Company contributed inventories in the amount of
$55,000 and guaranteed certain financing arrangements in exchange for a 50%
interest in each joint venture.
4. SALES AND CLOSURES OF RETAIL STORES:
The Company accrued $547,000, $1,106,000 and $429,000 in 1995, 1994 and 1993,
respectively, to cover estimated closing and future lease costs associated with
the sale or closure of company-owned retail stores and the closure of Franchisee
retail stores. Three, four and one franchisee retail stores were closed in
1995, 1994 and 1993, respectively, in which the Company had guaranteed the
franchisees' lease agreements. Five company-owned retail stores were either
closed or sold in each of 1994 and 1993. No company-owned retail stores were
sold or closed in 1995.
45
<PAGE>
5. NOTES RECEIVABLE:
Notes receivable at December 31, 1995 and 1994, consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
(in thousands)
<S> <C> <C>
6.0% to 12.0% notes receivable from
franchisees from the sale of Company-owned
retail stores, substantially all of which
are collateralized by inventories,
equipment, receivables and franchise
rights, due in monthly installments
plus interest (see Note 4). $ 579 $1,432
8.0% to 11.25% notes receivable from
franchisees, for inventories and equipment,
substantially all of which are also collateral,
due in monthly installments plus
interest. 2,075 1,599
6% note receivable due from a vendor for
returned inventories, which are also
collateral, due in monthly installments
plus interest. -- 187
9.25% to 10% notes receivable from sale of real
properties, collateralized by said properties,
due in monthly installments plus interest. 293 494
Other - primarily 8% to 11% notes
receivable from various entities, majority
are without collateral, maturing at
various dates. 224 214
------ ------
3,171 3,926
Less current portion 515 733
------ ------
Long-term portion $2,656 $3,193
------ ------
------ ------
</TABLE>
46
<PAGE>
6. LONG-TERM DEBT:
Long-term debt at December 31, 1995 and 1994, consisted of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
Prime rate (8.5% at December 31, 1995) revolving
credit agreement, collaterized by receivables and inventories,
with a maximum borrowing of up to $20,000,000
(limited to a portion of eligible collateral and further
reduced by the amount of any outstanding letters of credit
issued by the lender on behalf of the Company). (a) $ 2,650 $ --
Prime rate plus 1/2% revolving credit loan,
with an annual facility fee of $19,000,
replaced by a new credit facility on January 23, 1995. -- 2,985
8.71% senior loan, collateralized by certain real estate,
interest only due in quarterly installments through July 1998,
then principal due in quarterly installments of $333,000 plus
interest through May 2004. 8,000 8,000
Prime rate credit loan, without collateral, due in
monthly principal installments of $125,000 plus
interest through September 1996, and $135,000
plus interest through October 1997, balance due
November 1997. (b) 2,945 4,355
Prime rate mortgage loan, collateralized by deed of trust,
due in monthly installments of $8,000 including interest
through September 2001. 1,367 1,475
Prime plus 2.25% mortgage loan, collateralized by
a deed of trust, due in monthly installments of
$4,000 through July 2004. 406 412
8.0% mortgage loan, paid in January 1995. -- 312
8.0% mortgage loan, paid in April 1995. -- 200
Other -- 33
------- -------
15,368 17,772
Less current portion 1,639 2,033
------- -------
Long-term portion $13,729 $15,739
------- -------
------- -------
</TABLE>
(a) The amount of borrowing availability for the revolving credit agreement is
determined by application of a predefined formula to the collateral base on a
monthly basis. The range of permitted borrowings for 1995 was $12,119,000 to
$19,500,000.
(b) Interest rate reductions of up to 2.5% may be earned by meeting certain
purchase requirements defined in the lending agreement.
47
<PAGE>
Management's discretion with respect to certain business matters is limited by
financial and other covenants contained in the revolving credit agreement and
other loan agreements described above. These covenants, among other things,
limit or prohibit the Company from (i) paying dividends on its capital stock,
(ii) incurring additional indebtedness, (iii) creating liens or selling certain
assets, (iv) making certain loans, investments, or guarantees, (v) violating
certain financial ratios, (vi) repurchasing shares of its common stock, or (vii)
making certain capital expenditures. At December 31, 1995, the Company was in
compliance with all of these covenants.
The annual maturities of long-term debt for succeeding years are as follows (in
thousands):
<TABLE>
<S> <C>
1996 $ 1,639
1997 1,524
1998 2,760
1999 778
2000 1,446
Due thereafter 7,221
-------
$15,368
-------
-------
</TABLE>
7. CAPITAL LEASES:
The Company leases certain equipment and a building under capital lease
arrangements. Leased assets under these arrangements at December 31, 1995
and 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
ACCUMULATED
COST AMORTIZATION NET
-------- ------------ ---
<S> <C> <C> <C>
1995:
Building and leasehold
improvements $ 125 $ 76 $ 49
Equipment 144 116 28
-------- -------- ------
$ 269 $ 192 $ 77
-------- -------- ------
-------- -------- ------
1994:
Building and leasehold
improvements $ 125 $ 70 $ 55
Equipment 144 89 55
-------- -------- ------
$ 269 $ 159 $ 110
-------- -------- ------
-------- -------- ------
</TABLE>
48
<PAGE>
At December 31, 1995, future minimum lease commitments under these leases for
succeeding years were as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 70
1997 58
1998 34
1999 34
2000 34
Due thereafter 92
-----
Total minimum lease payments 322
Less amount representing interest 155
-----
Present value of net minimum
lease payments 167
Less current portion 36
-----
Long-term portion $ 131
-----
-----
</TABLE>
8. OPERATING LEASES:
The Company's operating leases are primarily for real property. Rental expense
for the years ended December 31, 1995, 1994 and 1993 was $968,000, $1,218,000
and $1,253,000, respectively, after deducting sublease income of $1,740,000 for
1995, $1,571,000 for 1994 and $1,448,000 for 1993.
Future minimum rental payments required under these leases for succeeding years
are as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 3,613
1997 3,295
1998 2,893
1999 2,337
2000 1,999
Due thereafter 5,920
-------
20,057
Less sublease income 10,100
-------
$ 9,957
-------
-------
</TABLE>
The Company is contingently liable for future rentals on a building lease
currently occupied by a former joint venture partner (See Note 3). In the
event of a default, the Company remains liable for up to $131,000 in future
rentals. These future rents are not included in the future minimum rental
payments above.
Certain lease agreements provide the Company with the option to purchase the
leased property at its fair market value at the end of the lease term.
Additionally, certain lease agreements contain renewal options ranging from
five to fifteen years with terms similar to the original lease agreements.
In November 1988 the Company received a distribution of its interest in the
Ontario, California distribution center from the limited partnership and
subsequently sold its interest to an unrelated third party. As part of this
transaction, the distribution center's ten year lease was also transferred,
resulting in a sale-leaseback. The Company's share of the gain on the sale
of the property is being deferred and amortized over the remaining lease term.
49
<PAGE>
9. INCOME TAXES:
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109) as of January 1, 1993. SFAS No.
109 is an asset and liability approach that, among other provisions, requires
the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences,
SFAS No. 109 generally considers all expected future events other than
enactments or changes in the law or rules.
The total cumulative effect of adopting SFAS No. 109 was an increase in
deferred tax liabilities of $285,000 at January 1, 1993 and has been reported
as a charge against income in the 1993 consolidated statement of income.
The tax effects of temporary differences which give rise to the deferred tax
assets and liabilities as of December 31, 1995 and 1994 are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred Tax Assets:
Allowance for doubtful accounts
not currently deductible $ 548 $ 325
Inventory reserves not currently
deductible -- 198
Inventory basis differences 76 44
Accruals not currently deductible 334 208
Warranty reserves not currently
deductible 1,678 1,499
Other reserves not currently
deductible 347 474
Compensation under stock option
plan not currently deductible 266 207
Differences between book and tax
recognition of gain on sales
of property 48 93
Property and equipment basis
differences 7 --
Investment basis differences 45 106
------- --------
$ 3,349 $ 3,154
------- --------
------- --------
Deferred Tax Liabilities:
Prepaid expenses deductible
for tax purposes $ 196 $ 216
Accelerated tax depreciation
and amortization 314 604
Property and equipment basis
differences 156 43
Intangible assets not currently
deductible -- 165
Inventory basis differences 29 --
------- --------
$ 695 $ 1,028
------- --------
------- --------
Net deferred tax asset $ 2,654 $ 2,126
Non-current deferred tax
liability -- --
------- --------
Current deferred tax asset $ 2,654 $ 2,126
------- --------
------- --------
</TABLE>
50
<PAGE>
The following is a summary of the income tax provision for the years ended
December 31, 1995, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Currently payable $ 1,677 $ 2,197 $ 1,921
Deferred expense (528) (361) (579)
Tax benefit of exercise of
stock options 32 114 58
------- ------- -------
Total income tax provision $ 1,181 $ 1,950 $ 1,400
------- ------- -------
------- ------- -------
</TABLE>
A reconciliation of the provision for income taxes to the statutory Federal tax
rate of 34% on income before income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Tax at statutory rate $ 926 $ 1,578 $ 1,115
State taxes, net of Federal
tax benefit 141 248 177
Depreciation and amortization not
deductible for tax purposes 91 91 87
Other 23 33 21
------- ------- -------
$ 1,181 $ 1,950 $ 1,400
------- ------- -------
------- ------- -------
</TABLE>
10. EMPLOYEE STOCK OWNERSHIP PLAN:
The Company has an employee stock ownership plan ("ESOP") in which all
non-retail employees, 18 years of age or older and having 1,000 hours of
service in a fiscal year, are eligible to participate. The ESOP generally
provides for 20% vesting after three years of service with an additional 20%
each year of service thereafter, until a participant is 100% vested. Annual
contributions are at the discretion of the Board of Directors, subject to the
ESOP provision that the Company is required to make contributions equal to
principal and interest payments on debt issued by the ESOP to acquire
securities. Contributions recorded in 1995, 1994 and 1993 were $255,000,
$357,000 and $697,000, respectively.
In 1991, the ESOP purchased 461,008 shares of the Company's $.10 par value
common stock from four of the Company's shareholders at market value in
exchange for cash and notes. In 1993, the ESOP refinanced the remaining
three notes with a new note payable in five annual installments of principal
and interest fixed at 9.0%. The Company's financial statements at December
31, 1995 and 1994 reflect the ESOP's obligations as a liability and a
corresponding reduction of shareholders' equity.
11. SHAREHOLDERS' EQUITY:
SHAREHOLDER RIGHTS PLAN -
In August 1994, the Board of Directors adopted a shareholder rights plan and
declared a dividend of one right for each outstanding share of the Company's
common stock. Each right entitles the shareholder to purchase from the
Company one share of the Company's common stock at a discounted price (which
varies depending upon the circumstances, determined according to the plan).
The rights are not and will not become exercisable unless certain change of
control events occur. None of the rights are exercisable as of December 31,
1995.
STOCK OPTION PLANS -
In August 1988 the Company adopted the Big O Tires, Inc. Director and
Employee Stock Option Plan (the "Option Plan") which allows the Company's
directors and employees to forego a portion of their compensation in order to
acquire options for the purchase of the Company's common stock in accordance
with the provisions of the Option Plan. Options are granted to the
participants on January 1 of each year, in an amount equal to the foregone
51
<PAGE>
compensation divided by 90% of the fair market value of the Company's $0.10
par value common stock. The remaining 10% of the fair market value then
becomes the exercise price of the options. The options are exercisable one
year after the grant date and expire ten years after grant. The Option Plan
was terminated by the Board of Directors at a meeting held in December 1995.
Options previously granted pursuant to the Option Plan remain exercisable
until exercised or forfeited. No new options will be granted pursuant to the
Option Plan after 1995.
In June 1991 the Company adopted the Big O Tires, Inc. Long Term Incentive
Plan (the "Incentive Plan") which allows the Company to make long-term awards
of stock options and restricted stock grants to selected officers and
employees of the Company and to make long-term awards of stock options to
selected directors of the Company. The stock options are generally not
exercisable for at least three years following their award date and awards of
restricted common stock are subject to vesting requirements. The fair market
value of the shares of stock at the grant date ($472,000) was recorded as
deferred compensation and is included as a deduction from shareholders'
equity. This amount is amortized as compensation expense as the shares vest
to the recipients.
Stock option transactions for the years ended December 31, 1995, 1994 and
1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------ ------------------------ ------------------------
Exercise Price Options Exercise Price Options Exercise Price Options
-------------- ------- -------------- ------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at $.32 - 15.44 226,347 $.32 -12.25 203,974 $.32 - 5.16 150,223
beginning of year
Granted 1.63 4,943 1.48 -15.44 53,213 1.35 - 12.25 71,336
Exercised .32 - 12.25 (14,982) .32 -12.25 (30,735) .32 - 5.16 (17,348)
Expired -- 1.06 (105) .84 - 1.06 (237)
------- ------- -------
Options outstanding at end
of year .32 - 15.44 216,308 .32 -15.44 226,347 .32 - 12.25 203,974
------- -------
------- -------
Options exercisable at end
of year .32 - 5.16 116,894 .32 -12.25 77,025 .32 - 1.06 65,848
</TABLE>
12. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN:
Effective January 1, 1994, the Company adopted a supplemental executive
retirement plan ("SERP") which is maintained for the purpose of providing
deferred compensation for a select group of highly compensated employees.
The 1994 contribution to the SERP was $11,000 and was determined by
multiplying the Board approved ESOP contribution rate by the ESOP qualified
compensation exceeding $150,000. This plan is unfunded and the contribution
was made only for 1994. No contribution was made for 1995.
13. COMMITMENTS AND CONTINGENCIES:
During 1992, the Company entered into an agreement with a lender to provide
equipment, inventory and real estate financing to various joint ventures in
which the Company was a 50% joint venture partner. The agreement required
the Company and the other joint venture partners to guarantee repayment of
the loans. This agreement was terminated in August 1995.
The Company previously entered into two separate equipment leasing programs
for its franchisees with two equipment leasing companies. The Company
entered into agreements with these leasing companies which require the
Company to pay up to $1,000,000 and $500,000, respectively, under certain
franchisee contract defaults. These commitments are collateralized by the
leased equipment. In addition, the Company entered into a similar leasing
program with another equipment leasing company which does not require a
financial guarantee, but does require the Company to assist in the
re-marketing of the leased equipment, if necessary.
52
<PAGE>
In December 1989 the Company also entered into an agreement with an independent
franchise finance company to provide financing to its Franchisees for
inventories and equipment. This agreement requires the Company to guarantee
payment of up to $750,000 under certain franchisee contract defaults. This
commitment is collateralized by the inventories and equipment which have been
financed and franchise rights.
In 1995 and 1994, the Company sold certain notes receivable which had
remaining principal balances of $1,014,000 and $2,962,000, respectively, plus
accrued interest, to an investor. In connection with the sale of these
notes, the Company executed an Ultimate Net Loss Agreement which limits the
Company's guarantee for payment of these notes to fifty percent of the
aggregate unpaid balance of the purchased notes at the end of each prior
year. No gain or loss was recorded in connection with the sale of these
notes.
At December 31, 1995 and 1994, the Company had no post-retirement or
post-employment benefits which would require recognition or disclosure under
the provisions of SFAS No. 106 and No. 112, respectively.
14. FINANCIAL GUARANTEES AND CREDIT RISK:
The Company has provided financial guarantees associated with franchisee
financing and real estate leases for its Franchisees. The guarantees were
issued in the normal course of business to meet the financing needs of the
Company and its Franchisees. However, these financial guarantees represent
additional credit risk in excess of the amounts which are already reflected
in the balance sheet as of December 31, 1995.
The Company's maximum exposure to credit loss in the event of nonperformance
by the beneficiaries of the financial guarantees at December 31, 1995 is
represented by the contractual amount of the guarantees as indicated below
(in thousands):
<TABLE>
<S> <C>
Mortgage loan guarantees $ 2,730
Franchisee financing guarantees 8,097
Franchisee real estate lease guarantees 4,874
-------
Total $15,701
-------
-------
</TABLE>
The financing and lease guarantees are conditional commitments issued by the
Company to guarantee the repayment of amounts which are owed to third parties
by certain of its Franchisees and joint ventures. Most of the financing and
lease guarantees extend for more than five years and expire in decreasing
amounts through 2002.
The credit risk associated with these guarantees is essentially the same as
that involved in extending loans to the Company's Franchisees or partners.
The Company evaluates each Franchisee's creditworthiness on an individual
basis, and it is the Company's policy to require that sufficient collateral
(primarily inventories and equipment) and security interests be obtained by
the third parties in connection with the financing and lease obligations
(except for real estate obligations) for which the guarantees are issued.
There are no cash requirements associated with these guarantees except in the
event that an actual financial loss is subsequently incurred by the Company
in connection with these guarantees.
15. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK:
Although the Company has franchised and Company-owned retail stores located
in 18 states, approximately 38% of these stores are located in the State of
California, and nearly 28% of the Company's sales were made to the California
retail stores. In addition, all of the Company's operations and identifiable
assets are attributable to the wholesale and retail marketing of tires and
other automotive aftermarket products primarily to franchised, Company-owned
and Canadian licensed retail stores. Accordingly, the Company's receivables
and its guarantees of obligations are concentrated within a single industry
segment and a significant portion of its credit risk is also concentrated
within a single state.
At December 31, 1995, the Company had receivables and financial guarantees
associated with six of its Franchisees totalling $7,320,000. Of that total,
approximately $3,960,000 was associated with one of its Franchisees.
53
<PAGE>
16. AGREEMENTS WITH CONTINENTAL GENERAL TIRE, INC.:
In September 1989, the Company entered into a Master Loan Agreement and a
Stock and Warrants Purchase Agreement with Continental General Tire, Inc.
("General"), a related party through May 1993. Under the Master Loan
Agreement, General provided the Company with a revolving line of credit of up
to $7,500,000 which was collateralized by receivables, inventories and
equipment. Under the Stock and Warrants Purchase Agreement, General acquired
400,000 shares of the Company's common stock (approximately 11.4% of the then
outstanding shares), and acquired warrants to purchase an additional
1,000,000 shares.
In May 1993, the Company and General entered into an agreement which
terminated the 1989 agreements, and which resulted in the Company's
repurchase of the 400,000 shares of its common stock which had been owned by
General, the repurchase and cancellation of the warrants held by General for
the purchase of an additional 1,000,000 shares, and the repayment of the
outstanding balance of the revolving line of credit in the amount of
$1,764,000.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following disclosure of the estimated fair value of the Company's
financial instruments is made in accordance with the requirements of SFAS
107, "Disclosures about Fair Value of Financial Instruments." The estimated
fair value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is required to interpret market data in order to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------ ----------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 1,094 $ 1,094
Receivables 12,668 12,668
Liabilities:
Long-term debt $15,368 $15,564
Other long-term liabilities 1,337 1,292
</TABLE>
The estimation methodologies utilized by the Company in determining fair
value are summarized below:
CASH AND CASH EQUIVALENTS: The carrying amount is a reasonable estimate of
fair value.
RECEIVABLES: The carrying amount is a reasonable estimate of fair value.
LONG-TERM DEBT: The fair value of the Company's long-term debt is estimated
by discounting the estimated future cash payments using the Company's
incremental borrowing rate at December 31, 1995.
OTHER LONG-TERM DEBT: The fair value of the Company's other long-term
liabilities is estimated by discounting the estimated future cash payments
using the Company's incremental borrowing rate at December 31, 1995.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1995. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date and, therefore, current estimates
of fair value may differ significantly from the amounts presented herein.
18. LITIGATION:
As a franchisor and wholesale distributor, the Company licenses the use of
its trade names, service marks and trademarks to the Company's Franchisees
and other licensees and distributes tire products manufactured by the
54
<PAGE>
Company's suppliers ("Suppliers") under the Company's trade names and
trademarks. As a result, the Company has been named as a defendant in a
number of lawsuits alleging negligent acts and/or omissions by the Company's
Franchisees or alleged defective workmanship and/or materials of the products
produced by the Suppliers. As of December 31, 1995, there were forty-two
such lawsuits pending in which the Company was named as a defendant. Of
those forty-two lawsuits, only five directly involve the Company. The other
thirty seven involve Franchisees of the Company or alleged tire failures of
the Company's Suppliers. In most of the forty-two lawsuits in which the
Company is named as a defendant, the claims for damages are not specific.
The Company believes that it is reasonably possible that a judgment may be
rendered against the Company in one or more of these lawsuits but the Company
is unable to estimate the amount of any such possible judgments. Over the
past five years, the judgments that have been rendered against the Company
and settlements made by the Company in lawsuits similar to the forty-two
lawsuits have not resulted in material losses to the Company. Therefore,
based upon such history, the Company does not believe that it will suffer any
material loss as a result of the forty-two lawsuits pending against the
Company as of December 31, 1995.
The Company requires that both its Franchisees and Suppliers indemnify and
protect the Company against claims resulting from the alleged negligent acts
and/or omissions of the Franchisees and the alleged defects in workmanship
and/or material of its Suppliers. In addition, the Company carries its own
insurance. The forty-two lawsuits referred to above are being defended by
attorneys who have been retained by the applicable insurance companies and
the Company is not actively involved in the defense thereof. Historically,
the Company has been able to rely upon its Franchisees and Suppliers and
their insurance carriers to defend, protect and indemnify the Company against
such types of lawsuits. Accordingly, even if a judgment is rendered against
the Company in any of these lawsuits, because of the insurance and
indemnities described above, management does not believe that the Company
will incur any loss as a result of any such judgment.
The Company is also a defendant in three additional lawsuits which are
incidental to the Company's business and for which the Company does not
believe it is liable, but which are not covered by insurance. Thus the
Company is directly and actively involved in its own defense and has
sufficient information to form a judgment on the likely outcome and exposure
of such cases. Based on this analysis, the Company believes that the
ultimate outcome of these cases will not have a material adverse effect on
the Company's financial statements.
The Company previously reported the pendency of two class action lawsuits
naming the Company and its nine directors as defendants (Knopf vs. Big O
Tires, Inc., et al. and Zucker, et al. vs. Big O Tires, Inc., et al., Second
Judicial District Court of the State of Nevada, County of Washoe). By motion
filed by plaintiffs' counsel, both actions were dismissed without prejudice
by the Court on March 31, 1995.
19. SUBSEQUENT EVENT:
The Company entered into a letter of intent dated March 13, 1996 with TBC
Corporation ("TBC"), a Tennessee based marketer and distributor of tires and
other aftermarket automotive parts, under which TBC will acquire all of the
outstanding shares of the Company's common stock for $16.50 per share,
subject to possible reductions based on a final tabulation of transaction
costs and other expenses, which the Company does not believe will result in
material adjustments, if any. The consummation of the transaction is subject
to certain conditions including the execution of a Definitive Merger Agreement
by April 15, 1996, unless extended; the Company and TBC complying with any
required regulatory filings; the execution of employment agreements between
TBC and certain officers of the Company; TBC obtaining financing for the
transaction; extensions of certain franchise agreements expiring prior to
2001; and the approval of the merger by the Company's shareholders.
55
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------
(3.1) Certificate of Amendment to Restated Articles of N/A
Incorporation of Big O Tires, Inc. dated June 10, 1992
and Restated Articles of Incorporation of Big O Tires,
Inc. dated August 17, 1987 (incorporated by reference to
Exhibit 3 to Quarterly Report on Form 10-Q for quarter
ended June 30, 1992).
(3.2) Third Amendment and Restated Bylaws of Big O Tires, Inc. 67
dated December 5, 1995.
(4.1) Rights Agreement dated as of August 26, 1994, between Big N/A
O Tires, Inc. and Interwest Co., Inc., as Rights Agent
(incorporated by reference to Exhibit 1 to Current Report
on Form 8-K dated August 26, 1994).
(4.2) Amendment to Rights Agreement dated as of July 24, 1995, N/A
is between Big O Tires, Inc., a Nevada corporation, and
Interwest Co., Inc., a Utah corporation (incorporated by
reference to Exhibit 10.2 to Big O Tires, Inc.'s Current
Report on Form 8-K dated July 25, 1995).
(10.1) 1994 Restatement of Employee Stock Ownership Plan and N/A
Trust Agreement of Big O Tires, Inc. (incorporated by
reference to Exhibit 10.3 to Big O Tires, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
(10.2) Big O Tires, Inc. Director and Employee Stock Option Plan N/A
(incorporated by reference to Exhibit 10.11 to Big O
Tires, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1988).
(10.3) First Amendment to the Big O Tires, Inc. Director and
Employee Stock Option Plan (incorporated by reference to
Exhibit 10.10 to Big O Tires, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1989). N/A
(10.4) Amendment No. 2 to the Big O Tires, Inc. Director and N/A
Employee Stock Option Plan (incorporated by reference to
Exhibit 10.16 to Big O Tires, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1992).
(10.5) Ultimate Net Loss Agreement between Big O Tires, Inc. and N/A
FBS Business Finance Corporation dated January 13, 1989
(incorporated by reference to Exhibit 10.34 to Big O
Tires, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1988).
(10.6) Purchase Agreement effective June 30, 1987, and related N/A
documents including Promissory Notes, Modification
Agreements, Security Agreements, Guaranty Agreement, and
Subleases in connection with a purchase by C.S.B.
Partnership and three individuals including Ronald D.
Asher, of three Big O Franchise Retail Stores in
California from Security/Cal, Inc., a wholly-owned
subsidiary of the Company, and H.R.I., Inc., a
wholly-owned subsidiary of Security/Cal, Inc.
(incorporated by reference to Exhibit 10.63 to Big O
Tires, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1987).
<PAGE>
(10.7) Purchase Agreement effective November 1, 1987, and N/A
related documents including Promissory Notes, Security
Agreements, Guaranty Agreements, Subleases, and Franchise
Agreements in connection with a purchase by C.S.B.
Partnership and its three general partners, including
Ronald D. Asher, of two Big O Franchise Retail Stores in
California from Security/Cal, Inc. and H.R.I., Inc.
(Seller) (incorporated by reference to Exhibit 10.45 to
Big O Tires, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1988).
(10.8) Purchase Agreements effective July 5, 1988, October 1, N/A
1988, and November 14, 1988, and related documents
including Promissory Notes, Security Agreements, Guaranty
Agreements, and Subleases in connection with a purchase
by C.S.B. Partnership and three individuals including
Ronald D. Asher of three Big O Franchise Retail Stores in
California from Big O Tires, Inc., Security/Cal, Inc., a
wholly-owned subsidiary of the Company, and H.R.I., Inc.,
a wholly-owned subsidiary of Security/Cal, Inc.
(incorporated by reference to Exhibit 10.46 to Big O
Tires, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1988).
(10.9) Agreement and Release dated October 31, 1989, and related N/A
documents including Promissory Note, related Subleases,
Assignment of Lease Rights, and Performance Guarantee in
connection with the purchase by C.S.B. Partnership and
its general partners, including Ronald D. Asher, of two
(2) Big O franchise Retail Stores in California, owned by
GEM Tire, Inc. from the Company (incorporated by
reference to Exhibit 10.57 to Big O Tires, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1989).
(10.10) Ultimate Net Loss Agreement, dated as of December 1, N/A
1990, by and between Big O Tires, Inc. and Northcross
Financial Services, Inc., ICON Capital Corp., in its
individual capacity and on behalf of ICON Cash Flow
Partners, L.P., Series A, ICON Cash Flow Partners, L.P.,
Series B and any future partnerships on which it may be
the general partner and/or manager (incorporated by
reference to Exhibit 10.70 to Big O Tires, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1990).
(10.11) Agreement of Joint Venture of Big O/C.S.B. Joint Venture N/A
dated as of June 1, 1992, by and between Big O Retail
Enterprises, Inc., a wholly-owned subsidiary of Big O
Tires, Inc., and C.S.B. Partnership, a California general
partnership (incorporated by reference to Exhibit 10.70
to Big O Tires, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1991).
(10.12) 1995 Incentive Bonus Plans (incorporated by reference to N/A
Exhibit 10.71 to Big O Tires, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
(10.13) Purchase Agreement for Private Brand Name Tires between N/A
Big O Tires, Inc. and The Kelly-Springfield Tire Co.,
dated August 16, 1992 (incorporated by reference to
Exhibit 10.71 to Big O Tires, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1991).
<PAGE>
(10.14) Big O Tires, Inc. Long Term Incentive Plan (incorporated N/A
by reference to Exhibit 55 to Big O Tires, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1992).
(10.15) Amendment No. 1 to Big O Tires, Inc. Long Term Incentive N/A
Plan (incorporated by reference to Exhibit 56 to Big O
Tires, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1992).
(10.16) Amendment No. 2 to Big O Tires, Inc. Long Term Incentive N/A
Plan (incorporated by reference to Exhibit 57 to Big O
Tires, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1992).
(10.17) Agreement of Joint Venture of Big O/S.A.N.D.S. Joint N/A
Venture (incorporated by reference to Exhibit 58 to Big O
Tires, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1992).
(10.18) Commitment Letters dated July 22, 1992, from AT&T Capital N/A
Corporation (incorporated by reference to Exhibit 64 to
Big O Tires, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1992).
(10.19) Agreement dated as of November 15, 1992, among Peerless N/A
Trading Company, Limited, Delaware Liquidators, Inc. dba
Trade Center Imports, and Big O Tires, Inc.; Purchase
Money Non-Negotiable Promissory Note dated as of November
15, 1992, from Peerless Trading Company, Limited to Big O
Tires, Inc.; and amendment dated January 19, 1993 to the
Agreement dated November 15, 1992 (incorporated by
reference to Exhibit 66 to Big O Tires, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1992).
(10.20) Marketing Agreement for Private Brand Tires between Big O N/A
Tires, Inc. and General Tire, Inc., dated May 14, 1993
(incorporated by reference to Exhibit 10.1 to Big O
Tires, Inc.'s Current Report on Form 8-K dated April 30,
1993).
(10.21) Inventory Financing Agreement between The N/A
Kelly-Springfield Tire Company and Big O Tires, Inc.
and/or Big O Tire of Idaho, Inc. and/or Big O Retail
Enterprises, Inc., dated May 14, 1993 (incorporated by
reference to Exhibit 10.4 to Big O Tires, Inc.'s Current
Report on Form 8-K dated April 30, 1993).
(10.22) Demand Note in the original principal amount of N/A
$6,000,338.67 with The Kelly-Springfield Tire Col. as
Holder and Big O Tires, Inc., Big O Retail Enterprises,
Inc. and Big O Tire of Idaho, Inc. as Maker (incorporated
by reference to Exhibit 10.50 to Big O Tires, Inc.'s
Annual Report on Form 10-K dated April 30, 1993).
(10.23) Consolidation and Modification Agreement among Big O N/A
Tires, Inc. (successor in interest to H.R.I., Inc. and
Security/Cal, Inc.) and Big O Retail Enterprises, Inc.
and C.S.B. Partnership (incorporated by reference to
Exhibit 10.51 to Big O Tires, Inc.'s Registration
Statement No. 33-65852).
(10.24) Modification of Consolidation and Modification Agreement N/A
by and between C.S.B. Partnership and Big O Tires, Inc.
(incorporated by reference to Big O Tires, Inc.'s Form
10-K for the year ended December 31, 1993).
<PAGE>
(10.25) Registration Rights Agreement dated June 28, 1993, N/A
between the Selling Shareholder and Big O Tires, Inc.
(incorporated by reference to Exhibit 10.52 to Big O
Tires, Inc.'s Registration Statement No. 33-65852).
(10.26) Loan Agreement and Promissory Note in the original N/A
principal amount of $155,000.00 with C.S.B. Partnership
as Maker (incorporated by reference to Exhibit 10.44 to
Big O Tires, Inc.'s Form 10-K for the fiscal year ended
December 31, 1993).
(10.27) Loan Agreement and Promissory Note in the original N/A
principal amount of $70,000.00 with Big O/C.S.B Joint
Venture as Maker (incorporated by reference to Exhibit
10.45 to Big O Tires, Inc.'s Form 10-K for the fiscal
year ended December 31, 1993).
(10.28) Loan Agreement and Promissory Note in the original N/A
principal amount of $75,000.00 with Big O/S.A.N.D.S.
Joint Venture as Maker (incorporated by reference to
Exhibit 10.46 to Big O Tires, Inc.'s Form 10-K for the
fiscal year ended December 31, 1993).
(10.29) Commercial Note and Loan Agreement, Commercial Mortgage N/A
and Environmental Certificate between Big O Development,
Inc. and National City Bank, Kentucky, and Guaranty
Agreement of Big O Tires, Inc. guaranteeing the
obligations of Big O Development, Inc. to National City
Bank, Kentucky in connection with the borrowing of
$1,500,000 for construction of the Company's Regional
Sales and Service Center in New Albany, Indiana
(incorporated by reference to Exhibit 10.47 to Big O
Tires, Inc.'s Form 10-K for the fiscal year ended
December 31, 1993).
(10.30) Construction Agreement between Big O Development, Inc. N/A
and Koetter Construction, Inc. to construct the Regional
Sales and Service Center in Floyd, County, Indiana
(incorporated by reference to Exhibit 10.48 to Big O
Tires, Inc.'s Form 10-K for the fiscal year ended
December 31, 1993).
(10.31) Letter dated January 26, 1994 from General Tire, Inc. to N/A
the Company terminating the Marketing Agreement for
Private Brand Name Tires between Big O Tires, Inc. and
General Tire, Inc. dated May 14, 1993 (incorporated by
reference to Exhibit 10.52 to Big O Tires, Inc.'s Form
10-K for the fiscal year ended December 31, 1993).
(10.32) Purchase Agreement by and between Caps Tire Limited N/A
Liability Company and Intermountain Big O Realty for the
Big O Tires Retail Store located at 8151 East Arapahoe
Road, Englewood, Colorado incorporated by reference to
Exhibit 10.53 to Big O Tires, Inc.'s Form 10-K for the
fiscal year ended December 31, 1993).
(10.33) Third and Fourth Amendments to Loan and Security N/A
Agreement by and between Big O Tires, Inc. and its
primary lender (incorporated by reference to Exhibit
10.54 to Big O Tires, Inc.'s Form 10-K for the fiscal
year ended December 31, 1993).
(10.34) Limited Partnership Agreement by and between Donald J. N/A
Horton, General Partner, Thomas L. Staker, General
Partner, and Big O Tires, Inc., Limited Partner, dated as
of December 31, 1993 (incorporated by reference to
Exhibit 10.56 to Big O Tires, Inc.'s Form 10-K for the
fiscal year ended December 31, 1993).
<PAGE>
(10.35) Loan Agreement and Guaranty, Promissory Note and Security N/A
Agreement with Big O Tires, Inc. Employee Stock
Ownership Plan ("ESOP") as Borrower, Big O Tires, Inc.,
as Guarantor, and Key Bank of Wyoming, as Lender, in
connection with the refinancing of the ESOP debt in the
amount of $960,000 (incorporated by reference to Exhibit
10.57 to Big O Tires, Inc.'s Form 10-K for the fiscal
year ended December 31, 1993).
(10.36) Amendment to Partnership Agreement dated August 25, 1994, N/A
by and between Big O Development, Inc., a Colorado
corporation, a wholly-owned subsidiary of Big O Tires,
Inc. and Mill Creek Associates, Ltd., a Colorado limited
partnership (incorporated by reference to Exhibit 10.2 to
Big O Tires, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994).
(10.37) Agreement dated July 1, 1994, by and between General N/A
Tire, Inc., an Ohio corporation and Big O Tires, Inc.
(incorporated by reference to Exhibit 10.4 to Big O
Tires, Inc.'s Quarterly Report on Form 10-Q dated
September 30, 1994).
(10.38) Consulting Agreement by and between Big O Tires, Inc., N/A
and Horst K. Mehlfeldt (incorporated by reference to
Exhibit 10.5 to Big O Tires, Inc.'s Quarterly Report on
Form 10-Q dated September 30, 1994).
(10.39) Letter Agreement dated January 10, 1995, amending the N/A
Consulting Agreement by and between Big O Tires, Inc. and
Horst K. Mehlfeldt (incorporated by reference to Exhibit
10.3 to Big O Tires, Inc.'s Current Report on Form 8-K
dated January 10, 1995).
(10.40) Letter Agreement dated July 12, 1994, by and between Big N/A
O Tires, Inc. and PaineWebber Incorporated (incorporated
by reference to Exhibit 10.6 to Big O Tires, Inc.'s
Quarterly Report on Form 10-Q dated September 30, 1994).
(10.41) Letter Agreement dated March 23, 1994, by and between Big N/A
O Tires, Inc. and The CIT Group/Equipment Financing,
Inc., a New York corporation (incorporated by reference
to Exhibit 10.7 to Big O Tires, Inc.'s Quarterly Report
on Form 10-Q dated September 30, 1994).
(10.42) Ultimate Net Loss Agreement dated October 21, 1994, by N/A
and between Big O Tires, Inc. and The CIT Group/Equipment
Financing, Inc., a New York corporation (incorporated by
reference to Exhibit 10.8 to Big O Tires, Inc.'s
Quarterly Report on Form 10-Q dated September 30, 1994).
(10.43) Fifth Amendment to Loan and Security Agreement by and N/A
between Big O Tires, Inc. and its former lender dated
April 29, 1994 (incorporated by reference to Exhibit 10.1
to Big O Tires, Inc.'s Quarterly Report on Form 10-Q
dated September 30, 1994).
(10.44) Agreement by the Investment Committee of the Board of N/A
Directors and the Management/Dealer participants dated
December 22, 1994 (incorporated by reference to Exhibit
10.1 to Big O Tires, Inc.'s Current Report on Form 8-K
dated December 6, 1994).
<PAGE>
(10.45) Letter dated December 13, 1994, to the Investment N/A
Committee of Big O Tires, Inc. and the Management
participants and Dealer representatives (incorporated by
reference to Exhibit 10.2 to Big O Tires, Inc.'s Current
Report on Form 8-K dated December 6, 1994).
(10.46) Letter dated February 7, 1995, from the Dealer/Management N/A
Group to the Company's Board Chairman (incorporated by
reference to Exhibit 10.1 to Big O Tires, Inc.'s Current
Report on Form 8-K dated January 10, 1995).
(10.47) Agreement between the Company and the Management/Dealer N/A
participants dated January 20, 1995 (incorporated by
reference to Exhibit 10.2 to Big O Tires, Inc.'s Current
Report on Form 8-K
(10.48) Multi-Tenant Lease NNN dated December 1, 1994 between N/A
Botac VI Leasing L.L.C., a Utah Limited Liability Company
and Big O Development, Inc. (incorporated by reference to
Exhibit 10.62 to Big O Tires, Inc.'s Annual Report on
Form 10-K for fiscal year ended December 31, 1994).
(10.49) Assignment and Assumption Agreement dated December 2, N/A
1994 by Big O Development, Inc., Big O Tires, Inc. and
Botac VI Leasing, L.L.C. and Allstate Life Insurance
Company (incorporated by reference to Exhibit 10.63 to
Big O Tires, Inc.'s Annual Report on Form 10-K for fiscal
year ended December 31, 1994).
(10.50) Guarantee Agreement dated December 2, 1994 by Big O N/A
Tires, Inc., Big O Development, Inc. and Allstate Life
Insurance Company (incorporated by reference to Exhibit
10.64 to Big O Tires, Inc.'s Annual Report on Form 10-K
for fiscal year ended December 31, 1994).
(10.51) Closing Agreement dated December 2, 1994 by Big O N/A
Development, Inc., Big O Tires, Inc., Botac VI Leasing,
L.L.C., and Allstate Life Insurance Company (incorporated
by reference to Exhibit 10.65 to Big O Tires, Inc.'s
Annual Report on Form 10-K for fiscal year ended December
31, 1994).
(10.52) Commercial Contract to Buy and Sell Real Estate dated N/A
March 17, 1994 between Bailey's Moving and Storage and
Big O Tires, Inc. (incorporated by reference to Exhibit
10.66 to Big O Tires, Inc.'s Annual Report on Form 10-K
for fiscal year ended December 31, 1994).
