-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C98rYnfOFlbPoDy0rQwpt4IISYMr4VHztYIyH8LNBtdANqqhLtNlmlzfvNhGq46v pnmEvZRmGYusBzD7yaJtSA== 0000918402-96-000079.txt : 19960613 0000918402-96-000079.hdr.sgml : 19960613 ACCESSION NUMBER: 0000918402-96-000079 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960710 FILED AS OF DATE: 19960610 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIG O TIRES INC CENTRAL INDEX KEY: 0000718082 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MOTOR VEHICLES & MOTOR VEHICLE PARTS & SUPPLIES [5010] IRS NUMBER: 870392481 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-12964 FILM NUMBER: 96578829 BUSINESS ADDRESS: STREET 1: 11755 E PEAKVIEW AVE CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3037902800 MAIL ADDRESS: STREET 1: 11755 E PEAKVIEW AVENUE CITY: ENGLEWOOD STATE: CO ZIP: 80111 FORMER COMPANY: FORMER CONFORMED NAME: TIRES INC DATE OF NAME CHANGE: 19870101 FORMER COMPANY: FORMER CONFORMED NAME: VENTURE CONSOLIDATED INC DATE OF NAME CHANGE: 19841021 DEF 14A 1 DEFINITIVE PROXY STATEMENT BIG O TIRES, INC. SPECIAL MEETING SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [X] FILED BY THE PARTY OTHER THAN THE REGISTRANT [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential for use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [X] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 BIG O TIRES, INC. (Name of Registrant as Specified in its Charter) Payment of Filing Fee (Check the appropriate box): [ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which the transaction applies: Common Stock, par value $0.10 per share. (2) Aggregate number of securities to which transaction applies: 3,317,916 shares plus options to purchase 216,232 shares of common stock, par value $0.10 per share. (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): $16.50 in cash. (4) Proposed maximum aggregate value of transaction: $56,699,798 (F1) (5) Total fee paid: $11,339.94 [X] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: (F1) For purposes of calculating the filing fee only. This amount is based upon the purchase of 3,317,916 shares of Common Stock of the Registrant at a price of $16.50 in cash per share and the cancellation of options to purchase an aggregate of 216,232 shares of Common Stock of the Registrant, which options have exercise prices ranging from approximately $0.32 to $15.88, in consideration for a payment equal to the excess of $16.50 over the exercise prices multiplied by the number of shares subject to such options. The amount of the filing fee, calculated in accordance with Exchange Act Rule 0-11(c)(1), equals 1/50th of one percent of the proposed cash payment to the holders of the Common Stock and options. 1 BIG O TIRES, INC. 11755 East Peakview Avenue, Suite A Englewood, Colorado 80111 To Our Stockholders: You are invited to attend the Special Meeting of Stockholders of Big O Tires, Inc. (the "Company") to be held at the offices of Holme Roberts & Owen LLC, Suite 4100, 1700 Lincoln Street, Denver, Colorado 80203, on Wednesday, July 10, 1996, at 10:00 a.m., Mountain Daylight Time. At the Special Meeting, you will be asked to consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of April 30, 1996 (the "Merger Agreement"), by and among the Company, TBC Corporation, a Delaware corporation (the "Parent"), and TBCO Acquisition, Inc., a Nevada corporation and a wholly-owned subsidiary of the Parent (the "Purchaser"), and the transactions contemplated thereby. The Merger Agreement (without the exhibits thereto) is included in the accompanying Proxy Statement as APPENDIX A. Pursuant to the terms of the Merger Agreement, Purchaser will merge with and into the Company, with the Company remaining as the surviving corporation (the "Merger"). The result of the Merger will be that the Company will become a wholly owned subsidiary of the Parent and each outstanding share of the Company's common stock, par value $0.10 per share (the "Common Stock"), will be converted into the right to receive a cash payment of $16.47, without interest (the "Merger Consideration"). The Merger Consideration includes $0.01 per share for the redemption of rights issued pursuant to the Company's Rights Agreement dated as of August 26, 1994. Consummation of the Merger is subject to certain conditions, including, without limitation, the approval and adoption of the Merger Agreement by holders of at least a majority of the outstanding shares of Common Stock. The Board of Directors of the Company (the "Board"), based on the unanimous recommendation of the Investment Committee of the Board (the "Investment Committee"), which consists only of directors who are not employees of the Company, has determined that the Merger is fair to, and in the best interests of, the Company and its stockholders and has approved the Merger Agreement. The Board recommends that you vote "FOR" approval of the Merger Agreement. In connection with a previous merger proposal from a group consisting of certain franchised dealers and certain members of senior management of the Company, PaineWebber Incorporated ("PaineWebber"), the financial advisor to the Investment Committee, rendered a written opinion dated November 14, 1995, to the Board to the effect that, as of the date of such opinion, the payment of a cash price of $16.50 per share to the holders of the Common Stock was fair from a financial point of view. That opinion and certain qualifications are described in the Proxy Statement. You are urged to read the Proxy Statement in its entirety for important information regarding the Merger. IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING, EVEN IF YOU ARE NOT ABLE TO ATTEND IN PERSON. THE AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK IS REQUIRED TO APPROVE THE MERGER. CONSEQUENTLY, THE FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE IN PERSON AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER. IF INSTRUCTIONS ARE SPECIFIED ON A PROXY CARD, SUCH PROXY CARD WILL BE VOTED IN ACCORDANCE THEREWITH, AND IF NO SPECIFICATIONS ARE MADE, SUCH PROXY CARD WILL BE VOTED FOR THE MERGER AGREEMENT. PLEASE TAKE TIME TO CONSIDER AND VOTE UPON THIS SIGNIFICANT MATTER. Please mark, sign and date each proxy card you receive and return it promptly in the enclosed, postage-paid envelope even if you plan to attend the Special Meeting in person. Returning a marked proxy card will not prevent you from voting in person at the Special Meeting, but will assure that your vote is counted if you are unable to attend. If you wish to attend the Special Meeting in person, you will need to present proof of your ownership of shares of Common Stock. If you hold your shares through a bank, broker or other nominee, you must obtain evidence of ownership from such nominee prior to your attendance at the Special Meeting. DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME. YOU WILL RECEIVE INSTRUCTIONS REGARDING EXCHANGING YOUR COMMON STOCK FOR THE MERGER CONSIDERATION AFTER THE SPECIAL MEETING. Sincerely, John E. Siipola Chairman of the Board of Directors 2 BIG O TIRES, INC. 11755 East Peakview Avenue, Suite A Englewood, Colorado 80111 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 10, 1996 NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special Meeting") of Big O Tires, Inc., a Nevada corporation (the "Company"), will be held at the offices of Holme Roberts & Owen LLC, Suite 4100, 1700 Lincoln Street, Denver, Colorado 80203, on Wednesday, July 10, 1996, at 10:00 a.m., Mountain Daylight Time, for the purpose of considering and voting upon a proposal to approve the Agreement and Plan of Merger, dated as of April 30, 1996 (the "Merger Agreement"), by and among the Company, TBC Corporation , a Delaware corporation (the "Parent"), and TBCO Acquisition Inc., a Nevada corporation and a wholly-owned subsidiary of the Parent (the "Purchaser"), and the transactions contemplated by the Merger Agreement and such other business as lawfully may come before the Special Meeting. As more fully described in the Proxy Statement, of which this notice forms a part, pursuant to the Merger Agreement, the Purchaser will merge with and into the Company, with the Company remaining as the surviving corporation (the "Merger"). The result of the Merger will be that the Company will become a wholly-owned subsidiary of the Parent and each issued and outstanding share of the Company's Common Stock will be converted into the right to receive a cash payment of $16.47, without interest (the "Merger Consideration"). The Merger Consideration includes $0.01 per share for the redemption of rights issued pursuant to the Company's Rights Agreement dated as of August 26, 1994. Consummation of the Merger is subject to certain conditions, including, without limitation, the approval and adoption of the Merger Agreement by holders of at least a majority of the outstanding shares of the Company's Common Stock. If the Merger is consummated, stockholders will not have appraisal or dissenter's rights and consequently will be required to accept payment of the Merger Consideration. The Merger may be terminated before closing under certain circumstances, including termination by the Purchaser if certain transaction costs and expenses less the $106,024 by which the aggregate Merger Consideration has already been reduced, exceed $1,900,000. See "The Merger Agreement--Description of the Merger Agreement." Only stockholders of record as of the close of business on May 17, 1996, will be entitled to notice of and to vote at the Special Meeting and at any adjournment or postponement thereof. THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK IS REQUIRED TO APPROVE THE MERGER. IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING REGARDLESS OF THE NUMBER OF SHARES YOU OWN. EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU AT ANY TIME PRIOR TO THE EXERCISE THEREOF IN THE MANNER DESCRIBED IN THE PROXY STATEMENT. IF YOU WISH TO ATTEND THE SPECIAL MEETING IN PERSON, YOU WILL NEED TO PRESENT PROOF OF YOUR OWNERSHIP OF SHARES OF COMMON STOCK. PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME. YOU WILL RECEIVE INSTRUCTIONS REGARDING EXCHANGING YOUR COMMON STOCK FOR THE MERGER CONSIDERATION AFTER THE SPECIAL MEETING. BY ORDER OF THE BOARD OF DIRECTORS Philip J. Teigen, Secretary June 10, 1996 3 PRELIMINARY COPY BIG O TIRES, INC. 11755 East Peakview Avenue, Suite A Englewood, Colorado 80111 PROXY STATEMENT --------------------------- INTRODUCTION This Proxy Statement is being furnished in connection with the solicitation of proxies by the Board of Directors ( the "Board") of Big O Tires, Inc. (the "Company") to be used at the Special Meeting of Stockholders (the "Special Meeting") to be held at the offices of Holme Roberts & Owen LLC, Suite 4100, 1700 Lincoln Street, Denver, Colorado 80203, on Wednesday, July 10, 1996, at 10:00 a.m., Mountain Daylight Time, and at any adjournment or postponement thereof. The purpose of the Special Meeting is to consider and vote upon a proposal to approve an Agreement and Plan of Merger, dated as of April 30, 1996 (the "Merger Agreement"), by and among the Company, TBC Corporation, a Delaware corporation (the "Parent"), and TBCO Acquisition, Inc., a Nevada corporation and a wholly-owned subsidiary of the Parent (the "Purchaser"), and the transactions contemplated by the Merger Agreement and such other business as lawfully may come before the Special Meeting. Pursuant to the Merger Agreement, the Purchaser will merge into and with the Company (the "Merger"), with the Company remaining as the surviving corporation. As more fully described herein under "The Merger Agreement," the result of the Merger will be that the Company will become a wholly-owned subsidiary of the Parent and each issued and outstanding share of common stock of the Company, par value $0.10 per share (the "Common Stock"), will be converted into the right to receive a cash payment of $16.47, without interest (the "Merger Consideration"). The Merger Consideration includes $0.01 per share for the redemption of rights issued pursuant to the Company's Rights Agreement dated as of August 26, 1994 (the "Rights"). THE BOARD, AND THE INVESTMENT COMMITTEE OF THE BOARD (THE "INVESTMENT COMMITTEE"), BOTH RECOMMEND THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT. The Board believes that the Merger presents an opportunity to maximize stockholder value. The Merger will allow the Company's stockholders to receive a cash price representing a premium over the market prices of the Common Stock prevailing prior to the May 2, 1996, announcement of the signing of the Merger Agreement and over the approximately $11.53 per share book value of the Company on March 31, 1996. In connection with a previous merger proposal from a group consisting of certain franchised dealers and certain members of senior management of the Company, PaineWebber Incorporated ("PaineWebber"), the financial advisor to the Investment Committee, rendered a written opinion dated November 14, 1995, to the Board to the effect that, as of the date of such opinion, the payment of a cash price of $16.50 per share to the holders of the Common Stock was fair from a financial point of view. The Board considered such opinion and other matters discussed herein under "Special Factors." The Board does not consider the $0.03 per share difference in the Merger Consideration to be material to the fairness of the price. The affirmative vote of the holders of a majority of the Common Stock outstanding on May 17, 1996 (the "Record Date") is required for approval of the Merger Agreement. Only holders of record of shares of Common Stock on the Record Date are entitled to notice of, and to vote at, the Special Meeting and any adjournment or postponement thereof. You are requested to sign and date the accompanying proxy card and promptly return it to the Company in the enclosed postage-paid, addressed envelope, even if you plan to attend the Special Meeting. Failure to return a properly executed proxy card or to vote at the Special Meeting will have the same effect as a vote against the Merger. DO NOT FORWARD ANY STOCK CERTIFICATES AT THIS TIME. YOU WILL RECEIVE INSTRUCTIONS REGARDING EXCHANGING YOUR COMMON STOCK FOR THE MERGER CONSIDERATION AFTER THE SPECIAL MEETING. The enclosed proxy card, the accompanying Notice of Special Meeting of Stockholders and this Proxy Statement are being mailed to stockholders of the Company on or about June 10, 1996. 4 TABLE OF CONTENTS INTRODUCTION .................................................... SUMMARY ......................................................... General Information ........................................ The Parties ................................................ The Date and Place of the Special Meeting .................. No Appraisal or Dissenter's Rights ......................... The Merger ................................................. Exchange of Certificates ................................... Recommendations for the Merger ............................. Opinion of Financial Advisor ............................... Purposes and Reasons for the Merger ........................ Interests of Certain Persons in the Merger ................. Accounting Treatment of the Merger ......................... Federal Income Tax Consequences ............................ Price Range of Company Common Stock and Dividend History ... THE SPECIAL MEETING .............................................. General ..................................................... Record Date and Voting ...................................... Vote Required to Approve the Merger ......................... Proxy Information; Revocation ............................... Absence of Appraisal Rights and Right to Dissent ............ Proxy Solicitation .......................................... SPECIAL FACTORS .................................................. The Merger .................................................. Background and Negotiations Regarding the Merger ............ Recommendation of the Board of Directors; the Company's Purpose and Reasons for and Belief as to the Fairness of the Merger. Opinion of Financial Advisor Delivered in Connection With Dealer Management Group Merger Agreement ............ Certain Effects of the Merger................................ Federal Income Tax Consequences ............................. Accounting Treatment of the Merger .......................... Regulatory Approvals ........................................ Expenses of the Merger ...................................... PRINCIPAL STOCKHOLDERS OF THE COMPANY ............................ SECURITY OWNERSHIP OF THE COMPANY'S MANAGEMENT ................... PRICE RANGE OF COMPANY COMMON STOCK AND DIVIDEND HISTORY ......... SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY .............. THE MERGER AGREEMENT ............................................. Parties to the Merger Agreement ............................. Description of the Merger Agreement ......................... INTEREST OF CERTAIN PERSONS IN THE MERGER ........................ INFORMATION PERTAINING TO THE PARENT AND THE PURCHASER ................................................ General ..................................................... Security Ownership of TBC in Company ........................ DOCUMENTS INCORPORATED BY REFERENCE .............................. STOCKHOLDER PROPOSALS ............................................ APPENDIX A AGREEMENT AND PLAN OF MERGER DATED AS OF APRIL 30, 1996, BY AND AMONG TBC CORPORATION, TBCO ACQUISITION, INC. AND BIG O TIRES, INC. (WITHOUT EXHIBITS) APPENDIX B PAINEWEBBER INCORPORATED -- FAIRNESS OPINION 5 SUMMARY The following is a brief summary of information included elsewhere in this Proxy Statement. The summary is necessarily incomplete and is qualified in its entirety by the more detailed information in this Proxy Statement, its Appendices and the documents incorporated by reference and referred to in this Proxy Statement. Capitalized terms used and not defined in the summary have the meanings as defined elsewhere in this Proxy Statement. YOU SHOULD READ THE ENTIRE PROXY STATEMENT AND THE APPENDICES PRIOR TO TAKING ANY ACTION WITH RESPECT TO THE MERGER PROPOSAL. GENERAL INFORMATION This Proxy Statement relates to the proposed merger of the Purchaser with and into the Company pursuant to the Merger Agreement by and among the Company, the Parent and the Purchaser. The result of the Merger will be that each holder of Common Stock will receive $16.47 per share in exchange for such Common Stock. THE PARTIES BIG O TIRES, INC., a Nevada corporation (the "Company"), is engaged primarily in the business of franchising Big O Tire retail stores (the "Retail Stores") and supplying Retail Stores with tires and related automotive products for sale. The Company also owns and operates Retail Stores and, on a limited basis, engages in site selection and real estate development for Retail Stores. The mailing address of the Company's principal executive offices and corporate headquarters is 11755 East Peakview Avenue, Suite A, Englewood, Colorado 80111 and its telephone number is (303) 790-2800. TBC CORPORATION, a Delaware corporation (the "Parent"), is an independent marketer and distributor of tires and other automotive aftermarket products. See "Information Pertaining to the Parent and the Purchaser." The mailing address of the principal executive offices of both the Parent and the Purchaser is 4770 Hickory Hill Road, P. O. Box 18342, Memphis, Tennessee 38181-0342, and their telephone number is (901) 363-8030. TBCO ACQUISITION, INC., a Nevada corporation (the "Purchaser"), has been organized as a wholly-owned subsidiary of the Parent for the purpose of effecting the Merger and has engaged in no other business activities other than those related to the acquisition of the Company. See "Information Pertaining to the Parent and the Purchaser." THE DATE AND PLACE OF THE SPECIAL MEETING The Special Meeting is to be held at the offices of Holme Roberts & Owen LLC, Suite 4100, 1700 Lincoln Street, Denver, Colorado 80203, on Wednesday, July 10, 1996, at 10:00 a.m., Mountain Daylight Time. At the Special Meeting and at any adjournment or postponement thereof, the stockholders of the Company will be asked to consider and vote upon the proposal to approve the Merger Agreement and the transactions contemplated thereby. RECORD DATE; REQUIRED VOTE. As of May 17, 1996, the Record Date, 3,317,916 shares of Common Stock were issued and outstanding, each of which is entitled to one vote on each matter to be acted upon at the Special Meeting. Only stockholders of record at the close of business on the Record Date will be entitled to notice of and to vote at the Special Meeting. The presence of a majority of the outstanding shares of Common Stock will constitute a quorum for purposes of the Special Meeting. The affirmative vote of the holders of a majority of the Common Stock outstanding on the Record Date is required for approval of the Merger Agreement. The failure to return a properly executed proxy card, to vote in person at the Special Meeting or, with respect to shares held of record by a broker or other nominee, to provide such broker or nominee with voting instructions (resulting in a broker non-vote) or abstaining from voting, will have the same effect as a vote against the Merger. Proxies may be revoked, subject to the procedures described herein, at any time up to and including the date of the Special Meeting. See "The Special Meeting -- Vote Required to Approve the Merger." NO APPRAISAL OR DISSENTERS' RIGHTS Stockholders do not have appraisal or dissenters' rights in connection with the Merger under Nevada law. Consequently, if the Merger is consummated, their shares of Common Stock will be canceled and they will be required to accept the Merger Consideration. See "The Special Meeting -- Absence of Appraisal Rights and Right to Dissent." 6 THE MERGER The Company, the Parent and the Purchaser have entered into the Merger Agreement whereby the Purchaser will merge with and into the Company. The Company will remain as the surviving corporation. The result of the Merger will be that the Company will become a wholly-owned subsidiary of the Parent. Each share of Common Stock will be canceled and converted into the right to receive the Merger Consideration. Each issued and outstanding share of the Purchaser will be converted into one share of Common Stock of the Company at the Effective Time (as defined below), the separate corporate existence of the Purchaser will cease and the name of the Company will remain "Big O Tires, Inc." Immediately prior to the Effective Time each outstanding option to purchase shares of Common Stock of the Company will be canceled. Each holder thereof will be entitled to receive, in lieu of each share which such holder otherwise would have received upon exercise of the option, cash equal to the extent (if any) by which $16.47 exceeds the exercise price per share payable pursuant to such option or such lower amount as is provided for in the plan pursuant to which the option was granted. All of the Company's stock option, stock appreciation or other such compensation plans or arrangements will be terminated as of the Effective Time. See "The Merger Agreement -- Stock Options." The effectiveness of the Merger is conditioned upon the satisfaction or waiver of certain conditions including, without limitation, approval of the Merger by the holders of a majority of the outstanding Common Stock (which is being sought pursuant to this Proxy Statement). If the Merger is approved by the requisite vote of the Company's stockholders, and all remaining conditions are satisfied or waived, the Merger will become effective upon the filing of the Articles of Merger with the Secretary of State of the State of Nevada (the "Effective Time"). If the Merger is approved, the Company expects to file the Articles of Merger on or shortly after the date of the Special Meeting. See "The Merger Agreement -- Description of the Merger Agreement." EXCHANGE OF CERTIFICATES Upon consummation of the Merger, each share of Common Stock owned by the stockholders of the Company will be canceled and converted into the right to receive the Merger Consideration. See "The Merger Agreement" and APPENDIX A. If the Merger is consummated, the stockholders of the Company will be required to surrender their stock certificates in proper form as a condition to receipt of payment. Stock certificates should not be surrendered with the proxies. Promptly after the Merger occurs, a transmittal letter with instructions will be sent to stockholders to be used by them to surrender their share certificates. See "The Merger Agreement -- Exchange of Certificates." RECOMMENDATIONS FOR THE MERGER THE BOARD AND THE INVESTMENT COMMITTEE RECOMMEND THAT THE STOCKHOLDERS VOTE FOR THE MERGER. The Board and the Investment Committee base their recommendation on the following factors: (a) the terms and conditions of the Merger Agreement that were determined by arms length negotiations between the parties; (b) the assets, obligations, operations, earnings and prospects of the Company and of the retail tire and automotive products industry generally; (c) recent market prices for the Common Stock, recent trading activity and the fact that the Merger Consideration to be paid to stockholders represents a premium over the $15.00 closing sale price of the Common Stock on April 24, 1996, the day prior to the Board's approval of the Merger Agreement, and over the $11.53 per share book value of the Company on March 31, 1996; (d) the results of their market solicitation to determine whether there were other buyers for the Company; (e) a review of possible alternatives to the sale of the Company, including continuing to operate the Company as a publicly-owned entity; and (f) the written opinion of PaineWebber, rendered in connection with a previous merger proposal, to the effect that, as of November 14, 1995, the payment of a cash price of $16.50 per share to the holders of the Common Stock was fair from a financial point of view. See "Special Factors." The negotiation of the Merger Agreement did not include participation on behalf of the Company by a representative of the stockholders, as such, although Kenneth W. Pavia, Sr., a general partner of a substantial stockholder in the Company, participated in various meetings of the Investment Committee and conferred from time to time 7 with members of the Investment Committee. The Investment Committee consists of disinterested directors who at all times have been represented by counsel separate from the Company's counsel, and have been advised with respect to certain financial matters by PaineWebber. Because the members of the Investment Committee have no relationship with the Parent or the Purchaser, and are not employees of the Company, the Investment Committee believes that it had no conflicts of interest that would interfere with its ability to protect the interests of the Company's stockholders. OPINION OF FINANCIAL ADVISOR PaineWebber has acted as financial advisor to the Company in connection with the Merger. PaineWebber assisted the Investment Committee in its negotiation of the terms of the Merger Agreement. In connection with a previous merger proposal from a group consisting of certain franchised dealers and certain members of senior management of the Company, PaineWebber, the financial advisor to the Investment Committee, rendered a written opinion (the "November 1995 Opinion") dated November 14, 1995, to the Board to the effect that, as of the date of such opinion, the proposed consideration of $16.50 per share in cash to the holders of the Common Stock was fair from a financial point of view, to such holders (other than members of the acquisition group and related parties). The full text of the November 1995 Opinion, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken, is attached as APPENDIX B to this Proxy Statement. ALTHOUGH THE INVESTMENT COMMITTEE CONSIDERED THE PAINEWEBBER OPINION IN CONNECTION WITH ITS APPROVAL OF THE MERGER, SUCH OPINION RELATES TO A TRANSACTION PROPOSED IN NOVEMBER 1995 THAT WAS NOT CONSUMMATED. SUCH OPINION DOES NOT RELATE TO THE MERGER. ACCORDINGLY, THE COMPANY IS UNABLE TO RECOMMEND WHETHER OR NOT STOCKHOLDERS SHOULD RELY ON SUCH OPINION AND SUGGESTS THAT EACH STOCKHOLDER REVIEW THE OPINION BEFORE MAKING ANY DETERMINATION WHETHER TO RELY ON SUCH OPINION. See "Special Factors -- Opinion of Financial Advisor Delivered in Connection With Dealer Management Group Merger Agreement." PAINEWEBBER HAS NOT BEEN REQUESTED TO, AND DID NOT RENDER A FAIRNESS OPINION RELATING TO THE MERGER, AND HAS NOT UPDATED THE REVIEW AND OTHER PROCEDURES FOLLOWED IN CONNECTION WITH THE RENDERING OF ITS NOVEMBER 1995 OPINION. THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE NOVEMBER 1995 OPINION ARE DIFFERENT, AND COULD BE MATERIALLY DIFFERENT, FROM THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW THAT WOULD HAVE BEEN UNDERTAKEN IF A FAIRNESS OPINION WERE TO BE RENDERED IN CONNECTION WITH THE MERGER. See "Special Factors -- Opinion of Financial Advisor Delivered in Connection With Dealer Management Group Merger Agreement." PURPOSES AND REASONS FOR THE MERGER The Company's purpose and reason for the Merger are to allow the stockholders of the Company to sell their shares in the Company at a price that the Investment Committee and Board believe is fair to and in the best interest of the stockholders. After a stockholder proposal that recommended that the Board engage the services of a nationally recognized investment banker to explore all alternatives to enhance the values of the Company was approved in June 1994, the Company immediately began considering various alternatives to enhance stockholder value. The timing of the Merger has been determined based on the time required to review various alternatives to enhance stockholder value for the Company, to solicit indications from persons who might be interested in acquiring the Company, to negotiate the terms of the Merger Agreement, to allow the Parent to obtain financing, and to obtain the requisite stockholder and other approvals. TBC believes that its acquisition of the Company offers substantial growth opportunities for TBC in distribution channels not now being served by TBC and will enhance TBC's stockholder value. 8 INTERESTS OF CERTAIN PERSONS IN THE MERGER Messrs. John B. Adams, Steven P. Cloward and Thomas L. Staker, who are all directors and/or officers of the Company, are expected to be involved in the management and operation of the Company following the Merger. They have entered into letter agreements with Parent which provide that Parent will cause the Company to enter into employment agreements with them upon the merger of Purchaser into the Company. Messrs. Mehlfeldt and Siipola have agreed to resign their positions with the Company at the Effective Time and will receive certain benefits following the Merger. Messrs. Adams and Cloward, by virtue of their roles as directors of the Company, will, along with all other current directors of the Company, be entitled to certain indemnification rights under the Merger Agreement. Consequently, the interests of Messrs. Adams, Cloward, Staker, Mehlfeldt and Siipola, and the interests of all of the Company's directors, by virtue of their employment agreements, and the interests of all of the Company's directors, by virtue of their indemnification rights, may be deemed to be separate from or adverse to the interests of the remaining stockholders. As of the Record Date, Messrs. Adams, Cloward and Staker held of record or beneficially (excluding 80,147 shares underlying options) 114,140 shares of Common Stock or 3.44% of the issued and outstanding Common Stock. It is expected that the shares of Common Stock owned by Messrs. Adams, Cloward and Staker will be voted in favor of the Merger. See "Information Pertaining to the Parent and the Purchaser," "The Merger Agreement," and "Interest of Certain Persons in the Merger." ACCOUNTING TREATMENT OF THE MERGER The Merger will be treated, for financial statement purposes, as a sale by the Company's stockholders to Parent for cash. Accordingly, no gain or loss will be recognized by the Company as a result of the Merger. The Merger will be accounted for by the Parent as a purchase. 9 FEDERAL INCOME TAX CONSEQUENCES The receipt of cash by a stockholder of the Company pursuant to the Merger Agreement will be a taxable transaction to such stockholder for federal income tax purposes and may also be a taxable transaction under applicable state, local or other laws. Each stockholder is urged to consult his or her own tax advisor as to the particular tax consequences to such stockholder. See "Special Factors - -- Federal Income Tax Consequences." PRICE RANGE OF COMPANY COMMON STOCK AND DIVIDEND HISTORY The shares of Common Stock are traded on the NASDAQ National Market System under the symbol "BIGO." The following table sets forth the high and low prices, as reported by the NASDAQ National Market System, for each quarter commencing January 1, 1993. These quotations have been rounded to the nearest eighth, reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Stockholders are urged to obtain current quotations.
