<PAGE>
CONFORMED
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1997 0-11579
TBC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 31-0600670
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4770 Hickory Hill Road
Memphis, Tennessee 38141
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (901)363-8030
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
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 ]
INDEX TO EXHIBITS at page 37 of this Report<PAGE>
Aggregate market value of outstanding shares
of Common Stock, par value $.10, held by
non-affiliates of the Company on December
31, 1997 (for purposes of this calcu-
lation, 1,793,923 shares beneficially
owned by directors and executive officers
of the Company were treated as being held
by affiliates of the Company)................. $204,337,744
Number of shares of Common Stock, par value $.10,
outstanding at the close of business on
December 31, 1997 ............................ 23,162,576
DOCUMENT INCORPORATED BY REFERENCE
TBC Corporation's Proxy Statement for its Annual Meeting of Stockholders
to be held on April 22, 1998. Definitive copies of the Proxy Statement
will be filed with the Commission within 120 days after the end of the
Company's fiscal year. Only such portions of the Proxy Statement as are
specifically incorporated by reference under Part III of this Report shall
be deemed filed as part of this Report.
_______________________
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PART I
Item 1. BUSINESS
TBC Corporation's business began in 1956 under the name Cordovan
Associates, Incorporated. The present company was incorporated in
Delaware in 1970 under the name THE Tire & Battery Corporation. In 1983,
the Company changed its name to TBC Corporation.
TBC Corporation and its wholly-owned subsidiaries are
principally engaged in the business of distributing tires and other
products in the automotive replacement market. Through its Big O Tires,
Inc. ("Big O") subsidiary, which was acquired on July 10, 1996, the
Company is also engaged in the business of franchising independent retail
tire and automotive service stores. On a limited basis, Big O also owns
and operates retail stores and engages in site selection and real estate
development for retail stores. Big O's retail stores are located
primarily in the Midwest and western United States. Unless the context
indicates otherwise, the term "Company" refers to TBC Corporation and all
of its subsidiaries.
Products
Sales of tires accounted for approximately 94% of the Company's
total sales in 1997, 88% in 1996 and 89% in 1995. The Company's tire
lines, substantially all of which carry the Company's proprietary brand
names, are made by leading manufacturers. The Company's Cordovan ("R" -
Registered Trademark), Multi-Mile (R) and Sigma (R) brand lines of tires
are three of the most complete lines in the replacement tire market,
including tires for passenger, truck, farm, industrial, recreational and
other applications. Big O (R) brand tires, as well as other tires sold
through Big O's retail stores, are primarily for passenger and light truck
applications. The Company is one of the largest wholesale distributors of
replacement tires in the United States.
Other brands under which the Company's products are marketed
include Grand Prix (R), Grand Am ("TM" - Trademark), Grand Spirit (R),
Wild Spirit (R), Grand Sport (R), Gran Esprit (TM), Aqua-Flow (R), Wild
Country (R), Wild Trac (R), Stampede (R), Power King (R), Harvest King (R),
Big Foot (R), Legacy (R), Prestige (R), and Sun Valley (R).
Through 1996, the Company's products also included automotive
parts lines such as batteries, wheels, ride-control products, filters,
brake parts and chassis parts. In December 1996, the Company announced
its decision to refocus operations on the replacement tire business and
discontinue the marketing of automotive parts lines to independent
distributors. In connection with this decision, the Company sold certain
assets of its former battery distribution subsidiary in December 1996 and
completed the remainder of the marketing and operational changes in early
1997. There was no impact on the products marketed and distributed by Big
O, which include wheels, ride-control products and certain other
automotive products, in addition to its tire lines. There was also no
impact on the Company's marketing of tubes to independent distributors.
-3-<PAGE>
Marketing and Distribution
The Company distributes its products other than those sold
through its Big O subsidiary ("TBC products"), through a network of
distributors located across the United States, Canada and Mexico. Some of
these distributors act as wholesalers, some as retailers and some as both
wholesalers and retailers. The retail outlets handling TBC products
consist primarily of independent tire dealers. The loss of any major
distributor of TBC products could have a material adverse effect upon the
Company's business, pending the Company's establishment of a replacement
distributor.
Big O distributes its products principally through its
franchised independent retail tire and automotive service stores. At
December 31, 1997, Big O had a total of 415 stores in the United States,
including 399 franchisee-owned stores, three joint venture stores and 13
company-owned stores. Big O also distributes its products to 36
unaffiliated retail stores in British Columbia, Canada.
Big O franchise agreements grant a ten-year license to sell
Big O (R) brand tires and to use Big O trademarks and trade secrets in
the operation of a retail store at a specific location within a defined
trade area. Each franchisee is required to pay an initial franchise fee
as well as monthly royalty fees.
Major Customers
The Company's ten largest customers accounted for 44% of the
Company's gross sales in 1997. Sales to Les Schwab Warehouse Center,
Inc., Prineville, Oregon, represented 11% of the Company's gross sales in
1997. Sales to Carroll's, Inc., Hapeville, Georgia, excluding sales to
distributors which operate under arrangements with and may pay
compensation to Carroll's, also represented 11% of the Company's gross
sales in 1997. No other customers individually accounted for more than
10% of the Company's 1997 gross sales. See Item 13 of this Report for
additional information concerning major customers.
Suppliers
The Company purchases its products, in finished form, from a
number of major rubber companies and other suppliers to the automotive
replacement market. The Company owns the brand names under which most of
its products are sold and, in the case of tires, many of the molds in
which they are made.
The Kelly-Springfield Tire Company, a division of Goodyear Tire
and Rubber Company, has been a supplier to the Company since 1963. Kelly-
Springfield manufactured more than half of the tires purchased by the
Company in 1997, pursuant to a supply agreement entered into in 1977 and a
10-year commitment signed in 1994. The Company also has a 10-year supply
agreement, signed in 1994, with Cooper Tire and Rubber Company, its
second-largest supplier. In addition, the Company has written contracts
with certain other suppliers.
The Company has not heretofore experienced any difficulty in
purchasing products in quantities needed by it, but there can be no
assurance that such difficulties will not be encountered in the
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future. If one of its two largest suppliers became unavailable, the
Company's business could be adversely affected, pending the establishment
of new, alternate suppliers. There are a number of other large tire manu-
facturers on a worldwide basis.
Trademarks
Substantially all of the Company's products carry the Company's
own brand names, as previously set forth.
The ability to offer products under established trademarks
represents an important marketing advantage in the automotive replacement
industry, and the Company regards its trademarks as valuable assets of its
business. The Company holds federal registrations for substantially all
of its trademarks.
Seasonality and Inventory
The Company normally experiences its highest level of sales in
the second and third quarters of each year, with the first quarter
exhibiting the lowest level. Since 1993, first quarter sales have
represented, on the average, approximately 23% of annual sales;
the second and third quarters approximately 25% and 28%, respectively;
and the fourth quarter approximately 24%. The Company's inventories
generally fluctuate with anticipated seasonal sales volume.
Orders for the Company's products are usually placed with the
Company by computer transmission, facsimile or telephone. Orders are
filled either out of the Company's inventory or by direct shipment to the
customer from the manufacturers' plants at TBC's request.
Since distributors and franchisees look to the Company to
fulfill their needs on short notice, the Company maintains a large
inventory of products. The average of beginning and end-of-year
inventories was $78,000,000 in 1997. The Company's inventory turn rate
(cost of sales, including the cost of direct shipments from manufacturers
to customers, divided by average inventory) was 7.0 for 1997.
Competition
The industry in which the Company operates is highly competitive,
and many of the Company's competitors are significantly larger and have
greater financial and other resources than the Company. The Company's
competitors include its own suppliers and other tire manufacturers, as
well as other wholesale tire distributors. The Company also competes
against chain and department stores, warehouse clubs, oil companies and
other tire and automotive product retailers. The Company believes it is
able to compete successfully in its industry because of its ability to
offer quality products under proprietary brand names, its efficient
distribution systems, and its good relationships with distributors,
franchisees and suppliers.
Employees
As of December 31, 1997, the Company employed 585 persons.
The Company considers its employee relations to be satisfactory.
The Company's employees are not represented by a union.
-5-<PAGE>
Item 2. PROPERTIES
TBC Corporation's executive offices are located in Memphis,
Tennessee. Warehouse distribution facilities for TBC products, which
total approximately 1,300,000 square feet under roof, are also located in
Memphis. The Company owns the executive office building and one of its
warehouses. One TBC warehouse is leased under an agreement expiring in
2005 and two other TBC warehouses are leased under agreements expiring in
2000. The Company's Northern States Tire, Inc. subsidiary owns facilities
in New Hampshire, Vermont and Maine.
Big O leases its executive offices, which are located in
Englewood, Colorado. Big O owns its warehouse distribution facilities,
which total approximately 480,000 square feet and are located in Boise,
Idaho, New Albany, Indiana and Henderson, Nevada. Big O also owns certain
retail store locations.
Item 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings which are
routine to the conduct of its business, none of which is believed to be
material to the Company. Some of these proceedings involve personal injury
lawsuits based upon alleged defects in products sold by the Company. The
Company believes that in substantially all such product liability cases, it
is covered by its manufacturers' indemnity agreements or product liability
insurance. The Company also maintains its own product liability insurance.
See Note 6 to the consolidated financial statements for informa-
tion with respect to pending legal proceedings relative to the collection
of a promissory note receivable held by the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table presents certain information concerning the
executive officers of the Company. The term of office of all executive
officers of the Company is until the next Annual Meeting of Directors
(April 22, 1998) or until their respective successors are elected.
-6-<PAGE>
Capacities in which
Individual Serves
Name Age the Company
Louis S. DiPasqua 63 President and Chief
Executive Officer
Bob M. Hubbard 63 Executive Vice President
Purchasing and Engineering
Kenneth P. Dick 51 Senior Vice President
Sales
Ronald E. McCollough 57 Senior Vice President
Operations and Treasurer
Barry D. Robbins 55 Senior Vice President
Strategic Planning
Larry D. Coley 40 Vice President and
Controller
Mr. DiPasqua has been Chief Executive Officer since July 1994,
and President since joining the Company in 1991. Mr. DiPasqua has been a
director since 1991 and served as the Company's Chief Operating Officer
from 1991 until July 1994. Prior to joining the Company, Mr. DiPasqua was
an executive with the Goodyear Tire & Rubber Company. During his 28 years
at Goodyear, Mr. DiPasqua held a variety of positions, including Vice
President of Replacement Tire Sales and Marketing, President and Chief
Executive Officer of Kelly Springfield Tire Company (a division of
Goodyear) and Chairman and Managing Director of Goodyear Great Britain.
Mr. Hubbard was named Executive Vice President Purchasing and
Engineering of the Company in December 1997. Mr. Hubbard served as Senior
Vice President Purchasing and Engineering from 1982 until being named
Executive Vice President. From 1973 to 1982, Mr. Hubbard served as Vice
President Purchasing and Quality Assurance of the Company.
Mr. Dick has served as Senior Vice President Sales of the Company
since 1988. From 1982 until his election as Senior Vice President, Mr.
Dick served as Vice President Sales of the Company. Mr. Dick joined the
Company in 1971, and from 1980 until 1982, served as Sales Manager of the
Company.
Mr. McCollough has been Senior Vice President Operations of the
Company since 1982 and Treasurer since May 1996. Mr. McCollough served as
Controller of the Company from 1973 to 1985 and as Vice President
Operations from 1978 until his election as a Senior Vice President.
-7-<PAGE>
Mr. Robbins joined the Company as Senior Vice President Strategic
Planning in June 1996. From 1995 until joining the Company, Mr. Robbins
was President and Chief Executive Officer of Tire Alliance Groupe. Prior
to 1995, Mr. Robbins had been continuously employed by Goodyear Tire &
Rubber Company and its subsidiaries in a number of management and other
positions since 1968.