(10.53) Confidentiality Agreement dated September, 1994 between N/A
Big O Tires, Inc. and Kenneth W. Pavia, Sr. (incorporated
by reference to Exhibit 10.67 to Big O Tires, Inc.'s
Annual Report on Form 10-K for fiscal year ended December
31, 1994).
(10.54) Amendment No. 1 to the Big O Tires, Inc. Employee Stock N/A
Ownership Plan and Trust Agreement dated September 12,
1994 (incorporated by reference to Exhibit 10.68 to Big O
Tires, Inc.'s Annual Report on Form 10-K for fiscal year
ended December 31, 1994).
(10.55) Development Management Agreement dated September, 1994 N/A
between Ross Development Management Group, Inc. and Big O
Development, Inc. and Big O Tires, Inc. (incorporated by
reference to Exhibit 10.69 to Big O Tires, Inc.'s Annual
Report on Form 10-K for fiscal year ended December 31,
1994).
<PAGE>
(10.56) Letter Agreement dated February 20, 1995 terminating the N/A
Consulting Agreement between Big O Tires, Inc. and Horst
K. Mehlfeldt (incorporated by reference to Exhibit 10.70
to Big O Tires, Inc.'s Annual Report on Form 10-K for
fiscal year ended December 31, 1994).
(10.57) Commitment Letter dated February 16, 1994 between Big O N/A
Tires, Inc. and AT&T Commercial Finance Corporation for
real estate financing (incorporated by reference to
Exhibit 10.72 to Big O Tires, Inc.'s Annual Report on
Form 10-K for fiscal year ended December 31, 1994).
(10.58) Commitment Letter dated February 16, 1994 between Big O N/A
Tires, Inc. and AT&T Commercial Finance Corporation for
equipment financing (incorporated by reference to Exhibit
10.73 to Big O Tires, Inc.'s Annual Report on Form 10-K
for fiscal year ended December 31, 1994).
(10.59) Extension letter dated December 9, 1994 between Big O N/A
Tires, Inc. and AT&T Commercial Finance Corporation to
extend existing lines of credit through December 31, 1995
(incorporated by reference to Exhibit 10.74 to Big O
Tires, Inc.'s Annual Report on Form 10-K for fiscal year
ended December 31, 1994).
(10.60) Resignation letter dated February 27, 1995 from Robert L. N/A
Puckett (incorporated by reference to Exhibit 10.75 to
Big O Tires, Inc.'s Annual Report on Form 10-K for fiscal
year ended December 31, 1994).
(10.61) Resignation letter dated February 24, 1995 from David W. N/A
Dwyer (incorporated by reference to Exhibit 10.76 to Big
O Tires, Inc.'s Annual Report on Form 10-K for fiscal
year ended December 31, 1994).
(10.62) Revolving Credit Agreement dated January 23, 1995 between N/A
Big O Tires, Inc. and The First National Bank of Chicago
(incorporated by reference to Exhibit 10.77 to Big O
Tires, Inc.'s Annual Report on Form 10-K for fiscal year
ended December 31, 1994).
(10.63) Consent, Acknowledgement and Access Agreement dated N/A
January 23, 1995 between The Bank of Cherry Creek, N.A.,
Kenneth B. Buckius and The First National Bank of Chicago
(incorporated by reference to Exhibit 10.78 to Big O
Tires, Inc.'s Annual Report on Form 10-K for fiscal year
ended December 31, 1994).
(10.64) Note Purchase Agreement dated April 27, 1994 between Big N/A
O Tires, Inc. and USG Annuity & Life Company and Republic
Western Insurance Company (incorporated by reference to
Exhibit 10.79 to Big O Tires, Inc.'s Annual Report on
Form 10-K for fiscal year ended December 31, 1994).
(10.65) Franchise Agreement dated October 7, 1994 between Big O N/A
Tires, Inc. and OK Tires, Inc. for the Retail Store
located at 2830 West 3500 South, West Valley City, Utah
84119 (incorporated by reference to Exhibit 10.80 to Big
O Tires, Inc.'s Annual Report on Form 10-K for fiscal
year ended December 31, 1994).
<PAGE>
(10.66) Franchise Agreement dated November 26, 1993 between Big O N/A
Tires, Inc and CAPS Tire Limited Liability Company for
the Retail Store located at 8151 East Arapahoe Road,
Englewood, Colorado 80112 (incorporated by reference to
Exhibit 10.81 to Big O Tires, Inc.'s Annual Report on
Form 10-K for fiscal year ended December 31, 1994).
(10.67) Form of Confidentiality Agreement signed by dealers dated N/A
October 19, 1994 (incorporated by reference to Exhibit
10.82 to Big O Tires, Inc.'s Annual Report on Form 10-K
for fiscal year ended December 31, 1994).
(10.68) Ultimate Net Loss Agreement dated November 30, 1994, by N/A
and between Big O Tires, Inc. and The CIT Group/Equipment
Financing, Inc., a New York corporation (incorporated by
reference to Exhibit 10.83 to Big O Tires, Inc.'s Annual
Report on Form 10-K for fiscal year ended December 31,
1994).
(10.69) Inventory Financing Agreement together with a Demand Note N/A
dated September 30, 1994, by and between The
Kelly-Springfield Tire Company and Big O Tires, Inc., Big
O Retail Enterprises, Inc. and Big O Tire of Idaho, Inc.
(incorporated by reference to Exhibit 10.84 to Big O
Tires, Inc.'s Annual Report on Form 10-K for fiscal year
ended December 31, 1994).
(10.70) Supplemental Executive Retirement Plan dated December 7, N/A
1994, by Big O Tires, Inc., effective January 1, 1994
(incorporated by reference to Exhibit 10.85 to Big O
Tires, Inc.'s Annual Report on Form 10-K for fiscal year
ended December 31, 1994).
(10.71) Forms of Stock Appreciation Rights Agreement dated N/A
February 15, 1995, between Big O Tires, Inc. and the
Members of the Chief Executive Office (incorporated by
reference to Exhibit 10.86 to Big O Tires, Inc.'s Annual
Report on Form 10-K for fiscal year ended December 31,
1994).
(10.72) Letter Agreement dated March 24, 1995, regarding N/A
severance package, between Big O Tires, Inc. and John E.
Siipola (incorporated by reference to Exhibit 10.87 to
Big O Tires, Inc.'s Annual Report on Form 10-K for fiscal
year ended December 31, 1994).
(10.73) Letter Agreement dated March 24, 1995, regarding N/A
severance package, between Big O Tires, Inc. and Horst K.
Mehlfeldt (incorporated by reference to Exhibit 10.88 to
Big O Tires, Inc.'s Annual Report on Form 10-K for fiscal
year ended December 31, 1994).
(10.74) Letter dated February 7, 1995, from the Dealer-Management N/A
Group to the Company's Board Chairman (incorporated by
reference to Exhibit 10.1 to Big O Tires, Inc.'s Current
Report on Form 8-K dated January 10, 1995).
(10.75) Agreement between the Company and the Management Dealer N/A
Participants dated January 20, 1995 (incorporated by
reference to Exhibit 10.2 to Big O Tires, Inc.'s Current
Report on Form 8-K dated January 10, 1995).
<PAGE>
(10.76) Letter Agreement dated January 10, 1995, amending the N/A
Consulting Agreement by and between Big O Tires, Inc. and
Horst K. Mehlfeldt (incorporated by reference to Exhibit
10.3 to Big O Tires, Inc.'s Current Report on Form 8-K
dated January 10, 1995).
(10.77) Purchase Agreement dated March 22, 1995 effective March N/A
31, 1995 by and between Tire Marketers Association, a
division of Big O Tires, Inc. and Carr's Tire Service,
Inc., a Virginia corporation (incorporated by reference
to Exhibit 10.1 to Big O Tires, Inc.'s Quarterly Report
on Form 10-Q dated March 31, 1995).
(10.78) Acquisition Proposal to the Investment Committee of the N/A
Board of Directors from certain member of management and
a representative of certain Big O Tires, Inc.'s
franchisees dated April 6, 1995 (incorporated by
reference to Exhibit 10.1 to Big O Tires, Inc.'s Current
Report on Form 8-K dated April 6, 1995).
(10.79) Acquisition Proposal to the Investment Committee of the N/A
Board of Directors from certain member of management and
a representative of certain Big O Tires, Inc.'s
franchisees dated June 2, 1995 (incorporated by reference
to Exhibit 10.1 to Big O Tires, Inc.'s Current Report on
Form 8-K dated June 5, 1995).
(10.80) Acquisition Proposal to the Investment Committee of the N/A
Board of Directors from certain members of management and
a representative of Big O Tire Dealers of America dated
June 2, 1995, and signed by the Company on June 7, 1995
(incorporated by reference to Exhibit 10.1 to Big O
Tires, Inc.'s Current Report on Form 8-K dated June 9,
1995).
(10.81) Letter Agreement and Indemnification Agreement dated N/A
January 20, 1995, between Big O Tires, Inc. and
PaineWebber Incorporated. Acquisition Proposal to the
Investment Committee of the Board of Directors from
certain member of management and a representative of
certain Big O Tires, Inc.'s franchisees dated April 6,
1995 (incorporated by reference to Exhibit 10.1 to Big O
Tires, Inc.'s Quarterly Report on Form 10-Q dated June
30, 1995).
(10.82) Three memos from PaineWebber Incorporated to the Company N/A
amending certain fees dated June 9, 1995, June 16, 1995
and June 30, 1995 (incorporated by reference to Exhibit
10.2 to Big O Tires, Inc.'s Quarterly Report on Form 10-Q
dated June 30, 1995).
(10.83) Letter Agreement between Big O Tires, Inc. and John E. N/A
Siipola dated July 21, 1995, pertaining to new severance
package terms and terminating the March 24, 1995 Letter
Agreement regarding severance (incorporated by reference
to Exhibit 10.3 to Big O Tires, Inc.'s Quarterly Report
on Form 10-Q dated June 30, 1995).
(10.84) Letter Agreement between Big O Tires, Inc. and Horst K. N/A
Mehlfeldt dated July 21, 1995, pertaining to new
severance package terms and terminating the March 24,
1995 Letter Agreement regarding severance (incorporated
by reference to Exhibit 10.4 to Big O Tires, Inc.'s
Quarterly Report on Form 10-Q dated June 30, 1995).
(10.85) Letter Agreement between Big O Tires, Inc. and Steven P. N/A
Cloward dated July 21, 1995, regarding a modification to
Mr. Cloward's severance package (incorporated by
reference to Exhibit 10.5 to Big O Tires, Inc.'s
Quarterly Report on Form 10-Q dated June 30, 1995).
<PAGE>
(10.86) Agreement and Plan of Merger dated July 24, 1995, between N/A
BOTI Holdings, Inc., a Nevada corporation, BOTI
Acquisition Corp., a Nevada corporation and a wholly
owned subsidiary of BOTI Holdings, Inc., and Big O Tires,
Inc. (incorporated by reference to Exhibit 10.1 to Big O
Tires, Inc.'s Current Report on Form 8-K dated July 25,
1995).
(10.87) Letter Agreement dated August 31, 1995, by and among Big N/A
O Tires, Inc., BOTI Acquisition Corp., and BOTI Holdings,
Inc. (incorporated by reference to Exhibit 10.1 to Big O
Tires, Inc.'s Current Report on Form 8-K dated September
5, 1995).
(10.88) Agreement for Purchase and Sale of Joint Venture N/A
Interest; Dissolution of Joint Venture; and Continuation
of Business by Acquiring Joint Ventures dated effective
October 1, 1994, by and between Big O Retail Enterprises,
Inc., a Colorado corporation ("Seller") and C.S.B.
Partnership, a California general partnership
("Purchaser") (incorporated by reference to Exhibit 10.1
to Big O Tires, Inc.'s Quarterly Report on Form 10-Q
dated September 30, 1995).
(10.89) Letter Agreement dated October 2, 1995, by and among Big N/A
O Tires, Inc., BOTI Acquisition Corp., and BOTI Holdings,
Inc. (incorporated by reference to Exhibit 10.1 to Big O
Tires, Inc.'s Current Report on Form 8-K dated October 4,
1995).
(10.90) Letter dated October 15, 1995, from BOTI Acquisition N/A
Corp. and BOTI Holdings, Inc., to Big O Tires, Inc.
(incorporated by reference to Exhibit 10.1 to Big O
Tires, Inc.'s Current Report on Form 8-K dated October
18, 1995).
(10.91) Second Amendment to Employee Stock Ownership Plan and N/A
Trust Agreement of Big O Tires, Inc., dated ___ November,
1995 (incorporated by reference to Exhibit 10.1 to Big O
Tires, Inc.'s Current Report on Form 8-K dated November
17, 1995).
(10.92) Amendment to Agreement and Plan of Merger dated as of N/A
November 14, 1995, between BOTI Holdings, Inc., a Nevada
corporation (the "Parent"), BOTI Acquisition Corp., a
Nevada corporation and a wholly owned subsidiary of the
Parent (the"Purchaser"), and Big O Tires, Inc., a Nevada
corporation (the "Company"), and amends the Agreement and
Plan of Merger dated as of July 24, 1995 (incorporated by
reference to Exhibit 10.2 to Big O Tires, Inc.'s Current
Report on Form 8-K dated November 17, 1995).
(10.93) Second Amendment to Employee Stock Ownership Plan and N/A
Trust Agreement of Big O Tires, Inc., dated November 14,
1995 (incorporated by reference to Exhibit 10.1 to Big O
Tires, Inc.'s Current Report on Form 8-K dated December
15, 1995).
(10.94) 1996 Incentive Bonus Plans. 91
(10.95) Form of Franchise Agreement currently in use. 111
(10.96) Promissory Note in the original principal amount of 168
$250,000.00 with C.S.B Partnership as Maker and related
security documents.
<PAGE>
(20.1) Opinion Letter from PaineWebber Incorporated to the Board N/A
of Directors of Big O Tires, Inc. dated November 14, 1995
(incorporated by reference to Exhibit 20.1 to Big O
Tires, Inc.'s Current Report on Form 8-K dated November
17, 1995).
(21.1) Big O Tires, Inc. Subsidiaries 201
(23.1) Consent of Deloitte & Touche 202
(25.1) Powers of Attorney executed by the Directors of Big O 203
Tires, Inc.
(27.1) Big O Tires, Inc.'s Financial Data Schedule. 213
<PAGE>
EXHIBIT 3.2
THIRD AMENDED
AND
RESTATED
BYLAWS OF
BIG O TIRES, INC.
A NEVADA CORPORATION
DATE: DECEMBER 5, 1995
<PAGE>
TABLE OF CONTENTS
OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Location of Offices . . . . . . . . . . . . . . . . . 1
Section 1.02. Principal office and Resident Agent . . . . . . . . . 1
STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.01. Annual Meeting. . . . . . . . . . . . . . . . . . . . 1
Section 2.02. Special Meetings. . . . . . . . . . . . . . . . . . . 1
Section 2.03. Place of Meetings . . . . . . . . . . . . . . . . . . 1
Section 2.04. Notice of Meetings. . . . . . . . . . . . . . . . . . 2
Section 2.05. Waiver of Notice. . . . . . . . . . . . . . . . . . . 2
Section 2.06. Fixing Record Date. . . . . . . . . . . . . . . . . . 2
Section 2.07. Quorum. . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.08. Voting. . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.09. Proxies . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.10. Stockholder Action. . . . . . . . . . . . . . . . . . 4
Section 2.11. Conduct of Meetings . . . . . . . . . . . . . . . . . 4
Section 2.12. Presentation of Business at Stockholders Meetings . . 5
Section 2.13. Nominations of Persons for Election to the Board of
Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.14. Advisory Stockholder Votes. . . . . . . . . . . . . . 7
BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.01. General Powers. . . . . . . . . . . . . . . . . . . . 7
Section 3.02. Number, Class and Term. . . . . . . . . . . . . . . . 7
Section 3.03. Vacancies and Newly Created Directorships . . . . . . 8
Section 3.04. Removal . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.05. Regular Meetings. . . . . . . . . . . . . . . . . . . 8
Section 3.06. Special Meetings. . . . . . . . . . . . . . . . . . . 8
Section 3.07. Meetings by Telephone Conference Call . . . . . . . . 9
Section 3.08. Quorum and Majority of Acting . . . . . . . . . . . . 9
Section 3.09. Executive Committee . . . . . . . . . . . . . . . . .10
Section 3.10. Other Committees. . . . . . . . . . . . . . . . . . .10
Section 3.11. Compensation. . . . . . . . . . . . . . . . . . . . .10
Section 3.12. Notice. . . . . . . . . . . . . . . . . . . . . . . .11
Section 3.13. Waiver of Notice, Ratification and Approval . . . . .11
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Section 4.01. Number. . . . . . . . . . . . . . . . . . . . . . . .12
i
<PAGE>
Section 4.02 Election Term of Office and Qualifications. . . . . .12
Section 4.03. Subordinate Officers. . . . . . . . . . . . . . . . .12
Section 4.04. Salaries. . . . . . . . . . . . . . . . . . . . . . .12
Section 4.05. Removal . . . . . . . . . . . . . . . . . . . . . . .12
Section 4.06. Resignations. . . . . . . . . . . . . . . . . . . . .13
Section 4.07. Vacancies and Newly Created Offices . . . . . . . . .13
Section 4.08. The Chairman of the Board . . . . . . . . . . . . . .13
Section 4.09. The Vice Chairman of the Board. . . . . . . . . . . .13
Section 4.10. The President . . . . . . . . . . . . . . . . . . . .13
Section 4.11. The Vice-Presidents . . . . . . . . . . . . . . . . .14
Section 4.12. The Secretary . . . . . . . . . . . . . . . . . . . .14
Section 4.13. The Treasurer . . . . . . . . . . . . . . . . . . . .15
CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Section 5.01. Stock Certificates. . . . . . . . . . . . . . . . . .16
Section 5.02. Maintenance of Stock Book . . . . . . . . . . . . . .17
Section 5.03. Lost or Destroyed Certificates. . . . . . . . . . . .17
Section 5.04. Transfer of Stock . . . . . . . . . . . . . . . . . .17
Section 5.05. Registered Stockholders . . . . . . . . . . . . . . .17
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Section 6.01. Indemnification for Third Party Actions . . . . . . .18
Section 6.02. Indemnification for Actions by or in the Right of the
Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Section 6.03. Determination . . . . . . . . . . . . . . . . . . . .19
Section 6.04. Advances. . . . . . . . . . . . . . . . . . . . . . .19
Section 6.05 General Indemnification . . . . . . . . . . . . . . .19
CONTRACTS, LOANS, CHECKS AND DEPOSITS. . . . . . . . . . . . . . . . . . . . .20
Section 7.01. Contracts . . . . . . . . . . . . . . . . . . . . . .20
Section 7.02. Loans . . . . . . . . . . . . . . . . . . . . . . . .20
Section 7.03. Deposits. . . . . . . . . . . . . . . . . . . . . . .20
Section 7.04. Checks Drafts, Etc. . . . . . . . . . . . . . . . . .20
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 8.01. Dividends . . . . . . . . . . . . . . . . . . . . . .21
Section 8.02. Fiscal Year . . . . . . . . . . . . . . . . . . . . .21
Section 8.03. Corporate Seal. . . . . . . . . . . . . . . . . . . .21
Section 8.04. Amendments. . . . . . . . . . . . . . . . . . . . . .21
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SECOND AMENDED
AND
RESTATED
BYLAWS OF
BIG O TIRES. INC.
ARTICLE I
OFFICES
SECTION 1.01. LOCATION OF OFFICES. The Corporation may maintain
such offices, within or without the State of Nevada, as the Board of Directors
may from time to time designate.
SECTION 1.02. PRINCIPAL OFFICE AND RESIDENT AGENT. The address of
the principal office of the Corporation, and the resident agent located at such
address, shall be The Corporation Trust Company of Nevada, One First East
Street, Reno, Nevada 89501, and said address may be changed by the Board of
Directors at any time pursuant to the laws of the State of Nevada.
ARTICLE II
STOCKHOLDERS
SECTION 2.01. ANNUAL MEETING. The annual meeting of the
stockholders shall be held in each fiscal year of the Corporation on such date
and at such time as are established by a resolution adopted by the Board of
Directors. The annual meeting shall be held for the purpose of electing
directors and for the transaction of such other business as may properly come
before the meeting.
SECTION 2.02. SPECIAL MEETINGS. Special meetings of the
stockholders may be called at any time by the Chairman of the Board, the Vice
Chairman of the Board, the President, or by a majority of the Board of
Directors, or in their absence or disability, by the Executive Vice President.
SECTION 2.03. PLACE OF MEETINGS. The Board of Directors may
designate any place, either within or without the State of Nevada, as the place
of meeting for any annual meeting or for any special meeting called by the Board
of Directors. A waiver of notice signed by all stockholders entitled to vote
at a meeting
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may designate any place, either within or without the State of Nevada, as the
place for the holding of such meeting.
SECTION 2.04. NOTICE OF MEETINGS. Notices of both annual and
special meetings shall be in writing and signed by the Chairman of the Board,
Vice Chairman of the Board, the President or Executive Vice-President, or the
Secretary, or an assistant Secretary, or by such other person or persons as
the directors shall designate. Such notice shall state the purpose or
purposes for which the meeting is called and the time when, and the place
where, it is to be held. A copy of such notice shall be either delivered
personally to or shall be mailed, postage prepaid, to each stockholder of
record entitled to vote at such meeting not less than ten (10) nor more than
sixty (60) days before such meeting. If mailed, it shall be directed to a
stockholder at his address as it appears upon the records of the Corporation,
and upon such mailing of any such notice, the service thereof shall be
complete, and the time of the notice shall begin to run from the date upon
which such notice is deposited in the mail for transmission to such
stockholder. Personal delivery of any such notice to any officer of
a corporation or association, or to any member of a partnership, shall
constitute delivery of such notice to such corporation, association or
partnership. In the event a stockholder transfers his stock after delivery
or mailing of the notice by the Corporation and prior to the holding of
the meeting, it shall not be necessary to deliver or mail notice of the
meeting upon the transferee .
SECTION 2.05. WAIVER OF NOTICE. Any stockholder may waive notice
of any meeting of stockholders by signing a written waiver of notice either
before or after the meeting. Consent by all the persons entitled to vote at a
stockholder's meeting, either by: (a) a writing on the records of the meeting
or filed with the Secretary; or (b) presence at such meeting and oral consent
entered on the minutes; or (c) taking part in the deliberations at such
meeting without objection, shall constitute waiver of all defects of call or
notice.
SECTION 2.06. FIXING RECORD DATE. For the purpose of determining
stockholders entitled to notice of and to vote at any meeting of stockholders
or any adjournment thereof, or stockholders entitled to receive payment of
any dividend, or in order to make a determination of stockholders for any
other proper purpose, the Board of Directors of the Corporation may provide
that the stock transfer books shall be closed but not for a period exceeding
sixty (60) days prior to such meeting or payment.
In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any such determination of
stockholders, such date in any case to be not more than sixty (60) days prior
to the date on which the particular action requiring such determination of
stockholders is to be taken.
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If the stock transfer books are not closed and no record date is fixed
for the determination of stockholders entitled to notice of or to vote at a
meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination
of stockholders. When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
SECTION 2.07. QUORUM. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the Articles of Incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified.
SECTION 2.08. VOTING. Every stockholder of record of the
Corporation shall be entitled at each meeting of stockholders to one vote for
each share of stock standing in his name on the books of the Corporation.
When a quorum is present or represented at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the Articles of Incorporation a different vote is required, in which case
such express provision shall govern and control the decision of such
question. For example, directors shall be elected by a plurality of the votes
cast.
SECTION 2.09. PROXIES. At any meeting of the stockholders, any
stockholder may be represented and vote by a proxy or proxies appointed by an
instrument in writing. In the event that any such instrument in writing
shall designate two or more persons to act as proxies, a majority of such
persons present at the meeting, or, if only one shall be present then that
one, shall have and may exercise all of the powers conferred by such written
instrument upon all of the persons so designated unless the instrument shall
otherwise provide.
No such proxy shall be valid after the expiration of six months from the
date of its execution, unless coupled with an interest, or unless the person
executing it
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specifies therein the length of time for which it is to continue in force,
which in no case shall exceed seven years from the date of its execution.
Subject to the above, any proxy duly executed is not revoked and
continues in full force and effect until an instrument revoking it or a duly
executed proxy bearing a later date is filed with the Secretary of the
Corporation.
SECTION 2.10. STOCKHOLDER ACTION. Any action required or
permitted to be taken by the stockholders of the Corporation must be taken at
a duly called annual or special meeting of the stockholders of the
Corporation and may not be taken by consent in writing or otherwise.
SECTION 2.11. CONDUCT OF MEETINGS.
(a) GENERAL. The chairman of the annual or any special meeting of
the stockholders shall be the Chairman of the Board, if there is one, or, of
there is not one or in his absence, the Vice Chairman of the Board, if there
is one, or, if there is not one or in his absence, the President, or, if
there is not one or in his absence, any person designated by a majority of
the directors present, unless and until a different person is elected by a
majority of the shares entitled to vote at such meeting.
(b) INSPECTORS OF ELECTION. The Corporation shall, in advance of
any meeting of stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The Corporation may designate one
or more persons as alternative inspectors to replace any inspector who fails
to act. If no inspector or alternative is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
his ability.
The inspectors shall (i) ascertain the number of shares outstanding and
the voting power of each, (ii) determine the shares represented at a meeting
and the validity of proxies and ballots, (iii) count all votes and ballots,
and (iv) certify their determination of the number of shares represented at
the meeting, and their count of all votes and ballots. The inspectors may
appoint or retain other persons or entities to assist the inspectors in the
performance of the duties of the inspectors.
The date and time of the opening and the closing of the polls for each
matter upon which the shareholders will vote at a meeting shall be announced
at the meeting. No ballot, proxies or votes, nor any revocations thereof or
changes thereto, shall be accepted by the inspectors after the closing of the
polls unless a court of competent jurisdiction upon application by a
shareholder shall determine otherwise.
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In determining the validity and counting of proxies and ballots, the
inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
applicable law, ballots and the regular books and records of the corporation,
except that the inspectors may consider other reliable information for the
limited purpose of reconciling proxies and ballots submitted by or on behalf
of banks, brokers, their nominees or similar persons which represent more
votes than the holder of a proxy is authorized by the record owner to cast,
or more votes than the shareholder holds of record. If the inspectors
consider other reliable information for the limited purpose permitted herein,
the inspectors at the time they make their certification pursuant to this
section shall specify the precise information considered by them including
the person or persons from whom they obtained the information, when the
information was obtained, the means by which the information was obtained and
the basis for the inspectors' belief that such information is accurate and
reliable.
(c) RULES OF CONDUCT. Meetings of shareholders shall be conducted
in accordance with the following rules:
(i) The chairman of the meeting shall have absolute authority over
matters of procedure and there shall be no appeal from the ruling of the
chairman. If the chairman, in his absolute discretion, deems it advisable to
dispense with the rules of parliamentary procedure as to any one meeting of
shareholders or part thereof, the chairman shall so sate and shall clearly
state the rules under which the meeting or appropriate part thereof shall be
conducted.
(ii) The chairman shall have the power and duty to determine whether a
nomination of a director candidate or any other business proposed to be
brought before the meeting was made in accordance with the procedures set
forth in these Bylaws and, if any proposed nomination or business is not in
compliance with these Bylaws, to declare that such defective nomination or
proposal shall be disregarded.
(iii) If disorder should arise that prevents continuation of the
legitimate business of the meeting, the chairman may quit the chair and
announce the adjournment of the meeting and upon his so doing the meeting is
immediately adjourned.
(iv) The chairman may ask or require that anyone who is not a bona fide
shareholder or proxy leave the meeting.
SECTION 2.12. PRESENTATION OF BUSINESS AT STOCKHOLDERS MEETINGS.
(a) ANNUAL MEETINGS. At an annual meeting of the stockholders, only
such business shall be conducted as shall have been properly brought before
the meeting.
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To be properly brought before an annual meeting, business must be specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, otherwise properly brought before the
meeting by or at the direction of the Board of Directors or otherwise
properly brought before the meeting by a stockholder. In addition to any
other applicable requirements, for business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely,
a stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than 30 days nor
more than 60 days prior to the meeting; provided, however, that in the event
that less than 40 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the annual meeting
was mailed or such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting, (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of
the Corporation beneficially owned by the stockholder, and (iv) any material
interest of the stockholder in such business. Notwithstanding anything in the
Bylaws to the contrary, no business shall be conducted at the annual meeting
except in accordance with the procedures set forth in this Section 2.12,
provided, however, that nothing in this Section 2.12 shall be deemed to
preclude discussion by any stockholder of any business properly brought
before the annual meeting in accordance with such procedure.
(b) SPECIAL MEETINGS. Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting or as otherwise required by
law.
SECTION 2.13. NOMINATIONS OF PERSONS FOR ELECTION TO THE
BOARD OF DIRECTORS. In addition to any other applicable requirements, only
persons who are nominated in accordance with the following procedures shall
be eligible for election as directors. Nominations of persons for election
to the Board of Directors of the Corporation may be made at a meeting of
stockholders by or at the direction of the Board of Directors, by any
nominating committee or person appointed by the Board of Directors or by any
stockholder of the Corporation entitled to vote for the election of directors
at the meeting who complies with the notice procedures set forth in this
Section 2.13. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice
shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 30 days nor more than 60 days prior
to the meeting; provided, however, that in the event
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that less than 40 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. Such stockholder's notice shall
set forth (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address
and residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of the
Corporation beneficially owned by the person, and (iv) any other information
relating to the person that is required to be disclosed in solicitations for
proxies for election of directors pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (including the proposed nominee's written
consent to be named in the proxy statement and to serve if elected); and (b)
as to the stockholder giving the notice, (i) the name and record address of
the stockholder, and (ii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder. The Corporation may require
any proposed nominee to furnish such other information as may reasonably be
required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth herein. These provisions shall not
apply to nomination of any persons entitled to be separately elected by
holders of preferred stock.
SECTION 2.14. ADVISORY STOCKHOLDER VOTES. In order for the
stockholders to adopt or approve any proposals submitted to them for the
purpose of requesting the Board of Directors to take specified action, a
majority of the outstanding stock of the Corporation entitled to vote thereon
must be voted in favor of the proposal.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. GENERAL POWERS. The business of the
Corporation shall be managed by its Board of Directors which may exercise all
such powers of the Corporation and do all such lawful acts and things as are
not by statute, by the Articles of Incorporation or by these Bylaws directed
or required to be exercised or done by the stockholders. Without limiting the
generality of the foregoing, the directors of the Corporation are hereby
authorized to own, manage and engage in businesses similar to that of the
Corporation.
SECTION 3.02. NUMBER, CLASS AND TERM. The number of directors
which shall constitute the Board of Directors of the Company may vary from
five to
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fifteen as prescribed by a resolution adopted by the Board of Directors of
the Company. The Board of Directors shall be divided into four classes,
Class I, Class II, Class III and Class IV.
(a) CLASS I, II AND III DIRECTORS. As to the Class I, II and III
directors, each class shall be as nearly equal in number as possible and each
class shall have such number of directors so that at least one-fourth of the
total number of directors is elected at each annual meeting of shareholders.
The term of Class I Directors first chosen shall expire at the first annual
meeting of shareholders after their election, the term of Class II Directors
first chosen shall expire at the second annual meeting of shareholders after
their election, and the term of Class III Directors first chosen shall expire
at the third annual meeting of shareholders after their election. At each
annual meeting of shareholders after such classification, the class of
directors whose term expires at the time of such meeting shall be elected to
hold office until the third succeeding annual meeting of shareholders.
(b) CLASS IV DIRECTORS. The Class IV directors shall be elected at
each annual meeting of shareholders, to serve until the next succeeding
annual meeting of shareholders.
Each director shall hold office until his or her successor shall be
elected and shall qualify.
SECTION 3.03. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. All
vacancies, including those caused by an increase in the number of directors,
may be filled by a majority of the remaining directors though less than a
quorum. When one or more directors shall give notice of his or their
resignation to the Board of Directors, effective at a future date, a majority
of the Board of Directors shall have power to fill such vacancy or vacancies
to take effect when such resignation or resignations shall become effective,
each director so appointed to hold office during the remainder of the term of
office of the resigning director or directors.
SECTION 3.04. REMOVAL. Any director may be removed from office by
the vote or written consent of stockholders representing not less than
two-thirds of the issued and outstanding capital stock entitled to voting
power.
SECTION 3.05. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than these Bylaws immediately
after, and at the same place as, the annual meeting of shareholders. The
Board of Directors may provide by resolution the time and place for the
holding of additional regular meetings without other notice than such
resolution.
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SECTION 3.06. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board,
the Vice Chairman of the Board, the President or any two directors.
SECTION 3.07. MEETINGS BY TELEPHONE CONFERENCE CALL. Members of
the Board of Directors or of any committee designated by the Board of
Directors may participate in a meeting of such board or committee by means of
a conference telephone network or a similar communications method by which
all persons participating in the meeting can hear each other. Participation
in a meeting in such a manner constitutes presence in person at such meeting.
Each person participating in the meeting shall sign the minutes thereof.
The minutes may be signed in counterparts.
SECTION 3.08. QUORUM AND MAJORITY OF ACTING. Except as
contemplated and provided in the second and third paragraphs of this Section
3.08, a majority of the Board of Directors, at a meeting duly assembled,
shall be necessary to constitute a quorum for the transaction of business and
the act of a majority of the directors present at any meeting at which a
quorum is present shall be the act of the Board of Directors, except as may
be otherwise specifically provided by the Articles of Incorporation. Any
action required or permitted to be taken at a meeting of the directors may be
taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all of the directors entitled to vote with respect to the
subject matter thereof.
"No contract or other transaction between the Corporation
and one or more of its directors or officers, or between
the Corporation and any corporation, firm or association
in which one or more of its directors or officers are
directors or officers or are financially interested, is
void or voidable solely for this reason or solely because
any such director or officer is present at the meeting of
the Board of Directors or a committee thereof which
authorizes or approves the contract or transaction, or
because the vote or votes of common or interested
directors are counted for that purpose, if the
circumstances specified in any of the following
paragraphs exist:
"(a) The fact of the common directorship, office or
financial interest is disclosed or known to the Board of
Directors or committee and noted in the minutes, and the
Board or committee authorizes, approves or ratifies the
contract or transaction in good faith by a vote
sufficient for the purpose without counting the vote or
votes of the common or interested director or directors.
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"(b) The fact of the common directorship, office or
financial interest is disclosed or known to the
stockholders, and they approve or ratify the contract or
transaction in good faith by a majority vote of
stockholders holding a majority of the voting power. The
votes of the common or interested directors or officers
must be counted in any such vote of stockholders.
"(c) The fact of the common directorship, office or
financial interest is not disclosed or known to the
director or officer at the time the transaction is
brought before the Board of Directors of the Corporation
for action.
"(d) The contract or transaction is fair as to the
Corporation at the time it is authorized or approved.
"Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the
Board of Directors or a committee thereof which
authorizes, approves or ratifies a contract or
transaction, and if the votes of the common or interested
directors are not counted at the meeting, then a majority
of the disinterested directors may authorize, approve or
ratify a contract or transaction."
SECTION 3.09. EXECUTIVE COMMITTEE. The Board of Directors may by
resolution of a majority of its members designate two or more directors to
constitute an Executive Committee, which Committee, to the extent provided
in such resolution, shall have and may exercise all of the authority of the
Board of Directors in the management of the Corporation. The designation of
an Executive Committee and the delegation of authority thereto shall not
operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed upon him or it by law. The Executive committee shall
act only upon unanimous vote.
SECTION 3.10. OTHER COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the Board of Directors, designate one or
more other committees, each committee to consist of one or more of the
directors of the Corporation, which, to the extent provided in the
resolution, shall have and may exercise the powers of the Board of Directors
in the management of the business and affairs of the Corporation, and may
have power to authorize the seal of the Corporation to be affixed to all
papers on which the Corporation desires to place a seal. Such committee or
committees shall have such name or names as may be determined from time to
time by resolution adopted by the Board of Directors. The committees shall
keep regular minutes of their proceedings and report the same to the Board
when required.
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SECTION 3.11. COMPENSATION. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
SECTION 3.12. NOTICE. Notice of any special meeting shall be
given at least two (2) days prior thereto by written notice delivered
personally, or mailed postage prepaid to the directors at their business
addresses, or by facsimile or telegram. Notice by mail shall be deemed to be
given when deposited in the United States mail so addressed, with postage
thereon prepaid.
SECTION 3.13. WAIVER OF NOTICE, RATIFICATION AND APPROVAL. Any
director may waive notice of any meeting in writing, whether before or after
the time stated therein. Whenever all directors entitled to vote at any
meeting consent, either by a writing on the records of the meeting or filed
with the Secretary, or by presence at such meeting and oral consent entered
on the minutes, or by taking part in the deliberations at such meeting
without objection, the doings of such meeting shall be as valid as if had at
a meeting regularly called and noticed, and at such meeting any business may
be transacted which is not excepted from the written consent or to the
consideration of which no objection for want of notice is made at the time.
If any meeting be irregular for want of notice or of such consent, provided a
quorum was present at such meeting, the proceedings of said meeting may be
ratified and approved and rendered likewise valid and the irregularity or
defect therein waived by a writing signed by all parties having the right to
vote at such meetings.
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ARTICLE IV
OFFICERS
SECTION 4.01. NUMBER. The officers of the Corporation shall be
the Chairman of the Board, the Vice Chairman of the Board, the President, one
or more Vice Presidents, Secretary, Treasurer and such other officers as may
be appointed by the Board of Directors. Any person may hold two or more
offices.
SECTION 4.02 ELECTION TERM OF OFFICE AND QUALIFICATIONS. The
officers shall be chosen by the Board of Directors at its first meeting after
each annual meeting of stockholders. In the event of failure to choose
officers at such annual meeting of the Board of Directors, officers may be
chosen at any regular or special meeting of the Board of Directors. Each such
officer shall hold his office until the next ensuing annual meeting of the
Board of Directors and until his successors shall have been chosen and
qualified, or until his death or until his resignation or removal in the
manner provided in these Bylaws. The Chairman of the Board and/or Vice
Chairman of the Board, if any, shall be and remain as director(s) of the
Corporation during the term of his or their office. No other officer need be
a director.
SECTION 4.03. SUBORDINATE OFFICERS. The Board of Directors may
appoint assistant secretaries, assistant treasurers, and such other officers
and agents as it shall deem necessary, each of whom shall have such title,
hold office for such period, have such authority and perform such duties as
shall be determined from time to time by the Board of Directors. The Board
of Directors from time to time may delegate to any officer or agent the power
to appoint any such subordinate officers or agents and to prescribe their
respective titles, terms of office, authorities and duties. Subordinate
officers need not be stockholders or directors.
SECTION 4.04. SALARIES. The salaries or other compensation of the
officers and agents of the Corporation shall be fixed by the Board of
Directors except that the Board may delegate to any person or group of
persons the power to fix the salaries or other compensation of any
subordinate officers or agents appointed in accordance with Section 4.03
hereof.
SECTION 4.05. REMOVAL. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any officer or agent appointed in
accordance with the
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provisions of Section 4.03 hereof may also be removed by any officer upon
whom such power of removal shall have been conferred by the Board.
SECTION 4.06. RESIGNATIONS. Any officer may resign at any time by
delivering a written resignation to the Board of Directors, the President or
the Secretary. Unless otherwise specified therein, such resignation shall
take effect upon delivery.
SECTION 4.07. VACANCIES AND NEWLY CREATED OFFICES. If any vacancy
shall occur in any office by reason of death, resignation, removal,
disqualification or any other cause, or if a new office shall be created,
then such vacancies or newly-created offices may be filled by the Board of
Directors at any regular or special meeting.
SECTION 4.08. THE CHAIRMAN OF THE BOARD. The Chairman of the
Board, if there be such an officer, shall have the following powers and
duties:
(a) He shall preside at all stockholders meetings.
