SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996;
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-7007
BANDAG, INCORPORATED
(Exact name of registrant as specified in its charter)
Iowa 42-0802143
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2905 North Highway 61, Muscatine, Iowa 52761-5886
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 319/262-1400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock - $1 Par Value New York Stock Exchange and
Class A Common Stock - $1 Par Value Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock - $1 Par Value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
periods that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 21, 1997: Common Stock,
$652,417,649; Class A Common Stock (non-voting), $773,784,185; Class B
Common Stock, $210,178,539.
The number of shares outstanding of the issuer's classes of common
stock as of March 21, 1997: Common Stock, 9,846,205 shares; Class A
Common Stock, 11,030,469 shares; Class B Common Stock, 2,051,350 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of the
Shareholders to be held May 6, 1997 are incorporated by reference in Part
III.
<PAGE>
PART I
ITEM 1. BUSINESS
All references herein to the "Company" or "Bandag" refer to Bandag,
Incorporated and its subsidiaries unless the context indicates otherwise.
Bandag is engaged in the production and sale of precured tread rubber
and equipment used by its franchisees for the retreading of tires for
trucks, buses, light commercial trucks, industrial equipment, off-the-road
equipment and passenger cars. Bandag specializes in a patented
cold-bonding retreading process which it introduced to the United States
in 1957. The Bandag Method, as it is called, separates the process of
vulcanizing the tread rubber from the process of bonding the tread rubber
to the tire casing, allowing for optimization of temperature and pressure
levels at each stage of the retreading process. Although a Bandag retread
is typically sold at a higher unit price than the alternative "hot-capped"
process, as well as retreads sold using competitive precured systems, the
Bandag product is considered to be superior, resulting in a longer lasting
retread and lower user cost per mile.
The Company and its licensees have 1,383 franchisees worldwide, with
36% located in the United States and 64% internationally. The majority of
Bandag's franchisees are independent operators of full service tire
distributorships. Bandag's revenues primarily come from the sale of
retread material and equipment to its franchisees. Bandag's products
compete with new tire sales, as well as retreads produced using other
retread processes. The Company concentrates its marketing effort on
existing franchisees and on expanding their respective market penetration.
Due to its strong distribution system, marketing efforts, and leading
technology, Bandag, through its independent franchisee network, has been
able to maintain the largest market presence in the retreading industry.
The Company as a tread rubber supplier to its independent network of
franchisees competes in the light and heavy truck tire replacement market.
Both new tire manufacturers and tread rubber suppliers compete in this
market. While the Company has independent franchisees in over 120
countries, and competes in all of these geographic markets, its largest
market is the United States. Truck tires retreaded by the Company's
franchisees make up approximately 15% of the U.S. light and heavy truck
tire replacement market. The Company's primary competitors are new tire
manufacturers such as The Goodyear Tire & Rubber Company, Bridgestone
Corporation and Groupe Michelin. The Goodyear Tire & Rubber Company also
competes in the U.S. market as a tread rubber supplier to a combination of
company owned and independent retreaders.
As a result of a recapitalization of the Company approved by the
Company's shareholders on December 30, 1986, and substantially completed
in February 1987, the Carver Family (as hereinafter defined) obtained
absolute voting control of the Company. As of March 21, 1997 the Carver
Family beneficially owned shares of Common Stock and Class B Common Stock
constituting 75% of the votes entitled to be cast in the election of
directors and other corporate matters. The "Carver Family" is composed of
(i) Lucille A. Carver, a director and widow of Roy J. Carver, (ii) the
lineal descendants of Roy J. Carver and their spouses, and (iii) certain
trusts and other entities for the benefit of the Carver Family members.
Description of Business
The Company's business consists of the franchising of a patented
process for the retreading of tires primarily for trucks, buses, light
commercial trucks, and the production and sale of precured tread rubber
and related products used in connection with this process.
The Company's business can be divided into two main areas:
(i) manufacturing the tread rubber and (ii) bonding the tread to a tire
casing. Bandag manufactures over 500 separate tread designs and sizes,
treads specifically designed for various applications, allowing fleet
managers to fine-tune their tire programs. Bandag tread rubber is
vulcanized prior to shipment to its independent franchisees. The Bandag
franchisee performs the retreading process of bonding the cured tread to a
prepared tire casing. This two-step process allows utilization of the
optimum temperature and pressure levels at each step. Lower temperature
levels during the bonding process result in a more consistent, higher
quality finished retread with less damage to the casing. Bandag has
developed a totally integrated retreading system with the materials,
bonding process and manufacturing equipment specifically designed to work
together as a whole.
The Company also franchises the use of another cold process precured
retreading system, the Vakuum Vulk Method, for which the Company owns
worldwide rights. In connection with the Vakuum Vulk Method, the Company
currently sells tread rubber, equipment, and supplies to franchisees
located in certain European countries.
Markets and Distribution
The principal market categories for tire retreading are truck and
bus, with more than 90% of the tread rubber sold by the Company used in
the retreading of these tires. Additionally, the Company markets tread
rubber for the retreading of off-the-road equipment, industrial and light
commercial vehicle and passenger car tires; however, historically, sales
of tread rubber for these applications have not contributed materially to
the Company's results of operations.
Trucks and Buses Tread rubber, equipment, and supplies for
retreading and repairing truck and bus tires are sold primarily to
independent franchisees by the Company to use the Bandag Method for that
purpose. Bandag has 1,333 franchisees throughout North America, Central
America, South America, Europe, Africa, Far East, Australia and New
Zealand. These franchisees are owned and operated by independent
franchisees, some with multiple franchises and/or locations. Of these
franchisees 496 are located in the United States. Additionally, the
Company has approximately 50 franchisees in Europe who retread tires using
the Vakuum Vulk Method. One hundred forty of Bandag's foreign franchisees
are franchised by licensees of the Company in Australia, and joint
ventures in India and Sri Lanka. A limited number of franchisees are
trucking companies which operate retread shops essentially for their own
needs. A few franchisees also offer "hot-cap" retreading and most sell
one or more lines of new tires.
The current franchise agreement offered by the Company grants the
franchisee the non-exclusive retread manufacturing rights to use the
Bandag Method for one or more applications and the Bandag trademarks in
connection therewith within a specified territory, but the franchisee is
free to market Bandag retreads outside the territory. No initial
franchise fee is paid by a franchisee for its franchise.
Other Applications The Company continues to manufacture and supply
to its franchisees a limited amount of tread for Off-the-Road (OTR) tires,
industrial tires, including solid and pneumatic, passenger car tires and
light commercial tires for light trucks and recreational vehicles.
Regulations
Various federal and state authorities have adopted safety and other
regulations with respect to motor vehicles and components, including
tires, and various states and the Federal Trade Commission enforce
statutes or regulations imposing obligations on franchisors, primarily a
duty to disclose material facts concerning a franchise to prospective
franchisees. Management is unaware of any present or proposed regulations
or statutes which would have a material adverse effect upon the Company's
business, but cannot predict what other regulations or statutes might be
adopted or what their effect on the Company's business might be.
Competition
The Company faces strong competition in the market for replacement
truck and bus tires, the principal retreading market which it serves. The
competition comes not only from the major manufacturers of new tires, but
also from manufacturers of retreading materials. Competitors include
producers of "camelback," "strip stock," and "slab stock" for "hot-cap"
retreading, as well as a number of producers of precured tread rubber.
Various methods for bonding precured tread rubber to tire casings are used
by competitors.
Bandag retreads are often sold at a higher price than tires retreaded
by the "hot-cap" process as well as retreads sold using competitive
precured systems. The Company believes that the superior quality and
greater mileage of Bandag retreads and expanded service programs to
franchisees and end-users outweigh any price differential.
Bandag franchisees compete with many new-tire dealers and retreading
operators of varying sizes, which include shops operated by the major
new-tire manufacturers, large independent retread companies, retreading
operations of large trucking companies, and smaller commercial tire
dealers.
Sources of Supply
The Company manufactures the precured tread rubber, cushion gum, and
related supplies in Company-owned manufacturing plants in the United
States, Canada, Brazil, Belgium, South Africa, Indonesia, Mexico, Malaysia
and New Zealand. The Company has entered into joint venture agreements in
India and Sri Lanka. The Company also manufactures pressure chambers,
tire casing analyzers, buffers, tire builders, tire handling systems, and
other items of equipment used in the Bandag and Vakuum Vulk retreading
methods. Curing rims, chucks, spreaders, rollers, certain miscellaneous
equipment, and various retreading supplies, such as repair patches sold by
the Company, are purchased from others.
The Company purchases rubber and other materials for the production
of tread rubber and other rubber products from a number of suppliers. The
rubber for tread is primarily synthetic and obtained principally from
sources which most conveniently serve the respective areas in which the
Company's plants are located. Although synthetic rubber and other
petrochemical products have periodically been in short supply and
significant cost fluctuations have been experienced in previous years, the
Company to date has not experienced any significant difficulty in
obtaining an adequate supply of such materials. However, the effect on
operations of future shortages will depend upon their duration and
severity and cannot presently be forecast.
The principal source of natural rubber, used for the Company's
cushion gum, is the Far East. The supply of natural rubber has
historically been adequate for the Company's purposes. Natural rubber is
a commodity subject to wide price fluctuations as a result of the forces
of supply and demand. Synthetic prices historically have been related to
the cost of petrochemical feedstocks which were relatively stable prior to
1995. A relationship between natural rubber and synthetic rubber prices
exists, but it is by no means exact.
Patents
The Company owns or has licenses for the use of a number of United
States and foreign patents covering various elements of the Bandag and
Vakuum Vulk Methods. The Company has patents covering improved features,
some of which started expiring in 1995 and others that will continue to
expire through the year 2011, and the Company has applications pending for
additional patents.
The Company's patent counsel has advised the Company that the United
States patents are by law presumed valid and that the Company does not
infringe upon the patent rights of others. While the outcome of
litigation can never be predicted with certainty, such counsel has advised
the Company that, in his opinion, in the event of litigation placing the
validity of such patents at issue, the Company's United States patent
position should remain adequate.
The protection afforded the Bandag Method by foreign patents owned by
the Company, as well as those under which it is licensed, varies among
different countries depending mainly upon the extent to which the elements
of the Bandag Method are covered, the strength of the patent laws and the
degree to which patent rights are upheld by the courts. Patent counsel
for the Company is of the opinion that its patent position in the foreign
countries in which its principal sales are made is adequate and does not
infringe upon the rights of others. The Company has, however, extended
its foreign market penetration to some countries where little or no patent
protection exists.
The Company does not consider that patent protection is the primary
factor in its successful retreading operation, but rather, that its
proprietary technical "know-how," product quality, franchisee support
programs and effective marketing programs are more important to its
success.
The Company has secured registrations for its trademark and service
mark BANDAG, as well as other trademarks and service marks, in the United
States and most of the other important commercial countries.
Other Information
The Company conducts research and development of new products,
primarily in the tire retreading field, and the improvement of materials,
equipment, and retreading processes. The cost of this research and
development program was approximately $12,056,000 in 1994, $12,556,000 in
1995 and $16,157,000 in 1996.
The Company's business has seasonal characteristics which are tied
not only to the overall performance of the economy, but more specifically
to the level of activity in the trucking industry. Tire demand does,
however, lag the seasonality of the trucking industry. The Company's
third and fourth quarters have historically been the strongest in terms of
sales volume and earnings.
As stated in the Company's 13D filed pursuant to the acquisition of
the HON Industries common stock, "The shares of Common Stock purchased by
Bandag have been acquired for investment purposes. Bandag believes that
the Common Stock represents an attractive investment opportunity at this
time." The Company continues to believe that HON Industries' common stock
is a good, long-term investment consistent with the Company's overall
corporate strategy to maximize long term shareholder value. The Company
purchased the stock in 1987 and 1988 at a cost of $25.3 million and the
market value of the shares currently held at the end of 1996 was $79
million.
The Company has sought to comply with all statutory and
administrative requirements concerning environmental quality. The Company
has made and will continue to make necessary capital expenditures for
environmental protection. It is not anticipated that such expenditures
will materially affect the Company's earnings or competitive position.
As of December 31, 1996, the Company had 2,591 employees.
Financial Information about Industry Segments
As stated above, the Company's continuing operations are conducted in
one principal business and, accordingly, the Company's financial
statements contain information concerning a single industry segment.
Revenues of Principal Product Groups
The following table sets forth (in millions of dollars), for each of
the last three fiscal years, revenues attributable to the Company's
principal product groups:
1996 1995 1994
Revenues:
Tread rubber, cushion gum,
and retreading supplies $700.7 $688.8 $613.1
Other products (1) 61.0 58.4 45.9
Corporate (2) 7.3 8.1 6.7
----- ----- -----
Total $769.0 $755.3 $665.7
(1) Includes retreading equipment and the sale of new and retreaded
tires and related services.
(2) Consists of interest and dividend income.
Financial Information about Foreign and Domestic Operations
Financial Statement "Operations in Different Geographic Areas and Sales by
Principal Products" follows on page 10.
BANDAG, INCORPORATED AND SUBSIDIARIES
Operations in Different Geographic Areas and Sales by Principal Products
The Company's operations are conducted in one principal business, which
includes the manufacture of precured tread rubber, equipment and supplies
for retreading tires. While the Company does business throughout the
world, its principal markets are in the United States and Europe
Information concerning the Company's operations by geographic area
and sales by principal product for the years ended December 31,
1996, 1995 and 1994 is shown below.
Information concerning operations in different geographic areas:
<TABLE>
<CAPTION>
United States Europe Other Consolidated
In millions 1996 1995 1994 1996 1995 1994 1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Revenues from
unaffiliated
customers(1)(2) $476.8 $464.7 $421.5 $130.6 $136.7 $111.8 $154.3 $145.8 $125.7 $761.7 $747.2 $659.0
Transfers between
areas(3) 28.8 24.9 31.2 1.1 0.6 0.6 2.0 1.7 3.5 31.9 27.2 35.3
----- ----- ----- ----- ------ ------ ------ ------ ----- ----- ----- ------
Geographic area
totals $505.6 $489.6 $452.7 $131.7 $137.3 $112.4 $156.3 $147.5 $129.2 793.6 774.4 694.3
Elimination
(deduction) (31.9) (27.2) (35.3)
Corporate revenues 7.3 8.1 6.7
----- ----- -----
Total Revenues $769.0 $755.3 $665.7
Earnings (Expenses)
Operations(4) $109.3 $121.2 $126.7 $9.0 $13.6 $6.8 $16.5 $23.1 $19.1 $134.8 $157.9 $152.6
Investment income 7.3 8.1 6.6
Interest expense (1.2) (2.0) (2.1)
General corporate
expenses (10.1) (8.9) (7.3)
----- ----- -----
Earnings Before
Income Taxes $130.8 $155.1 $149.8
Assets at December 31
Operations $301.4 $290.1 $282.4 $79.2 $84.9 $79.6 $91.8 $78.0 $67.4 $472.4 $453.0 $429.4
Corporate(5) 115.9 101.2 152.7
----- ----- -----
Total Assets $588.3 $554.2 $582.1
Liabilities at
December 31
Operations $99.6 $79.5 $77.9 $28.5 $31.6 $29.5 $34.6 $23.8 $16.6 $162.7 $134.9 $124.0
Corporate(5) 14.8 19.3 24.1
----- ----- -----
Total Liabilities $177.5 $154.2 $148.1
Sales Information by
Principal Product
Group:
Retread materials
and supplies 92% 92% 93%
Other 8% 8% 7%
----- ----- -----
100% 100% 100%
(1) No single customer accounted for 10% or more of the Company's sales
to unaffiliated customers in any of the years 1996, 1995 or 1994.
(2) Export sales from the United States were less than 10% of sales to
unaffiliated customers in each of the years 1996, 1995 or 1994.
(3) Transfers between geographic areas are made at the transferor's
selling price to unaffiliated customers less a predetermined discount
to allow the transferee to recover its costs and earn an operating
profit.
(4) Aggregate foreign exchange gains (losses) included in determining net
earnings amounted to approximately $1,236,000, ($1,187,000) and
($3,294,000) in 1996, 1995 and 1994, respectively.
(5) Corporate assets are principally cash, investments, corporate office
and related equipment. Corporate liabilities are principally
dividends payable, short-term notes payable and other liabilities.
</TABLE>
Executive Officers of the Company
The following table sets forth the names and ages of all executive
officers of the Company as of March 21, 1997, the period of service of
each with the Company, positions and offices with the Company presently
held by each, and the period during which each officer has served in his
present office:
<TABLE>
<CAPTION>
Period of Present Period in
Service with Position or Present
Name Age Company Office Office
<S> <C> <C> <C> <C>
Martin G. Carver* 48 17 Yrs. Chairman of the Board, 16 Yrs.
Chief Executive Officer
and President
Lucille A. Carver* 79 39 Yrs. Treasurer 38 Yrs.
Gary L. Carlson 46 23 Yrs. Sr. Vice President and 3 Yrs.
General Manager, Eastern
Hemisphere Retreading
Division (EHRD)
Nathaniel L. Derby II 54 25 Yrs. Vice President, 11 Yrs.
Engineering
Thomas E. Dvorchak 64 25 Yrs. Sr. Vice President 19 Yrs.
Sam Ferrise II 40 16 Yrs. Vice President, Sales and 3 Mos.
Marketing
Stuart C. Green 55 5 Yrs. Sr. Vice President, 5 Yrs.
Manufacturing
Warren W. Heidbreder 50 14 Yrs. Vice President, Chief 3 Mos.
Financial Officer, and
Corporate Secretary
Hong Yan Li, Henry 49 8 Mos. Vice President, Asian 8 Mos.
Operations
Patricio H. Andrade- 69 8 Yrs. Vice President, Latin 2 Yrs.
Marin America
Patrick K. Robbins 56 6 Yrs. Vice President, Southern 9 Mos.
Region
* Denotes that officer is also a director of the Company.
</TABLE>
Mr. Martin G. Carver was elected Chairman of the Board effective June
23, 1981, Chief Executive Officer effective May 18, 1982, and President
effective May 25, 1983. Prior to his present position, Mr. Carver was
also Vice Chairman of the Board from January 5, 1981 to June 23, 1981.
Mrs. Carver has served as a Director and Treasurer of the Company for
more than five years.
Mr. Carlson joined Bandag in 1974. In 1985 he was appointed to Vice
President, Personnel Administration and in 1989 was appointed Vice
President, Planning and Development. In November 1993, he was elected to
his current office of Sr. Vice President and General Manager EHRD.
Mr. Derby joined Bandag in 1971. He has served as Vice President,
Engineering since 1985 and was elected to that office in August 1996.
Mr. Dvorchak joined Bandag in 1971. In 1978 he was elected to the
office of Sr. Vice President, Chief Financial Officer. Mr. Dvorchak
announced his decision to retire in 1997 and to step down as Chief
Financial Officer effective January 1, 1997. Mr. Dvorchak will continue
to serve as Senior Vice President of the Corporation until his retirement.
Mr. Ferrise joined Bandag in 1981. In 1995 he was elected to the
office of Vice President, Marketing and held that position until January
1997 when he was elected to his current office of Vice President, Sales &
Marketing.
Mr. Green joined Bandag in 1991 and was elected Senior Vice
President, Manufacturing. From 1981 to that date, he was employed by
Nissan Motor Manufacturing Corporation in various management positions in
manufacturing, the latest of which was Director, Manufacturing Vehicle
Assembly, Component Assembly and Paint Plants, Manufacturing Division.
Mr. Heidbreder joined Bandag in 1982. In 1986 he was elected to the
office of Vice President, Legal and Tax Administration, and Corporate
Secretary. In November 1996, he was elected to his current office of Vice
President, Chief Financial Officer, and Corporate Secretary effective as
of January 1, 1997.
Mr. Li joined Bandag in July 1996 as Vice President, Asian Operations
and was elected to that office in August 1996. Before joining Bandag, Mr.
Li was employed for more than 25 years by the Eastman Kodak Company.
Mr. Andrade-Marin served as General Manager, South America from 1989
until January 1995 when he was promoted to the position of Vice President,
Latin America. He was elected to that office in August 1996.
Mr. Robbins served as General Manager, New Zealand from 1991 until
June 1996 when he was promoted to the position of Vice President, Southern
Region. He was elected to that office in August 1996.
All of the above-named executive officers have been elected by the
Board of Directors and serve at the pleasure of the Board of Directors.
ITEM 2. PROPERTIES
The general offices of the Company are located in a Company-owned
56,000 square foot office building in Muscatine, Iowa.
The tread rubber manufacturing plants of the Company are located to
service principal markets. The Company operates fifteen of such plants,
six of which are located in the United States, and the remainder in
Canada, Belgium, South Africa, Brazil, New Zealand, Mexico, Malaysia,
Indonesia and Venezuela. The plants vary in size from 9,600 square feet
to 194,000 square feet with the first plant being placed into production
during 1959. All of the plants are owned in fee except for the plants
located in New Zealand, Indonesia, Malaysia and Venezuela, which are under
standard lease contracts.
Retreading equipment is manufactured at Company-owned plants located
in Muscatine, Iowa and Campinas, S.P., Brazil, of approximately 60,000
square feet and 10,000 square feet, respectively. In addition, the
Company owns a research and development center in Muscatine of
approximately 58,400 square feet and a 26,000 square foot facility used
primarily for training franchisees and franchisee personnel. Similar
training facilities are located in Brazil, Mexico, South Africa and
Europe. The Company also owns a 26,000 square foot office and warehouse
facility in Muscatine.
In addition, the Company mixes rubber and produces cushion gum at a
Company-owned 168,000 square foot plant in California. The Company owns
its European headquarters office in Belgium and a 129,000 square foot
warehouse in the Netherlands.
In September 1995, Bandag do Brasil acquired 53,820 square feet of
manufacturing facility located on 4.9 acres of land. The facility is
located in Sorocaba in the State of Sao Paulo, Brazil. Bandag do Brasil
is in the process of building a 77,580 square foot manufacturing and
warehouse facility on a 23 acre site in Mafra, State of Santa Catarina,
Brazil.
In the opinion of the Company, its properties are maintained in good
operating condition and the production capacity of its plants is adequate
for the near future. Because of the nature of the activities conducted,
necessary additions can be made within a reasonable period of time.