Mr. Coley has been a Vice President of the Company since 1993 and
the Controller of the Company since 1989. Prior to that, Mr. Coley was
the Company's Manager of Financial Reporting.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company is traded on The Nasdaq Stock
Market under the symbol TBCC. As of December 31, 1997, the Company had
approximately 4,800 stockholders based on the number of holders of record
and an estimate of the number of individual participants represented by
security position listings. The Company did not declare any cash
dividends during 1997 or 1996.
The following table sets forth for the periods indicated the
high and low sale prices for the Company's Common Stock on the Nasdaq
National Market System.
Price Range
High Low
Quarter ended
03/31/96............ 8.63 6.38
06/30/96............ 9.13 6.63
09/30/96............ 8.75 6.38
12/31/96............ 8.38 5.25
03/31/97............ 9.94 7.00
06/30/97............ 10.00 6.75
09/30/97............ 9.75 7.38
12/31/97............ 11.00 9.00
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Item 6. SELECTED FINANCIAL DATA
Set forth below is selected financial information of the
Company for each year in the five-year period ended December 31, 1997.
The selected financial information should be read in conjunction with the
consolidated financial statements of the Company and notes thereto which
appear elsewhere in this Report. Specific reference should be made to the
discussion of the 1996 acquisition of Big O Tires, Inc. in Note 3 to the
consolidated financial statements. The Company did not declare any cash
dividends during the five-year period ended December 31, 1997.
Year ended December 31,
1997 1996 1995 1994 1993
INCOME STATEMENT DATA (1):
Net sales ................ $642,852 $604,585 $547,785 $563,661 $580,104
Net income ............... 19,700 15,499 15,249 19,546 21,375
Earnings per share (2) ... .84 .65 .62 .71 .74
Average shares
outstanding .......... 23,466 23,793 24,583 27,551 28,758
BALANCE SHEET DATA (1):
Total assets ............. $262,141 $253,882 $179,952 $169,682 $166,746
Working capital .......... 130,414 117,980 76,600 91,279 95,114
Long-term debt ........... 67,647 69,550 555 - -
Stockholders' equity ..... 134,187 119,805 104,823 113,983 116,550
(1) In thousands except per share amounts.
(2) Basic and assuming dilution.
-9-<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1997 Compared to 1996:
As a result of the Company's acquisition of Big O Tires, Inc. on
July 10, 1996 (see Note 3 to the consolidated financial statements), there
were a number of significant changes in income statement items between the
years 1997 and 1996. Additionally, the impact of the Company's decision
in December 1996 to discontinue the marketing of automotive parts, except
those sold through Big O, affected the comparison of year-to-year
results. Included in the 1996 operating results were $2.4 million in
pre-tax charges related to this decision. The discontinued product lines
comprised approximately 6.5% of net sales in 1996. (See Note 14 to the
consolidated financial statements.)
Net sales for 1997 increased 6.3% from the 1996 level, with Big
O contributing an additional $75.3 million in net sales. Sales of tires
accounted for approximately 94% of total sales in 1997 compared to 88% in
1996. The increased percentage of tire sales was the result of the above-
mentioned decision to discontinue the marketing of certain non-tire
products to TBC's independent distributors. Excluding the contribution by
Big O, TBC's unit tire volume increased 2.9% compared to the 1996 level.
The average tire sales price excluding Big O declined 1.7%, due
principally to industry-wide price discounting that was prevalent
throughout much of 1996 and 1997.
Cost of sales as a percentage of net sales decreased from 87.4%
in 1996 to 84.6% in 1997, due largely to the full-year effect of the Big O
acquisition, including the positive impact on the Company's overall
sourcing strength. In addition, an increase in the percentage of
shipments through the Company's distribution facilities rather than direct
from manufacturers affected the comparison to 1996 results. Gross margin
percentages on shipments through the Company's own facilities are
typically higher than on shipments direct from manufacturers, since sales
prices are generally higher to help offset the incremental costs of
distribution.
Distribution expenses increased $6.5 million in 1997 compared to
1996. The increase was principally due to the inclusion of additional
warehousing and product delivery expenses at Big O of $5.1 million. The
increase was also due in part to the above-noted increase in the percentage
of TBC's shipments through the Company's distribution facilities.
Selling and administrative expenses increased $8.9 million in
1997 compared to 1996, due primarily to the inclusion of additional Big O
expenses of approximately $9.8 million. The 1997 increase was also
affected by a charge of $810,000 associated with an early retirement
program accepted by certain employees. Expenses in 1996 included charges
of approximately $700,000 related to the decision to discontinue selling
automotive parts to TBC's independent distributors. Excluding these
items, selling and administrative expenses were reduced by $1.0 million in
1997.
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Interest expenses increased $1.7 million compared to the 1996
level. The full-year impact of the long-term borrowings incurred to
finance the Big O acquisition resulted in increased interest in 1997.
This more than offset an $887,000 reduction in interest on short-term
borrowings related to lower borrowing levels.
Net other income was higher in 1997 than in 1996, due primarily
to greater interest income and an increase in the equity in earnings from
the Company's joint ventures.
The Company's effective tax rate decreased from 39.0% in 1996 to
37.6% in 1997. The lower effective rate reflects a reduction in TBC's
state taxes, as well as the impact of certain other 1997 tax reductions.
1996 Compared to 1995:
Net sales for 1996 were $604.6 million, a 10.4% increase from
1995 net sales of $547.8 million. The increase was due principally to the
addition of sales by Big O, which was acquired July 10, 1996. Sales of
tires accounted for approximately 88% of total sales in 1996 compared to 89%
in 1995. Excluding the contribution by Big O, sales of tires declined 2.4%,
due principally to industry-wide price discounting throughout much of 1996
which caused average tire sales prices to be 3.7% lower than in 1995. TBC's
unit tire volume (excluding Big O) increased 1.3% in 1996 compared to the
1995 level.
Cost of sales as a percentage of net sales decreased from 89.2%
in 1995 to 87.4% in 1996, due to the positive effects of the Big O
acquisition, including the Company's improved overall sourcing strength.
In addition, a shift in the Company's sales toward shipments through the
Company's distribution facilities rather than direct from manufacturers
affected the year-to-year comparison.
Distribution expenses increased $5.5 million in 1996 compared to
1995, due primarily to Big O warehousing and product delivery expenses
totaling $3.9 million since the acquisition date. Approximately
$643,000 of the increase was associated with the addition of certain
facilities in the northeastern United States in September 1995. The 1996
increase was also related in part to the above-noted increase in the
percentage of TBC's shipments through its own distribution facilities.
Selling and administrative expenses increased $10.2 million in
1996 compared to 1995, due principally to expenses for Big O of approx-
imately $7.1 million since the July 10, 1996 acquisition date. Expenses
in 1996 included charges of approximately $700,000 related to the decision
to discontinue selling automotive parts to TBC's independent distributors.
Increased expenses of $1.6 million were attributable to the facilities
added in the northeastern United States in September 1995. The remainder
of the increase in selling and administrative expenses was principally
related to salary increases and related expenses.
Interest expenses increased $1.0 million compared to the 1995
level. Interest on the additional long-term borrowings required to
finance the Big O acquisition totaled $2.2 million in 1996, but was
partially offset by the effect of reduced short-term borrowing levels.
Net other income was higher in 1996 than in 1995, due primarily
to income from the settlement of a trademark infringement matter.
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The Company's effective tax rate increased from 38.4% in 1995 to
39.0% in 1996. The increased effective rate reflected the impact of the
Big O acquisition, due to the additional goodwill amortization and greater
overall state tax burden.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position and liquidity remain strong,
with working capital of $130.4 million at December 31, 1997 compared to
$118.0 million at the end of 1996. The Company's current ratio was 3.47
at the end of 1997 compared to 3.18 at December 31, 1996.
The Company's short-term borrowing agreements consist of a one-
year committed bank facility and a three-year committed bank facility,
which allow the Company to borrow up to $51.5 million. The unused amount
under these facilities at December 31, 1997 was $28.4 million. Long-term
debt totaled $68.3 million at December 31, 1997, of which $690,000 was
current and the remainder was due after one year. Of the total long-term
debt, $60 million was incurred to finance the 1996 acquisition of Big O.
Capital expenditures, primarily for equipment and tire molds,
totaled $9.1 million in 1997 and $5.3 million in 1996. The Company had
no material commitments for capital expenditures at the end of 1997. The
Company expects to fund 1998 day-to-day operating expenses and normally
recurring capital expenditures out of operating funds and its present
financial resources. The Company believes that the combination of its net
assets, committed bank facilities and expected funds from operations will
be sufficient to operate on both a short-term and long-term basis.
Cash generated by operations, together with the available credit
arrangements, enabled the Company to fund stock repurchases totaling $5.7
million in 1997 and $634,000 in 1996, as well as the above-mentioned
capital expenditures. As of December 31, 1997, the Company had unused
authorizations from the Board of Directors for the repurchase of
approximately 2,011,000 additional shares of common stock.
Accounts and notes receivable decreased from $85.8 million at
December 31, 1996 to $77.3 million at the end of 1997, due principally to
improved receivable turnover. Inventories increased from $71.1 million at
the end of 1996 to $84.8 million at December 31, 1997, due to the addition
of a number of new lines and sizes of tires during 1997 and to the effect
of less-than-anticipated sales demand during the fourth quarter of 1997.
Included in other assets at December 31, 1997 and 1996 is a
promissory note receivable of $4,897,000 from a former distributor. (See
Note 6 to the Consolidated Financial Statements for a discussion of the
legal proceedings relative to that receivable.)
The Company is addressing any "Year 2000" issues and does not
believe that the costs will be significant.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial informa-
tion required by this Item 8 are included on the following 17 pages of
this Report.
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
TBC Corporation
We have audited the accompanying consolidated balance sheets of
TBC Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997.
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, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of TBC Corporation and Subsidiaries as of December 31, 1997 and
1996, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Memphis, Tennessee
January 30, 1998
-13-<PAGE>
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
December 31,
1997 1996
CURRENT ASSETS
Cash and Cash Equivalents $ 917 $ -
Accounts and notes receivable, less
allowance for doubtful accounts
of $7,344 in 1997 and $8,879 in 1996:
Related parties 15,072 18,362
Other 62,267 67,444
Total accounts and notes receivable 77,339 85,806
Inventories 84,806 71,102
Refundable federal and state income taxes 2,489 -
Deferred income taxes 4,863 6,716
Other current assets 12,784 8,409
Total current assets 183,198 172,033
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land and improvements 5,604 5,285
Buildings and leasehold improvements 23,167 21,691
Furniture and equipment 29,455 25,929
58,226 52,905
Less accumulated depreciation 21,967 17,818
Total property, plant and equipment 36,259 35,087
TRADEMARKS, NET 17,337 17,787
GOODWILL, NET 14,628 14,900
OTHER ASSETS 13,526 14,075
TOTAL ASSETS $264,948 $253,882
The accompanying notes are an integral part of the financial
statements.
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TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1997 1996
CURRENT LIABILITIES
Outstanding checks, net $ 3,237 $ 559
Notes payable to banks 22,496 21,092
Current portion of long-term debt 690 1,537
Accounts payable, trade 10,879 16,761
Federal and state income taxes payable - 106
Other current liabilities 15,482 13,998
Total current liabilities 52,784 54,053
LONG-TERM DEBT, LESS CURRENT PORTION 67,647 69,550
NONCURRENT LIABILITIES 2,876 2,753
DEFERRED INCOME TAXES 7,454 7,721
STOCKHOLDERS' EQUITY
Common stock, $.10 par value,
shares issued and outstanding -
23,163 in 1997 and 23,727 in 1996 2,316 2,373
Additional paid-in capital 9,788 9,624
Retained earnings 122,083 107,808
Total stockholders' equity 134,187 119,805
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $264,948 $253,882
The accompanying notes are an integral part of the financial
statements.