(b) He shall preside at all meetings of the Board of Directors.
(c) He shall be a member of the Executive Committee, if any.
(d) He shall be an executive officer of the Corporation, and, subject
to the directions of the Board of Directors, shall have general
charge of the business, affairs and property of the Corporation
and general supervision over its officers, employees and agents.
SECTION 4.09. THE VICE CHAIRMAN OF THE BOARD. The Vice Chairman
of the Board, if there be such an officer, shall have the following powers
and duties if no Chairman of the Board has been chosen or if such officer is
absent or disabled:
(a) He shall preside at all shareholders meetings.
(b) He shall preside at all meetings of the Board of Directors.
(c) He shall be a member of the Executive Committee, if any.
(d) He shall be an executive officer of the Corporation, and, subject to
the directions of the Board of Directors, shall have general charge of
the business, officers and property of the Corporation and general
supervision over its officers, employees and agents.
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SECTION 4.10. THE PRESIDENT. The President shall have the
following powers and duties:
(a) He shall be an executive officer of the Corporation, and, subject to
the directions of the Board of Directors, shall have general charge of
the business, affairs and property of the Corporation and general
supervision over its officers, employees and agents.
(b) If no Chairman of the Board and/or Vice Chairman of the Board has been
chosen, or if such officer(s) is(are) absent or disabled, he shall
preside at meetings of the stockholders and Board of Directors.
(c) He shall be a member of the Executive Committee, if any.
(d) He shall be empowered to sign certificates representing stock of the
Corporation, the issuance of which shall have been authorized by the
Board of Directors .
(e) He shall have all powers and perform all duties normally incident to
the office of a president of a corporation and shall exercise such
other powers and perform such other duties as from time to time may be
assigned to him by the Board of Directors.
SECTION 4.11. THE VICE-PRESIDENTS. The Board of Directors shall,
from time to time, designate and elect one or more Vice Presidents, one or
more of whom may be designated to serve as Executive Vice-President or Senior
Vice-President. Each Vice-President shall have such powers and perform such
duties as from time to time may be assigned to him by the Board of Directors
or the President. At the request or in the absence or disability of the
President, the Executive Vice-President or, in the absence or disability of
the Executive Vice-President, the Vice-President designated by the Board of
Directors or (in the absence of such designation by the Board of Directors)
by the President, as Senior Vice-President, may perform all the duties of the
President, and when so acting, shall have all the powers of, and be subject
to all the restrictions upon, the President.
SECTION 4.12. THE SECRETARY. The Secretary shall have the
following powers and duties:
(a) He shall keep or cause to be kept a record of all of the proceedings
of the meetings of the stockholders and of the Board of Directors in
books provided for that purpose.
14
<PAGE>
(b) He shall cause all notices to be duly given in accordance with the
provisions of these Bylaws and as required by statute.
(c) He shall be the custodian of the records and of the seal of the
Corporation, and shall cause such seal (or a facsimile thereof) to be
affixed to all certificates representing stock of the Corporation
prior to the issuance thereof and to all instruments, the execution
of which on behalf of the Corporation under its seal shall have been
duly authorized in accordance with these Bylaws, and when so affixed
he may attest the same.
(d) He shall see that the books, reports, statements, certificates and
other documents and records required by statute are properly kept and
filed.
(e) He shall have charge of the stock books of the Corporation and cause
the stock and transfer books to be kept in such manner as to show at
any time the amount of the stock of the Corporation of each class
issued and outstanding, the manner in which and the time when such
stock was paid for, the names alphabetically arranged and the
addresses of the holders of record thereof, the number of shares held
by each holder and time when each became such holder of record; and he
shall exhibit at all reasonable times to any director, upon
application, the original or duplicate stock register. He shall cause
the stock book referred to in Section 5.02 hereof to be kept and
exhibited at the principal business office of the Corporation in the
manner and for the purpose provided in Section 5.02.
(f) He shall be empowered to sign certificates representing stock of the
Corporation, the issuance of which shall have been authorized by the
Board of Directors.
(g) He shall perform in general all duties incident to the office of
Secretary and such other duties as are given to him by these Bylaws or
as from time to time may be assigned to him by the Board of Directors
or the President.
SECTION 4.13. THE TREASURER. The Treasurer shall have the
following powers and duties:
(a) He shall have charge and supervision over and be responsible for the
monies, securities, receipts and disbursements of the Corporation.
15
<PAGE>
(b) He shall cause the monies and other valuable effects of the
Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such banks or
other depositories as shall be selected in accordance with Section
7.03 hereof.
(c) He shall cause the monies of the Corporation to be disbursed by checks
or drafts (signed as provided in Section 7. 04 hereof) drawn upon the
authorized depositories of the corporation, and cause to be taken and
preserved proper vouchers for all monies disbursed.
(d) He shall render to the Board of Directors or the Office of Chief
Executive, whenever requested, a statement of the financial condition
of the Corporation and of all of his transactions as Treasurer, and
render a full financial report at the annual meeting of the
stockholders, if called upon to do so.
(e) He shall cause to be kept correct books of account of all the business
and transactions of the Corporation and exhibit such books to any
directors upon request during business hours.
(f) He shall be empowered from time to time to require from all officers
or agents of the Corporation reports or statements giving such
information as he may desire with respect to any and all financial
transactions of the corporation.
(g) He shall perform in general all duties incident to the office of
Treasurer and such other duties as are given to him by these Bylaws or
as from time to time may be assigned to him by the Board of Directors
or the President.
ARTICLE V
CAPITAL STOCK
SECTION 5.01. STOCK CERTIFICATES. Every stockholder shall be
entitled to have a certificate, signed by the President or a Vice-President,
if one shall be appointed, and the Secretary or an assistant Secretary, if
one shall be appointed, certifying the number of shares owned by him in the
Corporation. When the Corporation is authorized to issue shares of more
than one class or more than one series of any class, there shall be set forth
upon the face of back of the certificate, or the certificate shall have a
statement that the Corporation will furnish to any stockholders upon request
and without charge, a full or summary statement of the
16
<PAGE>
designations, preferences and relative, participating, optional or other
special rights of the various classes of stock or series thereof and the
qualifications, limitations or restrictions of such rights, and, if the
Corporation shall be authorized to issue only special stock, such certificate
shall set forth in full or summarize the rights of the holders of such stock.
Whenever any certificate is countersigned or otherwise authenticated by a
transfer agent or transfer clerk, and by a registrar, then a facsimile of the
signatures of the officers or agents of the Corporation may be printed or
lithographed upon such certificate in lieu of the actual signatures. In case
any officer or officers who shall have signed, or whose facsimile signature
or signatures shall have been used on, any such certificate or certificates
shall cease to be such officer or officers of the Corporation, whether
because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate
or certificates may nevertheless be adopted by the Corporation and be issued
and delivered as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be the officer or officers of the Corporation.
SECTION 5.02. MAINTENANCE OF STOCK BOOK. A statement shall be
kept at the principal place of business of the Corporation setting out the
name of the custodian of the stock ledger or duplicate stock ledger and the
present and complete post office address, including street and number, if
any, where such stock ledger or duplicate stock ledger is kept.
SECTION 5.03. LOST OR DESTROYED CERTIFICATES. The Board of
Directors may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Corporation
alleged to have been lost or destroyed, upon the making of an affidavit of
that fact by the person claiming the certificate of stock to be lost or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost or destroyed certificate
or certificates, or his legal representative, to advertise the same in such
manner as it shall require and/or give the Corporation a bond in such sum as
it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost or
destroyed.
SECTION 5.04. TRANSFER OF STOCK. Upon surrender to the
Corporation or transfer agent designated by resolution of the Board of
Directors of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
17
<PAGE>
SECTION 5.05. REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and
to hold liable for calls and assessments a person registered on its books as
the owner of shares, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except
as otherwise provided by statute.
ARTICLE VI
INDEMNIFICATION
SECTION 6.01. INDEMNIFICATION FOR THIRD PARTY ACTIONS. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except
an action by or in the right of the Corporation, by reason of the fact that
he is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses, including attorney s fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with the action, suit or proceeding if he acted in good faith
and in a manner which he reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
does not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
be in the best interests of the Corporation, and that, with respect to any
criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
SECTION 6.02. INDEMNIFICATION FOR ACTIONS BY OR IN THE RIGHT OF
THE CORPORATION. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against expenses, including amounts paid in settlement and attorneys' fees
actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit if he acted in good faith and in a manner
which he reasonably believed
18
<PAGE>
to be in or not opposed to the best interests of the Corporation.
Indemnification may not be made for any claim, issue or matter as to which
such a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the Corporation or for
amounts paid in settlement to the Corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines that upon application that in view of all
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
SECTION 6.03. DETERMINATION. To the extent that a director,
officer, employee or agent of the Corporation has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 6.01 and 6.02 hereof, or in defense of any claim, issue or matter
therein, he must be indemnified against expenses, including attorney's fees,
actually and reasonably incurred by him in connection with the defense. Any
indemnification under Sections 6.01 or 6.02 hereof, unless ordered by a court
or advanced pursuant to Section 6.04 hereof, must be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made either (1) by the
stockholders, or (2) by the Board of Directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding,
or (3) if a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent legal
counsel in a written opinion, or (4) if a quorum consisting of directors who
were not parties to the act, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
SECTION 6.04. ADVANCES. Expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the Corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the Corporation. The provisions of this
Section 6.04 do not affect any rights to advancement of expenses to which the
Corporation's personnel other than directors or officers may be entitled
under any contract or otherwise by law.
SECTION 6.05 GENERAL INDEMNIFICATION. The indemnification and
advancement of expenses authorized in or ordered by a court pursuant to
Article VI: (1) does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the
certificate or articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise for either an action in
his official capacity or an action in another capacity while holding his
office, except that indemnification, unless ordered by a court
19
<PAGE>
pursuant to Section 6.02 or for the advancement of expenses made pursuant to
Section 6.04, may not be made to or on behalf of any director or officer if a
final adjudication establishes that his acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and was
material to the cause of action and (2) continues for a person who has ceased
to be a director, officer, employee or agent and inures to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 7.01. CONTRACTS. The Board of Directors may authorize any
officer or officers, agent or agents to execute and deliver any contract or
other instrument in the name and on behalf of the Corporation; any such
authorization may be general or confined to specific instances.
SECTION 7.02. LOANS. No loans shall be contracted on behalf of
the Corporation, no evidence of indebtedness shall be issued in its name, and
no property of the Corporation shall be mortgaged, pledged, transferred or
conveyed as security for the payment of any indebtedness or liability of the
Corporation, unless authorized by the Board of Directors. Such authority may
be general or confined to specific instances.
SECTION 7.03. DEPOSITS. All funds of the Corporation not
otherwise employed shall be deposited from time to time to its credit in such
banks, trust companies or other depositories as the directors may select.
SECTION 7.04. CHECKS DRAFTS, ETC. All checks, drafts or other
orders for the payment of money, and notes or other evidences of indebtedness
issued in the name of the Corporation, shall be signed by such officer or
officer, agent or agents of the Corporation and in such manner as the Board
of Directors may from time to time designate.
20
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions, if any, of any statute or of the
Articles of Incorporation, may be declared by the Board of Directors at any
regular or special meeting pursuant to law. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Articles of Incorporation.
SECTION 8.02. FISCAL YEAR. The fiscal year of the Corporation
shall end on the 31st day of December in each year.
SECTION 8.03. CORPORATE SEAL. The Corporation shall have the
power to adopt and use a common seal, or stamp, and alter the same at its
pleasure.
SECTION 8.04. AMENDMENTS. These Bylaws may be altered, amended
or repealed and new Bylaws may be adopted by the Board of Directors; provided
however, that any alteration, amendment or repeal of Article VI of these
Bylaws shall only be effective on the actual date such alteration, amendment
or repeal is actually adopted and shall only have prospective effect and
shall not apply to or effect persons, actions and matters occurring or in
place prior to such effective date.
I, THE UNDERSIGNED, being the Secretary of Big O Tires, Inc. DO HEREBY
CERTIFY the foregoing to be the Amended and Restated Bylaws of said
Corporation, as adopted at Regular Meetings of the Board of Directors of said
Corporation held on the 5th day of December 1995, to be effective on the
specific dates of each amendment.
____________________________________
Secretary
21
<PAGE>
Exhibit 10.94
1996 MBO-John Adams
1996 INCENTIVE BONUS PLAN
FOR JOHN ADAMS - EXECUTIVE V.P. & CFO - CORPORATE
- -------------------------------------------------------------------------------
THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1996 INCENTIVE
PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN.
DEFINITIONS:
THRESHOLD - The expected achievement goal for the criteria, at which 40%
of the bonus will be paid.
TARGET - The stretch goal at which 80% of the bonus will be paid out.
MAXIMUM - The extraordinary goal at which 120% of the bonus will be paid.
No additional bonus will be paid for achieving beyond this point.
SECTION 1. EBITDA
This criterion is defined as 1996 earnings before interest, taxes,
depreciation, and amortization as reported in the audited financial
statements for 1996.
WEIGHT THRESHOLD TARGET MAXIMUM
------ --------- ------ -------
100% $11,113,100 $11,698,000 $12,282,900
ANNUAL BONUS: $30,100 $60,200 $90,300
ANNUAL
TOTALS:100% $30,100 $60,200 $90,300
SECTION 2. TERMS AND CONDITIONS
1. The criteria outlined in the above sections are considered singular
and bonusable as specified.
2. This plan year shall commence January 1, 1996 and shall conclude
December 31, 1996.
3. If your employment with the Company should terminate for any reason
in 1996, no annual bonus or any part thereof shall be deemed to be
earned and payable. You must be employed for the entire plan year.
<PAGE>
1996 MBO-John Adams
Page 2
4. Any annual bonus payable under this plan shall be paid by March 15,
1997.
5. The method of annual calculation is on a percentage basis using the
difference between the threshold and target goals or target and
maximum goals as follows:
1) For achievement between threshold and target - achievement
divided by the sum of target goal minus threshold goal, times the
target dollars, or; 2) For achievement above target - achievement
divided by the sum of maximum goal minus target goals divided by 2
plus 1 times the target goal dollars.
EXAMPLE:
THRESHOLD TARGET MAXIMUM
--------- ------ -------
$12,000 $16,000 $18,000
ANNUAL BONUS: $ 0 $1,000 $1,500
Calculation of bonus between Target and Threshold with goal achievement of
$13,535:
(13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75
bonus.
Calculation of bonus between Target and Maximum with goal achievement of
$16,393:
(16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 =
1.09825 x 1,000 = $1,098.25 bonus.
AGREED TO:
/s/Horst K. Mehlfeldt 2/7/96
- ------------------------ -------
Horst Mehlfeldt Date
Vice Chairman - Corporate
BIG O TIRES, INC.
AGREED TO:
/s/John B. Adams 2/7/96
- ------------------------ -------
John Adams Date
Executive V.P. & CFO - Corporate
BIG O TIRES, INC.
Revised January 24, 1996
<PAGE>
1996 MBO-Dennis Fryer
1996 INCENTIVE BONUS PLAN
FOR DENNIS FRYER - REGIONAL V.P. - CENTRAL REGION
- --------------------------------------------------------------------------------
THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1996 INCENTIVE
PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN.
DEFINITIONS:
THRESHOLD - The expected achievement goal for the criteria, at which 40% of
the bonus will be paid.
TARGET - The stretch goal at which 80% of the bonus will be paid out.
MAXIMUM - The extraordinary goal at which 120% of the bonus will be paid.
No additional bonus will be paid for achieving beyond this point.
SECTION 1. EBITDA
This criterion is defined as 1996 earnings before interest, taxes,
depreciation, and amortization as reported in the audited financial
statements for 1996.
<TABLE>
<CAPTION>
WEIGHT THRESHOLD TARGET MAXIMUM
------ --------- ------ -------
<S> <C> <C> <C>
100% $11,113,100 $11,698,000 $12,282,900
ANNUAL BONUS: $12,501 $25,002 $37,503
ANNUAL
TOTALS:100% $12,501 $25,002 $37,503
</TABLE>
SECTION 2. TERMS AND CONDITIONS
1. The criteria outlined in the above sections are considered singular
and bonusable as specified.
2. This plan year shall commence January 1, 1996 and shall conclude
December 31, 1996.
3. If your employment with the Company should terminate for any reason in
1996, no annual bonus or any part thereof shall be deemed to be earned
and payable. You must be employed for the entire plan year.
<PAGE>
1996 MBO - Dennis Fryer
Page 2
4. Any annual bonus payable under this plan shall be paid by March 15,
1997.
5. The method of annual calculation is on a percentage basis using the
difference between the threshold and target goals or target and
maximum goals as follows:
1) For achievement between threshold and target - achievement divided
by the sum of target goal minus threshold goal, times the target
dollars, or; 2) For achievement above target - achievement divided by
the sum of maximum goal minus target goals divided by 2 plus 1 times
the target goal dollars.
EXAMPLE:
THRESHOLD TARGET MAXIMUM
--------- ------ -------
$12,000 $16,000 $18,000
ANNUAL BONUS: $ 0 $1,000 $1,500
Calculation of bonus between Target and Threshold with goal achievement of
$13,535:
(13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75
bonus.
Calculation of bonus between Target and Maximum with goal achievement of
$16,393:
(16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 =
1.09825 x 1,000 = $1,098.25 bonus.
AGREED TO:
/s/Tom Staker 2/6/96
- -------------------- -------
Tom Staker Date
Senior V.P. Operations - Corporate
BIG O TIRES, INC.
AGREED TO:
/s/Dennis Fryer 2/7/96
- ---------------- ------
Dennis Fryer Date
Regional V.P. - Central Region
BIG O TIRES, INC.
Revised January 24, 1996
<PAGE>
1996 MBO-Donald Flanders
1996 INCENTIVE BONUS PLAN
FOR DONALD FLANDERS - REGIONAL V.P. SOUTHWEST REGION
- --------------------------------------------------------------------------------
THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1996 INCENTIVE
PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN.
DEFINITIONS:
THRESHOLD - The expected achievement goal for the criteria, at which 40% of
the bonus will be paid.
TARGET - The stretch goal at which 80% of the bonus will be paid out.
MAXIMUM - The extraordinary goal at which 120% of the bonus will be paid.
No additional bonus will be paid for achieving beyond this point.
SECTION 1. EBITDA
This criterion is defined as 1996 earnings before interest, taxes,
depreciation, and amortization as reported in the audited financial
statements for 1996.
WEIGHT THRESHOLD TARGET MAXIMUM
------ --------- ------ -------
100% $11,113,100 $11,698,000 $12,282,900
ANNUAL BONUS: $13,334 $26,669 $40,003
ANNUAL
TOTALS:100% $13,334 $26,669 $40,003
SECTION 2. TERMS AND CONDITIONS
1. The criteria outlined in the above sections are considered singular
and bonusable as specified.
2. This plan year shall commence January 1, 1996 and shall conclude
December 31, 1996.
3. If your employment with the Company should terminate for any reason in
1996, no annual bonus or any part thereof shall be deemed to be earned
and payable. You must be employed for the entire plan year.
<PAGE>
1996 MBO-Donald Flanders
Page 2
4. Any annual bonus payable under this plan shall be paid by March 15,
1997.
5. The method of annual calculation is on a percentage basis using the
difference between the threshold and target goals or target and
maximum goals as follows:
1) For achievement between threshold and target - achievement divided
by the sum of target goal minus threshold goal, times the target
dollars, or; 2) For achievement above target - achievement divided by
the sum of maximum goal minus target goals divided by 2 plus 1 times
the target goal dollars.
EXAMPLE:
THRESHOLD TARGET MAXIMUM
--------- ------ -------
$12,000 $16,000 $18,000
ANNUAL BONUS: $ 0 $1,000 $1,500
Calculation of bonus between Target and Threshold with goal achievement of
$13,535:
(13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75
bonus.
Calculation of bonus between Target and Maximum with goal achievement of
$16,393:
(16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 =
1.09825 x 1,000 = $1,098.25 bonus.
AGREED TO:
/S/Tom Staker 2/6/96
- -------------------- --------
Tom Staker Date
Senior V.P. Operations - Corporate
BIG O TIRES, INC.
AGREED TO:
/S/Donald Flanders 2/15/96
- ------------------------- ---------
Donald Flanders Date
Regional V.P. - Southwest Region
BIG O TIRES, INC.
Revised March 26, 1996
<PAGE>
1996 MBO-Allen Jones
1996 INCENTIVE BONUS PLAN
FOR ALLEN JONES - REGIONAL V.P. - SOUTHEAST REGION
- --------------------------------------------------------------------------------
THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1996 INCENTIVE
PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN.
DEFINITIONS:
THRESHOLD - The expected achievement goal for the criteria, at which 40%
of the bonus will be paid.
TARGET - The stretch goal at which 80% of the bonus will be paid out.
MAXIMUM - The extraordinary goal at which 120% of the bonus will be paid.
No additional bonus will be paid for achieving beyond this point.
SECTION 1. EBITDA
This criterion is defined as 1996 earnings before interest, taxes,
depreciation, and amortization as reported in the audited financial
statements for 1996.
WEIGHT THRESHOLD TARGET MAXIMUM
------ --------- ------ -------
100% $11,113,100 $11,698,000 $12,282,900
ANNUAL BONUS: $12,417 $24,835 $37,252
ANNUAL
TOTALS:100% $12,417 $24,835 $37,252
SECTION 2. TERMS AND CONDITIONS
1. The criteria outlined in the above sections are considered singular
and bonusable as specified.
2. This plan year shall commence January 1, 1996 and shall conclude
December 31, 1996.
3. If your employment with the Company should terminate for any reason in
1996, no annual bonus or any part thereof shall be deemed to be earned
and payable. You must be employed for the entire plan year.
<PAGE>
1996 MBO-Allen Jones
Page 2
4. Any annual bonus payable under this plan shall be paid by March 15,
1997.
5. The method of annual calculation is on a percentage basis using the
difference between the threshold and target goals or target and
maximum goals as follows:
1) For achievement between threshold and target - achievement divided
by the sum of target goal minus threshold goal, times the target
dollars, or; 2) For achievement above target - achievement divided by
the sum of maximum goal minus target goals divided by 2 plus 1 times
the target goal dollars.
EXAMPLE:
THRESHOLD TARGET MAXIMUM
--------- ------ -------
$12,000 $16,000 $18,000
ANNUAL BONUS: $ 0 $1,000 $1,500
Calculation of bonus between Target and Threshold with goal achievement of
$13,535:
(13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75
bonus.
Calculation of bonus between Target and Maximum with goal achievement of
$16,393:
(16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 =
1.09825 x 1,000 = $1,098.25 bonus.
AGREED TO:
/S/Tom Staker 2/6/96
- -------------------- -------
Tom Staker Date
Senior V.P. Operations - Corporate
BIG O TIRES, INC.
AGREED TO:
/S/Allen Jones 2/16/96
- -------------------- -------
Allen Jones Date
Regional V.P. - Southeast Region
BIG O TIRES, INC.
Revised January 24, 1996
<PAGE>
1996 MBO-Greg Roquet
1996 INCENTIVE BONUS PLAN
FOR GREG ROQUET - REGIONAL V.P. - WEST REGION
This agreement outlines the criteria, goals and rewards for your 1996 incentive
plan as well as the terms and conditions as they apply to your plan.
DEFINITIONS:
THRESHOLD - The expected achievement goal for the criteria, at which 40% of
the bonus will be paid.
TARGET - The stretch goal at which 80% of the bonus will be paid out.
MAXIMUM - The extraordinary goal at which 120% of the bonus will be paid.
No additional bonus will be paid for achieving beyond this point.
SECTION 1. EBITDA
This criterion is defined as 1996 earnings before interest, taxes,
depreciation, and amortization as reported in the audited financial
statements for 1996.
WEIGHT THRESHOLD TARGET MAXIMUM
------ --------- ------ -------
100% $11,113,100 $11,698,000 $12,282,900
ANNUAL BONUS: $13,834 $27,669 $41,503
ANNUAL
TOTALS:100% $13,834 $27,669 $41,503
SECTION 2. TERMS AND CONDITIONS
1. The criteria outlined in the above sections are considered singular
and bonusable as specified.
2. This plan year shall commence January 1, 1996 and shall conclude
December 31, 1996.
3. If your employment with the Company should terminate for any reason in
1996, no annual bonus or any part thereof shall be deemed to be earned
and payable. You must be employed for the entire plan year.
<PAGE>
1996 MBO - Greg Roquet
Page 2
4. Any annual bonus payable under this plan shall be paid by March 15,
1997.
5. The method of annual calculation is on a percentage basis using the
difference between the threshold and target goals or target and
maximum goals as follows:
1) For achievement between threshold and target - achievement divided
by the sum of target goal minus threshold goal, times the target
dollars, or; 2) For achievement above target - achievement divided by
the sum of maximum goal minus target goals divided by 2 plus 1 times
the target goal dollars.
EXAMPLE:
THRESHOLD TARGET MAXIMUM
--------- ------ -------
$12,000 $16,000 $18,000
ANNUAL BONUS: $ 0 $1,000 $1,500
Calculation of bonus between Target and Threshold with goal achievement of
$13,535:
(13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75
bonus.
Calculation of bonus between Target and Maximum with goal achievement of
$16,393:
(16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 =
1.09825 x 1,000 = $1,098.25 bonus.
AGREED TO:
/s/Tom Staker 2/6/96
- ----------------------------------- ------
Tom Staker Date
Senior V.P. Operations - Corporate
BIG O TIRES, INC.
AGREED TO:
/s/Greg Roquet 2/8/96
- ---------------------------------- ------
Greg Roquet Date
Regional V.P. - West Region
BIG O TIRES, INC.
Revised January 24, 1996
<PAGE>
1996 MBO-Phil Teigen
1996 INCENTIVE BONUS PLAN
FOR PHIL TEIGEN - CORPORATE COUNSEL - CORPORATE
THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1996 INCENTIVE
PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN.
DEFINITIONS:
THRESHOLD - The expected achievement goal for the criteria, at which 40% of
the bonus will be paid.
TARGET - The stretch goal at which 80% of the bonus will be paid.
MAXIMUM - The extraordinary goal at which 120% of the bonus will be paid.
No additional bonus will be paid for achieving beyond this point.
SECTION 1. EBITDA
This criterion is defined as 1996 earnings before interest, taxes,
depreciation, and amortization as reported in the audited financial
statements for 1996.
<TABLE>
<CAPTION>
WEIGHT THRESHOLD TARGET MAXIMUM
------ --------- ------ --------
<S> <C> <C> <C> <C>
100% $11,113,100 $11,698,000 $12,282,900
ANNUAL BONUS: $7,108 $14,216 $21,324
ANNUAL
TOTALS:100% $7,108 $14,216 $21,324
</TABLE>
SECTION 2. TERMS AND CONDITIONS
1. The criteria outlined in the above sections are considered singular
and bonusable as specified.
2. This plan year shall commence January 1, 1996 and shall conclude
December 31, 1996.
3. If your employment with the Company should terminate for any reason in
1996, no annual bonus or any part thereof shall be deemed to be earned
and payable. You must be employed for the entire plan year.
<PAGE>
1996 MBO - Phil Teigen
Page 2
4. Any annual bonus payable under this plan shall be paid by March 15,
1997.
5. The method of annual calculation is on a percentage basis using the
difference between the threshold and target goals or target and
maximum goals as follows:
1) For achievement between threshold and target - achievement divided
by the sum of target goal minus threshold goal, times the target
dollars, or; 2) For achievement above target - achievement divided by
the sum of maximum goal minus target goals divided by 2 plus 1 times
the target goal dollars.
EXAMPLE:
<TABLE>
<CAPTION>
THRESHOLD TARGET MAXIMUM
--------- ------ -------
<S> <C> <C> <C>
$12,000 $16,000 $18,000
ANNUAL BONUS: $ 0 $1,000 $1,500
</TABLE>
Calculation of bonus between Target and Threshold with goal achievement of
$13,535:
(13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75
bonus.
Calculation of bonus between Target and Maximum with goal achievement of
$16,393:
(16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 =
1.09825 x 1,000 = $1,098.25 bonus.
AGREED TO:
/S/John B. Adams 2/6/96
- ------------------------------ ----------
John B. Adams Date
Executive V.P. & CFO - Corporate
BIG O TIRES, INC.
AGREED TO:
/S/Phil Teigen 2/6/96
- ----------------------------- ----------
Phil Teigen Date
Corporate Counsel - Corporate
BIG O TIRES, INC.
Revised January 24, 1996
<PAGE>
1996 MBO-Bruce Ware
1996 INCENTIVE BONUS PLAN
FOR BRUCE WARE - CORPORATE PURCHASING MGR. - CORPORATE
THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1996 INCENTIVE
PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN.
DEFINITIONS:
THRESHOLD - The expected achievement goal for the criteria, at which 40%
of the bonus will be paid.
TARGET - The stretch goal at which 80% of the bonus will be paid out.
MAXIMUM - The extraordinary goal at which 120% of the bonus will be
paid. No additional bonus will be paid for achieving beyond this point.
SECTION 1. EBITDA
This criterion is defined as 1996 earnings before interest, taxes,
depreciation, and amortization as reported in the audited financial
statements for 1996.
<TABLE>
<CAPTION>
WEIGHT THRESHOLD TARGET MAXIMUM
------ --------- ------ -------
<S> <C> <C> <C> <C>
100% $11,113,100 $11,698,000 $12,282,900
ANNUAL BONUS: $12,751 $25,502 $38,253
ANNUAL
TOTALS:100% $12,751 $25,502 $38,253
</TABLE>
SECTION 2. TERMS AND CONDITIONS
1. The criteria outlined in the above sections are considered
singular and bonusable as specified.
2. This plan year shall commence January 1, 1996 and shall conclude
December 31, 1996.
3. If your employment with the Company should terminate for any
reason in 1996, no annual bonus or any part thereof shall be
deemed to be earned and payable. You must be employed for the
entire plan year.
<PAGE>
1996 MBO - Bruce Ware
Page 2
4. Any annual bonus payable under this plan shall be paid by March
15, 1997.
5. The method of annual calculation is on a percentage basis using
the difference between the threshold and target goals or target
and maximum goals as follows:
1) For achievement between threshold and target - achievement
divided by the sum of target goal minus threshold goal, times the
target dollars, or; 2) For achievement above target -
achievement divided by the sum of maximum goal minus target goals
divided by 2 plus 1 times the target goal dollars.
EXAMPLE:
<TABLE>
<CAPTION>
THRESHOLD TARGET MAXIMUM
--------- ------ -------
<S> <C> <C> <C>
$12,000 $16,000 $18,000
ANNUAL BONUS: $ 0 $1,000 $1,500
</TABLE>
Calculation of bonus between Target and Threshold with goal achievement
of $13,535:
(13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75
bonus.
Calculation of bonus between Target and Maximum with goal achievement of
$16,393:
(16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 =
1.09825 x 1,000 = $1,098.25 bonus.
AGREED TO:
/S/Horst K. Mehlfeldt 2/19/96
- ------------------------- -----------
Horst K. Mehlfeldt Date
Vice Chairman - Corporate
BIG O TIRES, INC.
AGREED TO:
/S/Bruce Ware 2/19/96
- ------------------------- ------------
Bruce Ware Date
Corporate Purchasing Manager - Corporate
BIG O TIRES, INC.
Revised January 24, 1996
<PAGE>
1996 MBO-Tom Staker
1996 INCENTIVE BONUS PLAN
FOR TOM STAKER - SENIOR V.P. OPERATIONS - CORPORATE
- --------------------------------------------------------------------------------
THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1996 INCENTIVE
PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN.
DEFINITIONS:
THRESHOLD - The expected achievement goal for the criteria, at which 40% of
the bonus will be paid.
TARGET - The stretch goal at which 80% of the bonus will be paid out.
MAXIMUM - The extraordinary goal at which 120% of the bonus will be paid.
No additional bonus will be paid for achieving beyond this point.
SECTION 1. EBITDA
This criterion is defined as 1996 earnings before interest, taxes,
depreciation, and amortization as reported in the audited financial
statements for 1996.
<TABLE>
<CAPTION>
WEIGHT THRESHOLD TARGET MAXIMUM
------ --------- ------ -------
<S> <C> <C> <C> <C>
100% $11,113,100 $11,698,000 $12,282,900
ANNUAL BONUS: $21,585 $ 43,170 $64,755
ANNUAL
TOTALS:100% $21,585 $43,170 $64,755
</TABLE>
SECTION 2. TERMS AND CONDITIONS
1. The criteria outlined in the above sections are considered singular
and bonusable as specified.
2. This plan year shall commence January 1, 1996 and shall conclude
December 31, 1996.
3. If your employment with the Company should terminate for any reason in
1996, no annual bonus or any part thereof shall be deemed to be earned
and payable. You must be employed for the entire plan year.
4. Any annual bonus payable under this plan shall be paid by March 15,
1997.
5. The method of annual calculation is on a percentage basis using the
difference between the threshold and target goals or target and
maximum goals as follows:
1) For achievement between threshold and target - achievement divided
by the sum of target goal minus threshold goal, times the target
dollars, or; 2) For achievement above target - achievement divided by
<PAGE>
1996 MBO-Tom Staker
Page 2
the sum of maximum goal minus target goals divided by 2 plus 1 times
the target goal dollars.
EXAMPLE:
THRESHOLD TARGET MAXIMUM
--------- ------ -------
$12,000 $16,000 $18,000
ANNUAL BONUS: $ 0 $1,000 $1,500
Calculation of bonus between Target and Threshold with goal achievement of
$13,535:
(13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75
bonus.
Calculation of bonus between Target and Maximum with goal achievement of
$16,393:
(16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 =
1.09825 x 1,000 = $1,098.25 bonus.
AGREED TO:
/s/John E. Siipola 2/16/96
- ------------------------- ----------
John E. Siipola Date
Chairman - Corporate
BIG O TIRES, INC.
AGREED TO:
/s/Horst K. Mehlfedlt 2/16/96
- ------------------------- ----------
Horst K. Mehlfeldt Date
Vice Chairman - Corporate
BIG O TIRES, INC.
AGREED TO:
/s/Steven P. Cloward 2/16/96
- ------------------------- ----------
Steven P. Cloward Date
President - Corporate
BIG O TIRES, INC.
AGREED TO:
/s/Tom Staker 2/16/96
- ------------------------- ----------
Tom Staker Date
Senior V.P. Operations - Corporate
BIG O TIRES, INC.
Revised March 26, 1996
<PAGE>
1996 MBO-Kelley O'Reilly
1996 INCENTIVE BONUS PLAN
FOR KELLEY O'REILLY - V.P. MARKETING - CORPORATE
- --------------------------------------------------------------------------------
THIS AGREEMENT OUTLINES THE CRITERIA, GOALS AND REWARDS FOR YOUR 1996 INCENTIVE
PLAN AS WELL AS THE TERMS AND CONDITIONS AS THEY APPLY TO YOUR PLAN.
DEFINITIONS:
THRESHOLD - The expected achievement goal for the criteria, at which 40% of
the bonus will be paid.
TARGET - The stretch goal at which 80% of the bonus will be paid out.
MAXIMUM - The extraordinary goal at which 120% of the bonus will be paid.
No additional bonus will be paid for achieving beyond this point.
SECTION 1. EBITDA
This criterion is defined as 1996 earnings before interest, taxes,
depreciation, and amortization as reported in the audited financial
statements for 1996.
<TABLE>
<CAPTION>
WEIGHT THRESHOLD TARGET MAXIMUM
------ --------- -------- ---------
<S> <C> <C> <C>
100% $11,113,100 $11,698,000 $12,282,900
ANNUAL BONUS: $10,983 $ 21,966 $32,949
ANNUAL
TOTALS:100% $10,983 $21,966 $32,949
</TABLE>
SECTION 2. TERMS AND CONDITIONS
1. The criteria outlined in the above sections are considered singular
and bonusable as specified.
2. This plan year shall commence January 1, 1996 and shall conclude
December 31, 1996.
3. If your employment with the Company should terminate for any reason in
1996, no annual bonus or any part thereof shall be deemed to be earned
and payable. You must be employed for the entire plan year.
<PAGE>
1996 MBO-Kelley O'Reilly
Page 2
4. Any annual bonus payable under this plan shall be paid by March 15,
1997.
5. The method of annual calculation is on a percentage basis using the
difference between the threshold and target goals or target and
maximum goals as follows:
1) For achievement between threshold and target - achievement divided
by the sum of target goal minus threshold goal, times the target
dollars, or; 2) For achievement above target - achievement divided
by the sum of maximum goal minus target goals divided by 2 plus 1
times the target goal dollars.
<TABLE>
<CAPTION>
EXAMPLE:
THRESHOLD TARGET MAXIMUM
--------- ------ -------
<S> <C> <C> <C>
$12,000 $16,000 $18,000
ANNUAL BONUS: $ 0 $1,000 $1,500
</TABLE>
Calculation of bonus between Target and Threshold with goal achievement of
$13,535:
(13,535 - 12,000) / (16,000 - 12,000) = .38375 x 1,000 = $383.75
bonus.
Calculation of bonus between Target and Maximum with goal achievement of
$16,393:
(16,393 - 16,000) / (18,000 - 16,000) = .1965 / 2 = .09825 + 1 =
1.09825 x 1,000 = $1,098.25 bonus.
AGREED TO:
/s/Horst K. Mehlfeldt 2/7/96
- ------------------------- ------
Horst K. Mehlfeldt Date
Vice Chairman - Corporate
BIG O TIRES, INC.
AGREED TO:
/s/Kelley O'Reilly 2/7/96
- ----------------------- ------
Kelley O'Reilly Date
V.P. Marketing - Corporate
BIG O TIRES, INC.
Revised January 24, 1996
<PAGE>
1996 INCENTIVE BONUS PLAN
FOR RON LAUTZENHEISER - V.P. BUSINESS DEVELOPMENT - CORPORATE
________________________________________________________________________
This agreement outlines the criteria, goals and rewards for your 1996 incentive
plan as well as the terms and conditions as they apply to your plan.
DEFINITIONS:
THRESHOLD - The expected achievement goal for the criteria, at which 40%
of the bonus will be paid.
TARGET - The stretch goal at which 80% of the bonus will be paid out.
MAXIMUM - The extraordinary goal at which 120% of the bonus will be paid.
No additional bonus will be paid for achieving beyond this point.
Section 1. EBITDA
This criterion is defined as 1996 earnings before
interest, taxes, depreciation, and amortization as reported in the audited
financial statements for 1996.
WEIGHT THRESHOLD TARGET MAXIMUM
------ --------- ------ -------
100% $11,113,100 $11,698,000 $12,282,900
ANNUAL BONUS: $ 15,180 $ 30,360 $ 45,540
ANNUAL TOTALS: 100% $ 15,180 $ 30,360 $ 45,540
SECTION 2. TERMS AND CONDITIONS
1. The criteria outlined in the above sections are considered singular
and bonusable as specified.
2. This plan year shall commence January 1, 1996 and shall conclude
December 31, 1996.
3. If your employment with the Company should terminate for any reason
in 1996, no annual bonus or any part thereof shall be deemed to be
earned and payable. You must be employed for the entire plan year.
4. Any annual bonus payable under this plan shall be paid by March 15,
1997.
<PAGE>
1996 MB0 - RON LAUTZENHEISER
PAGE 2
5. The method of annual calculation is on a percentage basis using the
difference between the threshold and target goals or target and maximum
goals as follows:
1) For achievement between threshold and target - achievement divided
by the sum of target goal minus threshold goal, times the target
dollars, or; 2) For achievement above target - achievement divided by
the sum of maximum goal minus target goals divided by 2 plus 1 times
the target goal dollars.
EXAMPLE:
THRESHOLD TARGET MAXIMUM
--------- ------ -------
$12,000 $16,000 $18,000
ANNUAL BONUS: $0 $1,000 $1,500
Calculation of bonus between Target and Threshold with goal achievement
of $13,535:
(13,535 - 12,000)/(16,000 - 12,000) = .38375 x 1,000 = $383.75
bonus.