ITEM 3. LEGAL PROCEEDINGS
Treadco, Inc. v. Bandag, Inc., et. al. On October 27, 1995, Treadco,
Inc. ("Treadco"), Bandag's largest franchisee, filed a complaint in the
Sebastian County Chancery Court, Fort Smith, Arkansas, against Bandag
(Treadco, Inc. v. Bandag, Inc., et al., Case No. 95-1224). Treadco
alleges in that action various Arkansas statutory and common law claims
relating to allegations that Bandag wrongfully induced several Treadco
employees to terminate their employment with Treadco and begin working for
Bandag, that Bandag wrongfully induced Treadco customers to switch their
business to other Bandag franchises, and that Bandag wrongfully refused to
renew certain franchise agreements. Treadco seeks an unspecified amount
of money damages and injunctive relief. On November 8, 1995, Bandag filed
an action in the United States District Court for the Western District of
Arkansas to compel the arbitration of Treadco's claims (Bandag, Inc. v.
Treadco, Inc., Case No. 95-2204). The Arkansas Chancery Court stayed all
proceedings pending the federal court's decision on Bandag's petition.
Treadco conceded that three of its claims against Bandag were subject to a
binding arbitration agreement. The federal court has ruled that all
claims should be settled at the arbitration hearing.
Treadco has brought a counterclaim in the arbitration matter in which
Treadco alleges that Bandag has engaged in conduct intended to restrain
trade and destroy competition in violation of antitrust law. Treadco and
Bandag have both stated that reports from their experts will be ready
during July, 1997 and they will be ready for the arbitration hearing by
October, 1997. No date has been set for the arbitration hearing by the
arbitrator.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Information concerning cash dividends declared and market prices of
the Company's Common Stock and Class A Common Stock for the last three
fiscal years is as follows:
<TABLE>
<CAPTION>
1996 % Change 1995 % Change 1994
<S> <C> <C> <C>
Cash Dividends Per
Share-Declared
First Quarter $ 0.2250 $ 0.2000 $ 0.1750
Second Quarter 0.2250 0.2000 0.1750
Third Quarter 0.2250 0.2000 0.1750
Fourth Quarter 0.2500 0.2250 0.2000
-------- -------- --------
Total Year $ 0.9250 12.1 $ 0.8250 13.8 $ 0.7250
-------------- -------------- --------
Stock Price Comparison (A)
Common Stock
First Quarter $50.25 - 55.88 $57.00 - 62.00 $50.75 - 63.50
Second Quarter 47.38 - 52.75 56.75 - 64.63 49.13 - 55.13
Third Quarter 44.50 - 49.50 52.25 - 65.88 51.00 - 57.00
Fourth Quarter 46.13 - 49.38 49.00 - 54.88 52.00 - 61.88
Year-End Closing
Price 47.38 54.13 60.50
Class A Common Stock
First Quarter $48.75 - 54.00 $51.50 - 54.88 $48.25 - 59.50
Second Quarter 46.63 - 51.50 52.25 - 60.50 44.50 - 52.50
Third Quarter 43.30 - 48.00 47.75 - 59.75 46.00 - 50.25
Fourth Quarter 45.25 - 47.88 47.50 - 53.63 46.25 - 54.63
Year-End Closing
Price 45.75 53.00 53.50
(A) High and low composite prices in trading on the New York and Chicago
Stock Exchanges (ticker symbol BDG for Common Stock and BDGA for
Class A Common Stock) as reported in The Wall Street Journal.
</TABLE>
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. (Cont.)
The approximate number of record holders of the Company's Common Stock
as of March 21, 1997, was 2,623, the number of holders of Class A Common
Stock was 1,448, and the number of holders of Class B Common Stock was
296. The Common Stock and Class A Common Stock are traded on the New York
Stock Exchange and the Chicago Stock Exchange. There is no established
trading market for the Class B Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain Selected Consolidated Financial
Data for the periods and as of the dates indicated:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net Sales $756,925 $740,363 $650,567 $590,199 $591,374
Earnings Before Cumulative Effect of Changes in
Accounting Methods 81,604 97,027 93,994 78,734 83,023
Cumulative Effect of Changes in Accounting
Methods, Net of Related Tax Effect --- --- --- --- (220)
------- ------- ------- ------- -------
Net Earnings $81,604 $97,027 $93,994 $78,734 $82,803
------- ------- ------- ------- -------
Total Assets (A) $588,342 $554,159 $582,146 $550,731 $469,239
Noncurrent Liabilities 10,125 11,857 12,252 11,039 7,366
Earnings Per Share Before Cumulative Effect of
Changes in Accounting Methods (B) $3.44 $3.82 $3.51 $2.88 $2.99
Cumulative Effect of Changes in Accounting
Methods, Net of Related Tax Effect -- --- --- --- (0.01)
------- ------- ------- ------- -------
Earnings Per Share (B) $3.44 $3.82 $3.51 $2.88 $2.98
------- ------- ------- ------- -------
Cash Dividends Per Share-Declared (B) $0.9250 $0.8250 $0.7250 $0.6625 $0.6125
(A) The change in accounting for certain investments in 1993 effected
comparability with prior periods financial data which have not been
restated.
(B) Adjusted to give retroactive effect to the Company's June 10, 1992
stock dividend of Class A Common Stock.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
1996-1995
Consolidated net sales in 1996 increased 2% from 1995 matching the unit
volume growth for retread materials. The translated value of the Company's
foreign-currency-denominated sales decreased 1% from 1995 but that
difference was offset by slightly higher equipment sales. The Company's
seasonal sales pattern, which is tied to the trucking industry activity,
is similar to previous years with the third and fourth quarters being the
strongest for both sales and earnings.
The Company's consolidated gross profit margin increased by 1.4 percentage
points from 1995 to 41.6% in 1996 as a result of raw material cost
decreases and manufacturing efficiencies resulting from past investments
in process improvements. However, this gain was more than offset by
higher operating expenses. The increased operating expenses related
principally to increased spending for sales & marketing staffing and
programs, employee training, distribution replacement, and higher R&D,
resulting in a net earnings decline in 1996 of 16% from 1995. The Company
believes that in order to achieve its strategic initiatives for future
growth it will require heavy investments in people and processes. This
will keep the Company's operating expenses at higher than historical
levels for the near future. Therefore, growth in earnings will be
dependent on the Company's ability to achieve revenue growth. The
Company's effective income tax rate of 37.6% was comparable to the
previous year's rate of 37.4%.
Earnings per share in 1996 of $3.44 were $.38 lower, a 10% decrease from
1995. During 1996, the Company acquired 1,298,000 shares of its
outstanding Common Stock and Class A Common Stock for $61,691,000, at
prevailing market prices. This, in addition to the previous year's
purchases, resulted in fewer average shares outstanding in 1996, which had
a favorable impact of $.07 on earnings per share.
Domestic net sales in 1996 were 3% higher than a year ago, as was the
tread volume. Average raw material costs for the year were approximately
4% lower than the previous year's average. As a result, gross margin
increased by 2 percentage points compared to a margin decrease experienced
in the previous year. Domestic 1996 earnings before income taxes declined
10 percentage points from the previous year due to the same increases in
operating expenses as discussed in the consolidated comments above.
The Company's foreign operations comprised 37% and 20% of 1996's net sales
and earnings before income taxes, respectively. This compares to 38% and
24%, respectively, of last year's net sales and earnings before income
taxes.
Net sales in Europe declined 5% from 1995. The decline was the result of
a 7% decrease in unit volume and a 3% decrease because of the unfavorable
impact on the translated value of the Company's foreign-currency-
denominated sales, which was partially offset with price increases of
approximately 4%. Gross profit margin in 1996 increased approximately
1 percentage point compared to 1995 due to lower per unit manufacturing
costs. Earnings before income taxes declined by 33% over the previous
year.
Unit volume for the Company's other combined foreign operations improved
by 5% over 1995, and net sales increased by 6%. Gross profit margin
remained the same, but operating and other expenses, as a percent of
sales, increased by approximately 6 percentage points from the previous
year due principally to a provision related to a tax dispute in Brazil and
the Company's commitment to building a global organizational structure.
Earnings before income taxes declined by 28% due to the increased
operating expenses.
1995-1994
Consolidated net sales increased 14% from 1994. Retread unit volume
increased 3% while the translated value of the Company's foreign-currency-
denominated sales increased 2%. The remaining 9% increase was from the
cumulative increases in selling prices in 1994 and 1995 in response to
higher raw material costs. The Company's seasonal sales pattern, which is
tied to the trucking industry activity, is similar to previous years with
the third and fourth quarters being the strongest for both sales and
earnings.
The Company's consolidated gross profit margin declined by 1.8 percentage
points from 1994, because of raw material cost increases which were not
passed on to dealers. This, combined with increased operating expenses
related principally to increased spending for marketing programs, resulted
in net earnings improving only 3% above 1994. The Company's effective
income tax rate of 37.4% was comparable to the previous year's rate.
1995 earnings per share of $3.82 were $.31 higher, a 9% increase from
1994. During the year, the Company acquired 1,946,000 shares of its
outstanding Common Stock and Class A Common Stock for $107,964,000, at
prevailing market prices. This, in addition to the previous year's
purchases, resulted in fewer average shares outstanding in 1995. This had
a favorable impact of $.17 on earnings per share.
Domestic net sales in 1995 were 11% higher than in 1994 due to increased
selling prices in 1994 and 1995, and higher equipment sales. Tread volume
increased only 1%. Average raw material costs for the year were
approximately 27% higher than the previous year's average. Selling prices
were increased only in the first quarter, as the Company chose to absorb
further increases during the year. This resulted in a gross margin
decline of 3 percentage points. Domestic 1995 earnings before income
taxes declined 4 percentage points over the prior year due to flat sales
volume and higher raw material costs, as well as increased spending for
marketing programs.
The Company's foreign operations comprised 38% and 24% of 1995's net sales
and earnings before income taxes, respectively. This represents a
2 percentage-point increase, as a percent of total revenues, and a
7 percentage-point increase, as a percent of total earnings before income
taxes, in comparison with the prior year.
Unit volume in Europe increased 6% over 1994. Net sales improved by 22%,
with 8 percentage points due to the favorable impact on the translated
value of the Company's foreign-currency-denominated sales. Gross profit
margin in 1995 increased 2 percentage points compared to 1994 due to
higher production levels and lower manufacturing spending. Earnings
before income taxes improved by 100% over the prior year.
Unit volume for the Company's other combined foreign operations improved
by 6% over 1994, with net sales increasing by 16%. The sales increase
exceeded the volume increase due to the favorable impact of the higher
translated value of foreign-currency-denominated sales coupled with
selling price increases initiated during the year in response to higher
raw material costs. Gross profit margin decreased 1 percentage point, but
operating expenses, as a percent of sales, decreased by approximately
1 percentage point from 1994. Earnings before income taxes increased by
21% due to the increased sales combined with a 5% increase in other
income.
1994-1993
Consolidated 1994 net sales increased 10% from 1993, of which six
percentage points were due to unit volume increases and four percentage
points were due to increases in selling prices in response to higher costs
for the Company's major raw materials. The Company's seasonal sales
pattern, which is tied to trucking industry activity, was similar to
previous years. As is normally the case, the third and fourth quarters
were the strongest in terms of both sales volume and earnings.
The Company's consolidated 1994 net earnings increased 19% from 1993 due
to the combined impact of higher unit volume and improved manufacturing
efficiencies. The Company's consolidated gross profit margin improved by
1.7 percentage points due to relatively flat manufacturing expenses but
higher unit volume. This, while an improvement, still leaves the
Company's consolidated gross margin below its 1992 level, which was itself
below historic levels. The higher gross profit was partially offset by
increased operating expenses related principally to increased spending for
marketing programs. The Company's effective income tax rate of 37% was
equal to the previous year's rate.
The Company's earnings per share for 1994 of $3.51, were $.63 higher, a
22% increase from 1993. During the year, the Company acquired 1,043,000
shares of its outstanding Common Stock and Class A Common Stock for
$53,580,000, at prevailing market prices. This, in combination with prior
year purchases, resulted in fewer shares outstanding in 1994 which had a
favorable impact of $.06 on earnings per share.
Domestic net sales in 1994 were 11% higher than a year ago due to
increased unit volume (up 5%), increased selling prices and higher
equipment sales. Average raw material costs for the year were
approximately 4% higher than the previous year and selling prices were
increased a proportional amount to maintain gross margin. Domestic 1994
earnings before income taxes increased 15% over the prior year due to
higher sales volume and relatively flat manufacturing costs, the benefit
of which was partially offset by an increase in spending for marketing
programs.
The Company's foreign operations comprised 36% and 17% of 1994's net sales
and earnings before income taxes, respectively. This represents a one
percentage-point decline as a percent of total revenues and a three
percentage-point increase as a percent of total earnings before income
taxes in comparison to the previous year.
Unit volume in Europe increased 6% over 1993, while net sales improved by
8%. Gross profit margin increased 2.7 percentage points in 1994 compared
to 1993 due to higher production volume but relatively flat manufacturing
costs. Selling price increases during 1994 were not as significant as in
the Company's domestic markets because the strong Belgian franc offset
most of Europe's raw material cost increases, which are based on world
prices. Overall, earnings before income taxes improved by 250% over the
previous year.
Unit volume for the Company's other combined foreign operations improved
by 11% in 1994 over 1993, with net sales increasing by a lesser 9%. The
sales increase was lower than the volume increase due to the unfavorable
impact of the lower translated value of foreign-currency-denominated
sales. The lower translated values more than offset selling price
increases initiated during the year in response to higher raw material
costs. Gross profit margins remained flat, but operating expenses, as a
percent of sales, decreased by approximately one percentage point from the
prior year. Earnings before income taxes increased by 23% from the
previous year due to the unit volume and sales increases combined with
flat operating expenses.
Impact of Inflation and Changing Prices
It has generally been the Company's practice to adjust its selling prices
to recover increased production and raw material costs in order to
maintain its gross profit margin. Since the Company's raw material costs
declined in 1996, the Company used the increased margin to partially
offset the increase in operating expenses.
Replacement of fixed assets requires a greater investment than the
original asset cost due to the impact of the general price level increases
over the useful lives of plant and equipment. This increased capital
investment would result in higher depreciation charges affecting both
inventories and cost of products sold.
However, the replacement cost depreciation for new assets, calculated on a
straight-line basis, is not significantly greater than historical
depreciation using accelerated methods which result in higher depreciation
charges in the early years of an asset's life.
Capital Resources and Liquidity
At the end of 1996, current assets exceeded current liabilities by
$202,486,000. Cash and cash equivalents totaled $31,453,000 at year-end,
increasing by $436,000 during the year. The Company invests excess funds
over various terms, but only instruments with an original maturity date of
over 90 days are classified as investments. These investments decreased
by $7,684,000 from the prior year.
The only changes in working capital requirements are for normal business
growth. The Company funds its capital expenditures from the cash flow it
generates from operations. During 1996, the Company spent $34,388,000 for
capital expenditures. The Company expects that 1997 capital expenditures
will be at a higher level than 1996.
As of December 31, 1996, the Company had available uncommitted lines of
credit totaling $91,000,000 in the United States for working capital
purposes. Also, the Company's foreign subsidiaries have approximately
$28,000,000 in credit and overdraft facilities available to them. From
time to time during 1996, the Company borrowed funds to supplement
operational cash flow needs or to settle intercompany transactions. The
Company's long-term liabilities totaled $10,125,000 at year end, which are
approximately 2% of long-term liabilities and stockholders' equity
combined. The Company has no plans at this time to undertake additional
liabilities of any substantial amount.
During the year, the Company purchased 1,298,000 shares of its outstanding
Common Stock and Class A Common Stock for $61,691,000 at prevailing market
prices and paid cash dividends amounting to $21,785,000. The Company
generally funds its dividends and stock repurchases from the cash flow
generated from its operations. Historically the Company has utilized
excess funds to purchase its own shares, believing the acquisition of the
Company's stock to be a good investment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Report of Independent Auditors 23
Consolidated Balance Sheets as of December 31, 1996,
1995 and 1994 24 - 25
Consolidated Statements of Earnings for the Years
Ended December 31, 1996, 1995 and 1994 26
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 27
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1996, 1995
and 1994 28
Notes to Consolidated Financial Statements 29 - 38
<PAGE>
Report of Independent Auditors
Stockholders and Board of Directors
Bandag, Incorporated
We have audited the accompanying consolidated balance sheets of Bandag,
Incorporated and subsidiaries as of December 31, 1996, 1995, and 1994, and
the related consolidated statements of earnings, cash flows, and changes
in stockholders' equity for the years then ended. Our audits also
included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Bandag, Incorporated and subsidiaries at December 31, 1996,
1995, and 1994, and the consolidated results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Chicago, Illinois
January 31, 1997
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
December 31
Assets 1996 1995 1994
Current Assets (In thousands)
Cash and cash
equivalents $ 31,453 $ 31,017 $ 46,519
Investments - Note B 2,089 9,773 36,864
Accounts receivable,
less allowance (1996 -
$13,320; 1995 - $12,327;
1994 - $11,883) 206,732 200,300 178,057
Inventories:
Finished products 44,704 40,252 37,022
Material and work in process 14,228 12,811 14,132
-------- ------- -------
58,932 53,063 51,154
Deferred income tax assets 29,138 22,451 21,230
Prepaid expenses and other
current assets 13,356 11,854 11,055
-------- ------- -------
Total Current Assets 341,700 328,458 344,879
Property, Plant, and Equipment,
on the Basis of Cost:
Land 3,671 3,731 3,587
Buildings and improvements 85,445 84,426 79,981
Machinery and equipment 292,956 287,771 267,986
Construction and equipment
installation in progress 12,520 6,327 8,177
-------- ------- -------
394,592 382,255 359,731
Less allowances for depreciation
and amortization (249,457) (237,405) (207,973)
-------- ------- -------
145,135 144,850 151,758
Marketable Equity Securities -
Note B 79,035 55,684 64,066
Other Assets 22,472 25,167 21,443
-------- ------- -------
Total Assets $588,342 $554,159 $582,146
======== ======= =======
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 28,744 $ 24,268 $ 20,014
Accrued employee compensation and
benefits 23,532 21,604 17,695
Accrued marketing expenses 32,872 32,485 28,609
Other accrued expenses 34,076 25,098 23,433
Dividends payable 5,731 5,440 5,270
Income taxes payable 12,254 10,124 9,999
Short-term notes payable and other
liabilities 2,005 3,015 8,280
------- ------- -------
Total Current Liabilities 139,214 122,034 113,300
Other Liabilities 10,125 11,857 12,252
Deferred Income Tax Liabilities 28,136 20,289 22,545
Stockholders' Equity - Note E
Common Stock; $1.00 par value,
authorized - 21,500,000 shares;
issued and outstanding - 9,842,861
shares in 1996; 10,112,164 shares
in 1995; 10,788,985 shares in 1994 9,843 10,112 10,789
Class A Common Stock; $1.00 par value;
authorized - 50,000,000 shares;
issued and outstanding -11,027,759
shares in 1996; 11,711,344 shares
in 1995; 12,976,211 shares in 1994 11,028 11,711 12,976
Class B Common Stock; $1.00 par value;
authorized - 8,500,000 shares;
issued and outstanding - 2,051,984
shares in 1996; 2,355,352 shares in
1995; 2,357,976 shares in 1994 2,052 2,355 2,358
Additional paid-in capital 4,069 2,493 3,192
Retained earnings 355,663 355,814 384,607
Unrealized gain on securities
available-for-sale, net of related
tax effect (1996 - $20,765; 1995 -
$11,700; 1994 - $15,159) 33,854 19,568 24,491
Equity adjustment from foreign
currency translation (5,642) (2,074) (4,364)
-------- -------- --------
Total Stockholders' Equity 410,867 399,979 434,049
-------- -------- --------
Total Liabilities and
Stockholders' Equity $588,342 554,159 582,146
======== ======== ========
See notes to consolidated financial statements.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Earnings
Year Ended December 31
1996 1995 1994
(In thousands, except per share data)
Income:
Net Sales $756,925 $740,363 $650,567
Other income 12,074 14,911 15,125
------- ------- -------
768,999 755,274 665,692
Costs and expenses:
Cost of products sold 442,149 442,837 377,385
Engineering, selling,
administrative and other
expenses 194,834 155,362 136,346
Interest 1,236 1,959 2,126
------- ------- -------
638,219 600,158 515,857
------- ------- -------
Earnings Before Income
Taxes 130,780 155,116 149,835
Income Taxes - Note D 49,176 58,089 55,841
------- ------- -------
Net Earnings $ 81,604 $ 97,027 $ 93,994
======= ======= =======
Net Earnings Per Share -
Note E $ 3.44 $ 3.82 $ 3.51
======= ======= =======
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
Year Ended December 31
1996 1995 1994
(In thousands)
Operating Activities
Net earnings $ 81,604 $ 97,027 $ 93,994
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Provisions for depreciation and
amortization 34,595 34,595 35,328
Change in deferred income taxes 1,367 (3,462) (2,590)
Change in operating assets and
liabilities:
Accounts receivable (9,959) (19,674) (14,211)
Inventories (7,401) (1,148) (6,872)
Prepaid expenses and other
current assets (1,921) 94 (2,019)
Accounts payable and other
accrued expenses 19,063 11,164 13,219
Income taxes payable 2,582 158 (1,357)
Other assets (5,883) 443 1,131
------- ------- -------
Net Cash Provided by Operating
Activities 114,047 119,197 116,623
Investing Activities
Additions to property, plant and
equipment (34,388) (28,411) (40,799)
Net dispositions of property,
plant and equipment 506 724 1,151
Purchases of investments (18,205) (27,379) (61,775)
Maturities of investments 25,889 54,470 49,954
Sale of marketable equity
securities -- -- 2,447
------- ------- -------
Net Cash Used in Investing
Activities (26,198) (596) (49,022)
Financing Activities
Proceeds from short-term notes
payable 42,902 41,230 80,425
Principal payments on short-term
notes payable and other
liabilities (45,246) (46,887) (86,442)
Cash dividends (21,785) (20,651) (19,310)
Purchases of Common Stock and
Class A Common Stock (61,691) (107,964) (53,580)
------- ------- -------
Net Cash Used in Financing
Activities (85,820) (134,272) (78,907)
Effect of exchange rate changes on
cash and cash equivalents (1,593) 169 (179)
------- ------- -------
Increase (Decrease) in Cash and
Cash Equivalents 436 (15,502) (11,485)
Cash and cash equivalents at
beginning of year 31,017 46,519 58,004
------- ------- -------
Cash and Cash Equivalents at End
of Year $ 31,453 $ 31,017 $ 46,519
======= ======= =======
See notes to consolidated financial statements.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Class A Common
Common Stock Issued Stock Issued and Class B Common Stock
and Outstanding Outstanding Issued and Outstanding
(In thousands, except Shares Amount Shares Amount Shares Amount
share data)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 11,215,008 $11,215 13,576,971 $13,577 2,360,513 $2,361
Net earnings for the year
Cash dividends-$.7250 per share
Conversion of Class B Common Stock
to Common Stock-Note E 2,537 2 (2,537) (3)
Common Stock and Class A Common
Stock issued under Restricted
Stock Grant Plan-Note E 4,030 4 4,030 4
Common Stock and Class A Common
Stock issued under Stock Award
Program Plan-Note E 2,810 3 2,810 3
Purchases of Common Stock and
Class A Common Stock (435,400) (435) (607,600) (608)
Unrealized loss on securities
available-for-sale, net of
deferred income taxes of $1,341
Adjustment from foreign currency
translation
---------- ------- ---------- ------ --------- ------
Balance at December 31, 1994 10,788,985 10,789 12,976,211 12,976 2,357,976 2,358
Net earnings for the year
Cash Dividends-$.8250 per share
Conversion of Class B Common Stock
to Common Stock-Note E 2,624 3 (2,624) (3)
Common Stock and Class A Common
Stock issued under Restricted
Stock Grant Plan-Note E 4,430 4 4,430 4
Forfeitures of Common Stock and
Class A Common Stock under
Restricted Stock Grant Plan-Note
E (3,817) (4) (2,939) (3)
Purchases of Common Stock and
Class A Common Stock (680,058) (680) (1,266,358) (1,266)
Unrealized loss on securities
available-for-sale, net of
deferred income taxes of $3,459
Adjustment from foreign currency
translation
---------- ------ ---------- ------ ---------- ------
Balance at December 31, 1995 10,112,164 10,112 11,711,344 11,711 2,355,352 2,355
Net earnings for the year
Cash dividends-$.9250 per share
Conversion of Class B Common Stock
to Common Stock-Note E 303,368 303 (303,368) (303)
Common Stock and Class A Common
Stock issued under Restricted
Stock Grant Plan-Note E 7,610 8 7,610 8
Forfeitures of Common Stock and
Class A Common Stock under
Restricted Stock Grant Plan-Note
E (110) -- (110) --
Common Stock and Class A Common
Stock issued under Stock Award
Program Plan-Note E 2,636 3 2,638 2
Common Stock and Class A Common
Stock issued under Defined-
Contribution Plan-Note F 10,450 10 10,738 11
Purchase of Common Stock and Class
A Common Stock (593,257) (593) (704,461) (704)
Unrealized gain on securities
available-for-sale, net of
deferred income taxes of $9,065
Adjustment from foreign currency
translation
---------- ------- ---------- ------ ---------- ------
Balance at December 31, 1996 9,842,861 $ 9,843 11,027,759 $11,028 2,051,984 $2,052
========== ======= ========== ====== ========== ======
<CAPTION>
Equity
Unrealized Adjustment
Gain (Loss) From
Additional on Securities Foreign
(In thousands, except Paid-in Retained Available- Currency
share data) Capital Earnings for-Sale Translation
<S> <C> <C> <C> <C>
Balance at January 1, 1994 $2,859 $362,040 $27,693 $(6,653)
Net earnings for the year 93,994
Cash dividends-$.7250 per share (19,310)
Conversion of Class B Common Stock
to Common Stock-Note E
Common Stock and Class A Common
Stock issued under Restricted
Stock Grant Plan-Note E 440
Common Stock and Class A Common
Stock issued under Stock Award
Program Plan-Note E 313
Purchases of Common Stock and
Class A Common Stock (420) (52,117)
Unrealized loss on securities
available-for-sale, net of
deferred income taxes of $1,341 (3,202)
Adjustment from foreign currency
translation 2,289
------- ------- ------- --------
Balance at December 31, 1994 3,192 384,607 24,491 (4,364)
Net earnings for the year 97,027
Cash Dividends-$.8250 per share (20,651)
Conversion of Class B Common Stock
to Common Stock-Note E
Common Stock and Class A Common
Stock issued under Restricted
Stock Grant Plan-Note E 436
Forfeitures of Common Stock and
Class A Common Stock under
Restricted Stock Grant Plan-Note
E (287)
Purchases of Common Stock and
Class A Common Stock (848) (105,169)
Unrealized loss on securities
available-for-sale, net of
deferred income taxes of $3,459 (4,923)
Adjustment from foreign currency
translation 2,290
------- ------- ------- -------
Balance at December 31, 1995 2,493 355,814 19,568 (2,074)
Net earnings for the year 81,604
Cash dividends-$.9250 per share (21,785)
Conversion of Class B Common Stock
to Common Stock-Note E
Common Stock and Class A Common
Stock issued under Restricted
Stock Grant Plan-Note E 698
Forfeitures of Common Stock and
Class A Common Stock under
Restricted Stock Grant Plan-Note
E (10)
Common Stock and Class A Common
Stock issued under Stock Award
Program Plan-Note E 262
Common Stock and Class A Common
Stock issued under Defined-
Contribution Plan-Note F 1,050
Purchase of Common Stock and Class
A Common Stock (424) (59,970)
Unrealized gain on securities
available-for-sale, net of
deferred income taxes of $9,065 14,286
Adjustment from foreign currency
translation (3,568)
------ ------- ------ ------
Balance at December 31, 1996 $4,069 $355,663 $33,854 $(5,642)
====== ======= ====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts and
transactions of all subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying
amount reported in the consolidated balance sheet for cash and cash
equivalents approximates its fair value.