HIGH LOW 1993 First Quarter .................................. 14 1/4 11 1/8 Second Quarter ................................. 16 3/8 10 7/8 Third Quarter .................................. 17 1/4 13 1/4 Fourth Quarter ................................. 16 1/2 13 1/2 1994 First Quarter .................................. 16 3/4 12 3/4 Second Quarter ................................. 16 3/4 13 1/8 Third Quarter .................................. 16 3/4 14 1/2 Fourth Quarter ................................. 17 7/8 15 1/4 1995 First Quarter .................................. 16 1/4 12 7/8 Second Quarter ................................. 15 1/4 12 1/2 Third Quarter .................................. 15 1/4 12 3/4 Fourth Quarter ................................. 15 1/8 12 1996 First Quarter .................................. 15 1/4 12 1/2 Second Quarter (through June 5, 1996) .......... 16 1/8 14 1/4
On May 31, 1995, June 6, 1995, March 13, 1996 and May 2, 1996, the last days the Common Stock traded prior to the public announcements that (i) the Company had received a merger proposal at $16.50 per share of Common Stock from a group consisting of certain franchised dealers and certain members of senior management of the Company (ii) the Investment Committee approved in principle the $16.50 per share merger proposal from a group consisting of certain franchised dealers and certain members of senior management of the Company, (iii) the Company entered into a letter of intent with the Parent for the Merger and (iv) the Company entered into the Merger Agreement providing for the Merger of Purchaser into the Company at a consideration of $16.50 per share of Common Stock, subject to possible reduction based on final tabulation of transaction costs and other expenses, the closing sale prices of the shares of Common Stock (as reported on the NASDAQ National Market System) were $13.75, $14.25, $13.81 10 and $15.25, respectively. The closing sale price of the shares of Common Stock (as reported on the NASDAQ National Market System) was $15.625 on June 5, 1996. The Company has never paid any cash dividends on its shares of Common Stock. See "Price Range of Company Common Stock and Dividend History." THE SPECIAL MEETING GENERAL This Proxy Statement is being furnished to holders of the Company's Common Stock in connection with the solicitation of proxies by the Company's Board of Directors for use at the Special Meeting to be held at the offices of Holme Roberts & Owen LLC, Suite 4100, 1700 Lincoln Street, Denver, Colorado 80203, on Wednesday, July 10, 1996, at 10:00 a.m., Mountain Daylight Time, and at any adjournment or postponement thereof. At the Special Meeting, holders of the Company's Common Stock will consider and vote upon a proposal to merge the Purchaser with and into the Company pursuant to the Merger Agreement. The result of the Merger will be that each holder of Common Stock will receive $16.47 per share in exchange for such Common Stock. Information contained in this Proxy Statement with respect to the Parent, the Purchaser, and plans for the Company after the consummation of the Merger has been provided by the Parent. All other information contained herein has been provided by the Company. RECORD DATE AND VOTING The Record Date for determination of the Company's stockholders entitled to notice of and to vote at the Special Meeting has been fixed as the close of business on May 17, 1996. Accordingly, only holders of record of shares of Common Stock on the Record Date will be entitled to notice of and to vote at the Special Meeting. As of the Record Date, the outstanding voting securities of the Company consisted of 3,317,916 shares of Common Stock. Each stockholder of record as of the Record Date is entitled to one vote on each matter for each share then held. The holders of a majority of the issued and outstanding shares of Common Stock attending the meeting in person or by proxy will constitute a quorum for the conduct of business at the Special Meeting, and all adjournments and postponements thereof, notwithstanding that less than a quorum may remain after commencement of the Special Meeting. VOTE REQUIRED TO APPROVE THE MERGER The affirmative vote of the holders of a majority of the Common Stock outstanding on the Record Date is required for approval of the Merger Agreement. Consequently, the failure to return a properly executed proxy card or to vote in person at the Special Meeting will have the same effect as a vote against the Merger. Similarly, abstentions and "broker non-votes" (referring to instances where a broker or other nominee physically indicates on the proxy that, because it has not received instructions from beneficial owners, it does not have discretionary authority as to certain shares of Common Stock to vote on the Merger) will have the same effect as a vote against the Merger. The proxies named in the enclosed proxy card may, at the direction of the Board, vote to adjourn or postpone the Special Meeting to another time or place for the purpose of soliciting additional proxies necessary for approval of the Merger. PROXY INFORMATION; REVOCATION Any stockholder has the power to revoke his or her proxy before its exercise at the Special Meeting or any adjournment or postponement by (1) giving written notice of such revocation to the Secretary of the Company, Philip J. Teigen, 11755 East Peakview Avenue, Suite A, Englewood, Colorado 80111, prior to the Special Meeting; (2) giving written notice of such revocation to the Secretary of the Company at the Special Meeting; or (3) signing and delivering a proxy bearing a later date. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The mere presence at the Special Meeting of a stockholder who has executed and delivered a valid proxy will not revoke such proxy. The powers of the proxyholders with respect to the shares of a particular stockholder will be suspended if the stockholder executing the proxy is present at the Special Meeting and elects to vote in person. Subject to such revocation or suspension, each properly executed proxy received by the proxyholders will be voted at the Special Meeting (whether or not instructions are specified thereon). If instructions are specified thereon, such proxy will be voted in accordance therewith, and if no specifications are made, such proxy will be voted for the Merger Agreement. 11 ABSENCE OF APPRAISAL RIGHTS AND RIGHT TO DISSENT The Nevada Merger and Exchanges of Interest Law generally provides that a stockholder is entitled to dissent from a merger and obtain payment of the fair value of such stockholder's shares of stock in the event of a merger to which the corporation, in which the stockholder holds shares, is a party. However, there is no right of dissent under the Nevada Merger and Exchanges of Interest Law with respect to a plan of merger of a corporation the shares of any class of stock of which on the record date were listed on a national securities exchange or designated as a national market system security on an interdealer quotation system operated by the National Association of Securities Dealers Inc. ("NASDAQ") unless the stockholders will receive anything except cash and/or shares of the surviving corporation in exchange for their shares. Because the Common Stock is quoted on the NASDAQ National Market System and because of the composition of the Merger Consideration, stockholders of the Company have no right to dissent upon consummation of the Merger. In lieu of dissenters' rights, the stockholders may have nonstatutory rights under common law to oppose the Merger, including derivative claims or suits for damages or to enjoin the Merger. Consequently, except as set forth above, if the Merger is consummated, stockholders will have their rights as stockholders terminated and their shares will be canceled and they will have only the right to receive the Merger Consideration in exchange for such canceled shares. PROXY SOLICITATION The cost of soliciting proxies will be borne by the Company. The Company may request brokers, fiduciaries, custodians and nominees to send proxies, proxy statements and other material to their principals at the expense of the Company. In addition, directors, officers or other employees of the Company may, without additional compensation therefor, solicit proxies in person or by telephone. SPECIAL FACTORS THE MERGER The Company has entered into the Merger Agreement, a copy (without the exhibits thereto) of which is attached as APPENDIX A to this Proxy Statement, with the Parent and the Purchaser. Pursuant to the terms of the Merger Agreement, the Purchaser will merge with and into the Company with the Company continuing as the surviving corporation. Upon consummation of the Merger, each outstanding share of Common Stock will be converted into the right to receive, upon surrender of such share of Common Stock, the Merger Consideration. Stockholders do not have any appraisal or dissenters' rights under Nevada law. See "The Special Meeting -- Absence of Appraisal Rights and Right to Dissent" and "The Merger Agreement." At the same time, each share of the outstanding common stock of the Purchaser, all of which is owned by the Parent, will be converted into one share of Common Stock of the Company. Thus, after the Merger, all of the then outstanding Common Stock of the Company will be owned by the Parent. 12 BACKGROUND AND NEGOTIATIONS REGARDING THE MERGER PRELIMINARY NOTE. The following discussion describes significant events occuring prior to, during and after the negotiation of the Merger Agreement and material issues discussed during the negotiation of its terms. STOCKHOLDER PROPOSAL. By letter dated December 20, 1993, Kenneth W. Pavia, Sr., general partner of Balboa Investment Group, L.P. ("Balboa") which reported that it then owned approximately 9.6% of the outstanding Common Stock, advised the Company that he intended to introduce a proposal at the Company's 1994 Annual stockholders' Meeting. The Company's management had several discussions with Mr. Pavia concerning various aspects of Company operations and membership of its Board during the several months before the Company received Mr. Pavia's proposal. At his request, the following resolution (the "Stockholder Proposal") and a supporting statement were included in the Company's proxy statement for its 1994 Annual Meeting of stockholders ("Annual Meeting"). "RESOLVED: That the stockholders of the Company recommend and deem it desirable and in their best interest that the Board of Directors immediately engage the services of a nationally recognized investment banker to explore all alternatives to enhance the values of the Company. Those alternatives should include, but not be limited to, the possible sale, merger, or go-private transaction involving the Company, or the return to conducting business as a cooperative." The Company included in its proxy statement a statement in opposition to the Stockholder Proposal. At the Company's Annual Meeting held on June 8, 1994, the Stockholder Proposal was adopted and approved by the vote of holders of approximately 46% of the then outstanding Common Stock. Such vote constituted the requisite majority of the voting power present at the Annual Meeting which, under the Nevada General Corporation Law, was the vote required to approve the Stockholder Proposal. Approximately 38% of the then outstanding Common Stock was voted against the Stockholder Proposal. THE INVESTMENT COMMITTEE. Immediately following the Annual Meeting, the directors of the Company who were not then employees of the Company met to form the Investment Committee to begin the process of implementing the Stockholder Proposal, including engaging an investment banking firm as provided in the proposal. The Investment Committee consisted of Messrs. Carney, Johnston, Mehlfeldt, Siipola, Weiger, and Wernholm, all of whom currently are and at that time were directors of the Company and none of whom were employees of the Company or owners of interests in franchised Retail Stores. Mr. Asher, a director of the Company who owns an interest in a company that owns franchised Retail Stores, was invited to participate as a non-voting member of the Investment Committee. In the ensuing 12 days, the members of the Investment Committee contacted or were contacted by approximately 25 investment banking firms and merchant banking firms to discuss providing assistance to the Company in implementing the Stockholder Proposal. The Investment Committee met on June 20, 1994, to review informal proposals received from three investment banking firms. At the meeting, the Investment Committee determined to request formal presentations from three investment banking firms and to request one additional firm to submit information concerning its services. On June 29, 1994, the Investment Committee met and heard presentations from four investment banking firms, Donaldson, Lufkin & Jenrette Securities Corp., Kidder, Peabody & Co. Incorporated, PaineWebber, and Bear, Stearns & Co., Inc. The Investment Committee met again on July 1, 1994, and selected PaineWebber as the investment banker to advise the Investment Committee with respect to carrying out the Stockholder Proposal. On July 5, 1994, the Company issued a press release regarding the selection of PaineWebber and advised Mr. Pavia of the selection of PaineWebber. The Investment Committee met on July 13, 1994, with Steven P. Cloward, President and then Chief Executive Officer, John B. Adams, Executive Vice President and Chief Financial Officer, Philip J. Teigen, General Counsel and Secretary, and Susan D. Hendee, Assistant Counsel and Assistant Secretary of the Company, together with representatives of PaineWebber. At that meeting the Investment Committee discussed the process by which PaineWebber would work with the Investment Committee to analyze alternatives for enhancing the value of the Company, how PaineWebber would conduct due diligence with respect to the Company and other organizational matters relating to facilitating PaineWebber's preparation of a report to the Investment Committee. 13 The Investment Committee, Mr. Adams, Mr. Cloward and Ms. Hendee met again on July 27, 1994, with representatives of PaineWebber to hear a progress report from PaineWebber with respect to its work. PaineWebber advised that it was preparing financial analyses and developing a list of alternatives that might enhance stockholder value. In addition, the Company retained M. Kane & Company, Inc. ("Kane & Co.") in May 1994 to assist in locating retail tire store chains that might be suitable for acquisition by the Company. Kane & Co. discussed several possible acquisitions with the Company, none of which resulted in substantive negotiations with prospective acquisition candidates. STOCKHOLDER RIGHTS PLAN. The Board had begun in early 1994 to consider adopting a stockholder rights plan and other mechanisms designed to prevent the acquisition of the Company under circumstances that would not result in its stockholders realizing fair value for their Common Stock. On April 14, 1994, the Board met with Holme Roberts & Owen LLC, Denver, Colorado ("Holme Roberts"), special counsel, and with PaineWebber to review such mechanisms and to consider adopting a stockholder rights plan which was intended to have the practical effect of ensuring that a fair price would be paid to Company stockholders for their shares in the event of an acquisition. At the April 14, 1994, Board meeting, PaineWebber delivered a presentation relating to the Board's consideration of a stockholder rights plan. In such presentation, PaineWebber, among other things: (i) reviewed the Company's historical and projected summary financial information; (ii) compared the Company's historical price-to-earnings ("P/E") multiples with the P/E multiples of certain indices of publicly traded companies PaineWebber deemed relevant; (iii) compared certain financial and operating statistics of the Company with those of other publicly traded companies PaineWebber deemed relevant; (iv) reviewed the potential effect of the proposed rights plan on the Company's capitalization; (v) reviewed the rights plans of certain companies that had completed a redemption of such rights; (vi) reviewed the price and trading histories of certain publicly traded companies that had adopted rights plans; and (vii) reviewed the terms and structure of rights plans as adopted by certain other publicly traded companies. As a part of its presentation, PaineWebber estimated the range of implied stock prices for the Common Stock in the year 2004 (the "2004 Estimated Range"). The 2004 Estimated Range was calculated by applying a range of multiples of 16x to 24x to the future earnings per share of Common Stock in the year 2004, as estimated by the Company's management. The 2004 Estimated Range was made solely for use in determining the initial exercise price of the rights to be issued under a stockholder rights plan, and was not intended in any respect as an indicator of the Company's actual value. The Board met again on August 26, 1994, with representatives of Holme Roberts and PaineWebber and, after additional consideration, adopted a stockholder rights plan (the "Stockholder Rights Plan") and declared a dividend of one right for each share of Common Stock outstanding on September 12, 1994, and for each share of Common Stock issued thereafter. Under the Stockholder Rights Plan, on the tenth day following the public announcement of the acquisition of or an offer to acquire specified percentages of the Common Stock, the rights, if not redeemed, would become exercisable. Under certain circumstances, holders of the rights would be entitled to purchase, for half the then current market price, Common Stock of the Company or of an entity acquiring the Company. The Company also adopted changes to the Company Bylaws with respect to stockholder meetings and proposals and director nominations. INITIAL PAINEWEBBER PRESENTATION. On September 12, 1994, the Investment Committee, together with Messrs. Cloward and Adams and Ms. Hendee, met with representatives of PaineWebber. PaineWebber provided a presentation to the Investment Committee as to strategic alternatives for the Company. In its presentation, PaineWebber reviewed the Company's existing business plan, including estimates by the Company's management of future Retail Store openings and closings as well as financial forecasts prepared by the Company's management. Based upon these estimates of future performance, PaineWebber performed a discounted cash flow analysis, using discount rates in the range of 14% to 17% and terminal multiples in the range of 14x to 22x, resulting in implied equity values of $9.69 to $35.23 per share. PaineWebber reviewed the potential effects of certain strategic alternatives under consideration by the Company's Board of Directors. First, PaineWebber reviewed such potential effects of a repurchase by the Company of 625,000 shares of Common Stock at $16.00 per share. This analysis resulted in implied equity values of $10.09 to $17.87. Second, PaineWebber reviewed the potential effects of a $10 million extraordinary dividend to the holders of Common Stock. This analysis resulted in implied equity values of $11.17 to $17.53 per share. Third, PaineWebber reviewed the potential effects of a leveraged buyout or management buyout of the Company, assuming (i) minimum interest coverage (pro forma EBITDA/interest expense) of 2.5x; (ii) an interest 14 rate on subordinated debt financing of such buyout of 13% per annum; and (iii) a required total rate of return for subordinated debt (including related warrants) of 20% per annum. This analysis resulted in implied equity values of $8.07 to $15.63 per share. Finally, PaineWebber reviewed the potential effects of a sale to or merger with a strategic buyer assuming (i) minimum interest coverage (pro forma EBITDA/interest expense) of 2.5x; (ii) acquisition bank financing at an interest rate of 9% per annum; and (iii) resulting synergies and cost savings of 25% of corporate selling, general and administrative expenses. This analysis resulted in implied equity values of $11.93 to $37.00 per share. PaineWebber also reported that it had received informal inquiries from persons expressing an interest in acquiring the Company. The Investment Committee directed PaineWebber to conduct further discussions with those which had expressed a preliminary interest so that the Investment Committee could select a list of qualified potential buyers. On September 13, 1994, the Investment Committee reported to the Board concerning its activities. The Board determined that, in view of the substantial activities of the Investment Committee, it would be advisable for Mr. Mehlfeldt, who has significant experience in the tire industry, to serve substantially full time assisting the Investment Committee in evaluating strategic alliances, mergers, sales and acquisitions. On September 22, 1994, Mr. Mehlfeldt entered into a consulting agreement with the Company reporting to the Investment Committee. Mr. Mehlfeldt was paid fees of $47,250 in 1994 and $3,750 in 1995, based on the days for which Mr. Mehlfeldt provided consulting services. The arrangement was terminated on February 15, 1995, when Mr. Mehlfeldt became an employee of the Company. Also, at its September 13, 1994 meeting, the Board decided to invite Mr. Pavia to join the Board as a director. In the event that Mr. Pavia declined the invitation to join the Board, the Board authorized the Chairman of the Investment Committee to invite Mr. Pavia to attend Investment Committee meetings. Mr. Pavia did not join the Board, and on September 22, 1994, the Company announced that Mr. Pavia would assist the Investment Committee in its efforts to evaluate alternatives to enhance the Company's value. In September 1994, Mr. Pavia and Balboa signed a confidentiality agreement with the Company. The Investment Committee next met on October 11, 1994, with Messrs. Adams, Cloward, Teigen and Ms. Hendee, representatives of PaineWebber, and Mr. Pavia. PaineWebber reported that it had conversations with persons who had expressed an interest in acquiring the Company, including possible strategic buyers and financial buyers. PaineWebber advised that all persons who had expressed an interest had been supplied with confidentiality agreements as a condition to the Company providing due diligence information. THE AKH OFFER. On October 11, 1994, AKH Company, Inc. ("AKH"), which owns retail tire dealerships and is based in California, sent the Company a letter proposing a merger in which the Company would be acquired for a cash payment of $18 per share, subject to due diligence, financing and various other conditions. The AKH proposal also required a 90-day period of exclusivity during which the Company could not carry on discussions or negotiations with any third parties regarding a sale or combination of the Company. The Company had been approached by AKH earlier in 1994 to determine the interest in the possible acquisition of AKH by the Company. The Company had not pursued discussions with AKH at that time after determining that many of AKH's retail stores were within territories served by existing Company franchised Retail Stores. The Company asked AKH to enter into a confidentiality agreement with the Company, and, because of concerns about AKH's financial ability to acquire the Company, to demonstrate its financial capacity to conclude a transaction. The Company also advised AKH that it was unwilling to grant a period of exclusivity. In mid-November, 1994, AKH and the Company entered into confidentiality agreements. On November 1, 1994, AKH announced publicly that it had made a proposal to acquire the Company for an unspecified amount of cash. The Investment Committee met on October 24, 1994, with Mr. Adams, Ms. Hendee, Mr. Teigen and representatives of PaineWebber. The Investment Committee was advised that a group of franchised dealers of the Company (the "Dealers") had appointed a committee to review alternatives available to the Dealers in acquiring the Company and that the Dealers had retained KPMG Peat Marwick LLP ("KPMG") to act as their financial advisor. Mr. Adams advised the Investment Committee that certain members of senior management of the Company ("Senior Management"), which included Messrs. Adams and Cloward, were also investigating possible participation with certain of the Dealers in an offer to purchase the Company, and that certain representatives of the Dealers and Senior Management (collectively the "Dealer Management Group") had met to determine whether to make an offer to the Company. He advised that KPMG and a representative of the Dealers had signed confidentiality agreements and that Senior Management and the Dealers had retained Gibson, Dunn & Crutcher, Denver, Colorado, as their legal counsel. In view of the Dealers' interest in a possible transaction with the Company, Mr. Asher, who has interests in, and beneficially owns interests in, several Retail Stores, resigned from the Investment Committee. 15 Soon thereafter, the Investment Committee determined to retain Holme Roberts as special counsel to the Investment Committee. Holme Roberts had previously represented ad hoc committees of the Board and had from time to time performed legal services for the Company, primarily in connection with adopting its Stockholder Rights Plan, but was not regularly retained as counsel for the Company. The Investment Committee met on November 4, 1994, with representatives of PaineWebber and Holme Roberts, and Mr. Pavia and Ms. Hendee. PaineWebber advised the Investment Committee of contacts that it had made and discussions that had occurred with ten possible strategic buyers and five financial buyers, several of whom had expressed no interest in continuing discussions with the Company. The Investment Committee met again on November 17, 1994, with representatives of PaineWebber, Holme Roberts, Mr. Pavia and Ms. Hendee. Mr. Mehlfeldt and PaineWebber provided the Investment Committee with an update as to discussions or contacts on the potential strategic and financial buyers lists. The Investment Committee requested PaineWebber and Mr. Mehlfeldt to intensify discussions with AKH and the Dealer Management Group and to follow-up with one other party who had expressed a preliminary interest in an attempt to bring the discussions to some form of resolution. DEALER MANAGEMENT GROUP'S FIRST OFFER. On December 2, 1994, the Company received a letter from the Dealer Management Group that proposed to commence negotiations to acquire the outstanding shares of the Company for $18.50 per share. The proposal was subject to various contingencies, including participation in the buying group by at least 90% of the Common Stock held in the Company's Employee Stock Ownership Plan (the "ESOP") and by the owners of 90% of franchised Retail Stores. The Dealer Management Group also requested a period of exclusivity of 120 days during which the Company would negotiate only with the Dealer Management Group. The Investment Committee met on December 5, 1994, with Mr. Pavia and representatives of PaineWebber and Holme Roberts to discuss the Dealer Management Group offer. At that meeting, the Investment Committee also discussed the status of the AKH offer and what implications, if any, acceptance of the AKH offer might have on the Big O franchised dealers as a group. During the meeting, PaineWebber and Mr. Mehlfeldt discussed with the Investment Committee the status of contacts made by PaineWebber on behalf of the Company with other prospective purchasers. Based upon this presentation, the Investment Committee determined that only AKH and the Dealer Management Group continued to evidence an active interest in a transaction to acquire the Company. At that meeting, the Investment Committee also considered a request by the Dealer Management Group for payment of its expenses in connection with pursuing an offer to buy the Company. The Investment Committee decided to agree to cover the Dealer Management Group's expenses up to $100,000 incurred to prepare, document and finance its acquisition proposal, including, without limitation, preparation of a definitive merger agreement. The Investment Committee directed Mr. Mehlfeldt and PaineWebber to request the Dealer Management Group to prepare a form of definitive merger agreement to determine if acceptable terms could be arranged. The Company did not agree to a period of exclusivity pending receipt of a satisfactory form of merger agreement. On December 6, 1994, two class-action lawsuits were filed in Nevada by stockholders of the Company seeking to enjoin a transaction with the Dealer Management Group, enjoin implementation of the Stockholders Rights Plan, and various other forms of relief. The two cases, which were consolidated, were dismissed by the plaintiffs without prejudice on March 31, 1995. During November and December 1994, the Company forwarded to the financial advisor for AKH certain requested information in connection with AKH's due diligence investigation, and representatives of AKH spent one day at the Company's headquarters conducting due diligence investigations. A due diligence meeting between the Company and representatives of AKH was scheduled for December 12 to 14, 1994, but was canceled by AKH through its financial advisor. On December 7, 1994, Mr. Mehlfeldt and representatives of PaineWebber met with Messrs. Adams and Cloward, representing Senior Management, and Wesley E. Stephenson and William H. Spencer, representing the Dealers, and a representative of KPMG to discuss the terms of the Dealer Management Group's letter of intent to purchase the Company. Senior Management was authorized to contact the Company's lenders to discuss the proposal. On December 8, 1994, the Investment Committee met with representatives of PaineWebber and Holme Roberts. The Investment Committee decided to request that AKH and the Dealer Management Group evidence their continuing interest in acquiring the Company by reaffirming their proposed prices, providing information as to their respective financing contingencies, and setting forth their due diligence requirements and a timetable for closing, by 12:00 Noon on Friday, December 16, 1994, at which time the Investment Committee would review 16 the respective requests for a period of exclusive negotiations. The Investment Committee also agreed to reimburse the Dealer Management Group for up to an aggregate of $175,000 of reasonable expenses, provided that the Dealer Management Group agreed to withdraw a request to adjust the proposed purchase price by an amount equal to the transaction fee due PaineWebber and that it proceed immediately to prepare and submit a definitive merger agreement. Following the December 8, 1994 meeting of the Investment Committee, Messrs. Mehlfeldt and Siipola met with Mr. Cloward and Mr. Adams to inquire as to the intended structure of the Dealer Management Group, how it would finance its purchase of the Company and when the Dealer Management Group anticipated it would be prepared to sign a definitive merger agreement. Messrs. Cloward and Adams advised that the Dealer Management Group was in the process of being formed and was working out structural issues among the participants, that the Dealer Management Group was discussing with its financial advisor the sources and terms of financing and was preparing proposals to prospective lenders and equity investors, and that the Dealer Management Group expected to be ready to sign a definitive agreement in early 1995. Mr. Adams and PaineWebber each attempted to reach AKH through AKH's financial advisor to discuss the AKH offer. The AKH financial advisor advised that it was not prepared to discuss other terms of AKH's offer. Accordingly, no discussions occurred. On December 13, 1994, the Company and the Dealer Management Group signed a letter agreement pursuant to which the Company agreed to reimburse the Dealer Management Group for up to $100,000 of costs incurred prior to December 8, 1994, in connection with its acquisition proposal and agreed to reimburse up to $75,000 of additional costs for a period beginning December 8, 1994, and ending on the earlier of execution of a definitive merger agreement, termination of the acquisition proposal, or December 31, 1994. This reimbursement included the $175,000 amount discussed at the December 8, 1994 meeting and the $100,000 amount discussed at the December 5, 1994 meeting. The Dealer Management Group sent a proposed draft merger agreement to the Company. Thereafter, Mr. Mehlfeldt and representatives of PaineWebber and Holme Roberts discussed with Gibson, Dunn & Crutcher and KPMG the forms of representations and warranties, conditions to closing and similar technical matters relating to a form of merger agreement. They also discussed the amount of expenses that it would be appropriate to reimburse the Dealer Management Group. The Dealer Management Group asked for reimbursement of all expenses during the terms of the exclusivity and the Company requested a limit on reimbursements. The Company also received a letter from AKH to the effect that it would not proceed with its proposal until the Dealer Management Group proposal was no longer being considered. The Investment Committee met on December 16, 1994, with Mr. Pavia and representatives of PaineWebber and Holme Roberts. They were advised by Mr. Pavia that AKH had advised him that AKH had elected not to pursue a transaction with the Company because of the difficulty in competing with Company franchised dealers whose goodwill they would need if they were to acquire the Company, as well as its inability to conduct due diligence in a timely manner. The Investment Committee discussed the AKH response and discussed AKH's due diligence efforts with PaineWebber and members of the Investment Committee who had been dealing with AKH. The Investment Committee determined that there was not a serious interest on the part of AKH to continue to pursue its offer. The Investment Committee also reviewed with PaineWebber the status of discussions with other prospective purchasers and determined that there did not appear to be active interest in acquiring the Company on the part of any prospective purchaser except the Dealer Management Group. The Investment Committee then authorized Mr. Siipola and Mr. Mehlfeldt to negotiate with the Dealer Management Group with respect to an exclusive negotiation period until January 20, 1995, and to pay 80% of costs and expenses of the Dealer Management Group, except in cases where the transaction was terminated for reasons other than the group's unilateral decision not to proceed. Messrs. Mehlfeldt and Siipola and representatives of Holme Roberts and Gibson, Dunn & Crutcher negotiated the terms of an exclusivity agreement and modified arrangement regarding reimbursement of expenses during the ensuing week. 17 On December 22, 1994, the Company signed a letter agreement with the Dealer Management Group pursuant to which the Company agreed that it would not solicit or initiate, or, subject to the fiduciary duties of its Board of Directors, participate in discussions with, any person concerning the acquisition of the Company. The Dealer Management Group confirmed the offer of $18.50 per share. The period of exclusivity would terminate upon the later of execution of a definitive merger agreement, termination of negotiations and January 20, 1995. The December 22, 1994 letter amended the December 13, 1994 letter with respect to expenses and provided that the Company could terminate the arrangement upon 24-hours notice with respect to expenses not yet incurred. The Dealer Management Group agreed that if it did not consummate the proposed merger for any reason other than because (i) financing was unavailable, or (ii) the Investment Committee failed to recommend or withdraw the recommendation of the consummation of the transaction because of another transaction under certain circumstances, the Dealer Management Group would reimburse the Company for 20% of the expenses incurred. The Company also agreed to indemnify and hold harmless the Dealer Management Group for all costs and expenses arising out of claims relating to the proposed transaction. Thereafter, discussions occurred between Messrs. Siipola and Mehlfeldt on behalf of the Investment Committee and Messrs. Cloward and Adams on behalf of Senior Management and with Messrs. Stephenson, Spencer and Richard Miller on behalf of the Dealers with respect to proposed terms of the definitive merger agreement. The Dealer Management Group requested that topping fees be paid in the event another offer were later made and accepted by the Company. The Investment Committee took the position that such a topping fee should not exceed $1,000,000. The Dealer Management Group asked for reimbursement of all expenses incurred in connection with the transaction. The Investment Committee insisted that a maximum limit of expenses be inserted in the definitive agreement. The Investment Committee also took the position that various contingencies to the Dealer Management Group's obligations should be minimized, and that the contingencies related to financing and participation by the Company's franchised dealers should be subject to early review at which time the contingencies should be satisfied or waived. Other discussions as to the scope of representations and warranties and contract language, none of which is material to the substance of the transaction, were conducted by the respective parties through Gibson, Dunn & Crutcher and Holme Roberts. The Investment Committee determined to reimburse the Dealer Management Group for its expenses because it believed that the Dealer Management Group could structure an offer for the Company that would be competitive with any other offers, but that the Dealer Management Group, consisting of employees of the Company and certain franchised dealers, lacked sufficient resources to pay the cost in preparing such an offer. Accordingly, it appeared to the Investment Committee that no sale to the Dealer Management Group would be possible without the Company's agreement to reimburse its costs in pursuing its offer and that it would be in the best interest of the stockholders of the Company to encourage an offer by the Dealer Management Group. The Company also believed that reimbursing expenses was important in maintaining good relations with the Company's franchised dealers. In return for reimbursing expenses between $500,000 and the maximum of $750,000, the Company required that at least 85% of the Company's franchised dealers whose franchise agreements expired before July 1, 1999, extend their agreements through the earlier of July 1, 2002 or three years from when their agreements would have expired. The Company believed that this extension would be a substantial benefit to the Company. AKH's decision not to pursue an offer precluded any subsequent negotiations with AKH. The Company encouraged AKH's participation in the efforts to acquire the Company, but AKH never initiated significant substantive discussions with the Company. 18 On January 19, 1995, Messrs. Spencer, Siipola and Mehlfeldt met with representatives of KPMG, Gibson, Dunn & Crutcher, Holme Roberts and PaineWebber to discuss the status of the negotiations. KPMG described the status of the group's efforts to obtain an equity participant from various tire manufacturers and the status of other negotiations with respect to financings. The representatives of the Company inquired as to progress in forming various entities to be owned by the Dealer Management Group and were advised that definitive agreements among the members of the Dealer Management Group had not been completed. On January 20, 1995, the Investment Committee met with Mr. Pavia and representatives of PaineWebber and Holme Roberts to review a proposed draft of the merger agreement. Mr. Cloward and representatives of KPMG and Gibson, Dunn & Crutcher also met with the Investment Committee during a portion of the meeting to advise that certain negotiations with respect to equity participations in their group were continuing and that open issues remained between Senior Management and the Dealer Management Group with respect to their relative participation in the purchasing entity. The Investment Committee resolved to recommend to the Board that the form of merger agreement be signed. Subsequently, on January 20, 1995, Messrs. Cloward, Adams and Spencer and representatives of Gibson, Dunn & Crutcher met with Messrs. Mehlfeldt, Siipola and representatives of Holme Roberts and PaineWebber. The Dealer Management Group advised the Investment Committee that in view of the unresolved issues among them and the inability to obtain the necessary elements of financing, the Dealer Management Group was not prepared to sign a merger agreement. They requested an extension under the December 22, 1994 letter agreement until February 8, 1995, to sign the merger agreement, which the Company approved. At the close of business on January 20, 1995, Messrs. Cloward and Adams advised Holme Roberts that they had received a negative response to the proposed price of $18.50 per share from one of the possible equity participants with the Dealer Management Group and advised that the group would not hold the Company to the extension until February 8, 1995. Following discussions between Mr. Cloward and Mr. Siipola as to the status of negotiations, the Company reaffirmed its belief that the transaction should be financeable and determined to honor the extension agreement while the Dealer Management Group continued to seek financing. The Investment Committee met with Mr. Pavia and representatives of PaineWebber and Holme Roberts on February 8, 1995. It reviewed three letters dated February 7, 1995. The first letter was from the Dealer Management Group which advised that the group had elected not to continue negotiations at that time in light of the difficulties it had experienced in obtaining the elements of its financing necessary to consummate the acquisition and the resulting inability of the Dealer Management Group to reach agreement on certain issues relating to the acquisition. The second letter was from the Dealers and advised that the Dealers intended to form an association to be known as "Big O Tire Dealers of America" which was to be organized to deal cooperatively with respect to matters concerning Big O franchisees. The letter contained a copy of a Dealer's "Declaration of Interdependence" which set forth a four-part purpose of the association, including the protection and advancement of Dealers' common interests in preserving the continuity of operations as they currently existed, including distribution systems, product supply, and operational philosophy at the retail level. 