Calculation of bonus between Target and Maximum with goal achievement of
$16,393:
(16,393 - 16,000)/(18,000 - 16,000) = .1965 / 2 = .09825 + 1 =
1.09825 x 1,000 = $1,098.25 bonus
AGREED TO:
- ------------------------------------ ---------------
Horst K. Mehlfeldt Date
Vice Chairman - Corporate
BIG O TIRES, INC.
AGREED TO:
- ------------------------------------- ---------------
Ron Lautzenheiser Date
V.P. Business Development - Corporate
BIG O TIRES, INC.
Revised March 27, 1996
<PAGE>
BIG O TIRES, INC.
FRANCHISE AGREEMENT
<PAGE>
BIG O TIRES, INC.
FRANCHISE AGREEMENT
TABLE OF CONTENTS
SUMMARY PAGES ................................................................i
GLOSSARY....................................................................iii
1. PARTIES AND RECITALS......................................................1
2. GRANT OF FRANCHISE........................................................1
2.01 Grant of Franchise...............................................1
2.02 Trade Area.......................................................1
3. FIRST OPTION RIGHTS ......................................................1
3.01 First Option Rights .............................................1
3.02 Notification by Big O ...........................................2
3.03 Multiple First Option Rights.....................................2
3.04 Notification of Qualification ...................................2
3.05 Exercise of Option by Franchisee ................................2
3.06 Transfer of First Option Rights .................................2
3.07 Limitation on First Option Rights ...............................2
3.08 Expiration of First Option Rights ..............................2
4. TERM......................................................................3
4.01 Term.............................................................3
5. RENEWAL: EXTENSION OF FRANCHISE RIGHTS....................................3
5.01 Grant of Successor Franchise Rights .............................3
5.02 Conditions to Grant of Successor Franchise.......................3
5.03 Notification of Non-Renewal .....................................3
6. FRANCHISEE'S DEVELOPMENT OBLIGATIONS......................................3
6.01 Financing Approval...............................................3
6.02 Site Selection ..................................................4
6.03 Equipment and Signage ...........................................4
6.04 Conditions to Opening ...........................................4
6.05 Commencement of Business.........................................4
7. PRE-OPENING AND ONGOING ASSISTANCE .......................................4
7.01 Pre-Opening Assistance ..........................................4
7.02 On-Going Assistance .............................................5
8. FEES......................................................................6
8.01 Initial Franchise Fee ...........................................6
8.02 Royalty Fee .....................................................6
8.03 Late Fees .......................................................6
8.04 Taxes ...........................................................6
8.05 Allocation of Payments...........................................6
9. LICENSED MARKS............................................................6
9.01 Licensed Marks...................................................6
9.02 Limitation on Use ...............................................7
9.03 Infringement.....................................................7
<PAGE>
9.04 Franchisee's Business Name.......................................7
9.05 Change of Licensed Marks.........................................7
9.06 Franchisor's Rights .............................................7
10. STANDARDS OF OPERATION ...................................................8
10.01 Standards of Operations .........................................8
11. STORE MANAGEMENT .........................................................9
11.01 Store Management ...............................................9
11.02 Completion of Training by Operator or Manager ...................9
11.03 Operation of Store by Big O .....................................9
12. QUALITY CONTROL ..........................................................9
12.01 Inspections .....................................................9
13. MANUAL: NEW PROCESSES ................................................. 10
13.01 Manual ....................................................... 10
13.02 Confidentiality of Information ................................10
13.03 Revisions to Manual ............................................10
13.04 Improvements to System ........................................10
14. PRODUCTS AND SERVICES ...................................................10
14.01 Products and Services ..........................................10
14.02 Approval of Products and Services ..............................11
14.03 Inventory ......................................................11
14.04 Warranties and Guaranties ......................................11
14.05 Open Account Financing ........................................12
15. ADVERTISING, MARKETING AND PROMOTIONAL PLANS ............................12
15.01 Initial Advertising ............................................12
15.02 National Advertising Fund ......................................12
15.03 Local Fund ....................................................13
15.04 Approval of Advertising ........................................13
16. STATEMENTS AND RECORDS ..................................................13
16.01 Invoices ......................................................13
16.02 Audit ..........................................................14
16.03 Monthly Reports ................................................14
16.04 Financial Statements ..........................................14
16.05 Management System ..............................................14
16.06 Retail Accounting Corporation...................................14
17. COVENANTS ...............................................................14
17.01 Noncompetition During Term ....................................14
17.02 Confidentiality ................................................15
17.03 No Interference with Business ..................................15
17.04 Post Termination Covenant Not to Compete ......................15
17.05 Survivability of Covenants ....................................15
17.06 Modification of Covenants ......................................15
18. TRANSFER AND ASSIGNMENT .................................................16
18.01 Assignment by Big O ............................................16
18.02 Right of First Refusal ........................................16
18.03 Transfer Legend ................................................16
18.04 Pre-Conditions to Franchisee's Assignment ......................16
<PAGE>
18.05 Death of Franchisee ............................................18
18.06 No Waiver ......................................................19
18.07 Excepted Transfers ............................................19
19. DEFAULT AND TERMINATION .................................................19
19.01 Termination by Big O ..........................................19
19.02 Governing State Law ............................................21
19.03 Termination by Franchisee ......................................21
19.04 Force Majeure ..................................................21
20. POST TERMINATION OBLIGATIONS.............................................21
20.01 Post-Termination Obligations ..................................21
20.02 Right to Repurchase ............................................22
20.03 Right of First Refusal ........................................23
20.04 De-Identification of Assets Upon Sale ..........................23
21. INSURANCE ...............................................................23
21.01 Insurance Coverage ............................................23
21.02 Proof of Insurance ............................................24
21.03 Survival of Indemnification ....................................24
22. TAXES, PERMITS AND INDEBTEDNESS .........................................25
22.01 Payment of Taxes ..............................................25
22.02 Compliance with Laws ......................................... 25
22.03 Payment of Debts ..............................................25
23. INDEMNIFICATION AND INDEPENDENT CONTRACTOR STATUS .......................25
23.01 Indemnification ................................................25
23.02 Independent Contractor ........................................25
24. WRITTEN APPROVALS, WAIVERS AND AMENDMENT ................................26
24.01 Written Approval ..............................................26
24.02 Waiver ........................................................26
24.03 Modification ..................................................26
25. DEALER PLANNING BOARD AND BODTA .........................................26
25.01 Dealer Planning Board ..........................................26
25.02 Special Interest Issues ........................................26
25.03 Disapproval of Management Proposal ............................26
25.04 Compliance with Modification ..................................27
25.05 BODTA ..........................................................27
26. RIGHT OF OFFSET .........................................................27
26.01 Right of Offset ................................................27
27. ENFORCEMENT .............................................................27
27.01 Declaratory and Injunctive Relief ..............................27
27.02 Costs of Enforcement ..........................................27
27.03 Mediation ......................................................27
27.04 Excluded Matters................................................28
27.05 Confidentiality.................................................28
28. NOTICES .................................................................28
28.01 Notices ........................................................28
<PAGE>
29. GOVERNING LAW ...........................................................28
29.01 Governing Law ..................................................28
29.02 Jurisdiction ..................................................28
30. SEVERABILITY AND CONSTRUCTION ...........................................29
30.01 Severability ..................................................29
30.02 Counterparts ..................................................29
30.03 Construction ..................................................29
31. ACKNOWLEDGMENTS .........................................................29
Schedule 1 - Premises and Trade Area
Schedule 2 - Ownership Verification
Schedule 3 - Guaranty
Schedule 4 - Lease Rider and Modification
Schedule 5 - Farm Class Rider
Schedule 6 - Renewal Rider
Schedule 7 - Trademarks
Schedule 8 - Converter Rider
<PAGE>
BIG O TIRES, INC. FRANCHISE AGREEMENT
SUMMARY PAGES
These pages summarize the attached Franchise Agreement, the details of which
shall control in the event of any conflict.
1. FRANCHISEE:
------------------------------------------
2. INITIAL FRANCHISE FEE: Amount Due:
-with Application:
------------------------
-upon signing Agreement:
------------------
Total:
------------------------------------
3. ROYALTY FEE Two percent (2%) of Gross Sales
4. LOCAL ADVERTISING Minimum of four percent (4%) of Gross Sales
CONTRIBUTION:
5. NATIONAL ADVERTISING See sections 15 and 25
CONTRIBUTION:
6. INITIAL ADVERTISING REQUIREMENT:
-----------------------------------
7. STORE LOCATION:
------------------------------------
Street and Number
------------------------------------
City, State and Zip Code
------------------------------------
Phone Number
8. Franchisee's Operator:
---------------------------------------------
9. Franchisee's Manager:
----------------------------------------------
10. Franchisee's Agent For Service of Process:
Name:
--------------------------------------------------------------
Address:
-----------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
11. Big O's Agent for Service of Process:
Name: CT CORPORATION
--------------------------------------------------------------
Address: 1675 BROADWAY, SUITE 1200
-----------------------------------------------------------
DENVER, COLORADO 80290
-------------------------------------------------------------------
12. Effective Date:
----------------------------------------------------
-i-
<PAGE>
13. Commencement Date:
-------------------------------------------------
14. Expiration Date:
---------------------------------------------------
15. Franchisee's Advisor:
----------------------------------------------
16. Send Notices to Big O to:
Name: PHILIP J. TEIGEN (LEGAL DEPARTMENT)
--------------------------------------------------------------
Address: BIG O TIRES, INC.
-----------------------------------------------------------
11755 E. PEAKVIEW AVENUE
-------------------------------------------------------------------
ENGLEWOOD, COLORADO 80111
-------------------------------------------------------------------
17. Send Notices to Franchisee to:
Name:
--------------------------------------------------------------
Address:
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
18. Business not subject to Section 17 (a)
Name:
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Address:
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19. Farm Class Franchise:
Yes
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No X
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20. First Option Holder:
Name: N/A
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Address:
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GLOSSARY (in alphabetical order)
ADVERTISING - The advertising, promotional programs, public relations programs
and marketing programs approved or administered by Big O utilizing the resources
of the National Advertising Fund or local franchisee cooperatives or franchisee
associations.
AGREEMENT - This contract, the Summary Pages and all Riders and Schedules
hereto, as interpreted through the Manual.
BIG O - Big O Tires, Inc.
BIG O STORE OR STORE - A retail tire store operated pursuant to the Big O
System.
BIG O SYSTEM OR SYSTEM - The plan and system developed by Big O relating to the
complete operation of Stores which are authorized to sell Products and Services
and offer other authorized tire and automotive services at retail, which include
some or all of the following: site selection as required, site approval, Store
layout and design, product selection and display, purchasing and inventory
control methods, accounting methods, merchandising, advertising, sales and
promotional ideas, franchisee training, personnel training, and other matters
relating to the efficient operation and supervision of Stores and the
maintenance of uniform standards of retail merchandising.
BLUE II - See the definition of "Manual".
BOTDA - Big O Tire Dealers of America, a California non-profit mutual benefit
corporation organized by certain Franchisees to promote the common business
interests of independently-owned retail dealers duly franchised by Big O. BOTDA
is not an affiliate of Big O. The functions and efforts of BOTDA are recognized
in Section 25 of this Agreement.
COMMENCEMENT DATE - The date upon which the Store opens for business or, in the
event of transfer, or conversion, the date designated by Big O Tires, Inc.
CONVERTER - A person who converts a retail tire store it owns to a Big O Store
pursuant to this Agreement.
DEALER PLANNING BOARD - The group of franchisee representatives elected from
each Local Group which meets periodically with Big O's management to assist with
strategic business plans and to discuss issues of concern to franchisees. The
functions of the Dealer Planning Board are described in Section 25 of this
Agreement.
DEVELOPMENT AGREEMENT - An agreement between Big O and a person to which the
person ("Developer") agrees that within a defined territory to open and commence
operating an agreed number of Big O Stores pursuant to a development schedule.
Developers must execute Franchise Agreements prior to commencing business at any
Store developed pursuant to a Development Agreement.
DUE DATE - The fifteenth day of each month: the date by which all royalty fees
and advertising contributions must be postmarked and mailed to Big O.
EFFECTIVE DATE - The date upon which the Franchise Agreement has been executed
in full by both the Franchisee and Big O.
EXPIRATION DATE - The date on which the initial term of the Agreement expires.
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FARM CLASS STORE - A Store with twenty-five percent (25%) or more of its average
Gross Sales during any twelve (12) month period arising directly from the sale
of Farm Class Tires.
FARM CLASS TIRES - Farm tires, off road tires, large double bead truck tires and
similar select tires, as may be more specifically defined from time to time by
Big O.
FIRST OPTION - Franchisee's right to acquire a franchise for a new Store planned
for development within a five (5) mile radius of Franchisee's Premises. The
First Option and method of exercising it are described in Section 3 of this
Agreement.
FRANCHISE - The rights granted by the Franchise Agreement.
FRANCHISED BUSINESS - The business operated pursuant to a license granted by Big
O which utilizes the Licensed Marks and the Big O System.
FRANCHISEE - The individual(s), corporation or other entity to which the
Franchise is granted. Depending on the context of this Agreement, the term
Franchisee may include the shareholders or guarantors of a corporate Franchisee.
GROSS SALES - The aggregate gross amount of all revenues from whatever source
derived whether in form of cash, credit, agreements to pay or other
consideration including the actual retail value of any goods or services traded,
bartered, or otherwise received by Franchisee in exchange for any form of non-
monetary consideration, (whether or not payment is received at the time of sale
or any such amount is proved uncollectible) from or derived by Franchisee or any
other person from business conducted or which originated in, on, from or through
the Premises, whether such business is conducted in compliance with or in
violation of the terms of the Franchise Agreement. Gross Sales includes sums
paid for claims made on business interruption insurance policies, Federal Excise
Taxes collected, as well as payments received from employees of Franchisee for
products purchased at a discounted price. However, Gross Sales does not include:
(i) sales or use taxes collected by Franchisee; (ii) the amount of any refunds
or allowances made on Products and Services returned by customers; (iii) returns
to shippers, vendors and manufacturers; (iv) proceeds derived from the sale of
equipment or supplies used by Franchisee in the operation of the Store and not
acquired for resale; (v) sales of Products and Services to other Big O Stores;
(vi) tire disposal fees so long as the fees charged do not exceed the highest
fee recommended by any applicable governmental agency; and (vii) sums received
in settlement of claims for loss or damage to fixtures, equipment or leasehold
improvements, other than sums received from business interruption insurance.
INFORMATION - The contents of the Manual, computer software, materials, goods,
training module and any other proprietary information and information created or
used by Big O designated for confidential use within the Big O System, and the
information contained therein.
INITIAL ADVERTISING - Advertising conducted within sixty (60) days of the
Commencement Date to promote the opening of the Store.
LICENSED MARKS - Trademarks and trade names, service marks and associated logos
and symbols owned or sublicensed by Big O, including those enumerated on
Schedule 7 and such other marks, logos and names as Big O may designate.
LOCAL FUND - The fund, which may be a trust fund, corporation or other entity,
derived from contributions by Big O franchisees who are members of a Local Group
which shall be maintained by the Local Group for Advertising pursuant to such
guidelines as Big O may approve or prescribe.
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LOCAL GROUP - A cooperative or association of Big O franchisees formed and
operating in their marketing area pursuant to a structure approved or prescribed
by Big O for the purpose of promoting Big O Stores and their Products and
Services, and providing Management Systems and related services to its members
to the extent approved by Big O. Big O will assign a Franchisee to a Local Group
and Franchisee must become a member of that Local Group and be bound by any
decisions it makes to the extent they are approved by Big O.
MANAGEMENT SYSTEMS - Computer hardware, software, cash registers, bookkeeping
and accounting services or systems and other systems designed to provide
information for the management of Big O Stores.
MANAGER - An individual other than the Operator who is responsible for the day-
to-day operation of a Store.
MANAGER INCENTIVE CONTRACT - An agreement pursuant to which certain Managers may
earn purchase credits based upon their performance so that they can acquire Big
O franchises from their employer, whether the employer is Big O or a Big O
franchisee.
MANUAL - The various written, audio and video instructions, including amendments
thereto relating to the operation of the Franchised Business which are provided
to Franchisee by Big O and identified as such, including but not limited to BLUE
II - BIG O TIRES' BLUEPRINT FOR SUCCESS ("Blue II"), and Big O's Franchise
Policies and Procedures Manual, consisting of technical bulletins or other
written materials.
NATIONAL ADVERTISING FUND - The fund derived from contributions by Big O
franchisees which shall be exclusively maintained and administered by Big O for
national Advertising in cooperation with the Dealer Planning Board.
NATIONAL FUND - Big O Tires, Inc. National Advertising Fund.
OPERATOR - The individual approved by Big O who shall be responsible for the
operation of the Franchised Business. The Operator may be the Franchisee if the
Franchisee is an individual.
OPTION - Big O's right to purchase the interest being offered by the Franchisee
or any Shareholder by matching the bona fide monetary purchase price and payment
schedule terms of the proposed Transfer, less any brokerage commission (without
having to match any other non-monetary terms).
PIONEER - A person who owned at least twenty-five percent (25%) equity interest
in a Big O franchisee on March 1, 1987, provided such ownership interest
appeared on Big O's records as of July 1, 1987. A Pioneer is entitled to acquire
Big O franchises for one-third of the applicable initial franchise fee, provided
the Pioneer satisfies Big O's other requirements.
PREMISES - The site from which a Franchised Business will be operated at the
Store Location described on the Summary Pages, or where applicable, on Schedule
1 to the Franchise Agreement.
PRODUCTS AND SERVICES - All tires (including but not limited to Big O's private
brand lines of tires), products and services produced, organized or distributed
under a license granted by Big O, which are designated by Big O for sale or
lease in Stores.
RETAIL ACCOUNTING CORPORATION - A cooperative or association which provides
bookkeeping, accounting, payroll, tax and related services for the purpose of
providing such services at a lower cost and providing the financial reporting
Big O requires.
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SHAREHOLDER - Any person possessing a legal or beneficial interest or holding a
share of stock of any kind or nature in the Franchisee, including partners in a
Franchisee which is a partnership.
SURVIVOR - A surviving spouse or heir of estate of any deceased person owning
stock or any other interest in the Franchisee.
TERMINATION DATE - The date upon which the Franchise Agreement is canceled or
ended by Big O or the Franchisee.
TRADE AREA - The area described on Schedule 1 to the Agreement within which,
subject to certain conditions, Big O agrees to limit the number of Stores to one
(1) for every fifty thousand (50,000) persons residing therein. Big O may, from
time to time, redefine Franchisee's Trade Area.
TRADE DRESS - Any shop or architectural designs, fixtures, improvements, signs,
color schemes or other elements of the appearance of the Store which in any
manner suggest affiliation of the Store or Premises with Big O, or the System.
TRANSFER - To give away, sell, assign, pledge, lease, sublease, devise, or
otherwise transfer, either directly or by operation of law or in any other
manner, the Agreement, any of Franchisee's rights or obligations hereunder, or
any interest or shares of stock or partnership interest of any kind or nature in
Franchisee or the Premises. The merger or consolidation or issuance of
additional securities representing an ownership interest in Franchisee shall
also be deemed to be a "Transfer" for purposes of this Agreement.
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BIG O TIRES, INC.
FRANCHISE AGREEMENT
This Franchise Agreement ("Agreement") is made by and between Big O Tires,
Inc. ("Big O"), a Nevada corporation, with its principal place of business at
11755 East Peakview Avenue, Englewood, Colorado 80111, and ___________________
________________________________________________________ ("Franchisee"), a(n)
__________________ corporation with a place of business at _________________
________________________________________________________.
1. PARTIES AND RECITALS
1.01 Big O was established to provide franchisees with access to Products
and Services and a System for marketing and servicing such Products and
Services. Since its inception, Big O has added to the Product and Services and
System to enhance the competitive posture of its franchisees. Big O has
developed and owns certain Licensed Marks which are licensed to franchisees for
use in the Big O Stores. Big O has developed the Big O System relating to the
operation of Stores which are authorized to offer and sell Big O tires as part
of the Products and Services offered to retail customers.
1.02 Franchisee desires, upon the terms and conditions set forth herein, to
obtain a license to operate a Franchised Business and to offer and sell Big O
Products and Services. Franchisee acknowledges that it is essential to the
preservation of the integrity of the Licensed Marks, and the goodwill of Big O
and the Big O System, that each franchisee in the System maintain and adhere to
certain standards, procedures and policies described hereinafter and in the
Manual.
1.03 Big O is willing, upon the terms and conditions set forth herein, to
license Franchisee to operate a Franchised Business which will utilize the
Licensed Marks and the Big O System.
2. GRANT OF FRANCHISE
2.01 GRANT OF FRANCHISE. Subject to all of the terms and conditions herein,
including but not limited to, the condition that Franchisee or its Shareholders
or some of them, personally guarantee the obligations of Franchisee to Big O
under this Agreement as set forth in Schedule 3 to this Agreement, Big O grants
to Franchisee the non-exclusive license to use the Licensed Marks and the
exclusive right to operate a Franchised Business solely at the Premises set
forth in Schedule 1 to this Agreement. If, at the time of execution of this
Agreement, the Premises cannot be designated as a specific address because a
location has not been selected by Franchisee and approved by Big O, then
Franchisee shall promptly take steps to choose and acquire a location for its
Big O Store within the following city, county or other geographical area:
_________________________________________________________________________
__________________ ("Designated Area"). In such circumstances, Franchisee shall
select and submit to Big O for approval a specific location for the Premises,
which shall hereinafter be set forth in Schedule 1.
2.02 TRADE AREA. During the term of this Agreement, Big O agrees not to
operate itself or grant to any other person the right to operate any more than
one (1) Store for every fifty thousand (50,000) persons residing in the Trade
Area described on Schedule 1. Big O may, from time to time, redefine the Trade
Area. Absent Franchisee's prior approval, Big O shall not permit the
establishment or operation of another Store within a two (2) mile radius of
Franchisee's Store. Big O shall offer Products and Services bearing the
Licensed Marks at retail only through Big O Stores.
3. FIRST OPTION RIGHTS
3.01 FIRST OPTION RIGHTS. Subject to the conditions described below, if
Big O or any prospective Big O franchisee should propose to open a Store within
a five (5) mile radius of Franchisee's Store, Franchisee shall be notified of
its First Option to acquire a Franchise for an additional Store within the five
(5) mile radius of its Store. Franchisee may only exercise the First Option if:
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(a) at the time Big O notifies Franchisee of the proposal for the new
Store, Franchisee is in full compliance with all the terms of this
Agreement and any other agreements it has with Big O;
(b) Franchisee meets Big O's then current criteria for new
franchisees; and
(c) There are not two (2) or more Big O franchisees with Stores
within a five (5) mile radius of the site of a proposed new Store, except
in accordance with Section 3.03 below.
3.02 NOTIFICATION BY BIG O. When notifying Franchisee of a proposal to
establish a new Store in accordance with Franchisee's First Option, Big O may
notify Franchisee of the proposal to establish the new Store within the general
vicinity of Franchisee's Store without identifying a specific site or sites.
3.03 MULTIPLE FIRST OPTION RIGHTS. If two (2) or more Big O franchisees
have Stores within a five (5) mile radius of the site of a proposed new Store,
the Franchisee and all such franchisees will be invited simultaneously by
written notice from Big O to exercise their First Option rights; but if two (2)
or more such franchisees apply for the same franchise, it shall be awarded to
the qualified franchisee which has a Store that is closest to the site of the
proposed new Store or, if two qualified franchisees have Stores that are
equidistant from such site, it shall be awarded to the qualified franchisee
which owns the franchised Big O Store which was first licensed as a Big O Store
to the current or a previous owner.
3.04 NOTIFICATION OF QUALIFICATION. If Franchisee qualifies for the First
Option pursuant to this Section 3, Big O will provide Franchisee with written
notice that it has thirty (30) days within which to submit an application for
the franchise in the manner prescribed by Big O in the notice. Franchisee must
submit the application within the prescribed time along with the standard
franchise deposit then required by Big O. Upon approval of the application by
Big O, Franchisee must execute Big O's then current standard Franchise Agreement
and pay the remainder of any initial fee due.
3.05 EXERCISE OF OPTION BY FRANCHISEE. If Franchisee is a corporation or
partnership, the First Option may be exercised only by the corporation or
partnership itself, or by the individual designated as First Option holder on
the Summary Pages.
3.06 TRANSFER OF FIRST OPTION RIGHTS. The First Option is not transferable
without Big O's prior written approval, WHICH MAY BE WITHHELD FOR ANY REASON, IN
BIG O'S SOLE DISCRETION.
3.07 LIMITATION ON FIRST OPTION RIGHTS. The First Option rights described
above are void and unenforceable with respect to a site proposed for development
in an area which is at the time of the proposal subject to a Development
Agreement between Big O and Developer.
3.08 EXPIRATION OF FIRST OPTION RIGHTS. If a Franchisee has failed to
qualify for or otherwise submit an application for a Franchise pursuant to this
Section 3 for a proposed franchise to be granted within the area in which
Franchisee holds First Option rights, Franchisee's First Option rights for that
proposed franchise shall lapse regardless of whether the site actually selected
for development by Big O is different from the site which was initially proposed
for development.
4. TERM
4.01 TERM. This Agreement shall take effect upon the earlier of the
Effective Date or of the Commencement Date and, unless previously terminated
pursuant to Section 19 hereof, its term shall extend until the earlier of the
tenth anniversary of the Commencement Date or such other Expiration Date as is
stated on the Summary Pages.
5. RENEWAL: EXTENSION OF FRANCHISE RIGHTS
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5.01 GRANT OF SUCCESSOR FRANCHISE RIGHTS. If Franchisee is not in default
under this Agreement and has complied with all of its provisions during the
initial term, and has cooperated with Big O, its Local Group and other Big O
franchisees in programs and suggestions developed by Big O, upon its expiration
Big O will offer a successor franchise agreement with Franchisee, provided the
parties mutually agree to the terms of a successor franchise at least one
hundred eighty (180) days before the Expiration Date.
5.02 CONDITIONS TO GRANT OF SUCCESSOR FRANCHISE. Big O will only offer to
execute a new franchise agreement in accordance with its then current terms and
conditions for granting successor franchises, which may include any or all of
the following:
(a) Execution of a new and modified franchise agreement which may
include, among other matters, a different fee structure, increased fees, a
modified Trade Area and different purchase requirements;
(b) A requirement that Franchisee refurbish the Premises or relocate
the Premises to conform to Big O's then current standards for similar
Stores;
(c) Payment of Big O's renewal administration fee of One Thousand
Five Hundred Dollars ($1,500); and
(d) Execution of a general release in favor of Big O and its
representatives.
5.03 NOTIFICATION OF NON-RENEWAL. If Big O is willing to execute a new
franchise agreement with Franchisee, at least one (1) year before the Expiration
Date, Big O shall notify Franchisee of the Expiration Date and the terms and
conditions upon which Big O is willing to execute a new franchise agreement with
Franchisee. Franchisee must execute a successor franchise agreement within sixty
(60) days of its receipt. The Franchise Agreement will expire on the Expiration
Date and the franchise relationship will terminate unless Franchisee and Big O
have executed a successor franchise agreement at least one hundred eighty (180)
days prior to the Expiration Date, and Franchisee has satisfied all other terms
and conditions agreed upon as a prerequisite to renewal. If Big O intends not to
offer Franchisee a successor franchise agreement, Big O shall give Franchisee at
least one hundred eighty (180) days notice of nonrenewal prior to the Expiration
Date. If Big O has not given Franchisee at least one hundred eighty (180) days
notice of nonrenewal prior to the Expiration Date, the term of this Agreement
will automatically be extended by the amount of time necessary to give
Franchisee one hundred eighty (180) days notice of nonrenewal.
6. FRANCHISEE'S DEVELOPMENT OBLIGATIONS
6.01 FINANCING APPROVAL. Unless otherwise agreed to by Big O, Franchisee
shall obtain a letter of commitment for the provision of financing through a
lender approved by Big O and with minimum credit terms, also approved by Big O,
no later than one hundred twenty (120) days from the Effective Date of this
Agreement.
6.02 SITE SELECTION. Franchisee shall obtain the written approval of Big O
of the site for the Store within one hundred twenty (120) days from the
Effective Date of this Agreement. Franchisee shall propose sites for approval by
Big O on forms and in the manner designated from time to time by Big O. A
proposed site shall only be submitted to Big O for approval after Franchisee has
evaluated the site and determined that it meets Big O's then current criteria
for sites which Big O has communicated to Franchisee. Franchisee shall be
responsible for obtaining Big O's then current site criteria prior to submitting
a site approval application. Big O shall review the site approval application
and within thirty (30) days of Big O's receipt thereof, Big O shall approve or
reject the proposed site. Unless otherwise agreed to in writing by Big O, final
site approval will be conditioned upon Big O's receipt of evidence of
Franchisee's ownership, lease or control of the property in such form as Big O,
in its sole discretion shall
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deem to be acceptable, including, without limitation, a deed to the property, an
executed contract to purchase the property, a lease with a duration of not less
than ten (10) years, or an option to purchase the property. Franchisee
acknowledges and agrees that Big O's approval of a site or provision of criteria
regarding the site do not constitute a representation or warranty of any kind,
express or implied, as to the suitability of the site for a Big O Store or for
any other purpose. Big O's approval of the site indicates only that Big O
believes that a site falls within the acceptable criteria established by Big O
as of that time. In the case of a Converter, execution of this Agreement shall
be deemed approval of the Store Location by Big O, unless additional obligations
to convert or upgrade the premises are described in Schedule 8 to this
Agreement.
6.03 EQUIPMENT AND SIGNAGE. Franchisee agrees to purchase, lease or
otherwise use in the establishment and operation of the Big O Store only those
fixtures, equipment, signs and hardware and/or software that Big O has approved
as meeting its specifications and standards for quality, design, appearance,
function and performance. Franchisee shall purchase or lease approved brands,
types or models of fixtures, equipment, and signs only from suppliers designated
or approved by Big O. Franchisee agrees to place or display at the Premises only
such signs, logos and display materials that Big O approves from time to time.
6.04 CONDITIONS TO OPENING. Franchisee agrees, at its sole expense, to do
or cause to be done the following prior to opening the Big O Store for business:
(i) secure all required financing; (ii) obtain all required permits and
licenses; (iii) construct all required improvements and decorate the Store in
compliance with approved plans and specifications; (iv) purchase and install all
required fixtures, equipment and signs required for the Big O Store; (v)
purchase an opening inventory of tires and supplies; (vi) provide Big O with
copies of all required insurance policies, or such other evidence of coverage
and payment as Big O requests; and (vii) provide Big O with any other documents
as may be required by Big O, including but not limited to financing statements.
6.05 COMMENCEMENT OF BUSINESS. Franchisee agrees to open the Big O Store
for business within fourteen (14) days after Big O notifies Franchisee that the
conditions set forth in this Section 6 have been satisfied. Big O may extend the
opening of the Big O Store for up to sixteen (16) months from the Effective Date
of this Agreement ("Development Period"). In the event that factors beyond
Franchisee's reasonable control prevent Franchisee from meeting this Development
Period, Big O may extend the Development Period so long as Franchisee has made
reasonable and continuing effort to comply with such development obligations and
Franchisee requests, in writing, an extension of time in which to have its Big O
Store open and operating before the Development Period lapses.
7. PRE-OPENING AND ONGOING ASSISTANCE
7.01 PRE-OPENING ASSISTANCE. Prior to Franchisee's Commencement Date, Big O
shall provide Franchisee with such of the following and on the same basis as it
will from time to time provide to similarly situated franchisees of Big O:
(a) Assistance to Franchisee related to approval of a site for the
Store, although Franchisee acknowledges that Big O shall have no obligation
to select or acquire a site on behalf of Franchisee. Big O's assistance
will consist of the provision of criteria for a satisfactory site, an on-
site inspection and determination of whether a proposed site fulfills the
requisite criteria, prior to formal approval of a site selected by
Franchisee. At Big O's option, Big O may, without fee or expense to
Franchisee, review the proposed Store lease. The final decision about
whether to acquire a given approved site or whether to execute any
particular lease shall be the sole decision of Franchisee. Big O disclaims
all liability for the consequences of approving a given site. Big O's
participation in site selection in no way is meant to constitute a warranty
or guaranty that the Franchised Business will be profitable or otherwise
successful. Big O's written approval of the Premises and Store must be
obtained by Franchisee before the Store may be opened or relocated.
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Big O may condition its approval of a Store lease upon Franchisee's
execution of a conditional lease assignment in a form which is the same as
or similar to the one found on Schedule 4.
(b) A prototype floor plan, elevation and equipment layout for the
Store, if requested by Franchisee. The plans must be modified by
Franchisee's architect or contractor to adapt them to conditions at the
Premises and to satisfy all local code requirements. Revisions or
modifications to the plans must be approved by Big O.
(c) Five consecutive (5) weeks of training for one person in the
operation of the Franchised Business at Big O's training facility located
in Mesa, Arizona, or another location designated by Big O. Unless Big O
waives the training requirement, the Manager of the Franchisee's Store,
provided he or she has been approved by Big O, and Franchisee's Operator
must attend and successfully complete such training. Franchisee shall pay
for its own transportation, lodging, and living expenses which are incurred
while attending the initial training program, except that Big O will pay
lodging and transportation for the first person to attend the training
program. In the event that, in Big O's sole discretion, Franchisee's
Operator fails to successfully complete the initial training program, Big O
may, in its sole discretion, require Franchisee's Operator to attend and
successfully complete another training program or terminate this Agreement
and, upon receipt from Franchisee of a general release in a form approved
by Big O, refund the initial franchise fee paid by Franchisee, less any
amounts necessary to reimburse Big O for the costs it incurred in approving
Franchisee and in training Franchisee's Operator and Manager.
(d) We will loan to you our Manual known as Blue II and the Franchise
Policies and Procedures Manual.
(e) Assistance in selecting Franchisee's initial inventory.
(f) Assistance in the lay-out, merchandising and display of the
Store.
7.02 ON-GOING ASSISTANCE. Big O agrees to make available to Franchisee the
following ongoing assistance for which Big O may charge the Franchisee a fee:
(a) To the extent available to Big O, a source of Big O private brand
tires;
(b) Ongoing research and development into new tires and other lines
of Products and Services and ways to enhance the competitive posture of Big
O Stores;
(c) Additional training for the Operator or other personnel of
Franchisee, for which Big O may charge the Franchisee a fee;
(d) Suggested prices for Big O brands sold at the Franchisee's Store,
provided that Franchisee will not be required to sell at any particular
price if such a requirement would be unlawful;
(e) A warranty or replacement program for Big O private brand tires
and related automotive Products and Services;
(f) Regional training provided by Big O personnel and field
assistance, inspections and advice pertaining to the Franchisee's Store
provided by Big O area managers;
(g) Point of sale advertising materials and wearables utilizing Big O
marks will be purchased through Big O's subsidiary, O Advertising, Inc., or
such other licensee as designated
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by Big O; and from time to time, local advertising plans and materials,
special promotions and similar advertising, for which Big O may charge the
Franchisee a fee;
(h) At the request of Franchisee's Local Group, Big O will supply
Franchisee with newspaper mats and radio and television commercial tapes,
for which Big O may charge Franchisee or the Local Group a fee.
8. FEES
8.01 INITIAL FRANCHISE FEE. In consideration of the execution of this
Agreement, Franchisee agrees to pay Big O an initial franchise fee in the amount
and at the times specified on the Summary Pages. Except as described in Section
7.01(c) above, the initial franchise fee is not refundable.
8.02 ROYALTY FEE. After the Commencement Date, Franchisee shall pay to Big
O a monthly royalty fee equal to two percent (2%) of the prior month's Gross
Sales. The royalty fee must be postmarked and mailed to Big O by no later than
the Due Date.
8.03 LATE FEES. If any fee or any other amount due under this Agreement,
including payments for Products and Services, is not received within ten (10)
days after such payment is due, Franchisee shall pay Big O interest equal to the
lesser of the daily equivalent of eighteen percent (18%) per annum of such
overdue amount per year, or the highest rate then permitted by applicable law,
for each day such amount is past due.
8.04 TAXES. If any federal, state, or local tax other than an income tax is
imposed upon royalty fees paid by Franchisee to Big O which Big O cannot offset
against taxes it is required to pay under the laws of the United States or the
state of its domicile, Franchisee agrees to compensate Big O in the manner
prescribed by Big O so that the net amount or net rate received by Big O is no
less than that which has been established by this Agreement and which was due
Big O on the Effective Date of this Agreement.
8.05 ALLOCATION OF PAYMENTS. Unless other written instructions accompany a
specific payment, all payments made by Franchisee pursuant to this Agreement
shall be applied in such order as Big O may designate from time to time. Big O
shall comply with any written instructions for allocation specified by
Franchisee to the extent, in Big O's opinion, it is reasonable to do so.
9. LICENSED MARKS
9.01 LICENSED MARKS. Franchisee expressly acknowledges that Big O is the
sole and exclusive licensor of the Licensed Marks. Franchisee agrees not to
represent in any manner that Franchisee has acquired any ownership rights in the
Licensed Marks. Franchisee agrees not to use any of the Licensed Marks or any
marks, names, or indicia which are or may be confusingly similar in its own
corporate or business name except as authorized in this Agreement. Franchisee
further acknowledges and agrees that any and all goodwill associated with the
Big O System and identified by the Licensed Marks shall inure directly and
exclusively to the benefit of Big O and that, upon the expiration or termination
of this Agreement for any reason, no monetary amount shall be assigned as
attributable to any goodwill associated with Franchisee's use of Licensed Marks.
9.02 LIMITATIONS ON USE. Franchisee understands and agrees that any use of
the Licensed Marks other than as expressly authorized by this Agreement, without
Big O's prior written consent, is an infringement of Big O's rights therein and
that the right to use the Licensed Marks granted herein does not extend beyond
the termination or expiration of this Agreement. Franchisee expressly covenants
that, during the term of this Agreement and thereafter, Franchisee shall not,
directly or indirectly, commit any
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act of infringement or contest or aid others in contesting the validity of Big
O's right to use the Licensed Marks or take any other action in derogation
thereof.
9.03 INFRINGEMENT. Franchisee acknowledges Big O's right to regulate the
use of the Licensed Marks and Trade Dress of the Big O System. Franchisee shall
promptly notify Big O if it becomes aware of any use or any attempt by any
person or legal entity to use the Licensed Marks or Trade Dress of the Big O
System, any colorable variation thereof, or any other mark, name, or indicia in
which Big O has or claims a proprietary interest. Franchisee shall assist Big O,
upon request and at Big O's expense, in taking such action, if any, as Big O may
deem appropriate to halt such activities, but shall take no action nor incur any
expenses on Big O's behalf without Big O's prior written approval.
9.04 FRANCHISEE'S BUSINESS NAME. Franchisee further agrees and covenants to
operate and advertise only under the name or names from time to time designated
by Big O for use by similar Big O System franchisees; to refrain from using the
Licensed Marks to perform any activity or to incur any obligation or
indebtedness in such a manner as may, in a way, subject to Big O to liability
therefor; to observe all laws with respect to the registration of trade names
and assumed or fictitious names; to include in any application for the above a
statement that Franchisee's use of the Licensed Marks is limited by the terms of
this Agreement, and to provide Big O with a copy of any such application and
other registration document(s); and to observe such requirements with respect to
trademark and service mark registrations, copyright notices, and other notices
as Big O may, from time to time, require.
9.05 CHANGE OF LICENSED MARKS. Subject to the requirements of Section 25 of
this Agreement, Big O reserves the right, in its sole discretion, to designate
one or more new, modified, or replacement Licensed Marks or trade names for use
by franchisees and to require the use by Franchisee of any such new, modified,
or replacement Licensed Marks or trade names in addition to or in lieu of any
previously designated Licensed Marks. Any expenses or costs associated with the
use by Franchisee of any such new, modified, or replacement Licensed Marks shall
be the sole responsibility of Franchisee.