Accounts Receivable and Concentrations of Credit Risk:
Concentrations of credit risk with respect to accounts receivable are
limited due to the number of dealers the Company has and their geographic
dispersion. The Company maintains close working relationships with these
customers and performs ongoing credit evaluations of their financial
condition. No one customer is large enough to pose a significant financial
risk to the Company. The Company maintains an allowance for losses based
upon the expected collectibility of accounts receivable. Credit losses
have been within management's expectations.
Inventories:
Inventories are valued at the lower of cost, determined by the last in,
first out (LlFO) method, or market.
The excess of current cost over the amount stated for inventories valued
by the LIFO method amounted to approximately $23,111,000, $24,479,000, and
$19,143,000 at December 31, 1996, 1995, and 1994, respectively.
Property, Plant, and Equipment:
Provisions for depreciation and amortization of plant and equipment are
principally computed using declining-balance methods, based upon the
estimated useful lives of the various classes of depreciable assets.
Foreign Currency Translation:
Assets and liabilities of foreign subsidiaries are translated at the
current exchange rate and items of income and expense are translated at
the average exchange rate for the year. Exchange gains and losses
arising from translations denominated in a currency other than the
functional currency of the foreign subsidiary and translation adjustments
in countries with highly inflationary economies or in which operations are
directly and integrally linked to the Company's U.S. operations are
included in income.
Research and Development:
Expenditures for research and development are expensed as incurred.
Revenue Recognition:
Sales and associated costs are recognized when products are shipped to
dealers.
B. INVESTMENTS
Debt securities are classified as held-to-maturity based upon the positive
intent and ability of the Company to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization and accretion is included in investment income. Interest on
securities classified as held-to-maturity is included in investment
income.
Marketable equity securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value with the
unrealized gains, net of tax, reported as a separate component of
stockholders' equity. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are
included in investment income. The cost of securities sold is based on
the specific identification method. Dividends on securities classified as
available-for-sale are included in investment income.
The following is a summary of securities held-to-maturity and available-
for-sale (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
December 31, 1996
Securities Held-to-Maturity
Obligations of states and
political subdivisions $10,694 $5 $0 $10,699
Short-term corporate debt 3,350 - - 3,350
Investment in Eurodollar time
deposits 3,000 - - 3,000
------- ------- ------- -------
$17,044 $5 $0 $17,049
======= ======= ======= =======
Securities Available-for-Sale
Marketable equity securities $24,416 $54,619 - $79,035
======= ======= ======= =======
December 31, 1995
Securities Held-to-Maturity
Obligations of states and
political subdivisions $19,028 $6 $0 $19,034
Short-term corporate debt 4,450 - - 4,450
Investment in Eurodollar time
deposits 7,100 - - 7,100
------- ------- ------- -------
$30,578 $6 $0 $30,584
======= ======= ======= =======
Securities Available-for-Sale
Marketable equity securities $24,416 $31,268 - $55,684
======= ======= ======= =======
December 31, 1994
Securities Held-to-Maturity
Obligations of states and
political subdivisions $44,779 $23 ($66) $44,736
Short-term corporate debt 8,450 - - 8,450
Investment in Eurodollar time
deposits 22,450 - - 22,450
------- ------- ------- -------
$75,679 $23 $(66) $75,636
======= ======= ======= =======
Securities Available-for-Sale
Marketable equity securities $24,416 $39,650 - $64,066
======= ======= ======= =======
</TABLE>
At December 31, 1996, 1995 and 1994, securities held-to-maturity are due
in one year or less and include $14,955,000, $20,805,000 and $38,815,000,
respectively, reported as cash equivalents.
C. SHORT-TERM NOTES PAYABLE AND LINES OF CREDIT
The carrying amount reported in the consolidated balance sheet of the
Company's short-term notes payable approximates its fair value.
Total available funds under unused lines of credit at December 31, 1996
amounted to $119,000,000.
The weighted average interest rate on short-term borrowings outstanding
for the full years of 1996, 1995, and 1994, were 5.8%, 7.9%, and 5.3%,
respectively.
Interest paid on short-term notes payable and other obligations amounted
to $1,764,000, $2,231,000, and $1,747,000 in 1996, 1995, and 1994,
respectively.
D. INCOME TAXES
Significant components of the Company's deferred tax assets (liabilities)
reflecting the net tax effects of temporary differences are summarized as
follows:
December 31
1996 1995 1994
(In thousands)
Obligation to provide
postretirement benefits $2,243 $2,039 $2,093
Marketing programs 14,012 11,148 10,152
Accounts receivable valuation
allowances 2,696 2,834 3,005
Unremitted earnings of
foreign subsidiaries (3,488) (1,999) (3,119)
Excess pension funding (3,953) (3,252) (2,890)
Purchased tax benefits (1,025) (1,531) (1,975)
Unrealized holding gain on
marketable equity
securities (20,765) (11,700) (15,159)
Other, net 11,282 4,623 6,578
------ ------ -------
Net deferred tax assets
(liabilities) $1,002 $2,162 ($1,315)
====== ====== =======
The components of earnings before income taxes are summarized as
follows:
Year Ended December 31
1996 1995 1994
(In thousands)
Domestic $102,099 $116,373 $123,715
Foreign 28,681 38,743 26,120
------- ------- -------
$130,780 $155,116 $149,835
======= ======= =======
Significant components of the provision for income tax expense
(credit) are summarized as follows:
Year Ended December 31
1996 1995 1994
(In thousands)
Current:
Federal $39,570 $39,513 $42,965
State 4,900 4,900 4,712
Foreign 11,353 14,010 10,118
Deferred:
Federal (4,354) (1,555) (3,842)
State (486) (107) (163)
Foreign (1,301) 1,768 2,434
Equivalent credit relating to
purchased income tax
benefits (506) (440) (383)
------- ------- -------
$49,176 $58,089 $55,841
======= ======= =======
No item, other than state income taxes in 1996, 1995, and 1994 affects the
Company's effective income tax rate by an amount which exceeds 5% of the
income tax expense computed at the statutory rate.
Undistributed earnings of subsidiaries on which deferred income taxes have
not been provided are not significant.
Income taxes paid amounted to $52,992,000, $58,238,000, and $61,706,000 in
1996, 1995, and 1994, respectively.
E. STOCKHOLDERS' EQUITY
Class A Common Stock and Class B Common Stock have the same rights
regarding dividends and distributions upon liquidation as Common Stock.
However, Class A Common Stockholders are not entitled to vote, Class B
Common Stockholders are entitled to ten votes for each share held and
Common Stockholders are entitled to one vote for each share held. Transfer
of shares of Class B Common Stock is substantially restricted and must be
converted to Common Stock prior to sale. In certain instances, outstanding
shares of Class B Common Stock will be automatically converted to shares
of Common Stock. Unless extended for an additional period of five years by
the Board of Directors, all then-outstanding shares of Class B Common
Stock will be converted to shares of Common Stock on January 16, 2002.
Under the terms of the Bandag, Incorporated Restricted Stock Grant Plan,
the Company is authorized to grant up to an aggregate of 100,000 shares of
Common Stock and 100,000 shares of Class A Common Stock to certain key
employees. The shares granted under the Plan will entitle the grantee to
all dividends and voting rights; however, such shares will not vest until
seven years after the date of grant. If a grantee's employment is
terminated prior to the end of the seven-year period for any reason other
than death, disability or termination of employment after age 60, the
shares will be forfeited and made available for future grants. A grantee
who has attained age 60 and whose employment is then terminated prior to
the end of the seven-year vesting period does not forfeit the nonvested
shares. During the years ended December 31, 1996, 1995, and 1994, 7,610
shares, 4,430 shares and 4,030 shares of Common Stock, respectively, were
granted under the Plan. During the years ended December 31, 1996, 1995 and
1994, 7,610 shares, 4,430 shares and 4,030 shares of Class A Common Stock,
respectively, were also granted under the Plan. The resulting charge to
earnings amounted to $1,245,000, $770,000, and $779,000, in 1996, 1995,
and 1994, respectively. During the year ended December 31, 1996, 110
shares of Common Stock and 110 shares of Class A Common Stock were
forfeited. The credit to 1996 earnings related to the forfeited shares
was approximately $12,000. At December 31, 1996, 42,155 shares of Common
Stock and 51,925 shares of Class A Common Stock are available for grant
under the Plan.
Under the terms of the Bandag, Incorporated Nonqualified Stock Option
Plan, the Company is authorized through November 13, 1997 to grant options
to purchase up to 500,000 shares of Common Stock and 500,000 shares of
Class A Common Stock to certain key employees. The option price is equal
to the market value of the shares on the date of grant. No options were
granted under the Plan in 1996, 1995 or 1994. At December 31, 1996,
options to purchase 100,000 shares of Common Stock and 100,000 shares of
Class A Common Stock are outstanding and exercisable at $23.458 per share
for Common Stock options and $22.792 per share for Class A Common Stock
options. Options to purchase 20,000 shares of Common Stock and 20,000
shares of Class A Common Stock expire on November 13, 1997, and each of
the four anniversaries thereafter. At December 31, 1996, no options
granted under this Plan have been exercised and options to purchase
400,000 shares of Common Stock and 400,000 shares of Class A Common Stock
are available for grant.
The Company has a stock award program covering substantially all U.S. and
Canadian employees, which was established to promote employee commitment
and ownership in the Company. In 1996, 1995 and 1994, $250,000, $284,000
and $319,000, respectively, were charged to earnings for the estimated
cost of awards to be made under the stock award program.
Earnings per share amounts are based upon the weighted average number of
shares of Common Stock, Class A Common Stock, Class B Common Stock, and
common stock equivalents (dilutive stock options) outstanding during each
year.
F. EMPLOYEE PENSION PLANS
The Company sponsors defined-benefit pension plans covering substantially
all of its full-time employees in North America and certain employees in
the Company's European operations. Benefits are based on years of service
and, for salaried employees, the employee's average annual compensation
for the last five years of employment. The Company's funding policy is to
contribute annually the maximum amount that can be deducted for income tax
purposes. Contributions are intended to provide for benefits attributed to
service to date and those expected to be earned in the future.
Aggregate accumulated benefit obligations, projected benefit obligations,
as estimated by consulting actuaries, plan net assets and funded status
are as follows:
December 31
1996 1995 1994
(In thousands)
Actuarial present value of
accumulated benefit
obligations:
Vested $40,944 $33,787 $30,535
Nonvested 3,145 5,810 2,310
------- ------- -------
$44,089 $39,597 $32,845
======= ======= =======
Plan net assets at fair value $90,775 $79,291 $63,594
Projected benefit obligations 58,357 54,496 46,367
------- ------- -------
Plan net assets in excess of
projected benefit obligations 32,418 24,795 17,227
Unrecognized prior service cost 1,187 1,278 1,214
Unamortized actuarial net loss
(gain) (19,557) (12,988) (5,728)
Unamortized net transition
gain (5,591) (6,332) (7,080)
------- ------- -------
Prepaid pension cost included
in the consolidated balance
sheet $8,457 $6,753 $5,633
====== ====== ======
Assumptions used in the determination of the actuarial present value of
the projected benefit obligations and net pension cost are as follows:
Weighted average discount rate 7.00% 7.00% 7.50%
Rate of increase in future
compensation 4.50% 4.75% 5.00%
Expected long-term rate of
return on assets 8.00% 8.00% 8.00%
Assets of the plans are principally invested in guaranteed interest
contracts, common stock, and stock mutual funds.
Pension expense (credit) is composed of the following:
Year Ended December 31
1996 1995 1994
(In thousands)
Service cost for benefits earned
during the year $2,193 $1,929 $3,183
Interest cost on projected
benefit obligations 3,153 2,899 3,343
Investment return on plan assets (12,025) (14,510) (1,454)
Net amortization and deferral 5,045 8,964 (4,161)
------- ------- -------
Net periodic pension expense
(credit) ($1,634) ($718) $911
======= ======= =======
The Company also sponsors defined-contribution plans, covering
substantially all salaried employees in the United States. Annual
contributions are made in such amounts as determined by the Company's
Board of Directors. Although employees may contribute up to 12% of their
annual compensation from the Company, they are generally not required to
make contributions in order to participate in the plans. The Company
recorded expense for contributions in the amount of $2,796,000,
$3,578,000, and $2,892,000 in 1996, 1995, and 1994, respectively.
Employees in most foreign countries are covered by various retirement
benefit arrangements generally sponsored by the foreign governments. The
Company's contributions to foreign plans were not significant in 1996,
1995, and 1994.
G. OTHER POSTRETIREMENT EMPLOYEE BENEFITS
The Company provides medical benefits under its self-insured health
benefit plan to certain individuals who retired from employment before
January 1, 1993. Employees who retire after December 31, 1992 and are at
least age 62 with 5 years of service are eligible for temporary medical
benefits that cease at age 65. The program is contributory, with retiree
contributions adjusted periodically. The program also contains co-
insurance provisions, which result in shared costs between the Company and
the retiree. The Company's postretirement medical obligations are
unfunded.
The following table sets forth amounts recognized in the Company's
consolidated balance sheet:
December 31
1996 1995 1994
(In thousands)
Accumulated postretirement
benefit obligation:
Retirees $2,146 $2,109 $1,847
Fully eligible active plan
participants 104 111 92
Other active plan participants 3,177 2,754 1,801
------- ------- -------
Accumulated postretirement
benefit obligation 5,427 4,974 3,740
Unrecognized net gain and prior
service cost 429 351 1,105
------- ------- -------
Accrued postretirement benefit
cost $5,856 $5,325 $4,845
======= ======= =======
Net periodic postretirement benefit cost includes the following
components:
Service cost $231 $200 $167
Interest cost on accumulated
postretirement benefit
obligation 344 321 261
Net amortization and deferral 3 33 (2)
------ ------ ------
Net periodic postretirement
benefit cost $578 $554 $426
====== ====== ======
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits is 10% for 1997 and is assumed to decrease
gradually to 6% for 2001 and remain at that level thereafter. Increasing
the assumed health care cost trend rates by one percentage point in each
year would increase the accumulated postretirement benefit obligation as
of December 31, 1996, by $770,000 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for
1996 by $95,000. The weighted-average discount rate used in determining
the accumulated postretirement benefit obligation was 7.0% for 1996 and
1995, and 7.5% for 1994.
Substantially all United States employees with the Company on and after
January 1, 1993 are covered by the Bandag Security Program, which provides
fully vested benefits after 5 years of service. Benefits under this
program are available upon retirement or separation for any other reason
and may be used in connection with medical expense, insurance premiums, or
for any other purpose. The periodic cost and benefit obligation
information for the Bandag Security Program is reflected in Note F.
H. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into agreements (derivative financial instruments) to
manage the risks associated with certain aspects of its business. The
Company does not actively trade such instruments nor enter into such
agreements for speculative purposes. The Company principally utilizes
foreign currency forward exchange contracts and foreign currency option
contracts.
At December 31, 1996, 1995 and 1994, the Company had approximately
$23,862,000, $18,156,000 and $10,513,000, respectively, in foreign
currency forward exchange contracts and foreign currency option contracts
designated and effective as hedges which become due in various amounts and
at various dates throughout the following year. Such contracts were
principally for the purpose of hedging commitments arising from forecasted
material purchases and intercompany export sales, respectively.
Unrealized gains and losses on the forward exchange contracts and the
currency option contracts are deferred and will be recognized in income in
the same period as the hedged transaction. The difference between the
contract amounts and their fair value, in the aggregate, was insignificant
at December 31, 1996, 1995 and 1994.
I. BUSINESS INFORMATION BY GEOGRAPHIC AREA
The information regarding operations in different geographic areas is
presented on page 10 of this report, and is included herein by reference.
J. SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Unaudited quarterly results of operations for the years ended December 31,
1996 and 1995 are summarized as follows:
Quarter Ended
Mar. 31 Jun. 30 Sep. 30 Dec. 31
(In thousands, except per share data)
1996:
Net sales $170,303 $188,875 $194,086 $203,661
Gross profit 66,295 77,403 85,762 85,316
Net earnings 15,866 20,094 23,945 21,699
Net earnings per
share $0.65 $0.83 $1.02 $0.94
1995:
Net sales $168,243 $182,929 $190,337 $198,854
Gross profit 65,134 73,710 77,991 80,691
Net earnings 19,579 24,910 27,050 25,488
Net earnings per
share $0.75 $0.96 $1.07 $1.04
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
The information called for by Item 10 (with respect to the directors of
the registrant) is incorporated herein by reference from the registrant's
definitive Proxy Statement involving the election of directors filed or to
be filed pursuant to Regulation 14A not later than 120 days after December
31, 1996. In accordance with General Instruction G (3) to Form 10-K, the
information with respect to executive officers of the Company required by
Item 10 has been included in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated herein by
reference from the registrant's definitive Proxy Statement involving the
election of directors filed or to be filed pursuant to Regulation 14A not
later than 120 days after December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information called for by Item 12 is incorporated herein by
reference from the registrant's definitive Proxy Statement involving the
election of directors filed or to be filed pursuant to Regulation 14A not
later than 120 days after December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated herein by
reference from the registrant's definitive Proxy Statement involving the
election of directors filed or to be filed pursuant to Regulation 14A not
later than 120 days after December 31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements are
included in Part II, Item 8:
Page
Consolidated Balance Sheets as of December 31,
1996, 1995 and 1994 24-25
Consolidated Statements of Earnings for the
Years Ended December 31, 1996, 1995 and 1994 26
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994 27
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994 28
Notes to Consolidated Financial Statements 29-38
(2) Financial Statement Schedule
Schedule II - Valuation and qualifying accounts
and reserves. 41
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
<PAGE>
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
BANDAG, INCORPORATED AND SUBSIDIARIES
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
1 2
Balance at Charged to Charged to Balance
Beginning Costs and Other Accounts Deductions - at End
DESCRIPTION of Period Expenses -Describe Describe of Period
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts $12,327,000 $3,289,000 $2,296,000 (A) $13,320,000
Year ended December 31, 1995:
Allowance for doubtful accounts $11,883,000 $1,964,000 $1,520,000 (A) $12,327,000
Year ended December 31, 1994:
Allowance for doubtful accounts $11,217,000 $1,683,000 $1,017,000 (A) $11,883,000
(A) - Uncollectible accounts written off, net of recoveries and foreign exchange fluctuations.
</TABLE>
<PAGE>
Item 14 (Cont.)
(3) Exhibits
Exhibit No. Description
3.1 Bylaws: As amended February 5, 1997
3.2 Restated Articles of Incorporation,
effective December 30, 1986.
(Incorporated by reference to Exhibit
No. 3.2 to the Company's Form 10-K for
the year ended December 31, 1992.)
3.3 Articles of Amendment to Bandag,
Incorporated's Articles of
Incorporation, effective May 6, 1992.
(Incorporated by reference to Exhibit
No. 3.3 to the Company's Form 10-K for
the year ended December 31, 1992.)
4 Instruments defining the rights of
security holders. (Incorporated by
reference to Exhibit Nos. 3.2 and 3.3
to the Company's Form 10-K for the
year ended December 31, 1992.)
The Company agrees to furnish copies
of its long-term debt agreements to
the Commission on request.
10.1 *Bandag, Incorporated Restricted Stock
Grant Plan, as amended November 12,
1996
10.2 U. S. Bandag System Franchise
Agreement Truck and Bus Tires.
(Incorporated by reference to Exhibit
No. 10.2 to the Company's Form 10-K
for the year ended December 31, 1993.)
10.2(a) U.S. Bandag System Franchise Agreement
Truck and Bus Tires (revised
April 1996.)
10.3 *Miscellaneous Fringe Benefits for
Executives.
10.4 *Nonqualified Stock Option Plan, as
amended November 12, 1996
10.5 *Nonqualified Stock Option Agreement
of Martin G. Carver dated November 13,
1987, as amended by an Addendum dated
June 12, 1992. (Incorporated by
reference to Exhibit No. 10.7 to the
Company's Form 10-K for the year ended
December 31, 1992.)
10.6 *Form of Participation Agreement under
the Bandag, Incorporated Restricted
Stock Grant Plan. (Incorporated by
reference as Exhibit 10.7 to the
Company's Form 10-K for the year ended
December 31, 1994.)
10.7 *Employment Agreement with Michel
Petiot effective January 1, 1994,
dated December 20, 1993 (Incorporated
by reference to Exhibit No. 10.8 to
the Company's Form 10-K for the year
ended December 31, 1993.)
10.8 *Agreement with William D. Herd
regarding termination of employment,
dated September 12, 1995 (Incorporated
by reference to Exhibit 10.8 to the
Company's Form 10-K for the year ended
December 31, 1995.)
11 Computation of earnings per share.
21 Subsidiaries of Registrant.
27 Financial Data Schedule (with EDGAR
filing only)
*Represents a management compensatory plan or arrangement.
(b) Reports on Form 8-K: No report on Form 8-K was filed during the last
quarter of the period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BANDAG, INCORPORATED
By /s/ Martin G. Carver
Martin G. Carver
Chairman of the Board,
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ Robert T. Blanchard
Robert T. Blanchard Lucille A. Carver
Director Director
/s/ Roy J. Carver, Jr. /s/ Robert K. Drummond
Roy J. Carver, Jr. Robert K. Drummond
Director Director
/s/ James R. Everline
James R. Everline Edgar D. Jannotta
Director Director
/s/ Warren W. Heidbreder
/s/ R. Stephen Newman Warren W. Heidbreder
R. Stephen Newman Vice President,
Chief Financial Officer
/s/ Martin G. Carver (Chief Accounting Officer)
Martin G. Carver
Chairman of the Board,
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Date: March 26, 1997
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3.1 Bylaws: As amended February 5, 1997
3.2 Restated Articles of Incorporation, effective
December 30, 1986. (Incorporated by reference to
Exhibit No. 3.2 to the Company's Form 10-K for
the year ended December 31, 1992.)
3.3 Articles of Amendment to Bandag, Incorporated's
Articles of Incorporation, effective May 6, 1992.
(Incorporated by reference to Exhibit No. 3.3 to
the Company's Form 10-K for the year ended
December 31, 1992.)
4 Instruments defining the rights of Security
Holders. (Incorporated by reference to Exhibit
Nos. 3.2 and 3.3 to the Company's Form 10-K for
the year ended December 31, 1992.)
The Company agrees to furnish copies of its long-
term debt agreements to the Commission on
request.
10.1 *Bandag, Incorporated Restricted Stock Grant Plan,
as amended November 12, 1996.
10.2 U. S. Bandag System Franchise Agreement Truck
and Bus Tires. (Incorporated by reference to
Exhibit No. 10.2 to the Company's Form 10-K for
the year ended December 31, 1993.)
10.2(a) U. S. Bandag System Franchise Agreement Truck and
Bus Tires (revised April 1996).
10.3 *Miscellaneous Fringe Benefits for Executives.
10.4 *Nonqualified Stock Option Plan, as amended
November 12, 1996.
10.5 *Nonqualified Stock Option Agreement of Martin G.
Carver dated November 13, 1987, as amended by an
Addendum dated June 12, 1992. (Incorporated by
reference to Exhibit No. 10.7 to the Company's
Form 10-K for the year ended December 31, 1992.)
10.6 *Form of Participation Agreement under the
Bandag, Incorporated Restricted Stock Grant Plan.
(Incorporated by reference to Exhibit No. 10.7 to
the Company's Form 10-K for the year ended
December 31, 1994.)
10.7 *Employment Agreement with Michel Petiot
effective January 1, 1994, dated December 20,
1993 (Incorporated by reference to Exhibit No.
10.8 to the Company's Form 10-K for the year
ended December 31, 1993.)
10.8 *Agreement with William D. Herd regarding
termination of employment dated September 12,
1995 (incorporated by reference to Exhibit 10.8
to the Company's Form 10-K for the year ended
December 31, 1995.)
11 Computation of earnings per share.
21 Subsidiaries of Registrant.
27 Financial Data Schedule (with EDGAR filing only)
* Represents a management compensatory plan or arrangement.
EXHIBIT 3.1
BY - LAWS
OF
BANDAG, INCORPORATED
As Amended February 5, 1997
ARTICLE I
OFFICES
The principal office of the Corporation in the State of Iowa shall be
located in the City of Muscatine, County of Muscatine. The Corporation may
have such other offices, either within or without the State of Iowa, as
the Board of Directors may designate or as the business of the Corporation
may require from time to time.
The registered office of the Corporation required by the Iowa
Business Corporation Act to be maintained in the State of Iowa may be, but
need not be, identical with the principal office in the State of Iowa, and
the address of the registered office may be changed from time to time by
the Board of Directors.
ARTICLE II
SHAREHOLDERS
Section 1. Annual Meeting. An annual meeting of the shareholders
shall be held at such time during the month of May in each year as shall
be designated by the Board of Directors at least sixty (60) days prior to
the date of the meeting, or if no such date is designated by the Board of
Directors then at 10 o'clock in the forenoon on the third Wednesday in
May, for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the election of
directors shall not be held on the day designated as herein provided for
any annual meeting of the shareholders, or at any adjournment thereof, the
Board of Directors shall cause the election to be held at a special
meeting of the shareholders as soon thereafter as conveniently may be.
Section 2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by
statute, may be called by the Chairman of the Board, the Board of
Directors or the holders of not less than one-tenth of all the outstanding
shares of the Corporation entitled to vote at the meeting.
Section 3. Place of Meeting. The Board of Directors may
designate any place, either within or without the State of Iowa, as the
place of meeting for any annual meeting or for any special meeting called
by the Board of Directors. A waiver of notice signed by all shareholders
entitled to vote at a meeting may designate any place, either within or
without the State of Iowa, as the place for the holding of such meeting.
If no designation is made, or if a special meeting be otherwise called,
the place of meeting shall be the registered office of the Corporation in
the State of Iowa.
Section 4. Notice of Meeting. Written or printed notice stating
the place, day and hour of the meeting and, in case of a special meeting,
the purpose or purposes for which the meeting is called, shall be
delivered not less than ten nor more than sixty days before the date of
the meeting, either personally or by mail, by or at the direction of the
President, or the Secretary, or the officer or persons calling the
meeting, to each shareholder of record entitled to vote at such meeting.
If mailed, such notice shall be deemed to be delivered when deposited in
the United States mail, addressed to the shareholder at his address as it
appears on the stock transfer books of the Corporation, with postage
thereon prepaid.
Section 5. Voting Lists. The officer or agent having charge of
the stock transfer books for shares of the Corporation shall make, at
least ten days before each meeting of shareholders, a complete list of the
shareholders entitled to vote at such meeting, or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of
shares held by each, which list, for a period of ten days prior to such
meeting, shall be kept on file at the registered office of the Corporation
and shall be subject to inspection of any shareholder during the whole
time of the meeting. The original stock transfer book shall be prima facie
evidence as to who are the shareholders entitled to examine such lists or
transfer books or to vote at any meeting of shareholders.
Section 6. Quorum. A majority of the votes entitled to be cast,
represented in person or by proxy, shall constitute a quorum at a meeting
of shareholders. If less than a majority of the votes entitled to be cast
are represented at a meeting, a majority of the votes so represented may
adjourn the meeting from time to time without further notice. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting
as originally notified. The shareholders present at a duly organized
meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of sufficient votes to leave less than a
quorum.
Section 7. Proxies. At all meetings of shareholders, a
shareholder may vote by proxy executed in writing by the shareholder or by
his duly authorized attorney in fact. Such proxy shall be filed with the
Secretary of the Corporation before or at the time of the meeting. Proxies
shall apply only to the meeting for which they are solicited.
Section 8. Voting of Shares. Each outstanding share of Common
Stock shall be entitled to one (1) vote per share, and each outstanding
share of Class B Common Stock shall be entitled to ten (10) votes per
share, upon each matter submitted to a vote at a meeting of shareholders.
Section 9. Closing of Transfer Books or Fixing of Record Date.
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or
shareholders entitled to receive payment of any dividend, or in order to
make a determination of shareholders for any other proper purpose, the
Board of Directors shall fix in advance a date as the record date for any
such determination of shareholders, such date in any case to be not more
than sixty days and, in case of a meeting of shareholders, not less than
ten days prior to the date of which the particular action, requiring such
determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made
as provided in this section, such determination shall apply to any
adjournment thereof.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of
directors of the Corporation shall be nine (9). Each director shall serve
for the term for which elected and until a successor shall have been
elected and qualified, except in the event of resignation, removal, death
or other incapacity. Directors need not be residents of the State of Iowa
or shareholders of the Corporation.
Section 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this By-Law immediately
after, and at the same place as, the annual meeting of shareholders. The
Board of Directors may provide, by resolution, the time and place, either
within or without the State of Iowa, for the holding of additional regular
meetings without other notice than such resolution.
Section 4. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board
or any two directors. The person or persons authorized to call special
meetings of the Board of Directors may fix any place, either within or
without the State of Iowa, as the place for holding any special meeting of
the Board of Directors called by them.
Section 5. Notice. Notice of any special meeting shall be given
at least two days previously thereto by written notice delivered
personally or mailed to each director at his business address, or by
telegram. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail so addressed, with postage thereon
prepaid. If notice be given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to the telegraph company. Any
director may waive notice of any meeting. The attendance of a director at
a meeting shall constitute a waiver of notice of such meeting, except
where a director attends a meeting for the express purpose of objecting to
the transaction of any business because the meeting is not lawfully called
or convened. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting.
Section 6. Quorum. A majority of the number of directors fixed
by Section 2 of this Article III shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if
less than such majority is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time without
further notice.
Section 7. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors.
Section 8. Vacancies. During the intervals between annual
meetings of shareholders, any vacancy occurring in the Board of Directors
caused by resignation, removal, death or incapacity, and any newly created
directorships resulting from an increase in the number of directors, shall
be filled by a majority vote of the directors then in office, whether or
not a quorum. Each director chosen to fill a newly created directorship or
to fill a vacancy shall hold office until the next annual meeting of the
shareholders.
Section 9. Compensation. By resolution of the Board of
Directors, the directors may be paid their expenses, if any, of attendance
at each meeting of the Board of Directors, and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 10. Presumption of Assent. A director of the Corporation
who is present at a meeting of the Board of Directors at which action on
any corporate matter is taken shall be presumed to have assented to the
action taken unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with
the person acting as the Secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the Secretary
of the Corporation immediately after the adjournment of the meeting. Such
right to dissent shall not apply to a director who voted in favor of such
action.
Section 11. Informal Action by Directors. Any action required to
be taken at a meeting of the directors, or any other action which may be
taken at a meeting of the directors, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by
all of the directors entitled to vote with respect to the subject matter
thereof.
Section 12. Indemnification of Directors and Officers.
(1) The Corporation may by resolution indemnify any person pursuant
to Section 490.851 of the Iowa Business Corporation Act, provided such
indemnification is made by majority vote of a quorum consisting of
directors not at the time parties to the proceeding to which the person
seeking indemnification is a party.
(2) a) The Corporation shall indemnify every person, his heirs,
executors and administrators against any and all judgments, fines, amounts
paid in settlement and reasonable expenses, including attorneys' fees,
incurred by him in connection with any claim, action, suit or proceeding
(whether actual or threatened, brought by or in the right of the
Corporation or otherwise, civil, criminal, administrative or
investigative, including appeals), to which he may be or is made a party
by reason of his being or having been a director or officer of the
Corporation, or at its request of any other corporation.
b) There shall be no indemnification (i) as to amounts paid in
settlement or other disposition of any threatened or pending action by or
in the right of the Corporation or such other corporation unless such
amounts are found reasonable by a quorum of disinterested directors and
the indemnification is supported by the written recommendation of
independent legal counsel or the court having jurisdiction of the action
shall approve the settlement or (ii) as to matters in respect of which it
shall be determined by judgment or otherwise that such director or officer
was negligent in the performance of his duties to the Corporation or such
other corporation, and, in the case of any criminal action or proceeding,
that he had reasonable cause to believe that his conduct was unlawful.
c) Any such person shall be entitled to indemnification as of
right (i) if he has been wholly successful, on the merits or otherwise,
with respect to any claim, action, suit or proceeding or (ii) except as
hereinabove provided, in respect of matters as to which a court or
independent legal counsel shall have determined that he acted in good
faith for a purpose which he reasonably believed to be in the best
interests of the Corporation, and, in addition, in any case of any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful.
d) The rights of indemnification provided in this By-Law shall
not be exclusive of any rights to which any such director or officer may
otherwise be entitled by contract or as a matter of law.
(3) The Corporation may by resolution purchase and maintain
insurance for itself and on behalf of any person who is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other
enterprise against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such, provided such
insurance is authorized by majority vote of a quorum of directors.
Section 13. Committees. The Board of Directors, by resolution
adopted by a majority of the full Board of Directors, may designate from
among its members an executive committee and one or more other committees
each of which, to the extent provided in such resolution or in the
Articles of Incorporation or the By-laws of the Corporation, shall have
and may exercise all the authority of the Board of Directors, except that
no such committee shall have the authority to:
(1) Authorize distributions;
(2) Approve or propose to shareholders action required by Chapter
490 of the Iowa Business Corporation Act to be approved by shareholders;
(3) Fill vacancies on the Board of Directors or any of its
committees;
(4) Amend the articles of incorporation of the Corporation;
(5) Approve a plan of merger not requiring shareholder approval;
(6) Adopt, amend or repeal the By-laws of the Corporation;
(7) Authorize or approve the reacquisition of shares, except
according to a formula or method prescribed by the Board of Directors; or
(8) Authorize or approve the issuance or sale or contract for sale
of shares, or determine the designation and relative rights, preferences,
and limitations of a class or series of shares, except that the Board of
Directors may authorize a committee or a senior executive officer of the
Corporation to do so within limits specifically prescribed by the Board of
Directors.
Section 14. Meetings by Conference Telephone. Members of the
Board of Directors or any committee designated by the Board of Directors
may participate in a meeting of the Board of Directors or committee by
conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute
presence in person at such meeting.
Section 15. Removal of Directors. A director may be removed from
office at any time by the affirmative vote of the holders of a majority of
the outstanding shares entitled to vote for the election of directors at a
meeting of the shareholders called for that purpose.
Section 16. Composition of the Board of Directors. So long as any
shares of Class B Common Stock, $1.00 par value, remain outstanding, the
Nominating Committee shall not recommend to the Board of Directors any
individual or individuals for election or appointment to the Board of
Directors, and the Board of Directors shall not nominate, elect or appoint
any such individual or individuals if, after such election or appointment,
a majority of the members of the Board of Directors shall not consist of
"independent directors" (as defined below).
For purposes of determining an "independent director" eligible for
membership on the Board of Directors, an "independent director" is a
director who, at the time of determination, and at any time within the
three years preceding such time, was not employed by the Corporation or
any of its subsidiaries in any capacity and who is not (i) a surviving
spouse of Roy J. Carver, (ii) a brother or sister of a surviving spouse of
Roy J. Carver, or a child (including an adopted child) of any such person,
(iii) a lineal descendant of Roy J. Carver, (iv) a spouse of a lineal
descendant of Roy J. Carver, (v) a brother-in-law or sister-in-law of a
lineal descendant of Roy J. Carver, and (vi) a brother or sister of Roy J.
Carver or a child (including an adopted child) of any such person. For
purposes of the foregoing definition, the term "lineal descendant"
includes an adopted child.
No substantive amendment to this Section 16 may be made except with
the affirmative vote of the holders of a majority of the then outstanding
shares of Common Stock and Class B Common Stock, each voting separately as
a class.
ARTICLE IV
OFFICERS
Section 1. Corporate Officers. The officers designated as
Corporate Officers shall be elected by the Board of Directors and shall
consist of a Chairman of the Board, a President, one or more Senior Vice
Presidents, one or more Vice Presidents, a Treasurer, a Secretary, one or
more Assistant Treasurers, and one or more Assistant Secretaries. The
Board of Directors from time to time also may elect one or more Vice
Chairmen of the Board and one or more Executive Vice Presidents. Any two
or more of such offices may be held by the same person. Corporate officers
shall have the power, authority and duties hereinafter set forth relative
to their respective offices.
Section 2. Appointive Officers. Upon approval of the Chairman of
the Board, an appropriate title may be given from time to time to certain
employees of the Corporation who are managing one or several groups,
divisions or other operations of the Corporation, provided, however, that
any employee who has been given a title shall not be deemed to be a
Corporate Officer of the Corporation for any purpose solely by virtue of
such title. Each person given any such title shall hold such title at the
will of the Chairman of the Board and shall cease to use such title when
directed by the Chairman of the Board. He shall have such powers and
perform such duties with respect to a group, division or other operation
of the Corporation as shall be assigned to him by the Chairman of the
Board. Vacancies in appointive offices may be filled by the Chairman of
the Board.
Section 3. Election and Term of Office. The Corporate Officers
shall be elected annually by the Board of Directors at the first meeting
of the Board of Directors held after each Annual Meeting of the
Shareholders or as soon thereafter as conveniently may be. Each Corporate
Officer shall hold office until his successor is elected and shall have
qualified or until his death or until he shall resign or have been removed
from office in the manner hereinafter provided. Vacancies may be filled
and new offices created and filled at any meeting of the Board of
Directors.
Section 4. Removal. Any Corporate Officer elected by the Board
of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation would be served thereby,
but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
Section 5. Vacancies. A vacancy in any Corporate Office because
of death, resignation, removal, disqualification or otherwise, may be
filled by the Board of Directors for the unexpired portion of the term.
Section 6. Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the shareholders and directors. He shall
be the chief executive officer of the Corporation and shall have general
supervision of the business, affairs and property of the Corporation and
over its several officers, subject, however, to the control of the Board
of Directors. He shall be ex officio a member of all standing committees,
other than the Audit Committee and the Stock Option Committee, and shall
see that all orders of the Board of Directors and resolutions of the Board
of Directors are carried into effect. He shall have authority to execute
bonds, mortgages and other contracts requiring the seal, under the seal of
the Corporation, except where required and permitted by law to be other-
wise signed and executed, and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation.
Section 6(a). Vice Chairman of the Board. Each Vice Chairman of the
Board shall perform such duties as may be assigned to him by the Board of
Directors.
Section 7. The President. The President shall perform such
duties as may be assigned to him by the Board of Directors. In the absence
or disability of the Chairman of the Board, the President shall preside at
meetings of the shareholders and of the Board of Directors. He shall have
authority to execute bonds, mortgages and other contracts requiring the
seal, under the seal of the Corporation, except where required and
permitted by law to be otherwise signed and executed, and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
Section 8. Executive Vice Presidents. Each Executive Vice
President shall perform such duties as may be assigned to him by the Board
of Directors.