19 The third letter also dated February 7, 1995, from Messrs. Cloward and Adams, requested a period of exclusivity for negotiating a transaction on behalf of Senior Management and others who might provide financing. Representatives of Senior Management informed the Company that they continued to be interested in completing a purchase of the Company on mutually acceptable terms. The Investment Committee did not grant the period of exclusivity requested. The Investment Committee began to discuss a restructuring plan for the Company presented in very general terms by Messrs. Siipola and Mehlfeldt. On February 8, 1995, the Company publicly announced that the Dealer Management Group had elected not to pursue the proposed transaction due to the inability to secure financing. On February 9, 1995, Mr. Cloward requested that the Company continue to pay certain expenses of Senior Management in pursuing a possible acquisition. The Investment Committee declined the request. At a Board meeting on February 15, 1995, the Board approved a revised management structure. The objective of the revised management structure was to allow Mr. Cloward time to continue working on a transaction to acquire the Company and to enable Messrs. Siipola and Mehlfeldt to manage the Company while exploring alternatives to enhance the value of the Company should a transaction with the Dealers and Senior Management not occur. Mr. Siipola remained as Chairman and Mr. Mehlfeldt was elected Vice Chairman of the Company. Messrs. Siipola and Mehlfeldt were retained to work for the Company substantially full time pursuant to salary and incentive arrangements. Mr. Cloward would continue as President of the Company. Messrs. Siipola, Mehlfeldt and Cloward became members of the Office of the Chief Executive. Because of the complexity of organizing the Dealer Management Group proposals, the Board advised Mr. Cloward that it would have no objection if he continued to devote substantially all of his business time to an attempt to organize a group of Dealers and Senior Management to acquire the Company. On February 7, 1995, Big O Tire Dealers of America ("BOTDA"), a California nonprofit mutual benefit corporation was incorporated under California law to represent the Dealers' interest in the Dealer Management Group. It was determined that BOTDA would represent the Dealers in negotiations by the Dealer Management Group with the Company. At a Board meeting on February 15, 1995, the Board considered adding a representative of the Dealers to the Board. At a Board meeting held on February 24, 1995, the Board approved amendments to the Company's Bylaws so as to accommodate the concept of a three-person Chief Executive Office and to also recognize the new office of Vice Chairman of the Board. The Company requested PaineWebber to contact any persons that it had contacted before which it believed continued to have an interest in the Company. PaineWebber reported that it had made various contacts, none of which indicated a continuing interest to purchase the Company. In addition, the status of the Dealer Management Group offer was widely publicized through press releases by the Company and the Dealer Management Group and the Company did not receive serious inquiries during this period from prospective purchasers. THE DEALER MANAGEMENT GROUP'S SECOND OFFER. On April 6, 1995, the Company received a proposal from the Dealer Management Group to acquire the Company for a cash price of $16 per share and on substantially the same other terms as the December proposal, including contingencies of signing a definitive merger agreement, obtaining financing to complete the purchase, participation in the acquisition by holders of at least 80% of the shares held by the Company's ESOP, and participation in the purchasing group by franchised dealers of the Company having at least 85% of the Retail Stores. On April 12, 1995, the Investment Committee met with PaineWebber and Holme Roberts. The Investment Committee authorized reimbursement of expenses by the Dealer Management Group through 20 February 8, 1995. The Investment Committee considered a request for certain reimbursement of expenses by Senior Management subsequent to February 8, 1995, and determined not to provide any additional reimbursements. The Investment Committee reviewed the details of the debt and equity financing that the Dealer Management Group had provided to the Company in connection with the offer to assess the likelihood that financing to complete the purchase would be available. The Investment Committee determined not to accept the $16 per share offer, decided not to reimburse additional expenses of the group in pursuing the proposal, and expressed the Investment Committee's concern about the contingency concerning the ESOP's participation in the transaction. The Investment Committee advised the Dealer Management Group of its determination, and also that the Investment Committee would be open to further negotiations at a more favorable price. The Investment Committee's response was announced publicly. On April 24, 1995, the Investment Committee met with representatives of the Dealers and Senior Management including Messrs. Stephenson and Spencer and others on behalf of the Dealers and Messrs. Cloward and Adams, and representatives of KPMG, PaineWebber, Holme Roberts and Wendel Rosen Black & Dean ("Wendel Rosen"), which was now counsel for BOTDA. The Dealer Management Group stated they believed the $16 offer was adequate in light of the Company's prospects and historic earnings. The Investment Committee stated that it believed that a $16 per share offer was inadequate and that it would not recommend a $16 per share offer to the Board of Directors. By letter dated May 5, 1995, the Dealer Management Group advised the Company of its desire to have two proposals brought before the Company's Annual Meeting of Stockholders scheduled for June 7, 1995. The first proposal was to recommend that the Company's Board of Directors take all actions necessary to eliminate the Stockholder Rights Plan. The second proposal was to recommend that the Company's Board of Directors begin the good faith reconsideration of, and, if appropriate, negotiation of, the previously rejected cash offer of $16 per share made on April 6, 1995, through a committee comprised exclusively of non-employee directors. Because BOTDA and Senior Management believed that adequate progress was being made in negotiations with the Investment Committee prior to the Annual Meeting of Stockholders, no attempt was made to solicit votes for the proposals and they were not presented at the Annual Meeting of Stockholders. Due to the fact that they had become employees of the Company, on May 10, 1995, Messrs. Siipola and Mehlfeldt resigned from the Investment Committee and thereafter did not participate in the Investment Committee's deliberations. Mr. Carney was elected Chair of the Investment Committee. On May 22, 1995, representatives of the Dealer Management Group and their advisors met with the Investment Committee, PaineWebber and Holme Roberts to discuss the price at which the Dealer Management Group believed a transaction could be accomplished. The Dealer Management Group stated that it did not believe that it could obtain financing at a price above $16.00 per share based upon the Company's historical performance and its projections. Following receipt of the Dealer Management Group's second offer, the Company contacted AKH to request whether it had any continuing interest in purchasing the Company. The Company was advised that AKH would not pursue the purchase of the Company. Although the Dealer Management Group did not raise its offer above $16.00, it explored with the Investment Committee, the Investment Committee's advisors and the advisors to the Dealer Management Group, the possibility of reducing certain costs associated with the transaction so that the offer price could be 21 increased. The meeting ended with the Investment Committee indicating that although the Dealer Management Group would have to negotiate any such cost savings on its own, the Investment Committee would be receptive to an acquisition offer for the Company at a price of $16.50 per share. On June 5, 1995, the Company announced that it had received a letter from the Dealer Management Group proposing to acquire the Company at a price of $16.50 per share, subject to a number of conditions. In conjunction with the Company's Annual Meeting of Shareholders, the Investment Committee met on June 6, 1995, with PaineWebber and Holme Roberts to discuss the status of negotiations with the Dealer Management Group, including timing of a transaction and the terms of reimbursement of their expenses. The Investment Committee met the following morning with Holme Roberts and representatives from Senior Management, and BOTDA including Messrs. Cloward, Adams, Stephenson, Spencer, a representative of Wendel Rosen and other members of the Dealer Management Group to discuss terms of a definitive agreement. On June 7, 1995, the Investment Committee met with Holme Roberts and decided to recommend that the Company enter into a letter agreement with the Dealer Management Group with respect to an offer at $16.50 per share subject to obtaining financing, participation in the Purchaser of at least 80% of the shares held by the Company's ESOP, participation in the Purchaser of not less than 85% of the franchised Big O Dealers, and negotiation of a definitive merger agreement. The Company agreed to pay up to $750,000 of the Purchaser's expenses (including those previously reimbursed in connection with the December 1994 proposal), if 85% of the franchised stores owned by Dealers participating in the Dealer Group with franchises expiring before July 1, 1999, extended their franchise agreements at least through the earlier of (a) July 1, 2002, or (b) the date three years after such franchise agreements would expire. If they did not do so, the reimbursement would not exceed $500,000. The Investment Committee also agreed to reimburse up to $217,000 of financing fees and commitments. The Board met following that meeting and approved the letter agreement. The letter agreement was signed on June 7, 1995, by the Company and the Dealer Management Group, a press release announcing the signing of the letter agreement was released on June 7, 1995, and the signing of the letter agreement was announced at the Annual Meeting of Shareholders held on the evening of June 7, 1995. During the ensuing month the parties negotiated a definitive merger agreement with companies formed by the Dealer Management Group (the "Dealer Management Group Merger Agreement"). The Investment Committee met on July 18, 1995, with Holme Roberts to review the Dealer Management Group Merger Agreement and provided final, technical comments. On July 21, 1995, the Investment Committee met with PaineWebber and Holme Roberts and approved signing the Dealer Management Group Merger Agreement. Representatives of PaineWebber reviewed the terms of the transaction, including its work with the Company over the past year. The Investment Committee then reviewed language of the draft Dealer Management Group Merger Agreement and its representations concerning the Investment Committee's determination with respect to the fairness of the transaction and the likelihood of receiving a fairness opinion. The Investment Committee determined to recommend the merger proposed by the Dealer Management Group to the Board as being in the best interest of the Company and its stockholders. The Investment Committee also determined, based upon its own analysis of the consideration and taking into consideration the presentation of PaineWebber at the meeting, that the transactions contemplated by the Dealer Management Group Merger Agreement, based on information presently known, were in the best interest of and, subject to the receipt of the fairness opinions as described in the Dealer Management Group Merger Agreement, fair to the disinterested stockholders of the Company. The Investment Committee also determined that it was unaware of any reason why the Company would not receive a fairness opinion as provided in the Dealer Management Group Merger Agreement. 22 Thereafter, on July 21, 1995, the Board met with Hopper and Kanouff, Holme Roberts and PaineWebber and again approved signing the Dealer Management Group Merger Agreement and certain amendments to the Stockholder Rights Plan necessary to permit the signing of the Dealer Management Group Merger Agreement and the consummation of the merger pursuant to the Dealer Management Group Merger Agreement. Members of the Board who were participating in the transaction as Senior Management or Dealers abstained from voting because of such participation. All other directors voted to approve the Dealer Management Group Merger Agreement. The Dealer Management Group Merger Agreement was signed on July 24, 1995. On July 24, 1995, prior to executing the Dealer Management Group Merger Agreement, the Company changed the Stockholder Rights Plan by amending the Rights Agreement between the Company and Interwest Transfer Co., Inc., to permit the transactions contemplated by the Dealer Management Group Merger Agreement. On August 16, 1995, the Dealer Management Group presented to the Investment Committee evidence of financing commitments subject to various contingencies, the fulfillment of which would occur in the future. The Investment Committee reviewed and determined that the Dealer Management Group's financing commitments, in the aggregate, were for amounts sufficient to provide funds to pay the consideration. On August 31, 1995, the Company agreed to a request made by the Dealer Management Group to extend until October 2, 1995, the date on which the Company or the Dealer Management Group could terminate the Dealer Management Group Merger Agreement, if prior to October 2, 1995, the Dealer Management Group had not satisfied or waived the contingency in the Dealer Management Group Merger Agreement that required participation in the Dealer Management Group by the Company's dealers owning not less than 85% of the franchised Big O Retail Stores ("Dealer Participation Contingency"). On October 2, 1995, the Company agreed to a request made by the Dealer Management Group to extend until October 16, 1995, the date on which the Company or the Dealer Management Group could terminate the Dealer Management Group Merger Agreement, if prior to October 16, 1995, the Dealer Management Group had not satisfied or waived the Dealer Participation Contingency. As part of the agreement, the Dealer Management Group agreed that the Company would not further extend such deadline. 23 On October 15, 1995, the Company received notice from the Dealer Management Group that the Dealer Management Group elected to waive the Dealer Participation Contingency. The Dealer Management Group advised the Company that dealers owning 82% of the Company's franchised Big O Retail Stores, as of the date of the Dealer Management Group Merger Agreement, had elected to participate indirectly in the acquisition of the Company. On November 14, 1995, the Board met with Hopper and Kanouff, Holme Roberts, PaineWebber and Lentz Evans and King, P.C., legal counsel to the ESOP. At the meeting, PaineWebber rendered its opinion to the effect that, as of such date, the merger consideration to be paid by the Dealer Management Group was fair, from a financial point of view, to the holders of Common Stock. At the meeting held on November 14, 1995, the Board (other than those directors who were participating in the acquisition as members of Senior Management or BOTDA or the Dealers who abstained) voted to recommend that the stockholders vote for the merger pursuant to the Dealer Management Group Merger Agreement. By letter dated January 12, 1996, the companies formed by the Dealer Management Group requested that the Investment Committee consider increasing the expense reimbursement to the Dealer Management Group by $250,000 and consider extending the termination date in the Dealer Management Group Merger Agreement to March 31, 1996. On January 23, 1996, the Investment Committee met and discussed the requests but took no action. By letter dated January 25, 1996, to the Dealer Management Group, the Investment Committee requested confirmation that the Dealer Management Group was proceeding with the merger pursuant to the Dealer Management Group Merger Agreement. On January 30, 1996, representatives of the Dealer Management Group and Gibson, Dunn & Crutcher had a telephone conference with the Investment Committee and a representative of Holme Roberts to discuss the status of the merger pursuant to the Dealer Management Group Merger Agreement. After February 28, 1996, the Dealer Management Group Merger Agreement could be terminated by either party if the closing had not yet occurred. The Board met on February 28, 1996, and determined that it would not terminate the Dealer Management Group Merger Agreement at that time. On March 12, 1996, the Investment Committee met with representatives of PaineWebber and Holme Roberts to discuss the status of the Dealer Management Group Merger Agreement, the status of Parent's interest in a possible transaction with the Company, and certain reimbursements requested by the Dealer Management Group. Mr. Cloward subsequently joined the meeting to discuss the status of financing for the Dealer Management Group. He was requested by the Investment Committee to submit a status report by the end of the business day regarding consummation of the Dealer Management Group Merger Agreement. The Investment Committee declined a request to change the amount of reimbursable expenses. On March 13, 1996, the Investment Committee and Board met again with representatives of PaineWebber and Holme Roberts and reviewed a letter from the Dealer Management Group with respect to the status of various matters relating to the Dealer Management Group Merger Agreement. In the letter, the Dealer Management Group advised the Company that various of its commitments for financing had expired and that the Dealer Management Group was experiencing difficulty in renewing them because of the possibility of a termination of the Dealer Management Group Merger Agreement by the Company and the fact that the Company was discussing a possible acquisition of the Company by a third party (see "TBC Corporation" below). The letter summarized the status of discussions with each of the Dealer Management Group's lenders, all of whom had reportedly indicated orally a continued willingness to participate in the transaction; however, no binding commitments had been received from them and the terms of the renewals or extensions of their commitments were not established in writing. The Dealer Management Group also advised that, because of certain changes in the role of participants in the Company's ESOP in connection with the proposed acquisition of the Company, it would be necessary to provide the Company's Dealers who had agreed to participate as part of the Dealer Management Group with a right to rescind their agreements to participate and to reconsider whether they would participate. The letter also reported that certain other equity participation in the Dealer Management Group had not been finalized. The Dealer Management Group also advised that it had not yet received a required fairness opinion with respect to the fairness of the transaction to participants in the Company's ESOP who were to have received shares in the acquiring company instead of cash for their shares in the Company. The Dealer Management Group also expressed some concern about the probability of receiving the agreement that 80 percent or more of the shares of the Company held by the ESOP would be exchanged for securities in the acquiring company (a condition to the participation by another equity participant). 24 The Dealer Management Group also advised that it had limited finances and would need additional resources to complete the transaction. The Dealer Management Group requested an extension of the Dealer Management Group Merger Agreement for at least 180 days, which would include an exclusivity clause. After reviewing the letter with a representative of the Dealer Management Group, the Investment Committee and the Board decided to terminate the Dealer Management Group Merger Agreement immediately pursuant to its terms. On April 30, 1996, constituent members of the Dealer Management Group, including BOTI Holdings, Inc., BOTI Acquisition Corp., Big O Tire Dealers of America, the Company, and certain individuals who were members of Senior Management or Dealers, executed an Acknowledgement, Agreement and Release which provided various releases and cross indemnifications in connection with the termination of the Dealer Management Group Merger Agreement. TBC CORPORATION. On September 26, 1995, Mr. Cloward spoke by telephone with Mr. Louis DiPasqua, the President and Chief Executive Officer of the Parent, who indicated to Mr. Cloward that the Parent might be interested in acquiring an interest in the Company. Later the same day, Messrs. Cloward and Adams telephoned Mr. DiPasqua and discussed the Parent's potential interest and indicated to Mr. DiPasqua that Messrs. Cloward and Adams would advise BOTDA if there were an interest. On September 28, 1995, Messrs. Cloward and Adams met with Mr. DiPasqua, Mr. Ronald E. McCollough and Mr. Bob M. Hubbard, representatives of the Parent, to discuss the Parent's interest in an acquisition of the Company. The representatives of the Parent indicated that the Parent did not intend to interfere with the merger pursuant to the Dealer Management Group Merger Agreement, but the Parent would move ahead simultaneously until its interest could be defined. The Parent's potential interest in the Company was not communicated to the Investment Committee. In October 1995, Messrs. Cloward and Adams advised Mr. DiPasqua that they would provide the Parent with the Company's public filings. On December 12, 1995, Mr. DiPasqua telephoned Mr. Cloward and indicated that the Parent's acquisition committee had met and approved moving forward, and reaffirmed the Parent's interest in ownership of the Company. Mr. DiPasqua reiterated that the Parent did not want to interfere with the merger pursuant to the Dealer Management Group Merger Agreement. On December 14, 1995, Messrs. Cloward, Adams, Stephenson, Scott E. Klossner, Michael E. Lyons, Philip J. Teigen and a representative of Gibson, Dunn & Crutcher met with Messrs. DiPasqua, McCollough, Hubbard and Stanley Freedman, a director of Parent and its General Counsel, in Memphis, Tennessee. The discussions centered around why the Parent was interested in acquiring the Company, what that meant for the Company's franchised dealers, and what impact it may have on pricing, supply and other issues pertaining to the Company's products. The representatives of the Parent indicated again that they did not want to interfere with the timing of the merger pursuant to the Dealer Management Group Agreement, but would rather pursue an approach that would permit the Parent to perform its own due diligence on the Company while the Dealer Management Group moved forward with the merger pursuant to the Dealer Management Group Merger Agreement. On December 16 and December 17, 1995, Mr. Cloward advised Messrs. Carney and Wernholm of the Parent's interest. On December 19, 1995, Mr. Siipola contacted Mr. DiPasqua to verify the Parent's interest and Mr. DiPasqua confirmed that the Parent desired to perform due diligence regarding the Company. Effective December 20, 1995, the Company, the companies formed by the Dealer Management Group and the Parent entered into an agreement whereby the Company, at the request of the companies formed by the Dealer Management Group, agreed to facilitate the Parent's investigation of the Company. The Company also agreed to indemnify the Parent against any claims, expenses and costs that the Parent may incur by reason of its investigation of the Company and agreed, without making the Parent whole for the Parent's costs and expenses of investigation, not to solicit or participate in any discussions with or provide any information to any person or group (other than the Dealer Management Group) regarding the acquisition of the Company until the earlier of the Parent's announcement that the Parent did not wish to acquire the Company or March 20, 1996. The Parent and the Company also agreed to hold in confidence nonpublic information received by each from the other. Thereafter, the Company provided information to the Parent and its advisors. On December 29, 1995, Messrs. Cloward and Adams met in Memphis, Tennessee with Messrs. DiPasqua, McCollough and Hubbard to further discuss both the Parent's and the Dealer Management Group's interest in acquiring the Company. On the same date, Messrs. Cloward, Adams, DiPasqua, McCollough and Hubbard had a telephone conversation with the BOTDA Board of Directors, after which the Dealer Management Group and the Parent moved ahead simultaneously. 25 In early January 1996, Messrs. Cloward and DiPasqua discussed a potential trip that would permit representatives of the Parent to meet with selected Dealers, visit selected Retail Stores, tour the Company's three warehouses, meet the rest of the Company's management group and gain a better understanding of the Company's franchise system. In January 1996, the Dealer Management Group agreed that the Company could discuss a potential acquisition with Parent. On January 22, 1996, the Company and the Parent issued a press release describing the Parent's potential interest in acquiring the Company. From January 22, 1996 through January 29, 1996, Messrs. Cloward and Staker and Messrs. DiPasqua and Hubbard toured certain of the Company's franchised Retail Stores and warehouses. On February 2, 1996, Messrs. Cloward and DiPasqua had a telephone conversation in which Mr. DiPasqua indicated that the Parent's acquisition committee had met again and, based upon due diligence conducted, had decided to continue its investigation. He also indicated that another set of meetings with Parent's personnel and advisors was scheduled for February 8 and February 9, 1996. Mr. DiPasqua asked Mr. Cloward to provide additional information regarding the Company that Mr. DiPasqua could present to the acquisition committee of the Parent. On February 15, 1996, the Board, including Messrs. Cloward and Adams, the Investment Committee, Mr. Teigen, and representatives of PaineWebber, Holme Roberts and Hopper and Kanouff met with representatives of the Parent. The Parent presented an offer to the Investment Committee to acquire the Company's outstanding stock and options for a combination of cash and stock. The package presented by the Parent consisted of $11.25 cash and .288 shares of the Parent's common stock valued by the Parent at $2.31 (assuming a market value of $8.00 per share of the Parent's stock) in exchange for each share of the Company's Common Stock. The Parent valued the total package at $13.56 per share prior to an acquisition by the Parent and $15.00 per share post-acquisition, based upon the assumption that the Parent's common stock would have an intrinsic value of at least $13.00 per share following an acquisition by the Parent of the Company. Following the presentation, the Investment Committee met to consider the offer. The Board and advisors reconvened and, based upon the recommendation of the Investment Committee, the Board, with Messrs. Cloward and Adams abstaining, rejected the offer. On February 26, 1996, the Investment Committee received a draft letter of intent from Parent setting forth the general terms of a proposed merger, including a price of $16.50 per share, subject to reductions, initially, for expenses in excess of $1,300,000. The Investment Committee met on February 28, 1996, with representatives of Holme Roberts and PaineWebber. The Investment Committee instructed Holme Roberts to negotiate certain terms of the letter of intent with respect to reimbursement of expenses if the transaction did not proceed and with respect to certain contingencies in the letter of intent. On March 6, 1996, the Board met with representatives of PaineWebber and Holme Roberts to discuss the status of the negotiations with Parent. They discussed the effect of a downward adjustment of the $16.50 per share price for expenses exceeding a specified amount and reviewed the status of transaction expenses with Company management. On March 8, 1996, members of the Investment Committee and Messrs. Siipola, Mehlfeldt and Cloward, with representatives of Holme Roberts, participated in a telephone conference with representatives of Parent and Parent's attorneys to request that the $1,300,000 limitation on expenses and a $300,000 severance agreement limitation proposed by Parent be changed to an aggregate limit for all such matters of $1,900,000, and that certain obligations to reimburse Parent if a definitive agreement were not signed be deleted. On March 11, 1996, Parent submitted to the Company a proposed letter of intent incorporating the requested changes. At the meeting on March 12, 1996, with representatives of PaineWebber and Holme Roberts, the Investment Committee reviewed the terms of the revised letter of intent with Parent and approved the transaction in concept subject to approval of the Dealer Management Group of a consent to the transaction and waiver of claims against the Company. At the meeting on March 13, 1996, the Investment Committee and the Board, after deciding to terminate the Dealer Management Group Merger Agreement, approved entering into the letter of intent with Parent, with four directors affiliated with the Dealer Management Group abstaining from voting. The Company and Parent executed the letter of intent on March 14, 1996 and March 13, 1996, respectively, with an effective date of March 13. 1996 26 On April 11, 1996, the Investment Committee met and reviewed with Holme Roberts the terms of a draft of the Merger Agreement. The Investment Committee requested that certain modifications be made with respect to the termination provisions of the agreement and considered whether to request an updated fairness opinion from PaineWebber in connection with the Merger Agreement. The Investment Committee had been advised that the cost of such an opinion might reduce the Merger Consideration, because estimated expenses might exceed the $1,900,000 maximum permitted amount. The Investment Committee discussed with Messrs. Adams, Cloward, Mehlfeldt and Siipola developments in the retail tire industry and the Company's financial performance since the date of the November 1995 Opinion of PaineWebber. They reported that the Company's performance had not exceeded expectations for the 1995 fiscal year. In the third and fourth quarter of 1995 the Company opened 10 new stores but closed seven existing stores and had not experienced the gain in franchise stores which was part of the Company's growth plan. They also advised that competitive pressures had increased during the past several months with retail price discounting continuing. The result was that the Company was experiencing difficulty in maintaining margins. The Big O brand, which has produced the Company's highest margins, experienced slower growth in 1995 than 1994. Additionally, management reported that the Company's 5-year financial plan had not been updated for six months, and if it were, it would be expected to result in a less favorable outlook for the future of the Company. The Investment Committee determined that, because the November 1995 Opinion was less than six months old and that because of circumstances with respect to the Company and the industry as a whole, it would not request a new fairness opinion. If the closing occurred after the reporting of the Company's results for the second quarter of 1996, the Investment Committee would reconsider whether it was appropriate to request an additional fairness opinion. The Investment Committee noted that, under the circumstances, the cost of the opinion would reduce the consideration payable to the Company's stockholders. On April 25, 1996, the Board met by telephone conference and reviewed a revised draft of the Merger Agreement with representatives of Holme Roberts. The Board approved the form of the Merger Agreement presented to the directors at the meeting based on the recommendation of the Investment Committee and taking into consideration the November 1995 Opinion of PaineWebber, subject to final approval by the Executive Committee. The Board also approved certain amendments to the Stockholders Rights Plan necessary to permit the signing of the Merger Agreement and consummation of the Merger. Certain members of the Board abstained from voting on the proposals based on the intention of Parent and certain directors to continue as employees of the Company following the consummation of the Merger and based on certain directors' existing relationships with current franchisees of the Company. All other directors voted to approve the Merger Agreement as indicated above. On April 30, 1996, the Executive Committee met by telephone conference with representatives of Holme Roberts and on May 1, 1996, members of the Investment Committee participated in telephone conferences with the Parent and its representatives to discuss final proposed language changes to the Merger Agreement. The Executive Committee approved a revised form of the Merger Agreement with such final language changes made on April 30, 1996, including a provision that Purchaser may terminate the Merger Agreement before the Effective Time if, among other things, the Company's expenses and certain other transaction costs incurred since September 30, 1995, less the amount by which the proposed aggregate Merger Consideration of $16.50 would be reduced as determined at least three days before the date of this Proxy Statement ("Specified Transaction Expenses") exceed $1,900,000. On May 2, 1996, the parties signed the Merger Agreement effective as of April 30, 1996. Prior to the execution of the Merger Agreement, the Company and Interwest Transfer Co., Inc. executed an amendment to the Stockholder Rights Plan effective as of April 30, 1996, to permit execution of the Merger Agreement. Subsequent to April 30, 1996, the Company submitted to Parent information with respect to the Specified Transaction Expenses incurred in connection with the Merger. Such expenses totaled approximately $106,024 in excess of the $1,900,000. Pursuant to the Merger Agreement, on June 3, 1996, the Merger Consideration was adjusted downward in the aggregate amount of $106,024 of such expenses and transaction costs to $16.47 per share. The Merger Consideration is not subject to any further adjustments and the Parent may terminate the Merger Agreement if Specified Transaction Expenses exceed $1,900,000. See "Description of the Merger Agreement." RECOMMENDATION OF THE BOARD OF DIRECTORS; THE COMPANY'S PURPOSE AND REASONS FOR AND BELIEF AS TO THE FAIRNESS OF THE MERGER RECOMMENDATION. The Investment Committee and the Board (excluding Messrs. Adams and Cloward, who will have employment agreements with the Company, and Messrs. Adams, Asher and Lallatin, who have interests in Retail Stores, all of whom considered the terms and structure of the Merger but abstained from voting) of the Company have considered the terms and structure of the Merger, have reviewed the financial and legal aspects of the Merger with financial and legal advisors, have considered the financial and operational considerations related to the Merger, believe that the Merger is fair to and in the best interest of the Company's stockholders and recommend that stockholders vote for the proposal to approve the Merger Agreement. Included in the directors who voted for the 27 recommendation were all of the directors who are not employees of the Company. Each member of the Board has advised the Company that he intends to vote his shares in favor of the adoption of the Merger Agreement at the Special Meeting of Stockholders. On the Record Date the directors and members of their families beneficially owned an aggregate of 109,170 outstanding shares (approximately 3.29% of the outstanding shares of the Common Stock) of Common Stock (not including approximately 164,459 shares underlying outstanding options). THE COMPANY'S PURPOSE AND REASONS FOR THE MERGER AND FOR THE TIMING OF THE MERGER. The Company's purpose and reason for the Merger are to allow all stockholders of the Company to sell their shares in the Company at a price that the Investment Committee and Board believe is fair to and in the best interests of the stockholders. After the Stockholder Proposal was approved in June 1994 the Company began immediately considering various alternatives to fulfill the mandate to take action directed toward enhancing stockholder value. The timing of the Merger has been determined by the time required to review various alternatives to enhance stockholder value for the Company, to solicit indications from persons who might be interested in acquiring the Company, to negotiate the terms of the Merger Agreement, for the Parent to obtain financing, and to obtain the requisite stockholder and other approvals. FAIRNESS. The Board and the Investment Committee began considering various alternatives in response to the Stockholder Proposal and after considering all of the factors described below, determined that the Merger was fair to and in the best interest of the Company's stockholders who would receive the Merger Consideration. MERGER PRICE. The Merger Consideration constitutes a 9.8% premium over the $15.00 last reported sale price of the Common Stock on April 24, 1996. The book value of the Company as of March 31, 1996, was approximately $11.53 per share. MARKET TEST. After extensive testing of the market to determine whether there were buyers for the Company, the Board and the Investment Committee determined that the Merger represents the best transaction that would be available for the Company in the foreseeable future. The Board and Investment Committee believe the market test was conducted fairly and thoroughly. The marketplace was aware that the Company would be receptive to offers for more than 10 months prior to the execution of the Dealer Management Group Merger Agreement, which provided for a $16.50 per share merger consideration, and the Company through PaineWebber contacted approximately 17 prospective purchasers of the Company. As of the date of this Proxy Statement, the Company has not received any additional proposals. OTHER TRANSACTIONS. The Investment Committee and the Board did not believe, based upon the July 1995 analysis of PaineWebber and its own determination of acceptable debt levels for the Company, that extraordinary dividends or share repurchases would enhance stockholder value. The Board considered the advice of PaineWebber with respect to various alternatives to enhance shareholder value and PaineWebber's related presentation on July 21, 1995. LIQUIDATION VALUE. The Investment Committee did not believe that the Company's stockholders would receive an amount per share exceeding the Merger Consideration if the Company were liquidated. The Investment Committee determined that liquidation would be less favorable to the Company's stockholders than the Merger Consideration because of taxes that would be payable at the Company level before distributions to stockholders could be paid and the fact that the Company's assets were not separately as valuable as the Company as a going concern. STATUS QUO. The Investment Committee considered continuing to operate the Company without any specific transaction and determined that a transaction for the Merger Consideration was advisable. The retail tire business is extremely competitive with relatively low margins. In addition, the Company depends upon continued strong purchases from Retail Stores that, subject to the limitations contained in their respective franchise agreements, are free to buy their retail inventory elsewhere. The uncertainty of future successful performance by the Company was considered to be outweighed by the assurance