9.06 FRANCHISOR'S RIGHTS. Big O retains the right to, among others: (1)
use, and license others to use, the Licensed Marks and the Big O System for
other Big O Stores or company-owned Stores; (2) solicit, sell to and service
local, regional or national accounts wherever located; (3) use the Licensed
Marks and the Big O System with other services or products, or in alternative
channels of distribution, without regard to location; and (4) use and license
the use of other proprietary marks or methods which are not the same as or
confusingly similar to the Licensed Marks, whether in alternative channels of
distribution or with the operation of any type of tire sales and service
business, at any location, which may be the same as, similar to or different
from the business of a Big O Store. Big O may use or license these rights on any
terms and conditions it deems advisable, and without granting Franchisee any
rights in them.
10. STANDARDS OF OPERATION
10.01 STANDARDS OF OPERATIONS. Big O shall establish and Franchisee
shall maintain high standards of quality, appearance and operation for the
Franchised Business. For the purpose of enhancing the public image and
reputation of the businesses operating under the System and for the purpose of
increasing the demand for Products and Services provided by Franchisee and Big
O, the parties agree as follows:
(a) Franchisee shall not open the Store for business until Big O has
provided Franchisee with written authorization to do so;
(b) Franchisee shall comply in good faith with all published Big O
System rules, regulations, policies, and standards, including, without
limitation, those contained in the Manual. Franchisee shall operate and
maintain the Franchised Business solely in the manner and pursuant
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to the standards prescribed herein, in the Manual and in other materials
provided by Big O to Franchisee, and shall make such modifications thereto
as Big O may require;
(c) Franchisee shall at all times operate the Store diligently and in
a manner which is consistent with sound business practices so as to
maximize the revenues therefrom;
(d) Franchisee shall at all times maintain working capital and a net
worth which is sufficient, in Big O's opinion, to enable Franchisee to
fulfill properly all of Franchisee's responsibilities under this Agreement;
(e) Franchisee shall at all times maintain its Store in the image of
and according to the standards of Big O as prescribed in the Manual.
Moreover, Franchisee agrees to cooperate with Big O at its expense, to the
extent building and site limitations permit, in the implementation of new
programs, including those which may require the addition of new equipment
or fixtures for the Store. In its sole discretion, Big O may waive some or
all of any of its franchisees' obligations to comply with such programs.
(f) Prior to opening, Franchisee shall provide Big O with written
certificates or documentary evidence from an insurance company or companies
that Franchisee has obtained the insurance coverage prescribed by Section
21;
(g) If Franchisee maintains a customer list, such lists or parts
thereof shall be disclosed to no one other than Franchisee's employees or
Big O without Big O's prior written consent; and
(h) Franchisee shall participate in and be bound by the decisions of
any Local Group established and operated pursuant to standards and within
the guidelines prescribed or approved by Big O. Franchisee shall not be
subject to any agreement to fix prices, or allocate customers or
territories which would violate any applicable laws. Nor will Franchisee be
subject to any capital investment requirements or other standards which are
inconsistent with this Agreement or which have not been approved or
prescribed by Big O.
11. STORE MANAGEMENT
11.01 STORE MANAGEMENT. Franchisee's Store shall only be operated by
the Operator or a Manager employed by the Franchisee who has previously been
approved by Big O. All initial and subsequent Operators or Managers must be
approved by Big O. Big O's approval will be conditioned upon the Operator's or
Manager's successful completion of any training required by Big O. Big O may
waive some or all of its initial training requirements for Operators or Managers
who have already received such training as a result of their affiliation with
another Store or Big O franchisee. If Franchisee or Franchisee's Operator has
not already successfully completed such training, he shall be required to
successfully complete the training described in Section 7.01 (c) above.
11.02 COMPLETION OF TRAINING BY OPERATOR OR MANAGER. Franchisee's
Operator or Manager and such of its managerial personnel or Shareholders as are
designated by Big O, shall complete, to Big O's reasonable satisfaction, any and
all training programs Big O may reasonably require or provide at such time as
Big O may reasonably prescribe. All expenses incurred by persons receiving such
training, including, without limitation, costs of travel, room and board, as
well as wages of the person(s) receiving such training shall be borne by the
Franchisee except that the transportation and lodging costs for the first person
receiving such training shall be paid by Big O.
11.03 OPERATION OF STORE BY BIG O. Under the circumstances described
below, upon Franchisee's request, Big O has the option, but not the duty, to
replace or substitute for Franchisee's Operator, Manager, or both, its own
employees or agents, to operate the Franchisee's Store for the benefit of
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Franchisee with complete discretion over all matters relating to its operation.
Franchisee shall pay Big O's then current Store management fee as well as the
out-of-pocket expenses Big O incurs for travel, food and lodging in the course
of providing such services. Big O may operate Franchisee's Store if:
(a) Franchisee's Operator or Manager has failed to satisfactorily
complete any training required by this Section 11; or
(b) Franchisee's Operator or Manager becomes physically or mentally
incapable of operating the Franchised Business; or
(c) Franchisee's Operator or Manager dies and a new Operator or
Manager has not completed initial training.
12. QUALITY CONTROL
12.01 INSPECTIONS. Franchisee hereby grants to Big O and its authorized
agents the right to enter the Premises during regular business hours:
(a) To conduct inspections and, upon Big O's request, Franchisee
agrees to render such assistance as may reasonably be requested and to take
such steps as may be necessary immediately to correct any deficiencies in
the operation of its Franchised Business pursuant to this Agreement which
are detected during such an inspection; and
(b) To remove from the Premises, certain samples of any Products and
Services, supplies or goods, in amounts reasonably necessary for testing or
examination by Big O or an independent laboratory, to determine whether
such samples meet Big O's then current standards and specifications. Big O
will grant Franchisee a credit equivalent to the cost of any approved
Products and Services or supplies damaged or removed by it.
13. MANUAL; NEW PROCESSES
13.01 MANUAL. To protect the reputation and goodwill of the
businesses operating under the System and to maintain high standards of
operation under the Licensed Marks, Franchisee shall conduct the Franchised
Business strictly in accordance with the Manual, which Franchisee acknowledges
belongs solely to Big O and shall be on loan from Big O during the term of this
Agreement. Franchisee agrees to pay Big O up to Five Thousand Dollars ($5,000)
for the failure to return the Manual known as Blue II, the Franchise Policies
and Procedures Manual, any training module or any other proprietary information
to Big O within five (5) days of the Expiration Date or Termination Date of this
Agreement, or the date upon which controlling interest in the Franchisee, the
Franchised Business or its assets is transferred. However, Big O will waive the
payment if Franchisee notifies Big O that it has lost or mislaid all or part of
the Manual at any time prior to six (6) months before the date upon which the
Franchise is transferred, terminates, or expires.
13.02 CONFIDENTIALITY OF INFORMATION. Franchisee shall at all times
use its best efforts to keep Big O's Information confidential and shall limit
access to the Information to employees and independent contractors of Franchisee
on a need-to-know basis. Franchisee acknowledges that the unauthorized use or
disclosure of Big O's Information will cause irreparable injury to Big O and
that damages are not adequate remedy. Franchisee accordingly covenants that it
shall not at any time, without Big O's prior written consent, disclose, use,
permit the use thereof (except as may be required by applicable law or
authorized by this Agreement), copy, duplicate, record, transfer, transmit, or
otherwise reproduce such Information, in any form or by any means, in whole or
in part, or otherwise make the same available to any unauthorized person or
source. Any and all Information, knowledge, and know-how not generally known
about the System and Big O's Products and Services, standards, procedures,
techniques, and such
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other Information or material as Big O may designate as confidential shall be
deemed confidential for purposes of this Agreement, except Information which
Franchisee can demonstrate lawfully came to its attention prior to disclosure by
Big O, or which legally is or has become a part of the public domain by
publication or communication by others.
13.03 REVISIONS TO MANUAL. Franchisee understands and acknowledges
that subject to the requirements of Section 25, Big O may, from time to time,
revise the contents of the Manual to implement new or different requirements for
the operation of the Franchised Business, and Franchisee expressly agrees to
comply with all such changed requirements which are by their terms mandatory,
provided, that such requirements apply in a reasonably nondiscriminatory manner
to comparable Big O franchisees. The implementation of such requirements may
require the expenditure of reasonable sums of money by Franchisee. Big O will
not alter the basic rights and obligations of the parties arising under this
Agreement through changes to the Manual.
13.04 IMPROVEMENTS TO SYSTEM. If Franchisee develops any concept,
process, service, or improvement in the operation or promotion of the Store, Big
O may itself use or disclose it to other Big O franchisees without any
obligation to compensate Franchisee therefor. If the concept, process, service,
or improvement is adopted for use by the majority of Big O Stores, such concept,
process, service, or improvement shall become the property of Big O and Big O
may itself use or disclose it to other Big O franchisees without any obligation
to compensate Franchisee therefor.
14. PRODUCTS AND SERVICES
14.01 PRODUCTS AND SERVICES. Franchisee acknowledges that its
principal interest in acquiring a Big O Franchise is to sell Big O private brand
tires and related merchandise and benefit from Big O's Products and Services
selection, purchasing programs including programs for the purchase of major
brand tires, and marketing expertise. The consuming public expects Big O Stores
to offer the full line of Big O Products and Services and advertised warranty
services. Accordingly, Franchisee shall at all times have in stock on the
Premises a complete representative line of Big O private brand tires, shock
absorbers, related merchandise, and other Products and Services in such
quantities as Big O may prescribe from time to time.
14.02 APPROVAL OF PRODUCTS AND SERVICES. Prior to commencing business
at the Premises, Franchisee shall stock the Store with Products and Services and
supplies of such variety and in such amounts as Big O may select. Franchisee may
not sell any product or service which has not been selected, manufactured, or
approved by Big O. Big O is not obliged to approve any product, service, or
merchandise selected by the Franchisee. Big O will exercise its right of
approval of suppliers selected by the Franchisee which are not at the time
approved by Big O for use by the Franchisee in accordance with the following
procedure:
(a) The Franchisee must submit a written request to Big O for
approval of the supplier;
(b) The Franchisee must demonstrate to Big O the existence of a need
for the product;
(c) The supplier must demonstrate to Big O's reasonable satisfaction,
that it is able to supply a commodity to the Franchisee meeting Big O's
specifications for such commodity and that it is able to do so on a timely
basis;
(d) The supplier must demonstrate to Big O's reasonable satisfaction
that the supplier is of good standing in the business community with
respect to its financial soundness and reliability of its product and
service;
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(e) The supplier must agree to indemnify and hold Big O and the
Franchisee harmless from and against any claim or liability by reason of
the supplier's products, including without limitation, defects in materials
and workmanship and supplier must provide to Big O certificates or other
evidences of insurance coverage with coverage limits sufficient to cover
the risks and an endorsement reflecting that Big O and Franchisee are named
as additional insureds under the supplier's insurance policies; and
(f) Big O must be reasonably satisfied that the commodity is priced
competitively.
Big O's current practice is to notify the Franchisee of its approval or
disapproval in writing as soon as practicable.
14.03 INVENTORY. Franchisee shall at all times maintain an
inventory of Products and Services in such amounts and of such variety as Big O
may reasonably require, and shall offer all services which Big O may require.
14.04 WARRANTIES AND GUARANTIES. Franchisee agrees to issue and
honor warranties and guarantees written on certain Products and Services sold to
consumers in accordance with the terms and procedures prescribed in the Manual.
Any such warranty or guaranty will be offered through all Big O Tire Stores on a
nondiscriminatory basis. Only warranties or guarantees sponsored or approved by
Big O may be offered or honored by Franchisee (other than those required by
law). Franchisee and Big O shall only honor warranties and guaranties on
Products and Services which have been sold to and returned by consumers in
accordance with the terms and procedures prescribed in the Manual. Franchisee
acknowledges that it will honor any and all warranties and guarantees sponsored
or approved by Big O, regardless of where or by whom they were issued.
Franchisee shall make no charge to a customer for honoring such a warranty or
guaranty unless the charge is permitted by the express terms of the warranty or
guaranty or the then current Manual. Big O agrees not to change or revoke any
warranty or guaranty without giving Franchisee at least thirty (30) days prior
written notice. Warranties or guarantees issued prior to any such revocation or
modification shall be honored according to their terms as interpreted in the
Manual.
14.05 OPEN ACCOUNT FINANCING. In its sole discretion, Big O may
provide Franchisee with open account financing for some or all of the Products
and Services it sells Franchisee. Whether or not such credit is offered,
Franchisee will be required to execute a security agreement and comply with all
other requirements of Big O to secure Franchisee's obligations to Big O under
the Franchise Agreement and perfect its security interest therein. If such
credit is offered, Franchisee will be required to execute a credit agreement and
security agreement and comply with all other requirements of Big O to secure
such payments and perfect its security interest therein. Franchisee's failure to
comply with any credit terms set forth above shall constitute an event of
default of this Agreement.
15. ADVERTISING, MARKETING AND PROMOTIONAL PLANS
15.01 INITIAL ADVERTISING. Recognizing the value of standardized
Advertising programs to the furtherance of the goodwill and public image of the
Big O System, the parties agree that within the first year of business,
Franchisee is required to spend on Initial Advertising, in addition to the
required four percent (4%), the amount specified on the Summary Pages. The exact
amount to be spent on Initial Advertising shall be determined by the
Franchisee's Local Group and will depend, in part, on Big O's then current
presence in the market place, reputation and name recognition. The amount and
manner of the Initial Advertising must be approved in advance by Big O. If no
Local Group exists for the region where Franchisee's Store is located, then the
amount of the Initial Advertising shall be agreed upon by Big O and Franchisee.
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15.02 NATIONAL ADVERTISING FUND. Big O has established a National
Advertising Fund which Big O, in its sole discretion, may decide to terminate at
any time. If Big O does terminate the National Advertising Fund, Big O, in its
sole discretion, may re-establish it at any time. Big O shall notify Franchisee
as to the manner in which it shall function and the amount of contribution
required of Franchisee.
(a) Not later than the Due Date, Big O or its designee must have
received from Franchisee such amount as Big O shall designate, but not more
than one percent (1%) of its previous month's Gross Sales, as a
contribution to the National Advertising Fund which shall be maintained or
approved by Big O for Big O National Advertising. Big O shall limit any
increase in Franchisee's contribution to the National Advertising Fund from
any amount then currently being charged to one-tenth of one percent (0.1%)
in any twelve (12) consecutive month period and an additional one-tenth of
one percent (0.1%) for each twelve (12) consecutive months thereafter until
the one percent (1%) limitation is reached. Such incremental increases
shall not be cumulative so that if Big O fails to adopt an additional
incremental increase after any twelve (12) consecutive month period, the
next one-tenth of one percent (0.1%) incremental increase will not accrue
until actually adopted by Big O and shall constitute the maximum for the
next consecutive twelve (12) months; provided, however, in the event Big O
shall determine, in its sole judgment and discretion, that a special
advertising circumstance or opportunity is available to Big O and/or its
franchisees, Big O may propose to the Dealer Planning Board a greater
increase during any consecutive twelve (12) month period (up to one percent
(1%) limit), and if a majority of the members of the Dealer Planning Board
agree to such increase, it shall be implemented by Big O, not withstanding
Big O's limitation as to the phasing in of any increases.
(b) Big O shall, following consultation with the Dealer Planning
Board, direct all National Advertising which is provided through the
National Advertising Fund with sole discretion over the concepts,
materials, and media used therein. All National Advertising Fund
contributions paid by Franchisee and other similarly situated Big O System
franchisees to Big O shall be part of the National Advertising Fund.
(c) Franchisee understands and acknowledges that the National
Advertising Fund is intended to maximize general public recognition and
acceptance of the Licensed Marks for the benefit of the System as a whole
and that Big O undertakes no obligation in administering the National
Advertising Fund to insure that any particular franchisee benefits directly
or pro rata from the national Advertising. Franchisee agrees that the
National Advertising Fund may otherwise be used to meet any and all costs
incident to such Advertising; provided that no part thereof shall be used
by Big O to defray its general operating expenses other than (i) those
reasonably allocable to such Advertising, or (ii) other activities
reasonably related to the administration or direction of the National
Advertising Fund and its related programs. No refund of contributions to
the National Fund shall be due Franchisee upon termination or nonrenewal of
this Agreement.
(d) Any part of the National Advertising Fund contributions paid to
Big O, but not spent by Big O during Big O's fiscal year, which Big O may
change in its sole discretion, shall remain in the National Advertising
Fund. Any taxes imposed on the National Advertising Fund shall be paid from
the National Advertising Fund.
(e) The Dealer Planning Board shall have the right to review all
expenditures of the National Advertising Fund on a regular basis.
15.03 LOCAL FUND. Franchisee shall also contribute by the Due Date a
minimum of four percent (4%) of its Store's Gross Sales for the previous month
either to Big O or, if a Local Fund has been established in Franchisee's
marketing area, to the Local Fund formed for the purpose of local advertising
and operated pursuant to such structure and guidelines as Big O may prescribe or
approve. Franchisee
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agrees to be bound by the decisions of either Big O or its Local Group, if one
has been established in Franchisee's marketing area, pertaining to Local
Advertising, provided such decisions have been approved by Big O and do not
violate any applicable laws. From time to time, the Local Group may agree to
increase the amount Franchisee is required to spend for Advertising, but subject
to the terms of certain documents already effective on this Agreement's
Effective Date, not by more than one percent (1%) of Franchisee's Gross Sales on
an annual basis.
15.04 APPROVAL OF ADVERTISING. Franchisee or the Local Group shall
submit (through the mail, return receipt requested) to Big O for its prior
written approval (except with respect to prices to be charged), samples of all
marketing materials and advertising to be used by Franchisee that have not been
prepared or previously approved in all respects by Big O or its designated
agents. Franchisee shall submit tear sheets, receipts, and other evidence of
such Advertising in the manner prescribed by Big O. Franchisee will not be
required to submit to Big O copies of any proposed Advertising which has been
adopted for use by the Local Group and which was previously approved by Big O
for use by the Local Group.
16. STATEMENTS AND RECORDS
16.01 INVOICES. Every sale of Products and Services from the
Franchisee's Store shall be accurately recorded on a consecutively numbered
invoice or in such other format as Big O may approve. All invoices, whether
voided or used, shall be accounted for by Franchisee.
16.02 AUDIT. Throughout the term of this Agreement and for two (2)
years thereafter, Franchisee shall maintain for not less than three (3) years
original, full, and complete records, accounts, books, data, licenses, and
contracts which shall accurately reflect all particulars relating to the
Franchised Business and such other statistical and other information or records
as Big O may require. Big O or its designated agent shall have the right to
examine and audit such records, accounts, books, and data during regular
business hours or at reasonable times. If any such examination or audit
discloses that Franchisee has understated its Store's Gross Sales by more than
two percent (2%), Franchisee shall be obliged to reimburse Big O for the cost
and expense of such examination or audit. If Franchisee has understated any
amount due Big O or any Local Group or Local Fund, it shall tender payment of
the amount due not later than ten (10) days following receipt of the auditor's
report, plus interest calculated at a rate which is the lower of eighteen
percent (18%) per annum or the highest rate permitted by law. If Franchisee has
overpaid Big O or such Local Group or Local Fund, such amount will be credited
to Franchisee against monthly royalty fees or advertising contributions due to
Big O, the Local Group or the Local Fund beginning with the month following
receipt of the auditor's report and continuing until the credit is exhausted.
16.03 MONTHLY REPORTS. No later than the Due Date, Franchisee shall
mail to Big O all payments of royalty fees and advertising contributions and
monthly reports due Big O on forms prescribed by Big O, stating the fees or
contributions due to Big O which were incurred during the preceding month as
specified from time to time by Big O, the Gross Sales at the Premises for the
prior month, copies of all sales tax receipts or returns and such other
information as Big O may require, all signed and certified as true and correct
by Franchisee or Franchisee's Operator. Big O reserves the right to require such
reporting to be performed and submitted to Big O electronically.
16.04 FINANCIAL STATEMENTS. Franchisee shall deliver to Big O, no
later than sixty (60) days from the end of each of Franchisee's fiscal quarters,
an unaudited profit and loss statement covering the Franchised Business for such
quarter and a balance sheet of the Franchised Business as of the end of such
quarter, all of which shall be certified by Franchisee as true and correct. All
such statements shall be prepared in a format which has been prescribed or
approved by Big O. In addition, Franchisee, as well as any guarantor(s) of this
Agreement, shall, within thirty (30) days after request from Big O, deliver to
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Big O a financial statement, certified as correct and current, in a form which
is satisfactory to Big O and which fairly represents the total assets and
liabilities of Franchisee and any such guarantor(s).
16.05 MANAGEMENT SYSTEM. Big O has authorized Local Groups to
recommend to Big O that certain Management Systems be obtained and used by all
their member franchisees. If Franchisee's Local Group persuades Big O that the
acquisition of a Management System by all its member Franchisees is necessary to
the efficient functioning of a program which is consistent with the Big O
System, Franchisee shall, at its sole expense acquire such Management System and
place it in service within such time periods as are recommended by the Local
Group and approved by Big O. Once a particular Management System or accounting
software has been adopted by a Local Group pursuant to the criteria described
herein, Franchisee may utilize a different Management System at Franchisee's
Store only with Big O's prior written approval.
16.06 RETAIL ACCOUNTING CORPORATION. Big O recommends the Franchisee
use some or all of the services provided by a Retail Accounting Corporation
operating within the Franchisee's marketing area.
17. COVENANTS
17.01 NONCOMPETITION DURING TERM. Except for any businesses already
operating and identified on the Summary Pages, during the term of this
Agreement, Franchisee and any guarantor(s) hereof covenant, individually, not to
engage in or open any business, other than as a Franchisee of the Big O System,
which offers or sells tires, wheels, shock absorbers, automotive services, or
other products or services which compete with Big O Products and Services. The
purpose of this covenant is to encourage Franchisee and any guarantor(s) hereof
to use their best efforts to promote the Big O System, its Products and
Services, to protect its Information and trade secrets, and to generate a
successful business at the Store.
17.02 CONFIDENTIALITY. During the term of this Agreement and
thereafter, Franchisee covenants not to communicate directly or indirectly,
divulge to or use for its benefit or the benefit of any other person or legal
entity, any trade secrets which are proprietary to Big O or any Information,
knowledge, or know-how deemed confidential under Section 13 hereof, except as
permitted by Big O. The protection granted hereunder shall be in addition to and
not in lieu of all other protections for such trade secrets and confidential
Information as may otherwise be afforded in law or in equity.
17.03 NO INTERFERENCE WITH BUSINESS. Franchisee agrees that during
the term of this Agreement that it shall not divert or attempt to divert any
business of or any actual customers of the Big O System to any competitive
business, by direct or indirect inducement or otherwise.
17.04 POST TERMINATION COVENANT NOT TO COMPETE. If Franchisee
terminates this Agreement other than in a manner prescribed by Section 19.03 or
if this Agreement is terminated for "good cause" as defined in Section 19.01,
Franchisee and its guarantors covenant that they shall not directly or
indirectly, for a period of two (2) years after the Termination Date of this
Agreement, engage in any business, other than as a Franchisee of the Big O
System, which offers or sells tires, wheels, shock absorbers, automotive
services, or other products or services which compete with Big O Products and
Services within a ten (10) mile radius of the Premises or within a ten (10) mile
radius of any other Big O Store which was operational or under construction on
the Termination Date.
If a former Franchisee or guarantor commits a breach of this Section 17.04, the
two year period shall start on the date that the former Franchisee or guarantor
is enjoined from competing or stops competing, whichever is later.
17.05 SURVIVABILITY OF COVENANTS. The parties agree that each of the
foregoing covenants shall be construed as independent of any other covenant or
provision of this Agreement. If all or any portion
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of a covenant in this Section 17 is held unenforceable by a court or agency
having valid jurisdiction in an unappealed final decision to which Big O is a
party, Franchisee expressly agrees to be bound by any lesser covenant imposing
the maximum duty permitted by law that is subsumed within the terms of the
covenant, as if the resulting covenant were separately stated in and made a part
of this Section 17. Franchisee further expressly agrees that the existence of
any claim it may have against Big O, whether or not arising from this Agreement,
shall not constitute a defense to the enforcement by Big O of the covenants in
this Section 17. The covenants in this Section 17 shall survive the Termination
Date or Expiration Date of this Agreement.
17.06 MODIFICATION OF COVENANTS. Franchisee understands and
acknowledges that Big O shall have the right, in its sole discretion, to reduce
the scope of any covenant set forth in this Section 17 or any portion hereof,
without Franchisee's consent, effective immediately upon receipt by Franchisee
of written notice thereof; and Franchisee agrees that it shall comply
immediately with any covenant as so modified.
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18. TRANSFER AND ASSIGNMENT
18.01 ASSIGNMENT BY BIG O. This Agreement and all rights and duties
hereunder may be freely assigned or transferred by Big O and shall be binding
upon and inure to the benefit of Big O's successors and assigns.
18.02 RIGHT OF FIRST REFUSAL. Because Big O or someone known to Big O may
be interested in purchasing Franchisee's Franchised Business, the Premises, or
an interest in either, if Franchisee decides to make a Transfer, Franchisee
agrees to offer in writing to make the Transfer to Big O, and describe the terms
under which Franchisee offers to make such a Transfer. If Big O has not offered
to purchase what the Franchisee has offered to Transfer to Big O within thirty
(30) days after Big O receives the notice from Franchisee, Franchisee may then
offer to make the Transfer to third parties on the same or not more favorable
terms and conditions as were offered to Big O. If Franchisee does not
consummate the Transfer within six months after Franchisee gives notice of the
Transfer to Big O, Franchisee shall not make the Transfer without again first
offering to make the Transfer to Big O.
18.03 TRANSFER LEGEND. Franchisee understands and acknowledges that the
rights and duties set forth in this Agreement are personal to Franchisee and
that Big O has granted the Franchise in reliance on Franchisee's personal
background, business skills, experience, and financial capacity. It is
important to Big O that Franchisee be known to Big O and always meet Big O's
standards and requirements. Accordingly, neither Franchisee nor any Shareholder
shall be permitted or have the power, without the prior written consent of Big
O, to make a Transfer. To assure compliance by Franchisee with the transfer
restrictions contained in this Section 18, all share or stock certificates of
Franchisee shall at all times contain a legend sufficient under applicable law
to constitute notice of the restrictions on such stock contained in this
Agreement and to allow such restrictions to be enforceable. Such legend shall
appear in substantially the following form:
"The sale, transfer, pledge, or hypothecation of this
stock is restricted pursuant to the terms of Section 18
of a Franchise Agreement dated ___________________
between Big O Tires, Inc, and the issuer of these
shares."
Any Transfer which does not comply with the terms of this Section 18 shall be
null and void.
18.04 PRE-CONDITIONS TO FRANCHISEE'S ASSIGNMENT. If Franchisee or any
Shareholder desires to make a Transfer, such person or entity must comply with
the following terms, conditions, and procedures to effectuate a valid Transfer:
(a) If any proposed assignment of any rights under this
Agreement, or if any other Transfer which, when aggregated with all
previous Transfers, would in the reasonable opinion of Big O, result in the
transfer of effective control over the ownership and/or operation of the
Premises or Franchisee or the Franchised Business:
(i) The transferee must apply for a Big O franchise and must
meet all of Big O's then current standards and requirements for
becoming a Big O franchisee (which standards and requirements
need not be written); and
(ii) The transferee shall execute the then current form of
Franchise Agreement generally issued by Big O with respect to
comparable Big O franchisees. Such agreement shall generally
provide for a new term equal to the term of the standard Big O
franchise agreement then being offered, and may include, without
limitation, different fee structures, modified Trade Areas and/or
increased fees;
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(b) Regardless of the degree of control which would be affected
by a proposed Transfer:
(i) Franchisee shall first notify Big O in writing of any
bona fide proposed Transfer and set forth a complete description
of all terms and fees of the proposed Transfer in the manner
prescribed by Big O, including the prospective transferee's name,
address, financial qualifications, and previous five (5) years
business experience;
(ii) Big O or its assignee may, within thirty (30) days after
receipt of such notice, exercise the Option to purchase the
interest being offered by Franchisee or any Shareholder;
(iii) If Big O or its assignee fails to exercise the Option to
purchase the interest, Big O shall, within thirty (30) days after
receipt of the notice of the Option, notify Franchisee in writing
of its approval or disapproval of the prospective transferee.
Big O's approval will be granted only if the prospective
transferee, its Shareholders, partners, and/or Operator: meets
Big O's then current standards for new franchisees, which
standards need not be in writing; demonstrates to Big O's
satisfaction that it or its Operator meets Big O's managerial,
business, and technical standards; possesses a good moral
character, business reputation, and satisfactory credit rating;
and has the aptitude, ability, and financial capacity to operate
the Franchised Business (as may be evidenced by prior related
business experience or otherwise). Big O reserves the right to
disallow a transfer of the Premises (without a transfer of the
Franchised Business) to a person which would operate a business
from the Premises which sells or offers for sale products or
services which are the same as or similar to those offered for
sale through the Franchised Business;
(iv) If Big O approves the proposed transferee, Franchisee or
the Shareholder may transfer the interest to the proposed
transferee at a price and under terms and conditions which are
not more favorable than the terms offered to Big O. Big O's
approval is conditioned upon the proposed transferee or its
Operator having completed (to the satisfaction of Big O) the
training program then currently required of Big O franchisees or
Operators;
(v) Prior to the consummation of any such Transfer,
Franchisee shall pay all amounts due to Big O and cure all other
breaches of this Agreement and any other agreement or loan
document it may have with Big O;
(vi) Big O will, as a condition of any Transfer involving a
change in control of Franchisee, the Store or its Assets, require
Franchisee or Transferee to pay a transfer fee (but no initial
franchise fee) to reimburse Big O for any expenses which may be
incurred in its review, analysis, and preparation of any
documentation relating to the Transfer, including legal and
accounting fees, and additional assistance as may be requested by
the Franchisee related to the Franchisee's resale of the Store.
The transfer fee will be $1,500. In additional, if the
Transferee requires training, the Franchisee or Transferee will
also be charged a training fee of $3,000. Big O shall be the
sole arbiter of whether a change of control occurred as a result
of a single Transfer or a group of Transfers;
For any transfer of less than fifty percent (50%) of Franchisee's
ownership, Big O will, as a condition of any Transfer involving
less than fifty percent (50%) of Franchisee's ownership in the
Franchise, the store or its assets, require the Franchisee or the
transferee to pay a transfer fee (but no initial franchise fee)
to reimburse Big O for any
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expenses which may be incurred in its review, analysis and
preparation of any documentation relating to the Transfer,
including legal and accounting fees and additional assistance as
may be requested by the Franchisee related to the resale of the
Store. The transfer fee will be $500. Big O shall be the sole
arbiter of whether a change of control will occur as a result of
a single Transfer or a group of Transfers.
(vii) Big O may require any transferor of any partnership
interest, shares of stock, or any other interest of any kind or
nature in Franchisee to guarantee the obligations of Transferee
under this Agreement or under any new Franchise Agreement entered
into between transferee and Big O;
(viii) Prior to approving a Transfer of the controlling
interest in Franchisee, the Franchised Business, or the Premises,
Big O may inspect Franchisee's Store and as a result of such
inspection, Big O may prepare a "Punch List" setting forth the
necessary repairs, maintenance, or other upgrading of the Store
which will become a condition of Big O's approval of the
Transfer; and
(ix) If the Franchisee acquired its interest in the Franchise
as a Pioneer, Converter, or pursuant to a Development Agreement
or Manager Incentive Contract, and the Franchisee makes a
Transfer of its interest within two (2) years of the Effective
Date of this Agreement, the Franchisee must pay Big O as a
condition of such Transfer the difference between the initial
franchise fee paid by Franchisee and twenty-one thousand dollars
($21,000.00), the standard initial franchisee fee charged by Big
O for new franchises when Franchisee executed this Agreement.
(x) Franchisee shall comply with all other applicable
transfer requirements as designated in the Manual or otherwise in
writing.
18.05 DEATH OF FRANCHISEE. Notwithstanding any other provision in this
Section 18, if a Survivor desires to acquire or retain the interest of a
decedent of a Franchisee or in a Franchisee and continues to operate the
Franchised Business pursuant to the System, the Survivor may do so under the
terms of this Agreement subject only to:
(a) The Survivor's execution and delivery to Big O of a written
agreement to be bound:
(i) By the terms of this Agreement; and
(ii) By the terms of any guaranty of this Agreement;
(b) Satisfactory completion of initial training by the Survivor,
Survivor's Operator, or Manager and such other managerial personnel as Big
O may designate within the time periods prescribed by Big O; and
(c) The Survivor's payment of all travel, lodging, food, and
similar expenses incurred by it or its Operator or managerial personnel in
attending the training prescribed by Section 11.02. If the Survivor does
not desire to acquire or retain such interest, then the Survivor shall have
a reasonable period of time, but no more than six (6) months, to make a
Transfer to a transferee acceptable to Big O subject to compliance with the
procedures set forth in this Section 18, provided, the Survivor throughout
such period fulfills all duties of Franchisee under this Agreement.
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18.06 NO WAIVER. Big O's consent to a Transfer hereunder shall not
constitute a waiver of any claims Big O may have against Franchisee or the
transferring party or Big O's right to demand exact compliance with any
provision of this Agreement.
18.07 EXCEPTED TRANSFERS. The provisions of Section 18.02 and
18.04(b)(ii) shall not apply to: (a) any Transfer to a spouse, parent, child,
or sibling of Franchisee or any Shareholder; (b) a Transfer to Franchisee's
Operator or Manager pursuant to the terms of a Manager Incentive Contract which
complies in all respects with the standards approved or prescribed by Big O; or
(c) a Transfer to a spouse, parent, child, or sibling of Franchisee or any
Shareholder which, in the aggregate, amounts to a Transfer of less than a
controlling interest in Franchisee, the Franchised Business, or the Premises.
19. DEFAULT AND TERMINATION
19.01 TERMINATION BY BIG O. Big O may terminate this Agreement for good
cause, without prejudice to the enforcement of any legal or equitable right or
remedy, immediately upon giving written notice of such termination and the
reason or cause for the termination, and, except as hereinafter provided,
without providing Franchisee an opportunity to cure the default. Without in any
way limiting the generality of the meaning of the term "good cause", the
following occurrences shall constitute sufficient basis for Big O to terminate
the Agreement:
(a) If Franchisee fails to pay any financial obligation pursuant
to this Agreement including, but not limited to, payments to Big O or any
other supplier for Products and Services, and fails to cure such failure to
pay within five (5) days after Big O gives Franchisee a written notice of
default;
(b) If Franchisee fails to perform or breaches any covenant,
obligation, term, condition, warranty, or certification herein and fails to
cure such non-compliance within thirty (30) days after Big O gives
Franchisee written notice of default;
(c) If Franchisee fails to open the Store and commence business
within eighteen (18) months of the Effective Date of this Agreement, or if
Franchisee fails to commence business on such other Commencement Date as
the parties hereto may have agreed;
(d) If Franchisee makes, or has made, any materially false
statement or report to Big O in connection with this Agreement or the
application therefor;
(e) If Franchisee operates the Franchised Business in a manner
contrary to or inconsistent with the Licensed Marks or as specified by Big
O in the Manual, and Franchisee fails to cure such deficiency within thirty
(30) days after Big O gives a written notice of default;
(f) If Franchisee, a Shareholder, guarantor, or transferee
violates any transfer and assignment provision contained in Section 18 of
this Agreement;
(g) If Franchisee receives from Big O more than three (3) valid
notices of default of this Agreement in the same twelve (12) month period,
regardless of whether previous defaults have been cured;
(h) If Franchisee fails to operate or keep the Franchised
Business open for more than five (5) consecutive business days without Big
O's express written approval, or if Franchisee ceases to operate all or any
part of the Franchised Business conducted under this Agreement or defaults
under any loan, lending agreement, mortgage, deed of trust or lease with
any party covering the Premises, and such party treats such act or omission
as a default, and Franchisee
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fails to cure such default to the satisfaction of such party within any
applicable cure period granted Franchisee by such party;
(i) If Franchisee or any person owning an interest in Franchisee
is convicted of any felony or crime of moral turpitude regardless of the
nature thereof, or any other crime or offense relating to the operation of
the Franchised Business, or if Franchisee engages in any conduct which
reflects materially and unfavorably upon the operation of the Franchised
Business;
(j) If Franchisee becomes insolvent or makes a general
assignment for the benefit of creditors, or if a petition in bankruptcy is
filed by Franchisee, or such a petition is filed against and consented to
by Franchisee, or if a bill in equity or other proceeding for the
appointment of a receiver of Franchisee or other custodian for Franchisee's
business or assets is filed and consented to by Franchisee, or if a
receiver or other custodian (permanent or temporary) of Franchisee's assets
or property, or any part thereof, other than as described in Section 18.05,
is appointed;
(k) If Franchisee or any guarantor(s) hereof defaults in any
other agreement or loan document with Big O or if Franchisee defaults under
the terms of any lease of the Premises or if Franchisee fails to comply
with the requirements of any Local Group operating pursuant to standards
prescribed or approved by Big O including, but not limited to, any
requirement to pay dues or make advertising contributions, and such default
is not cured in accordance with the terms of such other agreement, loan
document, or lease, or the by-laws of the Local Group;
(l) If Franchisee fails, for a period of ten (10) days after
notification of non-compliance, to comply with any law or regulation
applicable to the operation of the Franchised Business;
(m) If Franchisee sells, offers for sale, or gives away at the
Premises any products or services which have not been previously approved
by Big O in writing, or which have been subsequently disapproved;
(n) If Franchisee shall have understated its Gross Sales to Big
O by more than two percent (2%) on two (2) or more occasions; or
(o) If a court of competent jurisdiction or an arbitration
tribunal in a final and unappealed judgment determines that any significant
amount of the payments or compensation which Franchisee has agreed to pay
Big O pursuant to the terms hereof is unlawful, or that all or a
significant part of Franchisee's payment obligations hereunder are void or
voidable by Franchisee.
If a different notice or cure period or good cause standard is prescribed
by applicable law, it shall apply to a termination of the Franchise
Agreement.
REMEDIES TO BIG O. If the Franchisee is in default and has failed to cure
such default in a manner prescribed by the Franchise Agreement, in addition
to the rights Big O has to terminate the agreement, the Franchisee agrees
to pay to Big O, among the many remedies available to Big O, royalties and
any lost gross profits.
19.02 GOVERNING STATE LAW. If a different notice or cure period or good
cause standard is prescribed by applicable law, it shall apply to a termination
of this Agreement.
19.03 TERMINATION BY FRANCHISEE. Franchisee may only terminate this
Agreement if Big O has committed a material breach of any of Big O's obligations
under this Agreement and has failed to cure such breach within thirty (30) days
after Franchisee has given written notice to Big O of such breach.
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19.04 FORCE MAJEURE. Notwithstanding anything contained in this Agreement
to the contrary, neither party shall be in default hereunder by reason of its
delay in performance of, or failure to perform, any of its obligations
hereunder, if such delay or failure is caused by:
(a) strikes or other labor disturbance;
(b) acts of God, or the public enemy, riots or other civil
disturbances, fire, or flood;
(c) interference by civil or military authorities;
(d) compliance with governmental laws, rules, or regulations
which were not in effect and could not be reasonably anticipated as of the
date of this Agreement;
(e) delays in transportation, failure of delivery by suppliers,
or inability to secure necessary governmental priorities for materials; or
(f) any other fault beyond its control or without its fault or
negligence. In any such event, the time required for performance of such
obligation shall be the duration of the unavoidable delay.