Section 9. Senior Vice Presidents - Vice Presidents. Each Senior
Vice President and each Vice President elected as a Corporate Officer
shall perform such duties as from time to time may be assigned to him by
the Chairman of the Board or by the Board of Directors.
Section 10. The Secretary. The Secretary shall: a) keep the
minutes of the Shareholders' and of the Board of Directors' meetings in
one or more books provided for that purpose; b) see that all notices are
duly given in accordance with the provisions of these By-Laws or as
required by law; c) be custodian of the corporate records and of the seal
of the Corporation and see that the seal of the Corporation is affixed to
all documents the execution of which on behalf of the Corporation under
its seal is duly authorized; d) keep a register of the post office address
of each shareholder which shall be furnished to the Secretary by such
shareholders; e) sign with the Chairman of the Board, or the President, or
an Executive Vice President, certificates for shares of the Corporation,
the issuance of which shall have been authorized by resolution of the
Board of Directors; f) have general charge of the stock transfer books of
the Corporation; and g) in general perform all duties incident to the
office of the Secretary and such other duties as from time to time may be
assigned to him by the Chairman of the Board or by the Board of Directors.
Section 11. The Treasurer. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful discharge of his duties
in such sum and with such surety or sureties as the Board of Directors
shall determine. He shall: a) have charge and custody of and be
responsible for all funds and securities of the Corporation; receive and
give receipts for moneys due and payable to the Corporation from any
source whatsoever, and deposit all such moneys in the name of the
Corporation in such banks, trust companies or other depositaries as shall
be selected in accordance with the provisions of Article V of these By-
Laws; and b) in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to
him by the Chairman of the Board or by the Board of Directors.
Section 12. Assistant Secretary. The Assistant Secretary, when
authorized by the Board of Directors, may sign with the President or an
Executive Vice President certificates for shares of the Corporation, the
issuance of which shall have been authorized by a resolution of the Board
of Directors. The Assistant Secretary, in general, shall perform such
duties as shall be assigned to him by the Chairman of the Board.
Section 13. Salaries. The salaries of the Corporate Officers
shall be fixed from time to time by the Board of Directors. No officer
shall be prevented from receiving such salary by reason of the fact that
he is also a director of the Corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors, the President or
any officer designated by the Chairman of the Board, may authorize any
officer or officers, agent or agents, to enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances, subject to such limitations as the Board may prescribe.
Section 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors, or, subject
to such limitations as the Board may prescribe, unless authorized in
writing by the Chairman of the Board or any officer designated by the
Chairman of the Board. Any such authority may be general or confined to
specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the Corporation, shall be signed by such officer or
officers, agent or agents of the Corporation and in such manner as shall
from time to time be determined by resolutions of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositaries as the
Board of Directors may select or may be selected by officers pursuant to
authority granted by the Board of Directors.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing
shares of the Corporation shall be in such form as shall be determined by
the Board of Directors. Such certificates shall be signed by the Chairman
of the Board, the President or a Senior Vice President and by the
Secretary or an Assistant Secretary. The signatures of the Chairman of the
Board, the President or a Senior Vice President and the Secretary or an
Assistant Secretary upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent, or registered by a
registrar, other than the Corporation itself, or an employee of the
Corporation. In case any officer who has signed or whose facsimile signa-
ture has been placed on such certificate for the Corporation shall have
ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer
at the time of its issue. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of
the person to whom the shares represented thereby are issued, with the
number of shares and date of issue, shall be entered on the stock transfer
books of the Corporation. All certificates surrendered to the Corporation
for transfer shall be canceled and no new certificate shall be issued
until the former certificate for a like number of shares shall have been
surrendered and canceled, except that in case of a lost, destroyed or
mutilated certificate a new one may be issued therefor upon such terms and
indemnity to the Corporation as the Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the
Corporation shall be made only on the stock transfer books of the
Corporation by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of authority to
transfer, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificate for such shares. The person
in whose name shares stand on the books of the Corporation shall be deemed
by the Corporation to be the owner thereof for all purposes.
Section 3. Issuance of Fractional Shares or Script. No
fractional shares of the Corporation shall be issued and no transfer of a
fraction of a share shall be permitted. In lieu of issuing a fraction of a
share the Board of Directors may authorize payment in cash of the fair
value of fractions of a share as of the time when those entitled to
receive such fractions are determined, or may authorize the issuance of
script in registered or bearer form which shall entitle the holder to
receive a certificate for a full share upon the surrender of such script
aggregating a full share. The Board of Directors may cause such script to
be issued subject to the condition that it shall become void if not
exchanged for certificates representing full shares before a specified
date or subject to the condition that the shares for which such script is
exchangeable may be sold by the Corporation and the proceeds thereof
distributed to the holders of such script or subject to any other condi-
tions which the Board of Directors may deem advisable.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall end on the thirty-first day
of December in each year.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares in the manner and
upon the terms and conditions provided by law and its Articles of
Incorporation.
ARTICLE IX
SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the
Corporation and the state of incorporation and the words "Corporate Seal".
The Corporation may use the seal by causing it, or a facsimile thereof, to
be impressed or affixed or in any other manner reproduced.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the Corporation under the provisions of the articles of
incorporation or under the provisions of the Iowa Business Corporation
Act, a waiver thereof in writing, signed by the person or persons entitled
to such notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice.
ARTICLE XI
AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may
be adopted by the Board of Directors at any regular or special meeting of
the Board of Directors, but only in a manner consistent with the
provisions of the Restated Articles of Incorporation of the Corporation,
as amended from time to time.
EXHIBIT 10.1
BANDAG INCORPORATED
RESTRICTED STOCK GRANT PLAN
As Amended November 12, 1996
1. PURPOSE. The purpose of the Bandag Incorporated Restricted Stock
Grant Plan (the "Plan") of BANDAG, INCORPORATED and its subsidiaries (the
"Company") is to promote the long-term financial interest of the Company,
including its growth, through the award of Restricted Stock by the Board
of Directors of Bandag, Incorporated (the "Board") in accordance with the
terms and conditions of the Plan, by (i) attracting and retaining
executive personnel possessing outstanding ability; (ii) motivating
executive personnel, by means of growth-related incentives, to achieve
long-range goals; (iii) providing incentive compensation opportunities
which are competitive with those of other major corporations; and (iv)
furthering the identity of interests of Participants with those of the
Company's stockholders through opportunities for increased stock
ownership.
2. DEFINITIONS. The following definitions are applicable to this
Plan:
(a) The term "Common Stock" means the Common Stock of the
Company.
(b) The term "Non-Employee Director" means a person who is so
defined for purposes of Rule 16b-3 under the Securities Exchange Act of
1934, as amended.
(c) The term "Disability" shall mean a physical or mental
condition which in the judgment of the Committee, based on medical
examination by a doctor or clinic appointed by the Committee, totally and
permanently prevents a Participant from engaging in any substantial
gainful activity.
(d) The term "Participant" means any employee who is selected
by the Board to participate in the Plan.
(e) The term "Plan Year" means the Company's fiscal year,
beginning with its 1984 fiscal year.
(f) The term "Restricted Period" has the meaning ascribed to it
in Section 5 hereof.
(g) The term "Restricted Stock" has the meaning ascribed to it
in Section 5 hereof.
(h) The term "Subsidiary" means any corporation of which
Bandag, Incorporated owns, directly or indirectly, 50% or more of the
total combined voting power of all classes of stock entitled to vote.
3. ADMINISTRATION. The Plan shall be administered by the Stock
Option Committee (the "Committee") which shall consist of not less than
two directors, each of whom shall qualify as a Non-Employee Director. The
Committee shall, subject to the express provisions of the Plan, have sole
and complete authority to (i) select the Participants, (ii) determine the
number of shares of Common Stock (subject to the limitations of Section 6
hereof) to be awarded to each of the Participants in the Plan and (iii)
interpret the Plan and make all determinations deemed necessary or
advisable for the administration of the Plan.
A majority of the Committee shall constitute a quorum, and the acts
of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by a majority of the Committee
without a meeting, shall be the acts of the Committee.
4. PARTICIPATION. After the end of the third quarter of each Plan
Year, and no later than the end of November of the Plan Year involved, the
Committee shall select the persons who are to be Participants in the Plan
for that Plan Year and shall determine the number of shares of Restricted
Stock to be awarded to each participant in the Plan for that Plan Year.
Participants are to be selected from those employees of the Company who,
in the opinion of the Committee, have the capacity for contributing in a
substantial measure to the successful performance of the Company. No
director who is not also a full-time employee of the Company shall be
selected to be a Participant. The date that the Committee makes such
selections and determinations shall be deemed to be the effective date of
the awards of Restricted Stock for such Plan Year.
5. TERMS AND CONDITIONS OF AWARDS. All shares of Common Stock
awarded to Participants under the Plan (the "Restricted Stock") shall be
subject to the following terms and conditions and to such other terms and
conditions, not inconsistent with the Plan, as may be prescribed by the
Committee in its sole discretion:
(a) Restricted Stock awarded to a Participant may not be sold,
assigned, transferred, pledged or otherwise encumbered for a period (the
"Restricted Period") ending as of the earlier of (i) seven (7) years after
the effective date of the award of such stock or (ii) the Participant's
termination of employment for any reason after attainment of age sixty
(60) or (iii) the death or disability of the Participant. So long as such
shares are subject to such restrictions, they shall be held by a nominee
of the Committee. The nominee shall have no obligation to solicit proxies
or vote shares.
(b) Within thirty (30) days after the effective date of an
award of Restricted Stock, a Participant may file an election pursuant to
and in accordance with Section 83(b) of the Internal Revenue Code of 1986,
as amended, to have the appropriate value of such award included in gross
income for the taxable year in which that award occurs. In the event such
an election is made, the Company shall, prior to the end of such taxable
year, pay to the Participant the amount determined by the Committee to be
sufficient remuneration for the resultant income tax consequences. Any
dividends paid on shares of Restricted Stock subject as to which an
election has been made, shall be distributed to the Participant at such
times as dividends on the Company's Common Stock are generally payable.
In the event the Participant does not exercise the Section 83(b) election,
all dividends attributable to such shares shall be held by the nominee
until distributed or forfeited as hereinafter provided. The account in
which these dividends are held need not be interest bearing.
(c) At the end of the Restricted Period as to any given
Restricted Stock award, the shares constituting such award shall cease to
be Restricted Stock, and shall be delivered free of all restrictions to
the Participant [or, in the event such Restricted Period ends as a result
of death, the Participant's legal representative, beneficiary or heir].
The Committee shall deliver to the Participant a certificate or
certificates for such shares and a check for all undistributed dividends
accumulated on such shares during the Restricted Period.
(d) In the event of the death or disability of a Participant,
the Restricted Period shall end as to any shares already awarded, but
neither the Participant nor the legal representative of his estate, his
beneficiary or his heir shall have any interest in awards of stock made
after the date of death or disability.
(e) A Participant whose employment with the Company is
terminated, whether voluntarily or involuntarily, for any reason other
than death or disability, shall forfeit all shares of Restricted Stock and
any undistributed dividends thereon then being held, and any other rights
under the Plan, upon such termination of employment. Such shares shall be
forfeited to the Company and may be awarded again to Participants in the
Plan.
(f) The Participant shall enter into an Agreement with the
Company in a form specified by the Committee agreeing to the terms and
conditions of the award and such other matters as the Committee shall in
its sole discretion determine.
6. SHARES SUBJECT TO THE PLAN; REGISTRATION UNDER THE SECURITIES
ACT. The shares to be awarded under the Plan shall be shares of Common
Stock and may be authorized but unissued shares, or shares acquired by the
Company and held in its treasury, as the Committee may from time to time
determine. Subject to adjustment in the number and kind of shares as
provided in Section 7 hereof, fifty thousand (50,000)* shares of Common
Stock may be awarded to Participants pursuant to the Plan. All shares to
be awarded under the Plan will be listed on such stock exchanges as the
Common Stock of the Company is listed from time to time.
_______________
* Due to issuance of the Class B Stock dividend and the Class A Stock
dividend in 1987 and 1992, respectively, the number of shares authorized
under the Plan consists of 100,000 shares of Common Stock and 100,000
shares of Class A Common Stock.
7. CHANGES IN CAPITALIZATION AND SIMILAR CHANGES. In the event of
any change in the outstanding shares of Common Stock by reason of any
stock dividend or split, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, the
maximum aggregate number and class of shares as to which awards may be
granted under the Plan shall be equitably adjusted by the Committee. Any
shares of stock or other securities distributable or deliverable with
respect to Restricted Stock will be subject to the same restrictions as
such Restricted Stock.
If the Company shall be consolidated or merged with another
corporation, any stock, securities or other property (including cash)
distributable with respect to Restricted Stock or into which any share of
Restricted Stock shall be converted, shall also be subject to the same
restrictions as such Restricted Stock.
If any person files a statement under Section 14(d) of the Securities
Exchange Act of 1934, as amended ("Exchange Act") in connection with a
tender offer [within the meaning of Section 14(d) of the Exchange Act or
the Regulations thereunder] for Common Stock, the Participant shall have
the right to direct the nominee which holds Restricted Stock awarded to
the Participant whether or not to tender such Restricted Stock pursuant to
the Offer, including tendering in whole or in part or conditionally or
unconditionally; provided, however, no Participant shall have the
foregoing right if counsel to the Company advises it that tendering such
Restricted Stock would be prohibited by any provision of the Exchange Act
or any Regulation thereunder, including without limitation Rule 10b-4.
Any consideration received with respect to Restricted Stock which is
tendered shall be subject to the same restrictions as such Restricted
Stock.
In the event any cash is received in connection with the conversion
or disposition of Restricted Stock, the Committee shall direct its nominee
to invest such cash and any earnings thereon in such investment media as
the Committee deems appropriate. All earnings from such investments (and
any loss thereon or diminution in the value there) shall be for the
account of the Participant.
If any of the events referred to in this Section occurs or is
pending, and the Committee is advised by counsel to the Company that
disposition of Restricted Stock will result in the recognition of taxable
income to the Participant awarded such Restricted Stock, the Committee
shall have discretion to enter into such arrangements as it deems
appropriate to minimize or eliminate the recognition of such taxable
income, provided that any property substituted for Restricted Stock
pursuant to any such arrangement shall be subject to the same restrictions
as Restricted Stock.
8. WITHHOLDING TAX. With respect to any payments made to
Participants under the Plan, the Company shall have the right to withhold
any taxes required by law.
9. EMPLOYEE RIGHTS UNDER THE PLAN. No employee or other person
shall have any claim or right to be granted Common Stock under the Plan
except as shall have been conferred in accordance with the terms and
conditions of the Plan. Neither the Plan nor any action taken thereunder
shall be construed as giving any employee any right to be retained in the
employ of the Company.
10. AMENDMENT OR TERMINATION. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time, but no amendment
shall be made without stockholder approval which shall (i) increase the
total number of shares which may be awarded under Section 6 of the Plan
(subject to Section 7 hereof) or (ii) withdraw the administration of the
Plan from the Committee; provided that no amendment, suspension or
termination shall impair the rights of any Participant, without his
consent, in any Restricted Stock awarded pursuant to the Plan prior to
such action by the Board.
11. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective as
of January 1, 1984, if and only if approved by the stockholders of Bandag,
Incorporated and shall continue in effect until the last expiration date
of any Restricted Period operative under the Plan; provided, however, that
no awards of Restricted Stock shall be made after the Company's fiscal
year ending in 2000 or such earlier date as the Board may specify pursuant
to Section 10 hereof.
The Plan was adopted by the Board of Directors of Bandag,
Incorporated on March 1, 1984.
Exhibit 10.2(a)
THIS CONTRACT IS SUBJECT TO ARBITRATION
BANDAG SYSTEM FRANCHISE AGREEMENT
TABLE OF CONTENTS
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
I. BANDAG Method and Grant of Franchise . . . . . . . . . . . . . . 1
II. Materials Provided by BANDAG; Obligations of
FRANCHISEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
III. Maintenance of Quality and Reputation . . . . . . . . . . . . . 3
IV. Records and Inspection . . . . . . . . . . . . . . . . . . . . . 4
V. Relationship of Parties . . . . . . . . . . . . . . . . . . . . 4
VI. Use of the Marks, Display, Advertising and
Promotion of BANDAG Name . . . . . . . . . . . . . . . . . . . . 4
VII. Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . 4
VIII. Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
IX. Termination of the Agreement by BANDAG . . . . . . . . . . . . . 4
X. Effect of Termination . . . . . . . . . . . . . . . . . . . . . 5
XI. Transfer of Control . . . . . . . . . . . . . . . . . . . . . . 5
XII. General and Product Liability; Warranties;
Insurance and Indemnification . . . . . . . . . . . . . . . . . 6
XIII. Security Interest . . . . . . . . . . . . . . . . . . . . . . . 7
XIV. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . 7
XV. Notices; Litigation . . . . . . . . . . . . . . . . . . . . . . 7
XVI. Assignment and Subfranchising . . . . . . . . . . . . . . . . . 7
XVII. Improvements by FRANCHISEE . . . . . . . . . . . . . . . . . . . 7
XVIII. Execution; Representations and Warranties . . . . . . . . . . . 8
XIX. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . 8
XX. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 8
UNDERTAKING BY THE PRINCIPALS OF BANDAG FRANCHISEE . . . . . . . . . 11
ANNEX A General Terms and Conditions of Sale . . . . . . . . . . . . . .
ANNEX B BANDAG /R/ Logo and Trademark Usage Requirements and
Policy . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
BANDAG SYSTEM FRANCHISE AGREEMENT
THIS AGREEMENT is made by and between Bandag, Incorporated, an Iowa
corporation ("BANDAG") and _________________________________________
______________________________________________ ("FRANCHISEE"), a
____ corporation organized under the laws of the State of ___________,
____ sole proprietorship owned by ___________________________________,
____ partnership organized under the laws of the State of ___________,
doing business under the name: ______________________________________,
whose mailing address is: ___________________________________________
_____________________________________________________________________,
with employer federal identification number _________________________.
Introduction
Over many years and at substantial expense, BANDAG has developed, promoted
and improved for its franchises, and continues to improve, a unique method
of retreading tires with pre-cured rubber. This method utilizes
manufacturing technology, engineering and know-how, other proprietary
processes, and specialized equipment made by or for BANDAG or one of its
corporate affiliates for use in the process of inspecting and preparing
casings for retreading, affixing and bonding the tread rubber to the
casing, and repairing casings (herein, such equipment, as modified,
improved and supplemented by BANDAG from time to time, to be called
"BANDAG Equipment"). BANDAG has also developed for use in this unique
retreading method BANDAG/R/ tread rubber, BANDAG/R/ cushion gum, other
tread materials and other materials used between the tread materials and
the casing (including without limitation cushion rubber, cushion gum and
other adhesives, repair gums, filling materials, special extrusions, re-
belting materials, cements and other rubber items) (herein, such items, as
modified, improved and supplemented by BANDAG from time to time, to be
called "BANDAG Rubber Products"). In addition, BANDAG has developed at
substantial expense valuable market research, proprietary rights
(including patents, trademarks, confidential know-how and copyrights),
expertise in managing retread facilities, and programs for the marketing
and sale of retreaded tires, for the technical and sales training of
personnel, and for customer service. In this Agreement, all the foregoing
described in this Introduction, as they may be modified from time to time
by BANDAG, shall be referred to as the "BANDAG Method".
FRANCHISEE desires to acquire the right to practice the BANDAG Method, and
BANDAG is pleased to grant this valuable right to FRANCHISEE on the terms
stated in this Agreement.
In consideration of the mutual agreements herein and other good and
valuable consideration, BANDAG and FRANCHISEE agree as follows:
I. BANDAG Method and Grant of Franchise
(a) BANDAG hereby grants to FRANCHISEE the non-exclusive right to make
and sell those truck and bus tires (but excluding aircraft, agricultural
and passenger tires) retreaded by the BANDAG Method (as improved by BANDAG
during the term of this Agreement) marked below:
_____ Retreading tire sizes up to and including
14.00-25 and 17.5-25.
_____ Retreading tire sizes from LT 185/75R14 up
to and including 9R17.5 including all sizes
of Wide Base, Low Profile and High Flotation
Light Truck Tires within that size range.
_____ Retreading tire sizes from 12.00-24 up to
and including 29.5-29 including all sizes of
Wide Base, Low Profile and High Flotation
Light OTR Tires within that size range.
[Check applicable program(s)]
(b) FRANCHISEE may make retreaded tires by the BANDAG Method only at
the facility located at: _____________________________________________
______________________________________________________________________
("Authorized Location").
(c) FRANCHISEE's non-exclusive Territory shall be: ___________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
FRANCHISEE may sell tires retreaded by the BANDAG Method wherever and to
whomever and at any price FRANCHISEE may choose, in or outside the
Territory (as is the case with other BANDAG franchisees).
(d) FRANCHISEE may not resell BANDAG Rubber Products purchased from
BANDAG or from any other franchisee of BANDAG other than to (i) end users
(and in that instance, only if such items are incorporated into tires
retreaded by the BANDAG Method) and (ii) other BANDAG franchisees
authorized to retread tires by the BANDAG Method in the United States.
(e) While this Agreement is in effect, FRANCHISEE may not, in the
Territory, sell tires of the size and use checked above retreaded by any
method using pre-cured rubber other than the BANDAG Method, or operate,
effectively control or be employed by any entity or undertaking in the
business of selling such tires in the Territory. FRANCHISEE further
agrees not to allow any of its Affiliates or Controlling Persons to engage
in these activities while this Agreement is in effect.
(f) For the purposes of this Agreement,
(1) "Affiliate" shall mean any natural person or legal entity
that, directly or indirectly, controls, is controlled by or is
under common control with either FRANCHISEE or any Controlling
Person; and
(2) "Controlling Person" shall be any natural person or other
legal entity with a 5% or greater interest in FRANCHISEE or in
another entity that has, directly or indirectly, a 5% or greater
interest in FRANCHISEE, or otherwise having the power to control,
directly or indirectly, the management, direction or day-to-day
operations of FRANCHISEE. Without limiting the generality of the
foregoing, a natural person or legal entity shall be a "Controlling
Person" of FRANCHISEE if it owns a 5% or greater interest in
another entity that either is itself a Controlling Person of
FRANCHISEE or has an indirect ownership interest in FRANCHISEE
through one or more intervening levels of direct or indirect
subsidiaries. For example, if FRANCHISEE is a wholly-owned
subsidiary of another corporation that is, in turn, owned equally
by three other corporations, each of these three corporations shall
be considered a Controlling Person for purposes of this Agreement.