of the Merger Consideration price per share. FAIRNESS OPINION. On November 14, 1995, in connection with the Dealer Management Group Merger Agreement, PaineWebber delivered the November 1995 Opinion to the effect that, as of the date of such opinion, the payment of a cash price of $16.50 per share to the holders of the Common Stock was fair from a financial point of view. The Board and the Investment Committee considered the lapse of time between the delivery of the November 1995 Opinion and the date of the Board's and the Investment Committee's recommendation (which is made as of 28 the date of this Proxy Statement). Although the public trading price of the Common Stock has fluctuated during that period, the Board and the Investment Committee gave the November 1995 Opinion weight in determining to make their recommendation because they believed that there had not been any material favorable changes in the underlying business or assets of the Company or its prospects since the date of the November 1995 Opinion, and they were unaware of any trends in the retail tire industry as a whole which would indicate that the prospects for the Company were materially different from what they had been six months before. The Board and the Investment Committee were not aware of any reason why they could not continue to consider the November 1995 Opinion. Nevada Revised Statute 78.138(2) provides that in performing their duties, directors and officers are entitled to rely on information, opinions, reports or statements that are prepared or presented by counsel, public accountants or other persons as to matters reasonably believed to be within the presenter's professional competence. A director is not allowed to rely if such director has knowledge concerning the matter in question that would cause reliance thereon to be unwarranted. This statute is a codification of an element of the Nevada "business judgment rule" which insulates directors from liability for decisions in good faith and in accord with their duty of loyalty and duty of care. The Board and the Investment Committee have no knowledge that would lead them to believe their consideration of the November 1995 Opinion would be unwarranted. In the absence of such knowledge, the Board and the Investment Committee in good faith believed that decisions made on the basis of the November 1995 Opinion would be considered by Nevada courts within the scope of protection of the Nevada business judgment rule. The Board did not request PaineWebber to render a fairness opinion in connection with the Merger because of the cost involved. Moreover, the Board and the Investment Committee do not believe that the $0.03 per share difference between the initial amount of the Merger Consideration and the adjusted Merger Consideration is material to the fairness of the Merger Consideration. The Investment Committee and the Board of Directors have not assigned relative weights to the factors described above. OPINION OF FINANCIAL ADVISOR DELIVERED IN CONNECTION WITH DEALER MANAGEMENT GROUP MERGER AGREEMENT The full text of the opinion of PaineWebber dated November 14, 1995, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken, is attached as APPENDIX B to this Proxy Statement. PaineWebber has consented to the inclusion of the November 1995 Opinion in this Proxy Statement. Stockholders of the Company are urged to read such opinion carefully in its entirety. The summary of the PaineWebber opinion set forth in this Proxy Statement is qualified in its entirety by reference to the full text of the November 1995 Opinion. The Company retained PaineWebber as financial advisor to the Investment Committee with respect to the Dealer Management Group Merger Agreement and to render an opinion as to whether or not the payment of a cash price of $16.50 per share to the holders of Common Stock was fair, from a financial point of view, to such holders (other than members of the acquisition group and related parties). ALTHOUGH THE INVESTMENT COMMITTEE CONSIDERED THE PAINEWEBBER OPINION IN CONNECTION WITH ITS APPROVAL OF THE MERGER, SUCH OPINION RELATES TO A TRANSACTION PROPOSED IN NOVEMBER 1995 THAT WAS NOT CONSUMMATED AND DOES NOT RELATE TO THE MERGER. ACCORDINGLY, THE COMPANY DOES NOT MAKE ANY RECOMMENDATION WHETHER OR NOT STOCKHOLDERS SHOULD RELY ON SUCH OPINION AND SUGGESTS THAT EACH STOCKHOLDER REVIEW THE OPINION BEFORE MAKING ANY DETERMINATION WHETHER TO RELY ON SUCH OPINION. The Board and the Investment Committee believe that their consideration of the November 1995 Opinion is based on the depth of their familiarity with (i) the business of the Company, (ii) the retail tire industry, (iii) market conditions, (iv) the Company's prospects, and other similar factors, gained because of their close, continued association with the Company. Because of this familiarity, the Board and the Investment Committee believe that they are able to determine whether the November 1995 Opinion remains relevant based upon their observations since it was rendered. See "Fairness Opinion" above. Because the Company's stockholders to not have the same familiarity with the Company, the Board and the Investment Committee believe that the November 1995 Opinion provides stockholders with additional information which they may use in evaluating the merits of the proposed Merger. PAINEWEBBER HAS NOT BEEN REQUESTED TO, AND DID NOT ISSUE A FAIRNESS OPINION RELATING TO THE MERGER AND HAS NOT UPDATED THE REVIEW AND OTHER PROCEDURES FOLLOWED IN CONNECTION WITH THE RENDERING OF ITS NOVEMBER 1995 OPINION. THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE NOVEMBER 1995 OPINION ARE DIFFERENT, AND COULD BE MATERIALLY DIFFERENT, FROM THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW THAT WOULD HAVE BEEN UNDERTAKEN IF A FAIRNESS OPINION WERE TO BE RENDERED IN 29 CONNECTION WITH THE MERGER. FOR EXAMPLE: (A) THE STOCK TRADING HISTORIES CONSIDERED WOULD RELATE TO A DIFFERENT 52-WEEK PERIOD, (B) THE RELEVANT MULTIPLES, REVENUES, NET INCOME AND RELATED RESULTS USED IN THE SELECTED COMPARATIVE PUBLIC COMPANY ANALYSIS WOULD HAVE BEEN BASED ON RESULTS FROM DIFFERENT TIME PERIODS, (C) THE DISCOUNTED CASH FLOW ANALYSIS WOULD HAVE BEEN BASED ON AN UPDATED FINANCIAL FORECAST FOR THE COMPANY PROVIDED BY COMPANY MANAGEMENT, AND (D) THE PREMIUMS PAID ANALYSIS WOULD HAVE BEEN BASED UPON ADDITIONAL TRANSACTIONS, IF RELEVANT, THAT HAVE OCCURRED SUBSEQUENT TO NOVEMBER 1995. THERE CAN BE NO ASSURANCE THAT THE CONCLUSION OF THE NOVEMBER 1995 OPINION WOULD REMAIN THE SAME AFTER MAKING SUCH ASSUMPTIONS, FOLLOWING SUCH PROCEDURES, CONSIDERING SUCH MATTERS AND IMPOSING SUCH LIMITATIONS. PaineWebber has delivered to the Board its written opinion to the effect that, as of November 14, 1995, and based on its review and assumptions and subject to the limitations summarized below, that the payment of a cash price of $16.50 per share to the holders of Common Stock was fair from a financial point of view. PaineWebber's opinion does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote with respect to the Merger. PaineWebber did not, and was not requested by the Investment Committee to render a fairness opinion in connection with, or to make any recommendation as to the form or amount of consideration to be paid pursuant to, the Merger Agreement. In rendering the November 1995 Opinion, PaineWebber, among other things: (i) reviewed, among other public information, the Company's Annual Reports, Forms 10-K and related financial information for the five fiscal years ended December 31, 1994, and a draft of the Company's Form 10-Q and the related unaudited financial information for the nine months ended September 30, 1995; (ii) reviewed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets and prospects of the Company, furnished to PaineWebber by the Company; (iii) conducted discussions with members of senior management of the Company concerning the Company's businesses and prospects; (iv) reviewed the historical market prices and trading activity for the Common Stock and compared such price and trading history with that of certain other publicly traded companies which PaineWebber deemed relevant; (v) compared the financial position and operating results of the Company with those of certain other publicly traded companies which PaineWebber deemed relevant; (vi) reviewed the proposed financial terms of the Dealer Management Group Merger Agreement and compared such terms with the financial terms of certain other mergers and acquisitions which PaineWebber deemed relevant; (vii) reviewed the Dealer Management Group Merger Agreement and a draft of the proxy statement relating to the Dealer Management Group Merger Agreement as proposed to be filed with the Securities and Exchange Commission; and (viii) reviewed such other financial studies and analyses and performed such other investigations and took into account such other matters as PaineWebber deemed appropriate, including its assessment of general economic, market and monetary conditions. In preparing the November 1995 Opinion, PaineWebber relied on the accuracy and completeness of all information that was publicly available or supplied or otherwise communicated to it by or on behalf of the Company, and it did not independently verify such information. PaineWebber assumed that the financial forecasts examined by it were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of the Company as to the future performance or the Company. PaineWebber did not undertake, and was not provided with, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company and assumed that all material liabilities (contingent or otherwise, known or unknown) of the Company are as set forth in the Company's consolidated financial statements. PaineWebber, at the request of the Company, solicited third party indications of interest with respect to the acquisition of the Company. PaineWebber's opinion was based on the regulatory, economic, monetary and market conditions existing on the date thereof. PaineWebber's opinion was directed to the Board of Directors of the Company and does not constitute a recommendation to any stockholder of the Company as to how any such stockholder should vote with respect to the Merger. PaineWebber's opinion does not address the relative merits of any potential transactions or business strategies discussed by the Board of Directors of the Company or the Investment Committee as alternatives to the Merger or the decision of the Board of Directors of the Company to proceed with the Merger. PaineWebber assumed that there had been no material changes in the Company's assets, financial condition, results of operations, business or prospects since the date of the last financial statements made available to PaineWebber prior to the date of its opinion. PaineWebber assumed no responsibility to revise or update its opinion if there is a change in the financial condition or prospects of the Company from that disclosed or projected in the information PaineWebber reviewed as set forth above or in general economic or market conditions. 30 The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant quantitative methods of financial analyses and application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. Furthermore, in arriving at its fairness opinion, PaineWebber did not attribute any particular weight to any analysis or factor considered by it. Accordingly, PaineWebber believes that its analysis must be considered as a whole and that considering any portion of such analysis and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying its opinion. In its analyses, PaineWebber made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth therein, and neither the Company nor PaineWebber assumes any responsibility for their accuracy. In addition, analyses relating to the value of businesses do not purport to be appraisals or to reflect the price at which businesses may actually be sold. The following paragraphs summarize the significant analyses performed by PaineWebber in arriving at the opinion of PaineWebber, dated November 14, 1995, presented to the Board of Directors of the Company. STOCK TRADING HISTORY. PaineWebber reviewed the history of the trading prices and volume for the Common Stock, both separate and in relation to market indices and the comparative company index. The comparative company index comprised four companies which PaineWebber deemed relevant including Bandag Incorporated, Brad Ragan, Inc., Republic Automotive Parts, Inc. and the Parent (the "Comparative Companies"). SELECTED COMPARATIVE PUBLIC COMPANY ANALYSIS. Using publicly available information, PaineWebber compared selected historical and projected financial, operating and stock market performance data of the Company to the corresponding data of the Comparative Companies. With respect to the Company and the Comparative Companies, PaineWebber compared multiples of latest 12 months revenues, EBITDA, EBIT, net income, book value, estimated (by International Brokers Estimate System or "IBES") 1995 earnings per share ("EPS") and estimated (by IBES) 1996 EPS. PaineWebber noted that, based on closing stock prices as of November 9, 1994, the Company's revenue multiple was 0.45x versus a median revenue multiple of 0.46x for the Comparative Companies; the Company's EBITDA multiple was 6.4x versus a median EBITDA multiple of 6.5x of the Comparative Companies; the Company's EBIT multiple was 7.7x versus a median EBIT multiple of 8.0x for the Comparative Companies; the Company's net income multiple was 12.5x versus a median net income multiple of 11.5x for the Comparative Companies; the Company's book value multiple was 1.32x versus a median book value multiple of 1.51x for the Comparative Companies; the Company's 1995 EPS multiple was 11.9x versus a median 1995 EPS multiple of 10.2x for the Comparative Companies; and the Company's 1996 EPS multiple was 10.5x versus a median 1996 EPS multiple of 7.6x for the Comparative Companies. PaineWebber applied the multiples of revenues, EBITDA, EBIT, net income, book value, estimated 1995 EPS and estimated 1996 EPS calculated above to the respective results of the Company which resulted in a range of possible equity values for the Company based on the comparative company analysis of $11.87 to $16.32 per fully diluted share of Common Stock. PaineWebber then applied a control premium of 30%, based on the Retail Industry Transactions premium described in "Special Factors -- Opinion of Financial Advisor --Premiums Paid Analysis," to such valuation range to determine a range of possible equity values assuming a control premium. Based on this analysis, PaineWebber derived a range of possible equity values of $15.43 to $21.22 per fully diluted share of Common Stock. DISCOUNTED CASH FLOW ANALYSIS. A discounted cash flow analysis is a traditional valuation methodology used to derive a valuation of a corporate entity by capitalizing the estimated future earnings and calculating the estimated future free cash flows of such corporate entity and discounting such aggregated results back to the present. PaineWebber performed a discounted cash flow analysis of the Company based on the fiscal 1995 to 2000 financial forecast for the Company provided by the Company management (the "Financial Forecast"). Using the information set forth in the Financial Forecast, PaineWebber calculated the estimated "free cash flow" based on projected unleveraged net income adjusted for: (i) certain projected non-cash items (i.e., depreciation and amortization); (ii) projected capital expenditures; and (iii) projected non-cash working capital investment. 31 PaineWebber analyzed the Financial Forecast and discounted the stream of free cash flows provided in such projections back to December 31, 1995 using discount rates of 13.0% to 17.0%. To estimate the residual value of the Company at the end of the Financial Forecast period, PaineWebber applied terminal multiples of 6.0x to 7.0x to the projected fiscal 2000 EBITDA and discounted such value estimates back to December 31, 1995, using discount rates of 13.0% to 17.0%. Based on this analysis, PaineWebber derived a range of possible equity values of $14.95 to $20.32 per fully diluted share of Common Stock. PREMIUMS PAID ANALYSIS. Using publicly available information, PaineWebber calculated the premiums represented by the $16.50 per share cash price based on the Company's closing stock price one day, one week and four weeks prior to public announcement of : (i) the $18.50 per share offer from the Dealer Management Group on December 5, 1994 (the "$18.50 Management Offer"); (ii) the Balboa shareholder proposal on December 31, 1993 (the "Balboa Shareholder Proposal"); and (iii) Balboa's initial 13-D filed on February 17, 1993, in which Balboa stated that it had discussions with management regarding methods of increasing sales, cash flow and profitability, and that it intended to continue such discussions with the intention of assisting the Company in enhancing shareholder value (the "Balboa 13-D Filing"). PaineWebber determined that: (i) the premiums of the $16.50 per share cash price over the closing stock price one day, one week and four weeks prior to the $18.50 Management Offer (which was made after the October 1994 AKH offer of $18 per share) were 3.1%, 3.9% and a negative 0.8%, respectively; (ii) the premiums of the $16.50 per share cash price over the closing stock price one day, one week and four weeks prior to the Balboa Shareholder Proposal were 18.9%, 15.8% and 14.8%, respectively; and (iii) the premiums of the $16.50 per share cash price over the closing stock price one day, one week and four weeks prior to the Balboa 13-D Filing were 22.2%, 26.9% and 22.2%, respectively. PaineWebber noted that the premiums set forth in (i) above reflected the announcement of the $18.00 per share AKH offer and the premiums set forth in (ii) and (iii) above were based on stock prices that prevailed over 22 months prior to the date of its opinion. PaineWebber compared the premiums calculated above with the historical median premium paid in retail industry (as defined by Securities Data Corporation ("SDC")) transactions announced between January 1, 1990, and November 3, 1995 (the "Retail Industry Transactions"). PaineWebber determined, based on information obtained from SDC, that the median of the premium of offered price to closing stock price for the Retail Industry Transactions one day, one week and four weeks prior to announcement of such transactions was 25.7%, 28.7% and 33.7%, respectively. Pursuant to an engagement letter between the Company and PaineWebber, PaineWebber has been paid fees of $850,000 by the Company. PaineWebber is also being reimbursed for its related expenses. The Company has also agreed to indemnify PaineWebber, its affiliates and each of their respective directors, officers, agents and employees, and each person, if any, controlling PaineWebber or any of its affiliates, against certain liabilities, including liabilities under federal securities laws. PaineWebber has previously provided investment banking services to the Company and may provide financial advisory or other investment banking services to the Company in the future. In the normal course of its business, PaineWebber may from time to time trade the debt or equity securities of the Company for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities. 32 PaineWebber is a prominent investment banking and financial advisory firm with experience in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of securities, private placements and valuations for corporate purposes. The Company retained PaineWebber primarily because of the experience of the PaineWebber personnel in evaluating businesses and seeking candidates to acquire companies and because of the Investment Committee's perception of such persons' overall understanding of the Stockholder Proposal. A COPY OF THE PAINEWEBBER FAIRNESS OPINION IS INCLUDED HEREIN AS APPENDIX B. STOCKHOLDERS ARE URGED TO READ CAREFULLY THE PAINEWEBBER FAIRNESS OPINION IN ITS ENTIRETY. CERTAIN EFFECTS OF THE MERGER As a result of the Merger, the Company will become a wholly-owned subsidiary of the Parent. Current stockholders of the Company will no longer own any interest in the Company. Such stockholders will not share in any future earnings or growth of the Company. The Common Stock will no longer be traded on the NASDAQ National Market System or any other securities exchange or registered under the Exchange Act. The Company will no longer be subject to the reporting and other requirements of the Exchange Act. FEDERAL INCOME TAX CONSEQUENCES The discussion of federal tax consequences set forth below is directed primarily toward individual taxpayers who are citizens or residents of the United States. However, because of the complexities of federal, state and local income tax laws it is recommended that the Company's stockholders consult their own tax advisors concerning the federal, state and local tax consequences of the Merger. Persons who are trusts, tax-exempt entities, corporations subject to specialized income tax rules (for example, insurance companies) or non-United States citizens or residents are particularly cautioned to consult their tax advisors in considering the tax consequences of the Merger. GENERAL. The following is a summary of the material federal income tax consequences of the Merger to the Company and its stockholders. This summary is based upon the Internal Revenue Code of 1986, as amended (the "Code"), the rules and regulations promulgated thereunder, current administrative interpretations and court decisions. No assurance can be given that future legislation, regulations, administrative interpretations or court decisions will not significantly change these authorities, possibly with a retroactive effect. No rulings have been requested or received from the Internal Revenue Service (the "IRS") as to the matters discussed herein and there is no intent to seek any such ruling. Accordingly, no assurance can be given that the IRS will not challenge the tax treatment of certain matters discussed in this summary or, if it does challenge the tax treatment, that it will not be successful. FEDERAL INCOME TAX CONSEQUENCES TO THE PARENT, THE PURCHASER AND THE COMPANY. The merger of the Purchaser into the Company, with the Company surviving and with the Company's stockholders receiving solely cash in the transaction, constitutes a taxable reverse subsidiary merger which will be treated for federal income tax purposes as a direct purchase by the Parent of the Common Stock from the Company's stockholders in exchange for cash and as such the transitory existence of the Purchaser as the wholly-owned subsidiary will be disregarded for federal income tax purposes. Because the Parent will be treated as purchasing the Common Stock directly from the Company's stockholders, unless a Code Section 338 election is made to treat the purchase by the Parent of the Company's Common Stock as a purchase of the Company's assets resulting in a stepped up basis in the Company's assets, no gain or loss will be recognized by the Company as a result of the Merger. Further, no gain or loss will be recognized by Parent upon the receipt of the shares of the Company's Common Stock from the Company's stockholders in exchange for cash. The payment by the Parent of the Merger Consideration, which will be transferred by the Company to the Company's stockholders upon surrender by them of their shares of Common Stock, will be treated as a contribution by the Parent to the Company's capital and as such the Parent's tax basis in the Common Stock will equal the amount of such capital contribution. 33 FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY'S STOCKHOLDERS. Consistent with the analysis described in the preceding paragraph, a stockholder of the Company (other than a tax exempt trust or other tax exempt organization which owns shares of the Company's Common Stock) will recognize gain or loss as a result of the Merger, measured by the difference between such stockholder's amount realized and its basis in the Common Stock. For noncorporate stockholders of the Company who hold Common Stock as a capital asset, gain or loss recognized as a result of the Merger will be treated as a capital gain or loss, provided that the Company is not treated for federal income tax purposes as a "collapsible corporation." In the opinion of the Company's management, the Company is not a collapsible corporation for federal income tax purposes. Under the current provisions in effect as of the date hereof, net capital gains (i.e., the excess of net long-term capital gain for the taxable year over net short-term capital loss for such year) of an individual stockholder will be taxed at a maximum rate of 28% in contrast to items taxable as ordinary income which are subject to rates of up to 39.6%. In the case of a corporate stockholder, capital losses are allowed only to the extent of capital gains. In the case of a noncorporate stockholder, capital losses are allowed only to the extent of capital gains plus the lesser of (i) $3,000 ($1,500 in the case of a married individual filing a separate return) or (ii) the excess of losses over such gains. Generally, a corporation may carry its excess capital loss back three years or forward five years, subject to limitation in the Code. Generally, in the case of a noncorporate taxpayer, excess capital losses may be carried forward indefinitely and used each year, subject to the $3,000 limitation ($1,500 in the case of a married individual filing a separate return), until the loss is exhausted. ACCOUNTING TREATMENT OF THE MERGER The Merger will be treated, for financial statement purposes, as a sale by the Company's stockholders to the Parent for cash. Accordingly, no gain or loss will be recognized by the Company as a result of the Merger. The Merger will be accounted for by the Parent as a purchase. 34 REGULATORY APPROVALS The Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations thereunder (the "HSR Act"), provide that acquisition transactions such as the Merger may not be consummated unless certain information has been furnished to the Antitrust Division of the United States Department of Justice and the Federal Trade Commission and certain waiting period requirements have been satisfied. The Company and the Parent filed information and material with the Department of Justice and the Federal Trade Commission with respect to the Merger on May 3, 1996, and early termination of the applicable waiting period was granted on May 15, 1996. At any time before or after the consummation of the Merger, the Department of Justice, the Federal Trade Commission or some other person could seek to enjoin or rescind the Merger on antitrust grounds. There are no other federal or state regulatory requirements that must be complied with or remaining approvals that must be obtained in connection with the Merger other than the approval of the Company's stockholders as required by the Nevada Merger and Exchanges of Interest Law. 35 EXPENSES OF THE MERGER It is estimated by the Company that the expenses incurred by the Company in connection with the Merger will be approximately $3,600,000 in the aggregate. The aforementioned amount includes expenses incurred in connection with the previously proposed merger pursuant to the Dealer Management Group Merger Agreement. See "The Merger Agreement--Fees and Expenses." 36 PRINCIPAL STOCKHOLDERS OF THE COMPANY The following persons are the only persons known to the Company who, on May 17, 1996, owned beneficially more than 5% of the outstanding shares of the Company's Common Stock:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS - -------------------- -------------------- -------- Big O Tires, Inc. Employee Stock Ownership Plan ("ESOP") 11755 East Peakview Avenue Englewood, Colorado 80111 ......................... 496,185 14.95% Balboa Investment Group, L.P. a California limited partnership and Mr. Kenneth W. Pavia, Sr., the sole general partner of this partnership 1101 East Balboa Boulevard Newport Beach, California 92661-1313 .............. 309,500 9.33% Maurice D. Sabbah, et al. 262 East Moorehead Street P. O. Box 700 Burlington, North Carolina 27216 .................. 190,265(3) 5.73% - ------------------- (1) Of the 496,185 shares of Common Stock in the ESOP, approximately 459,711 shares of Common Stock have been allocated to participants' accounts and approximately 36,474 shares of Common Stock were not allocated to participants' accounts as of the Record Date, but are anticipated to be allocated prior to the Special Meeting. Pursuant to the provisions of the ESOP, each participant has the right to direct the ESOP Trustee as to how to vote the shares of Common Stock allocated to the participant's account. (2) In a Schedule 13D dated May 31, 1995, as amended, the Company was notified that these persons held these shares of Common Stock. (3) In a Schedule 13D dated December 6, 1993, the Company was notified that these persons held these shares of Common Stock. 37
SECURITY OWNERSHIP OF THE COMPANY'S MANAGEMENT The following table shows, as of May 17, 1996, the shares of the Company's outstanding Common Stock beneficially owned by each director and executive officer of the Company and the shares of the Company's outstanding Common Stock beneficially owned by all executive officers and directors of the Company as a group:
NAME OF AMOUNT AND NATURE OF PERCENT BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(10) OF CLASS(10) - ------------------ --------------------------- ----------- John B. Adams ..................... 55,109(2)(8)(9) 1.65% Ronald D. Asher ................... 16,520(3)(8) * Frank L. Carney ................... 1,780(8) * Steven P. Cloward ................. 122,578(4(8)(9) 3.64% Everett H. Johnston ............... 1,452(8) * Robert K. Lallatin ................ 369(5) * Horst K. Mehlfeldt ................ 4,522(8) * John E. Siipola ................... 5,193(8) * Ralph J. Weiger ................... 3,414(8) * C. Thomas Wernholm ................ 19,589(6) * Donald D. Flanders ................ -0- * Dennis J. Fryer ................... 11,855(7)(9) * Allen E. Jones .................... 17,016(7)(9) * Ronald H. Lautzenheiser ........... 23,762(7)(9) * Kelley A. O'Reilly ................ 6,183(7)(9) * Gregory L. Roquet ................. 16,378(7)(9) * Thomas L. Staker .................. 16,599(7)(9) * Philip J. Teigen .................. 13,445(7)(8)(9) * Bruce H. Ware ..................... 18,686(7)(8)(9) * All Current Directors and Executive Officers as a Group (19 persons) ............ 354,452(2)(3)(4) 10.17% (5)(6)(7)(8)(9) - ------------------- * Percent of shares of Common Stock beneficially owned by this director or officer does not exceed 1% of the Company's outstanding Common Stock. 38 (1) Unless otherwise indicated, the shares are held directly in the names of the beneficial owners and each person has sole voting and sole investment power with respect to the shares. (2) Includes 1,311 shares of Common Stock owned jointly by Mr. Adams and his wife, over which shares Mr. Adams may be deemed to have shared voting and investment power, and includes 18,073 shares of Common Stock that have been allocated or are expected to be allocated to Mr. Adams in the ESOP, over which shares Mr. Adams has sole voting power. (3) Includes beneficial ownership by R&A Asher, Inc., a California corporation ("R&A"), of 156 shares of Common Stock. Mr. Asher and his wife each own 50% of the issued and outstanding capital stock of R&A, and Mr. Asher may be deemed to have shared voting and investment power over the 156 shares. Includes 470 shares owned by a retirement trust in which Mr. Asher and his wife are co-trustees. (4) Includes 25,110 shares owned directly by Mr. Cloward's wife, over which shares Mr. Cloward may be deemed to have shared voting and investment power, and includes 39,159 shares that have been allocated or are expected to be allocated to Mr. Cloward in the ESOP, over which shares Mr. Cloward has sole voting power. (5) Includes 410 shares owned by B & G Tire, Inc. of which Mr. Lallatin is the President and 51% owner. (6) Includes 2,952 shares of Common Stock owned jointly by Mr. Wernholm and his wife and over which shares Mr. Wernholm may be deemed to have shared voting and investment power over such shares. (7) Includes the following shares of Common Stock that have been allocated or are expected to be allocated to the following executive officers who participate in the ESOP, over which shares these executive officers will have sole voting power: NAME NO. OF SHARES* -------- ------------- Dennis J. Fryer ........................ 7,628 Allen E. Jones ......................... 7,214 Ronald H. Lautzenheiser ................ 11,218 Kelley A. O'Reilly ..................... 4,118 Gregory L. Roquet ...................... 6,241 Thomas L. Staker ....................... 7,085 Philip J. Teigen ....................... 6,017 Bruce H. Ware .......................... 8,321 - ------------------- * The share numbers have been rounded up or down to the nearest whole share. 39 (8) Included in the above are shares of Common Stock underlying presently exercisable options granted under the Big O Tires, Inc. Director and Employee Stock Option Plan owned by the following directors and executive officers: NO. OF SHARES UNDERLYING PRESENTLY NAME EXERCISABLE OPTIONS ------------ ------------------- John B. Adams ..................... 4,922 Ronald D. Asher ................... 15,894 Frank L. Carney ................... 1,780 Steven P. Cloward ................. 12,284 Allen E. Jones .................... 906 Horst K. Mehlfeldt ................ 4,522 John E. Siipola ................... 4,193 Philip J. Teigen .................. 833 Bruce H. Ware ..................... 302 Ralph J. Weiger ................... 1,767 C. Thomas Wernholm ................ 16,637 - ------------------- (9) Included in the above share figures are shares of restricted Common Stock granted under the Big O Tires, Inc. Long Term Incentive Plan, over which shares the following directors and executive officers have sole voting power, and includes shares of Common Stock underlying presently exercisable options granted under the Long Term Incentive Plan: NAME NO. OF SHARES NO. OF OPTIONS - ---- ------------- -------------- John B. Adams .......................... 7,552 23,251 Steven P. Cloward ...................... 11,370 34,655 Dennis J. Fryer ........................ 1,716 2,496 Everett H. Johnston .................... -0- 1,452 Allen E. Jones ......................... 1,716 7,180 Ronald H. Lautzenheiser ................ 3,495 9,049 Kelley A. O'Reilly ..................... 2,065 0 Gregory L. Roquet ...................... 1,907 8,230 Thomas L. Staker ....................... 4,479 5,035 Philip J. Teigen ....................... 1,634 4,961 Bruce H. Ware .......................... 1,764 7,899 - ------------------- 40 (10) The beneficial ownership and percentages for each person and the group have been reported and calculated as if the presently exercisable options owned by each person or the group referred to in the preceding footnotes had been exercised.
PRICE RANGE OF COMPANY COMMON STOCK AND DIVIDEND HISTORY The shares of Common Stock are traded on the NASDAQ National Market System under the symbol "BIGO." The following table sets forth the high and low prices, as reported by the NASDAQ National Market System, for each quarter commencing January 1, 1993. These quotations have been rounded to the nearest eighth, reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Stockholders are urged to obtain current quotations.
HIGH LOW ---- ----- 1993 First Quarter ........................... 14 1/4 11 1/8 Second Quarter .......................... 16 3/8 10 7/8 Third Quarter ........................... 17 1/4 13 1/4 Fourth Quarter .......................... 16 1/2 13 1/2 1994 First Quarter ........................... 16 3/4 12 3/4 Second Quarter .......................... 16 3/4 13 1/8 Third Quarter ........................... 16 3/4 14 1/2 Fourth Quarter .......................... 17 7/8 15 1/4 1995 First Quarter ........................... 16 1/4 12 7/8 Second Quarter .......................... 15 1/4 12 1/2 Third Quarter ........................... 15 1/4 12 3/4 Fourth Quarter .......................... 15 1/8 12 1996 First Quarter ........................... 15 1/4 12 1/2 Second Quarter (through June 5, 1996) ... 16 1/8 14 1/4
On May 31, 1995, June 6, 1995, March 13 1996 and May 2, 1996, the last days the Common Stock traded prior to the public announcements that (i) the Company had received a merger proposal at $16.50 per share of Common Stock from the Dealer Management Group, (ii) the Investment Committee approved in principle the $16.50 per share merger proposal from the Dealer Management Group, (iii) the Company entered into a letter of intent with the Parent for the Merger and (iv) the Company entered into the Merger Agreement providing for the Merger of Purchaser into the Company at a consideration of $16.50 per share of Common Stock, subject to downward adjustment for certain expenses of the Merger, the closing sale prices of the shares of Common Stock (as reported on the NASDAQ National Market System) were $13.75, $14.25, $13.81 and $15.25 respectively. The closing sale price of the shares of Common Stock (as reported on the NASDAQ National Market System) was $15.625 on June 5, 1996. 41 The Company has never paid any cash dividends on its shares of Common Stock. Currently, the Company is subject to various covenants and restrictions under loan agreements with First Chicago, AT&T Capital Corporation, The Kelly-Springfield Tire Company ("Kelly") and other lenders and holders of long term notes issued by the Company. These restrictions limit or prohibit the Company from, among other things, paying cash dividends on its capital stock. One or more of these loan or credit facilities will be refinanced or restructured in connection with the financing of the Merger, but it is unknown whether the restrictions on payment of dividends will be modified. See "Special Factors -- Financing of the Merger." SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY The following table sets forth consolidated financial data for, and as of the end of, each of the three (3) month periods ended March 31, 1996, and 1995, and for, and as of the end of, each of the years in the five-year period ended December 31, 1995, and are derived from the consolidated financial statements of the Company and its subsidiaries. The consolidated financial statements of the Company as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1995, which accompanies this Proxy Statement, have been audited by Deloitte & Touche LLP, independent auditors, as set forth in their report thereon appearing therein. The Company does not expect Deloitte & Touche LLP to be present at the Special Meeting. 42
THREE MONTHS ENDED MARCH 31 YEAR ENDED DECEMBER 31, -------------------- ------------------------------------------------------------ 1996 1995 1995 1994 1993 1992 1991 (in thousands except share information) STATEMENT OF OPERATIONS DATA: Operating revenues, net .............................. $ 33,171 $ 29,153 $ 142,122 $ 127,678 $ 122,960 $ 119,799 $ 113,836 Income before income taxes and cumulative effect of change in accounting principle ........................ 1,105 498 2,724 4,641 3,280 4,766 3,139 Provision for income tax .............................. 465 209 1,181 1,950 1,400 1,983 1,388 Income before cumulative effect of change in accounting principle ........................ 640 289 1,543 2,691 1,880 2,783 1,751 Cumulative effect of change in accounting principle .............. -- -- -- -- 285 -- -- Net income ........................ 640 289 1,543 2,691 1,595 2,783 1,751 PER SHARE DATA(1): Income before cumulative effect of change in accounting principle ............. $ .19 $ .09 $ .46 $ .80 $ .55 $ .80 $ .50 Net income ........................ $ .19 $ .09 $ .46 $ .80 $ .47 $ .80 $ .50 Weighted average shares outstanding (1) ........... 3,368,111 3,381,330 3,377,429 3,347,892 3,409,962 3,497,044 3,506,024 43 AS OF MARCH 31, AS OF DECEMBER 31, ---------------- --------------------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 (in thousands, except per share amounts) BALANCE SHEET DATA: Current assets(2) ................. $ 35,337 $ 33,153 $ 32,639 $ 35,887(3)$ 24,136 $ 29,494 $ 29,684 Total assets(2) ................... 66,262 70,735 63,394 61,968 56,607 57,679 57,111 Current liabilities(2) ............ 14,078 11,148 10,598 9,051 12,251 12,161 9,023 Long-term debt and capital lease obliga- tions, net of current portion ........................... 12,593 22,144 13,860 15,906 11,037 9,359 14,648 ESOP obligations .................. 0 180 192 449 975 1,277 1,656 Other long-term liabilities ....................... 1,321 1,428 1,337 1,433 856 692 852 Stockholders' equity .............. 38,269 35,835 37,407 35,129 31,488 34,190 30,932 - ------------------ (1) Adjusted to reflect the 1-for-5 reverse split of the Company's Common Stock that was effective June 15, 1992. (2) Amounts for years prior to 1992 have been restated to reflect the reclassification of vendor receivables to accounts payable. (3) Amount for 1994 has been restated to reflect the reclassification of Retail Stores under development. The per share book values of the Common Stock on March 31, 1996, March 31, 1995, December 31, 1995, and December 31, 1994, were $11.53, $10.82, $11.27 and $10.62, respectively.