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TBC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years ended December 31,
1997 1996 1995
NET SALES* $642,852 $604,585 $547,785
COSTS AND EXPENSES
Cost of sales 544,119 528,610 488,717
Distribution 31,479 24,933 19,461
Selling and administrative 33,218 24,294 14,073
Interest expense 5,796 4,115 3,110
Other (income) expense - net (3,347) (2,766) (2,348)
Total costs and expenses 611,265 579,186 523,013
INCOME BEFORE INCOME TAXES 31,587 25,399 24,772
PROVISION FOR INCOME TAXES 11,887 9,900 9,523
NET INCOME $ 19,700 $ 15,499 $ 15,249
EARNINGS PER SHARE -
Basic and assuming dilution $ .84 $ .65 $ .62
* Including sales to related parties of $138,511, $137,219 and $130,215 in
the years ended December 31, 1997, 1996 and 1995, respectively.
The accompanying notes are an integral part of the financial statements.
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TBC CORPORATION
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
Years ended December 31, 1995, 1996 and 1997
<CAPTION>
Common Stock Additional
Number of Paid-In Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 26,282 $2,628 $10,391 $100,964 $113,983
Net income for year 15,249 15,249
Issuance of common stock
under stock option and
incentive plans, net 19 2 132 - 134
Repurchase and retirement
of common stock (2,517) (252) (1,002) (23,311) (24,565)
Tax benefit from exercise of
stock options - - 22 - 22
BALANCE, DECEMBER 31, 1995 23,784 2,378 9,543 92,902 104,823
Net income for year 15,499 15,499
Issuance of common stock
under stock option and
incentive plans, net 24 3 114 - 117
Repurchase and retirement
of common stock (81) (8) (33) (593) (634)
BALANCE, DECEMBER 31, 1996 23,727 2,373 9,624 107,808 119,805
Net income for year 19,700 19,700
Issuance of common stock
under stock option and
incentive plans 59 6 364 - 370
Repurchase and retirement
of common stock (623) (63) (254) (5,425) (5,742)
Tax benefit from exercise of
stock options - - 54 - 54
BALANCE, DECEMBER 31, 1997 23,163 $2,316 $ 9,788 $122,083 $134,187
The accompanying notes are an integral part of the financial statements.
</TABLE>
-17-<PAGE>
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
Years ended December 31,
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Operating Activities:
Net income $ 19,700 $ 15,499 $ 15,249
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,742 5,750 4,612
Amortization 979 530 23
Write-off of intangible assets - 276 -
Deferred income taxes 1,586 (845) (461)
Equity in (earnings) loss from joint ventures (426) (265) -
Changes in operating assets
and liabilities:
Receivables 9,260 19,383 6,179
Inventories (13,704) (2,815) (9,784)
Other current assets (4,375) (1,986) 230
Other assets (15) (40) (280)
Accounts payable, trade (5,882) 589 (10,646)
Federal and state income taxes
refundable or payable (2,541) 1,240 (67)
Other current liabilities 1,484 1,366 187
Noncurrent liabilities 123 203 332
Net cash provided by
operating activities 12,931 38,885 5,574
Investing Activities:
Purchase of property, plant and equipment (9,104) (5,260) (9,151)
Acquisition of Big O Tires, Inc. - (55,433) -
Investments in joint ventures - - (1,562)
Net proceeds from asset disposition - 2,099 -
Other 1,130 777 13
Net cash used in investing activities (7,974) (57,817) (10,700)
Financing Activities:
Net bank borrowings (repayments) under
short-term borrowing arrangements 1,404 (29,746) 25,058
Increase (decrease) in outstanding checks, net 2,678 (8,480) 3,863
Increase in long-term debt - 60,000 697
Payments on long-term debt (2,750) (2,325) (61)
Issuance of common stock under stock option
and incentive plans, net of repurchase 370 117 134
Repurchase and retirement of common stock (5,742) (634) (24,565)
Net cash provided by (used in)
financing activities (4,040) 18,932 5,126
Change in cash and cash equivalents 917 - -
Cash and cash equivalents:
Balance - Beginning of year - - -
Balance - End of year $ 917 $ - $ -
</TABLE>
-18-<PAGE>
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
<TABLE>
Years ended December 31,
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid for - Interest $ 6,090 $ 3,510 $ 2,956
- Income Taxes 12,842 9,506 10,051
Supplemental Disclosure of Non-Cash Financing
Activity:
Tax benefit from exercise of stock options $ 54 $ - $ 22
Supplemental Disclosure of Non-Cash Investing
and Financing Activities:
On July 10, 1996, the Company completed the
acquisition of Big O Tires, Inc. for a total
purchase price of approximately $54,646, plus
applicable closing costs. The acquisition was
accounted for under the purchase method, as
follows:
Estimated fair value of assets acquired $ 60,263
Trademarks and Goodwill 33,072
Cash Paid (55,433)
Liabilities assumed $ 37,902
During 1996, the Company disposed of
certain assets of its battery distribution
subsidiary, as follows:
Assets sold $ (2,882)
Cash received 2,099
Liabilities assumed by purchaser $ (783)
The accompanying notes are an integral part of the financial statements.
</TABLE>
-19-<PAGE>
TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Operations
The Company is principally engaged in the business of distributing
tires and other products in the automotive replacement market, through
wholesale and retail customers in the United States, Canada and Mexico.
Through its Big O Tires, Inc. subsidiary, which was acquired on July 10,
1996, the Company also acts as a franchisor of independent retail tire and
automotive service stores located primarily in the Midwest and western
United States. On a limited basis, Big O engages in site selection and
real estate development for franchised stores and owns and operates a
limited number of retail stores.
Significant Accounting Policies
Principles of consolidation - The accompanying financial
statements include the accounts of TBC Corporation and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have
been eliminated. Investments in 50% or less-owned joint ventures over
which the Company has the ability to exercise significant influence are
accounted for using the equity method.
Accounting 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, liabilities, revenues and expenses, as well as certain
financial statement disclosures.
Cash equivalents - Cash equivalents consist of short-term, highly
liquid investments which are readily convertible into cash.
Inventories - Inventories, consisting of automotive products held
for resale, are valued at the lower of cost (principally last in-first
out) or market. Current costs of inventories exceeded the LIFO value by
$3,517,000 and $4,759,000 at December 31, 1997 and 1996, respectively.
Concentrations of credit risk - The Company performs ongoing
credit evaluations of its customers and typically requires some form of
security, including collateral, guarantees or other documentation. The
Company maintains allowances for potential credit losses. The Company
maintains cash balances with financial institutions with high credit
ratings. The Company has not experienced any losses with respect to bank
balances in excess of government-provided insurance.
Property, plant and equipment - Depreciation is computed
principally using the straight-line method, over estimated lives of 3-15
years for furniture and equipment and 20-40 years for buildings and
leasehold improvements. Amounts expended for maintenance and repairs are
charged to operations, and expenditures for major renewals and betterments
are capitalized. When property, plant and equipment is retired or
otherwise disposed of, the related gain or loss is included in operations.
-20-<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill, Trademarks and Other Intangible Assets - Goodwill and
trademarks were recorded as a result of the acquisition of Big O Tires,
Inc. on July 10, 1996. Goodwill represents the excess of cost over the
fair value of identifiable net assets acquired. The value assigned to
trademarks was based on an independent third-party valuation prepared at
the time of acquisition. Goodwill, trademarks and other intangible assets
are amortized on a straight-line basis, principally over 40 years.
Accumulated amortization on intangible assets totaled $1,266,000 and
$414,000 at December 31, 1997 and 1996, respectively.
The Company periodically reviews the recoverability of intangible
and other long-lived assets. If facts or circumstances support the
possibility of impairment, the Company will prepare a projection of the
undiscounted future cash flows of the specific intangible assets and
determine if the assigned value is recoverable based on such projection.
If impairment is indicated, an adjustment will be made to the carrying
value of the assets based on the discounted future cash flows. The
Company does not believe that there are any facts or circumstances
indicating impairment of any of its recorded intangible assets.
Revenue recognition - Sales are recognized upon shipment of
products. Estimated costs of returns and allowances are accrued at the
time products are shipped.
Franchise fees - Each Big O franchisee is required to pay an
initial franchise fee as well as monthly royalty fees of 2% of gross
sales. Included in net sales in 1997 and 1996 were franchise and royalty
fees of $7,811,000 and $3,742,000, respectively.
Standard warranty - The costs of anticipated adjustments for
workmanship and materials that are the responsibility of the Company are
estimated and charged to expense currently. Warranty reserves of
$6,931,000 and $6,675,000 were included in other current liabilities in
the balance sheets at December 31, 1997 and 1996, respectively.
Interest on early payments to suppliers for product - Interest
income associated with early payments to suppliers for product is recorded
as a reduction to cost of sales in the statements of income. This
interest income represented 1.5% of net sales during 1997 and 1996 and
1.6% in 1995.
Earnings per share - In 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per share", which
established new standards for computing and presenting earnings per share.
Earnings per share for all periods presented have been calculated
according to this standard. Basic earnings per share have been computed
by dividing net income by the weighted average number of shares of common
stock outstanding. Diluted earnings per share have been computed by
dividing net income by the weighted average number of common shares and
equivalents outstanding. The weighted average number of common shares
outstanding totaled 23,466,000 in 1997, 23,793,000 in 1996 and 24,583,000
in 1995. Common stock equivalents, representing shares issuable upon
assumed exercise of stock options, totaled 105,000 in 1997, 47,000 in 1996
and 99,000 in 1995. The weighted average number of common shares and
equivalents outstanding totaled 23,571,000 in 1997, 23,840,000 in 1996 and
24,682,000 in 1995.
-21-<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS
The Company's operations are managed through its Board of
Directors, members of which owned or are affiliated with companies which
owned approximately 8% of the Company's common stock at December 31, 1997.
Sales to distributors represented on the Board, including affiliates of
such distributors, accounted for approximately 18% of the Company's net
sales during 1997, 20% during 1996 and 24% in 1995. One such distributor
accounted for approximately 11% of net sales in 1997, 12% in 1996 and 15%
in 1995. Another major customer, unaffiliated with the board of
directors, accounted for approximately 11% of net sales in 1997, 9% in
1996 and 8% in 1995. Sales to joint ventures in which the Company has an
ownership interest accounted for approximately 4% of the Company's net
sales during 1997, 3% in 1996 and 1% in 1995. Accounts receivable
resulting from transactions with related parties are presented separately
in the balance sheets.
3. ACQUISITION OF BIG O TIRES, INC.
On July 10, 1996, the Company completed the acquisition of Big O
Tires, Inc. Under the terms of the merger agreement, Big O stockholders
received $16.47 in cash for each of the 3,317,916 outstanding shares of
common stock, a total purchase price of $54,646,000. The acquisition was
accounted for as a purchase. These consolidated financial statements
include the operating results of Big O from the date of acquisition.
The following unaudited pro forma information (adjusted for
interest on required borrowings, estimated amortization of intangible
assets, improved sourcing strength, etc.) was prepared as if the companies
had been combined as of January 1, 1995. The pro forma information does
not purport to present what actual results of operations would have been
if the acquisition of Big O had occurred on such date or to project
results for any future period.
(In millions, except per share data)
Years Ended December 31,
1996 1995
(Unaudited)
Net sales $ 673.7 $ 684.4
Net income 18.0 18.3
Earnings per share .76 .74
4. CREDIT FACILITIES
The Company's short-term borrowing agreements consist of a one-
year committed bank facility and a three-year committed bank facility.