II. Materials Provided by BANDAG; Obligations of FRANCHISEE
(a) To assist its franchisees, BANDAG has developed materials relating
to the BANDAG Method and to production engineering (including technical
bulletins), public relations, and advertising, merchandising and promotion
of the BANDAG Method and of tires retreaded by the BANDAG Method. BANDAG
will provide to FRANCHISEE from time to time such materials as are
provided by BANDAG to its franchisees generally. BANDAG may amend and
revise such materials and charge for materials in excess of those normally
provided.
(b) All proprietary and other information obtained directly or
indirectly by FRANCHISEE with respect to BANDAG's business plans,
policies, and modified or new methods, processes or products, and all
written matter furnished to FRANCHISEE by BANDAG or its affiliates
(whether or not FRANCHISEE shall be charged for same), shall remain
BANDAG's property and shall be deemed confidential information. Such
information and materials (including any translation) shall not be
reproduced or disclosed to others or used for any purpose other than
performance of FRANCHISEE's obligations under this Agreement. FRANCHISEE
shall cause its employees to comply with this provision. If there is any
claim or litigation involving the confidential information, and if BANDAG
in its sole discretion undertakes the negotiation, settlement, defense or
prosecution, FRANCHISEE shall execute any documents and render assistance
(exclusive of out-of-pocket expenditures) as may be reasonably requested
to carry out the same. If any confidential information is sought by
discovery procedures, FRANCHISEE shall (i) notify BANDAG within three (3)
days after receipt of such discovery request, (ii) seek appropriate
protective orders for such information and (iii) join in any motion BANDAG
may file to protect against disclosure of such materials.
(c) FRANCHISEE agrees that, at its Authorized Location and within a
480-mile radius thereof, during the term of this Agreement, (i) it will
not, and will not allow any Controlling Person or any Affiliate to,
retread tires by any method using pre-cured rubber other than the BANDAG
Method or directly or indirectly operate, effectively control or be
employed by any entity or undertaking in the business of retreading such
tires; and (ii) it will not refer any customers or potential customers of
retreaded tires to other entities or shops using any pre-cured method
other than the BANDAG Method.
III. Maintenance of Quality and Reputation
(a) FRANCHISEE acknowledges the superior quality, performance and
reputation of BANDAG Equipment, BANDAG Rubber Products, and the other
items and services that constitute part of the BANDAG Method. FRANCHISEE
further acknowledges that it is essential to the reputation of the BANDAG
Method and to the maintenance of the BANDAG trademarks and logos, and to
avoid misleading the public with respect to the quality of the tires
retreaded by FRANCHISEE, that the retreaded tires sold by FRANCHISEE be
retreaded strictly in accordance with the BANDAG Method and with BANDAG
Equipment and BANDAG Rubber Products, including BANDAG/R/ tread rubber and
BANDAG/R/ cushion gum. Accordingly, FRANCHISEE shall utilize in the
retreading of tires with pre-cured rubber at the Authorized Location only
BANDAG Rubber Products and BANDAG Equipment. FRANCHISEE shall also follow
such procedures for retreading tires with pre-cured rubber as are
established by BANDAG from time to time and shall maintain standards and
procedures required to comply with the BANDAG Quality Certification
Program, as revised by BANDAG from time to time. BANDAG may from time to
time require additional certifications for production and marketing of
particular products or utilization of particular technology, and require
FRANCHISEE's continued adherence to the same, if FRANCHISEE desires to
produce such particular products or utilize such technology associated
with the Bandag Method. In addition, FRANCHISEE shall not engage in any
business conduct reasonably likely to affect adversely the reputation or
goodwill of BANDAG or the BANDAG Method.
(b) Representative samples of any and all materials used in retreading
tires by the BANDAG Method and not falling under Section III(a) of this
Agreement must be submitted for testing and inspection to BANDAG (at
FRANCHISEE's expense) and must be approved by BANDAG in writing prior to
such use by FRANCHISEE; BANDAG will not unreasonably withhold its approval
of such materials if they meet BANDAG's standards for quality and
performance.
(c) All purchases from BANDAG or one of its corporate affiliates shall
be at the prices established by BANDAG from time to time, and shall be
subject to the seller's Standard Terms and Conditions of Sale, as revised
from time to time. These terms and conditions (as supplemented by this
Agreement) shall constitute the entire and only agreement between the
parties with respect to the sale of such products to FRANCHISEE. No
additional or different terms set forth in FRANCHISEE'S purchase order,
acknowledgment or other forms or correspondence shall govern any sales of
such products to FRANCHISEE, and BANDAG hereby objects to any such
additional or different terms contained in any communication from
FRANCHISEE. A copy of the Standard Terms and Conditions of Sale at the
effective date of this Agreement is attached hereto as Annex A. A breach
of such Terms shall be a breach of this Agreement.
(d) FRANCHISEE shall maintain its Authorized Location in accordance
with standards and procedures prescribed by BANDAG from time to time.
FRANCHISEE shall maintain BANDAG Equipment in satisfactory operating
condition and incorporate all modifications prescribed by BANDAG.
(e) FRANCHISEE warrants that all required inspections of equipment used
in retreading tires by the BANDAG Method will be undertaken and that, to
the extent required by local law, FRANCHISEE shall post on such equipment
appropriate certificates of inspection or other evidence of approval.
FRANCHISEE further agrees: (1) to maintain and/or install such safety
features on BANDAG Equipment as are originally installed or are thereafter
recommended by BANDAG and in conformity with all applicable safety codes
and regulations; (2) not to alter any safety features on BANDAG Equipment,
whether such equipment was purchased from BANDAG or a third party; and (3)
to rework or authorize BANDAG to rework any BANDAG Equipment to
reestablish or retrofit any safety feature for the BANDAG Equipment.
If BANDAG determines that any of FRANCHISEE's equipment used in retreading
tires by the BANDAG Method is unsafe or does not comply with current
safety standards used by BANDAG or applicable safety codes and
regulations, BANDAG may give FRANCHISEE written notification thereof, and
FRANCHISEE shall, within one month thereafter at its expense, either (y)
rework, or authorize BANDAG to rework, such equipment, or (z) remove such
equipment from service and sell it back to BANDAG, or trade it in for new
BANDAG Equipment, in either case, at its then-current fair market value,
all without prejudice to the right of BANDAG to remove certificates of
inspection or nameplates from equipment not found in compliance with
applicable safety codes or standards and to notify appropriate
governmental officials that the equipment in question no longer meets
applicable safety requirements.
(f) FRANCHISEE acknowledges that it will, in the operation of its
business of retreading tires with pre-cured rubber, comply with all
applicable federal, state and local laws, ordinances, regulations and
orders. FRANCHISEE shall also refrain from taking any action that prevents
BANDAG from realizing the benefits of this Agreement.
(g) FRANCHISEE shall not sell, lease or in any other way transfer title
or possession of any BANDAG Equipment to third parties other than BANDAG
franchisees, without first offering such Equipment in writing free and
clear of all claims and encumbrances for purchase by BANDAG at fair market
value. "Fair market value", as used in this Agreement, means the cash
purchase price that would apply in an arm's-length transaction between an
informed and willing BANDAG franchisee under no compulsion to purchase and
an informed and willing BANDAG franchisee under no compulsion to sell.
IV. Records and Inspection
FRANCHISEE shall maintain and provide to BANDAG financial statements,
books of account, and supply, purchasing, inventory, production and sales
records (including the date of purchase, weight and source of BANDAG
Rubber Products used by FRANCHISEE and records showing the identity and
address of all purchasers of BANDAG Rubber Products and of tires retreaded
by the BANDAG Method), together with any other business records or
information records that BANDAG may request in order to determine whether
FRANCHISEE is performing its obligations under this Agreement. FRANCHISEE
shall permit BANDAG to examine FRANCHISEE's records, premises and samples
of tires made by the BANDAG Method during regular business hours.
V. Relationship of Parties
The relationship of the parties is that of franchisor and franchisee, and
seller and buyer only, and FRANCHISEE acknowledges that this Agreement
does not create a fiduciary relationship between FRANCHISEE and BANDAG.
The parties are independent contractors, and exercise sole control over
their businesses at their own risk.
VI. Use of the Marks, Display, Advertising and Promotion of
BANDAG Name
FRANCHISEE shall have the non-exclusive right to use the "BANDAG" name and
mark, including BANDAG's trademarks, service marks and logos
(collectively, the "Marks") in the Territory in connection with the
manufacture and sale of tires retreaded by the BANDAG Method, subject to
BANDAG's Logo and Trademark Usage Requirements and Policy, as revised from
time to time by BANDAG. FRANCHISEE shall at all times comply with such
Requirements and Policy, which is attached in its current form as Annex B.
VII. Best Efforts
FRANCHISEE shall at all times while this Agreement remains in effect exert
its best efforts to produce and sell tires retreaded by the BANDAG Method.
VIII. Duration
This Agreement shall continue in effect for five years unless terminated
as provided elsewhere in this Agreement.
IX. Termination of the Agreement by BANDAG
BANDAG shall have the right to terminate this Agreement:
(a) Effective upon notice to FRANCHISEE, in the event of any breach
of Section I(d) or (e), II(b) or (c), III(a), XI, XII or XVI of
this Agreement, or
(b) Effective upon notice to FRANCHISEE, in the event FRANCHISEE
shall fail to pay all amounts due to BANDAG within ten (10) days
after BANDAG notifies FRANCHISEE that payment is due, or
(c) Effective upon notice to FRANCHISEE, in the event FRANCHISEE
shall fail to operate the business of retreading tires by the
BANDAG Method at the location authorized in Section I for more than
sixty (60) consecutive days or otherwise abandons the franchise
granted herein, or
(d) Effective upon notice to FRANCHISEE, in the event FRANCHISEE
introduces and/or supports any proceedings challenging the validity
of any trademarks or other unpatented proprietary rights, whether
registered or not, under which BANDAG derives its licensing power
hereunder, or
(e) Effective upon notice to FRANCHISEE, in the event of (1) any
breach or non-compliance with any term or provision of this
Agreement other than those described in subsections (a) through (d)
above, or any breach or non-compliance with any other agreement
between BANDAG and FRANCHISEE, and in either such case the breach
or non-compliance is not remedied within thirty (30) days of notice
thereof from BANDAG, or (2) the repeated breach or non-compliance
with one or more term or provision of this Agreement, whether or
not such breach or non-compliance is corrected after notice, or
(f) Immediately, in the event FRANCHISEE becomes insolvent or is
subject to any bankruptcy, insolvency, or similar proceeding, makes
an assignment for the benefit of creditors, becomes unable to pay
its debts as they become due, goes into liquidation or winding up,
or in the event a receiver is appointed for substantial part of
FRANCHISEE's assets, or
(g) Effective upon thirty (30) days' notice, in the event of (1) a
decision by a court or government agency that invalidates any
significant provision of this Agreement, or (2) the failure of the
heirs or successors of FRANCHISEE or a Controlling Person to apply
for approval of a transfer of the pre-cured retreading business or
the assets of such business in accordance with Section XI(c), or
BANDAG's disapproval of such transfer.
X. Effect of Termination
(a) In the event of termination of this Agreement for any reason:
(1) FRANCHISEE shall surrender and cease to exercise all rights
granted under this Agreement, shall cease all use of the BANDAG
Method, shall cease all use of BANDAG Equipment, and shall cease
selling tires retreaded after date of termination with pre-cured
rubber on BANDAG Equipment. In addition, no officer, director,
relative, manager, shareholder, partner or other owner of
FRANCHISEE or any Affiliate or Controlling Person, or any business
enterprise in which any of them is engaged or to which any of them
is related, may directly or indirectly operate such BANDAG
Equipment or sell tires retreaded after date of termination with
pre-cured rubber on BANDAG Equipment. FRANCHISEE shall also, at
its own expense, cease all use of BANDAG's name and Marks in any
and all connections, and refrain from representing any of its
products produced after termination as "BANDAG products" or as
being the "same as BANDAG" or "similar to BANDAG" or represent
itself as a BANDAG franchisee or otherwise identify itself with
BANDAG. Without limiting the foregoing, FRANCHISEE shall change
the corporate name to eliminate use of any BANDAG Marks and change
all stationary, envelopes, business cards, other advertisements and
other items and file such documents in all federal, state and local
offices as may be considered appropriate by BANDAG to change the
corporate name of record in such offices.
(2) Termination of this Agreement shall not relieve FRANCHISEE from
its obligation to pay to BANDAG all moneys that may be due, and all
amounts yet unpaid and not yet due for equipment, materials and
supplies shall become due and payable within ten (10) days of the
date of termination.
(3) FRANCHISEE shall immediately cease using, and return within a
period of ten (10) days following termination, all property of
BANDAG, including but not limited to all confidential and
proprietary written materials (and all copies thereof) received
from BANDAG and all translations thereof. Such materials will be
delivered in person to a BANDAG designee or returned via courier
service, to be signed for by the recipient.
(4) BANDAG shall have the option, exercisable by notice within
sixty (60) days following the effective date of termination of this
Agreement, to purchase (i) any or all BANDAG Rubber Products at the
price paid by FRANCHISEE and/or (ii) any or all BANDAG Equipment at
its 10-year straight line depreciated value, with a minimum of 15
percent of the purchase price paid by FRANCHISEE for such
Equipment. This option extends to all BANDAG Equipment and BANDAG
Rubber Products used in the business of FRANCHISEE prior to the
effective date of termination. From the purchase price shall be
deducted the amount of any set off or counterclaim that BANDAG may
have against FRANCHISEE. Within two (2) days of receipt of notice
from BANDAG, FRANCHISEE shall prepare for immediate return all such
items.
(b) After receipt of BANDAG's notice of termination, FRANCHISEE shall
not commit itself to further advertising contracts or other agreements by
which it represents itself as a franchisee of BANDAG.
XI. Transfer of Control
(a) FRANCHISEE acknowledges that, to assure BANDAG that FRANCHISEE's
obligations herein will be performed fully and that customers of tires
retreaded by the BANDAG Method will receive adequate service, BANDAG must
know and approve who in fact controls FRANCHISEE. Accordingly, neither
FRANCHISEE nor any Controlling Person, nor any holder or owner of any
equity interest in FRANCHISEE, may enter into any agreement pertaining to,
causing or resulting in a Transfer of Control, or consummate or permit the
consummation thereof, without in each case obtaining BANDAG's prior
written approval. To provide BANDAG an opportunity to consider whether or
not to approve a proposed Transfer of Control, a written request for such
approval shall be submitted to BANDAG at least one hundred twenty (120)
days prior to the proposed or intended date for the Transfer of Control,
which request shall describe the proposed Transfer of Control and give the
identity of the proposed transferee. FRANCHISEE shall also submit such
other information regarding the proposed Transfer of Control as may be
requested by BANDAG.
(b) For the purposes of this Agreement, "Transfer of Control" shall
mean (i) if FRANCHISEE or any direct or indirect Controlling Person is a
partnership, any change in the identity or respective ownership of the
partners of any of them, (ii) if FRANCHISEE or any direct or indirect
Controlling Person is a corporation, any sale, gift or other transfer of
ownership or possession of shares comprising 5% or more of the total
number of issued and outstanding shares of FRANCHISEE or such Controlling
Person or (iii) the transfer of or change in the direct or indirect
control of, or the transfer or change in the power to control, directly or
indirectly, the management, direction or day-to-day operations of
FRANCHISEE or of any direct or indirect Controlling Person; provided,
however, that the death or determination of incompetency of a partner or
any natural person constituting a Controlling Person of FRANCHISEE shall
not be a "Transfer of Control".
(c) If a partner or Controlling Person of FRANCHISEE dies or is
determined to be incompetent, the transfer of the business or assets of
FRANCHISEE's business of retreading tires with pre-cured rubber operated
at the Authorized Location to any heirs or successors of the deceased or
the incompetent, whether by bequest or otherwise, shall be subject to
BANDAG's prior written approval. Such heirs or successors shall apply to
BANDAG for such approval within 60 days after such death or determination,
providing BANDAG with such information as is then customarily requested by
BANDAG with respect to new franchisees.
XII. General and Product Liability; Warranties; Insurance and
Indemnification
(a) FRANCHISEE shall purchase and maintain in full force and effect
comprehensive general liability insurance (including but not limited to
product liability, completed operations and contractual liability,
including FRANCHISEE's obligations under the indemnity provisions of this
Agreement) adequate to insure its undertakings herein and shall furnish a
certificate of such insurance upon request by BANDAG.
(b) FRANCHISEE shall defend indemnify and hold BANDAG harmless from and
against all liabilities, recoveries of judgment, claims and demands on
account of personal injury, including death or property loss or damage to
others (including FRANCHISEE's employees or customers) arising out of or
in any manner connected with (i) FRANCHISEE's business operations, (ii)
FRANCHISEE's operations as a BANDAG franchisee, (iii) the retreading of
any tires, (iv) the sale of any retreaded tires, (v) the performance by
FRANCHISEE of this Agreement, (vi) the breach of any of FRANCHISEE's
obligations herein, or (vii) the use by any person who is not a BANDAG
franchisee of BANDAG Equipment sold, transferred or otherwise provided to
such person or his employer by FRANCHISEE. FRANCHISEE shall at its own
expense defend any and all such claims and demands and hold BANDAG
harmless from and against all charges of attorneys incurred thereby and
all costs and other expenses arising therefrom. FRANCHISEE, on its behalf
and on behalf of anyone claiming through or by it, including its
employees, agents, subcontractors and insurers, hereby waives its rights
of recovery against BANDAG for loss covered by insurance maintained by
FRANCHISEE or for FRANCHISEE's benefit. It is the intent of the parties
that BANDAG shall not be subject to subrogation by anyone, including any
insurer, as a result of any such loss.
(c) BANDAG MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED,
WITH RESPECT TO THE MERCHANTABILITY OR SUITABILITY OF TIRES RETREADED BY
FRANCHISEE. FRANCHISEE has no authority to make any kind of warranty or
representation to others on behalf of BANDAG.
(d) (i) Except as BANDAG may otherwise expressly agree in writing,
FRANCHISEE, acting on its own behalf only, shall execute and deliver to
each purchaser from FRANCHISEE of a tire retreaded by the BANDAG Method a
BANDAG Dealer National Warranty on a form then currently furnished by
BANDAG. BANDAG may also require FRANCHISEE to execute and deliver to each
purchaser from FRANCHISEE of a tire retreaded by particular technology
associated with the BANDAG Method a special warranty on a form then
currently furnished by BANDAG. FRANCHISEE shall perform and fulfill
promptly all of the terms and conditions of all such warranties.
FRANCHISEE shall have the sole and complete responsibility for all such
warranties (even though wording may have been provided by BANDAG) and for
performance of any other warranties provided by FRANCHISEE to buyers of
tires retreaded by the BANDAG Method and/or sold or distributed as
contemplated by this Agreement. FRANCHISEE will perform all warranty and
other services hereunder as an independent contractor and not as the agent
of BANDAG and will assume responsibility for and hold BANDAG harmless from
all claims (including but not limited to claims resulting from the
negligent or willful acts or omissions of FRANCHISEE, and including
attorneys' fees) against either of them arising out of or in connection
with FRANCHISEE's performance of such service.
(ii) FRANCHISEE agrees to comply with all policies and
procedures described in the BANDAG Dealer National Warranty or such other
special warranty that may be required by BANDAG, as any thereof may be
revised by BANDAG from time to time, including but not limited to
performing warranty service on tires retreaded by the BANDAG Method that
FRANCHISEE did not manufacture or sell, and policies and procedures
established by BANDAG from time to time relating to the keeping of books
and records respecting claims FRANCHISEE may make for reimbursement for
costs incurred by FRANCHISEE. BANDAG will reimburse FRANCHISEE for costs
incurred for service FRANCHISEE performs for retreaded tires that the
FRANCHISEE did not manufacture or sell in accordance with the policies and
procedures of BANDAG described in the BANDAG Dealer National Warranty or
such other special warranty. FRANCHISEE agrees that BANDAG may inspect
FRANCHISEE's books and records respecting any warranty service or other
claims FRANCHISEE may submit to BANDAG.
(iii) FRANCHISEE hereby authorizes BANDAG to charge its account
with BANDAG for each adjustment on a BANDAG retread sold by FRANCHISEE,
performed by another franchisee under a BANDAG Dealer National Warranty or
other special warranty required by BANDAG, in such amount as may be
provided therefor in the applicable warranty, and to credit FRANCHISEE's
account for each adjustment on a BANDAG retread sold by another
franchisee, performed by the FRANCHISEE under a BANDAG Dealer National
Warranty or such other special warranty, in such amount as may be provided
therefor in the warranty, all in accordance with BANDAG's then-current
practices under the BANDAG Dealer National Warranty Program or any other
special warranty program BANDAG may require in connection with a
particular technology.
XIII. Security Interest
(a) FRANCHISEE agrees to execute and deliver to BANDAG BANDAG's then-
current standard form security agreement to secure all of FRANCHISEE's
obligations to BANDAG (as more fully described in such agreement), and to
cause those persons or entities that own the BANDAG Equipment used in
FRANCHISEE's retread business from time to time to execute and deliver a
similar security agreement to secure FRANCHISEE's and their respective
obligations to BANDAG.
(b) BANDAG agrees, upon written request from the holder of a properly
perfected Bank Lien, to subordinate the security interest granted to
BANDAG by FRANCHISEE, to the extent it secures the rights and options of
BANDAG hereunder to purchase certain assets used in FRANCHISEE's business
of retreading tires with pre-cured rubber (but not any security interest
granted in connection with purchases by FRANCHISEE, or purchase money
financing by BANDAG of any items purchased by FRANCHISEE), to such Bank
Lien. FRANCHISEE hereby covenants and agrees to execute and deliver to
BANDAG any deeds, documents, instruments and other writings requested by
BANDAG to grant or create a lien for the purposes described in this
section, and to take any actions reasonably deemed advisable by BANDAG or
its counsel to create, establish, preserve, perfect, continue perfected,
record, register, protect, determine priority of and enforce such lien and
BANDAG's rights, and FRANCHISEE shall pay all expenses relating to the
foregoing.