THE MERGER AGREEMENT PARTIES TO THE MERGER AGREEMENT BIG O TIRES, INC., a Nevada corporation (the "Company"), is engaged primarily in the business of franchising Retail Stores and supplying Retail Stores with tires and related automotive products for sale. The Company also owns and operates Retail Stores and, on a limited basis, engages in site selection and real estate development for Retail Stores. The mailing address of the Company's principal executive offices and corporate headquarters is 11755 East Peakview Avenue, Suite A, Englewood, Colorado 80111 and its telephone number is (303) 790-2800. 44 TBC CORPORATION, a Delaware corporation (the "Parent"), is an independent marketer and distributor of tires and other automotive aftermarket products. See "Information Pertaining to the Parent and the Purchaser." The mailing address of the principal executive offices of both the Parent and the Purchaser is 4770 Hickory Hill Road, P. O. Box 18342, Memphis, Tennessee 38181-0342, and their telephone number is (901) 363-8030. TBCO ACQUISITION, INC., a Nevada corporation (the "Purchaser"), has been organized as a wholly-owned subsidiary of the Parent for the purpose of effecting the Merger and has engaged in no other business activities other than those related to the acquisition of the Company. See "Information Pertaining to the Parent and the Purchaser." DESCRIPTION OF THE MERGER AGREEMENT THE FOLLOWING IS A SUMMARY OF THE MERGER AGREEMENT, THE FULL TEXT OF WHICH (WITHOUT THE EXHIBITS THERETO) IS INCLUDED HEREIN AS APPENDIX A. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT. STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY FOR A MORE COMPLETE DESCRIPTION OF THE MERGER. THE FOLLOWING DESCRIPTION ALSO CONTAINS OTHER INFORMATION ABOUT THE MERGER. TERMS OF THE MERGER. Pursuant to the Merger Agreement, the Purchaser will merge into and with the Company, with the Company continuing as the surviving corporation. The Merger will occur immediately upon the filing of the Articles of Merger with the Secretary of State of the State of Nevada (the date and time of such filing referred to herein as "Effective Time"). The name of the Company will remain "Big O Tires, Inc." At the Effective Time, the Articles of Incorporation and Bylaws of the Purchaser as in effect immediately prior to the Effective Time until thereafter amended, will be the Articles of Incorporation and Bylaws of the Company. The officers and directors of the Purchaser immediately prior to the Effective Time will be the initial officers and directors of the Company until their successors are elected and qualified, as the case may be. At the Effective Time, all issued and outstanding shares of Common Stock owned by the stockholders of the Company, other than treasury shares, will be canceled and extinguished, and will be converted into the right to receive the Merger Consideration. Payments of cash to stockholders of the Company will be made promptly after the Effective Time upon surrender by holders of their certificates, together with the appropriate transmittal form, to the Exchange Agent referred to below. See "The Merger Agreement -- Exchange of Certificates." Any treasury shares will be cancelled. In the Merger, each share of $.01 par value common stock of the Purchaser which is issued and outstanding immediately prior to the Effective Time will be converted into and become one share of Common Stock of the Surviving Corporation. As a result of the Merger, the separate corporate existence of the Purchaser will cease and the Company will continue to operate as a wholly-owned subsidiary of the Parent. All properties and assets of every kind held by the Company and the Purchaser at the Effective Time will become property and assets of the Company, and the Company will continue to be liable for all of its obligations, debts and other liabilities, as well as those, if any, of the Purchaser. 45 The Company expects the Effective Time to occur on July 10, 1996. The Effective Time cannot occur until all conditions to the Merger have been satisfied or waived. See "The Merger Agreement -- Conditions to the Merger." The Merger Agreement provides for the exercise of appraisal or other rights as may be available under Nevada law. However, no appraisal rights or right to dissent are available for the Merger under Nevada law. See "The Special Meeting - -- Absence of Appraisal Rights and Right to Dissent." Consequently, if the Merger is consummated, holders of all shares of Common Stock will be required to accept the Merger Consideration. STOCK OPTIONS AND SARS. The Company is required by the Merger Agreement to cancel immediately prior to the Effective Time each option to purchase shares of Common Stock (collectively, the "Options") which have been granted under any Company stock or compensation plan or arrangements. Each holder of an Option will be entitled to receive, in lieu of each share which such holder otherwise would have received upon exercise of the Option, cash equal to the amount (if any) by which $16.47 exceeds the exercise price per share payable pursuant to such Option ("Option Settlement Amount") provided that the Company is required to cancel for a lesser amount any Option issued under a plan which allows the Option to be canceled for less than the Option Settlement Amount. Taxes and other required withholdings will be deducted from the cash payments. The Company is not permitted to grant any additional Options. On or before the Effective Time, the Company will cause all of its stock option plans to be terminated. Under the Merger Agreement, prior to the Effective Time, the Company is required to cancel and settle all agreements providing for stock appreciation rights. See "Interest of Certain Persons in the Merger." CONDITIONS TO THE MERGER. The obligations of the Parent, the Purchaser and the Company to effect the Merger are conditioned on, among other things (i) the Merger Agreement receiving the requisite approval of the Company's stockholders (see "The Special Meeting -- Vote Required to Approve the Merger"); (ii) there being no preliminary or permanent injunction or other order, decree, ruling or law or regulation or pending proceeding which would prevent the consummation of the Merger or seek damages with respect thereto; and (iii) receipt of all material consents or authorizations from governmental authorities or parties to contracts. The obligations of the Company to effect the Merger additionally are conditioned on (i) the performance in all material respects by the Parent and the Purchaser of the obligations to be performed by them at or prior to the Effective Time; and (ii) the truth and correctness in all material respects of the representations and warranties of the Parent and the Purchaser contained in the Merger Agreement. The obligations of the Parent and the Purchaser to effect the Merger additionally are conditioned on (i) the performance in all material respects by the Company of the obligations to be performed by it under the Merger Agreement; (ii) the truth and correctness in all material respects of the representations and warranties of the Company contained in the Merger Agreement; (iii) the 46 Parent and Purchaser having received, on terms satisfactory to them, financing sufficient to consummate the Merger and to replace certain of the indebtedness of the Company; (iv) cancellation and settlement of all Options and stock appreciation rights; (v) redemption of the Rights; (vi) execution of employment agreements between the Company and Messrs. Cloward, Adams and Staker; (vii) receipt of an opinion of counsel to the Company with respect to certain matters relating to the Company and the Merger; (viii) receipt of a letter from Deloitte & Touche LLP, the Company's independent public accountants, with respect to the interim financial statements of the Company; (ix) receipt of evidence of payment by the Company of all expenses incurred in connection with the Stockholder Proposal since 1992, the transactions contemplated by the Dealer Management Group Merger Agreement, and the transactions contemplated by the Merger Agreement; and (x) compliance with applicable Nevada law. The terms of the Merger Agreement may be modified or waived, subject to certain restrictions. See "The Merger Agreement -- Modification and Waiver" and "Special Factors -- Background and Negotiations Regarding the Merger." REPRESENTATIONS AND WARRANTIES. The Company, the Parent and the Purchaser have made certain representations and warranties to each other in the Merger Agreement, including, among other things, representations and warranties relating to their respective organizations, qualifications and capitalizations, authorizations to enter into the Merger Agreement, that the Merger and Merger Agreement do not conflict or fail to comply with certain other agreements, instruments, the consents and approvals that must be obtained in connection with the Merger, their organizational documents, and the absence of brokers or finders. The Company has made certain additional representations and warranties (which representations and warranties are subject, in certain cases, to specified exceptions), including representations and warranties as to the following: (a) the accuracy of the Company's filings with the United States Securities and Exchange Commission and the financial statements of the Company; (b) the absence of any material adverse change to the Company before the Effective Time; (c) the absence of undisclosed material liabilities or litigation; (d) fairness of the transaction to stockholders; (e) the existence and status of material contracts, proprietary rights, properties and environmental matters, (f) existence and status of employee benefit plans; and (g) the payment of taxes. CONDUCT OF BUSINESS PENDING MERGER. In the Merger Agreement, the Company covenants and agrees that, prior to the Effective Time, unless the Parent and the Purchaser otherwise agree in writing, or except as disclosed in the Disclosure Certificate to the Merger Agreement or as otherwise expressly contemplated by the Merger Agreement, neither the Company nor any of its subsidiaries or joint ventures will take any action except in the ordinary course of business and consistent with past practices, and the Company will use its best efforts to maintain and preserve its business organization, assets, prospects, employees and advantageous business relationships. 47 The Company has also agreed that, unless the Parent and the Purchaser otherwise agree in writing, neither the Company nor any of its subsidiaries or joint ventures will, directly or indirectly, do any of the following: (i) incur any expenses in contemplation of a reorganization or restructuring of the Company; (ii) amend its Articles of Incorporation or Bylaws or similar organizational documents; (iii) split, combine or reclassify any shares of its capital stock or declare, set aside or pay any dividend or make any distribution, payable in cash, stock, property or otherwise with respect to its capital stock; (iv) transfer the stock or any assets or liabilities of any subsidiary or joint venture, except in the ordinary course of business and consistent with past practice; (v) adopt a plan of liquidation or resolutions providing for the liquidation, dissolution, merger, consolidation or other reorganization of the Company except the Merger; or (vi) authorize or propose any of the foregoing, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing. In addition, the Company has agreed that, unless the Parent and the Purchaser otherwise agree in writing, neither the Company nor any of its subsidiaries or joint ventures will, directly or indirectly: (i) issue, sell, pledge, encumber or dispose of, or authorize, propose or agree to the issuance, sale, pledge, encumbrance or disposition of its capital stock or any other equity securities, or any options, warrants or rights of any kind to acquire any shares of, or any securities convertible into or exchangeable for any shares of, its capital stock or any other equity securities, or any other securities in respect of, in lieu of, or in substitution for shares of Common Stock outstanding on the date of the Merger Agreement except for shares of Common Stock issuable upon exercise of Options outstanding on that date and which by their terms are or become exercisable at or prior to the Effective Time; (ii) acquire (by merger, consolidation or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or make any material investment either by purchase of stock or securities, contributions to capital, property transfer or purchase of any material amount of property or assets, in any other individual or entity; (iii) other than or pursuant to existing lending arrangements, incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee, endorse (other than to a Company account) or otherwise as an accommodation become responsible for, the obligations of any other individual or entity, or make any loans or advances; (iv) release or relinquish any material contract right; (v) settle or compromise any pending or threatened suit, action or claim by or against the Company involving a payment by the Company exceeding $25,000; (vi) take any action involving possible expenditures, contingent liabilities or the acquisition or disposition of assets other than the purchase or sale of inventory in the ordinary course of business, in each case in excess of $25,000; or (vii) authorize or propose any of the foregoing, or enter into or modify any contract, agreement, commitment or arrangement to do any of the foregoing. 48 The Company has also agreed that the Company and its subsidiaries and joint ventures will use their best efforts to keep in place their current insurance policies, including but not limited to director and officer liability insurance, which are material (either individually or in the aggregate), and notwithstanding such efforts, if any such policy is canceled, the Company will use its best efforts to replace such policy or policies. The Company has agreed that the Company, each subsidiary of the Company and their respective directors, officers, and authorized agents will not, and will not authorize or direct any other person to, directly or indirectly, (i) participate in discussions or negotiations with or provide any confidential information regarding the Company to any person for the purpose of soliciting, encouraging, or enabling any corporation, partnership, person, entity or "group" (as that term is used in Section 13(d)(3) of the Exchange Act), including the Company or any of its subsidiaries but excluding the Parent, the Purchaser or any of their affiliates and excluding any group of which the Parent, the Purchaser or any of their affiliates is a member ("Another Person"), to propose an acquisition of any of the capital stock of the Company (other than pursuant to the outstanding Options) or all or any substantial portion of the assets or business of the Company (collectively, "Acquisition Proposal"), or (ii) solicit from, encourage, negotiate with, or accept from Another Person an Acquisition Proposal. Notwithstanding the foregoing, if the Board of Directors of the Company, in the exercise of its fiduciary duties, makes a good faith determination that the Board of Directors' failure to permit the Company to take any such action would constitute a breach of its fiduciary duties (based as to the legal issues involved on the written opinion of legal counsel), the Company shall so advise the Parent and the Purchaser and, thereafter, the taking of any such action shall not be a violation of the above prohibition. The Purchaser and the Company have each agreed to take all such reasonable and lawful action as may be necessary or appropriate in order to effectuate the Merger as promptly as possible. ADDITIONAL AGREEMENTS. In the Merger Agreement, the Company, the Purchaser and the Parent have agreed to certain other matters, including the preparation of all documents required to be submitted under federal and state law to stockholders and federal or state agencies; to submit the proposed Merger to a vote of the stockholders of the Company, subject to the right of the Investment Committee and the Board of Directors to withdraw their recommendations based on the written advice of legal counsel or in accordance with the exercise of their fiduciary responsibilities; the cancellation of all outstanding Options as well as termination of all plans pursuant to which such Options are granted or issued; the payment of certain fees as set forth below and to provide indemnification to certain directors and officers of the Company and any of its subsidiaries. See "Directors and Executive Officers of the Company." FEES AND EXPENSES. All costs and expenses, except as described below, incurred in connection with the Merger are to be paid by the party incurring such expenses. 49 If the Merger Agreement is terminated (A) by the Parent and the Purchaser because of a breach of the Company's representations or warranties, because certain conditions to the obligations of the Parent, the Purchaser and the Company to consummate the Merger are not satisfied solely because the Company has failed to fulfill the Company's obligations under the Merger Agreement, because the Company provides confidential information to a third party who may be interested in acquiring the Company, the Company announces its intention to enter into another acquisition transaction, or another acquisition transaction is commenced, or because the Specified Transaction Expenses exceed $1,900,000 or (B) by the Company if the Board of Directors withdraws its recommendation to the Company's stockholders to approve the Merger or changes its recommendation in a manner adverse to Parent and Purchaser, and by April 30, 1997, (i) Another Person shall have acquired or agreed to acquire all or a substantial portion of the assets of the Company or consummated or agreed to consummate a merger or consolidation with, or other acquisition of, the Company, (ii) Another Person shall have acquired or agreed to acquire beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of 35% or more of the shares of Common Stock then outstanding, or (iii) a "change in control" of the Company involving Another Person within the meaning of Item 1 of Form 8-K under the Securities Exchange Act of 1934 shall have occurred, the Company must, within five (5) business days after consummation of any transaction referred to in clauses (i), (ii) or (iii) above, pay to the Parent and Purchaser (by transfer of same-day funds to an account designated by the Parent for such purpose) an amount equal to (i) $1,000,000, less (ii) any funds paid by the Company to the Purchaser pursuant to the provisions described in the following paragraph; provided such amount shall be payable by the Company with respect to any such transaction referred to in clauses (i), (ii) and (iii) above only if (a) the transaction provides for the Company or the holders of any shares of Common Stock being purchased in such transaction to receive consideration per share having an indicated value equal to or in excess of $16.47 per share, or (b) the amount of consideration received in such transaction is not readily determinable on a per share basis and the Investment Committee or another committee of disinterested members of the Board of Directors of the Company fails to make a good faith determination that, to the stockholders of the Company from a financial point of view, such transaction is not comparable to or more favorable than the Merger. Also, with certain exceptions, if the Merger Agreement is terminated under any of the circumstances described in (A) or (B) of the preceding paragraph, the Company will, within five (5) business days after notice by the Purchaser to the Company, reimburse the Parent and the Purchaser for all reasonable out-of-pocket costs and expenses (including, without limitation, reasonable commitment fees, reasonable termination fees, reasonable attorney fees and expenses incurred by potential lenders which the Parent and the Purchaser are obligated to reimburse, 50 and other fees and expenses incurred in connection with arranging financing for the Merger, legal fees and expenses, appraisal fees, fees and expenses of financial advisors and fees and expenses for accountants) incurred by the Purchaser or the Parent, or on their behalf in connection with the preparation or negotiation of the Merger Agreement or the transactions contemplated thereby or otherwise incurred in contemplation of the Merger Agreement, provided that the Company is not obligated to pay under this paragraph any additional amounts under this paragraph if the Parent and the Purchaser have been paid by the amount provided under the above paragraph. The Company has the right to review all expense receipts (other than receipts which contain privileged or confidential information). MODIFICATION AND WAIVER. The Merger Agreement may be amended by action of the Boards of Directors of the Company (including the Investment Committee), the Purchaser and the Parent, set forth in an instrument in writing signed on behalf of the Company, the Parent and the Purchaser, or the time for performance of any obligation or act or compliance with any agreement or condition may be extended or waived by a party, provided that no amendment which would materially adversely affect the stockholders of the Company may be made without further approval of the stockholders after approval of the Merger by the stockholders has been obtained. TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be terminated at any time prior to the Effective Time, notwithstanding approval of the Merger by the stockholders of the Company, by mutual written consent of the Boards of Directors of the Parent, the Purchaser and the Company (including the Investment Committee in the case of the Company). The Company or the Purchaser may terminate the Merger Agreement if the Effective Time has not occurred by July 31, 1996, provided that the right to terminate is not available to a party whose failure to fulfill any obligation under the Merger Agreement has caused or resulted in the failure of the Effective Time to occur. The Company may terminate the Merger Agreement for failure by the Parent or the Purchaser to perform in any material respect any of its obligations under the Merger Agreement, if the representations and warranties of the Parent and the Purchaser set forth in the Merger Agreement are not true and correct in all material respects prior to the Effective Time, if the Company's Board of Directors, in the exercise of its fiduciary duty under the circumstances described above, withdraws its recommendation to the stockholders of the Company to adopt and approve the Merger or changes such recommendation in any manner adverse to Parent and Purchaser, or if the Parent and the Purchaser shall not have deposited the Merger Consideration with the Exchange Agent (as described below) on the closing date of the Merger. The Purchaser may terminate the Merger Agreement if the Company takes any action regarding an Acquisition Proposal as described above, regardless of whether the taking of such action is permitted in the exercise of the fiduciary duties of the Company's Board of Directors; if there occurs, or the Company enters into or publicly announces its intention to enter into an agreement with Another Person to cause to occur, a transaction of the type described in clauses (i), (ii) or (iii) in the second paragraph under "Fees and Expenses" described above, or Another Person shall have commenced or 51 publicly announced an intention to commence a tender or exchange offer for the Company's Common Stock; if the Company fails to perform in any material respects its obligations under the Merger Agreement or the representations and warranties of the Company set forth in the Merger Agreement are not true and correct in all material respects prior to the Effective Time; or if the Specified Transaction Expenses exceed $1,900,000. Although the Company does not expect such expenses to exceed $1,900,000, there can be no assurance thereof. If the Merger Agreement is terminated it will become void and have no effect except with respect to obligations of the parties to maintain confidentiality of information and with respect to payment of certain fees and expenses. See "The Merger Agreement -- Fees and Expenses." However, a party will remain liable for willful default of its obligations under the Merger Agreement. EXCHANGE OF CERTIFICATES. Promptly after the Effective Time, the First National Bank of Boston, (the "Exchange Agent" as defined in the Merger Agreement), will mail to each record holder of certificates representing shares of Common Stock ("Certificates") that were converted into the right to receive cash, a letter of transmittal advising the holders of the procedure for surrendering Certificates for payment of the Merger Consideration. Until surrendered with the letter of transmittal duly executed and completed, the Certificates will represent only the right to receive the amount of Merger Consideration, without interest, applicable to those shares represented by the Certificates. If payment of the Merger Consideration is to be made to a person other than the person in whose name the Certificate surrendered for payment is registered, that person will be responsible for paying, or establishing the payment or non-applicability of any transfer or other taxes required. After 180 days following the Effective Date, a holder of Certificates may surrender the Certificates for payment of the Merger Consideration only to the Company, but will have no greater rights to payment than a general unsecured creditor of the Company. After the Effective Time, no transfers of Common Stock on the transfer books of the Company will be made. Certificates presented after the Effective Time will be canceled and exchanged only for the applicable Merger Consideration. From and after the Effective Time, holders of Certificates will cease to have any other rights with respect to the Common Stock, including rights to dividends or voting rights. Upon surrender and exchange of a Certificate, the holder will be paid, without interest, the applicable Merger Consideration, less any amounts required to be withheld under applicable federal income tax backup withholding regulations. A holder who is a United States citizen and resident (other than a corporation) may be able to avoid backup withholding by providing the Exchange Agent with a correct taxpayer identification number in accordance with instructions in the letter of transmittal. Certificates should not be surrendered until the letter of transmittal is received. As permitted by applicable Nevada law, no interest will accrue or be paid on the Merger Consideration upon surrender of the Certificates. The Company expects that the Merger Consideration will be paid to a stockholder as promptly as possible following receipt by the Company of the stockholder's Certificate and letter of transmittal duly executed and completed. 52 INTEREST OF CERTAIN PERSONS IN THE MERGER The Company entered into Stock Appreciation Rights Agreements (the "SAR Agreements") with John E. Siipola, Horst K. Mehlfeldt and Steven P. Cloward, all of whom are officers and directors of the Company, effective February 15, 1995. Each SAR Agreement grants each person 100,000 share equivalent units. Each unit entitles each person to receive, in cash only, the difference between $13.875 per share and the market value of a share of common stock on the exercise date. Each individual's right to exercise 16,662 of the units vested on August 16, 1995, and vest at a rate of 2,777 units on the 16th day of each month thereafter until the 16th day of January, 1998, at which time the 2,805 unvested units vest. Such vesting shall occur only if the person is in the full-time employ of the Company or any subsidiary of the Company on each vesting date. On April 11, 1996, the Board of the Company agreed that if the Merger is consummated, Messrs. Siipola and Mehlfeldt will resign their positions with the Company and will receive lump sum payments of $208,613 and $186,654, respectively, rather than fifteen (15) months of severance pay in accordance with the Company's previously adopted Executive Management Severance Pay Policy. In addition, the Board of Directors of the Company agreed that the Company would repurchase the 66,648 units under each of the SAR Agreements of Messrs. Siipola and Mehlfeldt for a total amount of $174,951 each and that the Company would continue to provide medical and dental insurance benefits to Messrs. Siipola and Mehlfeldt and their eligible dependents for fifteen (15) months after the Effective Time or until they obtain other employment, whichever is earlier. Effective April 30, 1996, the Company and Messrs. Siipola and Mehlfeldt entered into agreements regarding these matters and confirming that Messrs. Siipola and Mehlfeldt would have their Options repurchased in accordance with the Merger Agreement. Steven P. Cloward and John B. Adams are participants in the Company's Supplemental Executive Retirement Plan (the "Plan"). Pursuant to the Plan, upon a change in control of the Company such as will occur as a result of the Merger, each participant will be entitled to receive all amounts credited to the participant's account. Messrs. Cloward and Adams have elected to take their distributions in lump sum payments rather than in monthly installments over 5 to 10 years. The aggregate distributions to them will be $11,632.50 plus any amount credited in 1996 for 1995. On April 30, 1996, Parent entered into letter agreements with Messrs. Cloward, Adams and Staker, respectively, providing, among other things, in substance, that upon the merger of Purchaser into the Company, Parent will cause the Company to enter into employment agreements with them. Each such agreement will be for a period of three years, until June 30, 1999, subject to termination by the Company on 30 days notice prior to a date one year after execution of the agreements. Mr. Cloward will be employed as President and Chief Executive Officer of the Company at an annual salary of $180,000 and will be paid a one time transition bonus in the amount of $50,000. Mr. Adams will be employed as Executive Vice President at an annual salary of $150,500. Mr. Staker will be employed as Senior Vice President Operations at an annual salary of $129,500. In addition, Messrs. Cloward, Adams and Staker are to participate in the Company's Management By Objective incentive compensation plan, as it may be modified for 1996, and subsequent incentive compensation plans for future years, to participate also in TBC's stock option plan, and to receive certain fringe benefits. 53 INDEMNIFICATION BY THE PARENT AND THE COMPANY. The Merger Agreement provides that Parent and the Company will enter into indemnification agreements with each present director of the Company as of the Effective Time. Regardless of whether the Merger becomes effective, the Company, to the fullest extent permitted by applicable law, will indemnify and hold harmless each present and former director and officer of the Company and its subsidiaries, including the members of the Investment Committee, from all expenses, judgments, fines, penalties and penalties incurred in connection with the defense or settlement, or successful disposition, of a proceeding in which the indemnitee was involved by reason of being a director or officer of the Company or serving at the request of the Company as a principal of another entity. Indemnification is conditioned upon the indemnitee providing notice to the Company. Expenses may be advanced with the agreement of the indemnitee to repay the advances if it is later determined that the indemnitee was not entitled to such indemnification. INFORMATION PERTAINING TO THE PARENT AND THE PURCHASER GENERAL Pursuant to the Merger, the Purchaser will merge with and into the Company and the Company will remain as the surviving corporation. The result of the Merger will be that the Company will become a wholly-owned subsidiary of the Parent. The Merger Agreement provides that the Board of Directors of Purchaser will become the Board of Directors of the Company at the Effective Time. Parent is a Delaware corporation primarily engaged in the distribution of tires and other automotive aftermarket products. The Parent's Common Stock is traded on the Nasdaq National Market System under the symbol TBCC. Purchaser is a Nevada corporation organized as a wholly-owned subsidiary of Parent specifically for the purpose of effecting the Merger. It is not anticipated that Purchaser will have any significant assets or liabilities (other than its rights and liabilities under the Merger Agreement) or engage in any activities other than those incidental to its formation, the Merger Agreement, or the Merger. The principal executive offices of Parent and Purchaser are located at 4770 Hickory Hill Road, P. O. Box 18342, Memphis, Tennessee 38181-0342, and their telephone number is (901) 363-8030. 54 SECURITY OWNERSHIP OF TBC IN COMPANY As of June 10, 1996, TBC did not own any Common Stock of the Company. Should TBC acquire any Common Stock prior to the Merger, the Merger Agreement provides that such Common Stock would be cancelled at the Effective Time. DOCUMENTS INCORPORATED BY REFERENCE The following documents previously filed by the Company with the Securities and Exchange Commission are incorporated herein by reference: (i) the Company's Annual Report on Form 10-K for the year ended December 31, 1995, as amended; (ii) the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; and (iii) the Company's Current Report on Form 8-K dated March 18, 1996. All documents filed by the Company pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 after the date of this Proxy Statement and prior to the Special Meeting (or any adjournments or postponements thereof) shall be deemed to be incorporated into this Proxy Statement by reference and to be a part hereof from the date of filing of such documents. 55 This Proxy Statement is accompanied by copies of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as amended, and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. The Company will provide without charge to each person to whom a copy of this Proxy Statement has been delivered, on the written or oral request of such person, by first class mail or equally prompt means, within one business day of the receipt of such request, copies of the other reports of the Company that have been incorporated herein by reference. Requests for such copies should be directed to Beth Hayne, Director, Investor Relations, at the Company at its principal offices, 11755 East Peakview Avenue, Suite A, Englewood, Colorado 80011, or by telephone at (303) 790-2800. Such requests should be made by June 27, 1996, to ensure delivery prior to the Special Meeting. STOCKHOLDER PROPOSALS It is currently anticipated that the Company's next annual meeting of stockholders will occur after the Effective Time and accordingly the Company's existing stockholders will not be entitled to participate in such meeting unless the Merger is not consummated. If the Merger is not consummated, proposals of stockholders intended to be presented at the next annual meeting of the Company's stockholders must be received by the Company within a reasonable time prior to the mailing of the proxy statement for such meeting but no later than January 2, 1997. By Order of the Board of Directors Philip J. Teigen, Secretary Englewood, Colorado June 10, 1996 56 PRELIMINARY COPY PROXY BIG O TIRES, INC. PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD JULY 10, 1996 The undersigned hereby constitutes and appoints John E. Siipola, Horst K. Mehlfeldt, Steven P. Cloward, and each of them, the true and lawful attorneys and proxies of the undersigned with full power of substitution and appointment, for and in the name, place and stead of the undersigned, to act for and to vote all of the undersigned's shares of common stock of Big O Tires, Inc. ("Company") at the Special Meeting of Stockholders to be held at the offices of Holme Roberts & Owen LLC, Suite 4100, 1700 Lincoln Street, Denver, Colorado 80203, on Wednesday, July 10, 1996, at 10:00 a.m., Mountain Daylight Time, and at all adjournments thereof for the following purposes: 1. Approval of the Agreement and Plan of Merger dated as of April 30, 1996, by and among the Company, TBC Corporation and TBCO Acquisition, Inc. and the Merger of TBCO Acquisition, Inc. into the Company, all as described in the accompanying Proxy Statement. [ ] FOR [ ] AGAINST [ ] ABSTAIN FROM VOTING 2. In their discretion, the Proxies are authorized to vote upon such other business as lawfully may come before the meeting. The undersigned hereby revokes any proxies as to said shares heretofore given by the undersigned and ratifies and confirms all that said attorneys and proxies lawfully may do by virtue hereof. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THEN THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING FOR APPROVAL OF THE MERGER. It is understood that this proxy confers discretionary authority in respect to matters not known or determined at the time of the mailing of the Notice of Special Meeting of Stockholders to the undersigned. The proxies and attorneys intend to vote the shares represented by this proxy on such matters, if any, as determined by the Board of Directors. The undersigned hereby acknowledges receipt of the Notice of Special Meeting of Shareholders and the Proxy Statement furnished therewith, and the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as amended, and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. Dated and Signed: __________________________________________, 1996 ------------------------------------------- ------------------------------------------- Signature(s) should agree with the name(s) stenciled hereon. Executors, administrators, trustee, guardians and attorneys should so indicate when signing. Attorneys should submit powers of attorney 57 EX-1 2 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER by and among TBC CORPORATION, TBCO ACQUISITION, INC., and BIG O TIRES, INC. Dated as of April 30, 1996 TABLE OF CONTENTS ARTICLE I - THE MERGER...................................................... 2 1.1 The Merger..................................................... 2 1.2 Effects of the Merger.......................................... 2 1.3 Consummation of the Merger..................................... 2 1.4 Articles; Bylaws; Directors and Officers; Name................. 2 1.5 Conversion of Shares........................................... 3 1.6 Stock Options.................................................. 4 1.7 Adjustment of the Merger Consideration ........................ 4 1.8 Exchange of Certificates....................................... 5 1.9 Taking of Necessary Action; Further Action..................... 6 1.10 Certain Definitions ........................................... 6 ARTICLE II - REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER............................................... 8 2.1 Organization and Qualification................................. 8 2.2 Capitalization................................................. 9 2.3 Authorization; Binding Agreement............................... 9 2.4 Compliance..................................................... 9 2.5 Brokers and Finders........................................... 10 2.6 Proxy Statement............................................... 10 ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 11 3.1 Subsidiaries, Joint Ventures, Organization and Qualification.................................................. 11 3.2 Capitalization................................................ 12 3.3 Authorization; Binding Agreement............................... 13 3.4 Compliance..................................................... 14 3.5 Commission Filings............................................. 15 3.6 Changes........................................................ 15 3.7 Approval by Board of Directors and Investment Committee....................................... 17 3.8 Prior Transaction Costs........................................ 17 3.9 Litigation..................................................... 17 3.10 Material Contracts............................................. 17 3.11 Proprietary Rights............................................. 19 3.12 Taxes.......................................................... 20 3.13 Employee Benefit Plans......................................... 22 3.14 Proxy Statement ............................................... 24 3.15 Compliance with Laws and Orders ............................... 25 3.16 Labor Matters ................................................. 26 3.17 Undisclosed Liabilities ....................................... 26 3.18 Title to Properties; Absence of Liens, Etc. ................... 26 3.19 Receivables; Inventory ........................................ 27 3.20 Insurance ..................................................... 27 3.21 Environmental Matters ......................................... 28 3.22 Disclosure ................................................... 29 ARTICLE IV - CONDUCT OF BUSINESS PENDING THE MERGER......................... 29 -i- ARTICLE V - ADDITIONAL AGREEMENTS........................................... 31 5.1 Proxy Statement.................................................... 31 5.2 Meeting of Stockholders of the Company ............................ 32 5.3 Cancellation of Stock Options and Stock Appreciation Rights; Certain Employee Terminations................. 33 5.4 Fees and Expenses.................................................. 33 5.5 Further Assurances................................................. 35 5.6 No Solicitation.................................................... 36 5.7 Notification of Certain Matters.................................... 36 5.8 Access to Information.............................................. 37 5.9 Directors' Indemnification......................................... 37 ARTICLE VI - CONDITIONS..................................................... 