20. POST TERMINATION OBLIGATIONS
20.01 POST-TERMINATION OBLIGATIONS. Upon the expiration or termination of
this Agreement by any means or for any reason, Franchisee shall immediately:
(a) Cease to be a Franchisee of Big O and cease to operate the
former Franchised Business under the Big O System. Franchisee shall not
thereafter, directly or indirectly, represent to the public that the former
Franchised Business is or was operated or in any way connected with the Big
O System or hold itself out as a present or former Franchisee of Big O;
(b) Pay all sums owing to Big O. Upon termination for any
default by Franchisee, such sums shall include actual and consequential
damages, costs, and expenses incurred by Big O as a result of the default;
(c) Return to Big O the (i) Manual known as Blue II, Franchise
Policies and Procedures Manual, any training modules or other proprietary
information and supplements thereto and all trade secrets and confidential
materials owned or licensed by Big O and all copies thereof other than
Franchisee's copy of the Franchise Agreement, copies of any correspondence
between the parties, and any other document which Franchisee reasonably
needs for compliance with any applicable law; (ii) return or discontinue
use of all forms, advertising matter, marks, devises, insignias, slogans,
designs, signs, any computer systems and/or software; and (iii) discontinue
the use of all copyrights, Licensed Marks, trade names and patents now or
hereafter applied for or granted in connection with the operation of the
Franchise.
(d) Provide Big O, upon its request, with a complete list of any
outstanding obligations Franchisee may have to any third parties including
outstanding customer orders. Big O shall have the right, but not the
obligation, to fill any such outstanding customer orders generated by
Franchisee and in such event, Franchisee shall immediately reimburse Big O
for any costs or expenses incurred by Big O in doing so. In addition, Big
O shall have the right to cancel any orders placed by Franchisee for which
delivery has not been made;
(e) Take such action as may be required by Big O to transfer and
assign to Big O or its designee all telephone numbers, white and yellow
page telephone references and advertisements,
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and all trade and similar name registrations and business licenses, and to
cancel any interest which Franchisee may have in the same. The Franchisor
is hereby appointed as the Franchisee's attorney-in-fact for such purpose
and such power, being coupled with an interest, shall be irrevocable;
(f) Cease to use in Advertising, or in any manner whatsoever,
any methods, procedures, or techniques associated with the Big O System in
which Big O has a proprietary right, title, or interest; cease to use the
Licensed Marks, and any other marks and indicia of operation associated
with the Big O System and remove or change all Trade Dress, Products and
Services, and other indicia of operation under the Big O System from the
Premises, at Franchisee's expense and in a manner satisfactory to Big O.
Unless otherwise approved in writing by Big O, Franchisee shall return to
Big O all copies of materials bearing the Licensed Marks; and
(g) If during the term of Franchisee's Franchise Agreement, the
Franchisee has made available to its customers, the ability to purchase
Products and Services from Franchisee's Store by the use of the Big O
credit card with American General Finance, upon termination the Franchisee
shall cease accepting such card from any future customers.
(h) Franchisee shall immediately make available to Big O all
customer lists as such was developed while a Franchisee.
(i) Strictly comply with all other provisions of this Agreement
pertaining to post-termination obligations, including, without limitation,
those contained in Sections 13 and 17.
(j) Any tire adjustments existing as of the Termination Date
shall be referred to other existing LSCs, RSCs or other Stores for
processing. Franchisee shall receive no allowance for tire adjustments
upon termination.
20.02 RIGHT TO REPURCHASE. Big O shall have the right, but not the
obligation, to purchase:
(a) Some or all of the Products and Services and supplies at the
Store and the equipment, furnishings, fixtures, or signs at the Premises
which bear the Licensed Marks for a mutually agreed upon price within
thirty (30) days of the Termination Date or the Expiration Date.
(b) If Big O elects to exercise such a right, it may offset the
purchase price against any other amounts owed by Franchisee to Big O
pursuant to this or any agreement or loan document. Before exercising any
such rights, Big O shall have the right to enter upon the Premises during
reasonable hours to take an inventory of the Franchised Business.
20.03 RIGHT OF FIRST REFUSAL. Upon receipt by Franchisee of an offer to
purchase Franchisee's Products and Services, equipment, supplies, fixtures or
signs at the Premises, Franchisee hereby grants Big O a right of first refusal
to purchase any of such items by matching the bona fide monetary purchase price
and payment schedule terms, less any brokerage commission without having to
match any other non-monetary terms of the proposed purchase by Franchisee's
buyer(s). Franchisee must give Big O written notice of any such bona fide
offer. If within thirty (30) days after receipt of such notice, Big O has
neither exercised its right of first refusal nor notified Franchisee of its
rejection thereof, Franchisee may sell such items as were covered by the offer
at the expiration of the thirty (30) day period.
20.04 DE-IDENTIFICATION OF ASSETS UPON SALE. If Big O determines not to
exercise its option to repurchase any such items, Franchisee may continue to
sell its remaining Products and Services, equipment, supplies, and fixtures, but
may not identify itself as a Big O Franchisee. Franchisee shall otherwise abide
by the terms of this Section 20.
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21. INSURANCE
21.01 INSURANCE COVERAGE. Franchisee shall, at its expense and no later
than upon the Commencement Date, procure and maintain in full force and effect
throughout the term of this Agreement either the approved Big O Dealers National
Insurance Program ("Program") then in effect or the types of insurance
enumerated in this Agreement, which shall be in such coverages, limits and
amounts as may from time to time be required by Big O, and which shall designate
Big O, its directors, officers, employees, agents and other Big O designees as
additional named insured(s). Unless otherwise agreed to by Big O, Franchisee
shall procure and maintain whichever limits and coverages are greater in a
comparison of the insurance enumerated in the Manual and the insurance
enumerated in the Program. If the Franchisee chooses not to procure insurance
pursuant to the Program, Franchisee shall procure the following insurance
coverages, limits and amounts:
(a) Workers' Compensation insurance with statutory limits for
Coverage A as prescribed by the statutes of the state of the Franchised
Business; including Coverage B, Employers Liability, with limits not less
than or equivalent to $500,000 each person, $500,000 each occurrence, and
$500,000 annual aggregate;
(b) Comprehensive or Commercial General Liability insurance
covering all operations and premises of the Franchised Business, including
but not limited to Product Liability, Completed Operations Liability,
Personal Injury Protection, Advertisers Liability, Fire Legal Liability,
Medical Payments, and Contractual Liability, with limits not less than the
equivalent of $2,000,000 per occurrence combined single limit for bodily
injury and property damage;
(c) Vehicular/Automobile Liability insurance, including
Uninsured Motorist and Medical Payments, covering owned, non-owned, hired,
leased or other vehicles associated, directly or indirectly, with the
Franchised Business, with limits of not less than the equivalent of
$1,000,000 per occurrence combined single limit for bodily injury and
property damage;
(d) "All Risk" Property insurance covering risk of loss to real
and personal property; including but not limited to, Accounts Receivable,
Valuable Papers, Glass, Signs, Employees' Tools, Loss of Rents, and other
building contents - including flood and earthquake coverage if appropriate
for the location of the specific Franchised Business-for repair/replacement
coverage and valuation of all assets. This coverage will include Business
Income/Extra Expense insurance for extra expenses incurred and/or profits
lost due to a covered, "All Risk" peril (Business Interruption Valuation
Worksheets will be submitted by Franchisee to Big O annually for evaluation
and approval). Any coinsurance provisions should apply only to values
reported and should have no adverse impact on claim settlement (an Agreed
Amount Endorsement should be obtained, if possible);
(e) Inland Marine insurance covering all signs, tools and
equipment, and cargo being transported by rail, motortruck, or other common
carrier conveyances where the Franchised Business has title or
responsibility for transported goods, with limits of no less than $10,000
per any one conveyance;
(f) Garage Liability and Garagekeepers Legal Liability insurance
covering all vehicle storage, garage premises and other operations arising
out of the Franchised Business and non-owned use and/or operation of
vehicles, with Garage Liability limits of not less than the equivalent of
$2,000,000 per occurrence combined single limit for bodily injury and
property damage and Garagekeepers Legal Liability of not less than the
equivalent of $100,000 per location;
(g) Boiler and Machinery insurance covering all real and
personal property; including, but not limited to, pressure vessels,
machinery, piping, tubing and other high and low pressurized
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items at the Franchised Business for the repair/replacement valuation of
all assets. This coverage shall include Business Income/Extra Expenses
insurance for additional expenses incurred and/or profits lost;
(h) Comprehensive Fidelity/Crime insurance covering Employee
Dishonesty with limits no less than $25,000; Forgery with limits no less
than $10,000; Money and Securities Inside Premises with limits no less than
$10,000; and Money and Securities Outside Premises with limits no less than
$10,000; and
(i) Commercial Umbrella Liability insurance covering all
underlying liability insurance coverages enumerated in this section, with
no gaps between underlying and umbrella limits or coverage with excess and
primary limits of no less than the equivalent of $3,000,000 per occurrence
combined single limit for bodily injury and property damage.
21.02 PROOF OF INSURANCE. Prior to the Commencement Date, Franchisee
shall make timely delivery of a signed original certificate or certificates of
all required insurance coverages to Big O, which shall contain the authorized
agent's business name, address and phone number, together with a statement by
the insurer that the policy will not be cancelled or materially changed without
at least thirty (30) days prior written notice to Big O that the alteration or
cancellation is being made. All insurance coverages will be underwritten by a
company acceptable to Big O, with a Best's Rating of no less than "A-" or a
financial statement of the insurer approved by Big O. If Franchisee fails to
purchase required insurance conforming to the standards prescribed by Big O, Big
O may obtain such insurance for Franchisee, and Franchisee shall pay Big O the
cost of such insurance plus a ten percent (10%) administrative surcharge.
21.03 SURVIVAL OF INDEMNIFICATION. The procurement and maintenance of the
greater of the prescribed insurance coverages set forth in the Manual or those
set forth in the Program shall not relieve Franchisee of any liability to Big O
assumed under any indemnification requirement of this Agreement.
If Big O deems it appropriate, the Franchisee shall, upon Big O's request,
provide to Big O a true, complete certified copy of all, or a part of the
Franchisee's insurance policies within 10 days of receiving such request. In
addition, upon Big O's request, the Franchisee shall provide to Big O renewal
certificates of insurance, or certified insurance binders, for all required
coverages no fewer than 10 days before the indicated anniversary date(s) of such
insurance coverages.
22. TAXES, PERMITS, AND INDEBTEDNESS
22.01 PAYMENT OF TAXES. Franchisee shall promptly pay when due any and
all federal, state, and local taxes including without limitation, unemployment
and sales taxes, levied or assessed with respect to any Products and Services
distributed or sold pursuant to this Agreement and all accounts or other
indebtedness of every kind incurred by Franchisee in the operation of the
Franchised Business.
22.02 COMPLIANCE WITH LAWS. Franchisee shall comply with all applicable
federal, state, and local laws, rules and regulations, including, without
limitation, environmental laws related to tire disposal. Franchisee shall
obtain any and all permits, certificates, and licenses required for the full and
proper conduct of the Franchised Business.
22.03 PAYMENT OF DEBTS. Franchisee hereby expressly covenants and agrees
to accept full and sole responsibility for any and all debts and obligations
incurred in the operation of the Franchised Business.
23. INDEMNIFICATION AND INDEPENDENT CONTRACTOR STATUS
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<PAGE>
23.01 INDEMNIFICATION. Franchisee agrees to protect, defend, indemnify,
and hold Big O and its affiliates, their directors, officers, shareholders,
employees and agents jointly and severally, harmless from and against all
claims, actions, proceedings, damages, costs, expenses and other losses
(including death) and liabilities, consequently, directly or indirectly incurred
(including, without limitation, attorneys', accountants' and other related fees)
as a result of, arising out of, or connected with the operation of the
Franchised Business, including, without limitation, the failure of Franchisee to
comply with any relevant environmental and tire disposal laws. Franchisee shall
not, however, be liable for claims arising exclusively as a result of Big O's
intentional or fraudulent acts or omissions or sole negligence.
23.02 INDEPENDENT CONTRACTOR. In all dealings with third parties,
including, without limitation, customers, employees, and suppliers, Franchisee
shall disclose in an appropriate manner acceptable to Big O that it is an
independent entity operating under a franchise granted by Big O. Franchisee
shall submit all applications and enter into all contracts in its designated
corporate name or such other fictitious names which have been approved by Big O,
but not in the name "Big O Tires" or in any other name which includes the name
"Big O". Nothing in this Agreement is intended by the parties hereto to create
a fiduciary relationship between them nor to constitute Franchisee or
Franchisee's employees or contractors as an agent, legal representative,
subsidiary, joint venturer, partner, employee, or servant of Big O for any
purpose whatsoever. It is understood and agreed that Franchisee is an
independent contractor and is in no way authorized to make any contract,
warranty, or representation or to create or imply any obligation on behalf of
Big O.
24. WRITTEN APPROVALS, WAIVERS, AND AMENDMENT
24.01 WRITTEN APPROVAL. Whenever this Agreement requires Big O's prior
approval, Franchisee shall make a timely written request. Unless a different
time period is specified in this Agreement, Big O shall respond with its
approval or disapproval within fifteen (15) business days.
24.02 WAIVER. No failure of Big O to exercise any power reserved to it by
this Agreement and no custom or practice of the parties at variance with the
terms hereof shall constitute a waiver of Big O's right to demand exact
compliance with any of the terms herein. A waiver or approval by Big O of any
particular default by Franchisee or any other Big O franchisee or acceptance by
Big O of any payments due hereunder shall not be considered a waiver or approval
by Big O of any preceding or subsequent breach by Franchisee of any term,
covenant, or condition of this Agreement. Big O shall not be deemed to have
waived any of its rights under this Agreement, including any right to receive
payment in full for any Product or Service provided, nor shall Franchisee be
deemed to have been excused from performance of any of its obligations pursuant
to this Agreement, unless such waiver or excuse is written and executed by an
authorized representative of Big O and Franchisee.
24.03 MODIFICATION. No amendment, change, or variance from this Agreement
shall be binding upon either Big O or Franchisee except by mutual written
agreement. If an amendment of this Agreement is executed at Franchisee's
request, any legal fees or costs of preparation of such amendment and any
amendment of a franchise registration arising in connection therewith shall be
paid by Franchisee.
25. DEALER PLANNING BOARD AND BOTDA
25.01 DEALER PLANNING BOARD. Big O has established a Dealer Planning
Board ("DPB"), consisting of franchisee representatives, which is designed to
assist Big O's management with strategic business plans and to advise Big O's
management on issues of concern to Big O franchisees. Through a representative
elected from Franchisee's Local Group, Franchisee shall be represented on the
DPB.
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<PAGE>
25.02 SPECIAL INTEREST ISSUES. Big O has granted the DPB the authority to
represent the Local Groups by participating with Big O's management in making
policy decisions relating to issues in which the DPB is deemed to have a special
interest. The issues of "Special Interest" include:
(a) advertising policies and the creation of a National
Advertising Fund;
(b) standards of operation; and the implementation of new
programs which may require the addition of new equipment and fixtures for
the store;
(c) selection of Products and Services offered at Big O Stores;
and
(d) changes in the Licensed Marks anticipated to require the
majority of franchisees to expend more than five thousand dollars
($5,000.00) per Store.
25.03 DISAPPROVAL OF MANAGEMENT PROPOSAL. With respect to those issues in
which the DPB has a Special Interest, the DPB may, after consulting with the
members of the Local Groups, vote to disapprove a proposal of Big O's
management. If, pursuant to established procedures which have been approved by
Big O, the DPB shall disapprove a proposal of Big O's management, the proposal
may only become effective if, following a presentation to the Big O board of
directors by a representative of the DPB, Big O's board of directors votes to
adopt management's proposal.
25.04 COMPLIANCE WITH MODIFICATION. Franchisee agrees to comply with any
and all modifications to Big O's standards of operation, procedures, or other
requirements adopted pursuant to the procedures described in this Section 25.
25.05 BOTDA. Certain Franchisees have established Big O Tire Dealers of
America ("BOTDA") for the purpose of promoting the common business interests of
independently-owned retail dealers duly franchised by Big O. BOTDA was formed
for the specific purpose of protecting and advancing common business interests
of the franchisees on a united basis and all such activities relating thereto.
Each independently-owned retail dealer duly franchised by Big O may elect to
become a member of BOTDA. BOTDA is not an affiliate of Big O.
26. RIGHT OF OFFSET
26.01 RIGHT OF OFFSET. Big O shall have the right at any time before or
after termination of this Agreement, without notice to Franchisee, to offset any
amounts or liabilities that may be owed by the Franchisee to Big O against any
amounts or liabilities that may be owed by Big O to Franchisee under this
Agreement or any other agreement, loan, transaction or relationship between the
parties.
27. ENFORCEMENT
27.01 DECLARATORY AND INJUNCTIVE RELIEF. Big O or its designee shall be
entitled to obtain without bond, declarations, temporary and permanent
injunctions, and orders of specific performance:
(a) To enforce the provisions of this Agreement relating to:
(i) Franchisee's use of the Licensed Marks; (ii) the obligations of
Franchisee upon termination or expiration of this Agreement; or (iii) the
Transfer and Assignment requirements of Section 18; or
(b) to prohibit any act or omission by Franchisee or its
employees that: (i) constitutes a violation of any applicable law or
regulation; (ii) is dishonest or misleading to prospective or current
customers or clients of businesses operated under the System; (iii)
constitutes a danger to other Big O franchisees, their employees,
customers, clients or the public; or (iv) may impair the goodwill
associated with the Licensed Marks.
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<PAGE>
27.02 COSTS OF ENFORCEMENT. If Big O secures any declaration, injunction
or order of specific performance pursuant to Section 27.01 hereof, if any
provision of this Agreement is enforced at any time by Big O or if any amounts
due from Franchisee to Big O are, at any time, collected by or through an
attorney at law or collection agency, Franchisee shall be liable to Big O for
all costs and expenses of enforcement and collection including, but not limited
to, court costs and reasonable attorneys' fees, including the fair market value
of any time expended by legal counsel employed by Big O.
27.03 MEDIATION. If a dispute arises between the parties hereto, any
affiliated companies thereof or any of their officers, directors, partners,
joint venturers, employees, agents, representatives or those in active concert
with any of such parties, relating to this Agreement or the breach thereof, the
relationship of the parties or any system standards and if the dispute cannot be
settled through negotiation, the parties hereto agree to first try in good faith
to settle the dispute by mediation administered by the American Arbitration
Association under its Commercial Mediation Rules, or administered by such other
mediation organization as the parties may select, before resorting to binding
arbitration or litigation. Disputes subject to mediation shall be all
controversies, claims, and matters in question, whether contractual or tort in
nature, arising out of, or relating to, this Agreement or the breach of this
Agreement, the relationship of the parties or any system standards except for
those matters specifically excluded in Section 27.04 below. The party who seeks
resolution of a controversy, claim, dispute or other matter in question shall
notify the other party in writing of the existence and subject matter of such
controversy, claim, dispute or other matter, and shall designate in such notice
the names of three prospective mediators, each of whom shall be registered with
the Denver, Colorado office of the American Arbitration Association or such
other mediation organization. The party receiving notice shall select from such
list one individual to act as mediator in the dispute set forth by the notifying
party, or offer three additional names of prospective mediators for selection.
The parties shall meet with the mediator in Denver, Colorado, within thirty (30)
days after the recipient party has received notice of the dispute, and agree to
utilize their best efforts and all expediency to resolve the matters in dispute.
The mediation shall not continue longer than three (3) hearing days without the
written approval of both parties. Neither party shall be bound by any
recommendation of the mediator, however, any agreement reached during mediation
shall be final and conclusive. The expense of mediation shall be shared equally
by both parties.
27.04 EXCLUDED MATTERS. Notwithstanding Section 27.03 above, matters of
enforcement stipulated in Sections 27.01 and 27.02 and controversies, disputes,
and matters in question regarding the Licensed Marks, the filing of any report,
the payment of any fees required to be paid by Franchisee under the terms of
this Agreement, any lease of real estate and/or Big O's right to terminate the
Franchise granted under and pursuant to this Agreement shall be specifically
excluded from the foregoing mediation procedures.
27.05 CONFIDENTIALITY. Big O and the Franchisee each agree that the
mediation process is negotiation for the purpose of compromise. All offers,
promises, conduct, and statements, whether oral or written, made in the course
of the mediation process by any of the parties, their agents, employees,
experts, and attorneys, shall be confidential. Franchisee acknowledges that Big
O may require the Franchisee to execute a confidentiality agreement pertaining
to the mediation process. Notwithstanding the foregoing, evidence that is
otherwise admissible or discoverable shall not be rendered inadmissible or not
discoverable as a result of its use in the mediation process.
28. NOTICES
28.01 NOTICES. Any notice required to be given hereunder shall be in
writing and shall be mailed by registered or certified mail. Notices to
Franchisee and Big O shall be addressed to them at their addresses as listed on
the Summary Pages or to such other addresses as the parties may hereafter
prescribe. A copy of each notice to Big O shall be addressed to Franchisee's
designated regional
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<PAGE>
representative. Any notice complying with the provisions hereof shall be deemed
to be given on the date of mailing.
29. GOVERNING LAW
29.01 GOVERNING LAW. This Agreement is accepted by Big O in the State of
Colorado and shall be governed by and interpreted in accordance with Colorado
law, which law shall prevail in the event of any conflict of law. Big O and
Franchisee consent to personal and subject matter jurisdiction and venue in
Denver, Colorado.
29.02 JURISDICTION. The parties hereto agree that it is in their best
interest to resolve disputes between them in an orderly fashion and in a
consistent manner. Therefore, the parties consent to the exclusive jurisdiction
of either Colorado state courts or the United States Federal District Court for
the District of Colorado for any litigation relating to this Agreement or the
operation of the Franchised Business thereunder. Franchisor and Franchisee
irrevocably constitute and appoint the persons designated on paragraphs 10 and
11 of the Summary Pages to be their true and lawful agents, to receive service
of any lawful process in any civil litigation or proceeding arising under this
Agreement, and service upon such agent shall have the same force and validity as
if personal service had been obtained on the other party; provided that notice
of service and a copy of any process served shall be sent by registered or
certified mail, addressed to the other party at the address specified herein.
30. SEVERABILITY AND CONSTRUCTION
30.01 SEVERABILITY. Subject to Section 19.01(o), should any part of this
Agreement, for any reason, be declared invalid by a court of competent
jurisdiction, such decision or determination shall not affect the validity of
any remaining portion and such remaining portion shall remain in force and
effect as if this Agreement had been executed with the invalid portion
eliminated; provided, however, that in the event of a declaration of
invalidity, the provision declared invalid shall not be invalidated in its
entirety, but shall be observed and performed by the parties to the extent such
provision is valid and enforceable. The parties hereby agree that any such
provision shall be deemed to be altered and amended to the extent necessary to
effect such validity and enforceability.
30.02 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but such counterparts together shall constitute one and the same
instrument.
30.03 CONSTRUCTION. The headings and captions contained herein are for
the purpose of convenience and reference only and are not to be construed as
part of this Agreement. All terms and words used herein shall be construed to
include the number and gender as the context of this Agreement may require. The
parties agree that each section of this Agreement shall be construed
independently of any other section or provision of this Agreement.
31. ACKNOWLEDGEMENTS
(a) Big O acknowledges that Franchisee's principal interest in
obtaining the Franchise granted herein is to obtain Big O private brand
tires and a competitive source of supply for Products and Services. Big O
acknowledges its obligation to seek to attempt, with no obligation, to
maintain a competitive source of supply for the benefit of its franchisees
and to aid in the promotion of Big O Products and Services.
(b) Franchisee understands and acknowledges that the business
licensed under this Agreement involves business risks and that Franchisee's
volume, profit, income and success is dependent primarily upon Franchisee's
ability as an independent business operator.
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<PAGE>
(c) Big O expressly disclaims the making of, and Franchisee
acknowledges that it has not received from any representative of Big O, any
warranty or guaranty, express or implied, as to the obligation of Big O to
provide Franchisee with any specific or sufficient amount of Products and
Services or as to the potential volume, profit, income or success of the
Franchised Business.
(d) Franchisee acknowledges that Big O or its agent has provided
Franchisee with a Franchise Offering Circular not later than the earlier of
the first personal meeting held to discuss the sale of the Franchise, ten
(10) business days before the execution of this Agreement, or ten (10)
business days before any payment of any consideration connected to the
purchase of this Franchise. Franchisee further acknowledges that
Franchisee has read such Franchise Offering Circular and understands its
contents.
(e) Franchisee acknowledges that Big O has provided Franchisee
with a copy of this Agreement and all related documents, fully completed,
for at least five (5) business days prior to Franchisee's execution hereof.
(f) Franchisee acknowledges that Big O has advised it to consult
with its own attorneys, accountants, or other advisers, that Franchisee has
had ample opportunity to do so, and that the attorneys for Big O have not
advised or represented Franchisee with respect to this Agreement or the
relationship hereby created. The name and address of Franchisee's adviser,
if any, is set forth on the Summary Pages.
(g) Franchisee acknowledges that this Agreement, the documents
referred to herein, the attachments hereto, and other agreements signed
concurrently with this Agreement, if any, constitute the entire, full and
complete Agreement between Big O and Franchisee concerning the subject
matter hereof. This Agreement terminates and supersedes any prior
agreement between the parties concerning the same subject matter, and any
oral or written representations which are inconsistent with the terms of
this instrument and its accompanying Franchise Offering Circular.
(h) Franchisee acknowledges and recognizes that different terms
and conditions, including different fee structure and investment
requirements may pertain to different Big O franchises offered in the past,
contemporaneously herewith, or in the future, and that Big O does not
represent that all franchise agreements are or will be identical.
(i) Franchisee acknowledges that except as is specifically set
forth in this Agreement, it is not nor is it intended to be a third party
beneficiary of this Agreement or any other agreement or contractual
relationship to which Big O is a party.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement to
become effective on the date it is executed by the last of Franchisee or Big O.
FRANCHISEE:
By:
----------------------------------------------------
Date:
--------------------------------------------------
Home Address:
------------------------------------------
-------------------------------------------------------
Home Phone Number:
-------------------------------------
Office Address:
----------------------------------------
-------------------------------------------------------
Office Phone Number:
-----------------------------------
Title:
-------------------------------------------------
Attest:
------------------------------------------------
Title:
-------------------------------------------------
(Affix Corporate Seal)
FRANCHISEE:
--------------------------------------------
By:
----------------------------------------------------
Date:
--------------------------------------------------
Home Address:
------------------------------------------
-------------------------------------------------------
Home Phone Number:
-------------------------------------
Office Address:
----------------------------------------
-------------------------------------------------------
Office Phone Number:
-----------------------------------
Title:
-------------------------------------------------
Attest:
------------------------------------------------
Title:
-------------------------------------------------
(Affix Corporate Seal)
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<PAGE>
BIG O TIRES, INC.
By:
----------------------------------------------------
Date:
--------------------------------------------------
Title:
-------------------------------------------------
Attest:
------------------------------------------------
Title:
-------------------------------------------------
(Affix Corporate Seal)
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<PAGE>
SCHEDULE 1
TO
FRANCHISE AGREEMENT
BETWEEN BIG O TIRES, INC. AND
------------------------------------------------------------------------
1. The Premises of referred to in Section 2.01 of the Franchise Agreement
shall be:
----------------------------------------------------------------------
----------------------------------------------------------------------.
2. Legal Description of Premises:
----------------------------------------
---------------------------------------------------------------------.
3. Names(s) and address(es) of holder(s) of record fee title to Premises (the
landlord):
Name:
------------------------------------------------------------
Address:
---------------------------------------------------------
-----------------------------------------------------------------
Name:
------------------------------------------------------------
Address:
---------------------------------------------------------
-----------------------------------------------------------------
Name:
------------------------------------------------------------
Address:
---------------------------------------------------------
-----------------------------------------------------------------
4. Description of Trade Area:
Schedule 1 Franchise Agreement
Page 1
<PAGE>
SCHEDULE 2
OWNERSHIP VERIFICATION
1. Name(s) and address(es) of person(s) owning interest in Franchisee and
percentage of said person(s) interest:
Name:
------------------------------------------------------------
Address:
---------------------------------------------------------
-----------------------------------------------------------------
Name:
------------------------------------------------------------
Address:
---------------------------------------------------------
-----------------------------------------------------------------
Name:
------------------------------------------------------------
Address:
---------------------------------------------------------
-----------------------------------------------------------------
STATE OF )
)
COUNTY OF )
___________________________, being first duly sworn, says that they are
respectively, the ________________________ and ________________________ of
________________________________________, the above-named __________________,
and execute this instrument for and in its behalf, by authority of its
__________________ and that they have read the foregoing Agreement and all
Exhibits attached thereto.
------------------------------
------------------------------
------------------------------
------------------------------
Subscribed and sworn to before
me this __________ day of
__________________, 19__.
- ----------------------------------------------------
Notary Public
My Commission Expires:
------------------------------
Schedule 2 to Franchise Agreement
Page 1
<PAGE>
SCHEDULE 3
GUARANTY OF FRANCHISEE'S AGREEMENT
In consideration of, and as an inducement to, the execution of the
foregoing Franchise Agreement by Big O Tires, Inc. ("Big O"), each of the
undersigned hereby guarantees unto Big O that ("Franchisee") will perform
during the term of the Franchise Agreement each and every covenant, payment,
agreement and undertaking on the part of Franchisee contained and set forth
in or arising out of such Franchise Agreement.
Big O, its successors and assigns, may from time to time, without notice to
the undersigned (a) resort to the undersigned for payment of any of the
liabilities of the Franchisee to Big O, whether or not Big O or its successors
have resorted to any property securing any of the liabilities or proceeded
against any of the undersigned or any party primarily or secondarily liable on
any of the liabilities, (b) release or compromise any liability of the
Franchisee or of any of the undersigned hereunder or any liability of any party
or parties primarily or secondarily liable on any of the liabilities, and (c)
extend, renew or credit any of the liabilities of the Franchisee to Big O for
any period (whether or not longer than the original period); alter, amend or
exchange any of the liabilities; or give any other form of indulgence, whether
under the Franchise Agreement or not.
The undersigned further waives presentment, demand, notice of dishonor,
protest, nonpayment and all other notices whatsoever, including without
limitation: notice of acceptance hereof; notice of all contracts and
commitments; notice of the existence or creation of any liabilities under the
foregoing Franchise Agreement and of the amount and terms thereof; and notice
of all defaults, disputes or controversies between Franchisee and Big O
resulting from such Franchise Agreement or otherwise, and the settlement,
compromise or adjustment thereof.
The undersigned agrees to pay all expenses paid or incurred by Big O in
attempting to enforce the foregoing Franchise Agreement and this Guaranty
against Franchisee and against the undersigned and in attempting to collect any
amounts due thereunder and hereunder, including reasonable attorneys' fees if
such enforcement or collection is by or through an attorney-at-law. Any waiver,
extension of time or other indulgence granted from time to time by Big O or its
agents, successors or assigns, with respect to the foregoing Franchise
Agreement, shall in no way modify or amend this Guaranty, which shall be
continuing, absolute, unconditional and irrevocable.
If more than one person has executed this Guaranty, the term "the
undersigned," as used herein shall refer to each such person, and the liability
of each of the undersigned hereunder shall be joint and several and primary as
sureties.
IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty
under seal effective as of the date of the foregoing Franchise Agreement.
-------------------------------------------------------
Signature
-------------------------------------------------------
Date
-------------------------------------------------------
Printed Name
Schedule 3 to Franchise Agreement
Page 1
<PAGE>
---------------------------------------------------
---------------------------------------------------
Home Address
---------------------------------------------------
---------------------------------------------------
Home Telephone
---------------------------------------------------
---------------------------------------------------
Business Address
---------------------------------------------------
Business Telephone
Schedule 3 to Franchise Agreement
Page 2
<PAGE>
SCHEDULE 4
LEASE RIDER AND MODIFICATION
THIS AGREEMENT is made effective ____________________________________
by and between ________________________________________________ ("Landlord"),
__________________________ ("Tenant"), and Big O Tires, Inc., its affiliates,
successors and assigns ("Big O").
WHEREAS, Landlord leases or will lease certain premises to Tenant at
________________________________________________________________________
("Premises") under that certain lease agreement dated __________________
between Landlord and Tenant ("Lease"); and ____________________________.
WHEREAS, Tenant will operate a Big O Tire Store at such Premises under a
Franchise Agreement ("Franchise Agreement") between Tenant and Big O; and
WHEREAS, the parties hereto desire to provide Big O with certain rights in
the event of default under the Lease, Franchise Agreement, or other franchise
agreements between Tenant and Big O, if any;
NOW, THEREFORE, in consideration of the sum of One ($1.00) Dollar, in hand
paid by Big O to Landlord and to Tenant, and other good and sufficient
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. No act, failure to act, event, condition, non-payment or other
occurrence ("Event") shall constitute a breach or default under the Lease so as
to allow to Landlord any right of acceleration of obligations thereunder,
termination, cancellation or rescission:
(a) if the Event is the non-payment of rent, unless such Event is not
cured within ten (10) days after Notice of Default (as hereinafter defined)
has been received by Big O;
(b) if the Event is anything other than the non-payment of rent,
unless such Event is not cured within twenty-five (25) days after Notice of
Default (as hereinafter defined) has been received by Big O, provided,
however, if the Event is of such nature that it cannot reasonably be cured
within such twenty-five (25) day period, then, in that case such twenty-five
(25) day period shall be extended to a period of such length as is
reasonably necessary to cure such Event, provided, however, such period
shall be extended only so long as Tenant and/or Big O diligently pursues
the cure of such Event.
2. Landlord agrees to accept from Big O any payment or performance
required under the Lease. Nothing herein shall be construed as requiring Big O
to m[cad 229]ake any payments or perform any obligation under the Lease.
3. As used herein, Notice of Default means written notice specifying the
Event claimed and specifically describing, in each instance of a claimed Event,
the particular Event and the cure Landlord requires, such Notice of Default to
be mailed to Big O at:
Big O Tires, Inc.
11755 East Peakview Avenue
Englewood, Colorado 80111
Attention: Vice President of Business Development
4. In the event Landlord claims that an Event has occurred, or in the
event Big O notifies Landlord in writing that Big O is exercising a right to
take over possession of the Premises, then, at Big O's option,
Schedule 4 to Franchise Agreement
Page 1
<PAGE>
Landlord shall accept Big O as substitute tenant under the Lease and will
cooperate with Big O in turning actual, immediate possession of the Premises
over to Big O. In such case, the Lease shall remain in full force and effect,
but with Big O as the tenant thereunder. Big O's option, hereinabove granted,
may be exercised only if Big O agrees to assume the obligations of the Tenant to
Landlord under the Lease as of the date Franchisor or its affiliate or successor
is given actual possession of the Premises.
5. Landlord agrees that Big O, or its affiliate or successor may sublet or
assign the Premises to a new Big O Franchisee on the same terms and conditions
as are contained in the Lease.
6. Tenant agrees that if Landlord claims that an Event has occurred, or if
any material breach occurs under any Franchise Agreement between Tenant and Big
O (whether for the Premises or not), then, Big O shall have the right to:
(a) immediate and actual possession of the Premises, and all
equipment and inventory therein, which such possession Tenant agrees to
give peaceably, and which may be otherwise obtained by Big O by warrant,
injunction, temporary restraining order, summary process or such other
immediate legal, summary or equitable proceeding or action as Big O may
choose. Tenant hereby waives any right to a jury in any such proceeding or
action.
(b) become the Tenant under the Lease to the exclusion of the Tenant.
7. Tenant agrees that any default under the Lease shall constitute a
material breach under all Franchise Agreements between Tenant and Big O, or its
affiliates or successors.
8. Tenant and Landlord understand that Big O is entering into or has
entered into a Franchise Agreement with Tenant for a Big O Tire Store at the
Premises in reliance on the agreements of Tenant and Landlord as herein
contained and that Big O, in this instance, would not have otherwise entered
into such Franchise Agreement.
IN WITNESS WHEREOF, the parties hereto have duly execute and delivered this
agreement as of the date first above-listed.
LANDLORD
By:
- ------------------------------- --------------------------------------
Witness
Attest:
- ------------------------------- --------------------------------------
(CORPORATE SEAL)
Schedule 4 to Franchise Agreement
Page 2
<PAGE>
TENANT
By:
- ----------------------------------- ---------------------------------
Unofficial Witness
Attest:
- ----------------------------------- ---------------------------------
Notary Public
(CORPORATE SEAL)
BIG O TIRES, INC.
By:
- ----------------------------------- ---------------------------------
Unofficial Witness
(CORPORATE SEAL)
- -----------------------------------
Notary Public
Schedule 4 to Franchise Agreement
Page 3
<PAGE>
SCHEDULE 5
FARM CLASS RIDER
Franchisee represents that it reasonably anticipates that at least
twenty-five percent (25%) of its Store's Gross Sales on an annual basis will
be derived directly from the sale of Farm Class Tires. In reliance on
Franchisee's representations, and its consideration for Franchisee to become
or remain a Big O franchisee, Big O has offered Franchisee the opportunity
to execute this Farm Class Rider.
1. So long as at least twenty-five percent (25%) of Franchisee's Gross
Sales on an annual basis are derived directly from Farm Class Tires, Big O
agrees to exercise its best efforts to provide Franchisee with access to a
supply of Farm Class Tires. Franchisee acknowledges that production and
distribution problems occasionally cause supplies to be limited, and that so
long as Big O acts in good faith and in a commercially reasonably and lawful
manner to obtain access to Farm Class Tires that it shall be deemed in
compliance with its obligations hereunder.
2. If Big O fails to comply with its obligations pursuant to Section 1 of
this Farm Class Rider and cannot or will not provide Franchisee with access to
Farm Class Tires for sixty (60) days following written notice of such failure
from Franchisee, as its sole and exclusive remedy, Franchisee shall be relieved
of its obligation to pay Big O monthly royalty fees on that portion of its Gross
Sales derived directly from the sale of Farm Class Tires. Any services provided
by Franchisee in connection with the sale of Farm Class Tires, and any other
Products and Services sold by Franchisee in a transaction involving the sale of
Farm Class Tires shall be included in the portion of Franchisee's Gross Sales
upon which monthly royalty fees are payable. Big O may require Franchisee to
provide it with documentation to support any exclusion claimed by Franchisee.
3. Big O may terminate Franchisee's rights under this Farm Class Rider
without in any way affecting Franchisee's obligations under the Franchise
Agreement if the Store's sales of Farm Class Tires during any twelve (12) month
period have been less than twenty-five percent (25%) of its Gross Sales.
IN WITNESS WHEREOF, the parties have set forth their signatures below.
FRANCHISEE:
----------------------------------------
By:
------------------------------------------------
Date:
----------------------------------------------
Home Address:
--------------------------------------
---------------------------------------------------
Home Phone Number:
---------------------------------
Office Address:
------------------------------------
---------------------------------------------------
Office Phone Number:
-------------------------------
Schedule 5 to Franchise Agreement
Page 1
<PAGE>
Title:
---------------------------------------------
Attest:
--------------------------------------------
Title:
---------------------------------------------
(Affix Corporate Seal)
FRANCHISEE:
----------------------------------------
By:
------------------------------------------------
Date:
----------------------------------------------
Home Address:
--------------------------------------
---------------------------------------------------
Home Phone Number:
---------------------------------
Office Address:
------------------------------------
---------------------------------------------------
Office Phone Number:
-------------------------------
Title:
---------------------------------------------
Attest:
--------------------------------------------
Title:
---------------------------------------------
(Affix Corporate Seal)
Schedule 5 to Franchise Agreement
Page 2
<PAGE>
SCHEDULE 6
RIDER FOR EXISTING FRANCHISEES EXECUTING THE
FRANCHISE AGREEMENT PRIOR TO THE EXPIRATION
OF THEIR PRE-EXISTING FRANCHISE AGREEMENT
Franchisee is the owner of a Store which is the subject of a franchise
agreement which has not yet expired.
Franchisee's execution of the attached Franchise Agreement is subject to
the following:
1. Unless otherwise provided herein, the attached Franchise Agreement
shall expire on the tenth anniversary of the Effective Date of Franchisee's
attached Franchise Agreement, to wit:
____________________________________
.