The credit facilities allow the Company to borrow up to $51,500,000, with
interest on the one-year facility at the federal funds rate plus 1.15% and
interest on the three-year facility based on LIBOR plus a variable rate
between 0.45% and 0.875%. The credit facilities also require the payment
of certain commitment and administrative fees. The unused amount under
these facilities at December 31, 1997 was $28.4 million. The weighted
average interest rate on short-term borrowings at December 31, 1997 and
1996 was 7.22% and 6.61%, respectively.
-22-<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. CREDIT FACILITIES (Continued)
The credit facilities contain certain financial covenants dealing
with the Company's tangible net worth, working capital, funded
indebtedness and fixed charge coverage ratio. The credit facilities also
include certain restrictions which affect the Company's ability to incur
additional debt, sell or place liens upon assets, provide guarantees and
make loans, advances, investments and certain expenditures.
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31,
1997 1996
7.55% Series A Senior Note, due
from 1999 through 2003 $32,500 $32,500
7.87% Series B Senior Note, due
from 2004 through 2005 11,000 11,000
8.06% Series C Senior Note, due
from 2006 through 2008 16,500 16,500
8.71% Senior loan, collateralized
by certain real estate, due from
1998 through 2004 8,000 8,000
Prime rate credit loan from supplier - 1,415
Prime rate bank mortgage loan - 1,267
Other debt 337 405
68,337 71,087
Less current portion 690 1,537
$67,647 $69,550
The Senior Notes, issued in order to finance the acquisition of
Big O Tires, Inc., are unsecured with interest payable quarterly. The
note agreement related to such borrowings contains certain financial
covenants dealing with the Company's working capital ratio, interest
expense coverage and tangible net worth. In addition, the note agreement
places certain restrictions on the Company, including its ability to incur
additional debt, transfer or place liens upon assets, provide guarantees
and make loans, advances, investments and certain expenditures.
The 8.71% Senior loan provides for interest only to be paid
through July 1998, after which principal and interest are due in quarterly
installments.
Maturities of long-term debt for the next five years are as
follows: $690,000 due in 1998, $7,859,000 in 1999, $7,844,000 in 2000,
$7,833,000 in 2001 and $7,833,000 in 2002.
-23-<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. OTHER ASSETS
Other assets consist of the following (in thousands):
December 31,
1997 1996
Notes receivable $ 8,445 $ 9,274
Investments in joint ventures 2,811 2,433
Other intangible assets, net 741 831
Other 1,529 1,537
$13,526 $14,075
The notes receivable totals include a note for $4,897,000 from a
former distributor. The maker of the note was discharged in a proceeding
under Chapter 11 of the Bankruptcy Code in 1991. The Company received
distributions totaling $308,000 from the bankruptcy proceeding. The
Company holds written guarantees of the distributor's account, absolute
and continuing in form, signed by the principal former owners and officers
of the distributor and their wives, upon which the Company filed suit in
1989. The defendants have pleaded various defenses based on, among other
things, an alleged oral cancellation of the guarantees. The defendants
have also filed a third party complaint against the Company's former chief
executive officer in which they claim the right to recover against him for
any liability they may have to the Company. No trial date has been set at
this time; however, the Company expects that the lawsuit will be tried
within the next few months. The Company believes that the defendants'
defenses are invalid and that there is no merit to the third-party
complaint. The Company knows of no reason to believe that the defendants
will be unable to pay any judgment that may be entered against them in the
action.
7. LEASES
Rental expense of $3,031,000, $2,545,000 and $2,069,000 was
charged to operations in 1997, 1996 and 1995, respectively, after
deducting sublease income applicable to 1997 and 1996 of $2,122,000 and
$996,000, respectively. Minimum noncancelable real property lease
commitments at December 31, 1997 were as follows (in thousands):
Year Amount
1998 $ 5,018
1999 4,746
2000 4,275
2001 3,285
2002 3,092
Thereafter 9,893
30,309
Less sublease income 10,483
$19,826
The commitments relate substantially to distribution facilities.
In addition to the above rental payments, the Company is obligated in some
instances to pay real estate taxes, insurance and certain maintenance.
-24-<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. INCOME TAXES
The Company records income taxes using the liability method
prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Income taxes provided for the years ended
December 31, 1997, 1996 and 1995 were as follows (in thousands):
1997 1996 1995
Current:
Federal $ 8,910 $ 9,375 $ 8,868
State 1,391 1,370 1,116
10,301 10,745 9,984
Deferred 1,586 (845) (461)
$11,887 $ 9,900 $ 9,523
The provision for deferred income taxes represents the change in
the Company's net deferred income tax asset or liability during the year,
including the effect of enacted tax rate changes. Deferred income taxes
arise from temporary differences between the tax basis of the Company's
assets and liabilities and their reported amounts in the financial
statements. Included in the Big O assets acquired was a deferred income
tax asset of $3,365,000, while liabilities assumed in the Big O
acquisition included a deferred income tax liability of $7,604,000.
The net deferred income tax asset in the financial statements at
December 31, 1997 included $824,000 related to the allowance for doubtful
accounts and notes, $1,366,000 related to inventory reserves and basis
differences, and $2,696,000 related to accrued warranty reserves. At
December 31, 1996, the net deferred income tax asset included $3,156,000
related to the allowance for doubtful accounts and notes, $1,364,000
related to inventories and $2,596,000 related to warranty reserves. The
net deferred income tax liability at December 31, 1997 and 1996 included
$6,913,000 and $7,093,000, respectively, related to trademarks.
The difference between the Company's effective income tax rate and
the statutory U. S. Federal income tax rate is reconciled as follows:
1997 1996 1995
Statutory U.S. Federal rate 35.0% 35.0% 35.0%
State income taxes 2.9 3.5 2.9
Other (.3) .5 .5
Effective tax rate 37.6% 39.0% 38.4%
9. RETIREMENT PLANS
The Company has a defined benefit pension plan covering many of
its employees. The benefits are based on years of service and the
employee's final compensation. The Company makes contributions to the
plan, not to exceed the maximum amount that can be deducted for federal
income tax purposes. This amount is computed using a different actuarial
cost method and different assumptions from those used for financial
reporting purposes.
-25-<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. RETIREMENT PLANS (Continued)
The following table sets forth the defined benefit pension plan's
funded status and amounts recognized in the Company's balance sheets (in
thousands):
December 31,
1997 1996
Actuarial present value of accumulated
benefit obligations, including
vested benefits of $4,123 in 1997
and $3,991 in 1996 $(4,206) $(4,273)
Actuarial present value of projected
benefit obligations for service
rendered to date $(6,852) $(6,589)
Plan assets at fair value, primarily
listed stocks and U.S. bonds 6,176 6,590
Plan assets over (under) projected
benefit obligation (676) 1
Unrecognized net loss from experience
different from that assumed 1,782 2,147
Unrecognized net assets at January 1,
1997 and 1996 being recognized
over 15.53 years (47) (75)
Unrecognized prior service cost 111 123
Prepaid pension cost $ 1,170 $ 2,196
The net expense for the defined benefit pension plan in 1997
included a charge of $810,000 associated with an early retirement program
accepted by certain employees. The net expense for 1997, 1996 and 1995
was comprised of the following (in thousands):
1997 1996 1995
Service cost $ 404 $ 392 $ 274
Interest cost 454 419 349
Return on plan assets (1,093) (639) (757)
Net amortization, deferral
and settlement charges 1,412 131 616
$ 1,177 $ 303 $ 482
The weighted average discount rates used in determining the 1997
and 1996 actuarial present values of projected benefit obligations were
7.00% and 7.25%, respectively. In both the 1997 and 1996 projections, a
5% increase in future compensation levels was used and the expected long-
term rate of return on assets was 10%.
-26-<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. RETIREMENT PLANS (Continued)
The Company also has an unfunded supplemental retirement plan for
certain of its executive officers, to provide benefits in excess of
amounts permitted to be paid by its defined benefit pension plan under
current tax law. In addition, supplemental retirement provisions are
included in the employment agreement of the Company's President and Chief
Executive Officer. Expenses for supplemental retirement benefits totaled
$377,000 in 1997, $313,000 in 1996 and $199,000 in 1995. At December 31,
1997, the projected benefit obligation, computed using the same discount
rate and compensation assumptions as for the defined benefit pension plan,
was $2,296,000. The accumulated benefit obligation, which was reflected
as a noncurrent liability at December 31, 1997, totaled $1,847,000.
The Company maintains an employee savings plan under Section
401(k) of the Internal Revenue Code, covering substantially all of its
employees. Contributions by the Company to the 401(k) plan include those
based on a specified percentage of employee contributions, as well as
discretionary contributions. Expenses recorded for the Company's
contributions totaled $422,000 in 1997, $194,000 in 1996 and $62,000 in
1995.
10. STOCKHOLDERS' EQUITY
The Company is authorized to issue 50,000,000 shares of $.10 par
value common stock. In addition, 2,500,000 shares of $.10 par value
preferred stock are authorized, none of which were outstanding at
December 31, 1997 or 1996.
The Company has a Stockholder Rights Plan whereby outstanding
shares of the Company's common stock are accompanied by preferred stock
purchase rights. The rights become exercisable ten days after either a
person or group has acquired 20% or more of the Company's common stock or
the commencement of a tender offer which would result in the offeror's
ownership of 30% or more of TBC's common stock. Under defined
circumstances, the rights allow TBC stockholders to purchase stock in
either the Company or an acquiring company at a price less than the market
price. The rights expire on July 31, 1998 unless redeemed at an earlier
date.
In 1997, 1996 and 1995, shares of the Company's common stock were
repurchased and retired under authorizations made by the Board of
Directors. As of December 31, 1997, the Company had unused authorizations
from the Board for the repurchase of approximately 2,011,000 additional
shares.
11. STOCK OPTIONS AND INCENTIVE PLAN
The Company's 1989 stock incentive plan ("1989 Plan") provides for
the grant of options to purchase shares of the Company's common stock to
officers and other key employees upon terms and conditions determined by a
committee of the Board of Directors. Options typically are granted at the
fair market value of the stock on the date of grant, vest ratably over a
three-year period and expire in ten years. The committee may also grant
-27-<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. STOCK OPTIONS AND INCENTIVE PLAN (Continued)
stock appreciation rights, either singly or in tandem with stock options,
which entitle the holder to benefit from market appreciation in the
Company's common stock without requiring any payment on the part of the
holder.
The 1989 Plan also authorizes the committee to grant performance
awards and restricted stock awards to officers and other key employees.
Additionally, the 1989 Plan provides for the annual grant of restricted
stock with a market value of $5,000 to each non-employee director of the
Company. Each of these shares of restricted stock is accompanied by four
options, which are only exercisable under certain conditions and the
exercise of which results in the forfeiture of the associated share of
restricted stock. The options expire in one-third increments as the
associated restricted stock vests. Such tandem options are not included
in the totals shown below for outstanding options. At December 31, 1997,
2,216,000 shares were available for future option and restricted stock
grants under the 1989 Plan.