38 6.1 Conditions to Obligation of Each Party to Effect the Merger.................................................. 38 6.2 Additional Conditions to the Obligation of the Parent and Purchaser to Effect the Merger ..................... 39 6.3 Additional Condition to the Obligation of the Company to Effect the Merger .................................. 42 ARTICLE VII - CLOSING....................................................... 42 7.1 Time and Place..................................................... 42 7.2 Deliveries at the Closing.......................................... 42 ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER............................ 43 8.1 Termination........................................................ 43 8.2 Effect of Termination.............................................. 44 8.3 Amendment.......................................................... 45 8.4 Waiver............................................................. 45 ARTICLE IX - GENERAL PROVISIONS ............................................ 45 9.1 Public Statements ................................................. 45 9.2 Notices ........................................................... 45 9.3 Interpretation .................................................... 47 9.4 Representations and Warranties .................................... 47 9.5 Headings .......................................................... 47 9.6 Successors and Assigns ............................................ 47 9.7 Counterparts ...................................................... 47 9.8 Miscellaneous ..................................................... 47 EXHIBIT A - Form of Indemnification Agreement EXHIBIT B - Form of Opinion of Lionel Sawyer & Collins/Hopper and Kanouff -ii- INDEX TO DEFINED TERMS Defined Term Defined in Section - ------------- ------------------- Acquisition Proposal ................................. 5.6(a) Agreement ............................................ Introduction Another Person ....................................... 5.4(b) Articles of Merger ................................... 1.3 BOTI ................................................. 1.10(a) Certificates ......................................... 1.8(a) Closing .............................................. 1.3 Closing Date ......................................... 7.1 Code ................................................. 3.12(e) Commission ........................................... 1.10(a) Company .............................................. Introduction Constituent Entities ................................. 1.1 Corporation Law ...................................... Recitals Current Financial Statements 3.5 Current Transactions ................................. 1.10(b) Current Transaction Costs ............................ 1.10(f) Disclosure Certificate ............................... 1.10(h) Dissenting Shares .................................... 1.5(d) Effective Time ....................................... 1.3 Employee Benefit Plans ............................... 3.13(a) Environmental Law .................................... 3.21(a) ERISA ................................................ 3.13(a) ERISA Affiliate ...................................... 3.13(j) Exchange Act ......................................... 2.4 Exchange Agent ....................................... 1.8(a) Fairness Opinion .................................... 6.1(e) Franchise Laws ....................................... 3.15(b) Hart-Scott-Rodino Act ................................ 1.10(f) Hazardous Substance .................................. 3.21(b) Interested Parties ................................... 1.10(c) IRS .................................................. 3.13(e) Investment Committee ................................. Recitals Joint Venture ........................................ 3.1(a) Letter of Intent ..................................... 5.4(d) -iii- Mailing Date ......................................... 1.7(a) Material Adverse Effect .............................. 3.1(b) Material Contracts ................................... 3.10(b) Merger ............................................... Recitals Merger Consideration ................................. 1.5(a) Merger Law ........................................... Recitals Multiemployer Plan ................................... 3.13(b) Options .............................................. 1.6 Option Plans ......................................... 1.6 Option Settlement Amount ............................. 1.6 Parent ............................................... Introduction Payments ............................................. 1.10(d) Pension Pan .......................................... 3.13(a) Post-September 30 Transaction Expenses ............... 1.10(g) Prior Merger Agreement ............................... 1.10(a) Prior Transactions ................................... 1.10(a) Prior Transaction Costs .............................. 1.10(e) Proprietary Rights ................................... 3.11 Proxy Statement ...................................... 5.1(a) Purchaser ............................................ Introduction Real Property ........................................ 3.18(a) Representatives ...................................... 5.8 Rights ............................................... 3.2(e) Rights of Purchase ................................... 3.2(e) SAR Agreements ....................................... 3.2(c) SEC Filings .......................................... 3.5 Shares ............................................... 1.5(a) Special Meeting ...................................... 5.2 Stock Appreciation Rights ............................ 3.2(c) Subsidiary ........................................... 3.1(a) Surviving Corporation ................................ 1.1 Taxes ................................................ 3.12(h) Welfare Plan ......................................... 3.13(a) -iv- DISCLOSURE CERTIFICATE CONTENTS Description Section Reference - ----------- ----------------- Subsidiaries, Organization, and Qualification ..................................... 3.1 Capitalization ........................................ 3.2 Compliance ............................................ 3.4 Changes ............................................... 3.6 Approval .............................................. 3.7 Prior Transaction Costs ............................... 3.8 Litigation ............................................ 3.9 Material Contracts .................................... 3.10 Proprietary Rights .................................... 3.11 Taxes ................................................. 3.12 Employee Benefit Plans ................................ 3.13 Compliance with Laws and Orders ....................... 3.15 Labor Matters ......................................... 3.16 Properties ............................................ 3.18 Insurance ............................................. 3.20 Environmental Matters ................................. 3.21 -v- AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of April 30, 1996, is among TBC Corporation, a Delaware corporation with principal executive offices at 4770 Hickory Hill Road, Memphis, Tennessee 38141 ("Parent"), TBCO Acquisition, Inc., a Nevada corporation and a wholly owned subsidiary of Parent, with principal executive offices at 4770 Hickory Hill Road, Memphis, Tennessee 38141 (the "Purchaser"), and BIG O Tires, Inc., a Nevada corporation with principal executive offices at 11755 East Peakview Avenue, Englewood, Colorado 80111 (the "Company"). RECITALS A. The respective Boards of Directors of the Purchaser, Parent and the Company have approved Parent's acquisition of the Company pursuant to the terms of this Agreement. B. A special committee appointed by the Board of Directors of the Company and consisting of four directors who are not employed by the Company (the "Investment Committee") has recommended that the Board of Directors of the Company approve the merger of the Purchaser into the Company, in accordance with the General Corporation Law of the State of Nevada (the "Corporation Law") and the Merger and Exchanges of Interest Law of the State of Nevada (the "Merger Law"), upon the terms and subject to the conditions set forth herein (the "Merger"), and has determined that the Merger is in the best interests of and fair to the stockholders of the Company. C. The respective Boards of Directors of the Purchaser, Parent and the Company have duly approved the Merger, and the Board of Directors of the Company has resolved to recommend the Merger to the Company's stockholders. AGREEMENT This Agreement constitutes the Plan of Merger referred to in Section 92A.100 of the Merger Law. In consideration of the premises and the mutual covenants herein contained and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Parent, the Purchaser and the Company hereby agree as follows: ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.3 hereof), in accordance with this Agreement, the Corporation Law, and the Merger Law, the Purchaser shall be merged with and into the Company, the separate existence of the Purchaser (except as may be continued by operation of law) shall cease, and the Company shall continue as the surviving corporation (the "Surviving Corporation"). The Surviving Corporation is a corporation organized under the laws of the State of Nevada whose address is 11755 East Peakview Avenue, Englewood, Colorado 80111. The Company and the Purchaser are sometimes referred to herein as the "Constituent Entities." 1.2 Effects of the Merger. The Merger shall have the effects set forth in the Merger Law. As of the Effective Time, the Company shall be a wholly owned subsidiary of Parent. 1.3 Consummation of the Merger. As soon as is practicable after the satisfaction or waiver of the conditions set forth in Article VI hereof, the parties hereto will cause the Merger to be consummated by filing with the Secretary of State of the State of Nevada articles of merger in such form as required by, and executed in accordance with, the relevant provisions of the Corporation Law and the Merger Law (the "Articles of Merger") and take all such further actions as may be required by law to make the Merger effective. The Merger shall occur immediately upon the filing of the Articles of Merger with the Secretary of State of the State of Nevada (the date and time of such filing being referred to herein as the "Effective Time"). As contemplated by Section 92A.200 of the Merger Law, the Articles of Merger shall refer to this Agreement for the procedure set forth in Section 1.8 below regarding the exchange of certificates representing the Company's Common Stock. The closing of the Merger and the transactions contemplated by this Agreement (the "Closing") shall take place as specified in Article VII. 1.4 Articles; Bylaws; Directors and Officers; Name. At the Effective Time, (a) the Articles of Incorporation of the Purchaser, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation, until thereafter amended as provided by law, the Articles of Incorporation of the Surviving Corporation shall be amended and restated accordingly, and a statement to this effect shall be included in the Articles of Merger; (b) the Bylaws of the Purchaser, as in effect immediately prior to the -2- Effective Time, shall be the Bylaws of the Surviving Corporation, until thereafter amended as provided by law; (c) the directors of the Purchaser immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, until their successors are elected; (d) the officers of the Purchaser shall be the initial officers of the Surviving Corporation, in each case, until their successors are elected and qualified; and (e) the corporate name of the Company immediately prior to the Effective Time shall be the name of the Surviving Corporation. 1.5 Conversion of Shares. At the Effective Time, by virtue of the Merger and without any action on the part of the Purchaser, the Company, the Surviving Corporation or the holders of any of the following securities: (a) Each share of the Company's Common Stock, par value $0.10 per share (the "Shares"), which is issued and outstanding immediately prior to the Effective Time (other than (i) Dissenting Shares (as defined below in Section 1.5(d)), if any, and (ii) Shares held by, or which are under contract to be acquired by Parent or the Purchaser) shall be cancelled and extinguished and be converted into and become a right to receive from Parent a cash payment of $16.50 per Share, without interest (which payment shall include $0.01 per share for the redemption of the Rights, as defined in Section 3.2(e) hereof). Such per share cash payment, which is hereinafter referred to as the "Merger Consideration," shall be subject to reduction as provided in Section 1.7 hereof. (b) Each Share which is issued and owned by the Company or by any Subsidiary (as defined in Section 3.1(a) hereof) immediately prior to the Effective Time shall be cancelled, and no payment shall be made with respect thereto. (c) Each share of Common Stock, par value $0.01 per share, of the Purchaser issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of Common Stock, par value $0.10 per share, of the Surviving Corporation. (d) Notwithstanding anything to the contrary in this Agreement, if appraisal rights are available to holders of the Shares pursuant to Sections 92A.300-92A.500 of the Merger Law, each outstanding Share, the holder of which has demanded and perfected his rights for appraisal of such Shares in accordance with all of the requirements of the Merger Law and has not effectively withdrawn or lost his right to such appraisal (the "Dissenting Shares"), shall not be converted into the Merger Consideration, but shall be deposited with the -3- Surviving Corporation (which is the "subject corporation" under Section 92A.440 of the Merger Law) and the holders of any Dissenting Shares shall be entitled only to such rights as are granted by the Merger Law. 1.6 Stock Options. The Company shall have entered into binding agreements with the holders of all options to purchase Shares (collectively, the "Options") which have been granted and are then outstanding under any stock option plan or other option arrangement of the Company (collectively, the "Option Plans"), pursuant to which agreements the holders of such Options agree that the Options shall be cancelled immediately prior to the Effective Time and settled by cash payment to the holders to be mailed within three business days after the Effective Time. The cash payment to the holder of each cancelled Option shall be an amount equal to the excess, if any, of the Merger Consideration (which shall be subject to reduction as provided in Section 1.7) over the per Share exercise price of such Option, multiplied by the number of Shares for which such Option was granted, regardless of whether such Option is then exercisable (the "Option Settlement Amount"), less all deductions required by the respective Option Plan and any income tax withholding required in connection therewith; provided, however, that if the terms of any Option Plan or any Option allow such Option to be cancelled for an amount less than the Option Settlement Amount, then the Company shall cancel such Option for a cash payment of such lesser amount. 1.7 Adjustment of the Merger Consideration. (a) In the event that the Company's Post-September 30 Transaction Expenses (as defined in 1.10(g) below) exceed $1,900,000, the Merger Consideration shall be reduced by an amount equal to the amount of such excess divided by the sum of the number of issued and outstanding Shares on the date of this Agreement and the number of Shares subject to Options outstanding on the date of this Agreement. Any reduction of the Merger Consideration pursuant to this Section 1.7 shall be calculated not later than three business days prior to the date the Company's definitive Proxy Statement (as defined in Section 5.1(a) hereof) is first mailed to its stockholders (the "Mailing Date"), and no further reductions pursuant to this Section 1.7 shall thereafter be made. (b) To enable the parties to determine whether any reduction of the Merger Consideration is to be made pursuant to this Section 1.7, the Company shall, no later than four business days prior to the Mailing Date, furnish to Parent and Purchaser a true and complete list of all Post-September 30 Transaction Expenses known to the Company as of such date, together with (i) all information then available to the Company with respect to any other -4- Post-September 30 Transaction Expenses which the Company may incur or for which any Interested Party (as defined in Section 1.10(c) hereof) has indicated an intention to present a claim, and (ii) letters or other correspondence from each Interested Party to whom any known Post-September 30 Transaction Expenses were paid or are payable, which letters or other correspondence shall confirm the amount thereof and that the Company has no other liability or obligation to such Interested Party except as the Parent and Purchaser shall have consented to in writing. 1.8 Exchange of Certificates. (a) From and after the Effective Time, a bank or trust company to be designated by the Purchaser and approved by the Investment Committee (the "Exchange Agent") shall act as exchange agent in effecting the exchange of the Merger Consideration for certificates representing Shares entitled to payment pursuant to Section 1.5 (the "Certificates"). As part of the closing of the Merger, the Purchaser shall deposit with the Exchange Agent an amount necessary to enable the Exchange Agent to exchange the Merger Consideration for all Shares to be converted into Merger Consideration. (b) Promptly after the Effective Time, the Exchange Agent shall mail to each record holder of Shares as of the Effective Time a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass only upon proper delivery of the Certificates to the Exchange Agent) and instructions for use in surrendering Certificates and receiving the Merger Consideration therefor. Upon the surrender of each Certificate, together with such letter of transmittal duly executed and completed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive in exchange therefor an amount equal to the Merger Consideration multiplied by the number of Shares represented by such Certificate, and such Certificate shall be cancelled. Until so surrendered and exchanged, each Certificate shall represent solely the right to receive an amount equal to the Merger Consideration multiplied by the number of Shares represented by such Certificate. No interest shall be paid or accrued on the Merger Consideration upon the surrender of the Certificates. If any Merger Consideration is to be paid to a person other than the person in whose name the Certificate surrendered in exchange therefor is registered, it shall be a condition to such exchange that the person requesting such exchange shall pay to the Exchange Agent any transfer or other taxes required by reason of the payment of such Merger Consideration to a person other than that of the registered holder of the Certificate surrendered, or such person shall establish to the -5- satisfaction of the Exchange Agent that such tax has been paid or is not applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto shall be liable to a holder of Shares for any Merger Consideration delivered to a public official pursuant to applicable abandoned property, escheat and similar laws. (c) Promptly following the date which is 180 days after the Effective Time, the Exchange Agent's duties shall terminate. Thereafter, each holder of a Certificate may surrender the Certificate to the Surviving Corporation and (subject to applicable abandoned property, escheat and similar laws) receive in exchange therefor an amount equal to the Merger Consideration multiplied by the number of Shares represented by such Certificate, without any interest thereon, but shall have no greater rights against the Surviving Corporation than may be accorded to general unsecured creditors of the Surviving Corporation. (d) After the Effective Time, there shall be no transfers of any Shares on the stock transfer books of the Surviving Corporation. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Exchange Agent, they shall be cancelled and exchanged for the applicable Merger Consideration, as provided in this Article I. 1.9 Taking of Necessary Action; Further Action. The Purchaser and the Company shall each take all such reasonable and lawful action as may be necessary or appropriate in order to effectuate the Merger as promptly as possible. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to and of all assets, property, rights, privileges, powers, and franchises of either of the Constituent Entities, the officers and directors of such corporations are fully authorized in the name of their respective corporation or otherwise to take, and shall take, all such lawful and necessary action. 1.10 Certain Definitions. As used in this Agreement: (a) "Prior Transactions" shall mean and include any proposals made by any stockholder of the Company since 1992; the transactions contemplated by the Agreement and Plan of Merger, dated July 24, 1995, as amended (the "Prior Merger Agreement"), among the Company and BOTI Acquisition Corp. and BOTI Holdings, Inc. (collectively, "BOTI"); the financing commitments sought or obtained by any person or entity in connection with the transactions contemplated by the Prior Merger Agreement; and any other matters or events described under the heading "Background and Reasons for the Merger" in the Company's preliminary proxy -6- statement filed with the Securities and Exchange Commission (the "Commission") on February 21, 1996 in connection with the transactions contemplated by the Prior Merger Agreement. (b) "Current Transactions" shall mean and include the discussions between the Company and Parent occurring after December 11, 1995; the negotiation and execution of the letter of intent between Parent and the Company, dated March 13, 1996; the negotiation and execution of this Agreement; and the consummation of the transactions contemplated hereby. (c) "Interested Parties" shall mean and include each and every broker, finder, investment banking firm, accounting firm, valuation company, law firm, other consultant or adviser, bank or financial institution, printer or other person or entity involved in, or providing services to the Company or any other person or entity in connection with, any Prior Transaction or Current Transaction. Interested Parties shall include, without limitation, BOTI, Big O Tire Dealers of America, and each and every director, officer, stockholder, or partner of any of them. (d) "Payments" shall mean and include all amounts paid or payable for or in connection with services rendered to the Company or any Interested Party and shall include, without limitation, fees, commissions, costs, expenses, and "topping," "breakup," or "bust-up" fees or similar payments or compensation. (e) "Prior Transaction Costs" shall mean and include all Payments which the Company has made or is obligated to make to any Interested Party in connection with or arising out of any Prior Transaction or for which the Company has reimbursed or agreed to reimburse any Interested Party in connection with or arising out of any Prior Transaction. (f) "Current Transaction Costs" shall mean and include all Payments which the Company has made or is obligated to make to any Interested Party in connection with or arising out of any Current Transaction or for which the Company has reimbursed or agreed to reimburse any Interested Party in connection with or arising out of any Current Transaction, other than filing fees (if any) of the Company under the Hart-Scott- Rodino Antitrust Improvements Act of 1976 and the rules and regulations thereunder (the "Hart-Scott-Rodino Act") and the costs of the accountant's letter described in Section 6.2(n) of this Agreement. -7- (g) "Post-September 30 Transaction Expenses" shall mean the sum of (i) all Prior Transaction Costs which were not reflected in the Company's financial statements appearing in its Report on Form 10-Q for the quarter ended September 30, 1995 or had not been reflected in the Company's financial statements for periods ended prior to September 30, 1995; (ii) all Current Transaction Costs; and (iii) all amounts paid or payable by the Company or any Subsidiary to Messrs. Siipola or Mehlfeldt with respect to the cancellation and settlement of their SAR Agreements (as defined in Section 3.2(c) hereof) and with respect to any severance or other obligation owing to them as a result of their employment by the Company or any Subsidiary or the termination of that employment as contemplated by Section 5.3(d), other than amounts paid in cancellation and settlement of outstanding Options. (h) "Disclosure Certificate" shall mean the certificate of the Company of even date herewith which is being delivered simultaneously with the execution and delivery of this Agreement. The Disclosure Certificate sets forth data relevant to the Merger, in each case identified by the Section of this Agreement to which the same pertains. The Disclosure Certificate is signed on behalf of the Company, and individually, by John E. Siipola, Horst K. Mehlfeldt and Steven P. Cloward, who are all of the members of the Office of Chief Executive Officer of the Company, and by John B. Adams, Chief Financial Officer of the Company, provided that each such officer shall have no liability to Parent and Purchaser after the Closing except as provided in Section 6.2(m) hereof. The Disclosure Certificate constitutes a part of this Agreement. ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER Each of Parent and the Purchaser represents and warrants to the Company as follows (i) as of the date of this Agreement and (ii) as of the time of the Closing (as defined in Section 7.1) with the same force and effect as if such representations and warranties were made at and as of the time of the Closing: 2.1 Organization and Qualification. Each of Parent and the Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has the requisite corporate power and authority to carry on its business as now being conducted. Each of Parent and the Purchaser is duly qualified as a foreign corporation to do business, and is -8- in good standing, in each jurisdiction where the character of its properties, owned or leased, or the nature of its activities makes such qualification necessary, except for failures to be so qualified or in good standing which would not, in the aggregate, have a material adverse effect on Parent or the Purchaser. Each of Parent and the Purchaser has delivered to the Company complete and correct copies of their respective Certificate or Articles of Incorporation and Bylaws, as in effect on the date hereof. 2.2 Capitalization. The authorized capital stock of the Purchaser consists of 250,000 shares of Common Stock, par value $0.10 per share, 100 shares of which are issued and outstanding. All issued and outstanding shares of Purchaser's Common Stock are validly issued, fully paid, nonassessable and free of preemptive rights, and are owned by Parent. 2.3 Authorization; Binding Agreement. Each of Parent and the Purchaser has the requisite corporate power and authority to enter into this Agreement and to perform its respective obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Parent and the Purchaser and the consummation by Parent and the Purchaser of the transactions contemplated hereby have been duly and validly authorized by all necessary action of their respective Boards of Directors and stockholders, and no other corporate proceeding on the part of Parent or the Purchaser is necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Parent and the Purchaser and constitutes a legal, valid and binding obligation of Parent and the Purchaser, enforceable against each of them in accordance with its terms. 2.4 Compliance. Neither the execution and delivery of this Agreement by Parent or the Purchaser nor the consummation of the transactions contemplated hereby nor compliance by Parent or the Purchaser with any of the provisions hereof will (i) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Parent or the Purchaser under, any of the terms, conditions or provisions of (x) the Certificate or Articles of Incorporation or Bylaws of Parent or the Purchaser, or (y) any material note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Parent or the Purchaser is a party or to which it, or any of its properties or assets, -9- may be subject, or (ii) subject to compliance with the statutes and regulations referred to in the last sentence of this paragraph, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Parent or the Purchaser or any of their respective properties or assets, except in the case of each of clauses (i) and (ii) above, for such violations, conflicts, breaches, defaults, terminations, accelerations or creations of liens, security interests, charges or encumbrances, which, in the aggregate, would not have a material adverse effect on the financial condition, business or operations of Parent and the Purchaser and their subsidiaries taken as a whole, or which are cured, waived or terminated prior to the Effective Time. Other than in connection with or in compliance with the provisions of the Corporation Law, the Merger Law, the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange Act"), the "takeover" or "blue sky" laws of various states, and the Hart- Scott-Rodino Act, no notice to, filing with, or authorization, consent or approval of, any domestic or foreign public body or authority is necessary for the consummation by Parent or the Purchaser of the transactions contemplated by this Agreement. 2.5 Brokers and Finders. Neither Parent nor the Purchaser has engaged any broker, finder or other intermediary which engagement would require the payment of any brokerage, finder's or other similar fees or commissions by Parent or the Purchaser in connection with this Agreement or the transactions contemplated hereby. 2.6 Proxy Statement. None of the information supplied or to be supplied in writing by Parent or Purchaser for inclusion or included or incorporated by reference in (a) the Proxy Statement (as defined in Section 5.1(a) hereof), including any amendment or supplement thereto, or (b) any other documents to be filed with the Commission or any other governmental agency in connection with the transactions contemplated hereby, will, at the respective time such documents are filed, and at the time of the Special Meeting (as defined in Section 5.2) or at the time of mailing of the Proxy Statement to the Company's stockholders, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not false or misleading or necessary to correct any statement in any earlier communication which has become false or misleading. -10- ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Purchaser as follows (i) as of the date of this Agreement and (ii) as of the time of the Closing with the same force and effect as if such representations and warranties were made at and as of the time of the Closing: 3.1 Subsidiaries, Joint Ventures, Organization, and Qualification. (a) Set forth in the Disclosure Certificate is the name, jurisdiction of organization, and percentage of ownership by the Company, of (i) each corporation (a "Subsidiary") of which the Company owns, directly or indirectly, 50% or more of the capital stock or other equity interests therein, the holders of which are generally entitled to vote for the election of directors or other governing body thereof; and (ii) each joint venture or other partnership in which the Company or any Subsidiary holds, directly or indirectly, an equity interest (a "Joint Venture"). Except as set forth in the Disclosure Certificate, the Company does not, directly or indirectly, have any investment in or own any securities of any corporation, business, enterprise, joint venture, partnership, entity, or organization other than (i) its interests in the Subsidiaries and the Joint Ventures listed in the Disclosure Certificate, or (ii) certificates of deposit, commercial paper, or similar instruments. (b) Each of the Company, the Subsidiaries, and the Joint Ventures is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has the requisite power and authority to own, lease and operate its properties and assets and to carry on its business as it is now being conducted. Each of the Company, the Subsidiaries, and the Joint Ventures is duly qualified as a foreign corporation or partnership to do business, and is in good standing, in the respective jurisdictions listed for each in the Disclosure Certificate, which jurisdiction are the only jurisdictions where the character of its properties owned or leased or the nature of its activities makes such qualification necessary, except for failures to be so qualified or in good standing which would not, in the aggregate, have a material adverse effect on the condition (financial or otherwise), business, operation or prospects of the Company, the Subsidiaries, and the interests of the Company and the Subsidiaries in the Joint Ventures, all taken as a whole ("Material Adverse Effect"). -11- (c) The Company has heretofore made available, and will upon request deliver, to Parent true and complete copies of the Certificate or Articles of Incorporation and Bylaws of the Company and of each Subsidiary, all as currently in effect. The respective minute books of the Company and each of the Subsidiaries have been made available to Parent by the Company. Such minute books contain accurate and complete records of all meetings and other corporate actions of the respective stockholders and directors (and committees thereof). The respective stock books maintained by the Company and each of the Subsidiaries are complete and accurately disclose all issuances and transfers of stock of the Company and each of the Subsidiaries. 3.2 Capitalization. (a) The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, par value $0.10 per share. As of the date of this Agreement, (i) 3,317,916 Shares were issued and outstanding; (ii) 31,261 Shares were held in the treasuries of the Company and the Subsidiaries; and (iii) 216,232 Shares are issuable upon the exercise of outstanding Options heretofore granted under the Option Plans. All of the issued and outstanding Shares were validly issued and are fully paid, nonassessable, and free of preemptive rights. Since June 30, 1995, the Company has not issued (i) any shares of Common Stock, except pursuant to the exercise of Options, or (ii) any Options. (b) Set forth on the Disclosure Certificate is a complete list of all holders of Options, the number of Options held by each holder, the Option Plan under which such Options were granted, the number of Shares subject thereto, per share exercise prices, and the dates of grant and expiration. True and complete copies of all Option Plans and any other agreements or instruments defining the rights of holders of Options have been made available, and will upon request be delivered, to Parent. (c) Set forth on the Disclosure Certificate is a complete list of all outstanding agreements or commitments of the Company or any Subsidiary ("SAR Agreements") which entitle the holders thereof to receive payments based upon the amount of appreciation occurring in the value of the Shares or any other Subsidiary (collectively, "Stock Appreciation Rights"), together with the names of the holders thereof, the number of Stock Appreciation Rights held by each holder, the SAR Agreement under which such Stock Appreciation Rights were granted, the number of Shares subject thereto, the base value per share established under each SAR Agreement, and the dates of grant and expiration. True and complete copies of all SAR Agreements and any other agreements or instruments defining the rights of holders of any Stock Appreciation Rights have -12- been made available, and will upon request be delivered, to Parent. All of the SAR Agreements provide that any appreciation in value payable to the holders thereof will be paid in cash, not in Shares or other equity securities of the Company, and neither the Company nor any Subsidiary is a party to any agreement which entitles any party to receive amounts payable thereunder in Shares or other equity securities of the Company or any Subsidiary. (d) Except as set forth in the Disclosure Certificate, all issued and outstanding shares of capital stock of each of the Subsidiaries and the interests of the Company and the Subsidiaries in the Joint Ventures are owned by the Company or another wholly owned Subsidiary free and clear of all liens, charges, encumbrances, claims and options of any nature. (e) Except for rights outstanding pursuant to the Rights Agreement dated as of August 26, 1994, between the Company and Interwest Transfer Co., Inc. as Rights Agent (the "Rights"), and except as set forth in the Disclosure Certificate, there are no, and at the Effective Time there will be no, (i) Shares or other equity securities of the Company outstanding other than the Shares referred to in Section 3.2(a) and any Shares issued pursuant to the Options described in Section 3.2(b), and no outstanding options, warrants, rights to subscribe (including any preemptive rights), calls or commitments of any character whatsoever to which the Company, any of its Subsidiaries, or any of the Joint Ventures is a party or may be bound requiring the issuance or sale of Shares, other equity securities of the Company or any of the Subsidiaries, ownership interests in any of the Joint Ventures, or securities or rights convertible into or exchangeable for such shares, other equity securities, or ownership interests (collectively, "Rights of Purchase"); and (ii) contracts, commitments, understandings or arrangements by which the Company, any of the Subsidiaries, or any of the Joint Ventures is or may become bound (x) to issue, sell or transfer any Right of Purchase or (y) which restrict the transfer of or otherwise encumber any Shares, other than restrictions pursuant to securities laws and restrictions in regard to 37,698 restricted Shares issued pursuant to the Company's Long Term Incentive Plan. 3.3 Authorization; Binding Agreement. The Company has the requisite corporate power and authority to enter into this Agreement, to perform its obligations hereunder and, subject to stockholder approval, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of the Company, and except for the approval of the Merger by the -13- Company's stockholders in accordance with the Corporation Law and the Merger Law, no other corporate proceeding on the part of the Company is necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby. The Board of Directors of the Company has taken all action necessary to cause the provisions of Sections 78.411 to 78.444 of the Corporation Law to be inapplicable to the Parent's acquisition of the Shares pursuant to the Merger or any of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 3.4 Compliance. Except as set forth in the Disclosure Certificate, neither the execution and delivery of this Agreement by the Company, nor the consummation of the transactions contemplated hereby, nor compliance by the Company with any of the provisions hereof will (i) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any of the Subsidiaries or Joint Ventures under, any of the terms, conditions or provisions of (x) the Certificate or Articles of Incorporation or Bylaws of the Company or any Subsidiary, or (y) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Company, any Subsidiary, or any Joint Venture is a party or to which they or any of their respective properties or assets may be subject, or (ii) subject to compliance with the statutes and regulations referred to in the last sentence of this paragraph, violate any judgment, ruling, order, writ, injunction, decree, statute or law, rule or regulation applicable to the Company, the Subsidiaries, or the Joint Ventures, or any of their respective properties or assets, except in the case of each of clauses (i) and (ii) above, for such violations, conflicts, breaches, defaults, terminations, accelerations or creations of liens, security interests, charges or encumbrances which, in the aggregate, would not have a Material Adverse Effect. Other than in connection with or in compliance with the provisions of the Corporation Law, the Merger Law, the Exchange Act, the "takeover" or "blue sky" laws of the various states, and the Hart-Scott- Rodino Act, no notice to, filing with, or authorization, consent or approval of, any domestic or foreign public body or authority is necessary for the consummation by the Company of the transactions contemplated by this Agreement. -14- 3.5 Commission Filings. Since January 1, 1993, the Company has filed all reports, registrations and statements, including amendments thereto, that the Company was required to file with the Commission. The Company has made available to the Parent and Purchaser the Company's (i) Annual Reports on Form 10- K for the years ended December 31, 1993, December 31, 1994, and December 31, 1995, as filed with the Commission, (ii) Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and September 30, 1995, (iii) proxy statements relating to all of the Company's meetings of stockholders (whether annual or special) since January 1, 1994, (iv) all other reports or registration statements filed by the Company with the Commission since January 1, 1995, and (v) all amendments and supplements to the foregoing (collectively, the "SEC Filings"). As of their respective dates, the SEC Filings (including all exhibits and schedules thereto and documents incorporated by reference therein) complied in all material respects with all rules and regulations promulgated by the Commission and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited consolidated interim financial statements of the Company and the Subsidiaries included or incorporated by reference in the SEC Filings, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto), and fairly present the consolidated assets, liabilities and financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and changes in financial position for the periods then ended. The audited consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 1995 are hereinafter referred to as the "Current Financial Statements." 