2. Prior to the expiration of the Franchisee's present franchise
agreement, to wit __________________, the monthly continuing services fees
(or their functional equivalent) provided in the present franchise agreement
shall continue to be the only such fees due to Big O. In all other respects
the terms of the attached Franchise Agreement shall be applicable as of the
Effective Date of this Franchise Agreement.
In Witness Whereof, the parties have set forth their signature below.
BIG O TIRES, INC.
By:
------------------------------------------------
Date:
----------------------------------------------
Title:
---------------------------------------------
Attest:
--------------------------------------------
Title:
---------------------------------------------
(Affix Corporate Seal)
Schedule 6 to Franchise Agreement
Page 1
<PAGE>
FRANCHISEE:
-----------------------------------
By:
-------------------------------------------
Date:
-----------------------------------------
Home Address:
---------------------------------
----------------------------------------------
Home Phone Number:
----------------------------
Office Address:
-------------------------------
Office Phone Number:
--------------------------
Title:
----------------------------------------
Attest:
---------------------------------------
Title:
----------------------------------------
(Affix Corporate Seal)
FRANCHISEE:
By:
-------------------------------------------
Date:
-----------------------------------------
Home Address:
---------------------------------
----------------------------------------------
Home Phone Number:
----------------------------
Office Address:
-------------------------------
----------------------------------------------
Office Phone Number:
--------------------------
Title:
----------------------------------------
Attest:
---------------------------------------
Title:
----------------------------------------
(Affix Corporate Seal)
Schedule 6 to Franchise Agreement
Page 2
<PAGE>
SCHEDULE 7
TRADEMARKS
Big O is the sole and exclusive owner of the following trademarks and
service marks:
<TABLE>
<CAPTION>
TRADEMARK, SERVICE MARK, TRADE WHERE REGISTRATION
NAME OR LOGOTYPE REGISTERED NUMBER REGISTRATION DATE
<S> <C> <C> <C>
Sun Valley Principal 871,318 06/17/69
Golden Sonic Power Principal 962,580 07/03/73
Super S Principal 981,992 04/09/74
Saxon Principal 982,828 04/30/74
Big O Principal 993,415 09/24/74
Big O Principal 994,466 10/01/74
Big Ride Principal 1,009,148 04/22/75
Big Steel Principal 1,012,897 06/10/75
Sonic Sahara Principal 1,013,509 06/17/75
Big Haul Principal 1,018,800 08/26/75
Design of Human Likeness
"Sebastian Treadmore" Principal 1,044,068 07/20/76
Big Foot 70 Principal 1,102,059 09/12/78
Big Foot 60 Principal 1,102,058 09/12/78
Big Sur Principal 1,219,035 12/07/82
Extra Care and Design Principal 1,417,730 11/18/86
Legacy Principal 1,393,967 05/20/86
Aspen Principal 1,508,041 10/11/88
Exotic Principal 1,511,711 11/08/88
Big O Tires and Design Principal 1,559,725 10/10/89
Sun Valley III Principal 1,588,734 03/27/90
Big O Tires and Design Principal 1,611,160 08/28/90
Optima Principal 74/198,278 Pending
Procomp & Design Principal 74/298,320 Pending
Vail Principal 74/310,463 Pending
Arapahoe Principal 74/271,501 Pending
Schedule 7 to Franchise Agreement
Page 1
<PAGE>
TRADEMARK, SERVICE MARK, TRADE WHERE REGISTRATION
NAME OR LOGOTYPE REGISTERED NUMBER REGISTRATION DATE
Alpine Principal 74/310,467 Pending
Aztec Principal 74/310,465 Pending
Hydro-Trac Principal 74/357,214 Pending
A Reputation You Can Ride On Principal 74/360,838 Pending
Big Foot Principal 74/389,931 Pending
</TABLE>
STATE REGISTRATIONS
Big O Texas 40,967 11/01/82
Big O Texas 40,704 09/02/82
Legacy Colorado T29645 10/28/85
Extra Care Colorado T30670 04/22/86
Schedule 7 to Franchise Agreement
Page 2
<PAGE>
SCHEDULE 8
CONVERTER RIDER
AMENDMENT TO BIG O
FRANCHISE AGREEMENT
(CONVERSION)
Big O TIRES, INC. ("Big O") and ____________________________________
__________________ ("Franchisee") entered into a certain Big O Franchise
Agreement ("Agreement") on _____________, 19_____ and desire to supplement and
amend certain terms and conditions of such Agreement in consideration of
Franchisee's conversion of a currently operating tire store to a Big O Store.
The parties therefore agree as follows:
1. The following paragraph is hereby added to 6.03:
Notwithstanding any provision herein to the contrary,
Franchisee's obligation to comply with Big O's standards and
specifications as are set forth in the Manual shall be phased in for
a period of six months from the Commencement Date of the Agreement in
accordance with SCHEDULE A, attached hereto and by this reference
incorporated herein. Franchisee will be permitted to use Big O's
trademarks, service marks, logos and other identifying symbols or
names, in its signage, advertising and otherwise, in conjunction with
any other previous signage or identifying symbols or names for sixty
(60) days from the Commencement Date of this Agreement, in a manner
which shall be approved by Big O, which approval shall not be
unreasonably withheld. Upon expiration of such sixty day period,
Franchisee must use Big O's signage exclusively and remove all other
previous signage.
2. Section 6.05 is deleted in its entirety and the following is inserted
in its place:
6.05 COMMENCEMENT OF BUSINESS. The Big O Store shall be
considered to have commenced operation as of the Commencement Date of
this Agreement. All modifications required to bring the premises into
compliance with the standards and specifications of Big O must be
completed within six (6) months of the Commencement Date.
3. Section 7.01(a) is hereby deleted in its entirety and the following is
inserted in its place:
(a) Franchisee acknowledges that Big O is under no obligation
to provide site selection assistance and Big O does not guarantee
the success or profitability of the Franchisee's current site in any
manner whatsoever. If Franchisee leases the Premises upon which the
Store is to be operated, Franchisee agrees to use its best efforts to
negotiate with its landlord for execution of a conditional lease
assignment in a form which is the same as or similar to the one found
on Schedule 4.
Schedule 8 to Franchise Agreement
Page 1
<PAGE>
4. The following language shall be added to Section 7.01(b):
Big O will provide Franchisee with sample blueprints for
modification of the interior and exterior of Franchisee's premises, if
applicable, but makes no representations or guarantees regarding the
suitability of such blueprints for required modification of
Franchisee's premises.
5. Franchisee agrees to convert all other tire stores owned or controlled
by it into Big O Stores, in the manner prescribed in SCHEDULE B, attached
hereto and by this reference incorporated herein.
6. The terms and conditions of this Conversion Amendment are in addition
to or in explanation of the existing terms and conditions of the Agreement and
shall prevail over and supersede any inconsistent terms and conditions thereof.
Effective this _____ day of ________________, 199___.
FRANCHISEE:
-----------------------------------------
(Print Name)
BIG O TIRES, INC.
- ------------------------------- -----------------------------------------
By: By:
- ------------------------------- -----------------------------------------
Title: Title:
Schedule 8 to Franchise Agreement
Page 2
<PAGE>
PROMISSORY NOTE
$250,000.00 SAN JUAN CAPISTRANO, CALIFORNIA
DATE: AS OF JANUARY 1, 1996
FOR VALUE RECEIVED, the undersigned ("Maker"), jointly, severally and
unconditionally promises to pay to the order of BIG O TIRES, INC., a Nevada
corporation, its successors or assigns ("Holder") the sum of Two Hundred Fifty
Thousand and 00/100 Dollars ($250,000.00), and all subsequent advances made,
with interest thereon, commencing January 1, 1996, at an annual rate equal to
the "Corporate Base Rate" charged by the primary commercial lender of Big O
Tires, Inc. (currently First National Bank of Chicago, but which may change from
time to time), plus two percent (2%), adjusted on the day of the Corporate Base
Rate changes, on the entire unpaid balance until paid in full. Principal and
interest shall be paid monthly based upon an amortization over 120 months with
the interest provided herein, with such monthly payments commencing February 1,
1996 and continuing on the first day of each and every month thereafter, AND IF
NOT SOONER PAID, ONE FINAL "BALLOON" PAYMENT OF ALL UNPAID PRINCIPAL AND ALL
ACCRUED AND UNPAID INTEREST ON JANUARY 1, 2006, payable in lawful currency of
the United States of America, by Automatic Clearing House debits to Maker's
checking account number:
001-047116 at Liberty National Bank, ABA # 90-3914
- --------------------- ------------------------------------------------------
(CHECKING ACCOUNT #) NAME OF BANK AND ABA NUMBER)
One Pacific Plaza, 7777 Center Avenue, Huntington Beach, CA 92647
- --------------------------------------------------------------------------------
(ADDRESS OF BANK)
or at the election of Holder, at the offices of Big O Tires, Inc., 11755 East
Peakview Avenue, Englewood, Colorado 80111, or at such other place as the Holder
hereof may designate from time to time in writing. Notwithstanding the variable
interest rate of this Note, the monthly principal and interest payments shall be
$3,375.00 eacc, and attached hereto a SCHEDULE 1 is an amortization schedule,
which is for reference purposes only, is subject to change, as provided
hereunder. Such amortization schedule shall be amended, as necessary, to reflect
any change in the interest rate to be charged against the unpaid principal.
All payments received hereunder shall be first applied to the payment of
interest due hereunder, then to the payment of any other sums payable hereunder,
if any, and finally to the unpaid principal balance then remaining unpaid. The
principal balance, accrued and unpaid interest and any other sums payable
hereunder, may be prepaid in whole or in part at any time and from time to time
upon two (2) business days notice, without premium or penalty, PROVIDED the
accrued and unpaid interest on such prepaid principal amount is also paid.
Time is of the essence hereof. In the event of a default in the payment of any
amount when due hereunder, and Maker fails to make such payment within ten (10)
business days of the date it receives notice of such nonpayment from Holder, the
entire unpaid principal balance hereunder, including any subsequent advances
made hereunder by Holder, together with any accrued and unpaid interest may, at
the option of Holder, be declared immediately due and payable and such
accelerated amounts shall bear interest at the lesser of 18% per annum or the
highest rate then allowed by law, from the date of default until paid in full.
Maker, endorser(s) or any other person(s) liable hereunder waive delinquency in
collection, demand for payment, presentment for payment, protest, notice of
protest, notice of dishonor and all duty or obligation of Holder to effect,
protect, perfect, retain or enforce any security for payment of this Note or to
proceed against any collateral before otherwise enforcing this Note. This Note
shall be the joint and several obligation of Maker, endorser(s) or any other
person(s) liable hereunder and shall be binding upon them, their personal
representatives, heirs, successors and assigns. Furthermore, Maker, endorser(s)
or any other person(s) liable hereunder expressly agree that this Note and any
payment hereunder may be extended, by Holder, from time to time without in any
way affecting the liability of the Maker, endorser(s) or any other person(s)
liable hereunder.
Maker, endorser(s) or any other person(s) liable hereunder, jointly, severally
and unconditionally guarantee prompt payment when due, whether by acceleration
or otherwise, of the entire outstanding principal
1
<PAGE>
balance, all amounts of any subsequent advances made by Holder hereunder and all
accrued and unpaid interest hereunder and further agrees to immediately pay to
Holder upon demand, all losses, costs and expenses (including attorneys' fees)
incurred by Holder in collection and enforcement of this Note in the event of
default or otherwise.
Each Maker executing this Note represents and warrants that this Note is binding
upon the undersigned Maker in accordance with its terms, except to the extent
that enforcement of remedies may be limited by applicable bankruptcy,
insolvency, and other laws affecting the enforcement of creditors' rights
generally. Such undersigned Maker represents and warrants that the indebtedness
evidenced by this Note was incurred for business and commercial purposes and not
for personal, family, household or agricultural purposes.
If any interest rate, fee or cost provided for herein or in the other loan
documents shall exceed that which is allowed pursuant to any applicable statute
or law, such amount shall be deemed by the parties hereto to be modified so as
to conform to and equal the maximum amount allowed by such statute or law. All
sums paid hereunder in excess of those lawfully collectible as interest, fees or
costs shall, without further agreement or notice between or by any party hereto,
be applied toward reduction of the principal hereof with the same force and
effect as though such extra sums were specifically designated to be so applied
to principal and Holder had agreed to accept such extra payment as a
premium-free prepayment, or if there is then no outstanding principal
indebtedness owed to Holder by Makers hereunder, or if such outstanding
principal indebtedness is less than the amount to be applied as a reduction,
such excess shall be refunded by Holder to Makers.
In the event it should become necessary for Holder to employ counsel for advice
regarding any default under this Note and any of the other loan documents, or to
respond, intervene or otherwise become involved in any suit or proceeding
relating to this Note and/or the other loan documents, or to collect payment on
or enforce the obligations of this Note and/or under any of the other loan
documents, or to protect or foreclose on any of the collateral subject to the
security interest and liens given in connection herewith, Maker agrees to pay
upon demand reasonable attorneys' fees incurred by Holder for services of such
counsel, whether or not suit is brought, plus costs incurred in connection
therewith, including interest thereon at the default interest rate.
Payment and performance of all obligations under this note are secured by
security interests granted by Maker to Holder in the inventory, accounts
receivables, machinery, equipment, furniture and intangibles of Maker's Big O
Tires retail stores, and by a second deed of trust on certain leasehold property
in San Diego County, California, which is a Maker's Big O Tires retail stare at
499 A College Boulevard, Oceanside, California 92056.
The terms and provisions of this Note shall be construed and governed by the
laws of the State of California.
MAKER:
DATE:____________ C.S.B. PARTNERSHIP,
a California General Partnership,
DATE:____________ BY: C.E.P. Developments, Inc.,
a California corporation
as General Partner
BY:/S/Christopher R. Phillips
--------------------------
TITLE: PRESIDENT
-----------------------
2
<PAGE>
DATE: 2/29/96 BY: Someday, Inc.,
a California corporation
as General Partner
BY: /S/Ronald D. Asher
--------------------------
TITLE: PRESIDENT
-----------------------
DATE: BY: J.M.C., Inc.,
a California corporation
as General Partner
BY: /S/John Connelly
--------------------------
TITLE: PRESIDENT
-----------------------
DATE: BY: FOUR KYLES, INC.,
a California corporation
as General Partner
BY: /S/Virgil Kyle Kyle III
--------------------------
TITLE: PRESIDENT
-----------------------
COMAKERS:
Date: 1/2/96
/S/Christopher R. Phillips
---------------------------------------
Christopher R. Phillips, Individually
Date:
/S/Emiko J. Phillips
---------------------------------------
Emiko J. Phillips, Individually
Date: 12/29/95
/S/Ronald D. Asher
---------------------------------------
Ronald D. Asher, Individually
Date: 12/29/95
/S/Andria L. Asher
---------------------------------------
Andria L. Asher, Individually
Date: 1/2/96
/S/Virgil Kyle Kyle, III
---------------------------------------
Virgil Kyle Kyle, III, Individually
Date: 1/2/96
/S/Diane Kyle
---------------------------------------
Diane Kyle, Individually
Date: 1/3/96
/S/John L. Connelly
---------------------------------------
John L. Connelly, Individually
Date: 1/3/96
/S/Monika Connelly
---------------------------------------
Monika Connelly, Individually
3
<PAGE>
AUTHORIZATION AGREEMENT
FOR PREAUTHORIZED PAYMENT SERVICE
AGREEMENT:
I (or We if there are joint owners of the account referenced later in this
agreement) authorize and request the company named below, now referred to as the
Company, to obtain payment for amounts I (we) owe to the Company as these
amounts become due by initiating a payment entry to my (our) account. The
account number, name of financial institution, payment amount, and date on or
immediately after which payment should be deducted from the account are
identified below. In addition, I (we) authorize and request the financial
institution, now referred to as the Bank, to accept the payment entries
presented to the Bank and to deduct them from my (our) account without
responsibility for the correctness of these payments.
I (we) understand that this agreement can be terminated at any time as long as I
(we) have given either the Company or the Bank written notification. This
written notification to either the Company or Bank shall be effective for only
those payments to be issued by the Company or received by the Bank after they
either or both receive notification and have sufficient and reasonable
opportunity to act upon it.
I (we) understand that I (we) have all the rights shown below as these rights
relate to all payment entries initiated by the Company and to which this
agreement pertains.
I (we) understand that all payment entries initiated by the Company and covered
under this agreement are subject to the following:
If the amount of the initial payment entry initiated by the Company differs
from the amount of the previous entry initiated under this agreement, the
Company will send me (us) a written notification of this change in not less
than ten (10) calendar days before this payment amount will be deducted
from the account. In addition, if the Company makes any change in the date
of the billing cycle on which payment is to be deducted from the account,
the Company will send me (us) a written verification of the new date on or
after which payment entries will be deducted from the account. This
provision does not apply if my (our) authorization agreement is in effect
for a single payment entry to the account or if I (we) have agreed that
payment entries representing my (our) indebtedness may be deducted from the
account after such indebtedness has been incurred.
I (we) may, by notice to the Bank, stop payment of any payment entry
initiated or to be initiated by the Company to the account under this
agreement. Notice of such stop payment must be received by the Bank in
such a time and manner that will allow the Bank a reasonable time to act on
it and if my (our) notice is oral, it will be binding on the Bank for only
fourteen (14) calendar days unless I (we) confirm it in writing within this
period.
If a payment entry is erroneously initiated by the Company to the account,
I (we) will have the right to have the amount of this entry added back to
the account by the Bank if I (we) send or deliver a written notice to the
Bank within fifteen (15) calendar days following the date on which the Bank
sent or made available to me (us) a statement of account or notification
pertaining to the erroneous payment entry. My (our) written notice will
identify the payment entry, state that the payment entry was in error and
request the Bank to add the amount of the payment entry to the account
balance.
4
<PAGE>
COMPANY INFORMATION
Company Name: BIG O TIRES, INC. Customer Account No. _____
Payment Date: FEBRUARY 1, 1996 AND ON THE FIRST DAY OF EACH MANTH THEREAFTER
UNTIL PAID IN FULL.
Payment Amount: $3,375.00, NOTWITHSTANDING THE VARIABLE INTEREST RATE, AS
PROVIDED IN THE PROMISSORY NOTE.
YOUR BANK ACCOUNT INFORMATION
Bank Name: Liberty National Bank
--------------------------------------------
Bank Address: One Pacific Plaza, 7777 Center Avenue
-----------------------------------------
Huntington Beach, CA 92647
Please attach a voided check and we will complete this information for you.
Transit Routing Number: 1222239144 Checking Account Number: 001-047116
---------- ----------
Your Name(s) Christopher R. Phillips
--------------------------- ---------------------------
(Please Print) (Please Print)
Signature(s) /S/Christopher R. Phillips
--------------------------- ---------------------------
Date Signed 1/3/96
---------------------------
5
<PAGE>
Insert:
Attached to this promissory note as Schedule 1 is an amortization schedule based
on an original principal amount of $250,000.00, amortized over 120 months at an
annual rate of 10.5% (even though the Note provides for an interest rate of the
"Corporate Base Rate" charged by the primary commercial lender of Big O Tires,
Inc. plus 2%). As the Note reflects, the Schedule 1 is for reference purposes
only.
<PAGE>
SECURITY AGREEMENT AND PROMISSORY NOTE PLEDGE AGREEMENT
Dated: As of January ____, 1996
1. DEBTOR(S): C.S.B. PARTNERSHIP,
a California corporation
and their successors and assigns.
27131 Calle Arroyo
Suite 1703
San Juan Capistrano, California 92675
Telephone: (714) 443-4155
Tax I.D. - 33-0235374
DEBTOR'S BUSINESS(ES): Those certain Big O Franchise outlets as listed on
the attached EXHIBIT A.
2. PLEDGOR(S):
C.S.B. PARTNERSHIP,
a California corporation
Federal Tax I.D. #33-0235374
3. SECURED PARTY: BIG O TIRES, INC.,
a Nevada corporation
and its successors and assigns
11755 E. Peakview Avenue
Englewood, Colorado 80111
Telephone: (303) 790-2800
Telecopier: (303) 790-2800
4. COLLATERAL. The following property and all accessions thereto,
substitutions therefore and replacements thereto:
4.1. Promissory Note dated December 11, 1995, in the original
principal amount of $47,000.00, payable to the order of C.S.B.
Partnership, a California general partnership, Uni-Mech, Inc., a
California corporation, Maker, together with all proceeds
thereof. The original of the promissory note, duly endorsed in
blank by the Pledgor(s), has been delivered to Secured Party by
Pledgor(s) and Secured Party hereby acknowledges receipt thereof.
The pledged promissory note, together with any proceeds thereof
is hereinafter called the "Collateral".
5. OBLIGATIONS.
5.1. Any and all obligations of Debtor to Secured Party under that
certain promissory note dated as of January 1, 1996, in the
original principal amount of $250,000.00, payable to the order of
Secured Party, C.S.B. Partnership, Maker, and all other
agreements and instruments executed by Debtor and delivered to
Secured Party in consummating all transactions contemplated in
said promissory note;
5.2. All obligations, including, but not limited to, all franchise
fees, advertising fees, accounting fees, lease rentals, and other
fees, owed to Secured Party by Debtor;
1
<PAGE>
5.3. All amounts charged in invoices and billings of Secured Party for
purchases by Debtor of certain inventory, including tires, car
care products and related automotive goods, accessories and
equipment;
5.4. Future advances made and/or credit granted by Secured Party to
Debtor, plus interest thereon;
5.5. Pursuant to the terms of this Agreement, all expenditures of any
kind or nature made by Secured Party to preserve the Collateral,
including, but not limited to, all amounts paid to discharge
taxes, liens, security interests and any other encumbrances
against the Collateral or to otherwise preserve or maintain the
Collateral and all insurance thereon; and
5.6. All expenditures made or incurred by Secured Party pursuant to
the provisions of this Agreement, the Collateral, and all other
obligations of Debtor and/or Pledgor(s) to Secured Party, direct
or indirect, absolute or contingent, due or to become due,
whether existing or hereafter arising.
6. SECURITY INTEREST AND PLEDGE. To secure payment and performance of the
Obligations, Pledgor(s) hereby pledge(s) and grant(s) to Secured Party a
security interest in the Collateral and in all attachments, replacements
and accessions thereto and proceeds therefrom. Pledgor(s) hereby
warrant(s) and represent(s) that Pledgor(s) has/have, or forthwith will
acquire, title to the Collateral free and clear of all liens, security
interests and encumbrances. Contemporaneously with the execution and
delivery hereof, the Pledgor is delivering the original pledged note
representing the Collateral to the Secured Party. The Secured Party's
security interest in the Collateral is being granted as security only and
shall not affect or modify any obligation or liability of Debtor and/or
Pledgor(s).
7. WARRANTIES AND REPRESENTATIONS. Pledgor(s) warrant(s) and represent(s)
to Secured Party the following:
7.1. Except for the security interests created by this Agreement,
Pledgor(s) is/are the owner(s) of all of the Collateral, or will
be at the time such Collateral is created or acquired, free and
clear of all liens, security interests and encumbrances and any
rights to subscribe for or rights or options to purchase or
acquire the same;
7.2. Pledgor(s) is/are not and shall not become a party to or
otherwise be bound by any agreement, document or other instrument
(other than this Agreement) that restricts in any manner the
rights of any present or future holder of all or any part of the
Collateral.
7.3. The Assignment and granting of the security interest hereunder
represents a legally binding obligation of Pledgor(s), and, upon
delivery of the original of the promissory note, duly endorsed in
blank, representing the Collateral, shall constitute a valid,
effective, enforceable and perfected security interest in the
Collateral in favor of Secured Party. Furthermore, no
registration, recordation or filing with any governmental
authority is required in connection with the execution, delivery
or performance of this Agreement or necessary to establish the
validity, effectiveness or enforceability hereof or of the
security interest or for the perfection of the security interest.
Pledgor(s) has/have not performed and shall not perform any act
that might prevent the Secured Party from enforcing any of the
terms and conditions of this Agreement or that would limit the
Secured Party in any such enforcement;
7.4. Pledgor(s) agree(s) to warrant and defend Secured Party's right,
title, security interest in and assignment of Collateral and/or
any cash or property distributed thereunder;
7.5. Pledgor(s) has/have no undisclosed knowledge of any circumstances
or conditions with respect to the Collateral that could
reasonably be expected to adversely affect the value or
marketability of such Collateral;
7.6. The execution and delivery of this Agreement will not violate any
agreement to which Pledgor(s) is/are a party or, to the best of
Pledgor's knowledge, will not violate any law and/or agreement
governing Pledgor(s); and
2
<PAGE>
7.7. All information and statements with respect to Pledgor(s) on the
front of this Agreement are true and correct.
8. EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an event of default under this Agreement:
8.1. Default in the payment or performance of any of the Obligations
when due, after written notice of such default is provided to
Debtor by Secured Party and the applicable grace or cure period
has expired;
8.2. Failure of Debtor to perform or observe other covenants contained
in this Agreement or any other agreements or any other documents
or instruments evidencing an obligation of Debtor to Secured
Party, whether now or hereafter in existence, and Debtor fails to
cure such default(s) within the allotted time period after
receipt of written notice of such default(s) by Secured Party;
and
8.3. Any warranty, representation or statement of Pledgor(s) in this
Agreement, or by the Debtor in any other agreement, document or
instrument, or otherwise made or furnished to Secured Party by or
on behalf of Debtor, proves to have been false in any material
respect when made or furnished.
9. REMEDIES.
9.1. Upon the occurrence of any Event of Default and at any time
thereafter, Secured Party shall have, in addition to all other
rights and remedies, the remedies of a secured party under the
Uniform Commercial Code as then in effect in California ("UCC"),
regardless of whether the UCC applies to the security
transactions covered by this Agreement;
9.2. Upon the occurrence of any Event of Default and at any time
thereafter, the Secured Party, in its sole discretion, may assign
or transfer the whole or any part of the Obligations and may
transfer and deliver the whole or any part of the Collateral into
the name of any transferee and the transferee shall be vested
with all the rights and powers of Secured Party hereunder with
respect to the Collateral so transferred;
9.3. Upon the occurrence of any Event of Default and at any time
thereafter, the Secured Party shall have the right to receive and
retain as Collateral hereunder all payments and distributions
made upon or with respect to the Collateral and the Pledgor(s)
shall take all such actions and execute and deliver all such
instruments as the Secured Party may deem necessary or desirable
to give effect to such right;
9.4. Upon the occurrence of an Event of Default and at any time
thereafter, the proceeds of any sale of, or other realization
upon all or any part of the Collateral and any cash held by the
Secured Party on behalf of Debtor shall be applied by the Secured
Party in the following order of priorities: (i) to the payment
of the reasonable expenses of such sale or other realization
including reasonable compensation to the Secured Party and
Counsel, and all expenses, liabilities and advances incurred or
made by the Secured Party in connection therewith, and any other
unreimbursed expenses or other amounts for which the Secured
Party is to be reimbursed hereunder, (ii) to the ratable payment
in respect of accrued but unpaid interest, if any, on the
obligations; (iii) to the ratable payment in respect of due but
unpaid principal of any and all unpaid Obligations; and (iv) to
payment to the Pledgor or to its respective successors, or as a
court of competent jurisdiction may direct, or any surplus then
remaining from such proceeds.
9.5. It is further agreed and understood that no delay on the part of
Secured Party in exercising any of the rights hereunder shall
operate as a waiver of said rights, nor shall Secured Party be
liable to the undersigned for any delay in collecting or
realizing upon the Collateral or substitutes therefor or
additions thereto;
9.6. Secured Party may delay exercising or omit to exercise any right
or remedy under this Security Agreement without waiving that or
any other part, present or future right or remedy; and
3
<PAGE>
9.7. Upon payment in full of all Obligations of the Debtors to the
Secured Party, the Secured Party shall deliver the Collateral to
the Pledgor(s) and this Agreement shall terminate.
9.8. Upon the occurrence of an Event of Default and at any time
thereafter, the Secured Party shall have the right to the extent
permitted by law and the Pledgor(s) shall take all such action as
may be necessary or appropriate to give effect to such right, to
vote and to give consent, ratifications and waivers, and take any
other actions, with respect to any or all of the collateral with
the same force and effect as if the Secured Party were the
absolute and sole owner.
10. GENERAL.
10.1. The terms "Debtor(s)", "Debtor's Business", "Pledgor(s)",
"Secured Party", "Collateral" and "Obligations" are defined in
paragraphs 1,2,3,4 and 5;
10.2. No defaults shall be waived by Secured Party except in writing
and no waiver by Secured Party or other right under this
Agreement shall operate as a waiver of any other payment or
right;
10.3. Secured Party may assign or transfer its rights under this
Agreement to any transferee. Pledgor(s) hereby agree(s) that on
such assignment or other transfer, all rights, powers and
remedies of Secured Party hereunder shall belong to and be
exercisable by the transferee.
10.4. If there is more than one Pledgor(s), all of the terms and
conditions of this Agreement shall apply to each and any of them
jointly and severally;
10.5. Without affecting any obligations of Pledgor(s) under this
Agreement, Secured Party without notice or demand may renew or
extend the terms and conditions of any of the Obligations; take
or release any other collateral as security for any of the
Obligations, and add or release any guarantor, endorser, surety
or other party to any of the Obligations;
10.6. Beyond the exercise of reasonable care in the custody thereof,
and as otherwise provided in Section 9207 of the UCC, the Secured
Party shall have no duty as to any Collateral in its possession
or control or in the possession or control of any agent or bailee
or as to the preservation of rights against prior parties or any
other rights pertaining thereto. The Secured Party shall be
deemed to have exercised reasonable care in the custody and
preservation of the Collateral in their possession if the
Collateral is accorded treatment substantially equal to that
accorded by the Secured Party to their own property. The Secured
Party shall not be liable or responsible for any loss or damage
to any Collateral, or for any diminution in the value thereof, by
reason of the act or omission of any agent or bailee selected by
the Secured Party in good faith.
10.7. Any consent, notice or other communication required or
contemplated by this Agreement shall be in writing. It shall be
deemed given when hand delivered or three (3) days after deposit
in U.S. mail, if mailed, certified or registered U.S. mail,
return receipt requested, postage prepaid, to the other party at
the address given on the first page hereof or at such other
address given by notice as herein provided; or one (1) business
day after being sent via air express carrier, fare prepaid; or on
the business day or next following business day such item is
transmitted by telecopier; provided such consent, notice or other
communication is made to the respective addressee at the address
such party stated herein or as may be requested to the other in
writing to deliver;
10.8. All of the rights of Secured Party under this Agreement shall be
cumulative and shall inure to the benefit of its successors and
assigns. All obligations of Pledgor(s) hereunder shall be
binding upon the heirs, legal representatives, successors or
assigns of Pledgor(s);
4
<PAGE>
10.9. Any provision hereof contrary to, prohibited by, or invalid under
applicable laws or regulations shall be inapplicable and deemed
omitted herefrom, but shall not invalidate the remaining
provisions hereof. Pledgor(s) acknowledge(s) receipt of a true
copy and waives acceptance hereof;
10.10. This Agreement may be signed in one or more counterparts, each of
which shall have the effect of an original, but all such
counterparts shall be deemed one and the same agreement;
10.11. The Pledgor shall defend, indemnify and hold the Secured Party
harmless for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Secured Party in
any way relating to or arising out of this Agreement any other
related document or any other document contemplated by or
referred to herein or therein or the transactions contemplated by
or referred to herein or therein or the encroachment of any of
the terms hereof or thereof or otherwise arising or relating in
any manner to the pledges contemplated hereunder.
10.12. This Agreement shall be construed under, governed by and enforced
under the laws of the State of California; and
10.13. This Agreement represents the entire agreement and understanding
between Secured Party and Pledgor(s) and supersedes all prior
agreements relating to the subject matter hereof. Any
modification or amendments to this Agreement shall be in writing
and signed by the party to be charged.
10.14. Any sale or realization upon any Collateral shall operate to
divest all right, title and interest, at law or in equity against
the Pledgor(s) thereon and thereto, and shall be a perpetual bar
both at law and in equity against the Pledgor(s) and against any
and all persons claiming or attempting to claim the Collateral.
Date: 1/11/96
--------
PLEDGOR(S):
C.S.B. PARTNERSHIP,
a California general partnership
Federal Tax I.D. #33-0235374
By: C.E.P. Developments, Inc.,
a California corporation,
as general partner
33791 Glocamora Lane
San Juan Capistrano, California 92675
Federal Tax I.D.# 33-0255435
By: /s/Christopher R. Phillips
------------------------------------
Christopher R. Phillips, President
By: Someday, Inc.,
a California corporation,
as general partner
729 Red Arrow Trail
Palm Desert, California 92211
Federal Tax I.D.# 68-0127269
By: /s/Ronald D. Asher
-------------------------------
Ronald D. Asher, President
5
<PAGE>
By: Four Kyles, Inc.,
a California corporation,
as general partner
35 Ticknor Place
Laguna Miguel, California 92677
Federal Tax I.D.# 68-0193761
By: /s/Virgil Kyle Kyle, III
------------------------------------
Virgil Kyle Kyle, III, President
By: J.M.C., Inc.,
a California corporation,
as general partner
845 Sunningdale Drive
Oceanside, California 92056
Federal Tax I.D.# 33-0366139
By: /s/John Connelly
-------------------------------
John Connelly, President
6
<PAGE>
EXHIBIT A
27812 Aliso Creek Road 399 Broadway
Aliso Viejo, CA 92656 Chula Vista, CA 91910
1002 W. 6th Street 636 S. Santa Fe Drive
Corona, CA 91720 Vista, CA 92084
20742 Lake Forest Rd., #C3 499 College Blvd.
Lake Forest, CA 92630 Oceanside, CA 92056
40525 Winchester Rd. 3181 Harbor Blvd.
Temecula, CA 92590 Costa Mesa, CA 92626
23081 Orange Avenue 19411 Beach Blvd.
El Toro, CA 92630 Huntington Beach, CA 92647
6994 Broadway 1825 E. Katella Ave.
Lemon Grove, CA 92045 Orange, CA 92667
4596 El Cajon Blvd. 1211 W. Warner Avenue
San Diego, CA 92115 Santa Ana, CA 92727
927 N. El Camino Real 131 East First Street
San Clemente, CA 92672 Tustin, CA 92680
7
<PAGE>
SECURITY AGREEMENT
PARTNERSHIP INTERESTS
1. DEBTOR. Christopher R. Phillips and Emiko J. Phillips,
Trustees or Successor Trustees of the
Phillips Family Living Trust dated September 23, 1991,
a 20% partner in C.S.B. Properties
Christopher R. Phillips, Co-Trustee
S.S.# ###-##-####
Emiko J. Phillips, Co-Trustee
S.S.# ###-##-####
Ronald D. Asher and Andria L. Asher,
Trustees or Successor Trustees of the
Ronald D. Asher and Andria L. Asher Trust dated June 1, 1989,
a 20% partner in C.S.B. Properties
Ronald D. Asher, Co-Trustee
S.S.# ###-##-####
Andria L. Asher, Co-Trustee
S.S.# ###-##-####
John Lawrence Connelly, Individually,
a 20% partner in C.S.B. Properties
S.S.# ###-##-####
Virgil Kyle Kyle, III, Individually,
a 20% partner in C.S.B. Properties
S.S.# ###-##-####
and (his) (her) (its) (their) successors, assigns, heirs and
personal representatives
27131 Calle Arroyo
San Juan Capistrano, California 92675
Telephone #: (714) 443-4155
2. SECURED PARTY. BIG O TIRES, INC.,
a Nevada corporation
and its subsidiaries,
successors and assigns.
11755 East Peakview Avenue
Englewood, Colorado 80111
Telephone #: (303) 790-2800
Telecopier #: (303) 790-0225
3. COLLATERAL. Each of the Debtors' twenty percent (20%) partnership interest
in C.S.B. Properties, a California general partnership ("partnership"),
which in the aggregate totals eighty percent (80%) of the partnership
interests in the Partnership, which Partnership holds a ground leasehold
interest
1
<PAGE>
in that certain real property, and all improvements thereon, consisting of
a Big O Tires retail store, located at 499-A College Blvd., Oceanside,
California 92056, as more particularly described in EXHIBIT A to this
financing statement, attached hereto and made a part hereof, and any and
all proceeds thereof, accessions thereto, substitutions therefore and
replacements thereto, now owned or hereafter acquired.
4. LOCATION OF COLLATERAL. 27131 Calle Arroyo, Suite 1703
San Juan Capistrano, California 92675
5. PRIMARY USE OF COLLATERAL. The primary use of the Collateral is for
business purposes and not for personal, family or household purposes or
farming operations.
6. OBLIGATIONS.
6.1 Any and all obligations of C.S.B. Partnership, a California
general partnership (of which each of the Debtor's have equity
ownership in a corporation which is a partner in such
partnership, to Secured Party under that certain Promissory Note
dated January 1, 1996 in the original principal amount of
$250,000.00, payable to the order of Secured Party ("Note"), any
and all other loan documents and all other agreements and
instruments executed by C.S.B. Partnership and delivered to
Secured Party in consummating all transactions contemplated in
conjunction with the Note;
6.2 Future advances made by Secured Party to C.S.B. Partnership under
the Note, plus any interest thereon;
6.3 All expenditures of any kind or nature made by Secured Party to
preserve the Collateral, including, but not limited to, all
amounts paid to discharge taxes, liens, security interests and
any other encumbrances against the Collateral, and to repair any
damage to the Collateral or otherwise preserve or maintain the
Collateral and all insurance coverages thereon; and
6.4 All expenditures made or incurred by Secured Party pursuant to
the provisions of the Note and this Agreement, and all other
obligations of Debtor to Secured Party, direct or indirect,
absolute or contingent, due or to become due, whether now
existing or hereafter arising, including, but not limited to,
interest due to Secured Party hereunder or thereunder, and
attorneys' fees and costs incurred by Secured Party to enforce
any provision herein or therein.
7. SECURITY INTEREST. To secure payment and performance of any and all of the
Obligations to be performed by C.S.B. Partnership, Debtor hereby transfers,
conveys, grants and assigns to Secured Party a security interest in the
Collateral and in all improvements, attachments, additions, accessions and
replacements thereto and all proceeds and products therefrom. Debtor
warrants and represents that Debtor has, or forthwith will acquire, title
to the Collateral free and clear of all liens, security interests,
encumbrances and/or leases (except security interests, liens, encumbrances
and/or leases, if any, set forth in EXHIBIT B, attached hereto and
incorporated herein) and that Debtor has the right to transfer, grant,
convey and assign this security interest.
8. WARRANTIES AND REPRESENTATIONS OF DEBTOR. Debtor warrants and represents
to Secured Party the following:
8.1 Except for the security interest created by this Agreement and
any security interests liens, encumbrances and/or leases, if any,
set forth on EXHIBIT B, attached hereto and incorporated herein
by reference, Debtor is the owner of all of the Collateral, or
will be at
2
<PAGE>
the time such Collateral is created or acquired, free and clear
of all liens, security interests encumbrances and/or leases.
8.2 The transfer, conveyance, grant and assignment of the security
interest hereunder is valid and enforceable in accordance with
its terms and represents a legally binding obligation of debtor
and constitutes a security interest in the Collateral in favor of
Secured Party.
8.3 Debtor agrees to warrant and defend Secured Party's right, title,
security interest in and assignment of Collateral and/or any cash
or property distributed thereunder.
8.4 Debtor has no undisclosed knowledge of any circumstances or
conditions with respect to the Collateral that could reasonably
be expected to adversely affect the value or marketability of
such Collateral.
8.5 No financing statement covering any of the Collateral is on file
in any public office other than those which reflect the security
interest created by this Agreement and those set forth on EXHIBIT
B, if any.
8.6 The execution and delivery of this Agreement will not violate any
agreement to which Debtor is a party or to the best of Debtor's
knowledge, will not violate any law governing Debtor.
8.7 All information and statements with respect to Debtor on the
front page of this Agreement are true and correct.
9. COVENANTS OF DEBTOR. Unless and until Secured Party consents in writing to
another course of action, Debtor covenants and agrees to the following:
9.1 Debtor will not sell, assign, transfer, pledge, lease, abandon or
otherwise dispose of any of the Collateral or any interest
therein.