A summary of stock option activity during 1995, 1996 and 1997 is
shown below:
Weighted
Average
Option Option Price Exercise
Shares Range Price
Outstanding at January 1, 1995
(330,360 exercisable) 438,540 $ 1.48 - $12.13 $ 6.73
Granted in 1995 119,325 9.69 9.69
Exercised in 1995 37,918 1.48 - 8.00 3.10
Forfeited in 1995 6,604 9.69 - 12.13 11.22
Outstanding at December 31, 1995
(332,099 exercisable) 513,343 $ 1.48 - $12.13 $ 7.62
Granted in 1996 72,731 6.38 - 8.88 8.47
Exercised in 1996 58,038 1.48 - 6.55 2.35
Forfeited in 1996 14,396 9.69 - 12.13 10.17
Outstanding at December 31, 1996
(331,784 exercisable) 513,640 $ 5.03 - $12.13 $ 8.27
Granted in 1997 324,112 7.75 7.75
Exercised in 1997 53,261 5.03 - 6.55 6.20
Forfeited in 1997 34,711 6.55 - 12.13 9.81
Outstanding at December 31, 1997
(330,225 exercisable) 749,780 $ 5.03 - $12.13 $ 8.12
Additional information regarding stock options outstanding at
December 31, 1997 is shown below:
Outstanding Options Exercisable Options
Weighted Weighted Weighted
Average Average Average
Option Exercise Remaining Option Exercise
Option Price Range Shares Price Term Shares Price
$5.03 - $7.50 183,293 $ 5.90 3.0 yrs. 181,212 $ 5.89
$7.51 - $10.00 478,670 8.24 8.7 yrs. 79,949 9.38
$10.01 - $12.13 87,817 12.09 5.6 yrs. 69,064 12.08
749,780 330,225
-28-<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. STOCK OPTIONS AND INCENTIVE PLAN (Continued)
The option shares listed for the three-year period ended December
31, 1997 include any with stock appreciation rights (SAR's). No SAR's
were granted during this three-year period. 63,280 SAR's were outstanding
at January 1, 1995, each with an exercise price of $1.71 per share.
25,000 SAR's were exercised in 1995 and 38,280 were exercised in 1996. No
stock appreciation rights were outstanding as of December 31, 1997 or
1996. Amounts in the statements of income relating to stock appreciation
rights included a credit of $30,000 in 1996 and a charge of $23,000 in
1995.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation". Accordingly, no compensation has been
recognized for the stock options granted in 1997, 1996 or 1995. Using
fair value assumptions specified in SFAS No. 123, the weighted average per
share value of options granted during 1997, 1996 and 1995 was $3.36, $3.29
and $3.66, respectively. Had compensation cost for such option grants
been determined using such assumptions, the Company's net income on a pro
forma basis would have been $19,355,000 in 1997, $15,405,000 in 1996 and
$15,238,000 in 1995, compared to reported net income of $19,700,000 in
1997, $15,499,000 in 1996 and $15,249,000 in 1995. Earnings per share on
a pro forma basis would have been $.82 in 1997 rather than the reported
$.84. Pro forma earnings per share in both 1996 and 1995 were the same as
the reported amounts.
The fair value of each option granted in 1997, 1996 and 1995 was
estimated on the date of grant using the Black-Scholes option-pricing
model using the following weighted-average assumptions: dividend yield of
0%; expected lives of 5 years and risk-free interest rates equal to zero-
coupon governmental issues. The expected volatility used for options
granted were 37.8% for 1997 and 30% for 1996 and 1995.
12. FINANCIAL GUARANTEES AND CREDIT RISK
The Company's Big O Tires, Inc. subsidiary has provided certain
financial guarantees associated with real estate leases and financing of
its franchisees. Although the guarantees were issued in the normal course
of business to meet the financing needs of its franchisees, they represent
credit risk in excess of the amounts reported on the balance sheet as of
December 31, 1997. The contractual amounts of the guarantees, which
represent the Company's maximum exposure to credit loss in the event of
non-performance by the franchisees, totaled $8,440,000 as of December 31,
1997, including $3,937,000 related to franchisee financing and $4,503,000
related to real estate leases. In addition, Big O is the guarantor of the
mortgage loan on a formerly-owned building. At December 31, 1997, the
exposure to credit loss on such mortgage loan totaled $2,642,000.
Most of the above franchisee financing and lease guarantees extend
for more than five years and expire in decreasing amounts through 2009.
The credit risk associated with these guarantees is essentially the same
as that involved in extending loans to the franchisees. Big O evaluates
each franchisee's creditworthiness
-29-<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. FINANCIAL GUARANTEES AND CREDIT RISK (Continued)
and requires that sufficient collateral (primarily inventories and
equipment) and security interests be obtained by the third party lenders
or lessors, before the guarantees are issued. There are no cash
requirements associated with the guarantees, except in the event that an
actual financial loss is subsequently incurred due to non-performance by
the franchisees.
13. LEGAL PROCEEDINGS
In addition to the litigation described in Note 6, the Company
is involved in various legal proceedings which are routine to the conduct
of its business. The Company does not believe that any such routine
litigation will have a material adverse effect on its consolidated financial
position, results of operations or cash flows.
14. REFOCUS OF OPERATIONS ON REPLACEMENT TIRE BUSINESS
In December 1996, the Company decided to refocus its operations on
the replacement tire business and discontinue the marketing of certain
non-tire products such as batteries, wheels, ride-control products and
filters to independent distributors. The decision resulted in the
December 1996 sale of certain assets of the Company's former battery
distribution subsidiary, as well as other marketing and operational
changes which were completed by the end of the first quarter of 1997.
There was no impact on the products marketed through the Company's Big O
Tires subsidiary.
A total of $2.4 million in pre-tax charges was recorded in the
fourth quarter of 1996 related to these changes. Included were charges of
$1.2 million to cost of goods sold associated with inventory write-downs,
$700,000 in selling and administrative expenses and $460,000 in other
expenses.
SUPPLEMENTARY DATA:
QUARTERLY FINANCIAL INFORMATION
Unaudited quarterly results for 1997 and 1996 are summarized as
follows:
(In thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1997
Net sales $144,367 $163,785 $182,648 $152,052
Cost of sales 123,071 139,261 155,713 126,074
Net income 3,231 4,784 6,042 5,643
Earnings per share* $ .14 $ .20 $ .26 $ .24
1996
Net sales $124,005 $137,561 $177,338 $165,681
Cost of sales 110,065 123,854 153,875 140,816
Net income 3,389 3,227 4,730 4,153
Earnings per share* $ .14 $ .14 $ .20 $ .17
* Basic and assuming dilution
-30-<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for information concerning executive officers of the
Company which is set forth in Part I of this Report, the information
required by this Item 10 is set forth in the Company's Proxy Statement for
its Annual Meeting of Stockholders to be held April 22, 1998, under the
captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance", and is incorporated herein by this reference.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in the
Company's Proxy Statement for its Annual Meeting of Stockholders to be
held April 22, 1998, under the captions "Election of Directors" and
"Executive Compensation", and, with the exception of the information
disclosed in the Proxy Statement pursuant to Item 402(k) or 402(l) of
Regulation S-K, is incorporated herein by this reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item 12 is set forth in the
Company's Proxy Statement for its Annual Meeting of Stockholders to be
held April 22, 1998, under the caption "Security Ownership of Management
and Principal Stockholders", and is incorporated herein by this reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is set forth in the
Company's Proxy Statement for its Annual Meeting of Stockholders to be
held April 22, 1998, under the captions "Election of Directors" and
"Executive Compensation", and is incorporated herein by this reference.
-31-<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The following items, including consolidated financial
statements of the Company, are set forth at Item 8 of this
Report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - December 31, 1997, and
1996
Consolidated Statements of Income - Years ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1995, 1996 and 1997
Consolidated Statements of Cash Flows - Years ended
December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
(a) (2) FINANCIAL STATEMENT SCHEDULES
Report of Independent Certified Public Accountants (at
p. 35 of this Report)
Schedule II - Valuation and qualifying accounts (at
p. 36 of this Report)
All other schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the consolidated financial
statements or notes thereto.
(a) (3) EXHIBITS
See INDEX to EXHIBITS included at p. 37 of this Report
(b) REPORTS ON FORM 8-K
The Company did not file any Reports on Form 8-K during the
quarter ended December 31, 1997.
-32-<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, TBC Corporation has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Memphis, Tennessee, on this 11th day of February,
1998.
TBC CORPORATION
By: /s/ LOUIS S. DiPASQUA
Louis S. DiPasqua
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf
of TBC Corporation and in the capacities and on the dates indicated:
Name Title Date
/s/ LOUIS S. DiPASQUA President, Chief February 11, 1998
Louis S. DiPasqua Executive Officer
and Director
/s/ RONALD E. McCOLLOUGH Senior Vice President February 11, 1998
Ronald E. McCollough Operations and
Treasurer (principal
accounting and
financial officer)
* MARVIN E. BRUCE Chairman of the Board February 11, 1998
Marvin E. Bruce of Directors
* ROBERT E. CARROLL, JR. Director February 11, 1998
Robert E. Carroll, Jr.
* ROBERT H. DUNLAP Director February 11, 1998
Robert H. Dunlap
-33-<PAGE>
* DWAIN W. HIGGINBOTHAM Director February 11, 1998
Dwain W. Higginbotham
* CHARLES A. LEDSINGER, JR. Director February 11, 1998
Charles A. Ledsinger, Jr.
* RICHARD A. McSTAY Director February 11, 1998
Richard A. McStay
* ROBERT M. O'HARA Director February 11, 1998
Robert M. O'Hara
* ROBERT R. SCHOEBERL Director February 11, 1998
Robert R. Schoeberl
* The undersigned by signing his name hereto does sign and execute
this Report on Form 10-K on behalf of each of the above-named directors of
TBC Corporation pursuant to a power of attorney executed by each such
director and filed with the Securities and Exchange Commission as an
exhibit to this Report.
/s/ LOUIS S. DiPASQUA
Louis S. DiPasqua
Attorney-in-Fact
-34- <PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
TBC Corporation
Our report on the consolidated financial statements of TBC
Corporation and Subsidiaries is included on page 13 of this Form 10-K. In
connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index at
Item 14(a) (2) of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Memphis, Tennessee
January 30, 1998
-35-<PAGE>
<TABLE>
TBC CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(In thousands)
<CAPTION>
Additions
Charged Charged
to Costs to
Balance and Other Balance
January 1, Expenses Accounts Deductions December 31,
<S> <C> <C> <C> <C> <C>
1997
Warranty reserve......$ 6,675 $ 6,422 $ - $ 6,166<F2> $ 6,931
Allowance for
doubtful
accounts........... 8,879 1,394 - 2,929<F3> 7,344
1996
Warranty reserve...... 1,002 4,159 5,613<F1> 4,099<F2> 6,675
Allowance for
doubtful
accounts........... 8,014 1,640 1,954<F1> 2,729<F3> 8,879
1995
Warranty reserve...... 975 1,591 - 1,564<F2> 1,002
Allowance for
doubtful
accounts........... 7,069 1,546 123 724<F3> 8,014
<FN>
<F1>Includes amounts for Big O Tires, Inc. as of the July 10, 1996
acquisition date.
<F2>Amounts added during current year and payable at year end less
amount payable at beginning of year.
<F3>Accounts written off during year, net of recoveries.