(c) For the purposes of this Agreement, "Bank Lien" shall mean a
security interest, lien, charge or encumbrance granted by FRANCHISEE to a
financial institution to secure indebtedness for borrowed money.
XIV. Force Majeure
Performance of their respective obligations hereunder (other than any
obligation for the payment of money) by either BANDAG or FRANCHISEE may be
interrupted without liability to the extent the interruption is due to a
force majeure. The term "force majeure" shall include an Act of God, war,
civil commotion, fire, explosion, flood, strike, lock-out, or any other
cause beyond the reasonable control of BANDAG or FRANCHISEE.
XV. Notices; Litigation
Any notice or demand hereunder must be in writing and shall be deemed
given when personally delivered by hand, when telecopied or telexed and
acknowledged by appropriate means, or one (1) day after delivery to a
courier service, prepaid, addressed to the party's address shown in this
Agreement or as modified in writing pursuant to this Agreement, or three
(3) days after deposited in the U.S. mails, first class mail, postage
prepaid, addressed as above. In this regard, FRANCHISEE shall notify
BANDAG within ten (10) days of institution of a lawsuit by way of the
service of a complaint, cross-claim, counterclaim or the like against
FRANCHISEE if such lawsuit involves issues relating to rights granted
hereunder and shall permit BANDAG to intervene and control the lawsuit
with regard to such issues.
XVI. Assignment and Subfranchising
BANDAG may assign part or all of this Agreement and may delegate any or
all of its obligations hereunder to affiliates. No assignment, sublicense
or subfranchise may be made by FRANCHISEE without the prior written
consent of BANDAG.
XVII. Improvements by FRANCHISEE
In return for the inclusion within Section I hereof of improvements to the
BANDAG Method made by BANDAG, all inventions, patents and patent
applications which are conceived, made or acquired by FRANCHISEE in
performing under this Agreement or that relate to BANDAG's proprietary
rights or equipment shall automatically be irrevocably licensed on a
royalty-free and non-exclusive basis to BANDAG, giving BANDAG the non-
exclusive right to make, have made, use and sell such improvements, along
with the right to sublicense such inventions, patents and patent
applications to any and all BANDAG franchisees.
XVIII. Execution; Representations and Warranties
If FRANCHISEE has ten (10) or fewer shareholders and/or partners,
FRANCHISEE represents and warrants that the names of all its shareholders
and/or partners at the time of execution of this Agreement are listed
below, and FRANCHISEE agrees to notify BANDAG immediately of any change of
its shareholders or partners. If FRANCHISEE has more than ten (10)
shareholders and/or partners, FRANCHISEE represents and warrants that all
Controlling Persons and all persons with an interest in any BANDAG
Equipment at the time of execution of this Agreement are listed below, and
FRANCHISEE agrees to notify BANDAG immediately of any change in any of
these. FRANCHISEE further represents and warrants that the signatures
below on behalf of FRANCHISEE are duly authorized, and that the persons
signing have full power and authority to bind FRANCHISEE.
(Rev 4/96)
XIX. Arbitration
(a) Any dispute arising out of or relating to this Agreement will be
submitted to and resolved by final and binding arbitration as the sole and
exclusive remedy. Any claim subject to this Section shall be made by
filing a demand for arbitration within one (1) year following the conduct,
act or other event first giving rise to the claim; otherwise, the right to
any remedy shall be deemed forever waived and lost. The right and duty of
the parties to this Agreement to resolve any disputes by arbitration shall
be governed exclusively by the Federal Arbitration Act as amended; and
arbitration shall take place according to the Commercial Rules of the
American Arbitration Association, and shall be held in its Chicago,
Illinois office, and be decided by one arbitrator chosen according to such
Rules. Each party shall bear all of its own costs of arbitration except
that the fees of the arbitrator shall be divided equally between the
parties.
(b) Unless otherwise agreed by the parties, pre-hearing discovery in
the dispute to be arbitrated shall be limited to the following: (1)
production of any documents that the producing party intends to introduce
into evidence at the hearing; (2) production of any documents generated by
the party seeking production, or generated in the course of actual
transactions between the parties; (3) production of any written, video-
taped or tape-recorded statement given by the party seeking production;
(4) production of any documents relied on by any expert whose opinions and
conclusions will be offered at the hearing; and (5) not more than two
depositions per side, with total adverse examination time in both
depositions combined not to exceed 12 clock hours.
(c) The arbitrator shall have no authority to amend or modify the terms
of this Agreement or to award punitive or exemplary damages. His or her
award may be enforced by the judgment of any court having jurisdiction
over the party against which enforcement is sought.
(d) Each party shall have the right, without awaiting the outcome of
the arbitration, to seek from an appropriate court provisional remedies
including, but not limited to, temporary restraining orders or preliminary
injunctions before, during or after arbitration. Seeking any such
remedies shall not be deemed to be a waiver of either party's right to
compel arbitration. FRANCHISEE acknowledges that BANDAG will confront a
material risk of severe and irreparable injury for which it will not have
an adequate remedy in damages if FRANCHISEE breaches any of its
obligations under Sections I(b), (d) or (e), II(b) or (c), III(g), VI, X,
XI, XIII, XVI or XVII, and that such obligations (without limitation)
shall therefore be specifically enforceable.
(e) ACKNOWLEDGMENT OF ARBITRATION.
Each of the parties to this Agreement understands that this
Agreement contains an agreement to arbitrate. After signing this
document, each of the parties understands that it will not be able to
bring a lawsuit concerning any dispute that may arise which is covered by
the arbitration agreement, unless it involves a question of constitutional
or civil rights and arbitration thereof may not be compelled pursuant to
the Federal Arbitration Act. Instead, each of the parties agrees to
submit any such dispute to an impartial arbitrator.
XX. Miscellaneous
(a) This is the entire Agreement and supersedes all prior agreements
and communications, either oral or in writing between the parties hereto
with respect to the subject matter hereof, except that the execution
hereof does not relieve FRANCHISEE from any obligations with respect to
materials, equipment or supplies sold or delivered by BANDAG to
FRANCHISEE, or to maintain the confidentiality of confidential information
delivered or communicated by BANDAG to FRANCHISEE, prior to the effective
date of this Agreement. Except for (I) the above-described obligations,
(ii) any product warranties made by FRANCHISEE, and (iii) FRANCHISEE's
indemnification obligations hereunder and its responsibility for product
liability on products manufactured by it at any time, BANDAG and
FRANCHISEE, each on behalf of themselves and of every company directly or
indirectly controlled by, controlling or under common control with them,
and the agents, officers, employees, successors and assigns of all of
them, release each other and the above-described persons and entities from
any and all claims, purported claims, liabilities and defaults arising
from the actions of the other under any and all prior agreements or
otherwise prior to the effective date of this Agreement. Any amendment,
addition or variation to this Agreement must be in writing and duly
executed by both BANDAG and FRANCHISEE.
(b) The representations, obligations and covenants of FRANCHISEE in
Sections II(b), III(g), V, X, XII, XVII, XIX(a) and XIX(b) (with respect
to the release) shall survive termination of this Agreement.
(c) The parties intend that all provisions will be enforceable to the
maximum extent permitted under law.
(d) FRANCHISEE acknowledges that it has conducted an independent
investigation of the business franchised hereunder, and recognizes that
the business venture contemplated by this Agreement involves certain
business risks and that its success will be largely dependent on the
ability of FRANCHISEE and its Controlling Persons as independent
businessmen. BANDAG expressly disclaims the making of, and FRANCHISEE
acknowledges that it has not received, any warranty or guarantee, express
or implied, as to the potential volume, profits or success of the business
venture contemplated by this Agreement, nor has FRANCHISEE relied on any
separate written or oral communications or understanding or on any
warranty or representation by or with BANDAG. In addition, except for any
express warranties that may be contained in manuals provided by BANDAG to
FRANCHISEE from time to time describing the capabilities of the BANDAG
Method, BANDAG expressly disclaims any warranties or representations,
express or implied, with respect to the BANDAG Method, including
merchantability and fitness for purpose. FRANCHISEE acknowledges and
agrees that it has read and understood this Agreement and the attachments
hereto, if any, that BANDAG has fully and adequately explained the
provisions of each to FRANCHISEE's satisfaction, and that BANDAG has
accorded FRANCHISEE ample time and opportunity to consult with advisors of
FRANCHISEE's own choosing about the potential benefits and risks of
entering into this Agreement.
(e) BANDAG may permit FRANCHISEE to remedy any default hereunder
without waiving the default so remedied, and a waiver of any default shall
not be a waiver of any other subsequent or prior default. BANDAG's
failure to enforce any of its rights shall not be a waiver thereof. The
exercise of any right does not limit BANDAG's right to exercise any other
right; every right of BANDAG under this Agreement is cumulative with every
other right BANDAG may have under this Agreement, under any other
agreement or otherwise.
(f) With respect to any provisions in this Agreement where BANDAG is
permitted to make certain modifications, determinations and exceptions,
they shall be within BANDAG's sole and absolute discretion unless
otherwise expressly provided in this Agreement.
IN WITNESS WHEREOF, BANDAG and FRANCHISEE have caused this Agreement to be
executed in two originals, effective as of the date of execution by
BANDAG.
FRANCHISEE BANDAG, INCORPORATED
___________________________ By: ________________________
Print Name of Corporation,
Partnership, or Individual Title: _____________________
Date: ______________________
By: _______________________
Title: ____________________ Address:
Bandag World Headquarters
Date: _____________________ 2905 North Highway 61
Muscatine, IA 52761-5886
U.S.A.
List of all partners (if a partnership) or shareholders (if a corporation)
of FRANCHISEE:
___________________________ _________________________
Print Name Print Name
___________________________ _________________________
Print Name Print Name
___________________________ _________________________
Print Name Print Name
___________________________ _________________________
Print Name Print Name
___________________________ _________________________
Print Name Print Name
<PAGE>
UNDERTAKING BY THE PRINCIPALS OF BANDAG FRANCHISEE
I (we) understand that the BANDAG SYSTEM FRANCHISE AGREEMENT between
Bandag, Incorporated ("BANDAG") and _____________________
________________________________________________________________,
("FRANCHISEE") executed by FRANCHISEE on the _______ day of
__________ 19____, provides that upon termination of the Agreement
FRANCHISEE must:
1. cease using and return to BANDAG all confidential and
proprietary written materials and all translations;
2. cease using all BANDAG trademarks and logos;
3. cease using the Bandag Method and equipment made by or for
BANDAG, and cease selling tires retreaded after date of
termination with pre-cured rubber on equipment made by or for
BANDAG; and
4. cease using the word BANDAG in its corporate, trade or business
name, any assumed name, and in any other way.
In consideration of the grant of a franchise by BANDAG, other good and
valuable consideration, and my (our) access to confidential information
and the Bandag Method and Equipment, I (we) agree that in the event of
termination of the Franchise Agreement I (we) shall honor the above
understandings personally and in any undertaking in which I (we) might be
involved.
____________________ ___________________ __________
Print Name Signature Date
____________________ ___________________ __________
Print Name Signature Date
____________________ ___________________ __________
Print Name Signature Date
____________________ ___________________ __________
Print Name Signature Date
____________________ ___________________ __________
Print Name Signature Date
<PAGE>
ANNEX LISTING
ANNEX A GENERAL TERMS AND CONDITIONS OF SALE
ANNEX B BANDAG/R/ LOGO AND TRADEMARK USAGE REQUIREMENTS AND POLICY
<PAGE>
BANDAG, INCORPORATED ("Seller")
TERMS AND CONDITIONS OF SALE
1. OFFER, GOVERNING PROVISIONS AND CANCELLATION. THESE TERMS AND
CONDITIONS SHALL CONSTITUTE THE ENTIRE AGREEMENT BETWEEN SELLER AND BUYER,
AND SHALL BE GOVERNED BY AND SHALL BE CONSTRUED ACCORDING TO INTERNAL LAWS
OF THE STATE OF IOWA. The rights and obligations of the parties hereunder
shall not be governed by the provisions of the 1980 U.N. Convention on
Contracts for the International Sale of Goods. No order may be canceled
or altered by the Buyer except upon terms and conditions acceptable to
Seller, as evidenced by Seller's written consent. In the event of such an
approved cancellation by Buyer, Seller shall be entitled to payment of the
full price, less the amount of any expenses saved by Seller by reason of
the cancellation.
2. PRICES AND PAYMENT. All prices listed are payable in United
States Dollars. All prices are subject to change without notice, and the
price of products on order but unshipped will be adjusted to the price in
effect at the time of shipment. With respect to goods sold hereunder
other than equipment, payment is due on the terms agreed by Seller in
writing, or, if there is no such written agreement, in accordance with the
applicable price list, or, if no price list is applicable, upon Buyer's
receipt of Seller's invoice. With respect to equipment sold hereunder,
payment is due in accordance with an applicable written purchase
agreement, or, if none, on delivery. Notwithstanding the foregoing, at
its sole option at any time, Seller may require Buyer to make payment in
advance or by irrevocable letter of credit, and may defer shipment or
cancel any order if the Buyer does not promptly provide such payment or a
letter of credit. Any such letter of credit shall be issued for Seller's
benefit by a prime U.S. bank, shall be subject to and governed by the
Uniform Customs and Practice for Documentary Credits (ICC Publication No.
400, 1983 Revision), shall provide for payment against Seller's invoice
and bill of lading, and shall be in form and substance satisfactory to
Seller.
3. TAXES AND OTHER CHARGES. Any tax, duty, custom, inspection or
testing fee, or any other tax, fee or charge of any nature whatsoever
imposed by any governmental authority, on or measured by the transaction
between Seller and the Buyer shall be paid by the Buyer in addition to the
prices invoiced. Buyer shall provide Seller at the time the order is
submitted with any applicable exemption certificate or other document
acceptable to the authority imposing such tax, fee or charge. In the
event the Seller is required to pay any such tax, fee or charge, the Buyer
shall reimburse Seller therefor.
4. DELIVERY, CLAIMS AND FORCE MAJEURE. (a) Equipment. With
respect to equipment sold by Seller hereunder, the method and route of
shipment shall be at the sole discretion of Seller. If Seller elects to
ship by carrier: (i) sales of equipment shall be F.O.B. Seller's plant in
Muscatine, Iowa; (ii) all risk of loss or damage in transit shall be
borne by Buyer after delivery to the carrier; and (iii) all costs of
shipping shall be borne by Buyer. If Seller elects to ship by trucks or
other vehicles owned, leased or operated by Seller, sales of equipment
shall be F.O.B. Buyer's facility, except that shipping will be charged to
Buyer at standard common carrier rates then in effect. Seller will notify
Buyer of the method of shipment prior to shipment.
(b) Rubber Products. With respect to orders for less than 500
pounds of Rubber Products sold by Seller hereunder: (I) shipments will be
F.O.B. point of shipment; (ii) all risk of loss or damage in transit shall
be borne by the Buyer after delivery to the carrier; and (iii) all costs
of shipping shall be borne by Buyer. With respect to orders for 500
pounds or more of Rubber Products, shipments will be F.O.B. Buyer's plant,
and all costs of shipping shall be borne by Seller. As used herein,
"Rubber Products" shall mean any and all tread rubber, tread materials and
all other materials used between the tread materials and the casing
(including without limitation all cushion rubber, cushion gum and other
adhesives, repair gums, filled materials, special extrusions, rebelting
materials, cements and other rubber items).
(c) Promotional Materials. With respect to items other than
equipment and Rubber Products, and intended primarily for promotional or
publicity purposes: (i) sales by Seller hereunder will be F.O.B. point of
manufacture or point of shipment; (ii) all risk of loss or damage in
transit shall be borne by Buyer after delivery by the manufacturer to a
carrier; and (iii) all costs of shipping shall be borne by Buyer.
(d) Other Terms.
(i) Any additional expense arising from the use of a method or route
of shipment requested by Buyer shall be borne entirely by Buyer. Seller
reserves the right to make delivery in installments, unless otherwise
agreed in writing by Seller; all such installments are to be separately
invoiced and paid for when due per invoice, without regard to subsequent
deliveries, and any deliveries not in dispute shall be paid for regardless
of other controversies relating to other delivered or undelivered merchan-
dise. Delay in delivery of any installment shall not relieve buyer of its
obligations to accept remaining deliveries. In any case where Buyer is to
bear the cost of shipping, Buyer shall bear all costs of bags, barrels,
boxes, pallets or other containers used to ship goods hereunder. No
shipping containers may be returned to Seller unless Seller has agreed to
such return in advance and all return freight is prepaid by Buyer. Seller
may, at any time, require any or all costs of shipping for which Buyer is
responsible under the terms hereof to be prepaid by Buyer.
(ii) Claims for shortages or other errors in delivery must be made in
writing to Seller within 10 days after receipt of shipment. Failure to
give such notice shall constitute unqualified acceptance and a waiver of
all such claims by Buyer. Claims for loss or damage to goods in transit,
in cases where the goods are delivered by a carrier, shall be made to the
carrier and not to Seller.
(iii) All delivery dates are approximate. Seller shall not be
liable for any damage as a result of any delay or failure to deliver due
to any act of God, act of the Buyer, embargo or other governmental act,
regulation or request, fire, accident, strike, slow down or other labor
difficulties, war, riot, delay in transportation, defaults of common
carriers, inability to obtain necessary labor, materials or manufacturing
facilities or, without limiting the foregoing, any other event beyond the
Seller's control. In the event of any such delay the date of delivery
shall be extended for a period equal to the length of the delay. Buyer's
exclusive remedy for other delays and for Seller's inability to deliver
for any reason, including Buyer's inability to produce goods which meet
the requirements of this contract, shall be rescission of this agreement.
5. STORAGE. If the products are not shipped within fifteen (15)
days after notification to the Buyer that they are ready for shipping, for
any reason beyond Seller's reasonable control, including the Buyer's
failure to give shipping instructions, Seller may store such products at
the Buyer's risk in a warehouse or yard or upon Seller's premises, and the
Buyer shall pay all handling, transportation and storage charges at the
prevailing commercial rates upon submission of invoices therefor.
6. CHANGES. Seller may at any time make such changes in design and
construction of products as Seller deems appropriate, without notice to
Buyer. Seller may furnish suitable substitutes for materials unobtainable
because of priorities or regulations established by governmental authority
or nonavailability of materials from suppliers.
7. WARRANTIES.
(a) The NDI. With respect to any equipment that is the subject of a
lease agreement between Buyer and Seller (whether or not a true lease)
(the "NDI"), Seller warrants that each machine, model upgrade or feature
of the NDI will be in good working order on the day it is installed. If
it is proven to Seller's satisfaction not to have been in good working
order at the time of installation, the machine, model upgrade or feature
will be repaired or replaced at Seller's option.
(b) Other Products. Seller warrants that the original purchaser of
equipment manufactured by Seller other than the NDI will have the right to
enjoy the equipment free and clear of claims of third persons against
Seller. Seller warrants products manufactured by it and supplied
hereunder other than the NDI to be free from defects in materials and
workmanship under normal use and service for a period of six months from
date of shipment (nine months for equipment manufactured by Seller if such
equipment is exported from country of manufacture when shipped to Buyer),
except that the following components of the repair gum extruder are so
warranted only for 90 days from date of shipment: the circuit boards,
barrels, barrel adapters and air motors, four months on cushion gum. This
warranty is only applicable to products properly maintained and used
according to Seller's instructions. If, within the applicable period, any
such product shall be proved to Seller's satisfaction to be defective,
such product shall be repaired or replaced at Seller's option, or, also at
Seller's option, the purchase price shall be refunded.
(c) Other Terms. (i) In the case of the NDI, such repair or
replacement, and, in the case of products other than the NDI, such repair,
replacement or refund, shall be Seller's sole obligation and Buyer's
exclusive remedy hereunder. With respect to the NDI, such remedy is
conditioned upon Seller's receiving written notice of any alleged malfunc-
tioning within ten (10) days of installation, and, at Seller's option,
return of the NDI to Seller, F.O.B. its factory. With respect to products
other than the NDI, such remedy shall be conditioned upon Seller's receiv-
ing written notice of any alleged defect within ten (10) days after its
discovery and, at Seller's option, return of such products to Seller,
F.O.B. its factory. This warranty does not apply to products that Seller
determines have been damaged by misuse, neglect, improper operation,
accident or alteration, or that Seller determines have been tampered with
or repaired in a manner not authorized by Seller. Products supplied by
Seller hereunder that are manufactured by someone else are not warranted
by Seller in any way, but Seller agrees to assign to Buyer any warranty
rights in such products that Seller may have from the original
manufacturer.
(ii) THE WARRANTY CONTAINED IN THIS SECTION 7 IS EXCLUSIVE AND IN
LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, AND
SELLER EXPRESSLY DISCLAIMS AND EXCLUDES ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.
The exclusive remedy stated in this Section 7 shall not be deemed to have
failed of its essential purpose so long as, (1) with respect to the NDI,
Seller is willing and able to repair or replace the malfunctioning item
within ninety (90) days of the date on which Seller determines a
malfunction to exist, or (2) with respect to products other than the NDI,
Seller is willing and able to repair or replace defective products, or
refund the purchase price, within ninety (90) days of the date on which
Seller determines a defect to exist.
(iii) Any description of the products, whether in writing or made
orally by Seller or Seller's agents, specifications, samples, models,
bulletins, drawings, diagrams, engineering sheets or similar materials
used in connection with Buyer's order are for the sole purpose of
identifying the products and shall not be construed as an express
warranty. Any suggestions by Seller or Seller's agents regarding use,
application or suitability of the products shall not be construed as an
express warranty unless confirmed to be such in writing by Seller.
8. COMPLIANCE WITH LAWS. Seller certifies that these goods were
produced in compliance with all applicable requirements of sections 6, 7
and 12 of the Fair Labor Standards Act, as amended, and all regulations
and orders of the United States Department of Labor issued under section
14 thereof. Seller does not warrant, however, that any materials,
equipment and features meet the requirements of any local, state or
federal laws or regulations (other than those specifically enumerated
above) applicable to Buyer, including those issued under OSHA. The
equipment describes herein is provided only with the safety devices and
features shown in the applicable specifications. Should the customer
require any additional devices or features, they should be specifically
identified, and Seller will adjust the price accordingly.