3.6 Changes. Except as expressly contemplated by this Agreement or as disclosed in the Disclosure Certificate, since December 31, 1995 the Company, the Subsidiaries, and the Joint Ventures have carried on their respective businesses in the ordinary and usual course consistent with their prior practices, and none of the following has occurred: (a) anything which has had, or would be reasonably likely to have, a Material Adverse Effect; (b) a change in accounting methods, principles or practices by the Company materially affecting its assets, liabilities, or business or the valuation thereof; -15- (c) any damage, destruction or loss of any assets used in the business of the Company or any of the Subsidiaries or Joint Ventures, which damage, destruction or loss has had or would be reasonably likely to have a Material Adverse Effect; (d) any declaration, setting aside for payment or payment of dividends or distributions, redemption, purchase or other acquisition by the Company or any Subsidiary of any capital stock of the Company or any Subsidiary; (e) any issuance or sale by the Company or any Subsidiary of any capital stock of the Company or any Subsidiary; (f) any issuance or grant of any Option, Stock Appreciation Right, or other Right of Purchase with respect to the capital stock of the Company or any Subsidiary or the equity of any Joint Venture which is not listed in the Disclosure Certificate; or any agreement giving any holder the right to exercise any Option or Stock Appreciation Right prior to the dates specified in the original instrument creating the same; (g) any sale, assignment, transfer, or other disposition by the Company, any Subsidiary, or any Joint Venture of any of its properties or assets having a book value of $25,000 or more, other than sales of inventory in the ordinary course of business; (h) any purchase or other acquisition by the Company, any Subsidiary, or any Joint Venture of assets constituting any other line of business or any properties or assets having a book value of $25,000 or more, other than the purchase of inventory in the ordinary course of business; (i) any increase in the rate of compensation of, or payment of any bonus to, any director or officer or, except in the ordinary course of business and in compliance with existing practice and procedure, any other employee, of the Company or any Subsidiary not required under existing Employee Benefit Plans (as defined in Section 3.13); any collateralization or funding of any Employee Benefit Plan not previously collateralized or funded; or any termination or material modification of any Employee Benefit Plan; (j) any execution, termination, or material amendment or modification of any Material Contract (as defined in Section 3.10) outside the ordinary course of business; -16- (k) any existing, pending, or threatened termination or cancellation of or change in the business relationship of the Company, any Subsidiary, or Joint Venture with any supplier or customer which would be reasonably likely to have a Material Adverse Effect; (l) any agreement by the Company, any Subsidiary, or any Joint Venture to do any of the things described in the preceding clauses (a) through (k) other than as expressly provided for herein. 3.7 Approval by Board of Directors and Investment Committee. The Board of Directors of the Company and the Investment Committee each has duly and unanimously, except as otherwise indicated in the Disclosure Certificate, (i) approved and adopted this Agreement, the Merger and the other transactions contemplated hereby on the material terms and conditions set forth herein (or, in the case of the Investment Committee, has recommended that the Board of Directors of the Company do so), (ii) determined that the Merger Consideration is in the best interests of and fair to the Company's stockholders and (iii) recommended that the Company's stockholders approve and adopt this Agreement and the transactions contemplated hereby. 3.8 Prior Transaction Costs. Set forth in the Disclosure Certificate is a complete description of all Prior Transaction Costs known to the Company on the date hereof, together with the name of the Interested Party to whom the Payment thereof has been made or is owing, and the amount of the same. 3.9 Litigation. Except as set forth in the Company's Form 10-K for the year ended December 31, 1995 or in the Disclosure Certificate, there are no actions, suits or proceedings pending or, to the best knowledge of the Company, threatened against the Company or any of the Subsidiaries or Joint Ventures, nor is the Company or any of the Subsidiaries or Joint Ventures subject to any order, judgment or decree, except for individual matters in which the only relief sought is damages from the Company, the Subsidiary, or the Joint Venture which, in the aggregate, would not have a Material Adverse Effect. 3.10 Material Contracts. (a) Set forth in the Disclosure Certificate is a complete list of all Material Contracts (as defined in Section 3.10(b)) of the Company and its Subsidiaries and Joint Ventures in force and effect on the date of this Agreement. The Company has made available, and will upon request deliver, to Parent true and complete copies of all such Material Contracts and will make available and upon request deliver to Parent true and complete copies -17- of all MaterialContracts executed after the date of this Agreement. To the best knowledge of the Company, except as set forth in the Disclosure Certificate, all of the Material Contracts are valid, binding, and in full force and effect. Neither the Company, any Subsidiary, nor any Joint Venture nor, to the best knowledge of the Company, any other party thereto is in default under any Material Contract, which default is reasonably likely to have, in the aggregate, a Material Adverse Effect, and there has not occurred any event that with the lapse of time or the giving of notice or both would constitute such a default. Except as set forth in the Disclosure Certificate, the Company's execution and delivery of this Agreement and the consummation of the Merger will not violate or breach any Material Contract, will not place the Surviving Corporation in breach of or default under any Material Contract, and do not require the consent of any party to any Material Contract in order to avoid any such violation or breach. (b) As used in this Agreement, "Material Contracts" shall mean and include all of the following which the Company or any Subsidiary or Joint Venture is a party to, is bound or affected by, receives any benefits under, or by which any property or assets of any of them may be bound: (i) all real property leases; (ii) all leases of equipment having an original acquisition cost in excess of $25,000; (iii) all franchise, dealer, or other distribution agreements pursuant to which the Company or any Subsidiary or Joint Venture sells or otherwise distributes its products or services or pursuant to which any person sells or otherwise distributes products or services of the Company or any Subsidiary or Joint Venture; (iv) all supply contracts or other such agreements or understandings pursuant to which the Company or any Subsidiary or Joint Venture purchased in its last fiscal year, or expects to purchase in this fiscal year, in excess of $50,000 worth of products; (v) any agreement, arrangement, or commitment which materially restricts the conduct of any line of business, including without limitation, all standstill or noncompete agreements; (vi) any contract, agreement or other arrangement (other than pursuant to the Employee Benefit Plans, as defined in Section 3.13(a) hereof) providing for the furnishing of services to or by, providing for the rental of real or personal property to or from, or otherwise requiring payments to or from, any director, officer, or one percent (1%) stockholder of the Company or any Subsidiary, any family member of any such director, officer or stockholder, or any entity in which any of the foregoing holds, directly or indirectly, a substantial interest; (vii) any agreement, indenture or other instrument relating to the borrowing of money by the Company or any Subsidiary or Joint Venture (other than trade payables and instruments relating to transactions entered into in the ordinary course of business); (viii) any agreement pursuant to which the -18- Company or any Subsidiary or Joint Venture is obligated to lend money or make advances, or has lent money or made advances which are still outstanding, to any person (other than routine travel advances to any employee not to exceed $5,000 or deposits or advances in respect of products purchased in the ordinary course of business); (ix) any agreement, arrangement, or commitment to indemnify or exonerate from liability any Interested Party in connection with any Prior Transaction or Current Transaction; (x) any other agreement, arrangement or commitment to guarantee the obligations of or to indemnify or exonerate from liability any person, including any Subsidiary or Joint Venture, or the directors or officers of the Company or any Subsidiary (other than pursuant to the Certificate or Articles of Incorporation or Bylaws of the Company or the Subsidiary, or applicable law), or any partner or co-joint venturer; (xi) any power of attorney presently in effect giving any person or entity the right to act on behalf of the Company or any Subsidiary or Joint Venture; (xii) any partnership or joint venture agreement to which the Company or any Subsidiary or Joint Venture is a party; (xiii) any confidentiality or secrecy agreement to which the Company or any Subsidiary or Joint Venture is a party; (xiv) any consulting agreement to which the Company or any Subsidiary or Joint Venture is a party; (xv) any other contract, commitment, agreement, or understanding, whether written or oral, which involves more than $25,000 and is not terminable without penalty upon not more than 90 days' notice; and (xvi) any other contract or agreement that would be required to be filed as an exhibit to a Form 10-K filed by the Company with the Commission. 3.11 Proprietary Rights. Set forth in the Disclosure Certificate is a complete list of all patents, trademarks, trade names, and copyrights, and all pending applications for any of the same, used in or necessary for the conduct of the businesses of the Company or the Subsidiaries or Joint Ventures (collectively, "Proprietary Rights"), together with a summary description of and full information concerning the filing, registration, issuance, or licensing thereof. Except as set forth in the Disclosure Certificate, the Company owns all such Proprietary Rights, the use of the Proprietary Rights by the Company and the Subsidiaries and Joint Ventures does not infringe upon the rights of any other party, and no claim of such infringement is pending or, to the best knowledge of the Company, threatened. No licenses, sublicenses, or agreements with respect to the Proprietary Rights have been granted or entered into by the Company or the Subsidiaries or Joint Ventures except as described in the Disclosure Certificate. Except as set forth in the Disclosure Certificate, to the best knowledge of the Company, no third party is infringing upon any of the Proprietary Rights. -19- 3.12 Taxes. (a) Except as set forth in the Disclosure Certificate, the Company and each of the Subsidiaries and Joint Ventures have, since December 31, 1990 (i) timely filed all returns, schedules and declarations (including withholding and information returns) relating to Taxes (as defined in Section 3.12(h) hereof), required to be filed by any jurisdictions to which they are or have been subject, all of which Tax returns, schedules and declarations are complete, accurate and correct, (ii) paid in full all Taxes required to be paid in respect of the periods covered by such returns and made any deposits of Tax required by such taxing authorities, (iii) fully accrued on the Company's financial statements or, in the case of the Joint Ventures, on the Joint Venture's financial statements, all Taxes for any prior period that are not yet due, the information set forth on such financial statements being accurate and correct, and (iv) made timely payments of the Taxes required to be deducted and withheld from the wages paid to their respective employees or contractors. The Company has made available, and will upon request deliver, to the Parent and Purchaser true and complete copies of all Tax returns of the Company and each Subsidiary and Joint Venture filed with any federal or state taxing authority since December 31, 1990. (b) Except as set forth in the Disclosure Certificate, since December 31, 1990, neither the Company nor any Subsidiary or Joint Venture has been delinquent in the payment of any Tax or has requested any extension of time within which to file any Tax returns that have not been filed, and no deficiencies for any Tax have been claimed, proposed or assessed. Except as disclosed in the Disclosure Certificate, neither the Company nor any Subsidiary or Joint Venture has agreed to any currently effective extension of time for the assessment or payment of, or has waived any applicable statute of limitations with respect to, any Taxes payable by it. (c) Except as set forth in the Disclosure Certificate, there are no pending or, to the best of the Company's knowledge, threatened Tax audits, investigations or claims for or relating to any liability in respect of Taxes, and there are no matters under discussion with any governmental authorities with respect to Taxes that, in the reasonable judgment of the Company, are likely to result in a further Tax liability. (d) The Disclosure Certificate sets forth, since December 31, 1990 (i) those Tax years for which the Tax returns of the Company and the Subsidiaries and Joint Ventures have been reviewed or audited by applicable federal, state, local and foreign taxing authorities, (ii) those Tax years for which such Tax -20- returns have received clearances or other indications of approval from applicable federal, state, local and foreign taxing authorities; (iii) those Tax years which remain subject to review or audit by applicable federal, state, local or foreign taxing authorities. Except as set forth in the Disclosure Certificate, since December 31, 1990, to the best knowledge of the Company, no issue or issues have been raised in connection with any prior or pending review or audit of any Tax return that have not been resolved or which the Company reasonably believes may be expected to be raised in the future by such taxing authorities in connection with the audit or review of the Tax returns of the Company or any Subsidiary or Joint Venture. (e) The Disclosure Certificate lists (i) all elections with respect to Taxes that have been made by the Company or any Subsidiary, including without limitation, any election under Section 341(f) of the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder (the "Code"); (ii) the amount of any net operating loss, net capital loss, unused investment, minimum, or other credit, or excess charitable contribution deduction of the Company or any Subsidiary; (iii) all expenses that have been paid or accrued through December 31, 1995 but have not yet been deducted for Tax purposes; and (iv) the aggregate amount of net Section 1231 losses incurred since January 1, 1991 under the Code that has been deducted or is expected to be deducted by the Company or any Subsidiary. (f) Except as otherwise set forth on the Disclosure Certificate: (i) the Company and each Subsidiary has not made any payments, is not obligated to make any payments and is not a party to any agreement that could obligate it to make any payments, that will not be deductible under Sections 280G or 162(m) of the Code or such other compensation that must be capitalized under Section 263 of the Code; (ii) the Company and the Subsidiaries have not taken any position on their federal income Tax returns (and are not considering taking a position on a federal income Tax return required to be filed before or after the Closing Date) that would subject them to an underpayment of federal income Tax within the meaning of Section 6662 of the Code or any corresponding provision of state, local, or foreign tax law; (iii) the Company and the Subsidiaries are not parties to any Tax allocation or Tax sharing agreement; (iv) the Company and the Subsidiaries have not agreed to make, nor are they required to make, any adjustment under Section 481 of the Code by reason of a change in accounting method, accounting period, or otherwise; (v) the Company and the Subsidiaries have not engaged in a transfer of assets with a Subsidiary that would have -21- resulted in gain pursuant to Section 311 of the Code, but which gain was treated as a deferred intercompany gain pursuant to the Code; and (vi) the Company and the Subsidiaries have not deferred any gain from the sale of assets pursuant to Section 453 of the Code. (g) After the date of this Agreement, neither the Company nor any Subsidiary or Joint Venture shall make any election with respect to Taxes without the prior written consent of the Parent. (h) As used in this Agreement, "Taxes" shall mean all federal, state, local, or foreign income, franchise, sales, use, excise, real and personal property, transfer, employment, social security, unemployment, withholding, and other taxes, assessments, charges, fees, or levies, and any interest or penalties on any of the foregoing. 3.13 Employee Benefit Plans. (a) The Disclosure Certificate lists each (i) employee pension benefit plan within the meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974 and the rules and regulations thereunder ("ERISA"), covered by Part 2 of Title I of ERISA ("Pension Plan") in which employees of the Company or any of the Subsidiaries or Joint Ventures participate, (ii) employee welfare benefit plan within the meaning of Section 3(1) of ERISA ("Welfare Plan") in which employees of the Company or any of the Subsidiaries or Joint Ventures participate and (iii) each other employee stock ownership, stock purchase, savings, severance, profit sharing, group insurance, bonus, deferred compensation, stock option, severance pay, insurance, pension or retirement plan or written agreement relating to employment or fringe benefits for or of employees, officers or directors of the Company or any Subsidiary or Joint Venture (together with the Pension Plans and Welfare Plans, the "Employee Benefit Plans"). The Company has provided Purchaser with access to true and complete copies of all Employee Benefit Plans, including amendments thereto. Except as disclosed in the Disclosure Certificate, no individual will accrue or receive additional benefits (other than additional accruals under the normal formula in effect prior to and without regard to the transactions contemplated hereby) as a direct result of the transactions contemplated by this Agreement. (b) There are no qualified defined benefit plans (as defined in Section 414(j) of the Code), voluntary employees beneficiary associations, as described in Section 501(c)(9) of the Code, or multiemployer plans within the meaning of Section 3(37) of ERISA ("Multiemployer Plans") in which employees of -22- the Company, any Subsidiary, any Joint Venture, or any ERISA Affiliate (as defined in Section 3.13(j) below) have participated or to which the Company or any ERISA Affiliate currently has an obligation to contribute. (c) Each Employee Benefit Plan has been maintained, operated and administered in substantial compliance with its terms. None of the Employee Benefit Plans has participated in, engaged in or been a party to any prohibited transaction, as defined in Section 406 of ERISA or Section 4975 of the Code, and, to the best knowledge of the Company, no officer, director or employee of the Company or any Subsidiary or Joint Venture or fiduciary of any such Plan has committed a material breach of any of the responsibilities or obligations imposed upon fiduciaries by Title I of ERISA. (d) Except as set forth in the Disclosure Certificate, there are no claims, pending or overtly threatened, involving any Employee Benefit Plan by a current or former employee (or beneficiary thereof) of the Company or any Subsidiary or Joint Venture or a current or former ERISA Affiliate, nor is there any reasonable basis to anticipate any claims involving any such Plans which would likely be successfully maintained against the Company, the Subsidiaries, or the Joint Ventures. (e) Each Employee Benefit Plan currently complies, and has at all relevant times complied, in all material respects with ERISA and the Code. There are no violations of any material reporting and disclosure requirements with respect to any Employee Benefit Plans and no such Plans have violated applicable law, including but not limited to ERISA and the Code. (f) The Company has delivered or made available to the Purchaser a copy of the most recently filed IRS Form 5500, if applicable, and accountant's opinion, if applicable, of the three most recent plan years for each Employee Benefit Plan disclosed in the Disclosure Certificate. All information provided by the Company or any Subsidiary or Joint Venture to any actuary in connection with the preparation of such actuarial valuation report was true, correct and complete in all material respects. (g) The Company has delivered or made available to the Purchaser a copy of (i) in the case of each Pension Plan described in the Disclosure Certificate intended to qualify under Section 401(a) of the Code, the most recent IRS letter as to the qualification of such Plan under Section 401(a) of the Code; (ii) in the case of each Welfare Plan described in the Disclosure -23- Certificate, the most recent IRS letter as to the tax exempt status of such Plan under Section 501(c)(9) of the Code, if applicable; and (iii) the current summary plan description, if applicable, for each Employee Benefit Plan disclosed in the Disclosure Certificate and evidence that the same has been filed with the U.S. Department of Labor. (h) Except as set forth in the Disclosure Certificate, no current or former Employee Benefit Plan provides benefits, including without limitation, death or medical benefits (whether or not insured), with respect to current or former employees of the Company or any Subsidiary or Joint Venture beyond their retirement or other termination of service, other than (i) temporary coverage mandated by applicable law, (ii) death benefits or retirement benefits under any Pension Plan, (iii) deferred compensation benefits accrued as liabilities on the books of the Company or the Subsidiary or Joint Venture, or (iv) benefits the full cost of which are borne by the current or former employee (or his or her beneficiary). (i) With respect to each Employee Benefit Plan, all required contributions have been made, except for current contributions not yet due and payable, all of which have been accrued and are reflected on the Company's financial statements, and all other employee benefit liabilities are reflected on the Company's financial statements in a manner satisfying the requirements of Financial Accounting Standards No. 87 and 88. (j) For purposes of this Section 3.13, "ERISA Affiliate" shall mean any company which, as of the relevant measuring date under ERISA, is a member of a controlled group of corporations or trades or businesses (as defined in Sections 414(b) and (c) of the Code) of which the Company or any Subsidiary or Joint Venture is a member. (k) With respect to each Employee Benefit Plan, (i) no event has occurred and no condition exists that would subject the Company or the Subsidiaries or Joint Ventures to any Tax under Section 4971 through 4980B of the Code or to a fine or liability under Section 502 of ERISA; (ii) no provision of such Plan prevents the Company or the Subsidiaries or Joint Ventures from terminating or amending it; and (iii) all forms, documents and other materials have been filed with the Commission or otherwise distributed as required by the Securities Act of 1933 or any regulation promulgated thereunder or the Exchange Act. 3.14 Proxy Statement. With the exception of the information supplied or to be supplied in writing by Parent or Purchaser (as to which the Company makes no representation or warranty), the Proxy Statement and any other documents to be filed with the Commission or any other governmental agency in connection with -24- the transactions contemplated hereby will not, at the respective time such documents are filed, and at the time of the Special Meeting or at the time of mailing of the Proxy Statement to the Company's stockholders, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading or necessary to correct any statement in any earlier communication which has become false or misleading. 3.15 Compliance with Laws and Orders. (a) Except as disclosed in the Disclosure Certificate, the businesses of the Company and the Subsidiaries and Joint Ventures are not being conducted, and to the best knowledge of the Company, have not been conducted since December 31, 1990, in violation of any law, ordinance, regulation, judgment, order, decree, license or permit of any governmental entity (including without limitation, federal and state franchise, business opportunity, dealer protection, and similar laws and regulations (collectively, "Franchise Laws"), zoning ordinances, building codes, Environmental Laws (as defined in Section 3.21(b) below), wages and hours law, and occupational health and safety laws and regulations), except for possible violations which in the aggregate do not, and, insofar as reasonably can be foreseen, in the future will not, have a Material Adverse Effect. Except as set forth in the Disclosure Certificate, no investigation or review by any governmental entity with respect to the Company or any Subsidiary or Joint Venture is pending, or to the best knowledge of the Company, threatened, nor has the Company received notice that any governmental entity intends to conduct the same. (b) Set forth in the Disclosure Certificate is a true and complete list of all registrations, exemptions, and other filings under the Franchise Laws of any and all states in which the Company or any of its Subsidiaries or Joint Ventures has sold or solicited the sales of franchises, business opportunities, or similar arrangements since January 1, 1995, together with the status, effective date, and expiration date of such filings. The Company has made available, and will upon request deliver, to Parent true and complete copies of all offering circulars, disclosure documents, earnings claims, and any other disclosure materials currently in use in connection with any and all applicable Franchise Laws. To the best knowledge of the Company, neither the Company nor any Subsidiary or Joint Venture violated any Franchise Law in soliciting or entering into any Material Contract. -25- (c) None of the Company, a Subsidiary, a Joint Venture or any stockholder, director, officer, agent, employee or other person or entity associated with or acting on behalf of any of the foregoing has used any corporate funds for unlawful contributions, payments, gifts, entertainment or other unlawful expenses relating to political activity or made any direct or indirect unlawful payments to governmental officials or others. 3.16 Labor Matters. Except as shown on the Disclosure Certificate, there are no controversies pending between the Company or any Subsidiary or Joint Venture and any of their respective employees, other than routine individual grievances which will not have a Material Adverse Effect. No employee of the Company or any Subsidiary or Joint Venture is represented by any labor union and, to the best knowledge of the Company, no labor union is attempting any such representation. 3.17 Undisclosed Liabilities. (a) Except as and to the extent disclosed, reflected or reserved against in the Current Financial Statements, the Company and the Subsidiaries did not have, as of the respective dates thereof, any material liabilities or obligations (whether known or unknown, accrued, absolute, contingent or otherwise) of the type required to be reflected on a balance sheet prepared in accordance with generally accepted accounting principles or disclosed in the notes thereto, and there was no material loss contingency, as defined in paragraph 1 of Statement of Financial Accounting Standards No. 5, of the Company or any Subsidiary which was not so reflected or disclosed as required by paragraphs 8 to 12, inclusive, of such Statement. Since December 31, 1995, neither the Company nor any Subsidiary has incurred any such material liability or obligation, and no such material loss contingency has arisen. (b) To the best knowledge of the Company, the warranty reserve set forth on the most recent balance sheet included in the SEC Filings is adequate to satisfy in full all present and future warranty claims with respect to products or services sold by the Company and the Subsidiaries prior to the date of such balance sheet. 3.18 Title to Properties; Absence of Liens, Etc. (a) Set forth in the Disclosure Certificate is a complete list of all real property owned by the Company or any Subsidiary or Joint Venture (collectively, the "Real Property"). (b) Except as disclosed in the Disclosure Certificate, the Company and the Subsidiaries and Joint Ventures have good and marketable title to all the Real Property and all of their other properties and assets, including without -26- limitation, those assets and properties reflected in the Current Financial Statements, free and clear of all liens, except (i) the lien of current taxes not yet due and payable; (ii) properties and assets disposed of since the dates of such Current Financial Statements in the ordinary course of business; (iii) the lien of such secured indebtedness as is disclosed in the SEC Filings or the Current Financial Statements; and (v) liens and imperfections of title which are not substantial in character, amount or extent. The Company and the Subsidiaries and Joint Ventures own, or have valid and enforceable rights as lessees to possess and use, all properties and assets used in the conduct of their respective businesses since January 1, 1995, other than any properties or assets disposed of since such date in the ordinary course of business. (c) Except as disclosed in the Disclosure Certificate, all buildings and other improvements located on any Real Property or any real property leased by the Company or any Subsidiary or Joint Venture conform in all material respects to all applicable building codes, zoning ordinances, other statutes and regulations, restrictive covenants, and deed restrictions applicable thereto. 3.19 Receivables; Inventory. (a) All of the accounts, notes and other receivables which are reflected in the most recent balance sheet included in the SEC Filings were acquired in the ordinary and regular course of business and, except to the extent reserved against on such balance sheet, have been collected in full, or, to the best knowledge of the Company, will be collected in full, in the ordinary and regular course of business. (b) All of the inventory reflected on the most recent balance sheet included in the SEC Filings consisted or, to the best knowledge of the Company, will consist, except as indicated thereon, of items of a quantity and quality useable or saleable without discount in the ordinary and regular course of business. 3.20 Insurance. Set forth in the Disclosure Certificate is a list (including applicable deductible amounts and limitations) of all insurance maintained by the Company or any Subsidiary or under which any of them is entitled to coverage or benefits. True and complete copies of such insurance policies have previously been made available, and will upon request be delivered, to Parent and Purchaser. Except as set forth in the Disclosure Certificate, to the best knowledge of the Company, the Company has in place adequate insurance coverage with respect to all litigation pending against the Company or any Subsidiary. -27- 3.21 Environmental Matters. (a) For purposes of this Agreement, "Environmental Law" means any applicable federal, state or local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity related to (i) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, ground water, drinking water supply, surface soil, subsurface soil, plant and animal life or any other natural resource), and/or (ii) the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances (as defined in Section 3.21(b) below). The term Environmental Law includes, without limitation: the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. ss.9601, et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S. C. ss.6901, et seq.; the Clean Air Act, as amended, 42 U.S.C. ss.7401, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S. C. ss.1251, et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. ss.2601, et seq.; the Emergency Planning and Community Right to Know Act, 42 U.S.C. ss.11001, et seq.; the Safe Drinking Water Act, 42 U.S.C. ss.300f, et seq.; all comparable state and local laws; and any common law (including without limitation, common law that may impose strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Substance. (b) As used in this Agreement, "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental Law, whether by type or by quantity, including any material containing any such substance as a component. Hazardous Substances include, without limitation, petroleum or any derivative or by-product thereof, asbestos, radioactive material, polychlorinated biphenyls, and battery acids. (c) Except as set forth in the Disclosure Certificate, (i) neither the Company nor any Subsidiary or Joint Venture nor any real property previously or currently owned by any of them, has been or is in violation of, or liable for remediation costs or any other damages or penalties under, any Environmental Law, except for any such violations or liabilities which would not reasonably be expected, in the aggregate, to have a Material Adverse Effect; and (ii) to the best knowledge of the Company, there are no actions, suits, demands, notices, claims, investigations or proceedings under any Environmental Law pending or threatened against the Company or any Subsidiary or Joint Venture or relating to -28- any real property previously or currently owned or occupied by the Company or any Subsidiary or Joint Venture or at which Hazardous Substances alleged to have been generated by the Company or any Subsidiary or Joint Venture were treated, stored, or disposed, including without limitation, any notices, demand letters or requests for information from any governmental entity making inquiries relating to any Environmental Law. (d) Set forth in the Disclosure Certificate is a complete list of all reports, assessments, evaluations, surveys, or other such documents relating to the Company's compliance with any Environmental Law, any Subsidiary's compliance with any Environmental Law, any Joint Venture's compliance with any Environmental Law, or Environmental Law matters affecting or involving any real property previously or currently owned or occupied by the Company or any Subsidiary or Joint Venture which, to the best knowledge of the Company, have been prepared since December 31, 1990. The Company has made available, and will upon request deliver, to Parent true and complete copies of all such reports, assessments, evaluations, surveys, or other such documents in the Company's possession. 3.22 Disclosure. All information and documents provided prior to the date of this Agreement, and all information and documents subsequently provided, to Parent or Purchaser or their Representatives (as defined in section 5.8) by or on behalf of the Company or the Subsidiaries or Joint Ventures, to the best knowledge of the Company, are or contain, or will be or will contain as to subsequently provided information or documents, true, accurate and complete information with respect to the subject matter thereof and are, or will be as to subsequently provided information or documents, fully responsive to any specific request made by or on behalf of Parent or Purchaser or their Representatives. In furtherance and not in limitation of the foregoing, the representations and warranties of the Company contained in this Agreement and the information set forth in the Disclosure Certificate do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained herein or therein not misleading. ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER The Company covenants and agrees that, prior to the Effective Time, unless Parent and Purchaser shall otherwise agree in writing, or except as disclosed in the Disclosure Certificate as of the date hereof or as otherwise expressly contemplated by this Agreement: -29- (a) Neither the Company nor any of the Subsidiaries or Joint Ventures shall take any action except in the ordinary course of business and consistent with past practices, and the Company shall use its best efforts to maintain and preserve its business organization, franchisee network, assets, prospects, employees and advantageous business relationships. (b) Neither the Company nor any of the Subsidiaries or Joint Ventures shall, directly or indirectly, do any of the following: (i) incur any expenses in contemplation of a reorganization or restructuring of the Company; (ii) amend its Certificate or Articles of Incorporation or Bylaws or similar organizational documents; (iii) split, combine or reclassify any shares of its capital stock or declare, set aside or pay any dividend or make any distribution, payable in cash, stock, property or otherwise with respect to its capital stock; (iv) transfer any stock or any assets or liabilities of any Subsidiary or Joint Venture except in the ordinary course of business and consistent with past practice; (v) adopt a plan of liquidation or resolutions providing for the liquidation, dissolution, merger, consolidation or other reorganization of the Company except the Merger; or (vi) authorize or propose any of the foregoing, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing. (c) Neither the Company nor any of the Subsidiaries or Joint Ventures shall, directly or indirectly: (i) issue, sell, pledge, encumber or dispose of, or authorize, propose or agree to the issuance, sale, pledge, encumbrance or disposition of, any shares of its capital stock or any other equity securities or any Rights of Purchase with respect thereto, except for Shares issuable upon exercise of Options outstanding on the date hereof and which by their terms are or become exercisable at or prior to the Effective Time; (ii) acquire (by merger, consolidation or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or make any material investment either by purchase of stock or securities, contributions to capital, property transfer or purchase of any material amount of property or assets, in any other individual or entity; (iii) other than as set forth in the Disclosure Certificate or other than indebtedness incurred from borrowings made pursuant to existing lending arrangements set forth in the Disclosure Certificate, incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee, endorse (other than to a Company account) or -30- otherwise as an accommodation become responsible for, the obligations of any other individual or entity, or make any loans or advances, including without limitation, advances to dealers or franchisees and guarantees of leases, regardless of whether made in the ordinary course of business or consistent with past practice; (iv) release or relinquish any Material Contract right; (v) settle or compromise any pending or threatened suit, action or claim by or against the Company involving a payment by the Company exceeding $25,000; (vi) take any action involving possible expenditures, contingent liabilities or the acquisition or disposition of assets other than the purchase or sale of inventory in the ordinary course of business, in each case in excess of $25,000; or (vii) authorize or propose any of the foregoing, or enter into or modify any contract, agreement, commitment or arrangement to do any of the foregoing. (d) Each of the Company and the Subsidiaries and Joint Ventures shall use its best efforts to keep in place its current insurance policies, including but not limited to director and officer liability insurance, which are material (either individually or in the aggregate); and notwithstanding such efforts, if any such policy is cancelled, the Company shall use its best efforts to replace such policy or policies. (e) Except in accordance with the provisions of this Article IV, neither the Company nor any of the Subsidiaries or Joint Ventures shall enter into any agreement or otherwise agree to do anything, which to the Company's best knowledge at the time of such action, would make any representation or warranty of the Company in this Agreement untrue or incorrect in any material respect as of the date hereof and as of the Closing. ARTICLE V ADDITIONAL AGREEMENTS 5.1 Proxy Statement. (a) As promptly as practicable after execution of this Agreement, the Company shall prepare a proxy statement for use in connection with the Special Meeting (the "Proxy Statement") and file a preliminary copy of the same with the Commission. The Company will notify the Parent and Purchaser promptly of the receipt of any comments from the Commission or its staff and of any request by the Commission or its staff for amendments or supplements to the Proxy Statement or for additional information and will supply the Parent and Purchaser with copies of all correspondence between the Company or any of its -31- representatives, on the one hand, and the Commission or its staff, on the other hand, with respect to the Proxy Statement or the Merger. If at any time prior to the Effective Time there shall occur any event that should be set forth in an amendment of, or supplement to, the Proxy Statement, the Company will promptly prepare and mail to its stockholders such an amendment or supplement. The Company will not distribute or file the Proxy Statement, or any amendment thereof or supplement thereto, to which the Parent and Purchaser reasonably objects; provided that the Company shall have the right to distribute or file any amendments or supplements required in the written opinion of counsel to the Company to be made by applicable law. The Company shall take all reasonable action required so that the Proxy Statement and all amendments and supplements thereto will comply as to form in all material respects with the provisions of the Exchange Act. (b) The Company shall cause the definitive Proxy Statement to be mailed to the Company's stockholders at the earliest practicable time. 5.2 Meeting of Stockholders of the Company. The Company shall promptly take all action necessary, in accordance with the Corporation Law, the Merger Law, and its Articles of Incorporation and Bylaws, to convene a special meeting of the stockholders of the Company as promptly as practicable to consider and vote upon the Merger pursuant to the terms of this Agreement (the "Special Meeting"). Neither the Company nor the Board of Directors shall take any action which would make any approval of the Merger necessary, other than the approval of the holders of Shares representing a majority of the outstanding Shares. The Proxy Statement shall contain at all times up to and including the date of the Special Meeting, the recommendation of the Board of Directors of the Company and of the Investment Committee that the stockholders of the Company vote to adopt and approve the Merger, subject to the right of the Investment Committee and the Board of Directors to withdraw such recommendations if, by a majority vote, either the Investment Committee or the Board of Directors in the exercise of its fiduciary duties makes a good faith judgment, based as to the legal issues involved on the written advice of legal counsel, that failure to withdraw such recommendation would constitute a breach of its fiduciary duties. Subject to such right of the Investment Committee and the Board of Directors to withdraw its recommendation of the Merger in accordance with the exercise of its fiduciary duties, the Company and the Board of Directors shall use their best efforts to obtain the necessary approvals of the stockholders of the Company and shall take all other action necessary or, in the reasonable judgment of the Parent and Purchaser, helpful to secure the vote or consent of stockholders of the Company. -32- 5.3 Cancellation of Stock Options and Stock Appreciation Rights; Certain Employee Terminations. (a) The Company shall cancel all outstanding Options issued pursuant to the Option Plans or otherwise to the extent required by Section 1.6 hereof, and shall comply with all requirements regarding income tax withholding in connection therewith. (b) The Company shall cancel and settle all SAR Agreements effective as of the Effective Date and shall comply with all requirements regarding income tax withholding in connection therewith. (c) The Company shall cause the Option Plans to be terminated effective as of the Effective Time and shall establish to the reasonable satisfaction of the Parent and Purchaser that no person or entity (whether or not a participant in any Option Plan or SAR Agreement) has or will have any right to acquire any interest in the Company, the Surviving Corporation or the Purchaser as a result of the exercise of Options, Stock Appreciation Rights or other Rights of Purchase on or after the Effective Time. (d) Effective as of the Effective Time, the Company shall terminate the employment of (i) John E. Siipola, as Chairman and a Member of the Office of Chief Executive Officer of the Company, and (ii) Horst K. Mehlfeldt, as Vice Chairman and Member of the Office of Chief Executive Officer of the Company. 