</FN>
</TABLE>
-36-<PAGE>
INDEX TO EXHIBITS
Located at
Manually
Numbered Page
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT,
LIQUIDATION OR SUCCESSION:
2.1 Agreement and Plan of Merger, dated as of April 30,
1996, by and among TBC Corporation, TBCO
Acquisition, Inc. and Big O Tires, Inc., was filed
as Exhibit 2.1 to the TBC Corporation Current
Report on Form 8-K, dated April 30, 1996 ........... *
(3) ARTICLES OF INCORPORATION AND BY-LAWS:
3.1 Certificate of Incorporation of TBC Corporation,
as amended April 29, 1988, was filed as Exhibit
3.1 to the TBC Corporation Annual Report on
Form 10-K for the year ended December 31, 1994 ..... *
3.2 Amendment to Restated Certificate of Incorporation
of TBC Corporation dated April 23, 1992, was filed
as Exhibit 3.2 to the TBC Corporation Annual Report
on Form 10-K for the year ended December 31, 1992 .. *
3.3 By-Laws of TBC Corporation as amended through
July 25, 1996, were filed as Exhibit 3.1 to the
TBC Corporation Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 ........... *
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES:
4.1 $30,000,000 Long Term Credit Agreement, dated as of
September 25, 1996, among TBC Corporation, the
lending institutions party thereto, First Tennessee
Bank National Association as Administrative Agent,
and NBD Bank as Co-Agent, including as Exhibit A
the form of Note, dated September 25, 1996, issued
by TBC Corporation to each lender pursuant thereto,
and including as Exhibit F the form of Continuing
Guaranty executed by certain subsidiaries of TBC
Corporation in connection therewith, was filed as
Exhibit 4.1 to the TBC Corporation Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1996 ................................. *
-37-<PAGE>
4.2 First Amendment, dated July 1, 1997, to Long Term
Credit Agreement among TBC Corporation, the lending
institutions party thereto, First Tennessee Bank
National Association as Administrative Agent, and
NBD Bank as Co-Agent, was filed as Exhibit 4.1 to
the TBC Corporation Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 ........... *
4.3 $48,500,000 Short Term Credit Agreement, dated as
of September 25, 1996, among TBC Corporation, the
lending institutions party thereto, First Tennessee
Bank National Association as Administrative Agent,
and NBD Bank as Co-Agent, including as Exhibit A-1
the form of Revolving Note, dated September 25,
1996, issued by TBC Corporation to each lender
pursuant thereto, including as Exhibit A-2 the
form of Swing Line Note, dated September 25, 1996,
issued by TBC Corporation to First Tennessee Bank
National Association pursuant thereto, and
including as Exhibit F the form of Continuing
Guaranty executed by certain subsidiaries of TBC
Corporation in connection therewith, was filed as
Exhibit 4.2 to the TBC Corporation Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1996.................................. *
4.4 First Amendment, dated July 1, 1997, to Short Term
Credit Agreement among TBC Corporation, the lending
institutions party thereto, First Tennessee Bank
National Association as Administrative Agent, and
NBD Bank as Co-Agent, was filed as Exhibit 4.2 to
the TBC Corporation Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 ........... *
4.5 Second Amendment, dated September 23, 1997, to
Short Term Credit Agreement among TBC Corporation,
the lending institutions party thereto, First
Tennessee Bank National Association as
Administrative Agent, and NBD Bank as Co-Agent,
was filed as Exhibit 4.3 to the TBC Corporation
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 ........................... *
4.6 Third Amendment to Short Term Credit Agreement and
Second Amendment to Long Term Credit Agreement,
dated October 28, 1997, among TBC Corporation, the
lending institutions party thereto, First Tennessee
Bank National Association as Administrative Agent,
and NBD Bank as Co-Agent ........................... 45
4.7 Third Amendment to Long Term Credit Agreement and
Fourth Amendment to Short Term Credit Agreement,
dated December 17, 1997, among TBC Corporation, the
lending institutions party thereto, First Tennessee
Bank National Association as Administrative Agent,
and NBD Bank as Co-Agent ........................... 48
-38-<PAGE>
4.8 Note Purchase and Private Shelf Agreement, dated
July 10, 1996, between TBC Corporation and The
Prudential Insurance Company of America, was filed
as Exhibit 4.1 to the TBC Corporation Current
Report on Form 8-K, dated July 10, 1996 ............ *
4.9 Series A, Series B, and Series C Senior Notes,
dated July 10, 1996, issued by TBC Corporation
pursuant to the Note Purchase Agreement
referenced in item 4.8 above, were filed as
Exhibit 4.2 to the TBC Corporation Current Report
on Form 8-K, dated July 10, 1996 ................... *
4.10 Amendment No. 1, dated September 20, 1996, to the
Note Purchase Agreement referenced in item 4.8
above, including form of Continuing Guaranty
executed by certain subsidiaries of TBC Corporation
in connection therewith, was filed as Exhibit 4.5
to the TBC Corporation Quarterly Report on Form
10-Q for the quarter ended September 30, 1996 ...... *
4.11 Other long-term debt instruments ................... #
(10) MATERIAL CONTRACTS:
Management Contracts and Compensatory Plans
or Arrangements
10.1 Executive Employment Agreement between the Company
and Mr. Louis S. DiPasqua, amended and restated
as of January 31, 1995, was filed as Exhibit 10.1
to the TBC Corporation Quarterly Report on Form
10-Q for the quarter ended March 31, 1995 .......... *
10.2 Executive Consulting Agreement between the Company
and Mr. Marvin E. Bruce dated January 1, 1995, was
filed as Exhibit 10.2 to the TBC Corporation
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995 .............................. *
10.3 Louis S. DiPasqua Trust Agreement dated as of
October 22, 1992 between the Company and First
Tennessee Bank National Association was filed as
Exhibit 10.6 to the TBC Corporation Annual Report
on Form 10-K for the year ended December 31, 1992 .. *
10.4 Amendment, dated July 1, 1996, to Executive
Employment Agreement between the Company and
Mr. Louis S. DiPasqua was filed as Exhibit 10.4
to the TBC Corporation Annual Report on Form 10-K
for the year ended December 31, 1996 ............... *
10.5 TBC Corporation 1989 Stock Incentive Plan, as
amended and restated April 23, 1997 was filed as
Exhibit 10.1 to the TBC Corporation Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1997 ...................................... *
-39-<PAGE>
10.6 TBC Corporation Deferred Compensation Plan for
Directors was filed as Exhibit 10.10 to the TBC
Corporation Annual Report on Form 10-K for the
year ended December 31, 1993 ....................... *
10.7 Resolution adopted by the Compensation Committee
of the TBC Corporation Board of Directors,
September 26, 1996, relating to interest payable
on deferred compensation of officers and directors
of TBC Corporation, was filed as Exhibit 10.3 to
the TBC Corporation Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996............ *
10.8 Executive Employment Agreement dated as of
November 1, 1988 between the Company and Mr.
Kenneth P. Dick, including Trust Agreement as
Exhibit A thereto, as extended as of November 1,
1991 and as amended as of July 1, 1992, was
filed as Exhibit 10.10 to the TBC Corporation
Annual Report on Form 10-K for the year ended
December 31, 1992 .................................. *
10.9 Amendment, dated July 1, 1996, to Executive
Employment Agreement between the Company and
Mr. Kenneth P. Dick was filed as Exhibit 10.10
to the TBC Corporation Annual Report on Form 10-K
for the year ended December 31, 1996 ............... *
10.10 Agreement to Extend Executive Employment Agreement,
between the Company and Mr. Kenneth P. Dick dated
October 31, 1997.................................... 51
10.11 Executive Employment Agreement dated as of
November 1, 1988 between the Company and Mr.
Bob M. Hubbard, including Trust Agreement as
Exhibit A thereto, as extended as of November 1,
1991 and as amended as of July 1, 1992, was
filed as Exhibit 10.11 to the TBC Corporation
Annual Report on Form 10-K for the year ended
December 31, 1992 .................................. *
10.12 Agreement to Extend Executive Employment Agreement,
between the Company and Mr. Bob M. Hubbard dated
October 31, 1994, was filed as Exhibit 10.11 to the
TBC Corporation Annual Report on Form 10-K for the
year ended December 31, 1994 ....................... *
10.13 Amendment, dated July 1, 1996, to Executive
Employment Agreement between the Company and
Mr. Bob M. Hubbard was filed as Exhibit 10.13
to the TBC Corporation Annual Report on Form 10-K
for the year ended December 31, 1996 ............... *
-40-<PAGE>
10.14 Executive Employment Agreement dated as of
November 1, 1988 between the Company and Mr.
Ronald E. McCollough, including Trust Agreement
as Exhibit A thereto, as extended as of November 1,
1991 and as amended as of July 1, 1992, was
filed as Exhibit 10.12 to the TBC Corporation
Annual Report on Form 10-K for the year ended
December 31, 1992 .................................. *
10.15 Amendment, dated July 1, 1996, to Executive
Employment Agreement between the Company and
Mr. Ronald E. McCollough was filed as Exhibit 10.16
to the TBC Corporation Annual Report on Form 10-K
for the year ended December 31, 1996 ............... *
10.16 Agreement to Extend Executive Employment Agreement,
between the Company and Mr. Ronald E. McCollough
dated October 31, 1997.............................. 52
10.17 Amended and Restated Executive Employment Agreement
dated as of August 1, 1997 between the Company and
Mr. Barry D. Robbins, including Trust Agreement as
Exhibit A thereto was filed as Exhibit 10.2 to the
TBC Corporation Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997 ............... *
10.18 TBC Corporation Management Incentive Compensation
Plan, effective January 1, 1997, was filed as
Exhibit 10.1 to the TBC Corporation Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1997 ................................. *
10.19 TBC Corporation Executive Supplemental Retirement
Plan, as amended through August 1, 1997, was filed
as Exhibit 10.3 to the TBC Corporation Quarterly
Report on Form 10-Q for the quarter ended September
30, 1997 ........................................... *
Other Material Contracts
10.20 Lease Agreement, dated February 25, 1980, between
TBC Corporation and Vantage-Memphis, Inc. was
filed as Exhibit 10.2 to TBC Corporation Registra-
tion Statement on Form S-1, filed on April 21, 1983
(Reg. No. 2-83216).................................. *
10.21 Modification and Ratification of Lease, dated
April 16, 1991, between TBC Corporation and
Vantage-Memphis, Inc. was filed as Exhibit 10.11
to the TBC Corporation Annual Report on Form 10-K
for the year ended December 31, 1991 ............... *
10.22 Lease Agreement, dated September 23, 1992, between
TBC Corporation and Weston Management Company
(for Weston Building #105) was filed as Exhibit
10.18 to the TBC Corporation Annual Report on
Form 10-K for the year ended December 31, 1992 ..... *
-41-<PAGE>
10.23 Lease Agreement, dated September 23, 1992, between
TBC Corporation and Weston Management Company
(for Weston Building #108) was filed as Exhibit
10.19 to the TBC Corporation Annual Report on
Form 10-K for the year ended December 31, 1992 ..... *
10.24 Form of TBC Corporation's standard Distributor
Agreement was filed as Exhibit 10.1 to the TBC
Corporation Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 ........................ *
10.25 Form of Franchise Agreement in use by Big O Tires,
Inc. ............................................... 53
10.26 Agreement, dated October 1, 1977, between TBC
Corporation and The Kelly-Springfield Tire
Company, including letter dated June 30, 1978,
was filed as Exhibit 10.6 to TBC Corporation
Registration Statement on Form S-1, filed on
April 21, 1983 (Reg. No. 2-83216) .................. *
10.27 Ten-Year Commitment Agreement, dated March 21, 1994,
between the Company and The Kelly-Springfield Tire
Company, was filed as Exhibit 10.2 to the TBC
Corporation Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994 ....................... *
10.28 Agreement, effective January 1, 1994, signed
April 25, 1994, between the Company and Cooper
Tire & Rubber Company, was filed as Exhibit 10.2 to
the TBC Corporation Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994 ................ *
(21) SUBSIDIARIES OF THE COMPANY:
21.1 List of the names and jurisdictions of
incorporation of the subsidiaries of the Company ... 106
(23) CONSENTS OF EXPERTS AND COUNSEL:
23.1 Consent of Coopers & Lybrand L.L.P., Independent
Certified Public Accountants, to incorporation by
reference of their report dated January 30, 1998
in Post-Effective Amendment No. 1 to Registration
Statement on Form S-8 for the Company's 1989 Stock
Incentive Plan (Reg. No. 33-43166) ................. 107
(24) POWER OF ATTORNEY:
24.1 Power of attorney of each person who signed this
Annual Report on Form 10-K on behalf of another
pursuant to a power of attorney .................... 108
-42-<PAGE>
(27) FINANCIAL DATA SCHEDULE:
27.1 Financial Data Schedule ............................ +
(99) ADDITIONAL EXHIBITS:
99.1 Rights Agreement, dated as of July 21, 1988,
between TBC Corporation and the First National
Bank of Boston, as Rights Agent, was filed as an
Exhibit to the Company's Registration Statement
on Form 8-A dated July 21, 1988. The Rights
Agreement includes as Exhibit A the form of
Certificate of Designation, Preferences and
Rights; as Exhibit B, the form of Rights
Certificate; and as Exhibit C, the form of
Summary of Rights .................................. *
"*" Indicates that the Exhibit is incorporated by
reference into this Annual Report on Form 10-K
from a previous filing with the Commission.