9. RETURNS. Products may be returned to Seller only when Seller's
written permission, signed by duly authorized personnel of Seller, shall
be obtained by Buyer in advance. Goods may not be returned unless they
are in marketable condition. Returned products must be securely packaged
and reach Seller without damage. Any cost incurred by Seller to put
products in marketable condition will be charged to Buyer.
10. PATENTS, TRADEMARKS AND COPYRIGHTS. Seller will, at its own
expense, defend any suits that may be instituted by anyone against Buyer
for alleged infringement of any United States patent, trademark, or
copyright relating to any products manufactured and furnished by Seller
hereunder, if such alleged infringement consists of the use of such
products, or parts thereof, in Buyer's business, and if Buyer shall have
made all payments then due hereunder, provided, however, that Buyer shall
give Seller immediate notice in writing of any such suit, shall transmit
to Seller immediately upon receipt all processes and papers served upon
Buyer, shall permit Seller through its counsel, either in the name of
Buyer or in the name of Seller, to defend the same and shall give all
needed information, assistance and authority to enable Seller to do so.
If such products are in such suit held in and of themselves to infringe
any valid United States patent, trademark or copyright, then: (a) Seller
will pay any final award of damages in such suit attributable to such
infringement, and (b) if in such suit use of such products by Buyer is
permanently enjoined by reason of such infringement, Seller shall, at its
own expense and at its sole option, either (i) procure for Buyer the right
to continue using the products, (ii) modify the products to render them
noninfringing, (iii) replace the products with noninfringing goods, or
(iv) refund the purchase price and the transportation costs paid by Buyer
for the products.
Notwithstanding the foregoing, Seller shall not be responsible for
any compromise or settlement made without its written consent, or for
infringements of combination or process patents covering the use of the
products in combination with other goods or materials not furnished by
Seller. The foregoing states the entire liability of Seller for
infringement, and in no event shall Seller be liable for consequential
damages attributable to an infringement.
As to any products furnished by Seller to Buyer manufactured in
accordance with drawings, designs or specifications proposed or furnished
by Buyer, or any claim of contributory infringement resulting from the
use or resale by Buyer of products sold hereunder, Seller shall not be
liable, and Buyer shall indemnify Seller and hold Seller harmless from and
against any and all loss, liability, damage, claim or expense (including
but not limited to Seller's reasonable attorneys' fees and other costs of
defense) incurred by Seller as a result of any claim of patent, trademark,
copyright or trade secret infringements, or infringements of any other
proprietary rights of third parties.
The purchase of any products hereunder does not entitle Buyer to
employ the same in any patented process.
11. EXCLUSION OF CONSEQUENTIAL DAMAGES AND DISCLAIMER OF LIABILITY;
BUYER'S INDEMNITY.
Seller's liability with respect to breaches of warranty shall be limited
as provided in Section 7 hereof. With respect to other breaches of this
contract, Seller's liability shall in no event exceed the contract price.
SELLER SHALL NOT BE SUBJECT TO AND DISCLAIMS: (1) ANY OTHER OBLIGATIONS
OR LIABILITIES ARISING OUT OF BREACH OF CONTRACT OR OF WARRANTY, (2) ANY
OBLIGATIONS WHATSOEVER ARISING FROM TORT CLAIMS (INCLUDING NEGLIGENCE AND
STRICT LIABILITY) OR ARISING UNDER OTHER THEORIES OF LAW WITH RESPECT TO
PRODUCTS SOLD OR SERVICES RENDERED BY SELLER, OR ANY UNDERTAKINGS, ACTS OR
OMISSIONS RELATING THERETO, AND (3) ALL CONSEQUENTIAL, INCIDENTAL AND
CONTINGENT DAMAGES WHATSOEVER.
Without limiting the generality of the foregoing, Seller specifically dis-
claims any liability for penalties (including administrative penalties),
special or punitive damages, damages for lost profits or revenues, loss of
use of products or any associated equipment, cost of capital, facilities
or services, downtime, shut-down or slowdown costs, spoilage of material,
or for any other types of economic loss. All the limitations and
disclaimers contained in this paragraph and in the rest of this contract
shall apply to claims of Buyer's customers or any third party asserted by
Buyer against Seller for indemnity or contribution, as well as direct
claims of Buyer against Seller.
Buyer shall indemnify Seller against any and all losses, liabilities,
damages and expenses (including, without limitation, attorneys' fees and
other costs of defending any action) that Seller may incur as a result of
any claim by Buyer or others arising out of or in connection with the
products and/or services sold hereunder and based on product or service
defects not proven to have been caused solely by Seller's negligence.
12. MANUALS, BROCHURES, INSTRUCTIONS. Any and all operating
manuals, instructions, brochures, warnings or the like concerning the
goods supplied hereunder shall be written in the English language, and are
supplied as an aid to Buyer and are not represented to be accurate,
complete or sufficient. Buyer warrants that it will accurately transcribe
such manuals, instructions, brochures or warnings to appropriate languages
and dialects to comply with all applicable laws and so that its employees
and all third party users of the goods will be properly informed of all
the contents thereof. Buyer will indemnify and hold harmless Seller
against all liabilities and expenses (including attorneys' fees) arising
out of the use of the goods by the Buyer or a third party in any case
where the Buyer fails to make available adequate warnings, labels, manuals
and instructions concerning the proper and normal use of the goods.
13. SEVERABILITY. If any provisions of these terms and conditions
of sale shall be deemed illegal or unenforceable, such illegality or
unenforceability shall not affect the validity and enforceability of any
legal and enforceable provision hereof, which shall be construed as if
such illegal and unenforceable provision(s) had not been inserted herein.
<PAGE>
BANDAG/R/ LOGO AND TRADEMARK USAGE REQUIREMENTS AND POLICY
(a) BANDAG shall have the exclusive right to register BANDAG's trademarks,
service marks and logos (collectively, the "Marks") with governmental
authorities. All use of the Marks by Franchisee and goodwill arising
therefrom shall inure exclusively to BANDAG's benefit. Franchisee shall
assign to BANDAG any rights acquired in the Marks or any registration
thereof.
(b) Franchisee shall: (i) not impair the value of BANDAG's Marks,
whether registered or not; (ii) use only the Marks designated by BANDAG;
(iii) not use trademarks, service marks, symbols, slogans, logos or the
like that are confusingly similar to the Marks; (iv) not use the Marks, or
any word, name or other symbol tending to be confusingly similar to the
Marks, in the name of any bank account of Franchisee or in any other way
tending to create liability of BANDAG or other than in connection with the
BANDAG Method and the sale of tires retreaded by the BANDAG Method; and
(v) immediately cease any pre-existing use of the Marks that conflicts
with the terms of this Agreement. Franchisee shall promptly report any
unauthorized use of the Marks to BANDAG. Unless BANDAG objects in writing
to Franchisee at any time, Franchisee may, but is not required to, include
the Mark "BANDAG" in its corporate or trade name and use such name in the
business of making and selling tires retreaded by the BANDAG Method. If
Franchisee elects to use the name BANDAG in its corporate or trade name,
Franchisee shall not: (1) use the word BANDAG as the first word in its
corporate name (e.g., "Bandag Retreads, Inc." is prohibited), (2) use the
name BANDAG in a corporate name with the name of any state, province,
county, city, governmental or political unit or subdivision, (e.g., "San
Francisco Bandag, Inc.", "Texas Bandag", etc. would be prohibited), or (3)
use the name BANDAG in a corporate name being used by any other BANDAG
franchisee (wherever located). In addition, Franchisee must comply with
all policies and procedures adopted by BANDAG from time to time regarding
use of the Mark BANDAG in the names of its franchisees. Franchisee shall,
immediately upon request by BANDAG, consent in writing, in such form as
may be requested by BANDAG, to the use of the "BANDAG" Mark by third
parties in their corporate or trade name.
(c) Franchisee shall display the name "BANDAG" in its Territory on its
buildings, signs and trucks used in the business of retreading tires by
the BANDAG Method, and shall reasonably advertise and promote the name
"BANDAG" in connection with such business subject, however, at all times,
to the restrictions set forth below. Every use of the name "BANDAG" in
any display, advertisement, promotion or otherwise by Franchisee shall be
in a form and character approved by BANDAG.
BANDAG encourages franchisees to use the BANDAG logo for all kinds of
approved advertising and identification within its Territory. However, to
protect the integrity of BANDAG's Marks, BANDAG restricts the usage of the
BANDAG Marks by areas.
The following is a list of authorized uses of the BANDAG Marks within
Franchisee's Territory:
1. Building and standing signs on property used by Franchisee.
2. Vehicles used in Franchisee's business.
3. Yellow-page advertising.
4. Newspaper advertising.
5. Electronic media advertising (radio and/or television).
6. Envelope and letterhead.
7. Business cards.
8. Collateral materials (leaflets, handouts, price lists, calendars
etc.)
9. Billboards.
10. Community service program sponsorship.
The following is a listing of unauthorized uses of the BANDAG Marks:
1. Building and/or standing signs located outside Franchisee's
Territory.
2. Vehicles used exclusively outside Franchisee's Territory.
3. Yellow-page advertising which does not cover part of
Franchisee's Territory.
4. Newspapers not generally distributed within Franchisee's
Territory.
5. Electronic media not servicing Franchisee's Territory.
6. Envelope and letterheads having addresses outside Franchisee's
Territory.
7. Business cards having an address outside Franchisee's Territory.
8. Sales and informational materials using an address outside
Franchisee's Territory.
9. Billboards located outside Franchisee's Territory.
10. Community service program sponsorship of groups not utilized by
the citizens within Franchisee's Territory
EXHIBIT 10.3
MISCELLANEOUS FRINGE BENEFITS FOR EXECUTIVES
BLANKET TRAVEL ACCIDENT INSURANCE
For those employees who are required to travel in carrying out their job
responsibilities, the Company provides at no cost a travel accident
insurance plan. The coverage is based on position and title with Senior
Vice Presidents insured for $200,000 and the Chairman of the Board for
$400,000. This plan provides coverage for accidental death while
traveling and while away from home on Company business.
PERSONAL EXCESS LIABILITY POLICIES
The Company reimburses certain executive officers for the cost of personal
excess liability policies.
EXHIBIT 10.4
BANDAG, INCORPORATED
NONQUALIFIED STOCK OPTION PLAN
As Amended November 12, 1996
1. PURPOSE. The purpose of the Bandag, Incorporated
Nonqualified Stock Option Plan (the "Plan") is to promote the best
interests of Bandag, Incorporated (the "Company") and its shareholders by
encouraging key executive officers of the Company to secure or increase on
reasonable terms their stock ownership in the Company. The Board of
Directors of the Company believes the Plan will promote continuity of
management and increase the incentive and personal interest in the welfare
of the Company by those who are primarily responsible for shaping and
carrying out the long-range plans of the Company and securing its
continued growth and financial success. It is intended that all of the
options granted pursuant to the Plan will constitute nonqualified stock
options.
2. ADMINISTRATION. The Plan shall be administered
by the Stock Option Committee (the "Committee") of the Board of Directors
of the Company (the "Board"). The Committee shall consist of not less
than two directors, each of whom shall qualify as a "Non-Employee
Director" for purposes of Rule 16b-3 under the Securities Exchange Act of
1934, as amended. If at any time the Committee shall not be in existence,
the functions of the Committee as specified in the Plan shall be exercised
by the full Board. All determinations of the Committee shall be made by
at least a majority of its members. Any decision or determina- tion
reduced to writing and signed by all of the members of the Committee shall
be fully as effective as if it had been made by unanimous vote at a
meeting duly called and held.
In accordance with the provisions of the Plan,
the Committee shall select the key executive officers to whom
and the time or times at which options shall be granted, the
option periods, limitations on option exercise, the number of
shares to be subject to each option, and such other provisions
of the option as the Committee may deem necessary or desir-
able. Subject to the express provisions of the Plan, the Com-
mittee shall also have complete authority to interpret the
Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions of
any option agreements (which need not be identical) and to make
all other determinations necessary or advisable for the
administration of the Plan. The interpretation of any
provision of the Plan by the Committee and any determination on
the matters referred to in this Section 2 shall be final.
3. ELIGIBILITY. Any key executive officer
("Executive") of the Company whose judgment, initiative and
efforts contribute materially to the successful performance of
the Company shall be eligible for selection by the Committee to
receive options under the Plan. No option may be granted under
the Plan to any person who is a member of the Committee.
4. SHARES SUBJECT TO THE PLAN. The shares to be
subject to options under the Plan shall be shares of the
Company's Common Stock, $1.00 par value ("Stock")*, and may be either
authorized and unissued or treasury shares. Subject to adjustment in
accordance with Section 10, the total number of shares of Stock for which
options may be granted and which may be purchased pursuant to options
under the Plan shall not exceed an aggregate of 500,000 shares of Common
Stock*. If an option granted under the Plan expires, is canceled or
terminates unexercised as to any shares of Stock subject thereto, such
shares shall again be available for the granting of additional options
under the Plan.
__________________
*Due to issuance of the Class A Common Stock dividend in 1992, the shares
to be subject to options under the Plan shall be Common Stock and Class A
Common Stock and the total number of shares of such stock for which
options may be granted and which may be purchased pursuant to options
under the Plan shall not exceed an aggregate of 500,000 shares of Common
Stock and 500,000 shares of Class A Common Stock.
5. GRANT OF OPTIONS. Subject to the terms and
conditions of the Plan, the Committee may, from time to time,
grant to such Executives as the Committee may determine,
options to purchase such number of shares of Stock and on such
terms and conditions as the Committee may determine. More than
one option may be granted to the same Executive. The date on
which the Committee approves the granting of an option shall be
considered as the date on which such option is granted.
6. OPTION PRICE. The option price per share of
Stock shall be determined by the Committee, but shall not be
less than 100% of the fair market value of a share of Stock on
the date the option is granted. Unless otherwise determined by
the Committee, the "fair market value" of a share of Stock on
the date an option is granted shall be the closing price for a
share of Stock on such date or, if such date is not a trading
date, the next preceding trading date as quoted on the New York
Stock Exchange Transaction Reporting System.
7. OPTION PERIOD. The Committee shall determine
the term of each option, but in no event shall such term exceed
a period of 15 years from the date such option is granted.
8. EXERCISE OF OPTIONS. An option may be
exercised, subject to its terms and conditions and the terms
and conditions of the Plan, in full at any time or in part from
time to time by delivery to the Company at its principal office
of a written notice of exercise specifying the number of shares
with respect to which the option is being exercised. Any
notice of exercise shall be accompanied by payment in full of
the option price for the shares being purchased (a) in cash or
its equivalent; (b) if permitted by the applicable option
agreement, by delivering to the Company shares of Stock (valued
at their fair market value as of the date of exercise, as
determined by the Committee consistent with the method of
valuation set forth in Section 6); or if permitted by the
applicable option agreement, by any combination of (a) and (b).
9. TRANSFERABILITY OF OPTIONS. No option shall be
assignable or transferable by an Executive other than by will
or the laws of descent and distribution and may be exercised
during the life of the Executive only by the Executive or his
legal guardian or representative.
10. CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK. In
the event of a capital adjustment resulting from a stock
dividend (other than a stock dividend in lieu of an ordinary
cash dividend), stock split, reorganization, recapitalization,
merger, consolidation, combination or exchange of shares or the
like, the aggregate number and class of shares of Stock subject
to the Plan and the aggregate number and class of shares
subject to each outstanding option agreement and the option
price for shares subject to each outstanding option shall be
appropriately adjusted in a manner consistent with such capital
adjustment; provided, however, that no such adjustment shall
require the Company to sell any fractional shares and any
adjustment shall be limited accordingly. The price of any
shares under option shall be adjusted so that there will be no
change in the aggregate purchase price payable upon exercise of
any such option. The determination of the Committee as to any
adjustment shall be final.
11. CORPORATE MERGERS AND OTHER CONSOLIDATIONS. The
Committee may also grant options having terms and provisions
which vary from those specified in the Plan; provided that any
options granted pursuant to this Section 11 are granted in
substitution for, or in connection with the assumption of,
existing options granted by another corporation and assumed or
otherwise agreed to be provided for by the Company pursuant to
or by reason of a transaction involving a corporate merger,
consolidation, acquisition or other reorganization to which the
Company is a party.
12. OPTION AGREEMENTS. All options granted under
the Plan shall be evidenced by written agreements (which need
not be identical) in such form as the Committee shall
determine.
13. TRANSFER RESTRICTIONS. Shares of Stock
purchased under the Plan and held by any person who is an
officer or director of the Company, or who directly or
indirectly controls the Company, may not be sold, offered for
sale or otherwise disposed of except pursuant to an effective
Registration Statement under the Securities Act of 1933, or
except in a transaction which, in the opinion of legal counsel
for the Company, is exempt from registration under such Act.
The Committee may waive the foregoing restrictions in whole or
in part in any particular case or cases, or may terminate such
restrictions, whenever the Committee determines that such
restrictions afford no substantial benefit to the Company.
14. AMENDMENT, SUSPENSION AND TERMINATION OF PLAN.
The Board shall have the right to amend, suspend or terminate
the Plan at any time; provided, however, that, unless approved
by the shareholders of the Company, no amendment shall be made
to the Plan which (a) materially modifies the eligibility
requirements as provided in Section 3; (b) increases the total
number of shares of Stock (except pursuant to a capital
adjustment as provided in Section 10) which may be purchased
under the Plan by Executives as provided in Section 4; or
materially increases the benefits accruing to Executives under
the Plan.
15. EFFECTIVE DATE AND TERM OF PLAN. The effective
date of the Plan is the date of its adoption by the Board,
November 13, 1987, subject to the approval of the Plan within
12 months of such effective date at a meeting of shareholders,
and all options granted prior to such approval shall be subject
to such approval and shall not be exercisable until after such
approval. The Plan shall terminate on November 13, 1997, or on
such earlier date as may be determined by the Board.
Termination of the Plan, however, shall not affect the rights
of Executives under options previously granted to them, and all
unexpired options shall continue in force and operation after
termination of the Plan except as they may lapse, be canceled
or terminate by their own terms and conditions.
16. RIGHTS AS A SHAREHOLDER. An Executive shall
have no rights as a shareholder with respect to any shares
subject to any option until the date the option shall have been
exercised, the shares shall have been fully paid and a stock
certificate shall have been issued.
17. TAX WITHHOLDING. The Company may deduct and
withhold from any cash otherwise payable to the Executive such
amount as may be required for the purpose of satisfying the
Company 5 obligation to withhold federal, state or local taxes
as the result of the exercise of an option. Further, in the
event the amount so withheld is insufficient for such purpose,
the Company may require that the Executive pay to the Company
upon its demand or otherwise make arrangements satisfactory to
the Company for payment of, such amount as may be requested by
the Company in order to satisfy its obligation to withhold any
such taxes.
With the consent of the Committee as set forth
in the option agreement, an Executive may be permitted to
satisfy the Company's withholding requirements by electing to
have the Company withhold shares of Stock otherwise issuable or
to deliver to the Company shares of Stock having a fair market
value on the date income is recognized pursuant to the exercise
of an option equal to the amount required to be withheld. The
election shall be made in writing and shall be made according
to such rules and in such form as the Committee may determine.
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
BANDAG, INCORPORATED AND SUBSIDIARIES
Year Ended December 31
1996 1995 1994
(In thousands, except per
share data)
Net earnings per Common and Common
equivalent share:
Weighted average number of
shares of Common Stock, Class A
Common Stock and Class B Common
Stock outstanding 23,641 25,303 26,689
Additional shares assuming
exercise of dilutive stock
options - based on the treasury
stock method using average
market price 105 117 112
------ ------ ------
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 23,746 25,420 26,801
====== ====== ======
Net earnings $81,604 $97,027 $93,994
====== ====== ======
Net earnings per Common and Common
equivalent share $3.44 $3.82 $3.51
====== ====== ======
Net earnings per Common share -
assuming full dilution:
Average shares outstanding 23,641 25,303 26,689
Additional shares assuming
exercise of dilutive stock
options - based on the treasury
stock method using the year-end
price if higher than the average
market price 105 117 119
------- ------- -------
FULLY DILUTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES 23,746 25,420 26,808
======= ======= =======
Net earnings $81,604 $97,027 $93,994
======= ======= =======
Net earnings per Common and
Common equivalent share $3.44 $3.82 $3.51
====== ====== ======
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The Company has the following subsidiaries including significant
subsidiaries as defined in Regulation S-X, each incorporated in the
jurisdiction stated opposite its name. All of the following subsidiaries
are 100% owned by the Company. The Company has additional subsidiaries
which, if considered in the aggregate as a single subsidiary, would not
constitute a "significant subsidiary" as such term is defined in
Regulation S-X.
Jurisdiction of
Name of Subsidiary Incorporation
Bandag A.G..........................................Switzerland
Bandag Canada Ltd...................................Canada
Bandag Europe N.V...................................Belgium
Bandag Licensing Corporation........................Iowa
Bandag Incorporated of S.A. (Proprietary) Limited...South Africa
Bandag New Zealand Limited..........................New Zealand
Bandag do Brasil Ltda...............................Brazil
Bandag B.V..........................................Netherlands
Bandag de Mexico, S.A. de C.V.......................Mexico
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS AND THE UNAUDITED
CONSOLIDATED CONDENSED BALANCE SHEETS OF THE REGISTRANT FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 31,453
<SECURITIES> 2,089
<RECEIVABLES> 206,732
<ALLOWANCES> 13,320
<INVENTORY> 58,932
<CURRENT-ASSETS> 341,700
<PP&E> 394,592
<DEPRECIATION> 249,457
<TOTAL-ASSETS> 588,342
<CURRENT-LIABILITIES> 139,214
<BONDS> 10,125
0
0
<COMMON> 22,923
<OTHER-SE> 4,069
<TOTAL-LIABILITY-AND-EQUITY> 588,342
<SALES> 756,925
<TOTAL-REVENUES> 768,999
<CGS> 442,149
<TOTAL-COSTS> 442,149
<OTHER-EXPENSES> 194,834
<LOSS-PROVISION> 3,289
<INTEREST-EXPENSE> 1,236
<INCOME-PRETAX> 130,780
<INCOME-TAX> 49,176
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,604
<EPS-PRIMARY> 3.44
<EPS-DILUTED> 3.44
</TABLE>