5.4 Fees and Expenses. (a) Except as provided in Section 5.4(c), all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. (b) (i) If this Agreement is terminated (A) by Purchaser and the Parent pursuant to Section 8.1(b)(ii) or 8.1(d)(iii), but limited only to a termination based solely on a failure of the condition set forth in Section 6.2(b) or the failure by the Company to fulfill any of its obligations hereunder, or (B) by the Company pursuant to Section 8.1(c)(iii), or (C) by Purchaser and the Parent pursuant to Section 8.1(d)(i), 8.1(d)(ii), or 8.1(d)(iv), and (ii) within one year from the date of this Agreement (A) any corporation, partnership, person, entity or "group" (as that term is used in Section 13(d)(3) of the Exchange Act), including the Company or any of the Subsidiaries but excluding Parent, the Purchaser or any of their affiliates and excluding any group of which Parent, the Purchaser or any of their affiliates is a member ("Another Person"), shall have acquired or agreed to acquire all or a substantial portion of the assets of the Company or consummated or agreed to -33- consummate a merger or consolidation with, or other acquisition of, the Company, (B) Another Person shall have acquired or agreed to acquire beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of 35% or more of the Shares then outstanding, or (C) a "change in control," within the meaning of Item 1 of Form 8-K under the Exchange Act, of the Company involving Another Person shall have occurred, the Company shall, within five business days after consummation of the transaction referred to in clause (ii) above, pay to Parent and Purchaser (by transfer of same-day funds to an account designated by Parent for such purpose) an amount equal to $1,000,000, less any funds paid by the Company to the Parent or Purchaser pursuant to Section 5.4(c); provided such amount shall be payable by the Company with respect to any such transaction only if (y) the transaction provides for the Company or the holders of any Shares being purchased in such transaction to receive consideration per Share having an indicated value per Share which is equal to or greater than the Merger Consideration (as the same may have been reduced as provided in Section 1.7), or (z) the amount of consideration received or to be received in such transaction is not readily determinable on a per Share basis and the Investment Committee or another committee of disinterested members of the Board of Directors of the Company fails to make a good faith determination that, to the stockholders of the Company from a financial point of view, the transaction is not comparable to the Merger or more favorable than the Merger. (c) If this Agreement is terminated (i) by Purchaser and the Parent pursuant to Section 8.1(b)(ii) or 8.1(d)(iii), but limited only to a termination based solely on (A) a failure of the condition set forth in Section 6.2(b) otherwise than by an act of God occurring subsequent to the date of this Agreement, or (B) the failure by the Company to fulfill any of its obligations hereunder, or (ii) by the Company pursuant to Section 8.1(c)(iii), or (iii) by Purchaser and the Parent pursuant to Section 8.1(d)(i), 8.1(d)(ii), or 8.1(d)(iv), the Company will, within five business days after notice by the Parent and the Purchaser to the Company, reimburse the Parent and the Purchaser for all reasonable out-of-pocket costs and expenses (including, without limitation, reasonable commitment fees, reasonable termination fees, reasonable attorney fees and expenses incurred by potential lenders which the Parent or Purchaser is obligated to reimburse, and other fees and expenses incurred in connection with arranging financing for the Merger, legal fees and expenses, appraisal fees, fees and expenses of financial advisors and fees and expenses of accountants) incurred by the Purchaser or Parent or on their behalf in connection with the preparation or negotiation of this Agreement or of the transactions contemplated hereby or otherwise incurred in contemplation of this Agreement, the Merger or the other transactions contemplated by this Agreement; -34- provided that (y) the Company shall not be obligated to pay any additional amounts under this Section 5.4(c) if Parent and Purchaser have been paid the amount provided in Section 5.4(b) above, and (z) the Company shall have the right to review all expense receipts (other than receipts which contain privileged or confidential information). (d) Notwithstanding anything to the contrary set forth in Section 5.4(c), the Company shall not be obligated to pay any amounts under Section 5.4(c) if this Agreement is terminated by the Purchaser and the Parent pursuant to Section 8.1(d)(iii) as a result of the failure by Parent and Purchaser to (i) approve the terms and conditions of either (y) any employment agreement described in Section 6.2(g) pursuant to which the employee would receive a salary and incentive bonus opportunities which are substantially similar to those presently afforded to him as an employee of the Company, or (z) any indemnification and release contemplated by Section 6.2(o) that contains provisions which are not inconsistent with those set forth in paragraph 5 of the letter of intent between Parent and the Company, dated March 13, 1996 and thereafter amended (the "Letter of Intent"); or (ii) fulfill the condition set forth in Section 6.2(c). 5.5 Further Assurances. Subject to the terms and conditions herein provided, including those contained in Section 5.6, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, and to cooperate with each other in connection with the foregoing, including, but not limited to, using reasonable efforts (a) to obtain all necessary waivers, consents and approvals from other parties to Material Contracts, (b) to obtain all necessary consents, approvals and authorizations as are required to be obtained under any federal, state or foreign law or regulations, (c) to defend all lawsuits or other legal proceedings challenging this Agreement or the transactions contemplated hereby, (d) to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby, (e) to effect all necessary filings, including, but not limited to, filings with the Commission, under the Hart-Scott-Rodino Act and under the rules or regulations of any other governmental authorities, (f) to fulfill all conditions to this Agreement and to any agreements related to the financing contemplated by Section 6.2(c), and (g) to keep the other parties reasonably apprised of the status of all such efforts. -35- 5.6 No Solicitation. (a) The Company, each Subsidiary, and their respective directors, officers, and authorized agents shall not, and shall not authorize or direct any other person to, directly or indirectly, (i) participate in discussions or negotiations with or provide any confidential information regarding the Company to any person for the purpose of soliciting, encouraging, or enabling Another Person to propose an acquisition of any of the capital stock of the Company (other than pursuant to the presently outstanding Options) or all or any substantial portion of the assets or business of the Company (collectively, an "Acquisition Proposal"), or (ii) solicit from, encourage, negotiate with, or accept from Another Person an Acquisition Proposal. (b) Notwithstanding the foregoing, if the Board of Directors of the Company, in the exercise of its fiduciary duties, makes a good faith determination that the Board of Directors' failure to permit the Company to take any action described in Section 5.6(a) would constitute a breach of its fiduciary duties (based as to the legal issues involved on the written opinion of legal counsel), the Company shall so advise Parent and Purchaser and, thereafter, the taking of any such action shall not be a violation of Section 5.6(a). In the event that the Company receives an Acquisition Proposal or any communication with respect thereto from Another Person or in the event that the Company takes any action described in Section 5.6(a), the Company shall immediately give to Parent and Purchaser written notice of the substance of such Acquisition Proposal or communication, or the nature and substance of the information furnished or the action taken, as the case may be, and thereafter keep Parent and Purchaser fully informed with respect thereto. 5.7 Notification of Certain Matters. The Company shall give prompt notice to the Parent and Purchaser, and the Parent and Purchaser shall give prompt notice to the Company, of (a) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Effective Time, (b) any material failure of the Company or the Parent or Purchaser or any of their respective affiliates, as the case may be, or of any of their respective officers, directors, employees or agents, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement, (c) any material claims, actions, proceedings or investigations commenced or, to the best of its or their knowledge, threatened, involving or affecting the Company or any of the Subsidiaries or Joint Ventures or any of -36- their properties or assets, or, to the best of its or their knowledge, against any employee, consultant, director, officer or stockholder of the Company or any of the Subsidiaries or Joint Ventures, in his, her or its capacity as such and (d) any material adverse change in the condition (financial or otherwise), business or prospects of the Company and the Subsidiaries and Joint Ventures, taken as a whole, or the occurrence of an event known to the Company which, so far as reasonably can be foreseen at the time of its occurrence, would result in any such change; provided, however, that no such notification shall affect the representations or warranties of the parties or the conditions to the obligations of the parties hereunder. 5.8 Access to Information. From the date hereof to the Effective Time, the Company shall, and shall cause the Subsidiaries and Joint Ventures and the officers, directors, employees and agents of the Company and each Subsidiary and Joint Venture to, afford the officers, employees, advisors and agents of the Parent or Purchaser and the banks or other financial institutions arranging or providing the financing contemplated by Section 6.2(c) (collectively, the "Representatives") complete access at all reasonable times to its officers, employees, agents, properties, books, records and contracts, and shall furnish the Parent, Purchaser, and the Representatives with such operating and other data and information as they may reasonably request. Subject to the requirements of law, the Parent and Purchaser shall, and shall use reasonable efforts to cause the Representatives to, hold in confidence and not use all such nonpublic information until such time as such information is otherwise publicly available other than through a breach of this Section 5.8, and, if this Agreement is terminated, the Parent and Purchaser will, and will use reasonable efforts to cause the Representatives to, deliver to the Company all documents, work papers and other material (including copies, extracts and summaries thereof) obtained by or on behalf of any of them directly or indirectly from the Company as a result of this Agreement or in connection herewith, whether so obtained before or after the execution hereof. No investigation pursuant to this Section 5.8 shall affect any representations or warranties of the parties herein or the conditions to the obligations of the parties hereto. 5.9 Directors' Indemnification. The Parent and the Surviving Corporation will enter into Indemnification Agreements, substantially in the form set forth in Exhibit A hereto (with such changes therein as the Company and the Purchaser may agree) with each present director of the Company as of the Effective Time. The Company shall, to the fullest extent permitted under applicable law and regardless of whether the Merger becomes effective, provide like indemnification -37- for each present and former director and officer of the Company or any of the Subsidiaries, including, without limitation, each member of the Investment Committee; provided, however, that such indemnification shall not be available to those officers of the Company specified in Section 6.2(m) for liability incurred as a result of such officer's knowledge that his Certificate under Section 6.2(m) was false in any material respect when executed. ARTICLE VI CONDITIONS 6.1 Conditions to Obligation of Each Party to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Closing of the following conditions: (a) Stockholder Approval. The Merger pursuant to the terms of this Agreement shall have been approved and adopted by the requisite vote of the stockholders of the Company. (b) Hart-Scott-Rodino Act. Any waiting period (and any extension thereof) applicable to the consummation of the Merger under the Hart-Scott-Rodino Act shall have expired or been terminated. (c) No Injunction or Proceedings. No preliminary or permanent injunction or other order, decree or filing issued by a court of competent jurisdiction or by a governmental agency or commission, nor any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, shall be in effect which materially adversely affects the Merger, and no suit, action, or proceeding shall be pending by or with any court or other governmental agency which seeks to have declared illegal or would make illegal or otherwise prevent the consummation of the Merger or seeks damages with respect thereto. (d) Consents. The Company, Parent, and the Purchaser shall have obtained such licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and parties to Material Contracts as are necessary for consummation of the Merger, excluding licenses, permits, consents, approvals, authorizations, qualifications or orders which the failure to obtain will not, in the aggregate, have a Material Adverse Effect. -38- (e) Fairness Opinion(s). If requested by the Company prior to the Mailing Date, the Company shall have received from PaineWebber Incorporated a written opinion addressed to the Company for inclusion in the Proxy Statement that the Merger Consideration is fair, from a financial point of view, to the stockholders of the Company (the "Fairness Opinion"). Such Fairness Opinion, if any, and the fairness opinion delivered to the Company by PaineWebber Incorporated on November 14, 1995 shall not have been withdrawn. 6.2 Additional Conditions to the Obligation of the Parent and Purchaser to Effect the Merger. The obligation of the Parent and Purchaser to effect the Merger is also subject to the satisfaction at or prior to the Closing of the following additional conditions, unless waived by the Parent and Purchaser: (a) Performance of Obligations of the Company. The Company shall have performed in all material respects all obligations and agreements required to be performed by it under this Agreement prior to the Effective Time. (b) Representations and Warranties. The representations and warranties of the Company set forth in this Agreement which are qualified as to materiality shall be true and correct, and any such representations and warranties not so qualified shall be true and correct in all material respects, at and as of the time of the Closing as if made at and as of such time, except as expressly contemplated by this Agreement. (c) Financing. The Parent and Purchaser shall have obtained financing or other sources of funds necessary to pay the aggregate Merger Consideration and to replace certain of the existing indebtedness of the Company on terms acceptable to Parent in its sole discretion. (d) Cancellation of Stock Options and SARs. The Company shall have cancelled and settled all Options and Stock Appreciation Rights as required by Sections 1.6 and 5.3(a) and (b). (e) Redemption of Rights. The Company shall have taken all necessary actions to cause the Rights to be extinguished or redeemed effective at the Effective Time. (f) Compliance with the Nevada Business Combination Statute. The Purchaser shall be satisfied in its sole discretion that the Board of Directors of the Company shall have taken all actions required under the Corporation Law to render the restrictions on combinations with interested stockholders of Section 78.438 of such Law inapplicable to the Merger. -39- (g) Employment Agreements. Employment agreements between the Company and each of Messrs. Steven P. Cloward, John B. Adams, and Thomas L. Staker, upon terms and conditions acceptable to Parent and Purchaser, shall be in full force and effect. Such terms and conditions shall include, in the case of Mr. Cloward, his agreement to the cancellation and settlement of his Stock Appreciation Rights in consideration for the execution of the employment agreement. (h) Post-September 30 Transaction Expenses. The Company shall have furnished to Parent and Purchaser a true and complete list of the Company's Post-September 30 Transaction Expenses, together with letters or other correspondence from each Interested Party to whom such Expenses were paid or are payable, which letters or other correspondence shall confirm the amount thereof and that the Company has no other liability or obligation to such Interested Party except as the Parent and Purchaser shall have consented to in writing. (i) Legal Opinion(s). Parent and Purchaser shall have received an opinion of Lionel Sawyer & Collins or Hopper and Kanouff, counsel to the Company, dated the Closing Date and addressed to Parent and Purchaser, substantially in the form of Exhibit B to this Agreement. (j) Resignations and Releases. Parent and Purchaser shall have received letters of resignation, effective as of the Closing, executed and tendered by (i) each of the then incumbent directors of the Company and the Subsidiaries, (ii) any non-employee officers of the Company and the Subsidiaries, and (iii) Messrs. Siipola and Mehlfeldt, as required by Section 5.3(d) hereof. Each such resignation shall contain an acknowledgment that the director or officer has been paid all amounts owing to him by the Company or any Subsidiary in connection with his services as a director or officer and, in the cases of Messrs. Siipola and Mehlfeldt, as an employee of the Company or any Subsidiary (including without limitation, severance obligations), and shall release the Company and the Subsidiaries from any further liability of any nature whatsoever to the director, officer, and/or employee, except as otherwise provided in Section 5.9 of this Agreement. -40- (k) Dissenter's Rights. The number of Shares as to which dissenters' rights shall have been properly asserted and not withdrawn or forfeited under applicable law shall not exceed 5% of the then outstanding Shares. (l) Transfer Agent Certificate. Parent shall have received a certificate of the Company's transfer agent, dated the Closing Date, setting forth the number of issued and outstanding Shares. (m) Officers' Certificates. The Company shall have furnished to Parent and Purchaser Certificates, signed on behalf of the Company by Messrs. Siipola, Mehlfeldt and Cloward, as members of its Office of Chief Executive Officer, and by Mr. Adams, its Chief Financial Officer, and by each of them individually, that each such person has made reasonable inquiry and based thereon certifies that, to the best of his knowledge and belief, the conditions set forth in Sections 6.2(a) and (b) have been satisfied as of the Closing Date and that he understands that Parent and Purchaser are relying thereon in consummating the Merger. Each such officer shall have no liability to Parent or Purchaser after the Closing except to the extent, if any, that he knew that a matter, as represented, was false in any material respect when his Certificate was delivered. (n) Accountant's Update Letter. At the Closing, Parent and Purchaser shall have received a letter from Deloitte & Touche, dated the Closing Date and addressed to Parent and Purchaser, which sets forth the results of the procedures conducted by Deloitte & Touche on the financial statements of the Company in accordance with S.A.S. No. 72 and 76 with respect to the period from the last day of the then most recently completed fiscal quarter for which the Company has filed a Quarterly Report on Form 10-Q with the Commission, to a specified date not more than five business days prior to the Effective Time. (o) BOTI Release. The Company and BOTI shall have executed a full and final settlement and release with respect to all matters between them. In connection therewith, the Company may agree to indemnify BOTI and their directors, officers, stockholders, and agents (collectively, the "Indemnified Parties") in connection with any legal proceedings relating to or arising out of the Prior Merger Agreement, its termination, or the proposed acquisition of the Company by Parent which are brought against the Company by any stockholder of the Company who is not an Indemnified Party and in which such Indemnified Party is joined as a party, provided that the Indemnified Party has not engaged in any wrongful act or omission in that connection, that the Company is given prompt notice of the involvement of such Indemnified Party, and the Company has -41- been given control of the representation of such Indemnified Party therein and the full cooperation of such Indemnified Party. Such indemnification may not extend to amounts or claims which would be Prior Transaction Costs or which arise under any contract or agreement to which the Company is not a party. The form of the indemnification shall have been approved by Parent prior to its execution by the Company, and BOTI shall have agreed that all prior indemnification obligations of the Company to BOTI and/or the Indemnified Parties will be superseded by the indemnification contemplated by this Section. The Company shall also obtain BOTI's agreement that Parent shall have no liability of any nature whatsoever to BOTI in any event, including without limitation, in the event that the Merger is not consummated. (p) Other Documents. Parent and Purchaser shall have received such other certificates and documents (customary in similar transactions) relating to the satisfaction of the conditions to the obligations of Parent and Purchaser as either of them or their counsel shall have reasonably requested. (q) Approval of Documents. All certificates, agreements, instruments, and other documents required by this Agreement to be delivered by the Company or any Subsidiary to Parent and Purchaser at the Closing shall have been approved by counsel for Parent and Purchaser, which approval shall not be unreasonably withheld. 6.3 Additional Condition to the Obligation of the Company to Effect the Merger. The obligation of the Company to effect the Merger shall be subject to the condition that the Parent and Purchaser shall have made the deposit described in Section 1.8(a). ARTICLE VII CLOSING 7.1 Time and Place. The Closing shall take place at the offices of Holme Roberts & Owen LLC, 1700 Lincoln, Denver, Colorado, at 2:00 p.m., local time, as soon as practicable after satisfaction or waiver of all of the conditions contained in Article VI or at such other place or at such other time as Parent and the Company may mutually agree (the date of the Closing being referred to herein as the "Closing Date"). 7.2 Deliveries at the Closing. At the Closing, Parent, Purchaser and the Company shall cause the Articles of Merger to be filed in accordance with the applicable provisions of the Merger Law and shall take any and all other lawful actions and do all other lawful things called for by this Agreement or necessary to cause the Merger to become effective and to consummate the transactions contemplated by this Agreement. -42- ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER 8.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether prior to or after approval of the Merger by the stockholders of the Company: (a) By mutual written consent of the Boards of Directors of the Parent, the Purchaser, and the Company (which, in the case of the Company, shall include the approval of the Investment Committee); or (b) By the Company or the Parent and Purchaser if (i) the Effective Time shall not have occurred on or before July 31, 1996, or (ii) any of the conditions set forth in Section 6.1 hereof shall not be met at the Effective Time; provided, however, that the right to terminate this Agreement under this Section 8.1(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date. (c) By the Company: (i) If the Parent or Purchaser fails to perform in any material respect any of its obligations under this Agreement; (ii) If the representations and warranties of the Parent and Purchaser set forth in this Agreement are not true and correct in any material respect at any time prior to the Effective Time; (iii) If the Company's Board of Directors, in the exercise of its fiduciary duty under the circumstances described in Section 5.2, shall withdraw its recommendation to the stockholders of the Company to adopt and approve the Merger or change such recommendation in any manner adverse to Parent and Purchaser; -43- (iv) If, at least three business days prior to the Mailing Date, the Parent and Purchaser shall have failed to deliver to the Company copies of executed commitment letters relating to the financing described in Section 6.2(c); or (v) If the condition set forth in Section 6.3 hereof shall not be satisfied at the Effective Time. (d) By the Parent and Purchaser: (i) If the Company takes any action described in Section 5.6(a), regardless of whether Section 5.6(b) permits the taking of such action in the exercise of the fiduciary duties of the Company's Board of Directors; (ii) If there occurs, or the Company enters into or publicly announces its intention to enter into an agreement with Another Person to cause to occur, a transaction of the type described in clauses (i), (ii) or (iii) of Section 5.4(b) hereof, or Another Person shall have commenced or publicly announced an intention to commence a tender or exchange offer for the Company's Shares; (iii) If any of the conditions set forth in Section 6.2 hereof shall not be satisfied at the Effective Time; or (iv) If the Company's Post-September 30 Transaction Expenses, less the total amount by which the aggregate Merger Consideration payable for all Shares was previously reduced pursuant to Section 1.7, exceed $1,900,000. 8.2 Effect of Termination. In the event of the termination of this Agreement as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of the Company or Parent and Purchaser or their affiliates except (i) as set forth in Sections 5.4 and 5.8, and (ii) that a party shall be liable for willful defaults of its obligations hereunder. Notwithstanding the foregoing, if this Agreement is terminated by the Company pursuant to Section 8.1(c)(iv) or (c)(v), neither Parent nor Purchaser nor their affiliates shall be liable to the Company as a result thereof if Parent and Purchaser were unable to obtain financing or other -44- sources of funds necessary to pay the aggregate Merger Consideration and to replace certain of the existing indebtedness of the Company on terms acceptable to Parent in its sole discretion or, in the case of any termination pursuant to Section 8.1(c)(iv), commitments for the same. 8.3 Amendment. This Agreement may not be amended except by action of the Boards of Directors of each of the parties hereto (which, in the case of the Company, shall include the approval of the Investment Committee) set forth in an instrument in writing signed on behalf of each of the parties hereto; provided, however, that after approval of the Merger by the stockholders of the Company, no amendment may be made without the further approval of the stockholders of the Company which would alter or change any of the terms or conditions of this Agreement if any of the alterations or changes, alone or in the aggregate, would materially adversely affect the stockholders of the Company. 8.4 Waiver. At any time prior to the Effective Time, whether before or after approval of the Merger by stockholders of the Company, any party hereto, by action taken by its Board of Directors (which, in the case of the Company, shall include the approval of the Investment Committee), may (i) extend the time for the performance of any of the obligations or other acts of any other party hereto or (ii) subject to the provision contained in Section 8.3, waive compliance with any of the agreements of any other party or with any conditions to its own obligations. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party by a duly authorized officer. ARTICLE IX GENERAL PROVISIONS 9.1 Public Statements. The parties agree to consult with each other and their respective counsel prior to issuing any press release or public announcement with respect to this Agreement, the Merger, or the transactions contemplated hereby. Each shall use all reasonable efforts to give to the other parties sufficient opportunity to review any such press release or other public announcement in advance of release. 9.2 Notices. All notices and other communications hereunder shall be in writing, shall be delivered personally or sent by U.S. mail, telecopy, or overnight delivery service, to -45- the parties at the following addresses or at such other addresses as shall be specified by the parties by like notice, and shall be deemed given when received by the party for whom intended: (a) If to Parent or the Purchaser: TBC Corporation 4770 Hickory Hill Drive P.O. Box 18342 Memphis, Tennessee 38181-0342 Attn: Louis S. DiPasqua Fax #: (901) 541-3639 with a copy to: Thompson Hine & Flory P.L.L. 2000 Courthouse Plaza N.E. P.O. Box 8801 Dayton, Ohio 45401-8801 Attn: Stanley A. Freedman, Esq. Fax #: (513) 443-6635 (b) If to the Company: Big O Tires, Inc. 11755 East Peakview Avenue Englewood, Colorado 80111 Attn: John E. Siipola Fax #: (303) 790-0225 with a copy to: Holme Roberts & Owen 1700 Lincoln Suite 4100 Denver, Colorado 80203 Attn: W. Dean Salter, Esq. Fax #: (303) 866-0200 and Hopper and Kanouff, P.C. 1610 Wynkoop Street, Suite 200 Denver, Colorado 80202 Attn: Thomas S. Smith, Esq. Fax #: (303) 892-0457 The sending party shall have the burden of proving receipt. -46- 9.3 Interpretation. As used in this Agreement, (i) the masculine, feminine and neuter genders and the plural and singular numbers shall be deemed to include the others in all cases where they would so apply; and (ii) the phrase "to the best knowledge" of any party shall mean to the knowledge of such party after due and appropriate inquiry. 9.4 Representations and Warranties. The respective representations and warranties of the Company and the Parent and Purchaser contained herein shall expire with, and be terminated and extinguished upon, consummation of the Merger, and thereafter neither the Company nor the Parent or the Purchaser nor any officer, director, or employee thereof shall be under any liability whatsoever with respect to any such representation or warranty, except the persons named in Section 6.2(m) to the extent, if any, that the Certificate of any such person described therein was known by such person to be false when it was made or delivered to Parent or Purchaser. 9.5 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 9.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto. 9.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 9.8 Miscellaneous. This Agreement (including the Exhibits, the Disclosure Certificate and instruments referred to herein): (i) constitutes the entire agreement and supersedes all other prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof, including without limitation, the Letter of Intent; (ii) except for Section 5.9 hereof, is not intended to confer upon any person other than a party hereto any rights or remedies hereunder; (iii) shall not be assigned, except by the Purchaser or Parent to a directly or indirectly wholly owned subsidiary of the Purchaser or Parent which, in a written instrument shall agree to assume all of such party's obligations hereunder and be bound by all of the terms and conditions of this Agreement; and (iv) shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of Nevada, without giving effect to the principles of conflict of laws thereof. -47- IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused this Agreement to be executed as of the date first written above by their duly authorized respective officers. PARENT: TBC CORPORATION By:/s/ Louis S. DiPasqua Louis S. DiPasqua, President and Chief Executive Officer PURCHASER: TBCO ACQUISITION, INC. By:/s/ Louis S. DiPasqua Louis S. DiPasqua, President COMPANY: BIG O TIRES, INC. By:/s/ John E. Siipola John E. Siipola, Chairman and Member of the Office of Chief Executive Officer And:/s/ Horst K. Mehlfeldt Horst K. Mehlfeldt, Vice Chairman and Member of the Office of Chief Executive Officer And:/s/ Steven P. Cloward Steven P. Cloward, President and Member of the Office of Chief Executive Officer -48- EX-2 3 FAIRNESS OPINION OF PAINEWEBBER November 14, 1995 Board of Directors Big O Tires, Inc. 11755 East Peakview Avenue Englewood, Colorado 80111 Gentlemen: Big O Tires, Inc. (the "Company") has entered into an Agreement and Plan of Merger, dated as of July 24, 1995 (the "Agreement"), with BOTI Holdings, Inc. ("Parent") and BOTI Acquisition Corp. ("Purchaser"), a wholly owned subsidiary of Parent. Pursuant to the Agreement, Purchaser will merge with and into the Company (the "Merger") and, at the effective time of the Merger, each outstanding share (other than Excluded Shares (as hereinafter defined)) of common stock, par value $.10 per share, of the Company (the "Common Stock") will be converted into the right to receive $16.50 in cash, without interest (the "Merger Consideration"). "Excluded Shares" means shares of Common Stock that are (i) held by certain members of the Company's senior management, (ii) held by certain participants in the Company's Employee Stock Ownership Plan or (iii) held by, or under contract to be acquired by: (A) the Company, Parent or Purchaser, (B) their respective direct or indirect subsidiaries or (C) any stockholder or affiliate of Parent or Purchaser. You have asked us whether or not, in our opinion, the Merger Consideration is fair, from a financial point of view, to the holders of Common Stock (other than holders of Excluded Shares). In arriving at the opinion set forth below, we have, among other things: (1) Reviewed, among other public information, the Company's Annual Reports, Forms 10-K and related financial information for the five fiscal years ended December 31, 1994 and a draft of the Company's Form 10-Q and the related unaudited financial information for the nine months ended September 30, 1995; (2) Reviewed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets and prospects of the Company, furnished to us by the Company; (3) Conducted discussions with members of senior management of the Company concerning its businesses and prospects; (4) Reviewed the historical market prices and trading activity for the Common Stock and compared such price and trading history with that of certain other publicly traded companies which we deemed relevant; (5) Compared the financial position and operating results of the Company with those of certain other publicly traded companies which we deemed relevant; (6) Reviewed the proposed financial terms of the Merger and compared such terms with the financial terms of certain other mergers and acquisitions which we deemed relevant; (7) Reviewed the Agreement and a draft of the proxy statement relating to the Merger (the "Proxy Statement") as proposed to be filed with the Securities and Exchange Commission; and (8) Reviewed such other financial studies and analyses and performed such other investigations and took into account such other matters as we deemed appropriate, including our assessment of general economic, market and monetary conditions. In preparing our opinion, we have relied on the accuracy and completeness of all information that was publicly available or supplied or otherwise communicated to us by or on behalf of the Company, and we have not independently verified such information. We have assumed that the financial forecasts examined by us were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of the Company as to the future performance of the Company. We have not undertaken, and have not been provided with, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company and have assumed that all material liabilities (contingent or otherwise, known or unknown) of the Company are as set forth in the Company's consolidated financial statements. We have, at the request of the Company, solicited third party indications of interest with respect to the acquisition of the Company. Our opinion is based on the regulatory, economic, monetary and market conditions existing on the date hereof. Our opinion is directed to the Board of Directors of the Company and does not constitute a recommendation to any shareholder of the Company as to how any such shareholder should vote with respect to the Merger. This opinion does not address the relative merits of the Merger and any other potential transactions or business strategies discussed by the Board of Directors of the Company or the Investment Committee thereof as alternatives to the Merger or the decision of the Board of Directors of the Company to proceed with the Merger. This opinion has been prepared solely for the use of the Board of Directors of the Company and shall not be reproduced, summarized, described or referred to, or given to any other person or otherwise made public without the prior written consent of PaineWebber Incorporated; provided, however, that this letter may be reproduced in full in the Proxy Statement. PaineWebber Incorporated is currently acting as financial advisor to the Investment Committee in connection with the Merger and will receive a fee upon delivery of this opinion and upon consummation of the Merger. We may provide financial advisory or other investment banking services to the Company in the future. In the ordinary course of our business, we may trade the securities of the Company for our own account and for the accounts of our customers and, accordingly, may at any time hold long or short positions in such securities. On the basis of, and subject to the foregoing, we are of the opinion that, as of the date hereof, the Merger Consideration is fair, from a financial point of view, to the holders of Common Stock (other than holders of Excluded Shares). Very truly yours, PAINEWEBBER INCORPORATED /s/ PaineWebber Incorporated -----END PRIVACY-ENHANCED MESSAGE-----