"#" With respect to all other instruments defining the
rights of holders of long-term debt, the amount of
securities authorized under each of such instruments
does not exceed 10% of the total assets of TBC
Corporation and its subsidiaries on a consolidated
basis. A copy of each of such instruments will be
furnished to the Commission upon request.
"+" Included only in the Company's electronic filing
with the Commission.
-43-<PAGE>
TBC CORPORATION
EXHIBITS
TO
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 1997
-44-
EXHIBIT 4.6
THIRD AMENDMENT TO SHORT AND
(SECOND AMENDMENT TO) LONG TERM CREDIT AGREEMENT
THIS THIRD AMENDMENT TO SHORT AND (SECOND AMENDMENT TO)
LONG TERM CREDIT AGREEMENT (the "Third Amendment") is entered into this
the 28th day of October, 1997, by and between TBC CORPORATION ("Borrower")
and FIRST TENNESSEE BANK NATIONAL ASSOCIATION as administrative agent
("Administrative Agent") for itself as Lender and the banks named as
Lenders under the Short and Long Term Credit Agreement dated September 25,
1996 between Borrower, First Tennessee Bank National Association as Lender
and as Administrative Agent ("First Tennessee"), NBD Bank (now known as
First National Bank of Chicago) as Lender and Suntrust Bank, Nashville,
N.A. as Lender, as previously amended, (the "Credit Agreement").
Borrower has agreed, pursuant to Section 6.23 of the
Credit Agreement that the repurchase of capital stock during any fiscal
year will not exceed an aggregate amount of $5,000,000.
The parties hereto have agreed to amend the Credit
Agreement on the terms and conditions hereinafter set out.
THEREFORE, for valuable consideration the receipt of which
is hereby acknowledged, the parties agree as follows:
1. Section 6.23 of the Credit Agreement is hereby amended
by inserting the following language at the end thereof before the period:
"; provided, that for fiscal year 1997 only, such
amount shall not be in excess of $6,000,000."
2. In all other respects the Credit Agreement is ratified
and remains in full force and effect.
IN WITNESS WHEREOF, the undersigned duly authorized
officers have executed this Third Amendment on behalf of the parties on
this the 28th day of October, 1997.
FIRST TENNESSEE BANK
NATIONAL ASSOCIATION,
as Administrative Agent and
Lender
By: /s/ T. J. Miller
Title: National Account Officer
TBC CORPORATION
By: /s/ R. E. McCollough
Title: Senior Vice President
Operations & Treasurer
-45-<PAGE>
CONSENT OF LENDER
The undersigned duly authorized officer of SUNTRUST BANK,
NASHVILLE, N.A. as Lender under that certain Short and Long Term Credit
Agreement dated September 25, 1996 between TBC Corporation, First
Tennessee Bank National Association as Lender and Administrative Agent,
Suntrust Bank, Nashville, N.A. as Lender, and NDB Bank (now known as First
National Bank of Chicago) as Lender, as previously amended, does hereby
consent to the foregoing Third Amendment to Short and Long Term Credit
Agreement.
Dated: 10/28/97
SUNTRUST BANK, NASHVILLE, N.A.
By: /s/ Anneliese H. Tyler
Title: Vice President
-46-<PAGE>
CONSENT OF LENDER
The undersigned duly authorized officer of FIRST NATIONAL
BANK OF CHICAGO as Lender under that certain Short and Long Term Credit
Agreement dated September 25, 1996 between TBC Corporation, First
Tennessee Bank National Association as Lender and Administrative Agent,
and NBD Bank (now known as First National Bank of Chicago) as Lender, and
Suntrust Bank, Nashville, N.A. as Lender, as previously amended, does
hereby consent to the foregoing First Amendment to Short and Long Term
Credit Agreement.
Dated: 10/27/97
FIRST NATIONAL BANK OF
CHICAGO
By: /s/ Curtis Price
Title: As Agent
-47-
EXHIBIT 4.7
THIRD AMENDMENT TO LONG TERM CREDIT AGREEMENT AND
FOURTH AMENDMENT TO SHORT TERM CREDIT AGREEMENT
THIS THIRD AMENDMENT TO LONG TERM CREDIT AGREEMENT and
FOURTH AMENDMENT TO SHORT TERM CREDIT AGREEMENT (the "Amendment") is
entered into this the 17 day of December, 1997, by and among TBC
CORPORATION ("Borrower"), FIRST TENNESSEE BANK NATIONAL ASSOCIATION as
administrative agent ("Administrative Agent") for itself as Lender and the
other undersigned Lenders, FIRST NATIONAL BANK OF CHICAGO and SUNTRUST
BANK, NASHVILLE, N.A. (each a "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower, the Administrative Agent and the
Lenders are each a party to the Short Term Credit Agreement and the Long
Term Credit Agreement each dated September 25, 1996 and each as previously
amended (each a "Credit Agreement" and collectively the "Credit
Agreements"); and
WHEREAS, the parties hereto have agreed to amend the
Credit Agreements on the terms and conditions hereinafter set out.
NOW, THEREFORE, for valuable consideration the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Capitalized terms used herein but not otherwise
defined shall have the meaning set forth in the Credit Agreements.
2. Section 6.17 of each Credit Agreement is amended as
follows:
(a) Subsection (iv) is hereby amended by deleting
"10%" and inserting in lieu thereof "20%".
(b) Subsection (vii) is hereby amended by deleting
"$3,000,000" and inserting in lieu thereof "$8,000,000."
3. Section 6.21 of each Credit Agreement is amended by
deleting "$10,000,000" and inserting in lieu thereof "$15,000,000."
4. Section 6.23 of each Credit Agreement is deleted in
its entirety and the following new Section 6.23 inserted in lieu thereof:
-48-<PAGE>
"Section 6.23 Minimum Working Capital. Borrower will
maintain working capital (calculated as current assets
less current liabilities, each determined in accordance
with GAAP) of at least $40,000,000, such amount to be
determined quarterly.
5. In all other respects each Credit Agreement is
ratified and remains in full force and effect.
6. This Amendment may be executed in any number of
counterparts by the parties hereto, each of which shall then be deemed to
be an original and all of which taken together shall constitute one and
the same agreement.
-49-<PAGE>
IN WITNESS WHEREOF, the undersigned duly authorized
officers have executed this Amendment on behalf of the parties on this the
17 day of December, 1997.
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION, as Administrative
Agent and Lender
By: /s/ T. J. Miller
Title: National Account Officer
SUNTRUST BANK, NASHVILLE, N.A.
By: /s/ Anneliese H. Tyler
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Curtis Price
Title: As Agent
TBC CORPORATION
By: /s/ Ronald E. McCollough
Title: Senior Vice President
Operations & Treasurer
BORROWER
-50-
EXHIBIT 10.10
AGREEMENT TO EXTEND
EXECUTIVE EMPLOYMENT AGREEMENT
THE UNDERSIGNED HEREBY AGREE to extend the Executive Employment
Agreement, dated November 1, 1998, between them (as later amended and
extended, the "Agreement"), until the later of October 31, 2000 or one
year after the ocurrence of a Change in Control of the Company (as defined
in the Agreement), in the event of a Change in Control of the Company shall
have occurred on or prior to October 31, 2000.
IN WITNESS WHEREOF, the undersigned have executed this instrument
as of the 31st day of October, 1997.
TBC CORPORATION
By /s/ Louis S. DiPasqua
Louis S. DiPasqua,
President and Chief Executive Officer
/s/ Kenneth P. Dick
KENNETH P. DICK
-51-
EXHIBIT 10.16
AGREEMENT TO EXTEND
EXECUTIVE EMPLOYMENT AGREEMENT
THE UNDERSIGNED HEREBY AGREE to extend the Executive Employment
Agreement, dated November 1, 1998, between them (as later amended and
extended, the "Agreement"), until the later of October 31, 2000 or one
year after the ocurrence of a Change in Control of the Company (as defined
in the Agreement), in the event of a Change in Control of the Company shall
have occurred on or prior to October 31, 2000.
IN WITNESS WHEREOF, the undersigned have executed this instrument
as of the 31st day of October, 1997.
TBC CORPORATION
By /s/ Louis S. DiPasqua
Louis S. DiPasqua,
President and Chief Executive Officer
/s/ Ronald E. McCollough
RONALD E. McCOLLOUGH
-52-
EXHIBIT 10.25
BIG O TIRES, INC.
FRANCHISE AGREEMENT
-53-
<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 . . . . . . . . . . . . . . . . . . . 2
3.01 First Option Rights . . . . . . . . . . . . . . . . 2
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. . . . . . . . . . . 4
6.01 Financing Approval. . . . . . . . . . . . . . . . . 4
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. . . . . . . . . . . . 5
7.01 Pre-Opening Assistance. . . . . . . . . . . . . . . 5
7.02 On-Going Assistance . . . . . . . . . . . . . . . . 6
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. . . . . . . . . . . . . . . 7
9. LICENSED MARKS. . . . . . . . . . . . . . . . . . . . . . 7
9.01 Licensed Marks. . . . . . . . . . . . . . . . . . . 7
9.02 Limitation on Use . . . . . . . . . . . . . . . . . 7
9.03 Infringement. . . . . . . . . . . . . . . . . . . . 7
9.04 Franchisee's Business Name. . . . . . . . . . . . . 7
-54-<PAGE>
9.05 Change of Licensed Marks. . . . . . . . . . . . . . 7
9.06 Franchisor's Rights . . . . . . . . . . . . . . . . 8
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 . . . . . . . . . . . . . .11
14. PRODUCTS AND SERVICES . . . . . . . . . . . . . . . . . .11
14.01 Products and Services. . . . . . . . . . . . . . .11
14.02 Approval of Products and Services. . . . . . . . .11
14.03 Inventory. . . . . . . . . . . . . . . . . . . . .12
14.04 Warranties and Guaranties. . . . . . . . . . . . .12
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. . . . . . . . . . . . . .14
16. STATEMENTS AND RECORDS. . . . . . . . . . . . . . . . . .14
16.01 Invoices . . . . . . . . . . . . . . . . . . . . .14
16.02 Audit. . . . . . . . . . . . . . . . . . . . . . .14
16.03 Monthly Reports. . . . . . . . . . . . . . . . . .14
16.04 Financial Statements . . . . . . . . . . . . . . .14
16.05 Management System. . . . . . . . . . . . . . . . .15
16.06 Retail Accounting Center . . . . . . . . . . . . .15
17. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . .15
17.01 Noncompetition During Term . . . . . . . . . . . .15
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. . . . . . . . . . . . .16
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
18.05 Death of Franchisee. . . . . . . . . . . . . . . .18
18.06 No Waiver. . . . . . . . . . . . . . . . . . . . .19
-55- <PAGE>
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. . . . . . . . . . . . . . . .23
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. . . . . . . . . . . .25
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 . . . . . . . . . . . . . . . . . .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
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
28. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . .27
28.01 Notices. . . . . . . . . . . . . . . . . . . . . .27
-56-<PAGE>
29. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . .28
29.01 Governing Law. . . . . . . . . . . . . . . . . . .27
29.02 Jurisdiction . . . . . . . . . . . . . . . . . . .27
30. SEVERABILITY AND CONSTRUCTION . . . . . . . . . . . . . .28
30.01 Severability . . . . . . . . . . . . . . . . . . .28
30.02 Counterparts . . . . . . . . . . . . . . . . . . .28
30.03 Construction . . . . . . . . . . . . . . . . . . .28
31. ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . .28
Schedule 1 - Premises and Trade Area
Schedule 2 - Ownership Verification
Schedule 3 - Guaranty
Schedule 4 - Lease Rider and Modification
Schedule 5 - Renewal Rider
Schedule 6 - Trademarks
Schedule 7 - Converter Rider
-57-<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
CONTRIBUTION: Minimum of four percent (4%) of Gross Sales
5. NATIONAL ADVERTISING
CONTRIBUTION: See sections 15 and 25
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
-58-<PAGE>
12. Effective Date:
13. Commencement Date:
14. Expiration Date:
15. Franchisee's Advisor:
16. Send Notices to Big O to:
Name: Susan D. Hendee (Legal Department)
Address: Big O Tires, Inc.