9.2 At the request of Secured Party, Debtor will from time to time
execute financing statements, and extensions and/or modifications
thereof and other documents in form satisfactory to Secured Party
(and pay the cost of filing or recording them in whatever public
offices Secured Party deems reasonably necessary) and perform
such other acts as Secured Party may reasonably request to
perfect and maintain a valid security interest in the Collateral.
9.3 Debtor will, upon an Event of Default hereunder, pay all expenses
and reimburse Secured Party for any expenditures, including
reasonable attorneys' fees and legal expenses, incurred in
connection with Secured Party's exercise of any of its rights and
remedies under this Agreement.
9.4 Debtor will defend, at Debtor's own cost and expense, any action,
1. proceeding or claim affecting the Collateral.
9.5 The Debtor agrees that the security interest granted by Debtor to
Secured Party shall remain in effect irrespective of the various
payments required by the obligation so long as there are any
Obligations of any kind, including Obligations under guarantees
or assignments, owed by C.S.B. Partnership to Secured Party;
provided, however, that upon any assignment of this Agreement by
Secured Party, that the assignee shall thereafter be deemed, for
the purpose of this paragraph, the Secured Party under this
Agreement.
3
<PAGE>
9.6 Debtor hereby acknowledges that the security interests granted
herein are to secure payment and performance of certain
obligations by an affiliated partnership, C.S.B. Partnership, and
that Debtors are providing these security interests by reason of
the fact that the Debtor will directly benefit from the
borrowings of C.S.B. Partnership.
10. EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an event of default under this Agreement:
10.1 Failure of C.S.B. Partnership to pay any of the Obligations when
due;
10.2 Failure of C.S.B. Partnership to perform or observe any other
covenant (after the applicable cure period has expired) contained
in this Agreement or any other documents or instruments
evidencing any obligation of C.S.B. Partnership to Secured Party,
whether now or hereafter in existence;
10.3 Any warranty, representation or statement of C.S.B. Partnership
in or any agreement, document or instrument, or otherwise made or
furnished to Secured Party by or on behalf of C.S.B. Partnership
proves to have been false in any material respect when made or
furnished;
10.4 Dissolution or termination of existence of Debtor without Secured
Party's consent; insolvency, business failure, appointment of a
receiver of any part of the property of, assignment for the
benefit of creditors by, or the commencement of any proceeding
under any bankruptcy or insolvency laws of, by or against, Debtor
or any guarantor or surety of Debtor of any of the Obligations.
10.5 The sale or transfer of Debtor's interest in Debtor's Business or
any part thereof, or interest therein, without the prior written
consent of Secured Party or the sale or transfer of the
partnership interests in Debtor without the prior written consent
of Secured Party.
11. RIGHTS AND REMEDIES OF SECURED PARTY.
11.1 Upon the occurrence of any event of default and at any time
thereafter, Secured Party shall have, in addition to all other
rights and remedies, the remedies of a secured party under the
Uniform Commercial Code as then in effect ("UCC"), regardless of
whether the UCC applies to the secured transactions covered by
this Agreement, including without limitation the right to
accelerate the maturity of the Obligations, without notice or
demand (except for such notices or demands required under the
terms of the Obligations), and to take possession of the
Collateral and any proceeds thereof wherever located. Debtor
shall assemble the Collateral and make the Collateral and all
records relating thereto available to Secured Party at a place to
be designated by Secured Party that is reasonably convenient for
both parties. If notice is required, Secured Party shall give to
Debtor at least five (5) days' prior written notice of the time
and place of any public sale of the Collateral or of the time
after which any private sale or any other intended disposition is
to be made.
11.2 During the time that Secured Party is in possession of the
Collateral, and to the extent permitted by law, Secured Party
shall have the right to hold, use, operate, manage and control
all or any part of the Collateral; to make all such repairs,
replacements, alterations, additions and improvements to the
Collateral as it may deem proper; and to demand, collect and
retain all earnings, proceeds from such use and all other costs,
expenses, charges, damage or loss by reason of such use.
4
<PAGE>
11.3 Secured Party shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral if it takes
such action for that purpose as Debtor shall request, but failure
to honor any such request shall not of itself be deemed a failure
to exercise reasonable care. Secured Party shall not be required
to take any steps necessary to preserve any rights in the
Collateral against prior parties nor to protect, preserve or
maintain any security interest given to secure any of the
Collateral.
11.4 After an Event of Default as set forth in SECTION 10 hereof,
Debtor hereby irrevocably appoints Secured Party as the attorney-
in-fact of the Debtor, with full powers of substitution and at
the cost and expense of Debtor, to reasonably exercise any of
the following powers with respect to any of the accounts;
a. Demand, sue for, collect and give receipts for any payments
due thereon or by virtue thereof;
b. Receive, take, endorse, assign and deliver chattel paper,
documents, instruments and all other property taken or
received by Secured Party in connection therewith;
c. Settle, compromise, compound, prosecute or defend any action
or proceeding with respect thereto;
d. Sell, transfer, assign or otherwise deal therein or
therewith as fully and effectually as if Secured Party were
the absolute owner thereof; and
e. Extend the time of payment thereof and make allowances and
other adjustments with reference thereof.
In exercising any power herein granted, Secured Party may act in
its name or the name of the Debtor. This power of attorney
appointment, being coupled with an interest, shall be
irrevocable.
11.5 If Secured party in good faith believes that any state or federal
law prohibits or restricts the customary manner of sale or
distribution of any of the Collateral, Secured Party may sell
such Collateral privately or in any other manner deemed
commercially reasonable by Secured Party at such price or prices
as Secured Party determines in its sole discretion. Debtor
recognizes that such prohibition or restriction may cause the
Collateral to have less value than it otherwise would have and
that, consequently, such sale or disposition by Secured Party may
result in a lower sales price than if the sale were otherwise
held.
11.6 To the extent allowed by law, Debtor shall pay Secured Party all
expenses of retaking, holding, preparing for sale, selling and
the like, including reasonable attorneys' fees and legal
expenses, and such costs shall be paid out of the proceeds of
disposition of the Collateral. Such proceeds may be applied to
the Obligations in any order of priority.
11.7 As a supplementary or additional remedy, Secured Party shall also
be entitled, without notice or demand and to the extent permitted
by law, to exercise or continue all of the rights granted to
Secured Party above and/or to have a receiver appointed, upon
EX-PARTE application, without notice to Debtor, to take charge of
all or any part of the Collateral, exercising all of the rights
granted to Secured Party above.
11.8 Secured Party may recover from Debtor any deficiency between the
amount due under any of the Obligations and the proceeds of such
sale or disposal together with all costs and expenses, including,
without limitation, reasonably attorneys' fees incurred or paid
by
5
<PAGE>
Secured Party in exercising any right, power or remedy provided
by this Security Agreement or by law.
11.9 Notwithstanding that which is granted and provided herein,
Secured Party shall be under no duty to exercise, or to withhold
the exercise of any of the rights, powers, privileges and options
expressly or implicitly granted to Secured Party under this
Agreement, and shall not be responsible for any failure to do so
or delay in doing so.
12. GENERAL.
12.1 The terms "Debtor," "Debtor's Business," "Secured Party,"
"Collateral" and "Obligations" are defined in PARAGRAPHS 1, 2, 3
AND 6. Where Debtor and the obliger on the Obligations are not
the same, the term "Debtor" herein means the owner of the
Collateral in any provision dealing with the Collateral, the
obligor in any provision dealing with the Obligations, and both
where the context so requires.
12.2 No defaults shall be waived by Secured Party except in writing
and no waiver of any payment or other right under this Agreement
shall operate as a waiver of any other payment or right.
12.3 Secured Party may assign or transfer its rights under this
Agreement to any transferee. Debtor hereby agrees that; (a) on
such assignment or other transfer, all rights, powers and
remedies of Secured Party hereunder shall belong to and be
exercisable by the transferee, and, on receipt of notice of such
assignment or other transfer, Debtor will tender performance of
Debtor's obligations hereunder, if requested, to such transferee
rather than to Secured Party; (b) upon delivery of Secured
Party's security interest in the Collateral to the transferee,
Secured Party shall thereafter be fully discharged from all
responsibility with respect to such Collateral; and (c) in any
action brought by the transferee against Debtor to recover any
sums under this Agreement or to recover possession of the
Collateral, Debtor will not assert as a defense, counterclaim,
set off, cross complaint, or otherwise, any claim, known or
unknown, which Debtor now has or hereafter acquires against
Secured Party.
12.4 If there is more than one Debtor, all of the terms and conditions
of this Agreement shall apply to each and any of them jointly and
severally.
12.5 Without affecting any Obligations of Debtor under this Agreement,
Secured Party without notice or demand may renew, extend or
otherwise change the terms and conditions of any of the
Obligations; take or release any other collateral as security for
any of the Obligations, and add or release any guarantor,
endorser, surety or other party to any of the Obligations.
12.6 Any notice, request, consent and demand which is required or
given hereunder shall be in writing and shall be deemed effective
and received (a) upon personal delivery to the proper party, (b)
on the day transmitted by telecopier, if on a business day, and
if not transmitted on a business day, the first business day
thereafter, to the proper party via the telecopier number stated
on the first page hereof, (c) three (3) business days after
deposit in the United States mail by registered or certified
mail, postage prepaid, return receipt requested, addressed to the
proper party at the address stated on the first page hereof, or
(d) one (1) business day after deposit with an air express
carrier, fare prepaid, addressed to the proper party at the
address stated on the first page hereof. Each of the parties
6
<PAGE>
hereto may designate such other address and/or telecopier number
as either of such parties may hereafter specify in writing to the
other party.
12.7 A carbon, photographic or other reproduction of this Agreement or
a financing statement shall be sufficient as a financing
statement.
12.8 All of the rights of Secured Party under this Agreement shall be
cumulative and shall inure to the benefit of its successors and
assigns. All obligations of Debtor hereunder shall be binding
upon the heirs, legal representatives, successors or assigns of
Debtor.
12.9 Any provision hereof contrary to, prohibited by, or invalid under
applicable laws or regulations shall be inapplicable and deemed
omitted herefrom, but shall not invalidate the remaining
provisions hereof. Debtor acknowledges receipt of a true copy and
waives acceptance hereof.
12.10 This Agreement may be signed in one or more counterparts, each of
which shall have the effect of an original, but all such
counterparts shall be deemed one and the same agreement.
12.11 This Agreement shall be construed under and governed by the laws
of the state of California.
12.12 This Agreement represents the entire agreement and understanding
between Secured Party and Debtor and supersedes all prior
agreements. Any modification or amendments to this Agreement
shall be in writing and signed by the party to be charged.
DATED: 1/11/96
------------
DEBTOR:
Christopher R. Phillips and Emiko J. Phillips,
Trustees or Successor Trustees of the
Phillips Family Living Trust dated September 23, 1991
Twenty Percent (20%) General Partner of C.S.B. Properties,
a California general partnership
33791 Glocamora Lane
San Juan Capistrano, California 92675
By: /s/Christopher R. Phillips
-------------------------------
Christopher R. Phillips, Co-Trustee
S.S.# ###-##-####
By: /s/Emiko J. Phillips
-------------------------------
Emiko J. Phillips, Co-Trustee
S.S.# ###-##-####
7
<PAGE>
Ronald D. Asher and Andria L. Asher,
Trustees or Successor Trustees of the
Ronald D. Asher and Andria L. Asher Trust dated June 1, 1989,
Twenty Percent (20%) General Partner of C.S.B. Properties,
a California general partnership
729 Red Arrow Trail
Palm Desert, California 92211
By: /s/Ronald D. Asher
-------------------------------
Ronald D. Asher, Co-Trustee
S.S.# ###-##-####
By: /s/Andria L. Asher
-------------------------------
Andria L. Asher, Co-Trustee
S.S.# ###-##-####
Connelly, John Lawrence, Individually
Twenty Percent (20%) General Partner of C.S.B. Properties,
a California general partnership
845 Sunningdale Drive
Oceanside, California 92056
By: /s/John Connelly
-------------------------------
John Lawrence Connelly
S.S. # ###-##-####
Acknowledgment and Consent of Spouse:
/s/Monika Connelly
-----------------------------------
Monika Connelly
S.S.# ###-##-####
Kyle, Virgil Kyle, III, Individually
Twenty Percent (20%) General Partner of C.S.B. Properties,
a California general partnership
35 Ticknor Place
Laguna Miguel, California 92677
By: /s/Virgil Kyle Kyle, III
-------------------------------
Virgil Kyle Kyle, III
S.S.# ###-##-####
Acknowledgment and Consent of Spouse:
/s/Diane Rose Kyle
-----------------------------------
Diane Rose Kyle
S.S.# ###-##-####
8
<PAGE>
SECURED PARTY:
DATED: BIG O TIRES, INC.,
--------
a Nevada corporation
BY: /s/John B. Adams
--------------------------------
John B. Adams, Executive Vice President
9
<PAGE>
EXHIBIT A
ALL THAT CERTAIN PROPERTY LOCATED IN THE COUNTY OF SAN DIEGO, STATE OF
CALIFORNIA MORE PARTICULARLY DESCRIBED AS FOLLOWS:
ALL THAT PORTION OF LOT 2, OF THE RANCHO GUAJOME, AS SHOWN ON THE PARTITION MAP
MADE AND FILED IN THE OFFICE OF THE COUNTY CLERK OF SAID SAN DIEGO COUNTY,
ATTACHED TO AND MADE A PART OF THE REFEREE'S REPORT IN ACTION IN PARTITION IN
SUPERIOR COURT OF SAN DIEGO COUNTY NO. 20201 WHEREIN SUSAN G. COOTS WAS
PLAINTIFF AND RICHARD O'NEIL, ET. AL. WERE DEFENDANTS, DESCRIBED AS FOLLOWS:
BEGINNING AT THE MOST WESTERLY CORNER OF SAID RANCHO; THENCE NORTH 32 DEG. 46'
06" EAST A DISTANCE OF 1361.89 FEET (RECORDED NORTH 32 DEG. 11' 10" EAST) ALONG
THE NORTHWESTERLY LINE THEREOF TO A POINT OF INTERSECTION WITH THE CENTER LINE
OF COUNTY ROAD SURVEY NO. 1294, SAID POINT BEGINS ON THE ARC OF A CURVE CONCAVE
SOUTHWESTERLY AND HAVING A RADIUS OF 2000.00 FEET; A RADIAL LINE TO SAID POINT
BEARS NORTH 34 DEG. 18' 14" EAST (RECORDED NORTH 33 DEG. 47' 50" EAST); THENCE
SOUTHEASTERLY ALONG THE ARC OF SAID CURVE AND ALONG THE CENTER LINE OF SAID ROAD
THROUGH A CENTRAL ANGLE OF 12 DEG. 39' 09" (RECORD 12 DEG. 38' 10") AN ARC
DISTANCE OF 441.66 FEET (RECORD 441.08 FEET); THENCE TANGENT TO SAID CURVE SOUTH
43 DEG. 02' 37" EAST, CONTINUING ALONG SAID CENTER LINE 69.96 FEET, (RECORD
SOUTH 43 DEG. 34' EAST, CONTINUING ALONG SAID CENTER LINE 70.64 FEET) TO THE
BEGINNING OF A TANGENT CURVE CONCAVE SOUTHWESTERLY AND HAVING A RADIUS OF
2000.00 FEET; THENCE SOUTHERLY ALONG THE ARC OF SAID CURVE. BEING THE CENTER
LINE OF SAID ROAD, THROUGH A CENTRAL ANGLE OF 37 DEG. 34' 03" (RECORD 37 DEG.
35") AN ARC DISTANCE OF 1311.41 FEET, (RECORD 3311.91 FEET); THENCE TANGENT TO
SAID CURVE, SOUTH 5 DEG. 28' 08" EAST, CONTINUING ALONG SAID CENTER LINE,
150.31 FEET, (RECORD SOUTH 5 DEG. 59' EAST, CONTINUING ALONG SAID CENTER LINE,
160.15 FEET) TO AN INTERSECTION WITH THE CENTER LINE OF STATE HIGHWAY NO. 135-1
(SAN LUIS HWY ROAD NO. 2); THENCE SOUTH 94 DEG. 32' 25" WEST ALONG THE CENTER
LINE OF SAID STATE HIGHWAY, 31.34 FEET (RECORD SOUTH 84 DEG. 01' WEST ALONG THE
CENTER LINE OF SAID STATE HIGHWAY, 28.32 FEET) TO THE BEGINNING OF A TANGENT
CURVE CONCAVE SOUTHERLY AND HAVING A RADIUS OF 2000.00 FEET; THENCE WESTERLY
ALONG THE ARC OF SAID CURVE AND ALONG THE CENTER LINE OF SAID STATE HIGHWAY,
THROUGH A CENTRAL ANGLE OF 7 DEG. 56' 11" (RECORD 8" 00') AN ARC DISTANCE OF
277.24 FEET (RECORD 279.25 FEET); THENCE TANGENT TO SAID CURVE, SOUTH 76 DEG.
35' 57" WEST 371.17 FEET, (RECORD SOUTH 76 DEG. 01' WEST 370.11 FEET) CONTINUING
ALONG SAID CENTER LINE, TO A POINT OF INTERSECTION WITH THE SOUTHWESTERLY LINE
OF SAID RANCHO; THENCE, LEAVING SAID CENTER LINE, NORTH 56 DEG. 27' 35" WEST,
(RECORD NORTH 57 DEG. 00' 50" WEST) ALONG THE SOUTHWESTERLY LINE OF SAID RANCHO
1197.84 FEET (RECORD 1137.00) TO THE MOST WESTERLY CORNER THEREOF AND THE POINT
OF BEGINNING.
EXCEPTING ALL OIL, GAS AND OTHER HYDROCARBONS AND MINERALS NOW AND HEREAFTER IN.
ON AND UNDER THAT PART OF SAID LAND LYING BELOW A DEPTH OF 500 VERTICAL FEET
BELOW THE SURFACE OF SAID LAND, BUT WITHOUT THE RIGHT OF ENTRY UPON SAID LAND,
OR WITHIN SAID TOP ?00 FEET THEREOF FOR ANY PURPOSES WHATSOEVER, AS RESERVED BY
EARNEST A. WATSON, ET. AL., IN DEED RECORDED FEBRUARY 25, 1964 AS FILE NO. 35207
AND IN DEED RECORDED FEBRUARY 25, 1964 AS FILE NO. 35208.
<PAGE>
SECURITY AGREEMENT AND STOCK PLEDGE AGREEMENT
Dated: As of January , 1996
----
1. DEBTOR(S): C.S.B. PARTNERSHIP,
a California corporation
and their successors and assigns.
27131 Calle Arroyo
Suite 1703
San Juan Capistrano, California 92675
Telephone: (714) 443-4155
Tax I.D. - 33-0235374
DEBTOR'S BUSINESS(ES): Those certain Big O Franchise outlets as listed on
the attached EXHIBIT A.
2. PLEDGOR(S):
C.S.B. PARTNERSHIP,
a California corporation,
Federal Tax I.D. #33-0235374
3. SECURED PARTY: BIG O TIRES, INC.,
a Nevada corporation
and its successors and assigns
11755 E. Peakview Avenue
Englewood, Colorado 80111
Telephone: (303) 790-2800
Telecopier: (303) 790-2800
4. COLLATERAL. The following property and all accessions thereto:
4.1. One thousand eight hundred eighty (1,880) shares of common stock of
Big O Tires, Inc., a Nevada corporation held by Pledgor(s) which
constitutes all of the issued and outstanding shares of all classes of
stock of Big O Tires, Inc. owned by Pledgor(s), as represented by
stock certificates numbered 11322 and 12520, and any substitutes or
additions to the stock, together with executed blank stock power
assignments, have been delivered to Secured Party by Pledgor(s) and
Secured Party hereby acknowledges receipt of said items.
5. OBLIGATIONS.
5.1. Any and all obligations of Debtor to Secured Party under that certain
promissory note dated as of January 1, 1996, in the original principal
amount of $250,000.00, payable to the order of Secured Party, C.S.B.
Partnership, Maker, and all other agreements and instruments executed
by Debtor and delivered to Secured Party in consummating all
transactions contemplated in said promissory note;
5.2. All obligations, including, but not limited to, all franchise fees,
advertising fees, accounting fees, lease rentals, and other fees, owed
to Secured Party by Debtor;
5.3. All amounts charged in invoices and billings of Secured Party for
purchases by Debtor of certain inventory, including tires, car care
products and related automotive goods, accessories and equipment;
1
<PAGE>
5.4. All promissory notes which Debtor and/or Pledgor(s) shall make in
favor of Secured Party from time to time pursuant to any franchise
agreements, any credit agreements or any other agreement or
arrangement between Secured Party and Debtor;
5.5. Future advances made and/or credit granted by Secured Party to Debtor,
plus interest thereon;
5.6. Pursuant to the terms of this Agreement, all expenditures of any kind
or nature made by Secured Party to preserve the Collateral, including,
but not limited to, all amounts paid to discharge taxes, liens,
security interests and any other encumbrances against the Collateral,
and to repair any damage to the Collateral or otherwise preserve or
maintain the Collateral and all insurance thereon; and
5.7. All expenditures made or incurred by Secured Party pursuant to the
provisions of the Franchise Agreement, any credit agreements, any
promissory notes and this Agreement, and all other obligations of
Debtor and/or Pledgor(s) to Secured Party, direct or indirect,
absolute or contingent, due or to become due, whether existing or
hereafter arising.
6. SECURITY INTEREST. To secure payment and performance of the Obligations,
Pledgor(s) hereby pledge(s) and grant(s) to Secured Party a security
interest in the Collateral and in all attachments, replacements and
accessions thereto and proceeds therefrom. Pledgor(s) hereby warrants and
represents that Pledgor(s) has, or forthwith will acquire, title to the
Collateral free and clear of all liens, security interests and
encumbrances. Contemporaneously with the execution and delivery hereof,
the Pledgor is delivering the certificates representing the Collateral to
the Secured Party, together with executed blank stock power assignments.
The Secured Party's security interest in the Collateral is being granted as
security only and shall not affect or modify any obligation or liability of
Debtor and/or Pledgor.
7. WARRANTIES AND REPRESENTATIONS. Pledgor(s) warrants and represents to
Secured Party the following:
7.1. Except for the security interests created by this Agreement,
Pledgor(s) is/are the owner(s) of all of the Collateral, or will be at
the time such Collateral is created or acquired, free and clear of all
liens, security interest and encumbrances and any rights to subscribe
for or rights or options to purchase or acquire the same (including
without limitation, through any securities convertible into or
exchangeable for any such pledged securities);
7.2. The Collateral has been duly authorized and validly issued and is
fully paid and non-assessable, and is subject to no option to purchase
for similar rights of any person. Pledgor(s) is/are not and shall not
become a party to or otherwise bound by any agreement, document or
other instrument (other than this Agreement) that restricts in any
manner the rights of any present or future holder of any part of the
Collateral with respect thereto.
7.3. The Assignment and granting of the security interest hereunder
represents a legally binding obligation of Pledgor(s), and, upon
delivery of the stock certificates representing the Collateral, shall
constitute a valid, effective, enforceable and perfected security
interest in the Collateral in favor of Secured Party. Furthermore,
upon delivery of the stock certificates no registration, recordation
or filing with any governmental authority is required in connection
with the execution, delivery or performance of this Agreement or
necessary to establish the validity, effectiveness or enforceability
hereof or of the security interest or for the perfection of the
security interest. Pledgor(s) has/have not performed and shall not
perform any act that might prevent the secured party from enforcing
any of the terms and conditions of this Agreement or that would limit
the secured party in any such enforcement;
7.4. Pledgor(s) agree(s) to warrant and defend Secured Party's right,
title, security interest in and assignment of Collateral and/or any
cash or property distributed thereunder;
2
<PAGE>
7.5. Pledgor(s) has/have no undisclosed knowledge of any circumstances or
conditions with respect to the Collateral that could reasonably be
expected to adversely affect the value or marketability of such
Collateral;
7.6. The execution and delivery of this Agreement will not violate any
agreement to which Pledgor(s) is a party or, to the best of Pledgor's
knowledge, will not violate any law or agreement governing Pledgor(s);
and
7.7. All information and statements with respect to Pledgor(s) on the front
of this Agreement are true and correct.
8. EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an event of default under this Agreement:
8.1. Default in the payment or performance of any of the Obligations when
due, after written notice of such default is provided to Debtor by
Secured Party and the applicable grace period has expired;
8.2. Failure of Debtor to perform or observe other covenants contained in
this Agreement, or any other agreements or any other documents or
instruments evidencing an obligation of Debtor to Secured Party,
whether now or hereafter in existence, and Debtor fails to cure such
default(s) within the allotted time period after receipt of written
notice of such default(s) by Secured Party;
8.3. Any warranty, representation or statement of Pledgor(s) on this
Agreement, or by the Debtor in any other agreement, document or
instrument, or otherwise made or furnished to Secured Party by or on
behalf of Debtor, proves to have been false in any material respect
when made or furnished; and
8.4. The sale or transfer of Pledgor's interest in the Collateral or any
part thereof, or interest therein, without the prior written consent
of Secured Party.
9. REMEDIES.
9.1. Upon the occurrence of any Event of Default and at any time
thereafter, Secured Party shall have, in addition to all other rights
and remedies, the remedies of a secured party under the Uniform
Commercial Code as then in effect in California ("UCC"), regardless of
whether the UCC applies to the security transactions covered by this
Agreement;
9.2. Upon the occurrence of any Event of Default and at any time
thereafter, the Secured Party, in its sole discretion, may assign or
transfer the whole or any part of the Obligations and may transfer and
deliver the whole or any part of the Collateral into the name of any
transferee and the transferee shall be vested with all the rights and
powers of Secured Party hereunder with respect to the Collateral so
transferred;
9.3. Upon the occurrence of any Event of Default and at any time
thereafter, the Secured Party shall have the right to receive and
retain as Collateral hereunder all dividends and other payments and
distributions made upon or with respect to the Collateral and the
Pledgor shall take all such actions and execute and deliver all such
instruments as the Secured Party may deem necessary or desirable to
give effect to such right;
9.4. Upon the occurrence of an Event of Default and at any time thereafter,
the proceeds of any sale of, or other realization upon all or any part
of the Collateral and any cash held by the Debtor shall be applied by
the Secured Party in the following order of priorities: (i) to the
payment of the reasonable expenses of such sale or other realization
including reasonable compensation to the Secured Party and Counsel,
and all expenses, liabilities and advances incurred or made by the
Secured Party in connection therewith, and any other unreimbursed
expenses or other amounts for which the Secured Party is to be
reimbursed hereunder, (ii) to the ratable payment in respect of
accrued but unpaid interest, if any, on the obligations; (iii) to the
ratable payment in respect of due but unpaid principal of any and all
other unpaid Obligations; and (iv) to
3
<PAGE>
payment to the Pledgor(s) or to its/their respective successors, or as
a court of competent jurisdiction may direct, or any surplus then
remaining from such proceeds.
9.5. It is further agreed and understood that no delay on the part of
Secured Party in exercising any of the rights hereunder shall operate
as a waiver of said rights, nor shall Secured Party be liable to the
undersigned for any delay in collecting or realizing upon the
Collateral or substitutes therefor or additions thereto;
9.6. Secured Party may delay exercising or omit to exercise any right or
remedy under this Security Agreement without waiving that or any other
part, present or future right or remedy; and
9.7. Upon payment in full of all Obligations of the Debtors to the Secured
Party, the Secured Party shall deliver the Collateral to the
Pledgor(s) and this Agreement shall terminate.
9.8. Upon the occurrence of an Event of Default and at any time thereafter
(whether or not any or all of the pledged securities have been
transferred of record into the secured parties names), the Secured
Party shall have the right to the extent permitted by law and the
Pledgor shall take all such action as may be necessary or appropriate
to give effect to such right, to vote and to give consent,
ratifications and waivers, and take any other actions, with respect to
any or all of the pledged securities with the same force and effect as
if the Secured Party were the absolute and sole owner.
10. GENERAL.
10.1. The terms "Debtor", "Debtor's Business", "Pledgor(s)", "Secured
Party", "Collateral" and "Obligations" are defined in paragraphs
1,2,3,4 and 5;
10.2. No defaults shall be waived by Secured Party except in writing
and no waiver by Secured Party or other right under this
Agreement shall operate as a waiver of any other payment or
right;
10.3. Secured Party may assign or transfer its rights under this
Agreement to any transferee. Pledgor(s) hereby agrees that on
such assignment or other transfer, all rights, powers and
remedies of Secured Party hereunder shall belong to and be
exercisable by the transferee.
10.4. If there is more than one Pledgor(s), all of the terms and
conditions of this Agreement shall apply to each and any of them
jointly and severally;
10.5. Without affecting any obligations of Pledgor(s) under this
Agreement, Secured Party without notice or demand may renew or
extend the terms and conditions of any of the Obligations; take
or release any other collateral as security for any of the
Obligations, and add or release any guarantor, endorser, surety
or other party to any of the Obligations;
10.6. Beyond the exercise of reasonable care in the custody thereof,
and as otherwise provided in Section 9207 of the UCC, the Secured
Party shall have no duty as to any Collateral in their possession
or control or in the possession or control of any agent or bailee
or as to the preservation of rights against prior parties or any
other rights pertaining thereto. The Secured Party shall be
deemed to have exercised reasonable care in the custody and
preservation of the Collateral in their possession if the
Collateral is accorded treatment substantially equal to that
accorded by the Secured Party to their own property. The Secured
Parties shall not be liable or responsible for any loss or damage
to any Collateral, or for any diminution in the value thereof, by
reason of the act or omission of any agent or bailee selected by
the Secured Party in good faith.
10.7. Any consent, notice or other communication required or
contemplated by this Agreement shall be in writing. It shall be
deemed given when hand delivered or three (3) days after deposit
in U.S. mail, if mailed, certified or registered U.S. mail,
return receipt requested, postage prepaid, to the other party at
the address given on the first page hereof or at such other
address given by notice as herein provided; or
4
<PAGE>
one (1) business day after being sent via air express carrier,
fare prepaid; or on the business day or next following business
day such item is transmitted by telecopier; provided such
consent, notice or other communication is made to the respective
addressee at the address such party may have requested the other
in writing to deliver;
10.8. All of the rights of Secured Party under this Agreement shall be
cumulative and shall inure to the benefit of its successors and
assigns. All obligations of Pledgor(s) hereunder shall be
binding upon the heirs, legal representatives, successors or
assigns of Pledgor(s);
10.9. Any provision hereof contrary to, prohibited by, or invalid under
applicable laws or regulations shall be inapplicable and deemed
omitted herefrom, but shall not invalidate the remaining
provisions hereof. Pledgor(s) acknowledges receipt of a true
copy and waives acceptance hereof;
10.10. This Agreement may be signed in one or more counterparts, each of
which shall have the effect of an original, but all such
counterparts shall be deemed one and the same agreement;
10.11. The Pledgor(s) shall defend, indemnify and hold the Secured Party
harmless for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Secured Party in
any way relating to or arising out of this Agreement any other
related document or any other document contemplated by or
referred to herein or therein or the transactions contemplated by
or referred to herein or therein or the encroachment of any of
the terms hereof or thereof or otherwise arising or relating in
any manner to the pledges contemplated hereunder.
10.12. This Agreement shall be construed under, governed by and enforced
under the laws of the State of California; and
10.13. This Agreement represents the entire agreement and understanding
between Secured Party and Pledgor(s) and supersedes all prior
agreements with regard to the subject matter hereof. Any
modification or amendments to this Agreement shall be in writing
and signed by the party to be charged.
10.14. Any sale or realization upon any Collateral shall operate to
divest all right, title and interest, at law or in equity against
the Pledgor thereon and thereto, and shall be a perpetual bar
both at law and in equity against the Pledgor and against any and
all persons claiming or attempting to claim the Collateral.
Date: 1/11/96
---------
PLEDGOR(S):
C.S.B. PARTNERSHIP,
a California general partnership
Federal Tax I.D. #33-0235374
By: C.E.P. Developments, Inc.,
a California corporation,
as general partner
33791 Glocamora Lane
San Juan Capistrano, California 92675
Federal Tax I.D.# 33-0255435
By: /S/CHRISTOPHER R. PHILLIPS
------------------------------------
Christopher R. Phillips, President
5
<PAGE>
By: Someday, Inc.,
a California corporation,
as general partner
729 Red Arrow Trail
Palm Desert, California 92211
Federal Tax I.D.# 68-0127269
By: /S/RONALD D. ASHER
--------------------------------------
Ronald D. Asher, President
By: Four Kyles, Inc.,
a California corporation,
as general partner
35 Ticknor Place
Laguna Miguel, California 92677
Federal Tax I.D.# 68-0193761
By: /S/VIRGIL KYLE KYLE III
--------------------------------------
Virgil Kyle Kyle, III, President
By: J.M.C., Inc.,
a California corporation,
as general partner
845 Sunningdale Drive
Oceanside, California 92056
Federal Tax I.D.# 33-0366139
By: /S/JOHN CONNELLY
--------------------------------------
John Connelly, President
6
<PAGE>
EXHIBIT A
27812 Aliso Creek Road 399 Broadway
Aliso Viejo, CA 92656 Chula Vista, CA 91910
1002 W. 6th Street 636 S. Santa Fe Drive
Corona, CA 91720 Vista, CA 92084
20742 Lake Forest Rd., #C3 499 College Blvd.
Lake Forest, CA 92630 Oceanside, CA 92056
40525 Winchester Rd. 3181 Harbor Blvd.
Temecula, CA 92590 Costa Mesa, CA 92626
23081 Orange Avenue 19411 Beach Blvd.
El Toro, CA 92630 Huntington Beach, CA 92647
6994 Broadway 1825 E. Katella Ave.
Lemon Grove, CA 92045 Orange, CA 92667
4596 El Cajon Blvd. 1211 W. Warner Avenue
San Diego, CA 92115 Santa Ana, CA 92727
927 N. El Camino Real 131 East First Street
San Clemente, CA 92672 Tustin, CA 92680
7
<PAGE>
STOCK POWER ASSIGNMENT
FOR VALUE RECEIVED, the undersigned does (do) hereby sell, assign and transfer
to:
- --------------------------------------------------------------------------------
[NAME OF TRANSFEREE]
Social Security or Tax Identifying Number :__________________________
shares of the capital stock of Big O Tires, Inc., a Nevada corporation, as the
same is evidenced on the attached stock certificate numbered 11322, standing in
the name of the undersigned on the books of said corporation. The undersigned
does (do) hereby irrevocably constitute and appoint:
___________________________ , attorney to transfer the said Stock on the books
of said company, with full power of substitution in the premises.
C.S.B. PARTNERSHIP,
a California General Partnership,
DATE: 1/11/96 BY: C.E.P. Developments, Inc.,
------- a California corporation
as General Partner
BY: /s/Christopher R. Phillips
--------------------------
TITLE: President
------------------------
DATE: 1/12/96 BY: Someday, Inc.,
------- a California corporation
as General Partner
BY: /s/Ronald D. Asher
--------------------------
TITLE: President
------------------------
DATE: 1/16/96 BY: J.M.C., Inc.,
------- a California corporation
as General Partner
BY: /s/John Connelly
--------------------------
TITLE: President
------------------------
DATE: 1/15/96 BY: FOUR KYLES, INC.,
------- a California corporation
as General Partner
BY: /s/Virgil Kyle Kyle,III
--------------------------
TITLE: President
------------------------
SIGNATURE)
GUARANTEED)
IMPORTANT - READ CAREFULLY
The signature(s) to this Power must correspond with the name(s) as written upon
the face of the Stock Certificate in every particular without alteration or
enlargement or any change whatever. Signature guarantee should be made by a
member or member organization of the New York Stock Exchange, members of other
Exchanges having signatures on file with transfer agents or by a commercial bank
or trust company.
<PAGE>
STOCK POWER ASSIGNMENT
- --------------------------------------------------------------------------------
FOR VALUE RECEIVED, the undersigned does (do) hereby sell, assign and transfer
to:
- --------------------------------------------------------------------------------
(NAME OF TRANSFEREE)
Social Security or Tax Identifying Number: ___________________________
shares of the capital stock of Big O Tires, Inc., a Nevada corporation, as the
same is evidenced on the attached stock certificate numbered 12520, standing in
the name of the undersigned on the books of said corporation.
The undersigned does (do) hereby irrevocably constitute and appoint:
__________________________________, attorney to transfer the said Stock on the
books of said company, with full power of substitution in the premises.
C.S.B. PARTNERSHIP.
a California General Partnership.
DATE: 1/11/96 BY: C.E.P. Developments, Inc.,
------- a California corporation
as General Partner
BY: /s/Christopher R. Phillips
--------------------------
TITLE: President
------------------------
DATE: 1/12/96 BY: Someday, Inc.,
------- a California corporation
as General Partner
BY: /s/Ronald D. Asher
--------------------------
TITLE: President
------------------------
DATE: 1/16/96 BY: J.M.C., Inc.,
------- a California corporation
as General Partner
BY: /s/John Connelly
--------------------------
TITLE: President
------------------------
DATE: 1/15/96 BY: FOUR KYLES, INC.,
------- a California corporation
as General Partner
BY: /s/Virgil Kyle Kyle,III
--------------------------
TITLE: President
------------------------
SIGNATURE)
GUARANTEED)
IMPORTANT - READ CAREFULLY
The signature(s) to this Power must correspond with the name(s) written upon the
face of the Stock Certificate in every particular without alternation or
enlargement of any change whatever. Signature guarantee should be made by a
member or member organization of the New York Stock Exchange, members of other
Exchanges having signatures on file with transfer agents or by commercial bank
or trust company.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
Big O Tire of Idaho, Inc.,
an Idaho corporation
Big O Retail Enterprises, Inc.,
a Colorado corporation
Big O Development, Inc.,
a Colorado corporation
O Advertising, Inc.,
a Colorado corporation
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-36802, Registration Statement No. 33-41875, and Registration
Statement No. 33-42021 of Big O Tires, Inc. on Forms S-8 of our report
dated March 14, 1996, appearing in this Annual Report on Form 10-K of
Big O Tires, Inc. for the year ended December 31, 1995.
/s/ Deloitte & Touche, LLP
DELOITTE & TOUCHE, LLP
Denver, Colorado
March 26, 1996
<PAGE>
EXHIBIT 25.1
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John B. Adams
and Philip J. Teigen, and each of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him in his
name, place and stead, in his capacity as an Officer, Director, or both, of Big
O Tires, Inc., a Nevada corporation ("Company"), to sign the Form 10-K Report of
the Company for the year-ended December 31, 1995, and any and all amendments
thereto and to file the same with the United States Securities and Exchange
Commission, granting on said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite necessary to be done in and about the premises, as fully to all agents
and purposes as he might or could do in person, hereby qualifying and confirming
all that said attorneys-in-fact or agents or any of them, or their or his
substitute or substitutes, may fully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
- --------- ------ -----
Executive Vice President,
/s/John B. Adams Chief Financial Officer 3/12/96
- ------------------------ and Director
John B. Adams
/s/Ronald D. Asher Director 3/6/96
- ------------------------
Ronald D. Asher
/s/Frank Carney Director
- ------------------------
Frank L. Carney
/s/Steven P. Cloward President and Director 3/13/96
- ------------------------
Steven P. Cloward
/s/Everett Johnston Director 3/18/96
- ------------------------
Everett H. Johnston
/s/Robert K. Lallatin Director March 5, 1996
- ------------------------
/s/H.K. Mehlfeldt Vice-Chairman and Director 3/12/96
- ------------------------
Horst K. Mehlfeldt
/s/John E. Siipola Chairman and Director 3/12/96
- ------------------------
John E. Siipola
/s/R.J. Weiger Director 3/5/96
- ------------------------
Ralph J. Weiger
<PAGE>
/s/C. Thomas Wernholm Director
- ------------------------
C. Thomas Wernholm
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