11755 E. Peakview Avenue, Suite A
Englewood, Colorado 80111
17. Send Notices to Franchisee to:
Name:
Address:
18. Business not subject to Section 17.01
Name:
Address:
-59-<PAGE>
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".
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 develop Big O's strategic 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.
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.
-60-<PAGE>
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 or any other 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 the first year of
business from 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 6 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.
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, point of sale systems
and inventory control systems, and other systems designed to provide
information for the management of Big O Stores, including but not
limited Boss2.
Manager - An individual other than the Operator who is responsible
for the day-to-day operation of a Store.
-61-<PAGE>
Manual - The various written, electronic, audio and video
instructions and manuals, 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 A Blueprint For Success, also known as "Blue II", Big O's
Franchise Compliance and Procedures Manual, any training tapes,
guides and any training module or any other proprietary information.
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 Center - A cooperative or association which
provides 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.
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
-62-<PAGE>
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.
-63-<PAGE>
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, Suite A, 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. In connection
therewith, 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.
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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:
(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 by 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.
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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
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.
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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 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 7 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. Unless otherwise agreed in writing by Big O and Franchisee,
Franchisee has sixteen (16) months from the Effective Date of this
Agreement within which to have its Big O Store opened and operating
("Development Period"). Big O will extend the Development Period for a
reasonable period of time in the event that factors beyond Franchisee's
reasonable control prevent Franchisee from meeting this 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.<PAGE>
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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. 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 one or more locations
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) One (1) copy of Big O's Franchise Compliance and Procedures
Manual and Big O's Operations Manual, known as "Blue II"or other such
proprietary information.
(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;
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(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) Monthly 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 by Big O for
which Big O may charge the franchisee a fee, 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
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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 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<PAGE>
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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 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.
These standards and specifications may include, but are not limited to the
safety, maintenance, cleanliness, sanitation, function and appearance of
the Store and its equipment and signs, as well as the requirement that the
employees of the Store shall be required to wear uniforms and to maintain
a standard of appearance while employed at the Store. 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
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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 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
Confidential Operating Manual, Big O's Blueprint for Success, otherwise
known as Blue II, 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
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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 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. Franchisee agrees that at least 75% on a quarterly basis of
all products purchased for resale from your Store will be purchased from
the RSC or BOX warehouses. In addition, Franchisee agrees that 50% of all
tire sales at the Store will be Big O brand product, excluding sales of
snow tires.
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
require. Franchisee may not sell any product or service which has not
been selected, designated or approved by Big O. Big O is not obliged to
approve any product, service, or merchandise selected by the Franchisee.
Big O will not give its approval of suppliers selected by the
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Franchisee which are not at the time approved by Big O for use by the
Franchisee, except 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 or service and that the product or service does
not conflict with Big O's existing marketing program of products and
services;
(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;
(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. Big O may revoke its
approval of an approved supplier at any time in its sole discretion.
14.03 Inventory. Franchisee shall at all times maintain an
inventory of Products 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
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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.
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
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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 as directed by 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
agrees to be bound by the decisions of either Big O (or its designee) 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.
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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 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. Franchisee must implement any Management
System required by Big O.
16.06 Retail Accounting Center. The Franchisee is required to use
some or all of the services provided by a Retail Accounting Center
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.
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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 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.
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.
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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;
(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;
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(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 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,
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-five thousand dollars ($25,000.00), 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 Confidential Operating 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;
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(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.
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; or (b) 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 or uses the
Licensed Marks in a manner contrary to or inconsistent with this
Agreement, specifications by Big O or as stated 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;
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(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 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
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
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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.
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) Confidential Operating Manual, Blue II,
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 including BOSS2 software and/or
hardware; 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.
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(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 or 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, 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
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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.
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;
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(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 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
canceled 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.
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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
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
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 in the
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development of its strategic business plan 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.
25.02 Special Interest Issues. Big O has granted the DPB the
authority to participate 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 policy committee by a representative of the DPB,
Big O's policy committee 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.
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.
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<PAGE>
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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.
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 representative. Any notice complying
with the provisions hereof shall be deemed to be given on the date of
mailing.
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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.
(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
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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.
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:
-91-
<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)
BIG O TIRES, INC.
By:
Date:
Title:
Attest:
Title:
(Affix Corporate Seal)
-92-
<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
-93-<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 Franchise Agreement
Page 1
-94-<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
-95-<PAGE>
_________________________________________
Home Address
_________________________________________
Home Telephone
_________________________________________
Business Address
_________________________________________
Business Telephone
Schedule 3 to Franchise Agreement
Page 2
-96-<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 make 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
-97-<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
-98-
<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
-99-
<PAGE>
SCHEDULE 5
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 5 to Franchise Agreement
Page 1
-100-
<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 5 to Franchise Agreement
Page 2
-101-
<PAGE>
SCHEDULE 6
TRADEMARKS
Big O is the sole and exclusive owner of the following trademarks and
service marks:
Trademark, Service Mark, Trade Where Registration Registration
Name or Logotype Registered Number Date
Sonic Principal 805,575 03/15/66
Sonic Commercial Principal 805,578 03/15/66
Super Sonic Principal 805,574 03/15/66
Ultra Sonic Principal 805,577 03/15/66
Winter Sonic Principal 805,581 03/15/66
Sun Valley Principal 871,318 06/17/69
Sonic & Design Principal 890,380 05/05/70
Sonic Principal 891,936 06/02/70
Maxima Principal 926,329 12/28/71
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
Sonic Vagabond Principal 996,459 10/22/74
Sonic Sahara Principal 1,013,509 06/17/75
Big Haul Principal 1,018,800 08/26/75
Protectors of Safety Saxon and
Design Principal 1,024,138 11/04/75
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
Schedule 6 to Franchise Agreement
Page 1
-102-
<PAGE>
Trademark, Service Mark, Trade Where Registration Registration
Name or Logotype Registered Number Date
Sonic Principal 805,575 03/15/66
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
Arapahoe Principal 74/271,501 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
Big Lift Principal 11386T-2669 Pending
USO
Cost-U-Less Principal 1,952,457 01/30/96
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 6 to Franchise Agreement
Page 2
-103-<PAGE>
SCHEDULE 7
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 paragraphs are 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.
If Big O provides assistance to Franchisee for the purchase of
signage or displays (by way of matching funds or other financial
contribution) at any one or more Big O Stores operated by
Franchisee, then, Big O, at its discretion, may retain title to
such signage and displays. At Big O's request, Franchisee will
sign UCC financing statements and other documents, will take
such other actions as reasonably requested by Big O to document
and protect Big O's title to the same, and will not take any
actions contrary to such title. If Franchisee remains a Big O
franchisee at the Big O Store or Big O Stores where such signs
and displays are located, in good standing ten years after such
assistance is provided and has the contractual right to continue
as a Big O Franchisee at such Big O Store or Big O Stores for
not less than five additional years, then Big O shall transfer
to Franchisee title to such signs and displays at each Big O
Store meeting such qualifications within a reasonable time after
the end of such ten year period.
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
Schedule 7 to Franchise Agreement
Page 1
-104-<PAGE>
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.
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. The following language shall be added as Section 7.03:
7.03 Other Discretionary Assistance. Big O may, in its discretion,
offer further assistance to the Franchisee in accordance with Big O's
conversion programs as in effect from time to time or as otherwise
negotiated by Big O and the Franchisee.
6. 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.
7. 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___.
BIG O TIRES, INC. FRANCHISEE:
_______________________________ __________________________________
(Print Name)
By: By:
Title: Title:
Schedule 7 to Franchise Agreement
Page 2
-105-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
OF
TBC CORPORATION
As of December 31, 1997, TBC Corporation had three subsidiaries,
each of which was wholly-owned by TBC Corporation. The subsidiaries and
their states of incorporation were as follows:
Name of Subsidiary State of Incorporation
Big O Tires, Inc. Nevada
Northern States Tire, Inc. Delaware
TBC International, Inc. Delaware
In addition, TBC Corporation has other subsidiaries which it
owns indirectly through the above-named subsidiaries. Such indirectly-
owned subsidiaries are not named because they would not, if considered in
the aggregate as one subsidiary, constitute a "significant subsidiary," as
defined in Rule 1.02(w) of Regulation S-X.
-106-
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Form S-8
registration statement for TBC Corporation's 1989 Stock Incentive Plan of
our reports dated January 30, 1998, on our audits of the consolidated
financial statements and financial statement schedule of TBC Corporation
and Subsidiaries as of December 31, 1997 and 1996 and for the years ended
December 31, 1997, 1996 and 1995, which reports are included in this
Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Memphis, Tennessee
February 10, 1998
-107-
EXHIBIT 24.1
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1997;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 5th day of February, 1998.
/s/ Marvin E. Bruce
Marvin E. Bruce
-108-<PAGE>
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1997;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 5th day of February, 1998.
/s/ Robert E. Carroll, Jr.
Robert E. Carroll, Jr.
-109-<PAGE>
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1997;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 5th day of February, 1998.
/s/ Robert H. Dunlap
Robert H. Dunlap
-110-<PAGE>
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1997;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 5th day of February, 1998.
/s/ Dwain W. Higginbotham
Dwain W. Higginbotham
-111-<PAGE>
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1997;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 7th day of February, 1998.
/s/ Charles A. Ledsinger
Charles A. Ledsinger
-112-<PAGE>
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1997;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 5th day of February, 1998.
/s/ Richard A. McStay
Richard A. McStay
-113-<PAGE>
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1997;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 6th day of February, 1998.
/s/ Robert M. O'Hara
Robert M. O'Hara
-114-<PAGE>
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1997;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 5th day of February, 1998.
/s/ Robert R. Schoeberl
Robert R. Schoeberl
-115-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> (2320)<F1>
<SECURITIES> 0
<RECEIVABLES> 84683
<ALLOWANCES> 7344
<INVENTORY> 84806
<CURRENT-ASSETS> 183198
<PP&E> 58226
<DEPRECIATION> 21967
<TOTAL-ASSETS> 264948
<CURRENT-LIABILITIES> 52784
<BONDS> 0
0
0
<COMMON> 2316
<OTHER-SE> 131871
<TOTAL-LIABILITY-AND-EQUITY> 264948
<SALES> 642852
<TOTAL-REVENUES> 642852
<CGS> 544119
<TOTAL-COSTS> 544119
<OTHER-EXPENSES> 61350
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5796
<INCOME-PRETAX> 31587
<INCOME-TAX> 11887
<INCOME-CONTINUING> 19700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19700
<EPS-PRIMARY> .84<F2>
<EPS-DILUTED> .84
<FN>
<F1>THIS ITEM IS SHOWN NET OF "OUTSTANDING CHECKS, NET" ON THE CONSOLIDATED
BALANCE SHEETS.
<F2>AMOUNT IS "BASIC" EPS AS COMPUTED PER FASB STATEMENT NO. 128.
</FN>
</TABLE>
